A Trust Based Plan that Covers Everything!
Regardless of the estate size, a Revocable Living Trust (RLT) addresses virtually every basic estate planning need in providing the privacy, convenience, practicality, safety and control that everyone wants. The cost savings and administrative efficiencies associated with a fully funded RLT are well established, undisputed facts. A living trust should be the foundational estate planning device for every family with legitimate planning needs.
When structured properly, a living trust can help maximize the full use and value of a married couple’s transfer tax credits (estate tax exemption equivalent amounts) to help avoid or even eliminate unnecessary taxation. Improper transfer tax planning can be very costly to an estate. Optimal transfer tax avoidance can be fully realized with a proper marital trust format when utilizing the most suitable tax-shelter formula clauses and other applicable language regardless of the current estate tax laws then in place.
By inherent design, a living trust is a private arrangement. Generally, an estate owner utilizing a living trust can maintain privacy regarding the affairs of the family estate both during life and after death. Conversely, a probate estate is a different matter, a subject of public record. Probate records must usually disclose (a) the particular assets of the estate, (b) the names and ages of all the estate heirs including the amounts and times of asset dispositions made to them, (c) the outstanding debts of the estate, and (d) other sensitive information deemed pertinent to the decease of the asset owner.
A living trust allows you to exercise prudent control over your estate, even after death. A large sum of money suddenly acquired by a young or financially unsophisticated family member may cause more problems than it solves. An incremental, age-based allocation formula is one of many methods that can be incorporated into a trust to exercise asset control. In fact, to the extent a beneficiary’s inheritance is being held in a trust, it’s usually protected from any creditor claims against that beneficiary, including (in most states) divorce settlements.
IRAs (and other qualified retirement plans) can be payable to living trusts under “stretch IRA” and “see-through” rules. These rules protect this type of asset from a financially unsophisticated IRA beneficiary. Without that control, an IRA beneficiary could demand and receive an immediate and full withdrawal of the IRA.
Parents with an incapacitated child currently receiving Supplemental Security Income (SSI) benefits, have special planning conditions to consider. If a distribution from a parent’s will or trust is directly allocated to such a child, then a partial or even full disqualification of the child’s governmental entitlement may occur. But a properly drafted “special needs trust” can provide funds to benefit that child. It would comply with the statutory standard, so the child wouldn’t be disqualified from continuing to receive SSI benefits
Transferring the management duties of a closely held family business should always be arranged in conjunction with a family trust. This lets the trustee be the effective manager of the family corporation where corporate interests have been allocated to children or grandchildren. When a trust controls a closely held business interest, the courts won’t have any need to meddle in the managerial operations since the business wasn’t subjected to probate in the first place.
A living trust seems much more impervious to contests against an estate than a will. I have witnessed enough first hand experiences to verify this fact. We have seen our trust formats hold up perfectly in litigated situations caused by a disinherited or disgruntled child. Wills are more frequently targeted for contestations resulting in undesirable, adjudicated terms.
A living trust, because of its probate avoidance capabilities, precludes the necessity to own property jointly with another to avoid probate. If a parent, for example, reassigns personal property ownership into a joint-tenancy-with-right-of-survivorship deed, or any asset or account with a child, then the control of that property is forfeited. Each respective tenant in that ownership arrangement may be deemed to own 100% of the property for purposes of satisfying a creditor claim against any tenant. In other words, if the child gets sued, the parent could end up losing the property to a legal judgment.
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The following information is intended for educational use only and not to replace or supplement any tax or legal advice. Personal tax and/or legal counsel should accompany the implementation of any planning methods described on this website.