Posts Tagged ‘trusts’

Revocable living trust and pour over will. Why do I need both?

Posted by

The Question. Why do we have a pour over will when we already have a revocable living trust in our estate plan? Isn’t that repetitive?

Let’s try to answer this age old question.

Quick clarification. Your Trust is the Boss. Your trust is your featured estate planning tool for moving your assets to the next generation. Your Pour over will (Called pour over because it names the trust as beneficiary) should be a smaller player in the whole scheme of things, but it is a necessary role player.

For those folks with one, after you develop your trust document …you add your assets into your trust. This is accomplished by changing the title of the property into the name of the trust or by setting the trust in as the beneficiary of a certain asset. (IE: life insurance). Then, when you die, the assets stay in the trust avoiding the need for a probate of the assets it holds on your behalf.

Here are a three reasons why a pour over will is still necessary….

  1. Guardians. A pour over will can do an important things that a living trust document cannot do. If you have minor children and want to name a guardian for them — someone to raise them if you and the other parent die before they reach adulthood — you must use a will to do that.

 

  1. Human Error. Lets face it. We all make mistakes. One big reason to write a pour over will is that a living trust covers only property you have transferred, in writing, to the trust. Almost no one transfers everything to a trust. And even if you do scrupulously try to transfer everything, there’s always the chance that you’ll acquire property shortly before you die and not have time to put it into your trust. If you don’t think to (or aren’t able to) transfer ownership of an asset to your living trust, it won’t pass under the terms of the trust document. Anything not transferred into your trust prior to your death could instead be subject to probate and distributed under your pour over will. In short, a pour over will acts as a safety net and sends a “forgotten asset” back into your trust.

 

  1. Satisfying the rules for paying a decedent’s last bills. The law says that an estate pays the last bills. The pour over will contains language that passes that statutory obligation from the Personal Representative of an empty estate to the trustee under the trust. This language, coupled with special language accepting the responsibility under the trust, make the bill paying process seamless.

 

Of course, there is more to all of this. The key for anyone with a trust is to seek counsel. Get your questions answered. Also know that a trust is a beautiful thing, but it never acts alone. It always needs the reliable sidekick called a pour over will in order to accomplish its mission.


Choosing an Attorney for Your Estate Planning

Posted by

A recent Caring.com article by Susan Kostal, Senior Editor of the Legal channel, tells us who to look for when searching for a Trust, Wills, and Estates Attorney.

The article is a great read for people wondering how to find a qualified Trust and Estates Attorney. Most of the advice in the article is good quality common sense stuff.

Ask Your Friends

According to the article: “If you’re unsure how to find the right lawyer, start by asking friends for recommendations. Who have they used — and liked? You can also ask other lawyers who they would use.”

Look the Attorney in the Eye

Attorney Philip Feldman, head of the trusts and estates practice at Coblentz Patch Duffy & Bass in San Francisco is quoted in the article.  Feldman states that “Clients need to get a sense of who their lawyer is going to be. It’s important to look someone in the eye. This should be one of the most personal professional relationships you’ll have.”

Cost Expectations

Even more excellent advice from Ms. Kostal regarding fees:  “An average flat fee for a basic revocable trust plan may run from $2,500 to $10,000, depending on the complexity of the trust and the size of the estate. Flat fees, however, aren’t necessarily a better deal than hourly rates. And the most expensive lawyer isn’t always the best.

Ask at the outset for the lawyer’s rate. It’s better to know upfront, so that neither of you wastes the other’s time if there’s a huge discrepancy between what an attorney charges and what you’re willing to pay. Generally, the more assets a person has, the more complicated his estate is likely to be, and the more it will cost to put together a thoughtful estate plan.”

We think the advice provided by the article is right on point and recommend that you take a few minutes to read it.

For more information on Trusts: Articles on Trusts and Estate Planning.

 


Conservation Easement: A Beautiful Thing

Posted by

A conservation easement is an interest in real property. It is established by agreement between a landowner and a qualified private land conservation organization (often called a “land trust”) or a government organization (often the DNR). It is put in place to restrict the exercise of rights otherwise held by a landowner in order to achieve stated conservation purposes.

The most recent Conservation Easement project underway here at our office presents a great story. Our Clients are both nature buffs. They truly love the outdoors and they want to make a difference in society.

After thinking it through, they decided that the best way to accomplish that goal was by donating 75 acres to a local nonprofit Audubon society. They also made the land subject to a conservation easement to be held by a Madison area land trust.

The Property contains areas of prairie grassland and oak woods/oak savanna. The public will have access to the property for bird-watching, hiking and other educational and recreational activities.

The preservation of this slice of heaven for the scenic enjoyment by and the outdoor education of the public is very important to the Landowner. What a terrific thing for the people of Wisconsin and beyond.


News Flash: Few People Actually Plan for Death or Incapacity

Posted by

 

Estate Planning Note:

AARP shared an article that reminds us how few of our neighbors have done Estate Planning.

See: http://www.aarp.org/…/info-2017/half-of-adults-do-not-have-…

The failure to plan for your death or incapacity can be painful for the family members left behind. This really rings true if you have underage kids or an asset like a family farm or other type of business that needs to be thoughtfully passed on to the next generation. The family assets can sometimes be tied up for years with fees and cost racking up.

With this in mind, this just might be the year to finally get this particular project done.

Have a great day.


Compressed Tax Brackets on Irrevocable Trusts

Posted by

What is this rumor I have heard about compressed tax brackets and irrevocable trusts?

Great question.

The answer to the question is something everyone should be aware of when deciding to use a trust as the means to distribute assets after death.

When your trust becomes irrevocable, it has compressed tax brackets when compared to the tax brackets of individuals.

Income tax brackets that apply to irrevocable trusts:

If taxable income is:      The tax is:

Not over $2,500          15% of the taxable income

 

Over $2,500 but          $375 plus 25% of

not over $5,800           the excess over $2,500

 

Over $5,800 but          $1,200 plus 28% of

not over $8,900           the excess over $5,800

 

Over $8,900 but          $2,068 plus 33% of

not over $12,150         the excess over $8,900

 

Over $12,150              $3,140.50 plus 39.6% of

the excess over $12,150

Income tax brackets for individuals: Single Filers

10% – $0 to $9,225

15% – $9,225 to $37,450

25% – $37,450 to $90,750

28% – $90,750 to $189,300

33% – $189,300 to $411,500

35% – $411,500 to $413,200

39.6% – $413,200+

Why do we care …. and what should we do?

It is usually a goal of the families we work with to minimize the taxes paid in a given situation. The upshot of the bracket differences is that, after your death, if you keep enough gain in the irrevocable trust, the gain will typically end up taxed at the higher rates than if the beneficiaries receive the gain and the related tax. Knowing this is a possibility, most of the gain in the irrevocable trust over a given calendar year should be distributed to the beneficiaries via care and maintenance payments and other discretionary distributions rather than held in the trust and taxed. If it is paid to the beneficiary, the beneficiaries rate is used.

One recent example that comes to mind is the small family-held business where the shares are held by the irrevocable trust. The business can be run in various ways (e.g., salaries to the employees or dividends declared to shareholders) in such a way that the income retained in the trust is not excessive. Another alternative is to have the ownership of the entity transferred out of the irrevocable trust sooner rather than later and run externally or sold.

Who decides what to do when the trust faces these issues?

All of these decisions are usually provided in the trust language and leaves these tax decisions in the full discretion of the trustee. The trustee can then, as time progresses, weigh tax options and respond accordingly.


Trusts: How Do I Ascertain the Ascertainable?

Posted by

We draft revocable living trusts on a regular basis here at Shannon Law. The trust planning and development process normally involves three fairly lengthy meetings. We prefer to spend this much time on our estate planning projects because we feel that it is critical that clients have an ample opportunity to ask questions during the meetings and to make sure the final trust plan meets the needs of our clients.

We do tend to receive some questions on a regular basis during the meetings. One consistent question we receive when covering trusts concerns certain very common distribution language found in nearly every revocable living trust on the planet. The question is normally posed like this: What is this line saying that the trust will pay money out to beneficiaries for “support, maintenance, education, and health” really mean? Let us make an attempt to cover that.

The trust laws state that standards of distribution set forth in a trust must be “ascertainable.” In other words, the standards must be clearly measurable. Some of the commonly accepted “ascertainable” standards include support, maintenance, education, and health. Other “ascertainable” standards may include comfort, best interest, and emergency.

Here is a brief explanation of how some of these standards may be interpreted by a trustee and the courts:

Support and Maintenance. Support and maintenance incorporate more than bare necessities. These terms include a beneficiary’s normal living expenses, such as housing, clothing, food, and medical care, according to the beneficiary’s customary standard of living.

Best Interests. Under the less restrictive standard of best interests, the trustee may make distributions allowing a beneficiary to enjoy a high standard of living, covering such niceties as extensive travel, a luxury automobile, or expensive jewelry.

Education. Typically, the term education includes a college or tech school education, but may not necessarily include graduate-level or a professional education unless specified. A client wishing to provide for a grandchild’s pursuit of a medical degree, for example, should communicate those desires when the trust agreement is being drafted. Considerations like travel expenses to and from school and a reasonable allowance for related expenses also should be clarified in the trust document, if so desired.

Health. The term health includes all routine medical care, medication, surgery, and hospitalization, as well as nursing care and mental health expenses. This term is less restrictive than “medical care,” which may not cover expenses for treatment of ailments not universally accepted as medical problems, such as addictions or psychological problems.

Emergency. The term emergency may be determined by a court to be an ascertainable standard pertaining to unusual and unforeseen expenses, but may not be deemed an ascertainable standard by the IRS for tax purposes. To minimize confusion, the client may wish to specify the types of emergencies for which distributions are authorized, such as financial emergencies or those related only to health or maintenance.

While many factors determine the level of access beneficiaries will have to trust assets, understanding the difference between, and nuances of, the “ascertainable” standards named above will go a long way toward helping you communicate your wishes. Ultimately, choosing the provisions for distributions is a balancing act, with tax consequences on one side of the scale and the wishes of the grantor on the other side.

The above discussion is brief and does not do proper homage to the complexity of the standards mentioned. We encourage you, when working on your trust, to spend time discussing what this language means and make sure it meets your objectives. Seeking the counsel of a qualified estate planning attorney is the next step in ensuring beneficiaries are cared for according to your wishes.


No Need to Disinherit–SNTs are Here!

Posted by

Before the use and official recognition by Congress of Special Needs Trusts (SNTs), “disinheritance” was commonly used by families. Disinheritance is accomplished by leaving the disabled loved one out of the last will or trust. Leaving nothing to the disabled loved ones left them without assets. That, in turn, would qualify them for government benefits.

It was also common practice for the families that did disinherit the disabled loved one to leave a share of money informally to a sibling to use for care of the disabled brother or sister. When this was done as a means of providing for a disabled loved one, the assets were put at risk. A non-disabled sibling holding assets for the benefit of a disabled sibling could be subject to such liabilities such as judgments from automobile accidents, a bankruptcy, or a divorce. In such circumstances, the assets meant to benefit the disabled loved one could go to pay the judgment creditors or the estranged spouse of the non-disabled sibling.

A Special Needs Trust is designed to benefit an individual who has a disability. A Special Needs Trust is a specialized legal document. A Special Needs Trust is often a “stand alone” document, but it can form part of a Last Will and Testament or be a subpart of another family trust. It provides for supplemental and extra care over and above that which the government provides. It enables a person under a physical or mental disability, or an individual with a chronic or acquired illness, to have, held in Trust for his or her benefit, an unlimited amount of assets.  In a Special Needs Trust, those assets are not considered countable assets for purposes of qualification for certain governmental benefits.  Such benefits may include Supplemental Security Income (SSI), Medicaid, vocational rehabilitation, subsidized housing, and other benefits based upon need.

Using a Special Needs Trust will guarantee that the funds will be held only for the benefit of the person under the disability or chronic illness, and not for any other purpose whatsoever.

Each Special Needs Trust is its own “entity” with its own Federal Identification Number issued by the Internal Revenue Service. The Trust is not registered under either the Grantor’s or the Beneficiary’s Social Security Numbers.

A Special Needs Trust can be established at any time before the disabled loved one’s 65th birthday. It is very common to create a Special Needs Trust early in a disabled child’s life as a long-term means for holding assets to benefit the disabled family member. This is particularly true of parents who wish to leave funds for a child’s benefit after the parents’ death. The Special Needs Trust is the estate-planning tool of choice for those parents. As a part of Estate Planning, the costs of the creation of the Trust are tax deductible.

Also, the disabled person may at some time during his or her lifetime come into funds from third party sources, such as a personal injury settlement or a bequest from relatives or friends, Social Security back payments, insurance proceeds, or the like. This particular type of special needs trust (First Party SNTs) has some unique rules that apply to it that would not apply to a special needs trust set up by someone other than the disabled person (Third Party SNTs).

It is great to know that disinheriting disabled loved ones is no longer a necessary evil. With a Special needs trust as an option, a disabled loved one can have many funds for some of life’s special comforts without losing needed governmental benefits.


Transfer-On-Death Deed: The Best Thing Since Sliced Bread

Posted by

A transfer-on-death deed, or TOD deed has proven to be a simple, inexpensive, and effective tool to transfer a real property interest at the death of the owner, and has become very popular with attorneys, property owners, and beneficiaries alike. The reason TOD deeds have become so popular is that the transfer of the land under a TOD deed can work to avoid both the after death expenses of probate, and the upfront planning expenses of a trust.

The TOD deed has been available in Wisconsin since 2005 and in Minnesota since 2008. If a landowner in these jurisdictions properly completes and files a TOD deed with the register of deeds, title to the real estate passes directly to the beneficiary or beneficiaries named in the TOD Deed when the landowner dies. This is similar to how title passes in a joint tenancy deed or a pay-on-death designation for a bank account.  The beneficiary takes ownership of the property upon the death of the present owner without the need to probate the property.

A landowner can change her mind with a TOD deed designation too. If circumstances change after a landowner designates someone to receive the real estate using a TOD deed, the landowner can revoke her TOD deed or simply replace it with another one naming someone else. If the property is sold by the landowner to a third party, the TOD deed terminates at that time.

The TOD deed can also reduce some risks from third parties. This is because even though individuals are named as beneficiaries under a TOD deed, they have no ownership rights until after the death of the landowner. This lack of ownership rights in the real estate helps avoid problems. For example, if a landowner adds her son, her grandson, or her daughter as beneficiary under a TOD deed, the real estate cannot end up as a divisible asset in her son’s divorce, a liquidated asset in her grandson’s bankruptcy, or with liens on it from her daughter’s creditors.

The TOD deed may be the most effective way for a landowner to pass real estate to desired beneficiaries. However, careful consideration should always be given to determine if the TOD deed is appropriate for your particular circumstances.