ESTATE PLANNING WITH TRUSTS
Many people have preconceived notions about trusts and believe that they are only for multimillionaires who wish to leave large trust funds to their children. Not true. The reality is trusts can be an invaluable tool for millions of peoples’ estate plans.
What is a Trust?
In an estate plan, a trust is created by the person doing the estate planning (the Settlor/Trustor), who authorize another person (the Trustee) to manage the assets for the benefit of a third party (the Beneficiaries). There are many reasons for establishing trusts including tax minimization or providing for the needs of underage beneficiaries or avoiding probate or providing a greater level of control than a will based.
What is a Revocable Trust or Living Trust?
A properly drafted Revocable living trust is a powerful estate planning tool that gives you control of your assets during and beyond your lifetime, during incapacity, and a greater amount of options of how someone will or can receive property than a will alone.
A Revocable Trust may also be called a Living Trust, Family Living Trust, Revocable Family Trust among many other names. A Revocable Trust can hold legal title to your assets and provides a way to manage them during your life, incapacity, and beyond. You would serve as the trustee and beneficiary of your trust during your lifetime. You also designate successor trustee(s) (or backup trustees) to carry out your instructions and wishes for your assets and distributions upon incapacity or death.
For maximum result, your Living Trust needs to receive your assets during your lifetime. Our knowledgeable attorneys can review your estate plan and educate you on how to ensure your wishes will be fulfilled. Call us today at 623-236-2476 for a free evaluation.
The fact that it is “revocable” means that you can make changes to it or even terminate it at any time.
What are the advantages of having a Living Trust?
Similar to a will, a Living Trust is a legal document that provides for the management and distribution of your assets after you pass away. However, a Living Trust has certain advantages when compared to a will.
Trust Advantages over a standalone will (WARNING: Trust must be properly funded and drafted)
1) Immediate transfer of assets after death without court interference.
2) Avoids Court Conservatorship process if you become incapacitated.
3) Avoids a potentially expensive and time consuming public probate process.
4) Keeps your personal finances and wishes private.
5) Gives you more options and greater control, more flexibility, greater efficiency while keeping your business private.
Will I lose any control over my property if I have a Revocable Living Trust?
Transferring your assets to a Revocable Living Trust will generally not affect your ability to control those assets. Our trusts give you complete control over your assets while you are mentally competent during your lifetime. As the trustee of your trust, you can use, buy, sell, and manage your property the just like you did before it was in your Trust.
Will my Revocable Living Trust negatively affect my income taxes?
No. The Revocable Living Trust we will create for you does not negatively affect your income taxes. You have the benefits of control and probate avoidance while not changing how you file your taxes. For example, if you filed a 1040 before your trust, you can continue to file a 1040 with your Trust. No new Tax Identification Numbers are needed because a Living Trust is revocable. Since your trust is revocable it can be modified at any time or even completely revoked.
Can I make changes to a Revocable Living Trust?
Yes. The Revocable Living Trust, our skilled attorneys will make for you can be modified at any time or even completely revoked. However, upon your passing, the Living Trust can no longer be modified and the successor trustee(s) you have designated will then proceed to implement your wishes as directed.
Will my Trust work if I become incapacitated?
Yes. Upon your incapacity, the individuals you designate will be able to transact on your behalf according to the instructions you have laid out in the Living Trust.
Do I have to transfer all my assets to my Living Trust?
It will depend on the asset. Assets with beneficiary designations such as a life insurance policy or annuity payable directly to a named beneficiary need not be transferred to your Living Trust. Furthermore, money from IRAs, Keoghs, 401(k) accounts and most other retirement accounts transfer automatically, outside probate, to the persons named as beneficiaries. Bank accounts that are set up as payable-on-death account (POD for short) or an “in trust for” account (a “Totten Trust”) with a named beneficiary also pass to that beneficiary without having to be titled into your trust. It is important, however, to seek the counsel of an experienced estate planning attorney who can educate you on and help with transferring necessary assets to your trust. Call us today at 623-236-2476 to connect to a knowledgeable Attorney.
If I transfer title to real property to my Living Trust can the bank accelerate my mortgage?
Federal law prohibits financial institutions from calling or accelerating your loan when you transfer property to your living trust as long as you continue to live in that home. The only exception to the federal law, enacted as part of the 1982 Garn-St. Germain Act is that it does not provide for such protection for residential real estate with more than five dwelling units.
Are all Trusts the same? A Trust is, a trust is, a trust, Right?
No. There are as many types of trusts as there are individuals’ situations. Unfortunately, there are computer programs, online “estate planning” websites, local document preparers, and even some law offices that use the same trust for different people.
Trusts can and likely should vary on a number of issues:
- What assets will be held by the trust?
Real Estate, IRAs, Bank Accounts, Businesses, etc.
- Who will be your beneficiaries?
Charities, Minor Children, Special Needs Children, someone obtaining government benefits, Someone with creditor issues, etc.
What is your family dynamic?
Married, Partnership, or not married; communal, non-communal children, etc. A 50-year single marriage couple with only communal children should not have the same plan as a couple with non-communal. A non-married couple should not have the same plan as a single person.
The exact strategies employed by us vary depending on the client, the nature of the assets, the country of origin, and the tax regulations that apply to those assets. The ultimate goal is to protect the status of current assets in a manner that is effective, legal and ethical. For a FREE evaluation to find out what plan is right for you call us today at 623-236-2476.
Some types of trusts that may be useful in estate planning are:
• Trusts for minors.
• Special needs trusts.
• Marital trusts.
• Revocable living trusts.
• Irrevocable life insurance trusts.
• Spendthrift trusts.
• IRA Beneficiary Trust/ Defined Benefit Plan Trusts.
• A/B or A/B/C Trust
• Credit Shelter Trust
• Qualified Personal Residence Trust (QPRT).
• Trusts for minors. Many people leave money to their children or their grandchildren in a trust as part of a comprehensive estate plan. This is typically done to ensure the money is there for the children’s benefit while they are younger – for support, education, medical expenses, etc. Once the children reach a certain age or achievement level (such as obtaining a bachelor’s degree), they may receive money from the trust to do with as they please.
• Special needs trusts. Special needs trusts are tools that enable a person to leave property to an individual with special needs. Many individuals with special needs receive government benefits. If they were to suddenly inherit money, they would be disqualified in most cases from those benefits until the inheritance was spent. Special needs trusts protect those individuals’ government benefits while allowing them to have money for any extras they may need.
• Marital trusts. Married couples sometimes include trusts in their wills, or separately, for the benefit of their spouse, typically for two reasons: (1) taxes, and (2) property protection. In previous years, marital trusts were needed for some couples to take advantage of estate tax exemptions, and they may be needed in the future as the laws are expected to change. Marital trusts can also protect property from a spouse to ensure that it ultimately goes where it needs to go. For example, a husband with grown children from a previous marriage may decide to let his wife use his property after he passes, but puts it into a trust so that after she passes away it goes to his children
• Revocable living trusts. Revocable living trusts are documents completely separate from wills although they often work hand in hand with wills to carry out the decedent’s wishes. Revocable living trusts are primarily used to avoid probate in states where probate is particularly cumbersome, or in a few other instances, such as when a person owns real estate in multiple states.
• Irrevocable life insurance trusts. Irrevocable life insurance trusts (or ILIT’s) can be used in order to move a person’s life insurance proceeds outside his or her estate for estate tax purposes. (learn more) Link to Estate Tax
• Spendthrift trusts. Spendthrift trusts are generally established to protect the beneficiaries’ assets from both themselves and creditors. These trusts usually have an independent trustee which has complete discretion over the distribution of assets of the trust.
• Credit Shelter or A/B or A/B/C Trust. Credit Shelter Trusts, also known as a Bypass or A/B Trust is used to eliminate or reduce federal estate taxes and is typically used by a married couple whose estate exceeds the amount exempt from federal estate tax.
• Qualified Personal Residence Trust (QPRT). Qualified Personal Residence Trusts or QPRT’s (pronounced “cue-pert”) allow you to give away your house or vacation home at a great discount, freeze its value for estate tax purposes, and still continue to live in it.
The exact strategies employed by us vary depending on the client, the nature of the assets, the country of origin, and the tax regulations that apply to those assets. The ultimate goal is to protect the status of current assets in a manner that is effective, legal and ethical. For a FREE evaluation to find out what plan is right for your goals, Call us today at 623-236-2476.