Many of these are being promoted in breakfast/lunch seminars but of course "Trusts are a valuable tool, but they may not be for everyone. It pays to know the ins and outs before you put your trust in a trust."
http://www.kiplinger.com/article/retirement/T021-C000-S001-four-facts-of-living-trusts.html
Showing posts with label Revocable Trust. Show all posts
Showing posts with label Revocable Trust. Show all posts
Wednesday, December 10, 2014
Friday, August 14, 2009
FINAL THOUGHTS ON LIVING TRUSTS
My concerns about the Living Trust are the same with respect to reverse home mortgages (which I had a discussion with earlier with someone on my Facebook page): a Living Trust can be a great alternative for some older Americans but they are not for everyone and the confusion is compounded by there being so much promotion by firms and others regarding these instruments, instruments which can be as powerful as a Power of Attorney or a regular Will. Right now, I suggest that anyone seeking a Living Trust should consult with their regular attorney if they have one, attorneys in other states where they have property located and which would be placed in the trust, an accountant, their family and perhaps even a social worker or a separate Elder Law attorney to discuss the effects a Living Trust would have on estate planning, eligibility for senior benefits, etc. And yes, this makes the process costly.
Saturday, August 8, 2009
THE ERIE COUNTY BAR ASSOCIATION ON "LIVING TRUSTS"
From The Bar Association of Erie County Living Trusts: A Consumer's Guide- What Is a Living Trust?:
"A living trust is an agreement between an owner of certain assets and a trustee, whereby the owner (the trust's creator) transfers assets into the name of the trustee, who in turn, invests, manages, and distributes them for the benefit of the creator and/or other beneficiaries pursuant to the terms of the written trust agreement. It typically provides for the management of assets during the creator's lifetime as well as for their disposition after his or her death. A living trust is therefore to be distinguished from a testamentary trust created under a person's will, which comes into being only on death.
Some living trusts, such as life insurance trusts (designed to keep insurance proceeds out of their creators' taxable estates) and so-called "Medicaid trusts" (established to preserve assets against depletion by the costs of long-term health care), are irrevocable.
The type of living trust described throughout these pages is a revocable trust, which can be changed or revoked by its creator at any time. Usually, this revocable living trust provides that income from trust assets is to be paid to the creator during his or her lifetime. Upon the creator's death, the assets may be held in further trust for other beneficiaries or distributed outright to them.
Why Are Living Trusts Becoming So Popular?
Living trusts are being heavily promoted as will substitutes and probate-avoidance devices here in New York and throughout the nation. Aggressive marketing, often by so-called financial planners who are not attorneys, through free seminar programs or by mail-order, do-it-yourself trust kits, has prompted many people, especially senior citizens, to purchase living trusts, sometimes for thousands of dollars, and to rely on them as the sole means of disposing of their estates.
Much of the business of marketing living trusts is done by out-of-state companies through regional franchise operations. Hence, a New York consumer may purchase a pre-printed trust document that does not conform to New York law and requirements. Unfortunately, also, many of the advantages claimed for living trusts by promoters are exaggerated, if not directly misstated. Complaints from senior citizens about the high-pressure sales tactics of trust promoters have prompted investigations by the attorneys general of a number of states and resulted in some indictments. In New York, the attorney general has issued a warning about living trust scams.
What Is Probate and Should It Be Avoided?
The promoters who are aggressively marketing living trusts as will substitutes seek to convince consumers that probate is a lengthy, expensive process from which only living trusts can and should protect them.
Probate in New York State, however, differs from the process in many other states. In some states, courts exercise continuing jurisdiction over estates to protect the interests of potential will contestants until approval of the final distribution of assets. In such states, the term "probate" refers to the entire course of the estate administration which, depending on the size and complexity, can take as much as several years.
Probate in New York, however, is simply one part, the initial stage, of the estate administration. Probate signifies the procedure to prove the validity of a deceased person's will and involves establishing that the maker of the will signed it in accordance with the legal requirements and that he or she possessed the proper mental capacity. The process ends with the court's appointment of the executor to administer the estate.
In routine cases, New York probate takes a matter of days or weeks; in more complicated situations involving heirs who are under disability or who cannot be located, several months. Consumers should be aware that in New York, apart from probate, the administration of assets under a living trust after the creator's death takes approximately the same amount of time as administration of an estate.
When Is a Living Trust Appropriate?
A living trust can be an important estate planning tool for some people in some circumstances, but it is not appropriate for everyone. Since a living trust provides for lifetime management, it may be especially suitable for an older person with moderate to substantial assets ($150,000 and up) who no longer wants to manage those assets. Such a person can create a trust, with a bank or trusted individual as trustee, to relieve the creator of investment and management worries during his or her lifetime and also to dispose of the trust assets on death.
A living trust can also be useful to hold out-of-state property. If a person dies owning real property in his or her own name (for instance, a condominium or vacation home) in another state, the executor of the will may have to initiate a separate probate proceeding in that state to pass title to the property, after the original probate in the state of domicile. Placing that property in a living trust avoids the necessity for the additional proceeding in the non-death state. Tax proceedings, however, may still be necessary in the other state, whether or not the realty was held in a living trust.
Who Can Be a Trustee?
Under current New York law, the creator of the trust can be a trustee as long as he or she is not the sole trustee and the sole beneficiary. A trust can have several trustees. The creator can name a trusted family member or friend, or a bank or trust company, to be trustee or a co-trustee. A successor trustee should also be named in the trust agreement. Banks and individuals can charge commissions for acting as trustees. Commission rates are prescribed by law, though the trust agreement can set forth different rates. Family members may waive trustees' commissions.
Is the Transfer of Assets to a Living Trust Subject to Gift Tax?
Since the creator retains the right to revoke or terminate the trust, the transfer of assets is not considered a completed gift for gift tax purposes. No gift tax returns need to be filed and no gift taxes are owed.
Who Pays Income Taxes on Income Earned by Trust Assets?
In the typical revocable living trust, in which the creator has retained the right to receive the income as well as revoke the trust, all income is taxed to the creator. The trustee may file a simple tax return annually to show the trust's income and to indicate that it will be reported on the creator's personal income tax return.
Does a Living Trust Save Estate Taxes?
Some consumers are purchasing living trusts in the mistaken belief that revocable living trusts offer estate tax savings that wills do not. In fact, because the trust's creator retains the right to terminate the trust and obtain the property back, trust assets are includable in his taxable estate at death. In a living trust is is possible to make use of the same type of tax planning utilized in wills to maximize estate tax savings. A living trust, however, offers no advantage over a will in this regard.
Does a Person with a Living Trust Also Need a Will?
If "everything" the creator of a trust owns is put into the name of the trustee during the creator's lifetime, a will is not needed, since the trust will dispose of that property at death. Practically speaking, however, it is neither possible nor desirable for most people to transfer everything into a trust. Furniture and other personal property, automobiles, and checking or other bank accounts typically remain in the creator's name and thus become part of the probate estate at death.
In order to dispose of these assets at death, a will is necessary. The will can make a disposition of personal property and then "pour-over" or distribute the balance of the estate to the living trust, to be disposed of in accordance with its terms. Even if a person has a living trust, therefore, he or she must have a will, and if the assets remaining in that person's name exceed $10,000 in value or consist of real property, the will must be probated.
Can a Living Trust Be Contested?
The validity of a living trust and the mental competency of its creator can be challenged in court. Under current New York law, the legal capacity required to sign a trust is higher than the capacity required to sign a valid will, which may make a living trust easier to contest than a will.
How Do the Costs of a Living Trust Compare to Those of a Will?
In comparing the costs of trusts and wills, consumers should take into account the cost of preparation of the document, attorneys' fees for administration and settlement after the death of the testator or creator, executor's and trustee's commissions, court filing fees, and the costs of funding the trust. Although some trust marketers claim that living trusts save the alleged high costs of probate, they may fail to note that except for court filing fees, attorneys' fees for administering and settling an estate are generally comparable to attorneys' fees for administering and distributing assets under a living trust after its creator's death.
Court filing fees for the probate of a will do not represent the kind of onerous expense some trust promoters allege, ranging from $35 for an estate valued at under $10,000 to $1,000 for assets valued at over $500,000. The probate filing fee for the estate of a middle class decedent with probate assets between $100,000 and $250,000 is a relatively minimal $335. And, any savings in court filing fees realized with a living trust may be more than offset by the cost of the trust document itself, which, even for a fill-in-the-blank form, can be one thousand to several thousand dollars.
Taking all such factors into consideration, costs associated with living trusts may in many cases be comparable to, but can be even higher than, costs for probating a will and administering an estate.
Caveat
Consumers are being bombarded with a great deal of information about living trusts. Some of that information is misleading, and some of the claimed advantages of living trusts are exaggerated. It is therefore important for someone considering a living trust to consult with an attorney experienced in estates and trust law to discuss its pros and cons in light of his or her particular circumstances, and determine whether it may be an appropriate part of his or her estate plan.
NOTE: This material, based on New York Law, is issued to inform, not advise. No person should ever apply or interpret any law without the aid of an attorney who knows the facts, because the facts may change the application of the law."
"A living trust is an agreement between an owner of certain assets and a trustee, whereby the owner (the trust's creator) transfers assets into the name of the trustee, who in turn, invests, manages, and distributes them for the benefit of the creator and/or other beneficiaries pursuant to the terms of the written trust agreement. It typically provides for the management of assets during the creator's lifetime as well as for their disposition after his or her death. A living trust is therefore to be distinguished from a testamentary trust created under a person's will, which comes into being only on death.
Some living trusts, such as life insurance trusts (designed to keep insurance proceeds out of their creators' taxable estates) and so-called "Medicaid trusts" (established to preserve assets against depletion by the costs of long-term health care), are irrevocable.
The type of living trust described throughout these pages is a revocable trust, which can be changed or revoked by its creator at any time. Usually, this revocable living trust provides that income from trust assets is to be paid to the creator during his or her lifetime. Upon the creator's death, the assets may be held in further trust for other beneficiaries or distributed outright to them.
Why Are Living Trusts Becoming So Popular?
Living trusts are being heavily promoted as will substitutes and probate-avoidance devices here in New York and throughout the nation. Aggressive marketing, often by so-called financial planners who are not attorneys, through free seminar programs or by mail-order, do-it-yourself trust kits, has prompted many people, especially senior citizens, to purchase living trusts, sometimes for thousands of dollars, and to rely on them as the sole means of disposing of their estates.
Much of the business of marketing living trusts is done by out-of-state companies through regional franchise operations. Hence, a New York consumer may purchase a pre-printed trust document that does not conform to New York law and requirements. Unfortunately, also, many of the advantages claimed for living trusts by promoters are exaggerated, if not directly misstated. Complaints from senior citizens about the high-pressure sales tactics of trust promoters have prompted investigations by the attorneys general of a number of states and resulted in some indictments. In New York, the attorney general has issued a warning about living trust scams.
What Is Probate and Should It Be Avoided?
The promoters who are aggressively marketing living trusts as will substitutes seek to convince consumers that probate is a lengthy, expensive process from which only living trusts can and should protect them.
Probate in New York State, however, differs from the process in many other states. In some states, courts exercise continuing jurisdiction over estates to protect the interests of potential will contestants until approval of the final distribution of assets. In such states, the term "probate" refers to the entire course of the estate administration which, depending on the size and complexity, can take as much as several years.
Probate in New York, however, is simply one part, the initial stage, of the estate administration. Probate signifies the procedure to prove the validity of a deceased person's will and involves establishing that the maker of the will signed it in accordance with the legal requirements and that he or she possessed the proper mental capacity. The process ends with the court's appointment of the executor to administer the estate.
In routine cases, New York probate takes a matter of days or weeks; in more complicated situations involving heirs who are under disability or who cannot be located, several months. Consumers should be aware that in New York, apart from probate, the administration of assets under a living trust after the creator's death takes approximately the same amount of time as administration of an estate.
When Is a Living Trust Appropriate?
A living trust can be an important estate planning tool for some people in some circumstances, but it is not appropriate for everyone. Since a living trust provides for lifetime management, it may be especially suitable for an older person with moderate to substantial assets ($150,000 and up) who no longer wants to manage those assets. Such a person can create a trust, with a bank or trusted individual as trustee, to relieve the creator of investment and management worries during his or her lifetime and also to dispose of the trust assets on death.
A living trust can also be useful to hold out-of-state property. If a person dies owning real property in his or her own name (for instance, a condominium or vacation home) in another state, the executor of the will may have to initiate a separate probate proceeding in that state to pass title to the property, after the original probate in the state of domicile. Placing that property in a living trust avoids the necessity for the additional proceeding in the non-death state. Tax proceedings, however, may still be necessary in the other state, whether or not the realty was held in a living trust.
Who Can Be a Trustee?
Under current New York law, the creator of the trust can be a trustee as long as he or she is not the sole trustee and the sole beneficiary. A trust can have several trustees. The creator can name a trusted family member or friend, or a bank or trust company, to be trustee or a co-trustee. A successor trustee should also be named in the trust agreement. Banks and individuals can charge commissions for acting as trustees. Commission rates are prescribed by law, though the trust agreement can set forth different rates. Family members may waive trustees' commissions.
Is the Transfer of Assets to a Living Trust Subject to Gift Tax?
Since the creator retains the right to revoke or terminate the trust, the transfer of assets is not considered a completed gift for gift tax purposes. No gift tax returns need to be filed and no gift taxes are owed.
Who Pays Income Taxes on Income Earned by Trust Assets?
In the typical revocable living trust, in which the creator has retained the right to receive the income as well as revoke the trust, all income is taxed to the creator. The trustee may file a simple tax return annually to show the trust's income and to indicate that it will be reported on the creator's personal income tax return.
Does a Living Trust Save Estate Taxes?
Some consumers are purchasing living trusts in the mistaken belief that revocable living trusts offer estate tax savings that wills do not. In fact, because the trust's creator retains the right to terminate the trust and obtain the property back, trust assets are includable in his taxable estate at death. In a living trust is is possible to make use of the same type of tax planning utilized in wills to maximize estate tax savings. A living trust, however, offers no advantage over a will in this regard.
Does a Person with a Living Trust Also Need a Will?
If "everything" the creator of a trust owns is put into the name of the trustee during the creator's lifetime, a will is not needed, since the trust will dispose of that property at death. Practically speaking, however, it is neither possible nor desirable for most people to transfer everything into a trust. Furniture and other personal property, automobiles, and checking or other bank accounts typically remain in the creator's name and thus become part of the probate estate at death.
In order to dispose of these assets at death, a will is necessary. The will can make a disposition of personal property and then "pour-over" or distribute the balance of the estate to the living trust, to be disposed of in accordance with its terms. Even if a person has a living trust, therefore, he or she must have a will, and if the assets remaining in that person's name exceed $10,000 in value or consist of real property, the will must be probated.
Can a Living Trust Be Contested?
The validity of a living trust and the mental competency of its creator can be challenged in court. Under current New York law, the legal capacity required to sign a trust is higher than the capacity required to sign a valid will, which may make a living trust easier to contest than a will.
How Do the Costs of a Living Trust Compare to Those of a Will?
In comparing the costs of trusts and wills, consumers should take into account the cost of preparation of the document, attorneys' fees for administration and settlement after the death of the testator or creator, executor's and trustee's commissions, court filing fees, and the costs of funding the trust. Although some trust marketers claim that living trusts save the alleged high costs of probate, they may fail to note that except for court filing fees, attorneys' fees for administering and settling an estate are generally comparable to attorneys' fees for administering and distributing assets under a living trust after its creator's death.
Court filing fees for the probate of a will do not represent the kind of onerous expense some trust promoters allege, ranging from $35 for an estate valued at under $10,000 to $1,000 for assets valued at over $500,000. The probate filing fee for the estate of a middle class decedent with probate assets between $100,000 and $250,000 is a relatively minimal $335. And, any savings in court filing fees realized with a living trust may be more than offset by the cost of the trust document itself, which, even for a fill-in-the-blank form, can be one thousand to several thousand dollars.
Taking all such factors into consideration, costs associated with living trusts may in many cases be comparable to, but can be even higher than, costs for probating a will and administering an estate.
Caveat
Consumers are being bombarded with a great deal of information about living trusts. Some of that information is misleading, and some of the claimed advantages of living trusts are exaggerated. It is therefore important for someone considering a living trust to consult with an attorney experienced in estates and trust law to discuss its pros and cons in light of his or her particular circumstances, and determine whether it may be an appropriate part of his or her estate plan.
NOTE: This material, based on New York Law, is issued to inform, not advise. No person should ever apply or interpret any law without the aid of an attorney who knows the facts, because the facts may change the application of the law."
Friday, August 7, 2009
THE FLORIDA BAR ASSOCIATION SPEAKS ON "THE LIVING TRUST"
The Florida Bar provides information for the public on certain general areas of law as well as specific legal issues. Here is their discussion on "The Revocable Trust in Florida"
"The revocable, or “living,” trust is often promoted as a means of avoiding probate and saving taxes at death. The revocable trust has certain advantages over a traditional will, but there are many factors to consider before you decide if a revocable trust is best suited to your overall estate plan.
WHAT IS A REVOCABLE TRUST?
A revocable trust is a document (the “trust agreement”) created by you to manage your assets during your lifetime and distribute the remaining assets after your death. The person who creates a trust is called the “grantor” or “settlor.” The person responsible for the management of the trust assets is the “trustee.” You can serve as trustee, or you may appoint another person, bank or trust company to serve as your trustee. The trust is “revocable” since you may modify or terminate the trust during your lifetime, as long as you are not incapacitated.
During your lifetime the trustee invests and manages the trust property. Most trust agreements allow the grantor to withdraw money or assets from the trust at any time, and in any amount. If you become incapacitated, the trustee is authorized to continue to manage your trust assets, pay your bills, and make investment decisions. This may avoid the need for a court-appointed guardian of your property. This is one of the advantages of a revocable trust.
Upon your death, the trustee (or your successor if you were the initial trustee) is responsible for paying all claims and taxes, and then distributing the assets to your beneficiaries as described in the trust agreement. The trustee’s responsibilities at your death are discussed below.
Your assets, such as bank accounts, real estate and investments, must be formally transferred to the trust before your death to get the maximum benefit from the trust. This process is called “funding” the trust and requires changing the ownership of the assets to the trust. Assets that are not properly transferred to the trust may be subject to probate. However, certain assets should not be transferred to a trust because income tax problems may result. You should consult with your attorney, tax advisor and investment advisor to determine if your assets are appropriate for trust ownership.
WHAT IS PROBATE?
Probate is the court-supervised administration of a decedent’s estate. It is a process created by state law to transfer assets from the decedent’s name to his or her beneficiaries. A personal representative is appointed to handle the estate administration. The probate process ensures that creditors, taxes and expenses are paid before distribution of the estate to the beneficiaries. The personal representative is accountable to the court as well as the estate beneficiaries for his or her actions during the administration. For probate estates having less than $75,000 of non-exempt assets, Florida law provides a simplified probate procedure, known as summary administration.
ARE ALL ASSETS SUBJECT TO PROBATE?
No, only assets owned by a decedent in his or her individual name require probate. Assets owned jointly as “tenants by the entirety” with a spouse, or “with rights of survivorship” with a spouse or any other person will pass to the surviving owner without probate. This is also true for assets with designated beneficiaries, such as life insurance, retirement accounts, annuities, and bank accounts and investments designated as “pay on death” or “in trust for” a named beneficiary. Assets held in trust will also avoid probate.
HOW DOES A REVOCABLE TRUST AVOID PROBATE?
A revocable trust avoids probate by effecting the transfer of assets during your lifetime to the trustee. This avoids the need to use the probate process to make the transfer after your death. The trustee has immediate authority to manage the trust assets at your death; appointment by the court is not necessary.
The “funding” of a revocable trust is critical to successfully avoid probate. Those persons who do not fully fund their trusts often need both a probate administration for the non-trust assets as well as a trust administration to completely distribute the assets. Because the revocable trust may not completely avoid probate, a simple “pour over” will is needed to transfer any probate assets to the trust after death.
HOW DO I KNOW IF MY ASSETS ARE PROPERLY TITLED TO MY REVOCABLE TRUST?
The account statement, stock certificate, title or deed will make some reference to the trust or to you as trustee. You might also elect to fund your trust by naming the trust as a beneficiary of life insurance or other similar arrangements. Your attorney and financial advisor may assist you with the transfer of assets to your trust. If your trust will own real estate then it is important to have the deed prepared by an attorney. The attorney will consider the impact of existing mortgages, title issues and homestead restrictions when the deed is prepared.
CAN THE TRUST HOLD TITLE TO MY HOMESTEAD?
In some situations your homestead property can be transferred to your trust. Most Florida counties have special requirements to maintain the homestead tax exemption and special language may be required in the trust agreement and the deed. However, homestead property may lose its exemption from creditors when title is held in a revocable trust—the bankruptcy law on this point is unsettled. Your attorney can advise you on whether placing your homestead in your trust is appropriate, and if so, the requirements for a valid transfer.
DO I BENEFIT BY AVOIDING PROBATE?
Avoiding probate may lower the cost of administering your estate and time delays associated with the probate process. However, many of the costs and time delays associated with probate, such as filing a federal estate tax return, will also be necessary with a revocable trust. The administration of a revocable trust after death is similar to a probate administration. The trustee must collect and value the trust assets, determine creditors and beneficiaries, pay taxes and expenses, and ultimately distribute the trust estate. A trustee is entitled to a fee for administration of the trust, as is the personal representative of an estate. To the extent professional services of attorneys, accountants and estate liquidators are used to complete the process, the savings may be marginal.
On the other hand, avoiding probate in multiple states is a definite benefit. Because of the nature of real estate, probate is usually required in every state in which you own real estate. This can usually be avoided by transferring ownership of the real estate to your trust during your lifetime.
HOW ARE CREDITORS SATISFIED?
Florida’s trust law does not have a specific procedure for identifying and paying creditors at death. The creditors have up to 2 years from the decedent’s death to file claims against the estate. The trustee may be reluctant to distribute the trust assets to the beneficiaries until he or she is satisfied that all claims have been paid, and 2 years is a long time to wait. For this reason, some clients choose to open a probate estate in addition to the trust administration to take advantage of the probate claim process. The probate law limits the time for creditors to file claims against the estate (generally 3 months from the date of notice), and also provides a process for objecting to claims.
DOES THE TRUST PROVIDE PROTECTION FROM CREDITOR CLAIMS?
In Florida, the trust assets are not protected from the claims of your creditors. During your lifetime the assets in a revocable trust are treated as owned by you, and subject to the claims of your creditor as if you owned them in your personal name. If the trust assets remain in trust after your death, the interests of the beneficiaries may be protected from their creditors by a “spendthrift” provision in the trust agreement. Florida law provides special protection for many types of assets, including assets owned by a husband and wife as “tenants by the entirety.” Consideration should be given to these assets when you decide how to fund your revocable trust. Your attorney can advise you on the types of assets that offer creditor protection and the effect of funding your trust with them.
DOES THE TRUST PROVIDE PROTECTION FROM THE ELECTIVE SHARE?
Florida law provides that a surviving spouse is entitled to a minimum portion of the decedent’s estate. This elective share is equal to 30% of the estate, including certain assets passing outside of probate. Generally, assets held in a revocable trust will be subject to the elective share. There are some exceptions to the elective share, and the right to receive an elective share can be waived by the spouse. You should consult with your attorney regarding the application of the elective share to your particular situation.
WHO PAYS FEDERAL INCOME TAX ON TRUST INCOME?
In most instances, the revocable trust is ignored for federal income tax purposes during the grantor’s lifetime. The income and deductions are reported directly on your individual income tax return. The trust will use your social security number as its tax identification number.
A revocable trust becomes a separate entity for federal income tax purposes when it becomes irrevocable, or stops reporting income under your social security number for any other reason. The trustee is then required to file an annual fiduciary income tax return. Taxable income, deductions and credits are determined in much the same way as for an individual. Trusts are also allowed a deduction for distributions to beneficiaries. In this way, the trust passes on income and deductions to the beneficiaries to be taxed on their personal income tax returns. Income that is not distributed to the beneficiaries is taxable to the trust.
DOES A REVOCABLE TRUST SAVE ESTATE TAXES?
Revocable trusts are often credited with saving estate taxes, but this is not entirely accurate. Your retained interest and power over the trust assets will cause the trust to be included in your taxable estate at death. The trust can be drafted to minimize the effect of estate taxes, but the same estate planning techniques are available to persons who choose to use a will as those who choose a revocable trust.
WHAT ARE THE TRUSTEE'S RESPONSIBILITIES?
Serving as trustee is no simple task. While very important, the prudent investment of trust assets is not a trustee’s only responsibility. Your trustee’s exact powers and duties will depend on the instructions in your trust agreement. But, in general, your trustee will:
Hold trust property
Invest the trust assets
Distribute trust income and/or principal to the beneficiaries, as directed in the trust agreement
Make tax decisions concerning the trust
Keep records of all trust transactions
Issue statements of account and tax reports to the trust beneficiaries
Answer any questions you and the beneficiaries may have concerning the trust
Your trustee may have broad powers or very limited powers. In either case, your trustee is a fiduciary and must follow a strict standard of care when performing trust functions.
WHO MAY ACT AS TRUSTEE OR SUCCESSOR TRUSTEE?
The choice of a trustee is extremely important, and may have tax consequences. You can name almost anyone as your trustee. Unlike the appointment of a personal representative of a probate estate, a trustee does not have to live in Florida or be related to you. You can name yourself or any other individual (subject to tax considerations), or a corporate trustee, such as a bank or trust company. The individual trustee can be a family member, friend or professional advisor. Many individuals appoint family members or friends as successor trustee, to assume responsibility for the trust management and distribution after their death. When a family member or friend is chosen, consideration must be given to the person’s qualifications, the potential for friction with other beneficiaries, and the potential burden you are placing on that individual. The trust agreement should allow these individuals to hire qualified professionals to assist them in their duties, such as attorneys, accountants and financial advisors.
HOW DO I KNOW WHAT I NEED?
This brochure is intended to give you a basic understanding of revocable trusts, but it cannot substitute for a thorough review with your estate planning attorney. A revocable trust must be implemented as part of an overall estate plan. Ownership of assets must be coordinated between the individual and the trust. Decisions must be made as to what assets are appropriate to fund the trust, the transfers must then occur, and the asset allocation should be periodically reviewed. Tax considerations must be discussed with qualified professionals. The trust agreement should reflect your family, economic and tax goals. A revocable trust can help you accomplish these goals when properly prepared and implemented.
[Revised: 4/07 ]© 2005 The Florida Bar"
"The revocable, or “living,” trust is often promoted as a means of avoiding probate and saving taxes at death. The revocable trust has certain advantages over a traditional will, but there are many factors to consider before you decide if a revocable trust is best suited to your overall estate plan.
WHAT IS A REVOCABLE TRUST?
A revocable trust is a document (the “trust agreement”) created by you to manage your assets during your lifetime and distribute the remaining assets after your death. The person who creates a trust is called the “grantor” or “settlor.” The person responsible for the management of the trust assets is the “trustee.” You can serve as trustee, or you may appoint another person, bank or trust company to serve as your trustee. The trust is “revocable” since you may modify or terminate the trust during your lifetime, as long as you are not incapacitated.
During your lifetime the trustee invests and manages the trust property. Most trust agreements allow the grantor to withdraw money or assets from the trust at any time, and in any amount. If you become incapacitated, the trustee is authorized to continue to manage your trust assets, pay your bills, and make investment decisions. This may avoid the need for a court-appointed guardian of your property. This is one of the advantages of a revocable trust.
Upon your death, the trustee (or your successor if you were the initial trustee) is responsible for paying all claims and taxes, and then distributing the assets to your beneficiaries as described in the trust agreement. The trustee’s responsibilities at your death are discussed below.
Your assets, such as bank accounts, real estate and investments, must be formally transferred to the trust before your death to get the maximum benefit from the trust. This process is called “funding” the trust and requires changing the ownership of the assets to the trust. Assets that are not properly transferred to the trust may be subject to probate. However, certain assets should not be transferred to a trust because income tax problems may result. You should consult with your attorney, tax advisor and investment advisor to determine if your assets are appropriate for trust ownership.
WHAT IS PROBATE?
Probate is the court-supervised administration of a decedent’s estate. It is a process created by state law to transfer assets from the decedent’s name to his or her beneficiaries. A personal representative is appointed to handle the estate administration. The probate process ensures that creditors, taxes and expenses are paid before distribution of the estate to the beneficiaries. The personal representative is accountable to the court as well as the estate beneficiaries for his or her actions during the administration. For probate estates having less than $75,000 of non-exempt assets, Florida law provides a simplified probate procedure, known as summary administration.
ARE ALL ASSETS SUBJECT TO PROBATE?
No, only assets owned by a decedent in his or her individual name require probate. Assets owned jointly as “tenants by the entirety” with a spouse, or “with rights of survivorship” with a spouse or any other person will pass to the surviving owner without probate. This is also true for assets with designated beneficiaries, such as life insurance, retirement accounts, annuities, and bank accounts and investments designated as “pay on death” or “in trust for” a named beneficiary. Assets held in trust will also avoid probate.
HOW DOES A REVOCABLE TRUST AVOID PROBATE?
A revocable trust avoids probate by effecting the transfer of assets during your lifetime to the trustee. This avoids the need to use the probate process to make the transfer after your death. The trustee has immediate authority to manage the trust assets at your death; appointment by the court is not necessary.
The “funding” of a revocable trust is critical to successfully avoid probate. Those persons who do not fully fund their trusts often need both a probate administration for the non-trust assets as well as a trust administration to completely distribute the assets. Because the revocable trust may not completely avoid probate, a simple “pour over” will is needed to transfer any probate assets to the trust after death.
HOW DO I KNOW IF MY ASSETS ARE PROPERLY TITLED TO MY REVOCABLE TRUST?
The account statement, stock certificate, title or deed will make some reference to the trust or to you as trustee. You might also elect to fund your trust by naming the trust as a beneficiary of life insurance or other similar arrangements. Your attorney and financial advisor may assist you with the transfer of assets to your trust. If your trust will own real estate then it is important to have the deed prepared by an attorney. The attorney will consider the impact of existing mortgages, title issues and homestead restrictions when the deed is prepared.
CAN THE TRUST HOLD TITLE TO MY HOMESTEAD?
In some situations your homestead property can be transferred to your trust. Most Florida counties have special requirements to maintain the homestead tax exemption and special language may be required in the trust agreement and the deed. However, homestead property may lose its exemption from creditors when title is held in a revocable trust—the bankruptcy law on this point is unsettled. Your attorney can advise you on whether placing your homestead in your trust is appropriate, and if so, the requirements for a valid transfer.
DO I BENEFIT BY AVOIDING PROBATE?
Avoiding probate may lower the cost of administering your estate and time delays associated with the probate process. However, many of the costs and time delays associated with probate, such as filing a federal estate tax return, will also be necessary with a revocable trust. The administration of a revocable trust after death is similar to a probate administration. The trustee must collect and value the trust assets, determine creditors and beneficiaries, pay taxes and expenses, and ultimately distribute the trust estate. A trustee is entitled to a fee for administration of the trust, as is the personal representative of an estate. To the extent professional services of attorneys, accountants and estate liquidators are used to complete the process, the savings may be marginal.
On the other hand, avoiding probate in multiple states is a definite benefit. Because of the nature of real estate, probate is usually required in every state in which you own real estate. This can usually be avoided by transferring ownership of the real estate to your trust during your lifetime.
HOW ARE CREDITORS SATISFIED?
Florida’s trust law does not have a specific procedure for identifying and paying creditors at death. The creditors have up to 2 years from the decedent’s death to file claims against the estate. The trustee may be reluctant to distribute the trust assets to the beneficiaries until he or she is satisfied that all claims have been paid, and 2 years is a long time to wait. For this reason, some clients choose to open a probate estate in addition to the trust administration to take advantage of the probate claim process. The probate law limits the time for creditors to file claims against the estate (generally 3 months from the date of notice), and also provides a process for objecting to claims.
DOES THE TRUST PROVIDE PROTECTION FROM CREDITOR CLAIMS?
In Florida, the trust assets are not protected from the claims of your creditors. During your lifetime the assets in a revocable trust are treated as owned by you, and subject to the claims of your creditor as if you owned them in your personal name. If the trust assets remain in trust after your death, the interests of the beneficiaries may be protected from their creditors by a “spendthrift” provision in the trust agreement. Florida law provides special protection for many types of assets, including assets owned by a husband and wife as “tenants by the entirety.” Consideration should be given to these assets when you decide how to fund your revocable trust. Your attorney can advise you on the types of assets that offer creditor protection and the effect of funding your trust with them.
DOES THE TRUST PROVIDE PROTECTION FROM THE ELECTIVE SHARE?
Florida law provides that a surviving spouse is entitled to a minimum portion of the decedent’s estate. This elective share is equal to 30% of the estate, including certain assets passing outside of probate. Generally, assets held in a revocable trust will be subject to the elective share. There are some exceptions to the elective share, and the right to receive an elective share can be waived by the spouse. You should consult with your attorney regarding the application of the elective share to your particular situation.
WHO PAYS FEDERAL INCOME TAX ON TRUST INCOME?
In most instances, the revocable trust is ignored for federal income tax purposes during the grantor’s lifetime. The income and deductions are reported directly on your individual income tax return. The trust will use your social security number as its tax identification number.
A revocable trust becomes a separate entity for federal income tax purposes when it becomes irrevocable, or stops reporting income under your social security number for any other reason. The trustee is then required to file an annual fiduciary income tax return. Taxable income, deductions and credits are determined in much the same way as for an individual. Trusts are also allowed a deduction for distributions to beneficiaries. In this way, the trust passes on income and deductions to the beneficiaries to be taxed on their personal income tax returns. Income that is not distributed to the beneficiaries is taxable to the trust.
DOES A REVOCABLE TRUST SAVE ESTATE TAXES?
Revocable trusts are often credited with saving estate taxes, but this is not entirely accurate. Your retained interest and power over the trust assets will cause the trust to be included in your taxable estate at death. The trust can be drafted to minimize the effect of estate taxes, but the same estate planning techniques are available to persons who choose to use a will as those who choose a revocable trust.
WHAT ARE THE TRUSTEE'S RESPONSIBILITIES?
Serving as trustee is no simple task. While very important, the prudent investment of trust assets is not a trustee’s only responsibility. Your trustee’s exact powers and duties will depend on the instructions in your trust agreement. But, in general, your trustee will:
Hold trust property
Invest the trust assets
Distribute trust income and/or principal to the beneficiaries, as directed in the trust agreement
Make tax decisions concerning the trust
Keep records of all trust transactions
Issue statements of account and tax reports to the trust beneficiaries
Answer any questions you and the beneficiaries may have concerning the trust
Your trustee may have broad powers or very limited powers. In either case, your trustee is a fiduciary and must follow a strict standard of care when performing trust functions.
WHO MAY ACT AS TRUSTEE OR SUCCESSOR TRUSTEE?
The choice of a trustee is extremely important, and may have tax consequences. You can name almost anyone as your trustee. Unlike the appointment of a personal representative of a probate estate, a trustee does not have to live in Florida or be related to you. You can name yourself or any other individual (subject to tax considerations), or a corporate trustee, such as a bank or trust company. The individual trustee can be a family member, friend or professional advisor. Many individuals appoint family members or friends as successor trustee, to assume responsibility for the trust management and distribution after their death. When a family member or friend is chosen, consideration must be given to the person’s qualifications, the potential for friction with other beneficiaries, and the potential burden you are placing on that individual. The trust agreement should allow these individuals to hire qualified professionals to assist them in their duties, such as attorneys, accountants and financial advisors.
HOW DO I KNOW WHAT I NEED?
This brochure is intended to give you a basic understanding of revocable trusts, but it cannot substitute for a thorough review with your estate planning attorney. A revocable trust must be implemented as part of an overall estate plan. Ownership of assets must be coordinated between the individual and the trust. Decisions must be made as to what assets are appropriate to fund the trust, the transfers must then occur, and the asset allocation should be periodically reviewed. Tax considerations must be discussed with qualified professionals. The trust agreement should reflect your family, economic and tax goals. A revocable trust can help you accomplish these goals when properly prepared and implemented.
[Revised: 4/07 ]© 2005 The Florida Bar"
Thursday, August 6, 2009
THE FTC SPEAKS ON THE LIVING TRUST
From The Federal Trade Commission:
"Make Sure Living Trust Offers Are Trust-Worthy
You've worked hard for your money, so it's no wonder that you'll want some control over what happens to your assets in the event of your death. At the very least, you probably want to minimize or avoid potential hassles and headaches for your loved ones.
Many consumers turn to experts in estate planning for help in directing what happens to their assets after they die. There are several strategies consumers can choose from to make sure that their assets are distributed as they wish and in a timely way. Unfortunately, there also are scam artists who prey upon misinformation and misunderstanding about estate taxes and the length or complexity of probate.
Some unscrupulous businesses advertise seminars on living trusts or send postcards inviting consumers to call for in-home appointments to learn whether a living trust is right for them. Others sell living trust "kits" they never deliver, and still others use estate planning services to gain access to consumers' financial information and to sell them other financial products.
The Federal Trade Commission (FTC), the government agency that works to prevent fraud, deception and unfair business practices in the marketplace, advises consumers to proceed with caution. Before you sign any papers to create a will, a living trust, or any other kind of trust, the FTC suggests that you:
- Explore all the options with an experienced and licensed estate planning attorney or financial advisor.
- Avoid high-pressure sales tactics and high-speed sales pitches by anyone who is selling estate planning tools or arrangements.
- Avoid salespeople who give the impression that AARP is selling or endorsing their products. AARP does not endorse any living trust product.
- Do your homework. Get information about your local probate laws from the Clerk (or Register) of Wills.
- Make sure your living trust is properly funded — that is, that the property has been transferred from your name to the trust.
- Ask if the seller of a living trust is an attorney. Some states limit the sale of living trust services to attorneys.
Remember the Cooling Off Rule. If you buy a product or service in your home or somewhere other than the seller's permanent place of business (say, at a hotel seminar), the seller must give you a written statement of your right to cancel the deal within three business days.
Check out any organization that wants your business with the Better Business Bureau in your state or the state where the organization is located before you send any money for any product or service. This is a prudent step, but not altogether foolproof: there may be no record of complaints if an organization is too new or has changed its name.
For more information about living trusts and estate planning, including a list of the "terms of art" and their definitions, consumers can call the FTC toll-free, 1-877-FTC-HELP, and ask for the publication, Living Trust Offers: How to Make Sure They're Trust-worthy.
The FTC works for the consumer to prevent fraudulent, deceptive, and unfair business practices in the marketplace and to provide information to help consumers spot, stop, and avoid them. To file a complaint or to get free information on consumer issues, visit ftc.gov or call toll-free, 1-877-FTC-HELP (1-877-382-4357); TTY: 1-866-653-4261. The FTC enters consumer complaints into the Consumer Sentinel Network, a secure online database and investigative tool used by hundreds of civil and criminal law enforcement agencies in the U.S. and abroad."
"Make Sure Living Trust Offers Are Trust-Worthy
You've worked hard for your money, so it's no wonder that you'll want some control over what happens to your assets in the event of your death. At the very least, you probably want to minimize or avoid potential hassles and headaches for your loved ones.
Many consumers turn to experts in estate planning for help in directing what happens to their assets after they die. There are several strategies consumers can choose from to make sure that their assets are distributed as they wish and in a timely way. Unfortunately, there also are scam artists who prey upon misinformation and misunderstanding about estate taxes and the length or complexity of probate.
Some unscrupulous businesses advertise seminars on living trusts or send postcards inviting consumers to call for in-home appointments to learn whether a living trust is right for them. Others sell living trust "kits" they never deliver, and still others use estate planning services to gain access to consumers' financial information and to sell them other financial products.
The Federal Trade Commission (FTC), the government agency that works to prevent fraud, deception and unfair business practices in the marketplace, advises consumers to proceed with caution. Before you sign any papers to create a will, a living trust, or any other kind of trust, the FTC suggests that you:
- Explore all the options with an experienced and licensed estate planning attorney or financial advisor.
- Avoid high-pressure sales tactics and high-speed sales pitches by anyone who is selling estate planning tools or arrangements.
- Avoid salespeople who give the impression that AARP is selling or endorsing their products. AARP does not endorse any living trust product.
- Do your homework. Get information about your local probate laws from the Clerk (or Register) of Wills.
- Make sure your living trust is properly funded — that is, that the property has been transferred from your name to the trust.
- Ask if the seller of a living trust is an attorney. Some states limit the sale of living trust services to attorneys.
Remember the Cooling Off Rule. If you buy a product or service in your home or somewhere other than the seller's permanent place of business (say, at a hotel seminar), the seller must give you a written statement of your right to cancel the deal within three business days.
Check out any organization that wants your business with the Better Business Bureau in your state or the state where the organization is located before you send any money for any product or service. This is a prudent step, but not altogether foolproof: there may be no record of complaints if an organization is too new or has changed its name.
For more information about living trusts and estate planning, including a list of the "terms of art" and their definitions, consumers can call the FTC toll-free, 1-877-FTC-HELP, and ask for the publication, Living Trust Offers: How to Make Sure They're Trust-worthy.
The FTC works for the consumer to prevent fraudulent, deceptive, and unfair business practices in the marketplace and to provide information to help consumers spot, stop, and avoid them. To file a complaint or to get free information on consumer issues, visit ftc.gov or call toll-free, 1-877-FTC-HELP (1-877-382-4357); TTY: 1-866-653-4261. The FTC enters consumer complaints into the Consumer Sentinel Network, a secure online database and investigative tool used by hundreds of civil and criminal law enforcement agencies in the U.S. and abroad."
Wednesday, August 5, 2009
MORE ON "THE LIVING TRUST"
And finally from Attorney Evans: "Myth # 4: Even if it might do no good, a living trust will do no harm. Not necessarily. In their desire to avoid the alleged evils of "probate," many people jump out of the frying pan and into the fire, running directly into the arms of charlatans who are eager to sell "packages" of living trusts for exorbitant fees. And those trust documents may be poorly written, with the result that large fees have been paid for documents that actually result in unnecessary taxes, legal fees, or court costs. And the probate system is not without its advantages, because it requires notices to beneficiaries and a clear remedy if the estate is not distributed according to the will. In their desire to avoid probate litigation, many people create trusts that give fewer rights to their beneficiaries and so, if the trustee turns out to be dishonest or hostile, the beneficiaries of a living trust may find themselves hampered by the trust document in their attempts to recover their inheritances." His conclusion is that "Living trusts are good for some people, but not for everyone. Living trusts have both advantages and disadvantages, but most people don't need them and aren't helped by them. A living trust is most likely to benefit someone who lives in a state with complicated or expensive estate administration requirements .....who has life insurance or retirement benefits which need to be held in trust after death (because of minor children or for tax reasons), who owns real estate in other states (which might require probate proceedings in those other states), or whose investments are already being held and managed by some other person and that other person could serve as trustee at little or no additional cost." He also notes that the AARP publishes a booklet, "A Consumer's Guide to Living Trusts and Wills", a copy of which can be obtained by sending an email request to member@aarp.org. Now, there is still something that bothers me about the "Living Trust" and this discussion will continue.
Sunday, August 2, 2009
MORE ON "THE LIVING TRUST"
This is from attorney Daniel P. Evans, from Pennsylvania, but I believe his statements regarding taxes applies to us in New York as he is talking about federal taxes: "Myth # 1: Living trusts save taxes. This is absolutely wrong. All of the assets in a living trust are subject to both state inheritance taxes and the federal estate tax, just like assets that pass through a probate estate. A living trust also saves no income taxes during lifetime and may actually increase income taxes after death, because some of the income tax rules for trusts are not as favorable as the income tax rules for estates (although an option now exists to elect to treat a revocable trust as part of the probate estate for federal income tax purposes). A trust that is created at death might save taxes in the future in a number of different ways, because a trust can provide income or other benefits to a person without adding those assets to the person’s taxable estate, but that kind of trust can be created by will and a revocable trust is not needed."
Friday, July 31, 2009
MORE ON "THE LIVING TRUST"
In its most basic terms, the promoters of the Living Trust argue that you should transfer all of your assets to the Living Trust while you are alive. You (or you and your spouse) are the trustees of the trust and manage the trust assets for your own benefit. You can change or cancel the arrangement at any time. In sum, while you are alive nothing has really changed except that your assets are technically owned by the Living Trust, rather than by you as an individual. All of the supposed benefits of the trust come into fruition when you die. The promoters state that your assets automatically pass to your beneficiaries without the delay or expense of probate. The Living Trust also claims to ensure privacy and save thousands of dollars in attorneys fees. Finally, the promoters also mention how the Living Trust will save on estate taxes. Now I attended one seminar where a question was proposed: "Will this work if I have a home in Florida too?" The promoter responded: "Yes, we will hire an attorney in Florida to transfer title to the Living Trust, for a small additional fee, and thus you can avoid probate in Florida." But according to Florida attorney Ronald A. Jones: "The problem is that Florida law provides that a revocable trust is liable for the estate debts of the decedent; and there is a 2 year statute of nonclaim. In other words, if someone dies with a revocable trust, at least theoretically the trust is on the hook for 2 years after the person dies for any debts or claims against the person who died, and if the trustee distributes, or passes out the money to the beneficiaries before the 2 years is up, and that results in the trust not having the money to pay creditors, the trustee is liable to the creditors until the 2 years is up. However, there is an exception to this: if a probate is brought, and the estate is advertised, then the period the trust is liable is limited to 3 months after the first date of the advertisement of the estate. From a practical viewpoint, it makes a great deal of sense to bring a probate, and to close out creditors claims to 3 months after the advertisement, at least if there aren't a lot of bills to pay. Otherwise, the successor trustee would be very foolish to pay the beneficiaries if the trustee might be on the hook for 2 years. So, from a practical viewpoint, most, if not nearly all, revocable trusts in Florida wind up having a probate brought in order to close out creditors claims before the 2 years are up. If a probate is going to be brought to close out creditors claims, then there is not much point to a revocable trust for the sake of avoiding probate." Thus, my recommendation is that if you do decide a "Living Trust" is for you and you have out-of-state assets, I would consult with an "out-of-state" attorney to see if the New York "Living Trust" will work with that out-of-state asset.
Thursday, July 30, 2009
THE "LIVING TRUST"
Well, the Power of Attorney is obviously a tool that may or may be helpful when considering one's "estate planning" in the event of disability. Have you read all the local ads for "Living Trusts"? This is different than the "Living Will" which typically is a document that provides instructions about your wishes concerning medical treatments or life-sustaining measures if you have a terminal condition, become permanently unconscious or are in a persistent vegetative state and lack the capacity to make or communicate those decisions. A living will "speaks" for you only when you are unable to communicate your wishes concerning health-care decisions or life-sustaining measures (many of these living wills are being replaced with statutory health care proxies, an issue to be discussed later). But recently, many of you have been hearing about "living trusts". Seminars are being sponsored by attorneys in which a presentation is made, refreshments are served and free consultations are offered. Fees can even be discussed with discounts available if you act within a certain time. Since we have been exploring the new Power of Attorney, let us now explore the "living trust". They are merely an old creature called revocable trusts. Revocable trusts have become increasingly popular in estate planning. Many people believe that by creating a revocable trust, naming themselves as trustees, and transferring their assets to the trust, they will save taxes, simplify the administration of their estates, and save money for their children or other beneficiaries. Unfortunately, these beliefs are not based in fact and are typical of the myths that surround so-called "living trusts." This will be the next topic of discussion.
Subscribe to:
Posts (Atom)
Posts
