TRUSTS AND ESTATE PLANNING
1. What is Estate Planning?
2.
Estate Planning Tools
3. What is a Revocable Trust?
4. Purposes of Revocable Trusts
5. General Nature of Trusts
6. Overview of Revocable Trusts
7. Features of Revocable Trusts
8. Durable Powers of Attorney (vs. Conservatorships)
9. Naming Guardians of Children (vs. Guardianships)
10. Asset Distribution and Timing
11.
Avoiding Probate, Conservatorships and Guardianships
12. Pour-over Will vs. Standard Will
13. Asset Management
& Asset Protection
14. Taxes and Revocable Trusts
15. Disadvantages of Revocable Trusts
16. Funding
Trusts
17. Special Needs Trusts
18. Trust Pricing
Contact us for your Estate Planning needs.
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[Caution: Under EGTRRA’s "sunset" provision, the laws governing federal income, gift, estate,
and generation-skipping taxes will apply beginning in 2011 as if the 2001 Act had never been passed, unless Congress acts
to the contrary.]
1. WHAT IS ESTATE PLANNING?
Estate planning is the process
of arranging assets and personal matters in a manner that helps to meet lifetime financial and personal objectives, and simultaneously
helps provide for survivors' needs and the disposition of property at death. A carefully implemented estate plan can help
to—
• create and conserve assets during life
• protect assets from creditors and judgment
holders
• minimize death taxes and estate settlement costs
• assure that cash is available to pay unavoidable
death taxes and costs
• provide an orderly distribution of assets that meets the estate owner's objectives and intentions
• name health and financial caretakers in case of incapacity
• avoid the costs and confusion of probate
• maximize financial and emotional support for your beneficiaries
• preserve your estate throughout your
beneficiaries' lifetimes
• provide for charitable contributions
• ensure peace of mind and family harmony.
2. The Estate Planning tools include:
• trusts and wills
• forms of property
ownership
• gifting
• estate valuation
• marital deduction
• qualified terminable
interest property (QTIP)
• Section 6166
• generation-skipping transfer tax (GSTT)
• irrevocable
life insurance trust ($3,000) • irrevocable trusts ($4,700+)
• bypass trust
•
GRITs, GRATs, and GRUTs
• family limited partnerships (FLPs)
• Section 2503(c) trust
• UGMA
and UTMA
• qualified domestic trust
• advance medical directives
•
durable powers
of attorney
•
Medicaid
• income in respect of a decedent
• revocable living trusts, and much more.
• special needs trusts:
- $4,500 Full package (SN Trust + DPoA + HCD + Funding
& Filings)
- $3,000 (SN Trust + Funding & Filings)
- $2,250 w/i Family Trust
3.
WHAT IS A REVOCABLE LIVING TRUST? (pricing at bottom)
A revocable living trust, also known as a family
living trust, is a trust created during the grantor's lifetime that the grantor may alter, amend or revoke. While the revocable
living trust is revocable while the grantor is alive, it usually becomes irrevocable or terminates at his death.
4. Purposes of the Revocable Living Trust
Because of the revocability feature, the revocable
living trust does not provide any tax advantages during the grantor's lifetime or at his death. The main purposes of such
trusts are:
• to avoid probate on any assets transferred into the trust during the grantor's life;
•
to receive life insurance proceeds made payable to the trust at the grantor-insured's death;
• to receive probate
assets pouring over into the trust under the deceased grantor's will at death (assuming the trust did not terminate upon the
grantor's death);
• to keep the decedent's directions for distribution of the assets from being open to public inspection
(wills admitted to probate are subject to inspection by the public);
• to control, through the terms of the trust,
the disposition of trust assets much as the grantor's will would have done if these assets were part of the probate estate.
• to provide management of the assets transferred to the trust by a trustee other than the grantor, if the grantor
becomes incapacitated.
5. Background on the General Nature of Trusts
A trust is a legal
entity created by a grantor. The "trustee" takes legal title to the property transferred by the grantor to the trust.
The "grantor" is an individual who wishes to have the trust manage property on behalf of the trust beneficiaries.
The beneficiaries are said to hold the equitable or beneficial title to the trust property. That means they are generally
entitled to the income and/or principal of the trust.
The trustee, as legal titleholder, can exercise most of the usual
rights over trust assets. For example, he or she can usually invest or sell the assets. But trustees cannot act in their own
interest; they must act in accordance with the trust terms and their fiduciary responsibilities to the trust beneficiaries.
The revocable living trust may be contrasted with both an irrevocable trust—also a trust created during life
but which can't be changed—and a testamentary trust—a trust established by the decedent's will to take effect
after death.
The trust agreement should always be in writing, and should be prepared only by an attorney who specializes
in estate planning. Once the grantor's objectives are known, the attorney will draft a trust that addresses the following
key issues:
• Who (if anyone) is to receive the trust income, and how long do these income payouts (or the
accumulation of income) last?
• Who is to receive distributions of trust principal and at what times?
•
When will the trust terminate?
6. Overview of the Revocable Living Trust
We have observed
that the trust is revocable. A written amendment to the trust can be prepared at any time by the grantor's attorney. There's
no tax or other penalty for doing this, since the trust does not provide income tax or estate tax benefits to the grantor
anyway.
Further, a revocable living trust is a private document, whereas a testamentary trust will become available for
public inspection when the will is filed for probate.
Finally, estate assets will have to travel through probate—with
the usual reduction by probate costs—before they get into the testamentary trust. Any assets placed in the revocable
living trust before death will avoid probate (but not estate taxes). And this won't jeopardize the security of the grantor
and his family. If an emergency arises, the grantor can simply revoke the trust and get back outright ownership of the former
trust property.
Amendments to Revocable Trusts:
- 1st subject: $750 (+$250 if restatement required)
- each other subject: $350 (+$150 if restatement required)
7. Typical Features of a Revocable Living Trust
Typically, the first part of the trust instrument will direct how the trust is to be managed during life. The second part
will deal with the management and disposition of trust properties after death.
The trust agreement will generally provide
that, during the grantor's life:
• the grantor is to receive all trust income;
• the grantor may
add property to the trust or take property from the trust at any time; and
• the grantor can change any of the trust
provisions—or cancel the whole arrangement—for any reason and at any time.
The grantor can name himself
or herself as the sole trustee of the trust. However, if the grantor wants to avoid day-to-day investment responsibility,
a bank or some other person can be named trustee.
The second part of the trust instrument will direct exactly how the
trust properties are to be used and disposed of after the grantor's death. In this sense, the revocable living trust is like
a will. It can be changed at any time during life, but the terms of the trust instrument become unchangeable at the grantor's
death.
8. Durable Powers of Attorney (DPoA)
Designate trusted loved ones whom you wish
to take responsibilty over your healthcare and financial matters in case of your incapacity.
Financial DPoA: $600
Health Care DPoA: $800
Both (single): $1,200
Both per couple: $1,800
Domestic
Partnerships (Civil Union) ($250)
If, however, you become incapacitated without Powers of Attorney in place, your loved ones may need to obtain
a court ordered Conservatorship to manage your healthcare and financial matters.
Conservatorship: $5,500 (add $1,000 for urgent Orders - w/i 30 days)
9. Naming Guardians for Minor Children
Name trusted loved ones whom you want to take care of your minor children in case of your demise. Guardians need not
be the same person as your Trustee. Generally, your children's guardian is responsible for your childrens' day-to-day needs,
while the Trustee manages and distributes your trust assets for the benefit of your beneficiaries.
If, however, you
become incapacitated (or die) without Guardianship papers in place, your loved ones may need to obtain a court ordered Guardianship
to take care of your minor children.
Guarshianship: $3,500 (add
$1,000 for urgent Orders - w/i 30 days)
10. Asset Distribution and Timing
Designate each beneficiaries'
share of your estate, and provide instructions to your trustee as to when and how lump sum distributions shall be made to
beneficiaries. For example, while your trustee is instructed to provide for your minor childrens' day-to-day needs using the
trust assets, you further instruct lump sum distributions of each child's share, 1/3 at age 25, 1/3 at age 30, and the remainder
at age 35. This strategy can help preserve each child's share of your trust until he or she reaches a more financially responsible
age, and prevent beneficiaries from depleting their inheritance at a less responsible age.
11. Avoiding
Probate, Conservatorship and Guardianship Costs and Delays
Properties transferred to the revocable living
trust during the life of the grantor are not subject to probate at the death of the grantor. Thus, assets in the trust can
avoid the delays and the costs of settling or probating an estate. Probate costs may be substantial or modest, depending on
the state.
Settling the estate of a decedent always ties up the decedent's property—at least to some degree. Typically,
the local probate court will appoint the executor or an administrator who will collect all the properties of the estate, hold
these properties until creditors' claims are satisfied and other formalities are complied with, and then distribute the remaining
properties as directed in the decedent's will or, if there is no valid will, according to state intestacy laws. During this
time, which usually ranges from six months to a year or more, the properties may be poorly invested and income or principal
may not be readily available to the beneficiaries or heirs.
The revocable living trust can be especially important
if the grantor owns real property in states other than the state of his residence. The grantor can avoid multiple probate
proceedings in several states (called ancillary probate) by placing the property in the trust during life.
If,
however, you become incapacitated (or die) without Durable Powers of Attorney or Guardianship papers in place, your loved
ones may need to obtain court Conservatorship or Guardianship Orders to take care of you or your minor children. (see
#8 and #9 above)
12. Pourover Will Receptacle
The revocable living trust
can be a "shell" during the grantor's lifetime. That is, the trust can be dormant, unfunded, or under-funded during
life. If the trust did not terminate at the grantor's death, the trust may receive unfunded assets passing under the "pour-over"
will (after probate), including from life insurance policies. Remember, the trust may now be irrevocable, and the grantor's
comprehensive plan for the disposition of assets will be carried out via the trust terms.
With respect to life insurance
proceeds, the trust can provide more flexibility in the payout to beneficiaries than is possible with the standard settlement
options offered by the insurer. Also, where there are a number of different policies, the proceeds can be consolidated in
the trust and administered under one comprehensive plan of disposition.
Of course, a standard Living Will (Last
Will and Testament) can be established in lieu of a Trust, but the many benefits of a Trust (see #4 above) would be lost.
Standard Living Will: $600
Second Spousal Will: $500
[Statutory Will: $150]
13. Asset
Management and Protection
The revocable living trust can be more than a mere shell during the grantor's
lifetime. If the grantor wants to be free of investment responsibilities, or fears future mental incapacity or absence from
the property, assets may be transferred into the trust during life where they will be professionally managed. The grantor
will usually receive an income earned by these assets since he or she is going to be taxed on it anyway.
Contrary
to popular belief, Revocable Living Trusts do NOT offer any Asset Protection to the Grantor(s) during their lives. However,
limited Asset Protections may be triggered for the surviving spouse and/or beneficiaries.
Asset Protection Planning
(consultation & proposal: $750): Asset Protection strategies
involve "foregoing" some control over ones assets. For example, placing the asset within an irrevocable trust ($4,700+) or other asset protection vehicles.
