Estate Planning

If you think you only need to create discretionary lifetime trusts for young beneficiaries, problem beneficiaries, or financially inexperienced beneficiaries, then think again. In this day and age of frivolous lawsuits and high divorce rates, discretionary lifetime trusts should be considered for all of your beneficiaries, minors and adults alike.
 
What is a Discretionary Lifetime Trust?
 
A discretionary lifetime trust is a type of irrevocable trust that you can create while you are alive – in which case you will gift your assets into the trust for the benefit of your beneficiaries – or after you die – in which case your assets will be transferred into the trust for the benefit of your beneficiaries after death.
 
The trust is discretionary because you dictate the limited circumstances when the trustee can reach in and take trust assets out for the use and benefit of the beneficiaries. For example, you can permit the trustee to use trust funds to pay for education expenses, health care costs, a wedding, buying a home, or starting a business. If the trust is funded with sufficient assets that are invested prudently and you choose the right trustee to carry out your wishes, the trust funds could last for the beneficiary’s entire lifetime.
 
How Does a Discretionary Lifetime Trust Protect an Inheritance?
 
With a discretionary lifetime trust each of your beneficiaries will have a fighting chance against lawsuits and divorcing spouses because their inheritance will be segregated inside of their trust and away from their own personal assets. By creating this type of “box” around the inherited property, it shows the world that the inheritance is not the beneficiary’s property to do with as they please. Instead, only the trustee can reach inside the box and, based on your specific instructions, pull funds out for the benefit of the beneficiary. Creditors, predators, and divorcing spouses are generally blocked from reaching inside the box and taking property out.
 
When the beneficiary dies, what is left inside their box will pass to the heirs you choose. You could decide, for example, to have the assets pass to your grandchildren inside their own separate boxes and on down the line, thereby creating a cascading series of discretionary lifetime trusts that will protect the inherited property and keep it in your family for decades to come.
 
What Should You Do?
 
Does all of this sound too good to be true? It’s not. Our firm is available to discuss how you can incorporate discretionary lifetime trusts into your estate plan. Your family will certainly be glad you did.

Asset protection has become a common goal of estate planning. Asset protection trusts come in many different forms and can be used to protect property for your use and benefit as well as for the use and benefit of your family.
 
What is An Asset Protection Trust?
 
An asset protection trust is a special type of irrevocable trust in which the trust funds are held and invested by the Trustee and are only distributed on a discretionary basis. The purpose of an asset protection trust is to keep the trust funds safe and secure for the benefit of the beneficiaries instead of having the funds be an available resource to pay a beneficiary’s debts.
 
Asset Protection Trusts Equal Inheritance Protection
 
Leaving an inheritance outright to your child or grandchild without any strings attached is risky in this day and age of high divorce rates, lawsuits, and bankruptcies. Aside from this, your beneficiaries may not have developed the financial skills necessary to manage their inheritance over the long run. There is also the very real risk that an outright inheritance left to your spouse will end up in the hands of a new spouse instead of in the hands of your children or grandchildren. Finally, a beneficiary may be born with a disability or develop one later in life that will end up rapidly depleting their inheritance to pay for medical and other bills.
 
There are a number of different types of asset protection trusts that you can establish to insure your hard earned money is used only for the benefit of your family:
 
• Trusts for minor beneficiaries – Minor beneficiaries cannot legally accept an inheritance, so a discretionary trust for a minor is a necessity.
• Trusts for adult beneficiaries – Adult beneficiaries who are not good with managing money, are in a lawsuit-prone profession, have an overreaching spouse, or have an addiction problem will benefit from a lifetime discretionary trust.
• Trusts for surviving spouses – If you are worried that your spouse will not be able to manage their inheritance, will remarry, or will need nursing home care, you can require your spouse’s inheritance to be held in a lifetime discretionary trust.
• Trusts for disabled beneficiaries – Disabled beneficiaries who receive an inheritance outright run the risk of losing government benefits and will need to spend down the funds to requalify, but an inheritance left to a special needs trust can be used to supplement, not replace, government assistance.
 
Drafting an Asset Protection Trust Your Way
 
Asset protection trusts designed for inheritance protection can be as rigid or as flexible as you choose. For example, a beneficiary can be added as a co-trustee at a certain age or after the beneficiary reaches a specific goal such as graduating from college. Another option is to name a corporate trustee, such a bank or trust company, but give the beneficiary the right to remove and replace the corporate trustee with another one.
 

In the United States, certain states collect a death tax based on the value of the deceased person’s estate and who inherits it.
 
As of January 1, 2015, the following states collect a death tax: Connecticut, Delaware, District of Columbia, Hawaii, Illinois, Iowa, Kentucky, Maine, Maryland, Massachusetts, Minnesota, Nebraska, New Jersey, New York, Oregon, Pennsylvania, Rhode Island, Tennessee (but it will be repealed in 2016), Vermont, and Washington.
 
Each of these states has its own laws governing the amount of assets that are exempt from the death tax, what deductions can be taken, and the applicable death tax rate. But regardless of these factors, for an estate to be potentially subject to a state death tax, the deceased person must have either lived in the state at the time of death or owned real estate or tangible personal property located in the state.
 
Some examples should help to illustrate when an estate may be potentially subject to a state death tax:
 

1. Deceased Person was a New York resident. If you inherit your uncle’s estate and he lived in New York at the time of his death, will the estate potentially be subject to a state death tax? The answer is yes, because your uncle lived in New York at the time of his death and New York collects a state death tax. However, whether or not the estate will owe any New York death taxes will depend on the value of your uncle’s estate and what deductions can be taken.

2. Deceased Person was a Florida resident. On the other hand, if your uncle lived in Florida at the time of his death and did not own any property located in New York, then his estate would not be subject to New York death taxes, nor would his estate owe any Florida death taxes since Florida does not collect a state death tax.

3. Inheritor is a New York Resident. What if you inherit your uncle’s estate and he lived in Florida at the time of his death and he did not own any property located outside of Florida, and you live in New York, will your uncle’s estate be subject to the New York death tax? The answer is no, because your uncle was a Florida resident who did not own property located in New York, and Florida does not collect a state death tax. But what if your uncle, who was a Florida resident at the time of his death, owned a second home located in New York? In this case your uncle’s estate will potentially be subject to New York death taxes even though he was a Florida resident at the time of his death because he owned a house that is physically located in New York which is a state that collects a state death tax.

As the above examples show, state death taxes are tricky and can apply even in unexpected situations. Please contact our office if you have any questions about state death taxes.

The process of funding your Living Trust is not difficult, but it will take some time. Because living trusts are now so widely used, you should meet with little or no resistance when transferring your assets. For some assets, a short assignment document will be used. Others will require written instructions from you. Most can be handled by mail or telephone.
 
Some institutions will want to see proof that your trust exists. To satisfy them, your attorney will prepare what is often called a Certificate of Trust. This is a document that verifies your trust’s existence, explains the powers given to the trustee, and identifies the trustees. However, it does not reveal any information about your assets, your beneficiaries, or their inheritances.
 
While the process isn’t difficult, it is easy to get sidetracked or procrastinate. Just make funding your trust a priority and keep going until you are finished. Make a list of your assets and their values and locations. Then start with the most valuable ones and work your way down. Remember why you are doing this, and look forward to the peace of mind you’ll have when the funding of your trust is complete.
 

That depends on the size of your estate. Federal estate taxes must be paid if the net value of your estate when you pass away is more than the amount exempt at that time. Some states have their own estate/inheritance tax, and it is possible your estate could be exempt from federal tax but have to pay state tax.
 
Your taxable estate includes benefits from life insurance policies you can borrow against, assign or cancel, or for which you can revoke an assignment, or name or change a beneficiary.
 
If your estate will not have to pay estate taxes, naming your living trust as owner and beneficiary of the policies will give your trustee maximum control over them and the proceeds.
 
If your estate will be subject to estate taxes, it would be better to set up an irrevocable life insurance trust and have it own the policies for you. This will remove the value of the insurance from your estate, reduce estate taxes and let you leave more to your loved ones.
 
There are some restrictions on transferring existing policies to an irrevocable life insurance trust. If you pass away within three years of the transfer date, the IRS will consider the transfer invalid and the insurance will be back in your estate. There may also be a gift tax. These restrictions, however, do not apply to new policies purchased by the trustee of this trust. If you have a sizeable estate, your attorney will be able to advise you on this and other ways to reduce estate taxes.
 

Unless the car is valuable and substantially increases your estate, you will probably not want it in your trust. The reason is that if you are at fault in an auto accident and the injured party sees that your car is owned by a trust, he or she may think “deep pockets” and be more likely to sue you.

All states allow a small amount of assets to transfer outside of probate, and the value of your car may be within this limit. Some states let you name a beneficiary. In some states cars do not even go through probate. Your attorney will know the laws and procedures in your state and will be able to advise you.