Trusts

Background   Many clients are scrambling to implement significant gifting plans and trusts prior to year-end, when the current $5 million lifetime gift tax exemption and $5 million generation-skipping transfer tax exemption are both scheduled to sunset, with the lifetime gift tax exemption potentially being reduced to its previous $1 million level. For many married couple clients, the goal is to double the amount of this current gift, to up to $10 million, again either outright or in trust.   Reciprocal Trusts   It is of course a simple matter for one spouse to establish a $5 million irrevocable spousal access trust (or “SAT,” for short) for his or her spouse, and for the other spouse to establish a $5 million trust or trusts for the benefit of th...

Some of the public does not know what a trust is. Others think it is merely for the rich. Many others have come to me and said something like “I need a trust,” as if it is aspirin or some panacea. What most of the public (and most non-estate planning attorneys) don’t realize is that there are roughly 65 different types of trusts, some more broad than others, some quite specialized, and many share similar features. This brief overview should be a simple reminder for the seasoned practitioner, or a starting point for those new to the wonderful world of trusts. First, let’s start with the basics – the Trust has three “points” – a Grantor (Settlor, Trustmaker), a Trustee, and one or more beneficiaries. The Grantor creates the trust, the Tr...

With malpractice and liability insurance costs so high -- and lawsuits so common -- some people have turned to offshore asset protection trusts as a way to protect their assets and still keep some control. Those who are at a higher risk and may need this kind of asset protection include lawyers, doctors, architects, entrepreneurs, contractors, property developers and accountants. Offshore asset protection trusts are created under the laws of a foreign country (often the Isle of Man, Cayman Islands, or the Cook Islands) that does not enforce the judgments of other countries. A common way to set up one of these trusts is to transfer your assets to a limited partnership. As the general partner, you could keep only 1% of the shares and retain control. The other 99% of the shares...

Revocable Living, Irrevocable Life Insurance, Charitable Lead, and Grantor Retained Annuity - these are trust descriptors that are familiar to estate planning professionals. However, there are many less well-known types of trusts that clients may ask about or benefit from having. Some of those other types of trusts will fill an estate planning need like no other arrangement can. Some arrangements called "trusts" do not fit the traditional trust definition. Still other things called "trusts" are outright shams. As professionals, we need to know about the lesser-known trusts, when to use them, when to avoid them, and when to warn our clients to get out of them. In this issue of The Wealth Counselor, we review some trust basics and then provide an introduction to a...

Estate planning changed again on January 1, 2011, when certain key provisions of the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010, signed by President Obama on December 17, 2010, took effect. Suddenly, the federal estate tax exemption increased to $5 million ($10 million for a married couple with proper planning). As a result, most people are not affected by the federal estate tax if they die this year or next. Because the news reports did not focus on the "this year or next" part, many people took this to mean that they no longer need to do any estate planning. But that couldn't be further from the truth. Most of the reasons families need to plan their estates are unrelated to estate taxes, and those tax changes are only until 2013....

According to a study done through The Institute For Preparing Heirs, 70% of people who receive an inheritance will spend it in its entirety, and 80% will do so within 2 years. These are pretty frightening numbers, especially considering that the size of the inheritance plays a very small factor in the speed at which that amount will be expended. Yet, most revocable living trusts focus mainly on the asset portion of a family estate plan. The disbursement of family assets are usually set at certain age brackets without much thought behind it. Those numbers are usually arbitrary; simple milestones such as a graduation, job acquisition, and so forth. Though there is nothing wrong with that, I would like to challenge the status quo and dig deeper to see the purpose behind these decisions. Le...

An often discussed mechanism in Medicaid/Nursing Home planning is the IIOT, an Irrevocable Income Only Trust.   Aside from Nursing Home issues and look back periods we need to first ask about financing issues. Consider whether the Trustee might ever need to obtain financing on the realty, perhaps for a new burner or roof. Most Lenders will not mortgage realty owned by any irrevocable Trust. Would deeding realty into an IIOT make a pre-existing mortgage due and payable?   If the sale of realty after it is deeded into the IIOT is a possibility we can structure the IIOT as a Grantor Trust. If an Elder Trustmaker later moves into Assisted Living or into a Nursing f...

On April 17, 2008, Revenue Ruling 2008-22 was issued -- adding substantial clarity to an issue that is often raised in drafting sophisticated estate plans -- how to create a “defective” grantor trust without causing the trust to be included in the grantor’s estate. The Ruling addressed whether there would be estate tax inclusion where the grantor of an irrevocable trust retained the power to substitute assets under §675(4)(c). The editorial team at WealthCounsel followed up immediately with an update to provide language that should come within the “safe harbor” of Revenue Ruling 2008-22. After analyzing the Ruling, this article briefly describes what this author believes are the “...

An important aspect of your estate plan is the manner in which your assets will pass to your children to provide the maximum benefit. One available option which has grown in popularity is the “Family Legacy Trust,” also known as the “Dynasty Trust,” because it is intended to provide a source of funds for your family for generations to come. Over time, the value of these funds is likely to increase substantially. For example, a trust initially funded with $500,000 and growing at 7% annually would be worth over $1,900,000 after 20 years, approximately $7,500,000 after 40 years and nearly $29,000,000 after 60 years. Due to this dramatic potential for growth, creating such a trust requires careful planning to...

This article addresses a topic that is important to many Americans yet is sometimes misunderstood - trusts. In the right circumstances, trusts can provide significant advantages to those who utilize them, particularly in protecting trust assets from the creditors of beneficiaries. Admittedly this can be a complex topic, but you see its implications in the headlines every day. This newsletter attempts to simplify the subject and explain the general protection trusts provide for their creator (the "trust maker") as well as the trust beneficiaries. Given the numerous types of trusts, this newsletter explores only the most common varieties. We encourage you to seek the counsel of your wealth planning team if you have questions about the application of these concepts to your sp...