Estate Planning With Trusts

Estate Planning With Trusts

Revocable living trusts are a popular alternative to a traditional will as a way to pass along property at death. The most prominent advantage of the revocable trust is that it allows the decedent to avoid probate. A revocable living trust is an arrangement you make for management and distribution of your property. The trust is revocable, meaning that the creator of the trust can modify or revoke it at any time during his or her lifetime. Placing assets into your trust also allows you to control the disposition of those assets after you pass away.

A common misconception is that you have to have lots of money before you can create a revocable living trust. Not true. A revocable living trust can be used in small, medium or large estates alike.

Advanced Trust Planning

There are a number of trusts that we use for our clients. Different types of trusts are used to promote and accomplish the client’s specific goals.

When we get into advanced trust planning, we are typically balancing the management of estate taxes, gift taxes, income taxes and generation skipping transfer taxes.

Not all trusts are tax sensitive, sometimes clients have an intricate plan of how they want their financial legacy managed for future generations regardless of the tax implications. This is where asking the right questions and listening to our clients is so important.

Some common types of trusts that we use are as follows:

• Irrevocable Life Insurance Trusts (ILITs) – There is a common misconception that life insurance proceeds are not subject to Federal Estate Taxes. While the proceeds are received by your loved ones free of any income taxes, they are includible as part of your taxable estate.

An Irrevocable Life Insurance Trust is created specifically for the purpose of owning your life insurance policy. A properly established and administered trust holds the policy outside of your estate and prevents the proceeds from being included as a taxable portion of your estate. The proceeds from the insurance policy can then be used to provide your estate with the liquidity to pay estate taxes, pay off debts, pay final expenses and provide income to a surviving spouse or children.

• Intentionally Defective Grantor Trusts (IDGITs) – An IDGT is a trust that not only moves assets outside of the taxable estate of its creator, but also shifts ownership of the assets outside the reach of creditors for asset protection purposes. Because the trust creator no longer owns the assets, all future appreciation and growth of the assets occurs inside the trust, outside of the grantor’s taxable estate, and out of the reach of predatory creditors.

Yet while the assets are not includible for estate tax purposes, income generated by the trust remains taxable to the grantor. This is why it is considered to be “intentionally defective” so that the income tax burden remains with the grantor.

• Qualified Personal Residence Trusts (QPRTs) – Our homes are often our most valuable assets and therefore one of the largest components of our taxable estate. A Qualified Personal Residence Trust or a QPRT (pronounced “cue-pert”) allows you to give away your house or vacation home to the trust at a substantial discount, freeze its value for estate tax purposes, and still continue to live in it. An added benefit of the QPRT is that it also serves as an excellent asset protection vehicle, keeping your home safe from creditors.

• Dynasty Trusts – Typically, there are no immediate tax savings when you create a dynasty trust. Dynasty trusts are often funded using your estate tax credit. The tax savings occur later, upon the deaths of your descendants, therefore saving a substantial of tax for your loved ones. Even after the trust’s assets have been accumulating for years, they remain free from federal gift and estate taxes for the life of the dynasty trust. South Dakota has no rule against perpetuity, which makes it an attractive jurisdiction for these types of trusts, continuing to benefit your family for many generations.

We Have the Experience You Need

Our attorneys have experience working with some of the largest estates.  We also help with more modest estates and one-time transactions, such as property transfers and planning.

We can handle just about every estate planning and trust matter.  This includes planning and drafting the documents, transferring property, transferring or reforming trusts, and representing the parties in court.  It also includes planning the estates to minimize tax consequences, preparing estate/gift and fiduciary tax returns and working on the audit review by the IRS, and representing the executor or administrator and others as they administer the estate.

Clients come to us during their lifetimes to find ways to deal with or manage assets or wealth.  We are honored to serve as counsel in these ongoing relationships.  This includes business owners, executives, investors, inheritors, and others who realize that they need a plan to transfer and protect their assets.  It can also include coming up with a plan for who is to care for minor or incapacitated children.

If you need help managing your estate or planning for a trust for your estate, we want to hear from you.

Need more information?

Contact our trust planning attorneys to see how we can help with your estate planning needs.