Revocable Living Trust

Friday, April 22, 2011

Recent Press Coverage of Estate Planning (April 22, 2011)

Kelly Greene of the Wall Street Journal reports that with estate tax laws in flux, your estate plan needs to cover many contingencies, and may need updating. She suggests that the way many estate plans are currently worded could cause them to backfire, either by triggering unnecessary state estate taxes or by accidentally disinheriting a surviving spouse. See Does Your Trust Need a Tune-Up? (Apr. 16, 2011).

Bill Bischoff of SmartMoney reviews the basics of Irrevocable Life Insurance Trusts (ILIT), including how you can avoid estate taxes on your life insurance policies if they are correctly owned by an ILIT, and discusses whether you should consider long term disability insurance, and some tax implications related to those policies. See How to Avoid Taxes on Life Insurance (Apr. 20, 2011).

Friday, April 08, 2011

Recent Press Coverage of Estate Planning (April 8, 2011)

Bill Bischoff of SmartMoney contends that even though the federal estate tax exemption has risen, people still need an estate plan to avoid having their assets pass according to their state’s default intestate rules. The article provides a quick overview of wills, living trusts and other estate planning options. See Why Most People Need An Estate Plan (Mar. 22, 2011)

Ashlea Ebeling of Forbes writes about how to handle an inheritance. There’s an estimated $8.4 trillion that will pass to baby boomers, an average of nearly $300,000 per inheriting household, and boomers are finding many different ways to use the money. See The Inheritors (Apr. 11, 2011).

Susan Hirshman writes in Forbes about wives that should be acting now to protect their interests. She notes that some estate plans allocate up to the federal estate tax threshold to one’s children, with the surviving spouse receiving the rest. With a high exemption level of $5 million, that could leave the wife with nothing. See Why Women Need An Estate Plan (Mar. 23, 2011).

Deborah L. Jacobs of Forbes discusses the new portability law that allows a surviving spouse to use the decedent spouse’s unused estate tax exemption amount, and argues that even though this provision is set to expire at the end of 2012, it could stick around beyond that, so it behooves you to understand how it works and prepare for it. See Estate Planning for Two (Apr. 1, 2011).

Linda Covella of the Santa Cruz Patch discusses the differences between wills and trusts, offers pros and cons for each approach, and reviews the role of an attorney in the process. See Wills and Trusts: Which Will You Trust for Your Estate Planning? (Apr. 3, 2011).

Deborah L. Jacobs of Forbes provides a short overview of the gift tax law, gift tax returns, and offers some Q&A regarding whether a gift tax return should accompany your income tax return this April. See Time to File That Gift Tax Return (Apr. 1, 2011).

Monday, March 21, 2011

NEET Tips

NEET Tips answers questions posed online to the NEET website

Does a trust have to be set up in advance to be the beneficiary of another trust?

While it might be possible for a standalone recipient trust to be set up to accommodate a pending distribution from a pre-existing trust, in practical terms the recipient trust must be properly named in the distribution trust in order for the distribution to proceed. If the recipient trust is not properly named, and trust names should include the date of creation, then there is likely to be ambiguity as to what the grantor intended.

Most often, subtrusts spring from a pre-existing trust, for example a married individual’s revocable living trust converts into an irrevocable credit shelter trust, and possibly an irrevocable marital trust. Or, an unmarried individual’s trust converts into irrevocable beneficiary controlled trusts for their children. In these situations, the subtrusts are not set up at the time of the original trust’s execution, but rather come into being upon the death of the grantor.

Thursday, March 10, 2011

NEET Tips

NEET Tips answers questions posed online to the NEET website

How can I ensure my children receive an inheritance if I die and my spouse remarries?

You can accomplish this through a will or a trust. If through a will, you simply name your children as beneficiaries. Keep in mind that in Vermont, as in many states, your spouse has a right to what’s known as an “elective share” whereby they can inherit a portion of your estate regardless of what your will states. One problem with the will approach is that if you leave a sizable portion of your estate to your children, your spouse might need to scale back their standard of living. For this reason, many people opt for a trust that is structured so that the surviving spouse has limited access to the deceased spouse’s assets for the remainder of the surviving spouse’s life, but upon the death of the surviving spouse, the assets pass to the first decedent’s children. By creating the trust structure, you are allowing your spouse to maintain their standard of living, while ensuring that the remaining funds eventually pass to your children. This structure is recommended for many clients, but especially those in blended families, where one or both spouses have children from a prior marriage.

Tuesday, February 08, 2011

NEET Tips

NEET Tips answers questions posed online to the NEET website

What are some good ways to begin discussing my parent’s estate planning?

There are three common approaches to raising the issue of estate planning with elderly parents. One method is to discuss what happened to a family friend or neighbor who recently died, particularly if the lack of estate planning caused family problems. You and your parents can learn from their mistakes. Another method is to begin your own estate planning and mention to your parents what you have learned. You can also state that your attorney wants to know how your parents estate planning is set up so that your attorney can plan accordingly. The final method is to suggest your parents get organized, first with getting important paperwork in order, then addressing incapacity issues with an Advance Directive, a power of attorney for finances and a HIPAA release. Once your parents complete those documents, the next natural step is drafting a will or trust. Be aware that patience is important, and recognize that as the elderly get older, one of their biggest fears is losing control, so attempting to micro-manage the process could backfire. It’s never an easy conversation, but it will undoubtedly benefit everyone.

For more information on talking to your parents about estate planning, see the NEET article:

Talking to Your Parents About Estate Planning

Monday, December 13, 2010

NEET Tips

NEET Tips answers questions posed online to the NEET website.

Why do my parents have two trusts instead of one?

In most common law states, including Vermont, estate planning attorneys have historically drafted an individual revocable living trust for each spouse. There was uncertainty about tax implications of a single joint trust, and it was thought that administration of a single trust upon the death of the first spouse would be easier.

Following widespread use of single joint trusts for couples in California, a community property state, joint trusts have become more popular in separate property states too. Through careful drafting, joint trusts can accomplish the same objectives as individual trusts, and are as easy to manage during the administration period following the death of the first spouse. Today, many estate planning attorneys prefer joint trusts because most couples are more comfortable with a single trust that holds their property together, rather than single trusts that require splitting joint assets between the two trusts.

Friday, December 10, 2010

Press Coverage of Estate Planning this Week (December 10, 2010)

Stephen J. Dunn of Forbes provides an overview of estate planning basics, including what a will accomplishes and why it is essential to have one, a way to avoid probate through living trusts, and some advantages of irrevocable trusts. See Estate Planning Overview and Objectives (Dec. 10, 2010).

Maria Baler of Wicked Local Dedham discusses reasons why a revocable living trust makes sense for specific situations, such as ensuring children don’t inherit a cash windfall at age 18, minimizing time and expenses related to settling an estate, and minimizing federal and state estate taxes. See 5 Reasons to Create a Revocable Living Trust As Part of Your Estate Plan (Dec. 5, 2010).

Friday, March 05, 2010

Press Coverage of Estate Planning this Week (Mar. 5, 2010)

Deborah L. Jacobs of the New York Times writes about the advantages of parents discussing their estate plan with their children, including being able to head off disagreements among children, and even some surprises about children wanting less than the parents intended to give them. See Estate Planning as a Family Conversation (Mar. 3, 2010).

Ashlea Ebeling of Forbes highlights a recent survey finding that more than half of Americans do not have any estate planning in place, and discusses some of the reasons people give for not planning ahead. See Americans Lack Basic Estate Plans (Mar. 1, 2010).

Nolan Baker and Mark Clair write in the Toledo Free Press about the differences between wills and trusts, and what factors go into choosing one approach over the other. See A Will? Or a Trust? (Mar. 5, 2010).

Friday, November 13, 2009

Press Coverage of Estate Planning This Week (November 13, 2009)

Victoria E. Knight of the Wall Street Journal writes that a weak economy makes for a bad time to sell a family company, but a good time to pass it on to the next generation. Several methods involve freezing the value of the business at today’s trough in the business cycle. See Wealth Transfers for Family Businesses (Nov. 9, 2009).

Daniel O. Tully, Esq., writes in the Bristol Press (Bristol, Conn.) about some of the fundamental differences between wills and trusts. See Senior Signals: Difference Between Will, Trust (Nov. 8, 2009).

Bob Carlson of KCI Investing discusses what recipients should know about inherited IRA’s. The rules are not complex, but neither are they obvious. And mistakes can be needlessly costly. See What Your Heirs Should Know About IRAs (Nov. 12, 2009).

Arden Dale of the Wall Street Journal writes that converting a traditional IRA to a Roth IRA can make sense even for people in the 60s and 70s, particularly where the goal is to transfer wealth and not just shelter money from taxes. See Roths as Tools for Wealth Transfer (Nov. 10, 2009).

Tuesday, October 27, 2009

Estate Planning Tip of the Week

What is the Vermont Trust Code?

The Vermont Trust Code is a new set of laws governing trusts and trust administration in Vermont that went into effect on July 1, 2009. The Vermont Trust Code is based on the Uniform Trust Code, which has been adopted in approximately half the states in the country. Like most states that adopted the Uniform Trust Code, Vermont made some changes to the language to tailor the Vermont Trust Code to legal practices and conventions in Vermont.

Most of the Vermont Trust Code’s provisions are default rules, meaning that they can be overridden by language in a trust drafted by your attorney. However, certain rules are mandatory and will apply even if your trust states otherwise. For example, the Vermont Trust Code’s provisions impacting how and when beneficiaries of an irrevocable trust must be notified of the trust can be changed according to the desires of the person making the trust. However, provisions stating that a trust can be created only to the extent that its purposes are lawful cannot be changed, i.e. a trust created for unlawful purposes is not a valid trust.

The Vermont Trust Code updates Vermont estate planning laws in many significant areas, and provides far more flexibility for testamentary trusts and out-of-court trust amendments than was previously allowed. Thus, it’s a welcome addition to the practice of estate planning in Vermont.

Tuesday, October 20, 2009

Estate Planning Tip of the Week

What is an Unfunded Living Trust?

An unfunded living trust is a trust that has been created during one’s lifetime, but funded with only a nominal amount. The rationale behind an unfunded living trust is to have the trust ready to receive assets after the death of the settlor (the person who created the living trust), but not cause unnecessary inconvenience to the settlor while they are still alive.

In the case of an unfunded living trust, the settlor’s assets would pass through probate then, via a pour-over will, be placed in the living trust, which became irrevocable upon the settlor’s death. The trust assets would then be held for, or pass to, the beneficiaries as determined by the terms of the trust.

For most people, the better path is a funded living trust, in other words, a living trust set up during the settlor’s lifetime that holds nearly all of the settlor’s assets from the time the trust is created. A fully funded living trust avoids having to go through probate later. Additionally, one of the big advantages of funded living trusts is that a successor trustee can manage the settlor’s assets if the settlor becomes incapacitated, either temporarily or long term. This avoids having to petition the probate court to be named conservator for the settlor in order to receive the court’s approval to act on behalf of the settlor.

While some would have you believe that funding a living trust and managing the funded living trust is an inconvenience, or worse, the truth is otherwise. Initial funding is usually handled by the estate planning attorney, and managing trust assets in a trust is little different than managing assets outside of a trust. Thus, the benefits of a funded living trust far outweigh the alleged inconvenience. It’s best to avoid probate and cover yourself during incapacity by having your assets in the living trust from the very beginning. If your attorney suggests otherwise, seek a second opinion from an attorney that focuses solely on estate planning.

Friday, October 16, 2009

Press Coverage of Estate Planning This Week (October 16, 2009)

Laura Saunders of the Wall Street Journal recommends checking your will or trust to determine if the provision funding the “bypass” or “credit shelter” trust requires the full federal exemption amount be placed in that trust. While sensible planning a couple of years ago, because the exemption amount is much higher now, such provisions may leave the surviving spouse little or nothing. See Is There a Trap Lurking in the Language of Your Will? (Oct. 16, 2009).

Ashlea Ebeling of Forbes cautions about what can go wrong with a power of attorney for finances, and suggests seven tips to protect against the misuse of a power of attorney. See Protect Your Assets: Write a Safe Power of Attorney (Oct. 15, 2009).

Van Sievers writes in the Montgomery Advertisor reasons people give for not doing an estate plan, including being too busy and not wanting to think about death. He adds that he has never had a client say they were glad their parents did not do any estate planning. See 7 Reasons Given for Not Doing An Estate Plan (Oct. 13, 2009).

Tuesday, October 13, 2009

Estate Planning Tip of the Week

Does a Revocable Living Trust Ever Become Irrevocable?

Yes, upon the death of the settlor. But first, a review of terminology. Revocable means that the trust can be amended, restated or terminated by the settlor. The settlor is the person who creates the trust and funds it. Irrevocable means that once the trust is created, it may not be amended or restated, but may terminate once there are no longer any assets in the trust.

Most trusts today are known as revocable living trusts, or inter vivos trusts. These trusts are the principal document in most estate plans, and serve as a will substitute. Because they are revocable, they can be amended for specific purposes such as changing beneficiaries or trustees, or restated when the entire document is brought up to date.

Revocable living trusts, however, become irrevocable upon the death of the settlor. When the settlor dies, the terms of the trust cannot be amended. This protects the settlor’s intent and instructions as to who the beneficiaries should be, and when they should receive the trust assets, among other things.

If you have a joint trust with a spouse, then the decedent’s portion of the joint trust becomes irrevocable while the surviving spouse’s portion of the trust remains revocable. This is accomplished by dividing the joint trust into separate subtrusts according to the instructions in the joint trust. The decedent’s subtrust(s) are irrevocable, while survivor’s subtrust(s) remain revocable.

Some advanced trusts are irrevocable from the outset, such as Irrevocable Life Insurance Trusts (ILIT), principally for estate tax reasons. Whether a trust is revocable or irrevocable is a key distinguishing feature of trusts, and has many implications you need to be aware of before signing.

Friday, September 25, 2009

Press Coverage of Estate Planning This Week (September 25, 2009)

Jamie Downey of the Boston Globe provides a checklist of 16 items to complete for an orderly closing of one’s estate, including incapacity planning documents, wills and trusts, naming an executor and trustee, and completing a power of attorney for finances. See Organize Your Estate in 16 Steps (Sept. 24, 2009).

Bob Carlson of KCI Investing notes a few common estate planning mistakes to avoid, including overlooking non-probate assets, failing to fund a living trust, and not completing a financial power of attorney. He also points out the importance of designating guardians, keeping a record of important financial accounts, and providing instructions to your executor or trustee.  See Avoiding Estate Planning Mistakes (Sept. 22, 2009).

Dennis Fordham, Esq., writes in the Lake County News (Lakeport, Calif.) about discretionary spendthrift trusts, also known as beneficiary trusts, and the advantages for your children in receiving an inheritance in trust, rather than outright. See Estate Planning: Protecting Your Beneficiaries’ Inheritances (Sept. 19, 2009).

Clare Schwemlein of the Chillicothe Gazette (Chillicothe, Oh.) discusses using college savings plans, known as 529 Plans, as part of your estate plan.  By making a five-year contribution up front, you can get assets out of your taxable estate quickly.  See Education Savings As An Estate-Planning Strategy (Sept. 20, 2009).

Tuesday, September 22, 2009

Estate Planning Tip of the Week

Do Wills and Trusts Have to Be Registered with Probate Courts?

Prior to the death of the creator of the will or trust, no.  Wills are often kept for safekeeping in the Probate Court located in the Vermont County where the creator is living, but that is not mandatory.  After a person dies, their will must be submitted to the relevant Vermont Probate Court within 30 days of their death, at which time the probate process commences. 

Many trusts, including most revocable living trusts, need not ever be provided to the Probate Court.  In most instances, a revocable living trust is a will substitute.  In practice, this means that administering the trust settlor’s estate is done outside of probate, which is one of the primary reasons people choose a trust over a will when first engaging in estate planning.

If a person dies without a will or trust, known as dying intestate, the probate process usually begins in the relevant Vermont Probate Court following submission of a petition to open a probate estate by a survivor of the decedent.