A trustee who oversees a simple trust is tasked with the duty of distributed the current wealth that is contained within the estate of the deceased. A trust can qualify as a simple trust in those tax years in which the trust distributes its income but makes no other types of distributions. This can be true even if there are no other distributions of the current income. Since a simple trust can be either irrevocable or revocable (living), this type of trust is relatively simple, like the name suggests, and quite common.

With a simple trust, the beneficiary or beneficiaries have an absolute and immediate right to both income and capital that is left behind by the grantor. The beneficiaries of the simple trust have a right to take possession of the trust property. The property is held in the name of the trustee. Nonetheless, the trustee has no discretion over what income the beneficiary is paid.

The two most common simple trusts are living trusts and testamentary trusts. The living trust, which is also sometimes known as a revocable trust, allows the grantor to transfer property and assets into the trust throughout their lifetimes, while preserving the right of the grantor to make changes to the trust as they see fit while they are still alive. The living or revocable trust is a simple trust that does not have to go through the probate process, which makes it a simple, cheap, and fast method for heirs to receive their inheritance. The testamentary trust is a simple trust that is often established when minor children or a disabled child are the intended beneficiaries. The testamentary trust does have to go through probate court and is in fact, managed by a trustee who is supervised by the court. This type of simple trust is recommended when there are very substantial amounts of money that a minor is not legally obliged to manage.

Talk to your local estate planner to find out if a simple trust is the right type of trust for your estate.

Establishing the Grantor Trust

This trust is named such due to the fact that it is established during the lifetime of the grantor. This trust is revocable, which simply means it can be altered, modified, and otherwise changed or even terminated during the life of the grantor, provided that the grantor has full mental capacity. Upon the death of the grantor, the grantor trust then reverts to an irrevocable trust and will be administered per the instructions contained within the trust instrument.

Grantor Trusts and Trustees

Within the trust instrument, a trustee is designated. The grantor can also serve as trustee, but if the grantor does not have the expertise or the time to serve as such, the grantor can appoint an experienced trustee for the trust. A trustee is responsible for managing the trust’s assets and for carrying out the goals and objectives that are outlined in the trust instrument, as well as handling all trust paperwork and reporting requirements that govern the trust. The trust instruments will also have a contingency plan that will govern the event of the grantor’s death.

Grantor Trust Advantages

There are quite a number of benefits of the grantor trust, the greatest of which may be that the assets that are held within the trust will not be subjected to probate court. At the time of the grantor’s death, the trust immediately considered as a separately recognized legal entity. Because there is no wait time in probate, the trust’s beneficiaries can have immediate benefit from assets in the trust. Further, because grantor trusts do not have to go through probate, the cost of trust administration is much less than some other types of trusts that has to go through probate. For example, the grantor trust typically will not require that the trustee file the customary yearly accounting for trust assets that is required by probate court with some other trusts.

When the trust’s grantor is also the trust’s trustee, a separate income tax return is often unnecessary. If the grantor makes any gifts made by the grantor trust during the grantor’s lifetime, the gifts may be subject to the gift tax. Property in the grantor trust is included in the grantor’s estate and is subjected to the estate or so-called death tax.

A grantor trust may be the best type of trust for your particular situation. Consult with an estate planner to find out if the grantor trust is suitable for you and your family.

The dynasty trust is a very effective remedy to this situation that helps guard against losing a significant amount of your estate to estate tax so that it can keep working for your beneficiaries. The advantage of a generation-skipping trust is greatest during your lifetime. After property or assets have been transferred into a dynasty trust, all appreciation and amassed income that may be generated by the property within the trust up until your death is exempt from estate tax. Further, to avoid gift tax during your lifetime, you can choose to fund the trust only to the extent of the exemption transfer with the remainder funded upon death. There is another big advantage to funding the lifetime dynasty over the course of a lifetime. Since the trust is an irrevocable trust, no future changes or modifications to the estate tax law will affect it.

Typically, your children will be the preferred beneficiaries for a dynasty trust. When your last child dies, the grandchildren (or sometimes great grandchild) then become the preferred beneficiaries. Like any other trust, a trustee will control the trust, and this person can utilize income of the trust or from the trust’s principal for the beneficiaries benefit. When a dynasty trust is drafted, you are in control of the amount of discretion that the trustee will have. You can also choose to allow for beneficiaries to be in control of the assets if you wish.

A dynasty trust must only be funded with particular kinds of assets. The Internal Revenue Service taxes dynasty tax income heavily. Suitable choices for placing in a dynasty trust include tax-free municipal bonds, cash-rich life insurance, and non-dividend growth stocks.

Some folks elect to use the dynasty trust as an irrevocable life insurance trust. This means that the trust is funded with insurance on the life of the grantor. In this instance, when the grantor dies, the proceeds of the life insurance policy pay any estate tax on other assets within the estate. (A cash-rich life insurance can also provide an immediate death benefit, and is considered to be “self-completing”).

Although the dynasty trust is often the choice of those with large estates, this is also a useful trust for more modest estates. For those families where a child likely have a large estate themselves (because they have a good income or are in a profession where they will make a lot of money), then the dynasty trust is the perfect estate tool to help deal with future problems that might arise if this child inherits your estate and already owns a large estate.

Discuss dynasty trusts with your estate planner to find out if this is the best trust for your particular circumstances.

A mother and father naturally want to pass their wealth on to their children. Understandably, mom and dad want to do this is a way that will help to avoid sharing their hard-earned money with Uncle Sam. The way that tax code is set up, that goal is next to impossible. In reality, when you leave your children an inheritance, your estate is subjected to paying estate tax on whatever you bequeath to them. Further, if you wish to simply give them something that has value to it while you are still living, the transfer of assets will be subjected to a gift tax, which is taxed identically to the estate tax rate. Nonetheless, you can get around paying estate or gift tax by establishing an irrevocable living trust. But there is a catch. To take advantage of the annual gift tax exclusion of $12K per year, you must actually give something to someone. The beneficiary of the gift that you give has to have a present interest, not a future interest, in the gift. In other words, there has to be the option for the beneficiary to use the gift now, as opposed to later. This will obviously not work if your beneficiary is your twelve year old daughter. It also will not be of benefit if you wish to use the purported gift for a particular purpose. Enter the Crummey trust. When the irrevocable living trust qualifies as a Crummey trust, you get the best of both worlds.

With a Crummey trust, your “gift” will qualify for the annual gift tax exclusion and not be included in your estate for the purposes of estate taxes. You can still place substantial restrictions on the manner in which the money is spent. For example, you can put the gift you want to leave in a trust with the specification that your child will not receive the trust until he attains a certain age. Or you might place the gift into an irrevocable life insurance trust; in fact, the most common reason for establishing a Crummey trust is for this purpose.

But then you still have to give your beneficiary present interest in the gift, in the “here and now”. Luckily, for tax purposes, this stipulation can be overcome as you give proper notification to the beneficiary of their right to withdraw your gift from the trust for at least thirty days after the gift is made. This right to withdraw meets the present interest stipulation. After the beneficiary’s right to withdraw lapses, the gift will remain in the trust and will be distributed or used per the trust’s terms, and is no longer a part of your estate. This means it is not subject to gift or estate tax. Thus, the Crummey trust is a fantastic estate planning tool.

Talk to your estate planner about the Crummey trust to determine if it is good tool for your particular situation.

During the tax year, the complex trust must satisfy at least one of these conditions in order to be considered “complex”:

* Retain some current income within the trust.

* Provide for amounts to be paid that are permanently set aside from other monies or assets within the trust, to be used for charitable gifts.

* Distribute amounted allocated to the principal of the trust.

Much like the simple trust format, the complex trust can take a deduction for income that is distributed to beneficiaries. And like an estate, the complex trust may deduct an unlimited amount of income that is paid to a recognized charity or non-profit organization as well as other monies that were appropriately required, credited, or paid to beneficiaries. In turn, when a beneficiary receives income from a complex trust, just like in a simple trust, the income that they receive must be reported as income when they file taxes for the calendar year that the income was received.

In a nutshell the differences between a simple trust and a complex trust are clear. The simple trust must pay its current income to the beneficiaries that are listed in the trust instrument. A complex trust does not.

In a complex trust, trust income and expenses for the trust are separated by principal and income. The income part of the trust can be distributed to the beneficiaries, and the principal will stay within the trust until the trust expires, regardless of whether there are losses to the amount of principal within the trust. At that time, the expenses can be allocated to both principal and income. This allocation is determined by state law. Expenses for the trust include any item that is relevant and allowable for managing the trust, including financial management fees, state taxes and so on. The ordinary income from the trust can be from various sources, including interest, dividends, rental income, royalties, and so on, and this income can be distributed to the beneficiaries or stay inside the trust and the trust will pay taxes on the income. The capital gains and losses will stay inside the trust until its expiration. The trust instrument will determine whether tax on distributions are payable by the trust or by the individual beneficiary.

To find out more about complex trusts, consult with an estate planner who can review your situation and determine the best type of trust for you and your family.

Not just a product of the Silver Screen and Hollywood, the video will is an option for those who want to put a personal touch on the traditional “reading of the will” to their heirs and beneficiaries. Some folks find that a video will allows them one final opportunity to interact (if from the Great Beyond) with their loved ones and to explain to them “in person” why they chose (or chose not) to make certain gifts and so on in their will. In other instances, a person might choose to make a video will so that there is no doubt in anyone’s mind as to their intentions – the execution of the will can play out on video for all to see. This is a tactic that is used to discourage a disgruntled beneficiary from deciding to challenge the will as the video can provide proof, in living color, that the person who was making the will was both mentally competent and that the formalities involved in executing the will were, in fact, observed. After all, “seeing is believing”, and in this instance, a picture can be worth a thousand words (or thousands of dollars or more). The use of the video will to supplement the traditional, written will document is a viable means of reducing the likelihood that the will is contested.

During the video-taping process, the testator will read the will in full. After the legalities have been read for the camera, the testator might then explain why they decided to give certain things to certain beneficiaries, although they are not required to do so.

Like the written will, it is important that the video will is stored away in a safe place so that it is preserved over the course of time. Many people choose to place their will (and their video will) into a safe deposit box, or leave them with their estate planner or attorney until such time that they pass away.

Each state has particular laws when it comes to the validity of the video will, and not all states recognize a video will as legally binding. Nonetheless, the video will is a good way to supplement a standard, written will so that there is evidence as to the mental capacity of the testator, and to affirm the validity of the execution of the written will. Talk to an estate planner to find out if your estate can benefit from a video will alongside your regular will.

The testamentary trust is created in a will, thus the name, testamentary trust. The trust is activated after the death of the parent, when a trustee (who is named in the will) will be appointed to handle the funds and assets within the trust until a particular point in time, typically when the child reaches the majority age or older or when they have completed their college education.

The trustee will be watched over by the probate court system, and will be required to do an annual accounting of the trust for the court, in most cases. For this reason, the testamentary trust will often incurs legal fees that are taken from the trust or trust income. Many people opt for a revocable living will in lieu of a trust to lessen the legal fees that are involved in administering a testamentary trust. Nonetheless, if one or both parents’ death will result in a large disbursement of life insurance, the testamentary trust can be superior to a revocable living will in that it will allow the parents to dictate the terms for which they want their children to be provided for should the parent pass away unexpectedly.

Choosing a Trustee for the Testamentary Trust Will

One of the most crucial aspects of the testamentary trust will is determining who would be an ideal trustee for the term of the trust. Appointing someone in a will is not a certain guarantee that the person will take up the task, as it is time-consuming and represents a big responsibility on the trustee’s part. If a trustee is not named in the will, or if the named trustee fails to act, the court will appoint a trustee, or consider volunteers from among the beneficiaries’ relatives or friends. It is far better for the testator to name a trustee and to name a person with whom they have discussed the appointment with prior to making the testamentary trust will so that they have the peace of mind that the person named will act. This person can be a relative, friend, or even a trusted lawyer or other professional.

The optimal way to find out if a testamentary trust will is the right tool for providing for your family’s future in the event of your death is to discuss your personal situation with an estate planner.

Simplistic Form Not For Everyone

Because the statutory will is so simplistic, it only covers a very limited number of instances and very simple plans for one’s estate. The plan that you have for the distribution of your assets and property may not even fit into the scope of the statutory will form. For example, the statutory will version for one state does not allow for assets and property to be left to more than one beneficiary. For this reason, if you wish to list more than one beneficiary for your estate, the form will not fit your particular situation. Further, if you alter or attempt to add anything to the form in order to make it fit your estate plan, the statutory will can be declared invalid upon your death. When you pass away, if your statutory will is declared invalid, you would have died intestate, or without a will, and your estate would be divided up and distributed per the intestacy laws in your state.

Should I Use a Statutory Will?

The short answer is “probably not”. While there are a limited number of folks whose estates might be properly handled with a mere “fill in the blank” will like a statutory will, it is invariably a better idea for you to seek legal advice and the services of an estate planner. A downloadable statutory will is not a substitute for advice from someone who is accustomed to dealing with estates, trusts, and wills every day. An estate planner can best advise you on matters like creating a trust so that your heirs do not lose a significant portion of their inheritance to Uncle Sam via the estate tax or death tax, as well as other strategies that can benefit your family if you were to pass away. Money spent on having a legal, valid will drafted by a qualified professional is a wise investment in the future of your family, and is altogether necessary if you have minor children. A statutory will may not handle such issues as guardianship for your children or other specifics that a true, legal will can. See an estate planner to determine which type of will is the best for your particular situation.

Reasons for Making a Will

There are many reasons that all adults need a will, even if they own very little. You need a will because:

* Dying without a will leaves everything “up in the air” when it comes to the disposal of your property and your assets, even if you own very little. Dying intestate (without a will) subjects the property and assets in your estate to the laws that govern intestacy in your state. Thus, if you want to be sure that your girlfriend gets your car when you die, you need a will. Otherwise, a judge will determine who gets what. A judge will not be allowed to take into account any desires that you may or may have voiced, or any special circumstances that exist within your family. The judge will be required to enforce the law as it applies to intestacy.

* If you have children, a simple will can allow you to name who you wish to bestow guardianship upon if you die unexpectedly.

* A properly prepared will can help to reduce the amount of estate tax (death tax) that your heirs will pay on the assets and property within your estate. If you die without a will, the government will get a huge chunk of whatever you leave behind before your beneficiaries see a dime.

* Alongside your will, you can establish a trust that can be used to provide an income stream for your minor children, young adult children, or disabled children after you are gone. A trusted representative can help to manage assets in the trust (as a trustee) until such time as your children are competent and old enough to receive money or property from the trust.

* Your will allows you to make gifts to your favorite charity upon your death.

Why See an Estate Planner

While many people are comfortable with using a simple will when planning their estates, doing so may be foolhardy. There are many complexities and intricacies involved in estate planning that require the expertise and knowledge of an estate planner. The cost of having a legally binding written will prepared is nominal when compared to the benefit that a will brings to your family if you were to pass away, and the peace of mind that you will have in knowing that your wishes are recorded legally. Relying on a simple will that you download online to be held up in a court of law so that your assets and property are distributed per your wishes can be a mistake that will cost your family in the future.

Automatic Self-Proving Wills and Notary Publics

In states that do recognize self-proving wills, the will is instantly considered to be self-proving if two people sign as witnesses, at risk of perjuring themselves, that they in fact observed the maker of the will signing the instrument, and that he maker told them that it was, in fact, his will. In some states, including California, a will is considered to be self-proving after it is signed and executed by the testator and the witnesses to the will’s signing. Upon the death of the testator, if the will goes uncontested, probate courts will typically accept it without calling for the testimony of any witnesses or requiring that other evidence be presented. However, in some states, such as in Louisiana, the testator, along with two or more witnesses, must sign an affidavit, giving their sworn statement in the presence of a notary public, that certifies the genuineness of the will and that all formalities in the process of making the will were observed.

Shortens Probate Process

The self-proving will can save the witnesses to the will and the beneficiaries of the will a significant inconvenience as they will not be required to appear in court in order to affirm the validity of the will itself. This will also lend an additional layer of authentication that can sometimes be useful in helping beneficiaries of the will to steer clear of long and expensive probate court processes, and is particularly useful is a witness to the will is difficult to locate, or is deceased. Nonetheless, the self-proving will helps to speed along the probate process so that the decedent’s estate can be dealt with properly, including the distribution of the decedent’s assets and the payment of the decedent’s debts.

Estate Planners and Self-Proving Wills

Because there is no cookie-cutter will that can be valid in all jurisdictions in the U.S., it is invariably a wise move to have an estate planner to prepare a will for you. From state to state, there are different requirements for a self-proving will and particular language that must be in place within the will in order for it to be considered valid. A qualified and well-trained estate planner understands the complexities of creating a legally binding will and is the best person to consult with in order to draft your self-proving will.

Pour Over Will Benefits

The pour over will is useful in certain circumstances, particularly when a testator does not wish for all of his or her assets or property to be transferred to the trust while the testator is still living. Many people find this preferable for a number of reasons, with the most obvious reason for choosing a pour over will being convenience. For instance, the car that a testator is driving would be difficult to buy, sell, or insure if the car is actually an asset of a trust. The testator may wish to get rid of the car years before they pass away; should they still have the car upon their death, the pour over will makes certain that ownership of the car is transferred to the trust at that time.

Tax savings are also another consideration when deciding upon a pour over will. In some instances, it is desirable for the testator to avoid transferring assets into the trust during their lifetime, as the transfer can trigger a reassessment of property tax. The pour over will also becomes useful when assets are acquired right before the testator passes away because all property and assets are transferred over to the trust at the time of death. Thus, there is no need to rewrite the pour over will to include assets that were acquired after the original will is written because ownership of all assets and property, even those not mentioned in the will, become property of the trust upon death of the testator.

The pour over will can be useful in making certain that all prior wills that may have been created by the testator are revoked. In this way, the pour over will ensures that no conflict exists between the distributions of assets as stated in a previous will. Further, some people use the pour over will as a method of establishing who they wish to become the guardian for any minor children that they are leaving behind while the trust itself will outline specifically how the testator’s assets should be allocated to care for the minor children.

And lastly, the pour over will makes the probate process run a bit more smoothly, as there is no question about asset and property distribution – everything goes into the trust.

Problems with Oral Wills

The very nature of the oral will leaves the wishes of the testator up to interpretation by the courts, which is many times the case as the oral will is often challenged. The oral will allows for a strong possibility of misunderstanding, mistakes, and downright fraud. Typically, the recognition of an oral will arises in instances of war, when a member of the armed forces is going into battle and has no time to prepare his or her will. In legal circles, it is often said that the oral will is not worthy of the “paper it is written on” – which is basically a clever way of saying that an oral will is basically worthless in most instances. Simply telling someone that you want them to have something when you have passed away does not constitute an oral will. An oral will, to be valid at all (in jurisdictions where they are accepted) involves the witnesses to the oral will writing down the words of the testator within a particular period of time, usually several days, after the will was spoken. The words must be spoken in a particular manner and must deal directly with the dispensation of your property and assets following your death, and your wishes for that dispensation.

Benefit of Legal, Written Will

The best advice that can be given is that nobody should rely simply on an oral will as a means to distribute their estate when they die. Even those folks whose estates are not large should have a will of some type prepared well in advance of a decline in health. In other words, even healthy people are subject to life-threatening accidents, injuries, and illnesses, and having a legal, written will prepared by a professional is a very inexpensive investment in your family’s future. Even single persons should have a will so that those they leave behind will know what they wished to happen with their estate. Relying on an oral or nuncupative will is foolhardy at best. See an estate planner to have your will prepared and your heirs will avoid the need for an oral will in the first place.

Advantages of the Joint Will

The design of the joint will prohibits the surviving spouse (or other person in the joint will, as this type of will is not just for married couples) from modifying the wishes of the first spouse (or person) to die in regards to the distribution of the assets and property that were bequeathed by the provisions of the will. For instance, if a testator was worried that his surviving wife might remarry after his death and that she might rewrite a new will whereby she bequeaths everything to her new spouse or to his children, the joint will structure would prevent that occurrence from becoming a possibility. Another advantage of the joint will is that it is a simple way to plan your estate, assuming that both parties are comfortable with all of the terms of the will and that you understand its implications.

Drawbacks of the Joint Will

There are also some drawbacks to the joint will. A joint will can tie up property for many years (until the death of the second spouse or second testator) and revisions are only possible to reflect changed circumstances only. During this time, it is entirely possibly (and often the case) that the surviving testator might experience life changes that would make drafting a new will plausible, but not permissible because the deceased testator cannot approve the changes. This leaves the surviving testator bound to the original will, or in a huge legal battle to invalidate the original will – which is sometimes successful but typically not. For illustration, let’s say that your wife dies before you do and that your daughter later marries a billionaire and no longer has a need for your money. In this instance, all of the property that was bequeathed to you via the joint will must be passed on per the will’s provisions regardless, even though you might feel (and the daughter might agree) that the money should be given to someone else.

Because a joint will is not the right type of will for everyone, it is invariably wise for married couples and others who are interested in this type of will to discuss all of their options with a qualified estate planner. A seasoned estate planner can explain the advantages and drawbacks of the joint will to you in greater detail, and can also help you determine if this will is the best tool for your estate and your family’s future.

* The testator must, within the holographic will, express his or her wishes and name beneficiaries for the estate.

* The testator must possess the mental capacity to author his or her own will. Mental capacity is assumed in most states unless someone presents evidence to contradict this assumption. The testator should also be free from undue influence in writing the will, which is, again, assumed, unless evidence is presented to suggest such.

* There must be evidence of some sort that the testator in fact created the will; this is usually proven by the testimony of witnesses to the document’s creation, via the employment of handwriting experts, or other means.

More often than not, the holographic will is created due to an emergency, and for this reason, this type of will is sometimes recognized as valid even in states where the will is not legally binding. A sudden illness or injury can often result in a testator writing their own will quickly.

Drawbacks of Holographic or Handwritten Wills

There are obvious drawbacks to the holographic or handwritten will. Obviously, this type of will leaves the door wide open when it comes to would-be challenges to the will and its provisions. Unhappy beneficiaries may be concerned about the validity of the will and thus cause the entire estate to be held up for a long period of time in probate court, where there is also the possibility that the testator’s true intentions when writing the will may be not be carried out if the will is deemed invalid. Further, if the will contains language that is not recognized by the state in which it is drafted, the will can be deemed to be invalid and the testator would then have died intestate, or without a will. Thus, it is always optimal to properly prepare for the “unknowns” in life by talking with an estate planner who can draft a legal will that is recognized in the state where you live.

Oral or Nuncupative Wills

In some instances, a nuncupative will, or oral will, is called a deathbed will. This type of will is simply the oral instructions of the testator about how he wishes his estate to be distributed. Very few states accept the oral or nuncupative will as legal and valid. In those that do, there must be at least three persons present when the decedent makes the oral will, and they must write down what the decedent says within a particular number of days following the death of the testator. There is usually a limit on the dollar amounts of property and the types of property that can be bequeathed in an oral deathbed will, in states that recognize this type of will.

Deathbed Wills Prone to Error

The creation of a deathbed will gives rise to errors for various reasons. A hastily drafted will may fail to distribute the estate of the testator as the testator wished and intended. Often, the testator may leave out property or assets in this last-minute will, which leaves the will even further open to challenge, or leaves the property or assets to the court’s discretion and applicable laws for distribution. The testator may overlook or be unaware of the strategies that are available that can reduce or even eliminate estate tax for beneficiaries. The deathbed will can easily be judged invalid if it does not meet legal requirements that vary from state to state. For instance, in some states, as many as three people who are unrelated to the will maker (and who do not stand to benefit from the estate) must sign as witnesses to the will for the court to deem it to be valid and executable.

Certainly, a deathbed will is advantageous to having no will at all. For the reasons listed above, every adult should have a valid will in place that is recognized by the jurisdiction where they reside. If you don’t have a will, see a local estate planner to have one drafted. Never rely on a deathbed will to serve the purposes that you have in mind for your estate.

When an express trust fails, it gives rise to the resulting trust. The grantor, which is the person who establishes a trust, transfers his assets and/or property to a trustee that has been appointed or required under the law, to execute and administer the trust, and to hold the trust for a beneficiary that profits from the actions of another. Should the beneficiary die without the grantor knowing of the death prior to the establishment of the trust, the express trust would be null and void, for the want of a beneficiary. The trustee would then hold the property in a resulting trust for the grantor or settler.

A resulting trust can also occur when an express trust does not exhaust or use up all trust property. For instance, if a grantor transfers $300,000 in trust that is to be used to pay the beneficiary during his or her lifetime in the sum of $3,000 a month from the principal of the trust as lieu of income generated by investments of trust property, assuming no other disposition has been specified. If the beneficiary dies after receiving just $30,000 (or some other amount) then the trustee would then hold the unused funds in the resulting trust for the grantor.

In a nutshell, the resulting trust arises by an action of law, due to circumstances in which the benefits within the trust must be given back to the grantor. Usually, the resulting trust will arise when an attempt to create an express trust falls through, and the trust then results or rebounds back to the grantor. Another example of a resulting trust if when the grantor of the trust fails to specify property in the trust appropriately, or the beneficiaries of the trust cannot be properly identified, or the trust instrument is written in a way that is unworkable. In this event, the trustee of the trust will hold title on the resulting trust for the grantor. There are also resulting trusts that can arise from the purchase of property, such as when one person gives another person money to buy property on their behalf.

There is no textbook definition of the term resulting trust; in fact, in most instances where the term has been applied, it has been on the basis of decided cases. In most instances where a resulting trust has been established, the trust arose when there was a failure in the original trust to distribute the assets and property or where informality was found legally. In these cases the courts basically assumed that the trust existed.

The property within the trust qualifies for marital deductions. Thus, the value of the trust is not subject to state or federal estate tax upon the first spouse’s death, but is rather postponed until the death of the surviving spouse, when the estate will become taxable.

The Internal Revenue Service has staunch regulations that govern the qualified terminable property trust instrument and related documents. Even a smaller error in the language of the instrument could cause it to be deemed invalid, and subject the trust to estate taxation. For this reason, and because IRS regulations and state laws pertaining to QTIP trusts can change, it is always advisable to have a QTIP trust reviewed by a qualified estate planner.

The qualified terminable interest property trust is typically designed to ensure that the property within the trust passes to the chosen beneficiaries or heirs. The chosen beneficiaries are usually the children of the couple, or sometimes children from a former marriage. For instance, a wife who establishes a QTIP trust to provide income for her second husband when she dies. The wife names the children from her first marriage as her beneficiaries. The second husband will get income from the trust, like dividends from stocks that are transferred to the trust. The husband will not be able to sell the stocks or transfer them. This will ensure that the husband cannot use the assets within trust to benefit anyone else. When he dies, the ownership of the stocks will pass to the beneficiaries that are named in the trust.

A QTIP trust is also useful in protecting assets from any creditors of the surviving spouse. Because the spouse does not actually own the assets within the trust, no creditor can attach a lien to the trust or the trust property. A QTIP trust can be useful when a surviving spouse has some difficulty in handling money or is financially irresponsible.

There can be one or more trustees named for the trust. The trustee can be an attorney who helps to prepare the trust instrument and establish the trust, a bank or financial institution, a financial advisor, family member, or friend. The surviving spouse can also serve as a trustee. The trustee must be a person who is responsible and honest since they will be in control of the trust and have the authority to decide how to use the trust assets.

It is notable that when there is not sufficient income to support the surviving spouse from the trust, that the trust can be structured to help pay for the spouse’s health care, living expense, and cost of education.

As a real world example, let us assume that you own a home in Connecticut that has been appraised for $2 million dollars and a vacation home in Maine that is worth $1 million dollars, and that you have stocks worth $3 million dollars. You would like to maximize your estate by passing it to your children, but you don’t want to give away too much of the estate right now. The qualified personal residence trust allows you to save gift and estate taxes without parting with money or giving up either of your homes.

How a QPRT Works

Government guidelines allow for the creation of a qualified personal residence trust to transfer title ownership to your home or your vacation home to the trust while retaining the right to live in the home for a specified period of time, such as ten years. During this period, you will not pay rent but you will be responsible for the expenses of the home, including maintenance fees, repairs, upkeep, and real estate or property tax due. This means that you will not experience any modification to your daily living patterns during the period that is specified in the trust. When the term ends, assuming that you are still living, your home will pass to your heirs free from estate tax. You may remain in your home but you will have to agree to pay rent to the beneficiary who receives the home at the current rate for such a rental property.

Qualified Personal Residence Trust and Gift Tax

There are substantial tax advantages to the qualified personal residence trust. Let’s assume that you create a qualified personal residence trust for your $1 million vacation house. Transferring the home to the trust is a taxable gift, but the amount of the gift will not be figured at $1 million, due to the fact that you retain the right to reside in the home for the next decade. Thus the amount of the gift will be the actuarial value of the home that will be passed to the beneficiary at the end of the ten year period (or whatever period you choose). This value is reached by referring to tables that are published by the IRS that take various things into consideration, like your age, the monthly interest rate and the term that you will remain in the home. Let’s say that you are fifty years old, planning to retain residency in the home for ten years, and that the rate of interest is figured at 5.6%. Under IRS guidelines, the gift to the qualified personal residence trust would be just over $500K. With the assumption that you have made no other gifts, there would be no gift tax on the transfer of the property to the trust as it would fall under the $1 million lifetime unified credit, which is the amount of money that each person may give away without triggering the gift tax.

Nonetheless, there are some distinct disadvantages to establishing a life insurance trust that must be considered when planning your estate, including:

* The life insurance trust will, in effect, be the beneficiary of the life insurance policy. If you establish a life insurance trust, you will give up your right to change the beneficiary, obviously. The trustee of the trust does have that right, but you cannot be the trustee for your life insurance trust. Keep in mind, however, that you will be able to designate the beneficiaries of the trust, but the beneficiaries that you designate cannot be modified or changed once the trust is established, and you will lack any flexibility for making changes if your family circumstances change.

* Unlike traditional insurance policies, you will not be able to borrow against a life insurance policy that is transferred to a life insurance trust. If the trust is set up to allow for you to borrow against the insurance policy, you will be deemed the owner of the policy for estate tax purposes.

* You cannot transfer an existing and current policy to a life insurance trust, unless you live for an additional three years. If an existing policy is transferred to a life insurance trust and you die within the next three years, you will be considered the owner of the policy and it will taxable to your estate. If you do survive longer than three years, you will have made a taxable gift for the amount of the cash value of the insurance policy. Regardless, this is typically advantageous when compared to the entire face value of the policy subjected to federal estate tax.

Despite some drawbacks to the life insurance trust, it is a great and money-saving tool for many folks. The life insurance trust is a viable estate planning tool that may be very beneficial to you as you plan your estate. Discuss the life insurance trust and other trusts with your local estate planner to determine which trust is best for your situation and estate objectives.

The GRIT trust, or grantor retained income trust is an estate planning tool that is often used by those who are looking to reduce both gift and estate tax. The Grantor retained income trust is a type of irrevocable trust that is put into place via a written trust agreement where the creator of the trust (who is the grantor) makes transfers of assets to the trust while retaining his or her right to receive all of the income that is generated by the trust assets for a period of time called the initial term. The net income from the trust is distributed to the grantor by the trustee of the trust each year or even more frequently, per the terms of the trust instrument. When the trust expires, the remainder of the principal within the trust is can be distributed to the beneficiaries that are chosen by the grantor, such as the grantor’s nieces of nephews (the beneficiaries cannot be lineally descended from the grantor or the spouse of the grantor), or it can be held in a trust for the beneficiaries’ benefit, depending on the grantor’s wishes. If the grantor is still living when the trust expires, the grantor retained income trust’s principle is excluded from the estate of the grantor for the purpose of federal estate taxation.

As a real world example, imagine that you want to leave behind $1 million dollars to two different beneficiaries when you pass away. To leave this total of $2 million dollars, you will need to leave over $4.4 million in order to cover the estate tax that would be due off the top. Thus, $4.4 million left behind yields just $2 million dollars to your heirs. A well structured Grantor retained income trust could mean the difference in paying $2.4 million in estate tax to just $1.4 million, roughly.

Advantages and Disadvantages to the Grantor retained income trust

The biggest advantage when establishing a Grantor retained income trust is that the assets that are transferred to the trust from the grantor are valued at a discount for federal gift taxation. The amount of the discount depends on the length of the initial term of the trust and the applicable federal rate that governs the truth during the month that the trust was created. The biggest disadvantage to the Grantor retained income trust is that children and grandchildren cannot be beneficiaries for the trust’s remaining assets when the term of the trust ends.

To find out if a Grantor retained income trust is the right type of trust for your estate, consult with a local estate planner who can explain the intricacies of this trust and help you make a more informed determination of which trust best suits your individual financial needs and objectives. Another disadvantage of the Grantor retained income trust is that it is irrevocable and once it is created, the terms cannot be changed.

Benefits of Testamentary Trust

Many times, individuals choose to create this type of trust to protect their minor children or a loved one with a disability who will inherit a large sum of money when the individual passes away. Depending on the period of time that the trustee must act for the trust, the trustee will have to go to probate court and have the trust monitored by the court. Due to this fact, the testamentary trust can become costly over time, especially when compared to a revocable living will. Further, if the trustee requires legal advice on the administration of the testamentary trust, these legal fees are typically deducted from the trust itself, which means that less money is available for the beneficiary when the trust expires.

A Word about Choosing a Trustee

It is important to keep in mind that creating a testamentary trust also means appointing a trustee for the trust. Choosing the right person is important, and discussing the prospect with them before the creation of the trust is equally as crucial. Some people may refuse to act as trustees, and in this instance, the court will appoint a trustee, or a friend or relative may volunteer to become the trustee. The better alternative is to discuss the matter with a trustworthy family member or other individual before the trust is drawn up to make sure that they are willing to stand as trustee upon your death. Even though the court oversees the trustee, it is always in the best interest of the beneficiary to choose someone that you know to be honest and of high character, as they will be essentially in control of the testamentary trust until the child reaches the age or other stipulation indicated in the trust.

Weighing Your Options

Most attorneys and financial or estate planners typically advise against the creation of a testamentary trust and suggest, instead, that a revocable living will be drafted instead. Nonetheless, if both parents or even a single parent has a substantial amount of life insurance that would be payable upon their death, the testamentary trust may be the best way to dictate terms for providing for their children if they were to pass away unexpectedly. To determine which type of trust is best in your situation, contact a qualified estate planner in your area.

The spendthrift trust is designed to not only benefit the beneficiaries of the trust, but to also protect the assets within the trust from the beneficiary’s creditors. A spendthrift trust is irrevocable. And although the word ‘spendthrift’ may appear to indicate that the beneficiary has a poor history with their finances or problems with excess spending, this may not always be true. In fact, most types of irrevocable trusts have a spendthrift clause. This is merely a measure that will protect the assets of the trust from the beneficiary’s creditors, including existing and future creditors, as well as to guard against any monetary judgments that might become attached to the trust at some point in time. Nonetheless, the spendthrift trust can and is often used to curb the poor spending habits of one or more beneficiaries of the trust.

Benefits of the Spendthrift Trust

The spendthrift trust is obviously a good choice when one’s heirs lack the ability to properly manage money or other assets. It can provide a lifetime of income or financial support. The way that the trust is set up, the beneficiary will be unable to sell, assign, transfer, or pledge any assets within the trust, so it will provide the person establishing the trust with the peace of mind that the beneficiary’s financial needs will be taken care of for as long as possible. In effect, it protects financially irresponsible beneficiaries from themselves.

When a spendthrift trust is drafted, you will need to name a trustee that will have the power to disburse assets within the trust to the beneficiary as the trustee sees fit, or you can create language within the trust that allows for a certain amount of money to be dispensed to the beneficiary at specific intervals of time. In general, a trust is not considered to be a spendthrift trust unless the trust instrument outlines the trust settler’s (person establishing the trust) intensions that the trust be treated as a spendthrift trust. It is also important to note that although the spendthrift trust can protect the beneficiary’s assets within the trust from most creditors, there are some types of creditors that can attach themselves to the trust in order to recoup monies owed by the beneficiary. For example, if the beneficiary owes alimony or child support, the spendthrift trust can be invaded in order to satisfy these financial obligations. In some instances, an outstanding debt to the Internal Revenue Service can be taken from trust assets, too.

How the Special Needs Trust Effects Benefits

A disabled adult, under Social Security Administration rules, cannot be the owner of more than $2,000 in assets, exclusive of a home and a car, and still qualify for benefits under the Supplemental Security Income or SSI program. Being eligible for SSI is very beneficial for a disabled person as it also makes the person eligible for other benefit programs, like food stamps, and Medicaid, a program that pays for medical expenses, mental health services, and nursing home care. Being eligible for Medicaid also makes the disabled person eligible for a sundry of other community services that they might otherwise not qualify for. These benefits can enhance the disabled person’s quality of life. The special needs trust makes it possible for you to bequeath property or assets to a disabled child while not affecting the child’s eligibility for these valuable programs.

A Viable Alternative

While it often seems that the best course of action is to leave a particular amount of money to an immediate family member and trust that they will spend the money on the child, this line of thinking doesn’t always work. The money is then subject to judgments against that relative, or to the relative’s creditors or jeopardized during a divorce proceeding. The money could also be lost in bankruptcy. There is no way to legally force a relative to spend the money on the disabled child by simply leaving it to a relative who has promised to do as you wish with the money. And should the relative die before the disabled child, the money that you left for the child might be given to the relative’s heirs! For this reason, it is invariably a better alternative to establish a special needs trust for the child.

How the Child Can Use the Trust

A special needs trust will help you to avoid all of the problems discussed above. While the child’s monthly SSI or Social Security benefits can be used for the child’s basic needs, like shelter, food, and clothing. The money from the special needs trust can be used for other things that will enrich the child’s life, such as things for the child’s health, education, or well-being, like education, computer equipment, and so on. Trust money can also be used to pay for medical treatment that is not covered by the child’s Medicaid, such as orthodontic treatment.

To learn more about special needs trusts and how they may be a good option for your special needs or disabled child, talk to an estate planner in your area.

What is a Revocable Trust?

The revocable living trust is a type of trust that allows for the transfer of your property and assets into a trust throughout your life. There are four important parts (or as it may be, people) in a revocable trust, including you (the grantor), a person who will distribute and manage the trust as required by the trust instrument (the trustee), the people who will receive benefits from the trust (the beneficiaries), and of course, the trust assets that you transfer into the trust.

As compared to a will, which only comes into effect when you have passed away, a living revocable trust can go into effect during your lifetime. The trust is revocable, meaning that you can make changes to the trust as you see fit. This type of trust is established via a written declaration or agreement that appoints a trustee to administer and manage the assets in the trust. Any competent adult can establish this type of trust. Basically, the trust governs how your assets will be handled once you have passed away. As the trust’s creator or grantor, you can name anyone that you choose as the trustee, including a trust company or a bank, if that is your wish.

Advantages of the Living Revocable Trust

The most obvious advantage of the revocable trust is that it is just that – revocable. You can make changes and amendments to the trust instrument while you are still living, at your discretion. There are several other notable advantages of the living revocable trust that are worth mentioning, including:

* Revocable trusts do not have to go through probate, which makes it simpler, cheaper, and faster for your property to be transferred after you have passed away. This can be particularly helpful when your assets include real estate that is located in several states.

* Revocable trusts preserve privacy. This type of trust allows for personal assets that are being transferred to remain private within the given constraints of the trust instrument. This is particularly appealing when you wish to avoid having your assets exposed during the probate process.

* Revocable trusts eliminate challenges to your estate. A will can often create a situation where one family member disputes the will at your death, which is a long, drawn-out process that can often leave huge rifts within the family. This type of trust can be written in language that prohibits a challenge to the desires you have for your estate; in fact, some grantors choose to posthumously disinherit anyone who challenges their last wishes.

To determine if the revocable trust is a good choice for you, consult an estate planner in your area.

How to set up a Totten Trust

Setting up a Totten trust is simple. All banks, credit unions, and savings-and-loans offer this type of account, usually at no additional cost. Some brokerage firms offer a similar account, which is known as a transfer on death or TOD account. However, only thirty-six states recognize this type of account, so not everyone can benefit from it. The account can hold cash, U.S. savings bonds, and U.S. treasury securities. Oftentimes, the Totten trust is useful for setting aside funds for the account holders funeral and final expenses, although it may be set up for other purposes. The Totten trust is often referred to as a tentative trust, due to the fact that it is conditional upon the death of the account owner. This trust is also referred to sometimes by the term “poor man’s will” as it can be set up by people of modest means who might not otherwise afford the expense of drafting a trust instrument. The Totten trust can be useful in avoiding the fees associated by probate proceedings.

Advantages of a Totten Trust

There are several advantages to the Totten trust, including:

* The beneficiary of the account cannot have access to the funds within the account until the account holder passes away.

* A co-owner of the account can be named if desired. If a co-owner is named, the beneficiary cannot have access to the account funds until both the owner and co-owner of the account have passed away.

* The account does not need to pass through probate court upon death of the account holder.

* The beneficiary of the account can be changed at any time. Changing the beneficiary involves going to the bank and filling out paperwork to make the change.

* The account is insured by the Federal Deposit Insurance Corporation or FDIC separately from the account owner’s other accounts, up to $100,000 for each beneficiary.

Disadvantages of a Totten Trust

Inversely, there is at least one drawback to the Totten trust. In some states, an estate tax will have to be paid prior to the funds in the account being made available to the beneficiary. The Totten trust is not recommended for accounts that hold more than $20,000.

Charitable Lead Trusts

The charitable lead trust can designed to pay in two different ways – as a fixed annuity payment or a uni-trust amount to the charity. This means that the charity can be paid a fixed dollar amount annually or a fixed percentage of the fair market value of the assets in the trust. Many people choose the charitable lead trust when their assets have a high potential for appreciation in the future. This is often a trust that is well suited for donors whose heirs are still young and not capable of assuming control of a substantial amount of assets. In creating and funding a charitable lead trust, the grantor or donor makes final arrangements for the disposition of his or her estate, but defers the time when the beneficiaries can actually take control of and receive property. In the interim, the charity receives ongoing and immediate benefit from the trust. And when assets do eventually pass to the beneficiary or beneficiaries, they are not subjected to federal estate tax. One drawback to the charitable lead trust is that the donor cannot claim an income tax deduction on the contributions made to the trust, and may have to pay a gift tax on those contributions that are earmarked for the beneficiary. A charitable lead trust is not tax-free, although it does allow your heirs to bypass federal estate tax. Income generated by the trust above the amount that is paid to the charity is taxable and selling the appreciated assets within the charitable lead trust can trigger capital gains taxation.

Charitable Remainder Trusts

The least common type of charitable split interest trust is the charitable remainder trust. It can be considered the exact opposite of the charitable lead trust in many ways. The charitable remainder trust will first pay the beneficiary before being permanently awarded to the charity. This is a tax-exempt trust and can be useful for those donors who wish to sell appreciated assets in order to reallocate their money to a more diversified portfolio or to create an income stream, either for themselves or for their beneficiaries. Another difference between the two is that the charitable remainder trust allows for a tax deduction for funds to the trust that are equal to the value of the charitable remainder interest. And even though the assets in charitable remainder trust will be ultimately given to the charity free of tax, including estate and gift tax, any income received by your non-charitable beneficiaries is taxable.

This type of trust requires that a fixed percent of the trust’s assets annual value be credited to the income beneficiary (you, or whoever you designate as the beneficiary), at a minimum of five percent. If the trust has not made enough money to pay that amount, the deficient amount is made up in later years when the trust has more income or income that is in excess of the required set percentage for preceding years.

When a deferred annuity contrast is utilized for funding of a net income with make-up charitable remainder unitrust, then the trustee has full discretion as to the timing of the payouts or distribution of trust income, and thus, unlike other charitable remainder trusts, this type of trust can allow for income to build up. For this reason, funding the trust with an annuity allows for more flexibility and control of income. And because the trust has exemption from tax, the buildup of income is also not taxable.

It is important to note that unlike other charitable remainder trusts, the net income with make-up charitable remainder trust will not allow for the principal to be invaded in order to pay out income to the beneficiary. If the income within the trust is not sufficient to meet the amount of payout, the beneficiary will have to wait until a time when the income exists to make the payment. Nonetheless, until that time, the beneficiary’s funds will accrue, and once the income is sufficient to pay the beneficiary, the beneficiary will receive the entire built-up income within the account.

The ideal donor for a net income with make-up unitrust is a person who does not need the income immediately and who can sustain themselves with other sources of income in the interim during periods when the trust may perform at a level that is less than expected. Typically, if income is anticipated to begin within five years, this type of trust is not the right trust instrument for the donor. For those who are not in immediate need of income and who can live comfortably without the payout from the trust, the NIMCRUT is a viable trust instrument.

The best way to determine the right type of charitable trust for your particular situation is to work closely with an estate planner who can give you personalized advice on the type of trust that will meet your needs and goals.

Benefits of the Charitable Remainder Unitrust

There are several advantages to the charitable remainder unitrust, with the most obvious being that it provides a variable payment structure with income for your lifetime. You can choose multiple beneficiaries for this type of trust, and the assets that you transfer to the trust can be reinvested under the discretion of the trustee for the trust, and the trustee can be you, if that is your wish. This type of trust also allows for flexible investment possibilities for the beneficiary.

With a CRUT, you designate the income beneficiaries and name the charitable remainder beneficiaries. You also decide on the payout rate for the charitable trust, and you determine the frequency of trust payments. You also select the term of the trust, unless the trust expires upon your death.

Types of Charitable Remainder Unitrusts

Charitable remainder unitrusts can be broken down into four sub-types. They are:

* Standard CRUT. This type of trust pays a pre-determined amount from the trust without regards to how much income the trust earns. This payout is a stated percentage of the assets of the trust as valued each year.

* Net income CRUT. This type of trust pays a pre-determined amount from the trust provided the payout does not invade the principal of the trust. This payout is also a stated percentage of the trust’s assets as valued each year.

* Net income with makeup CRUT. This trust will pay a pre-determined amount from the trust provided the payout does not invade the principal of the trust, but this trust also has the ability to “make up” income in the years that follow is the income is less than the pre-determined amount.

* Flip CRUT. This type of trust converts to a standard unitrust when a specific date occurs, or a pre-determined event takes place, like a death, a birth, or other contingencies.

As with any type of trust, consult your financial or estate planner to find out if the charitable remainder unitrust is the best trust to secure your financial future.

Generate Income Stream Now

Simply put, trusts allows for you to transfer your property and assets into a solitary group. A charitable trust allows your assets and property to provide you with income during your lifetime with ownership reverting to the charity after you pass away. The charitable remainder trust has two beneficiaries. In many instances, one of the beneficiaries is you or your spouse (or both you and your spouse), and the other is the charity or other tax-exempt organization that you wish to support or gift. During your lifetime, you will receive a certain percentage of income from the charitable remainder trust. When you die, the charity will receive the remainder interest (whatever is left). If your spouse also receives income from the trust and survives you, your spouse will continue to receive income, too, until the time that they pass away.

Control of the Trust

A main benefit of the charitable remainder trust is that in some instances you will be allowed to be the trustee of the trust, which gives you the power to make decisions in regards to the trust’s assets, including choices about investments and so forth. The charitable remainder trust is an irrevocable trust, but in some instances you can change the beneficiary of the trust if you wish to do so. This will allow you a certain level of personal freedom, especially if, after establishing the trust, you decide that a different charity is more worthy of the gift you want to leave behind.

The charitable remainder trust also allows you to choose the amount of income that you will receive from the trust each year. Under Internal Revenue guidelines, five percent of the value of assets within the trust must be distributed annually. You can choose to value these assets for distribution when the trust is funded or on a yearly basis. Many beneficiaries elect to take more, but it is usually advisable to take no more than ten percent of the value of the trust in distributions.

Tax Breaks

Another advantage of the charitable remainder trust is that the profit that is generated from the trust is not subjected to the capital gains tax, since you are benefiting your charity. The charitable trust can be exceptionally useful when it comes to assets that are highly appreciated but have limited potential for producing income. In avoiding capital gains taxation, more of your money will go to your charity and not the government. You can also get a deduction on your income tax because your charitable remainder trust supports a charitable cause. Nonetheless, please remember that income that is generated from assets in the trust (that you receive) is taxable.

The typical donor in a charitable remainder annuity trust is someone who desires an income stream for their lifetime or a specific number of years. The ideal donor for this type of trust does not plan on is usually between the ages of fifty-five and eighty and has no plans of making additional gifts to the trust in the years to come.

Benefits of the Charitable Remainder Annuity Trust or CRAT

There are many advantages to the charitable remainder annuity trust, including:

* Provided fixed income payments for life, or for another time period that you designate.

* Allows for more than one beneficiary.

* Assets that are placed in the trust can be re-invested, often as the donor sees fit, if he or she is made trustee of the trust.

* The investment of assets within the trust is designed to balance preservation of the trust’s principal with income.

Making a Gift via CRAT?

After consulting with an estate planner and determining that the charitable remainder annuity trust is in your best interest, a trust instrument or document will be drafted that meets the needs that you have. Your assets are then turned over to the trustee of your choice, if applicable. The assets within the trust may be sold by the trustee and then reinvested in order to match the income objectives and goals that you have. You will receive a fixed income payment for your lifetime or for a specific number of years. When you die or the trust expires, the remainder of the assets in the trust will be transferred to your charity.

Tax Breaks from Charitable Remainder Annuity Trusts

The IRS (Internal Revenue Service) has a specific formula that is used to determine the amount of tax deduction that you can receive from a charitable remainder annuity trust. This formula is based on the age of the donor(s) at the time that the trust is established, the payout of the trust, and the applicable federal rate, which is an IRS index rate. Basically, the older you are, the larger the deduction. Likewise, if the trust is set up for a period of years rather than a lifetime, the deduction will also be greater.

Benefits of Generation Skipping Trust

A generation skipping trust is a good choice for wealthier families to be able to transfer their assets from the older generation to their grandchildren or great grandchildren without making their assets vulnerable to estate or so-called death tax. This is often the best option when the grantor’s children are financially comfortable and the grandparents want to provide for their grandchildren and great-grandchildren instead of bequeathing all of their assets to their surviving spouse and children. After all, in the long range scheme of things, these assets will likely be distributed to the grandchildren and great-grandchildren eventually, albeit quite a number of decades into the future. In this way, the generation skipping trust allows for all descendents to benefit the most from assets in the trust without the harsh imposition of estate or death tax when the children die, and then again when the grandchildren pass away.

You Don’t Have to Be “Rich”

While some types of trusts seem to be designed just for the super-wealthy, you don’t have to be “rich” in order to benefit from a generation skipping trust. Let’s assume that a child in the second generation has gone through a less than amicable divorce. Because the assets in the generation skipping trust won’t legally belong to the ex-spouse, the divorcing spouse will never be able to claim a share of the trust’s assets. In the same way, if a child starts a company and the company later goes under, the assets in the trust cannot be tapped into to pay the debts of the child as the child does not own the assets. Other financial catastrophes that might occur, like an uninsured car accident or a large gambling debt, would also not affect the trust. For a child that might be a spendthrift, this trust will allow the child to have access to trust assets but not in control over the timing of distributions of those assets.

Generation Skipping Trust Limitations

A generation skipping trust can only go so far to protect an estate. The limit that can be transferred into this type of trust is $2 million per person that can be left in the trust. The generation skipping trust can be created at any time during one’s lifetime, and lifetime transfers to that trust can be made in amounts up to $1 million. Any type of asset that has the potential to grow appreciably is a good candidate for a generation skipping trust. Assets such as stock are perfect for this type of trust because the trust is not taxable. Likewise, life insurance policies are often safe in a generation skipping trust.

Some professionals request that their parents put their estates into a generation skipping trust. For example, a doctor who has an enhanced risk of liability may see the generation skipping trust as a way for their parent’s estate to be protected from creditors while the assets are still available to him.

If you believe the generation skipping trust may be right for you, discuss your concerns with an estate planner.

How Does the Credit Shelter Trust Work?

Usually, this type of trust is funded via assets that are adequate to fully utilize the federal estate tax exemption, which is often called the applicable exclusion amount of $3.5 million of the first spouse to pass away. The credit shelter trust may be funded during the lifetimes of the spouses, or at the time of death of the first spouse to die. A surviving spouse may be given restrictive access and control over the assets in the credit shelter trust. The trust can be set up to give the surviving spouse an annual income that is earned by the trust, to withdraw $5,000 or five percent of the trusts’ principal for any reason that he or she sees fit, to use the trusts’ principal when necessary for health, support, education, or maintenance.

Let’s look at a real world example. Let’s assume that Bill and Hillary have a little over $6 million in assets. If Bill were to pass away, leaving everything to Hillary, there would be no federal estate tax incurred because existing law allows for an unlimited amount of money and property to pass to a spouse without such tax being due. Now, let’s assume that Hillary will live off the earnings and interest on her $6 million estate for her remaining lifetime. When Hillary dies, her entire estate passes to her children. If Hillary were to pass away in 2010, $3.5 million of her estate would be exempt, but the excess ($2.5 million) would be subjected to an estate tax of around forty percent. At that rate, the Internal Revenue Service would see a nice, fat check for over one million dollars. Bill and Hillary’s children would receive around $1.5 million of the un-exempt amount.

Had Bill executed a will that left an amount that was equal to the available exemption in a credit shelter trust, and the remainder of his estate was left to Hillary. Let’s also assume Bill passed away in 2008. Bill’s estate ($3 million) would pass to the trust without incurring tax. Hillary can then live off the earnings of her estate and also on income earned from the trust, tapping into the trust when she needs to for approved purposes. Then when Hillary dies, her estate would be able to use the $3.5 million exclusion so that her children do not lose a big part of the estate to estate tax.

In a nutshell, that is how a credit shelter trust works. Many couples fail to realize the true worth of their estate and thus don’t properly plan their estates and take advantage of the credit shelter trust. Once you factor in payouts from life insurance policies, homes and real estate investments, as well as other assets, your estate can quickly skyrocket to the $3.5 million range. Talk with an estate planner to find out if the credit shelter trust is right for your financial future.

Restores Assets and Property to Rightful Parties

Preventing undue enrichment or unlawful gain is the basis for the creation of a constructive trust. This usually happens when a person disposes of property of another person knowingly when the disposition is wrongful. In the event that the property becomes more valuable than the property that was used to acquire it, the profit that is made by the wrongdoer cannot be given to him, but to the person whose property was initially used in making the profit. In a nutshell, the constructive trust can be thought of as a trust that is created by the court to benefit a party that has been wrongfully deprived of its rights.

The following instances may cause a court to order that assets and/or property are placed in a constructive trust:

* A mistake, duress, or undue influence. Mistakes like conveying property to the wrong person or receiving property or being unjustly enriched due to being unduly influenced (by threat, violence, threats of violence and so on) can merit the creation of a constructive trust.

* Fraudulent misrepresentation or concealment. This might happen when someone pledges to use an asset for one purpose but fails to do so.

* Property obtained by murder. This is the case in instances where property is obtained by will or through intestacy when the decedent who originally owned the property or asset was intentionally and wrongfully killed by the heir or beneficiary.

* Gifts by will or via intestacy that are based on a broken promise. If a grantor believed that a beneficiary would perform a certain act as a condition of being given property or assets when the grantor dies, but the beneficiary fails to do so, a constructive trust may be ordered. This may be the case when a decedent was encouraged or persuaded to die without a will and was relying on an oral agreement with his heirs and beneficiaries to execute his wishes.

This is by no means an all-inclusive list. There is a broad range of reason and numerous acts that may qualify for the establishment of a constructive trust action.

How the Charitable Trust Works

The most commonly used charitable trust is known as a “charitable remainder” trust. This type of trust usually involves you setting up a trust and transferring the property that you want to donate to the charity to the trust. You must choose a charity that has tax-exempt status under the Internal Revenue Code. The charity will serve as a trustee of the trust, and as such will manage or invest the property, which will likely produce income for you. Income from a charitable trust can be received either as a fixed annuity or a percentage of trust assets. The charity will pay you (or your representative) a portion of the money that is generated by the trust for either a particular number of years, or in some instances, the rest of your life. You will specify the payment period in the documents of the trust. When you pass away, or at a time you specify, the property will go to the charity.

Tax Advantages of Charitable Trusts

Besides helping out the charity of your choice, you will enjoy several significant tax advantages from a charitable trust, including:

• Income tax savings. You can take a deduction on your income taxes for five years, for the value of the gift that you make. It is somewhat complex, however, to determine the deduction amount, as you must deduct the value of the income you will most likely receive from the property from the amount of the deduction. For instance, if you donate $200,000, but expect to receive $50,000 in income back, your gift value is $150,000.

• Estate tax. Because the trust property will go to the charity either at or before your death, it will no longer be included in your estate, which means that it is not subject to federal estate taxes.

• Capital gains tax. By setting up a charitable trust, you can transform appreciated property into cash without paying the capital gains tax on the profit made. Charities do not pay capital gains tax, so if the charity sells the gift, the proceeds will stay in the trust and are therefore, not taxable.

Types of Charitable Lead Trusts

There are two types of charitable lead trusts, the charitable lead annuity trust and the charitable lead uni-trust. The charitable lead annuity trust involves a donor setting a fixed annual gift for the charity or charities in the trust. In the charitable lead uni-trust, the charity or charities will receive a percentage of the value of the trust each year, with fluctuating benefits based on the returns or losses of the trusts’ investments. Because the charitable payments in an annuity type charitable lead trust are fixed, it is more popular than the uni-trust. In the uni-rust, the assets in the trust grow and the percentage that goes to charity uses up more money, leaving less for the heirs at the end of the trust’s term.

Taxes and the Charitable Lead Trust

A donor that established either type of charitable lead trust will get an upfront deduction to their income taxes that are based on the payments that the charity receives from the trust. However, many donors opt to forgo the deduction because taking the deduction will trigger the payment of taxes on the investment gains within the trust.

Before considering a charitable lead trust, be sure to consider that this is an irrevocable trust, so once you have put assets in, you can’t take them back out. If the assets value goes down, the amount for your heirs could be less because the trust must make its payments to the charity regardless of what might be going on in the market. And since the money going to the heirs is a taxable gift, it will also lower your estate tax exemption. Consult your estate planner to find out if a charitable trust is the right trust for you and your family’s future.

One of the best features of the by-pass trust is that even though the money that you leave behind is “ear-marked” for your children, the surviving spouse can tap into the trust in order to pay for living expenses when needed. But since this money by-passes both estates, it will never be hit with federal estate tax. Your last will and testament must contain language that will place conditions on the by-pass trust, including limiting the surviving spouse’s power to access the trust and distribute the trust assets upon death. Setting up and executing the by-pass trust is fairly straightforward, but you will need a lawyer to help you. Most by-pass trusts are set up so that (with a large estate) $3.5 million will go into the by-pass trust when the first spouse dies.

How Big Is Your Estate?

Many people fail to see the need to set up a trust of any kind because they don’t understand the true value of their estates. With homes, life insurance death benefits, retirement accounts, and more being thrown into the mix at the time of death, it really is easier than you might think for an average working couple to find their estate subject to the federal estate tax. This brutal tax can take as much as forty-five cents of every dollar over $3.5 million that is left behind when you die. Others mistakenly interpret the unlimited marital deduction that allows you to leave everything to your spouse, tax-free. This deduction merely postpones the need to pay estate tax until the surviving spouse dies, at which time the heirs can only use the single $3.5 million exemption to reduce their tax burden, resulting in a potential loss of hundreds of thousands of dollars that can be avoided easily by setting up a by-pass trust. An estate planner can help you to better understand the value of your estate and help you to determine if a by-pass trust is the best option for you.

Basics of an A/B Trust

Under existing legal guidelines, spouses can bequeath one another a limitless amount of money when they pass away, without the worry of estate tax, due to an Internal Revenue Service tax rule stipulation. This deduction permits the first spouse that passes away to leave as much of their estate to spouse that is left behind as they wish to, free of tax. Nonetheless, when the surviving spouse passes away and passes their estate on to their heirs or children, the estate will benefit just from the remaining spouse’s tax exemption. In effect, the first spouse’s exemption is wasted. The A/B trust preserves the exemption of the first spouse to die. Thus, when the first spouse passes away, up to 3.5 million dollars can be placed into an A/B trust. Even when the surviving spouse dies, the A/B trust is not taxable.

The A/B trust starts out as a simple revocable trust until the first spouse dies. At that time, the trust is then divided into what are known as sub-trusts, trust A (the survivor’s trust) and trust B (the credit-shelter trust). The survivor’s trust will remain revocable and will contain the survivor’s property interest, with the surviving spouse being in control of the trust. The trust typically will be in receipt of all assets in excess of the applicable exclusion – currently 3.5 million dollars. The credit-shelter trust is irrevocable and is made up of the deceased spouse’s assets. These assets can pass free of taxes, equal to the unused applicable exclusion. This trust is engineered to be a bypass trust that can be passed from one generation to the next without triggering a transfer tax. The surviving spouse can use assets from credit-shelter trust for their needs.

A/B Trust Benefits

The benefits of an A/B trust include:

* Doubles the life-time exemption from the federal death tax or estate tax.

* Ensures that the surviving spouse is financially taken care of upon the death of the first spouse.

* For the surviving spouse, an A/B trust will allow for access to the income of the trust for their lifetime; the surviving spouse can use the principal of the trust for needs like health, maintenance, education, and support.

* Allows for the maximum benefits of the estate for children or other heirs.

* Prevents the surviving spouse from changing the beneficiary selection of the deceased spouse.

* May help to avoid or decrease federal estate tax burden when the couple’s estate value when the second spouse dies is higher than anticipated.

Although not all couples will benefit or need an A/B trust, even those married couples that do not believe that they will be affected by the federal death or estate tax should still determine whether they may be subject to any state estate tax. Further, since your assets may appreciate in value, you should also determine during estate planning if you may have a taxable estate in the years to come, as an A/B trust can be very beneficial to protecting your estate as outlined above. A regular review of your estate with an estate planner is the best way to make these determinations. The estate planner can advise you on adjustments that should be made due to changes in your net worth, personal circumstances, and tax code laws.

Selecting a Power of Attorney

Obviously, the person that you select as your power of attorney should be someone that you trust. This can be your spouse, child, parent, or other family member, or it can be a friend or even an attorney. As a good rule of thumb, ask yourself if you would be comfortable giving the selected person blank checks to your banking accounts. If not, they may not be the right person for the job as in essence, the person you choose will have access to your money. You can also give power of attorney rights to more than one person, which is sometimes the best option. When doing so, you can elect to have the two people (or more) act together when making decisions, like signing a withdrawal from your bank, or you can give separate powers to each. Keep in mind when selecting a power of attorney that no one will supervise the person that you select, which makes the role of power of attorney open to abuse and misuse. For this reason, selecting a person that you highly trust is of the utmost importance.

Revoking a Power of Attorney

The person that you select to give power of attorney to is known as your agent, or sometimes, your attorney-in fact. The power of attorney rights will remain in effect unless they are revoked or cancelled in writing. If you appoint a power of attorney and then discover that you no longer trust the person you selected or wish to choose another person, or none at all, you can do so at any time by signing a revocation of power of attorney and sending it to the agent, advising him or her that he or she no longer has power of attorney over you. This revocation must also be sent to anyone else, including your bank that has relied on the power of attorney relationship that had been established. If you filed your power of attorney with your local county clerk, you will also need to file the revocation of power of attorney with the clerk.

Because modern life support systems can keep a person alive for many years, even when the person’s brain is no longer functioning, a living will is a must for those who feel strongly about not being kept alive artificially. The living will can also be used to appoint a person who can make important medical decisions for you if you are not able to do so yourself. A living will can be used to indicate whether or not you wish to die naturally or if you wish to be given artificial resuscitation and nutrition.

There are some compelling reasons that you need a living will, including:

* A living will take the burden of decision-making away from your loved ones. If you do not have a living will, someone else will have to make decisions that can mean life or death for you. That is a horrible predicament to put others in. If your family has to make a decision to cease life-saving measures, the burden will be felt for years. A living will takes this burden away.

* A living will helps you to avoid incurring expense for your loved ones. While the decision to receive life-sustaining medical care should never be based on finances, it can cost thousands of dollars a day to sustain life artificially. If you do not wish to have artificial treatment, a living will can keep this expense from piling up on your loved ones and the cost of your treatment being taken from your estate.

* A living will puts you in control. A living will allows you to specify the type of treatment that you want and do not want.

It is important to remember that having a living will in place does not take away your right to make your own decisions now. The living will only goes into effect when you are no longer able to make your own decisions or unable to communicate your wishes. It is also vital to understand that even if you have discussed your beliefs and wishes about end-of-life medical care with your family and loved ones, it does not mean that they will choose to honor them. Absent a legal living will, your wishes, no matter how vocal, are not binding and there is no guarantee that what you envision for the end-of-life will be what your loved ones envision.

While no one likes to consider dying, it is important to think about what would happen to your assets should you pass away.  When an individual dies intestate, which means lacking a will, the person’s assets are distributed in accordance with the intestate laws set out by the laws in the state where they live.  Each state has its own laws, although many are similar.  For example, in some states, the surviving spouse of someone who dies intestate will receive all of the assets.  In other states, the spouse may be given one-third or one-half of the estate and the children will divide the rest equally.  In some states, the spouse and children get equal portions of the estate.  Dying intestate can leave behind a slew of complications for your survivors.

For example, if you live in a state where your surviving spouse and children divide your estate equally, and your children are still young, the surviving spouse will have to account for each child’s share of the estate separately until the child reaches the age of majority (usually eighteen) in your state.  Or your surviving spouse may be left with too little to properly care for your children after your death (or at very least, have to cut through mounds of red tape to do so).  If you are unmarried, or living in a civil union that is not recognized under the law in your state, your will can allow you to protect and provide for your loved ones after you are gone.

Other reasons to make sure that you have a last will and testament and that it is up-to-date with your wishes include:

• You can make your wishes regarding custody and guardianship of your minor children known.
• You can ease your family’s burden.  If you don’t have a will, you are placing an unnecessary burden on those you love. When you die, they will be responsible for handling your personal affairs.
• You can make decisions now, while you are in the right state of mind to do so.  Many people put off making a will until it is too late.  While we all want to live forever, unexpected death or even mental incapacity can occur at any time, leaving you with no chance to plan your affairs or make your last wishes known.
• You are protecting your family.  Your last will and testament gives you the peace of mind that your loved ones are properly provided for.  Children with special needs or handicaps may need to be given a greater portion of your estate. Your will can be written to accommodate these circumstances.
• You can reduce dissension among surviving loved ones.  With a thoughtfully written will, the risk of your loved ones becoming bitter or angry at one another is reduced.

• bank accounts, money market accounts, and certificates of deposit
• business interests
• digital assets, like websites or domains
• patents, royalties, copyrights and other intellectual properties
• personal belongings like artwork, jewelry and furnishings
• real estate, including your primary residence
• retirement accounts
• stocks and brokerage accounts

Who Do You Want Handling Your Affairs?

Along with inventorying your assets, you will also need to select an executor or executrix (sometimes called a trustee) to execute the terms of your last will and testament and represent the estate in probate court.  The executor will be responsible for administering the estate and getting the process of probate started, manage your assets during probate, and handle court-supervised probate tasks, like transferring property to your beneficiaries and paying your final debts.

The executor is a fiduciary who acts in good faith to handle your final affairs.  The executor should be a trustworthy and honest person who is capable of fulfilling the duties required of him or her.  It is always wise to discuss the appointment of an executor with your family, and to make sure that the person is willing to act in this capacity when you pass away.  It is convenient to choose an executor who lives in your state in order to make it simpler to attend court and take care of necessary paperwork.  The surviving spouse is an obvious choice.  Other choices for executor are grown children or close relatives.  In some instances, people choose to make an attorney their executor in order to avoid conflict among their survivors.  Make sure that your executor knows that you have a will and where it is located.

Discussing Your Wishes with Your Loved Ones

While you do not have to discuss your will with anyone, it is often wiser (and easier on the emotions of your family later on) that you discuss your will with your family.  There are several reasons for this.  Obviously, it is pleasurable to let people know what they will inherit upon your passing.  Discussing your wishes can also clear up confusion and reduce tension after your death.  Inversely, there may be reasons that you want the contents of your will to remain undisclosed until you pass. Whether to discuss your wishes with loved ones or not is a decision that only you can make, and should be based on your particular situation and your level of comfort in having the discussion.

Understanding Bonds

Bond funds are often a good way of reducing risk while providing a dependable level of fixed income. They tend to be more stable as compared to many other forms of investments, which makes them a good addition to almost every portfolio. In many cases, the primary purpose of owning a bond fund is the ability to have a steady income stream, since these funds focus on income instead of capital appreciation. They are a good choice for somebody who is retired who may be looking to supplement their income. However, for the person looking to grow their investment, such as a younger person who is saving for their eventual retirement or parents saving for their child’s college education, other kinds of investments that focus on growth would probably be a better choice. Bond funds are commonly part of a conservative investor’s overall portfolio.

A low level of risk is also a feature of a bond fund. As a general rule, if a person holds a bond until it matures, they will receive the bond’s principle. However, there is always a risk of a default on the bond, which must be factored into the decision to invest. For this reason, it is always a good idea to closely research bonds before investing. For example, bond funds that invest in mortgage-backed securities will almost always carry more risk than a fund that invests in government-backed securities. Risk is also lowered because a fund generally purchases a number of different bonds, so the fund will likely still produce income even if one bond fails to perform. This can make investing in a bond fund more advantageous and less risky than investing in individual bonds. These funds are also professionally managed, further reducing the risk for the investor.

Understanding Income Funds

In addition to bond funds, there are other kinds of income funds which can be used to produce a fixed income. Income mutual funds generally invest in equities, debt, or a combination of the two. They usually have a good level of diversity, and are professionally managed. Income funds generally pay dividends or interest each month, and sometimes even pay both. There are many different kinds of income funds available, some of which consist of domestic investments while others focus on global or international investments. Fixed-income funds usually invest primarily in securities with stated interest rates and set maturity dates. Depending on the securities included in the fund, they can be a good choice for either a conservative or an aggressive investor. However, it’s important to understand that the return on an income fund is largely dependent on the interest rate.

Balanced funds are a great solution for investors who are looking for a combination of income, relatively low risk, and a modest appreciation in capital. Balanced mutual funds are set up in a way that combines bonds, stocks and sometimes even money market investments, all in set proportions. These funds are hybrid in nature, due to the fact that they combine several different investment methods. Depending on a person’s investment goals, there are balanced funds which are designed to maximize the fixed-income component, or the equity component of the investments. The asset mix is not changed within balanced funds, as the amount invested in each class of assets is usually required to remain within a certain designated range.

Understanding Balanced Funds

Balanced funds are designed to create low risk while providing consistent growth. Because they are made up from a mix of investments in set proportions, balanced funds provide a good deal of diversity. They usually include some common stocks in the mix, which helps to provide the growth component of the investment, without creating undue risk for the overall fund. There are often other types of stocks included as well. A combination of short-term and long-term bonds are commonly included as part of a balanced fund. Finally, many balanced funds also include cash or money market holdings as part of the investment mix. A balanced fund does not set its strategy by using equal proportions for each of the various investment components. Instead, the proportions are determined by a set strategy determined by the projected performance potential and risk factors. By taking both performance and risk into consideration, a balanced fund is designed to provide a steady amount of growth, even if one or more of the components experience a loss during a specific month. Because the investment is balanced, diversified and based upon a strategically determined mix of investment components, they provide a modest return with minimal risk. However, market changes can sometimes affect a balanced fund to the point where one component must be replaced by a similar type of investment, in order to remain profitable. Although components can be replaced over time based on the state of the market, the overall proportions of the mix are maintained, thus keeping the fund “balanced.”

Advantages of Balanced Funds

Balanced funds are a good solution for people who want an investment that grows in value while still producing an income. They are useful in both “bear” and “bull” markets, minimizing losses due to their diversity during a bear market, while providing growth during a bull market. However, it’s important to remember that they will generally produce a more modest level of growth as compared to riskier and more aggressive investments, even during a bull market. When choosing a balanced fund, it is important to choose one that meets your investment needs. Although all balanced funds are made up of a mix of investments, some are designed more aggressively with a higher proportion of growth stocks, while others are more conservative and include more bonds for income production.

Planning for Asset Protection

Because most people are not familiar with all the various rules that regulate asset protection, it is generally advisable to work with a professional planner or an attorney. Performing an asset risk analysis is often the first step. It’s important to take stock of your current financial assets, any existing current business ventures as well as any ventures you plan to pursue in the future. Your occupation and family situation should also be taken into consideration. The likelihood of future liability and exposure should also be analyzed, along with the size of your estate and the kinds of assets you possess. Examining all these factors will help determine your level of risk and exposure, which can be useful when deciding on the best plan to protect your assets. Scenarios can then be evaluated which can help determine what level of protection is needed. Although some asset protection planners do have pre-packaged solutions that they often use, it’s usually best to work with a planner who will customize a solution to meet your exact needs.

What Assets Should Be Protected?

The answer to this question of course depends on each situation, but as a general rule, cash, real estate and income stream are among the easiest assets to seize. Laws vary by state in regards to what assets are considered to be exempt versus non-exempt. Understanding the state laws is very important when planning asset protection. Protecting your non-exempt assets is of course of the utmost importance, but you shouldn’t count on exemptions for asset protection. If there is any perceived level of risk to your assets, even if they are currently considered to be exempt, you should plan to protect them.

Asset Protection Methods

There are a number of different asset protection methods that are often employed. Limited partnerships and family corporations can be good ways of separating and protecting your personal and business assets. Gifting property to children and other family members is also a method that is commonly employed. Even the temporary transfer of assets to the account of another family member can be a useful strategy under some circumstances. In some situations, asset planning can also have additional benefits, such as potential tax savings and the peace of mind that comes with knowing that your estate has been planned for. As part of a comprehensive plan to protect one’s assets, it is common to consult with a combination of estate planners, CPAs, financial planners, asset professionals, and attorneys, in order to make sure all risks have been accounted for.

Choosing the Correct Kind of Trust

Although revocable trusts are commonly used to avoid probate, they are generally not sufficient for asset protection. Instead, irrevocable trusts are generally used to truly protect assets. An irrevocable trust can provide protection from frivolous lawsuits, as well as a method for avoiding certain estate taxes and the probate process. Irrevocable trusts are also commonly used as a means of avoiding “spend-down” provisions before a person enters a nursing home.

Understanding Asset Protection Trusts

When an irrevocable trust is put into place, the person owning the assets essentially gives complete control to a Trustee, who is then responsible for managing and protecting the assets. It is essential that an asset protection trust be set up by somebody who is very familiar with the laws governing these kinds of financial arrangements. It must also be set up in a jurisdiction which has laws in place to support this kind of trust. A majority of these trusts are set up in offshore locations, because their laws are conducive to this kind of asset protection. However, there are also certain states that have laws in place to support these trusts, such as Alaska, Nevada, Rhode Island and Delaware. Once the financial assets are placed into the trust, they usually cannot be seized, even if you are sued or file bankruptcy.

Who Can Benefit From an Asset Protection Trust?

Although many people think that only large corporations and wealthy individuals need an asset protection trust, they are actually becoming more popular with business executives, accountants, doctors and other professionals. The proliferation of lawsuits has help to increase interest in these kinds of trusts, even among individuals who do not have an exceeding large amount of assets to protect. For example, one frivolous lawsuit might be all it would take to cause irreparable financial damage to an individual or business. In some cases, professionals such as physicians are utilizing asset protection trusts instead of malpractice insurance, due to the skyrocketing cost of this kind of insurance.

Legal Issues

When setting up an asset protection trust, it is vitally important that they be set up correctly, and for the right reasons. The courts will generally rule against a trust if it is set up after legal actions have already been started against an individual. They should also never be set up for the purpose of income tax evasion. Working with an attorney or someone who specializes in these kinds of trusts is the best way of protecting your assets, while staying on the right side of the law.

Why is Asset Protection Needed?

There are many situations where one’s assets could be at risk. In many cases, companies and individuals employ methods that help to protect their assets from future creditors. This can be especially important for entrepreneurs or those who own their own business or practice, since they can often be the target of law suits and other actions that could jeopardize assets. These techniques are designed to deter creditors from taking action, or at least making it more difficult to do so if they try. When handled correctly, asset protection can make it impossible or at least quite difficult to seize assets or collect judgments that could jeopardize assets. Of course, it’s important to understand the laws that govern asset protection techniques, because there is sometimes a fine line between methods that are perfectly legal and those that would fall under the category of trying to defraud creditors. Because most people are not well-versed in these laws, it’s a good idea to seek the advice of an expert.

Understanding the Different Forms of Asset Protection

Just as there are many different financial situations, there are also many different ways to use asset protection. In its simplest form, it could mean transferring money temporarily into a friend or family member’s account to protect it. In other cases, it could involve setting up one or more corporations so that your personal assets are kept separate from your business liabilities. This is a common technique used by entrepreneurs and small business owners to protect their personal property in the case that their business is sued. When a corporation has been set up, a law suit would only be able to seize business assets, while personal assets would be protected. Asset protection is also frequently used by the elderly as they prepare for the time when they apply for Medicaid. Because there are regulations in place that limit the amount of financial assets a person can have in order to qualify, people often transfer money to their children or other family members well in advance in order to prevent the need to turn over their savings to the state. Asset protection is also frequently employed to protect assets and avoid excessive taxes and legal problems after a person’s death. When handled correctly by someone who understands the laws governing asset protection, it can be a good way to safeguard one’s finances.

Estate Planning Attorneys

If you need legal documents drawn up, chances are you will require an estate planner who is also an attorney. There are attorneys who specialize in estate planning. These attorneys are very well versed in subjects such as wills, trusts, probate law and estates. The requirements for becoming an estate planning attorney vary according to the state in which they practice, but in many cases they are regulated by state bar organizations. Although there are certainly fees charged for estate planning, these fees are often minimal when compared to the loss of resources your family could experience if something would happen to you without having a good estate plan in place.

Financial Advisor Estate Planners

Financial advisors are also frequently consulted as estate planners. Although they will not be able to draw up the kinds of legal documents that require an attorney, they can certainly help you plan the finances concerning your estate. If you need help planning for the future in regards to what would happen if you should die or become disabled, a financial advisor who specializes in estate planning can help you determine what will happen to your investments, home, life insurance, benefits and other financial assets.

Why Do You Need an Estate Planner?

There are a number of documents that are commonly drawn up as part of the estate planning process. Most people are not familiar with these documents, so working with an estate planner can help you avoid costly mistakes. In most cases, there are advantages to working with both an estate planning attorney as well as a financial advisor who specializes in estate planning, since they focus on different aspects of the planning process. Documents which are commonly drawn up as part of the estate planning process include a will, a living will, a health care durable power of attorney, and a property durable power of attorney. Many people also choose to set up a living trust or a family limited partnership in order to insure that their property and financial resources are managed properly if something should happen to them. In some cases, there are also tax benefits to setting up arrangements such as a family limited partnership or a living trust. Proper estate planning can also prevent probate difficulties after your death. Although everyone should have an estate plan in place, it is especially important if you have minor children, property which you wish to distribute in a specific fashion if something were to happen to you, or if you want to have control over the health care treatment you receive if you become incapable of making the appropriate decisions.

Welcome to the “sandwich generation”. This is the stage in life when you could be caring for aging parents while still tending to many of the needs of your own children, juggling doctors’ appointments and dance recitals, piano lessons and drug reimbursements.

It can be a tough situation to manage, but there are steps to take to make it an easier one to handle.

The Graying Of America

The “baby boom” generation is big, with nearly 77 million Americans born between 1946 and 1964. That leading edge of that generation is now hitting traditional retirement age–and facing a potentially long time in “retirement.”

According to the U.S. Centers for Disease Control and Prevention, men who have already reached age 65 can expect to live another 17 years on average; 65-year old women average another 20.

Aging parents frequently require a high level of continuous care, often some kind of an institutional arrangement such as a nursing home or assisted living facility, but with costs averaging nearly $200 a day for a nursing home–and many seniors reluctant to surrender independence–many sandwiched kids try to keep tabs on their parents while still actively parenting their own kids. Hopefully, parents will have insurance or assets to pay for long-term care costs, as caring for three generations can easily lead to physical, emotional and financial exhaustion.

Funding Care

With the cost of long-term care easily reaching into the hundreds of thousands of dollars, planning ahead is essential. Generally, seniors rely on a combination of Medicare, private insurance and personal savings and other assets to fund their health care in retirement.

Because Medicare pays only for hospitalization and brief recuperation periods in nursing care, long-term care insurance is becoming a popular alternative. As with most insurance products, premiums are cheaper when you are younger and vary widely with the features of particular policies. Some offer a return-of-premium provision, survivorship benefits, and protection from inflation, in addition to other features.

Without insurance, you will either have to pay out of your pocket or begin liquidating your parents’ assets and using Social Security or pension benefits to pay for long-term care. Start with the most liquid assets first: cash, stocks, maturing bonds and certificates of deposit. It’s also important to maintain the tax-deferred status of IRAs and 401(k) plans as long as possible, and if your parents still own their home, try to wait until you’ve exhausted other means to sell it.

Preparing For Your Future

Caring for an aging parent can be a powerful reminder of the swiftness of time’s passage and instill a sense of urgency when it comes to securing your own finances. While taking care of your parents, you need to keep investing in your own retirement and consider contingencies for long-term care, whether that means extra savings or some type of long-term care insurance for you, and perhaps your spouse.

If you’re a parent, it’s unlikely that you have not noticed that raising kids can be costly. On top of the basics of food, clothing and shelter, there’s the cost of higher education and maybe even private schools before that. Keep in mind, however, that economics is about the allocation of scarce resources among limited needs and wants.

If caring for a parent and saving for your own old age are putting a crimp in your finances, you will need to prioritize. Put your self first and make sure you’re putting away enough to make it easier on your offspring to take care of you down the road before you pay out of pocket for their college. It will be hard to find a lender to give you money to retire, but loans, scholarships and grants can go a long way toward paying for school. Be frank with your children about whether you will be paying for things like weddings, cars, or Ivy League tuition.

Maintain Focus And Balance

Juggling the simultaneous needs of your parents and kids can be stressful in many ways, but with adequate preparation and plenty of patience you can make it work.

Communication is the key to preparation, so start the conversation with your parents, your kids, and your adviser about the challenges you face. Start today and put a plan in place that will meet your needs.

Tax savings and family harmony are two important byproducts of effective estate planning. Smart planning can maximize both.

As political change sweeps through Washington, D.C., the future of the Estate Tax is far from settled. Under the current law, the tax on the value of your estate declines to zero in 2010, but is scheduled to reappear with a vengeance in 2011 with rates as high as 55% and hitting estates as small as $1 million. Subsequent modifications between now and January 1, 2011, by Congress and the President Obama are likely to modify the tax but are highly unlikely to make it go away completely.

Tax savings, however, are only one goal of estate planning, and in many ways secondary to ensuring that your wealth continues to do what you want it to do long after you’re gone. You could set up trusts to provide a financial cushion for multiple generations of your family, perhaps to pay educational costs or provide start-up capital for a new business, or if you’re especially ardent about your alma mater, you may want to fund scholarships and put your name on a library, lecture hall or even a football stadium. You may also care deeply about a cause or philanthropic organization that you want to continue supporting.

Regardless of what you want your wealth to do for you, the time to plot the course and put your affairs in order is now, before you need it to spring into action.

Achieve Goals Through Planning

An estate plan that protects assets and shields heirs from taxes is going to be an important element of financial planning for families who are expected to transfer $41 trillion of assets to heirs and charity through 2052.

At the core of the planning process is deciding on working with your financial advisor and estate planning team, including attorneys and accountants, to establish specific objectives and intentions and to execute the plan.

In this process, you should address how much, when, and in what form you should transfer an inheritance or gift.

Your Starting Lineup

Much like a coach putting together a talented team that can work together to produce results, you should make sure that you have fielded the right group of players for your planning needs. On the team you’ll need good position players: your financial advisor, your attorney, and your CPA or tax professional. These professionals should be able to address all aspects of your estate planning wishes. The attorney executes documents to establish trusts or foundations; the CPA keeps a close eye on tax outcomes; and your financial advisor works to coordinate these activities with your existing and future investments.

The cost these services generally is quite small in relation to the cost of not putting together a team to keep your heirs from paying a large sum to Uncle Sam.

Timing Your Taxes

Because of the changing nature of the Estate Tax, it’s important for you and your advisors to include needed flexibility should the laws change significantly. The exemption from the tax is $3.5 million in 2009 and the tax is scheduled for a one-year repeal in 2010.

If you have a plan in place, you need to review documents to make sure they are still in line with the new tax environment. In addition, you should make sure your plan still reflects your intentions.

Family Matters

The specific manner in which you transfer your estate can have a lasting impact on family dynamics. Done improperly, there can be family members who will feel slighted that they did not get an amount equal to a brother, sister, or stepmother. The best way to address these problems is by communicating your intentions to family members ahead of time and to achieve some kind of consensus. Family meetings in which you discuss roles and responsibilities as stewards of wealth can be a great medium.

There are steps that you can begin to take today to reduce your estate tax burden and they all revolve around giving away assets to minimize the size of your estate, even though it may be difficult to start giving away what you have. The sooner you get started making gifts and funding trusts, the greater is the likelihood that you will be able to lessen the impact of taxes down the road.

Get started now by setting up some time to meet with your planner to discuss your own legacy goals.

Estate law is a very broad subject that is quite complicated. Some attorneys specialize in different subjects of estate law and devote their practices to well-defined areas within the estate law category. Estate law encompasses the management of property and assets both during a person’s lifetime and after his death. The most commonly known areas of estate law are wills and trusts which will be covered in this article.

Wills

Wills are the most commonly recognized form of estate law. A will is a disclosure by a living person describing what the person wants to happen to his assets and property after his death. The person can generally dispose of his property any way he chooses. If the person is married, all property can be left to the spouse or not, or the property can be left to a person or organization. Different parts of property can be left to different persons or organizations. Wills describe how the deceased would like for his assets to be transferred to others when he dies.

The term for a male person who writes a will is testator and the feminine is testatrix. A person who dies who has written a will is said to have died testate, while a person who dies without leaving a will has died intestate. As you can probably imagine, dying without a will makes the final disposition of an estate much more complicated.

To carry out the terms of the will, a person is designated either in the will or by the court. If named in the will the person is called an executor or executrix. If not named by the will, the court will appoint an administrator or adminstratrix.

Not everyone can make a will. In estate law, only those who have testamentary capacity can make a will that will be enforceable by courts of law. Only those with testamentary capacity can make a valid will. There are generally three elements that the court will use to determine whether the person who made a will had testamentary capacity:

1. Age
2. Mental Capacity
3. Sound and Disposing Mind

Age

In most jurisdictions, estate law requires the person making the will to be a certain age before the court will recognize the will. The age varies among the states, but the age is generally either eighteen or twenty-one.

Mental Capacity

Mental capacity refers to a person’s ability to understand what he is doing when making a will. If a person is of low mental ability then the person most likely cannot understand what it means to make a will, and the person may not even understand what death is. As a result, in estate law a person must be able to understand the full implications of what he is doing when making a will and understand the connection among death, his property and the people he designates as his heirs.

Elements to a Will

Estate law requires several things for a valid will. The will should be written (except in very stringent cases of nuncupative wills, see below). It can be written on nearly any type of surface as long as it is legible. The testator must identify himself, specify that this document is his last will and testament and revoke any previous wills and codicils. The testator must state that he is of sound mind and body to dispose of his property. The testator must sign the will or direct another person to sign for him if the testator cannot sign for himself. The testator must sign the will in the presence of witnesses or present an already signed will to witnesses and declare to them that the testator was the one whose signature appears on the will. They must also sign the will and may be called into court to testify that they did indeed witness the testator sign the will.

Types of Wills

There are several different types of wills, and depending on the jurisdiction, one or more of various types of wills may or may not be recognized.

In estate law, a holographic will is written without witnesses, so the only signature on the will is the testator’s. Lacking witnesses can cause problems in the probate of the will, although some jurisdictions do recognize holographic wills.

An oral/nuncupative will is made on the deathbed of the testator in the presence of witnesses, and it only applies to personal property, not to real property. Depending on the jurisdiction, a nuncupative will may or may not be recognized as valid.

A joint will is one document that contains the will of more than one person, usually a husband and wife. The couple makes one will instead of having two separate wills.

With medical advances, estate law has begun recognizing living wills. A living will is triggered by an event other than death, so it becomes active before the testator dies, unlike all other forms of will that are conditioned on the death of the testator. This type of will activates if the testator becomes incapacitated or unconscious and can no longer communicate his wishes regarding his healthcare. A living will describes various actions to take if certain conditions are present. It is most often used to explain the circumstances when the testator would wish to remain on life support or when he would prefer to die a natural death.

The laws governing the will of a member of the armed forces or mariners are generally more relaxed than wills for ordinary citizens. Since they may be outside the country or in a war zone at the time they write the will, informal documents may be permitted in probate.

A codicil is an amendment to an existing will which alters or adds to the wishes expressed in the existing will. A codicil allows a person to change his will without having to write an entirely new will.

Revocation of Wills

Estate law allows a testator to revoke an existing will and make a new one if he so desires. Revocation simply means disavow an already existing will so that all or part of the will no longer be applicable when the testator dies. The testator can achieve this by physically destroying the will or by marking out sentences or sections of the will. The testator may also write a completely new will and indicate in it that all previous wills are superseded by the most recent one. A codicil to an existing will can also be issued, which is basically an amendment with further instructions.

Probate of a Will

In estate law, probate is the process of presenting a will to a court of law, settling the estate of the testator, and distributing the remaining estate assets according to the provisions of the will. Testators usually name an executor in the will. This is a person whom the testator wants to carry out the probate process. If no executor is named, the court will appoint one.

The first step in probate is providing proof that the will is valid. When this is established, the executor is named and a notice to creditors is issued, usually in local newspapers. The executor then conducts an inventory of the testator’s assets and then proceeds to dispose of the assets in accordance with the will and pay any debts owed by the testator. After all this has been finalized and the court provided with evidence that the wishes of the testator have been met, a final decree of the court will end the probate process and the estate will be closed.

However, probate can be more complicated if there are any disputes over the terms of the will or large outstanding debts owed by the testator. Complications can cause probate to extend for a long period of time. However, proper estate planning by the testator can to some extent prevent probate from becoming convoluted and burdensome on the executor and heirs.

Intestate Succession

If the deceased has no will, estate law deems that he has died intestate and the common law of intestate succession determines who will inherit his property. The general rule is that if the deceased has a living spouse, the spouse inherits all of his estate. If there are minor children, the spouse will receive their shares as well. If there is no spouse or children, the deceased parents receive his estate. If the parents are also deceased, then the estate will go to any siblings. Adopted children are recognized in the same way as natural children in intestate succession.

These are general rules, but intestate succession laws can become very convoluted depending on the number of potential heirs. Dying intestate can be a great burden on family at an already trying time, so proper estate planning ahead of time is the best way to prevent this situation from occurring.

Contesting a Will

In estate law if a will is contested, it is challenged in court as misrepresenting the true wishes of the testator. There are generally four bases for contesting a will:

1. Testamentary Capacity
2. Undue Influence
3. Insane Delusion
4. Fraud

Testamentary Capacity refers to the legal and mental ability of a person to execute a valid will. Since estate law presumes that adults have the necessary understanding to make a will, insanity is the typical objection to an adult’s ability to possess testamentary capacity when the will was made. To establish testamentary capacity, the testator must know what his property encompassed, know the value of the property, know whom he named as beneficiaries, understand how the property will be distributed and connect these four elements in his mind as how to dispose of his estate. It is rather hard under estate law to prove that an adult lacked testamentary capacity unless the person had previously been declared insane by a court of law.

Undue influence refers to an advisor taking advantage of the testator because of their relationship provided power over the testator, thereby preventing the testator’s from acting independently. The advisor enriches himself by taking advantage of the testator. For example, the advisor convinces the testator to leave his entire estate to the advisor when in fact the testator truly wanted to leave it to his children. If the advisor had not pressured the testator, the testator would have left his estate to his wife, so the advisor personally benefited from his position.

Insane Delusion is when a testator does not comprehend reality and acts contrary to reality. For example, if a man has a child that he has raised, but in his will claims he has no children and so leaves his estate to a non-relative, the man is clearly deluded about the existence of his child.

Fraud is an advisor taking advantage of the testator in order to enrich some third party. It is similar to undue influence except with fraud the beneficiary is not the advisor. For example, the advisor colludes with distant cousins of a wealthy man by convincing the man to leave his estate to these cousins instead of to his wife.

Trusts

Trusts are the second major component of estate law. Trusts are established when the owner of property wants to relinquish title to the property in exchange for others’ managing the property for the benefit of a third party. There are several terms necessary to understand when discussing trusts in estate law.

The settlor is the person who owns the property transferred into the trust. Settlors can also be known as trustor, creator, or grantor. Settlors make the initial decision to establish a trust.

Trust property is the term for the assets that the settlor puts into a trust. Trust property can include real estate, personal property, bank accounts, insurance policies, patents, copyrights, stocks, bonds, and many other types of property. Trust property is also called trust corpus.

Beneficiaries are the people or cause or organization for whom the settlor creates the trust. There can be one or more beneficiaries to a given trust.

Trustees are the people to whom the settlor transfers title of the trust property. Trustees manage the trust property in the best interests of the beneficiaries of the trust. Beneficiaries receive payments from the earnings of the trust. Trustees can be individuals or a legal entity such as a corporation. Trustees have a tremendous amount of responsibility since they are managers of the property in the trust. The relationship between trustees and beneficiaries is considered a fiduciary relationship.

The fiduciary duties of trustees are extremely important. Trustees should be chosen based on their honesty and integrity since they will take title to the trust assets. Generally, trustees are compensated for their services by the trust. Trustees must carry out the intentions of the trust, competently and discerningly invest the trust assets so that the beneficiaries will receive income from the trust, and not manage the trust for their own personal gain at the expense of the beneficiaries’ interests. Trustees must also be accountable for their decisions to the beneficiaries and be impartial.

Creation of Trusts

Trusts are usually created in one of four ways. The trust can be oral, but usually it is formalized by a written document detailing the settlor’s intentions for setting up the trust, describing the property put into trust, and naming the trustees and beneficiaries. A trust can also be created in a person’s will, or a court order can establish a trust.

Elements of a Trust

There are four elements to a trust:

1. Trust Intent of Settlor
2. Trust property
3. A Trustee
4. A beneficiary

The settlor must definitely intend to establish the trust for beneficiaries and demonstrate that he was of sound mental capacity to understand that he was transferring his rights to the property to the trustee. Trust property is the assets that the settlor gives up to the trustee for the trustee to manage. The trustee oversees the investment decisions of the trust property and the beneficiary receives payments from the trust.

Trust intent means that the settlor must have the legal right to the property that is to be transferred to the trustee. The property transferred to the trustee is referred to as trust property and can consist of real or personal property. Houses, bank accounts, and stocks are all examples of property that can be put in a trust. The trustee receives the title to trust property from the settlor and agrees to manage trust property for the beneficiary. The trustee must act with due diligence and good faith in managing the trust and carrying out business in the best interests of the beneficiary. The beneficiary is the owner of the trust’s equity. As such, the beneficiary is entitled to receive money from the trust. The beneficiary can be a person, animal, or an organization.

Types of Trusts

In estate law there are many types of trusts, so this is not meant to be a comprehensive listing of all the trusts found in estate law. However, these are the more common types of trusts found and a brief description of each.

An Inter Vivos Trust is a trust from which the beneficiary receives benefits during the lifetime of the settlor. The settlor sets up the trust while living.

If the beneficiary does not receive any benefits from the trust until the settlor dies, the trust is a Testamentary Trust. These trusts take effect when the settlor dies.

A Revocable Trust is one in which the settlor has the option to dissolve the trust. The settlor will then be able to regain title to the property put into trust and the beneficiary will no longer receive any payments since the trust will cease to exist. The settlor will be able to revoke the trust even if the beneficiaries object to the revocation.

An Irrevocable Trust is one in which the settlor gives up this right to revoke the trust. In this case, the trust can only be revoked either if all settlors and beneficiaries agree to revoke it or if a court orders the trust to be revoked.

A Savings Account/Totten Trust is a bank account that the settlor wants to pass to a beneficiary when he dies. The account or accounts designated in trust will not be subject to probate and therefore even if the settlor dies without a will, the accounts will still pass to the beneficiary and not be subject to probate.

A Real Estate Investment Trust or REIT is set up to manage real estate and real estate loans for beneficiaries. This type of trust is different from other trusts because it falls under the jurisdiction of the Securities Act of 1933. Also, there must be at least 100 beneficiaries to a REIT.

A Spendthrift Trust is created for beneficiaries who are very bad at managing their own money. The beneficiary can never receive any of the principal from trust property, only earnings made on the principal. Also, trust property is protected from the beneficiary’s creditors since the spendthrift beneficiary is likely to run up debts above and beyond his means. This prevents the spendthrift from losing everything since the trustee has great power in determining when and on what conditions the beneficiary will receive money from the trust.

A Charitable Trust is set up to fund particular causes. One person is not the beneficiary of a charitable trust. Instead, the trust benefits such things as religion, education, or cancer research.

In a Fixed Trust, the beneficiary receives a specific amount of money after a certain event has occurred. The settlor determines the amount and circumstances of the payment to the beneficiary, so the trustee has little or no say in the matter. A common example is that Ann’s grandparents set up a fixed trust for her. Their terms are that when Ann reaches age 21, she will receive money from the trust.

A Discretionary Trust is one where the settlor establishes criteria whereby the named beneficiaries will become eligible to receive money from the trust. The criteria can be any that the settlor chooses, so if the beneficiaries do not meet the criteria they will not receive any benefits from the trust.

A Bare/Simple Trust is one in which the beneficiary can claim both the earnings and trust property at any time. As a result, the beneficiary can take title to the property in the trust and the trustees have to act according to the beneficiary’s directions.

In a Life Insurance Trust, trust property is a life insurance policy held by the settlor. When the settlor dies, the proceeds from the life insurance policy go to the beneficiaries of the trust without having to go through probate, so no estate tax will be owed on the policy.

As you can see, estate law is a large body of rules governing the net worth of an individual both during his lifetime and after his death. Attorneys specialize in estate law and spend their careers practicing in this one area. Estate law covers the area of estate planning, so to ensure that your estate is handled properly consider engaging the services of an estate planner to help you navigate the intricacies of estate law.