Articles Posted in Trust formation and amendment

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A permanent estate builder that provides asset protection and covers future generations

Trust

What does a Life Insurance trust do?

Life Insurance Trusts – A Life Insurance Trust is a permanent, irrevocable trust that is established to own one or more life insurance policies that cannot be altered, amended, or revoked. When the insured named in the life insurance policy dies, the life insurance company pays the policy proceeds to the Life Insurance Trust, instead of to the estate of the insured. The Trustee of the Life Insurance Policy then distributes the proceeds to the beneficiaries of the Life Insurance Trust according to the instructions in the Declaration of Trust.

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Don’t set up a trust before understanding the Tax and Probate Fees issues

Types of trusts

In addition to describing a trust as revocable or irrevocable, there are many types and variations of trusts, depending upon the purpose for the trust. Typical trusts are living revocable trusts to avoid probate and help save estate taxes; irrevocable life insurance trusts; irrevocable trusts to set money aside for college education; special needs trusts; generation skipping “dynasty” trusts; spendthrift trusts; Charitable remainder trusts; and Personal residence trusts; to name a few. Trusts are custom prepared to suit the situation involved.

Types of trusts

Taxation issues can be expensive

All tax issues involving trusts that must be understood in determining what type of trust to use. Attorney David Crockett advises on all the tax questions before preparing any trust. Determine all the tax issues in advance of trust setup. The tax questions are:

  1. Will the money & property in the trust be subject to federal estate taxes on the death of the Trustors or the death of the beneficiaries?
  2. Who will pay the income taxes on the income generated by the trust (ordinary income, portfolio income, or capital gains)? Will the Trustors pay the tax on their personal income tax returns, or will the trust pay the tax on its fiduciary income tax return, or will the beneficiaries pay the tax?
  3. Will there be gift taxes on the transfers into the trust?
  4. Will the property taxes increase if real estate is transferred into the trust or transferred out of the trust?

Probate fee avoidance

Money and property placed into a properly prepared living trust before your death generally will not be subject to probate court proceedings. Probate court proceedings have mandatory attorney fees which for example on a $500,000 estate would be $11,150 and on a $1,000,000 estate would be $18,000. This is one reason for the popularity of living trusts. A living trust enables you to set and organize the scheme of distribution of your property before death and to see how well the trust and Trustee work. Generally you save a lot of probate fees by doing a trust.

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Assets can be controlled through a trust for a long time

Trust determines who is in control

Trusts Used to Control Assets – Basically, the trust document establishing the trust states who controls the trust assets (monies, accounts and properties) and gives detailed instructions on how much, when, and under what circumstances money is paid out of the trust to the beneficiaries. The Trustee of the trust administers these instructions. However, if the trust is revocable, the Trustor can make changes in these instructions and/or revoke the trust altogether to prevent the instructions from being carried out if the Trustor changes his mind. On the other hand, if a trust is irrevocable, by definition it cannot be changed and the Trustor cannot make changes, with some minor exceptions. For example, the Trustor may retain the right to replace the Trustee if he doesn’t like what the Trustee is doing. However, when the Trustor retains rights, some of the income or estate tax benefits of a trust might be lost or diminished. Crockett Law Corporation can prepare your trust to suit your desires as to who controls the trust assets.

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Disabled persons on public assistance can lose benefits if they inherit money in the wrong form

Purposes of special needs trusts

Trusts for Special NeedsTrusts for Special Needs – Special Needs Trusts are used to hold money and property for specific periods of time, and to pay out the money and property according to detailed written instructions. Special Needs Trusts in particular are for lifetime financial and personal care for a Beneficiary who has a disability. The concept is to have money and property available for a disabled person but completely controlled by someone else, typically known as a Third Party Trustee. If properly structured and administered, the disabled person/Beneficiary, may still keep receiving public benefits such as Supplement Security Income (SSI) and Medi-Cal. Giving an inheritance to a disabled person by trust or through probate can be disastrous if they lose their public benefits.

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Save legal fees by learning Basic Trusts Terminology

Purposes of trusts

Trusts are used to hold money and property for specific periods of time, and to pay out the money and property according to detailed written instructions. Trusts are used to safe-keep money and property and prevent it from being paid outright to your heirs at age eighteen (18).

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A living trust is one of the key ingredients in most estate plans.  The living trust is widely used because of its flexibility.  When people but their money and property into a living trust  probate can be avoided and estate taxes saved.

Revocable Living Trusts – Creation and definition:

Revocable Living Trusts – For Single PersonsA revocable intervivos trust is a trust created during the Trustor’s lifetime (as opposed to a trust created as part of one’s will).  A Revocable Living Trusts is often called  a “Living Trust.”  The Trustor is the person who establishes the trust.  Assets transferred into the trust by the Trustor can be removed from the trust and given back to the Trustor whenever the Trustor decides.  Typically, the trust  is  set up so the Trustor is also the beneficiary during his or her lifetime and thus receives all the trust income during his or her lifetime and has a right to  withdraw trust principal  when desired.  The person who has legal title and control of the trust assets is known as the Trustee.  Typically the Trustor is also the Trustee of a Living Trust during his lifetime and whomever he appoints is the Trustee following the Trustor’s death.

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Estate Planning requires careful documentation which is custom prepared

Purposes of Estate Planning

Estate Planning requires careful documentation which is custom prepared.People engage in estate planning to establish a comprehensive plan to cover what happens to their money and property in the event of disability or death.  There are many variations to an estate plan and each one is custom tailored to your personal situation.

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A living trust is one of the key ingredients in most estate plans.  The living trust is widely used because of its flexibility.  When people put their money and property into a living trust  probate can be avoided and estate taxes saved.

Revocable Living Trusts - Married PersonsCreation and definition:  A revocable intervivos trust (Revocable Living Trusts) is a trust created during the Trustor’s lifetime (as opposed to a trust created as part of one’s will).  It is often called  a “Living Trust.”  Assets transferred into the trust by the Trustor can be removed from the trust and given back to the Trustor whenever the Trustor decides.  Typically, the trust is set up so the Trustor is also the beneficiary during his or her lifetime and thus receives all the trust income during his or her lifetime and has a right to  withdraw trust principal  when desired.  The person who has legal title and control of the trust assets is known as the Trustee.  Typically the Trustor is also the Trustee of a Living Trust during his lifetime and whomever he appoints is the Trustee following the Trustor’s death.

Married Persons

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Purposes of Estate Planning

Many Variations to an Estate Plan

Estate Planning requires careful documentation which is custom prepared.People engage in estate planning to establish a comprehensive plan to cover what happens to their money and property in the event of disability or death. There are many variations to an estate plan and each one is custom tailored to your personal situation.  A typical estate plan will (i) be changeable (revocable); (ii) will keep your estate out of the probate court system; (iii) will keep your affairs private; (iv) will have a definite plan as to who receives your money and property on your passing; (v) will provide for your surviving spouse; (vi) will be set up to save estate and gift taxes; (vi) will minimize property tax increases on your passing and (vii) consider income tax implications of transfers of money and property.

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