Author: Vijayalakshmi K.V, Aakson institute of Management Studies
Will is the not the way to plan your estate. Wills have to be probated, trusts don’t.
Probate – A legal court process through which assets in the name of the deceased person are transferred to those who are entitled to them after paying all debts of the deceased and expenses of administering the probate case. Probate may be used to settle disputes as to the validity of a will, trust, or the document.
Probate court has the authority over the issue relating to the financial affairs of the deceased person. Separate sections of the probate court may involve the affairs of minors, juvenile offences, guardian sly, conservatorships and handicapped adults.
Drawback of Probate – Minimum of six probate case can be open to allow potential creditors of eh deceased to present claims against the estate.
TRUST
A trust is written document. It also says who gets what, when they get it, and who is in charge of seeing what that happens. The person in charge is the trustee.
The difference between trust and Will is that a trust does not have to go through.
The reason why trust is not probated is that when a trust is signed, it becomes a legal entity that has ability to own things.
Tax deferred accounts like IRA and 401(k)s may have the trust as the primary /contingent beneficiary.
Bottom line? It is definitely faster and cheaper to settle an estate with Trust rather than with court – supervised probate of a Will.
Revocable Trust- – It is more often family situation which is often called a living trust, Lot of kind trust with lot functions, including ,
Estate Tax avoidance.
Charitable purpose.
Note – It is possible to put the provision for a trust in the language of eh last Will and testament. A trust of this kind is called testamentary trust.
Because its will, a trust is not created until probate is finished.
Anyone with this type of trust is losing the major benefit of probate avoidance.
It is a great deal for the Lawyer, because he gets paid for preparing the trust as well as probating the estate.
Good estate planner no longer uses testamentary trusts.
Trust settlement is the process of carrying out the instructions as to who gets what and when.
A typical chore must be done of identifying
What debts have to paid,
Publishing notice in the newspaper,
Getting an IRS number to open bank a/c
Selling assets
Filing claims for life insurance,
You Must have trust when you have –
Minors
Guardian of the Child
Disabled beneficiaries
Spendthrifts
Unmarried / Gay Couples
Separated Couples
Large estates
Small Estates.
Minors – No have trust can lead to money is held in court supervised conservatorship account under the control of the minor guardian or conservator.
Minor cant handles the lump sump money due to bad management, poor decision and excessive spend on himself, his /her friends.
Court -supervised conservatorship – Conservators do not steal money.
Guardian of the child – Ex spouse , divorce parents does not end up in control of the Childs money as do not trust the use of the money for the best interest of the child.
With a trust, you can set up set up rules as to whom how much money is given to a child and who will be in charge of that money.
1. Al the child’s inheritance would be held in a trust fund under the control of a trustee chosen by the parent until the child reaches a certain age.
Until then, trustee has the authority and the decision -making desertion to pay for such things as college tuition, books, transportation. The child can make requests, but the final decision as to the appropriator of the requests are those of the trustee.
2. Similar plans would give the child 1/3 rd the balance of the trust fund money at age twenty five, 1/3 @ 30 , 1/3 @35 or similar pattern.
3. Some conditions put by parents:
Attend particular college
Member of particular church
Acting missionary for certain period.
Not getting married before certain age.
Disabled beneficiaries – The disabled person may be perfectly capable of making financial decisions, but leaving that right to them may mean they are disqualified from certain governmental benefits wo which they would otherwise be entitled.
Firstly – disabled may not have the mental or physical capacity to handle the management of money under the control of an independent trustee, solve this problem.
Secondly – Medicare is “need based”. this means that the person needing help must qualify based on his /her income and assets.
Medicaid is a federal program each state administers the payment based on its own eligibility rules. Online you can find Medicaid eligibility for your state.
If you leave money to disabled, he may be no longer qualified for Medicaid, hence Special need trust has to be carefully designed intent provision of inheritance is received and medicad as well.
SPENDTHRIFTS-
Allowance – per month, intent
Set the number of years – 5, 10, 15 yrs,,,
Retirement accounts – child with no savings, no money for future can plan for their retirement savings.
GAY COUPLES/ UNMARIIED COUPLES; –
Death removes them, the family relationships quickly turn in to a matter of money. Usually heirs have legal right, gay couples/unmarried does not have entitlement.
Hence, written protection for you partner in trust does, with the trust you can provide your partner with the right to live in the house of his /her life time.
What we call a life estate / life lease, has a right to live there for a set of period of time such as one /two years to pay mortage, etc.,
BLENDED FAMILES – One or more partners they both have children from those prior marriages.
Current spouse should be protected.
Second factor is survival – belons to the surviving spouse – his/her children will get assists by law. So, without trust it becomes gamble – a matter who lives the longest.
Separated Couples or Separate trust:
A trust does not have the problem in many states, particularly if both spoused agree in writing to abide by the trust terms. This can be done including the right language in the trust.
A trust is much safer way of assuring that your instruction is followed.
LARGE ESTATES-
Trust can eliminate or dramatically reduce estate/ inheritance taxes.
IRS assets taxable.
Tax rate is 40 %
A typical exempt estate tax, a joint trust would be non -taxable up to $ 10.9 million. This is a very expensive way of saving particularly large amount of tax.
A joint trust can preserve two estate tax exemptions.
Large estates can also achieve significant estate and income tax savings using more sophisticated types of trusts, such as
Charitable reminder trust
Family limited partnerships
Limited liability Companies.
SMALL ESTATES: –
Cost of probate for small assets.
Lot heirs, attorney gets bug share of the estate than beneficiaries.
DISABILITY:
The trust has the language that defines when a person is to be considered in incapacitated, and when that occurs, the alternate or success or trustee immediately steps in and begins managing the assets of the trust owner.
Comparison – Trust and Wills
Typical process of trusts –
Trust settlement is the carrying out the instructions in the trust as to who gets what and when.
A typical chore must be done if identifying
What debts have to be paid,
Publishing notice in the newspaper
Getting an IRD number to open bank a’c,
Selling assets
Filing claims for life insurance,
Upper hand of probate over the trust s was statute of limitations. Means creditor has to present a claim against the probate estate to four, six or nine months, depending on State law.
Uniform Trust Act: Now even trusts have some sort of protection will have always enjoyed.
A trustee runs one time in the newspaper to get the four-month statue of limitation the trust, there by cancelling the only advantage of probate over trusts.
Important note: – If you like most people, the danger of having claim presented after the trust is settled is slim to name. However, if you are in a high risk occupation, you know your debts, numerous business dealings that might or could lead to litigation and you are in a a state where trust notice doesn’t have one small part of your estate probated will give you that protection. The rest of your assets can pass through trust.
Real Estate is more than one estate –
It is not unusual to see people who own real estate in multiple states.
With Trust, all the real estate from every state can be put, in one trust ownership using a ‘quite claim’ deed and there is no probate in any state.
The trustee merely heirs an attorney in the comparison state to do a deed from the trust to the beneficiaries, or the trustee sells the property in other state through the trust to the beneficiaries, or the trustee sells the property in other state through the trust. No probate and no expenses other than relator and closing fees.
FAMILY HARMONY –
Remember the cost of probate is no what lawyers would lead you to believe. It is not the state, the court system, taxes/ Debtor “Court costs “that run up the cost of probate. It is most entirely attorney fees. On the other hand, trust settlement without an attorney can be done quickly and with no legal costs. Because everything is wrapped up so fair, there is not much time for heirs to worry about the process. You basically gather together the assets pay the bills, publish notice, file the last years income tax return, and distribute the assets to the heir that’s it. No papers to file with a court or the state, and no fees to pay.
Arbitration provision: – Trust are a mere certain way of seeing that your intensions and instructions are carried out at death and are not thwarted by litigation.
PRIVACY: – The privacy aspect also makes it harder to context because only the names heirs involved can get a look at the paperwork.
Settlement of Trust Process –
1. Identify and Collect the Assets
2. identify and pay the debts and Obligations
3- Distribute the trust assets as directed in the trust document.
At the grantors death
Trust settlement is the term used to describe the process of wrapping up the affairs of the grantor after death and carrying out the instructions in the trust as to disposition of the trust assets.
Attorneys are very good at trust settlement, and if you do not care about the cost of settling the trust or the amount of time it might take, the easiest way to settle a trust is to hire a lawyer.
The thing is that work that needs to be done at death is not the legal work. It is mostly clerical job that almost anyone can do with some direction.
Identify and Collect the Assets –
Life Insurance – contact the life insurance companies and request a claim form. This should then be filled out end returned to them with a certified copy of the death certificate. In most cases, the death benefit will be paid within thirty days.
Real estate – If the real estate has previously been transferred to the joint trust by deed, nothing needs to be done since the trust is still in existence and still owns the real estate.
Personal property – trust requires that certain personal property items of your partner’s to be transferred to named beneficiaries now. The balance of the personal property may be divided among the heirs in the proportionate shares, or if it is not workable, you may auction or sell the items and add the cash to the other accumulated assets.
Income tax – The tax returns of the year of your spouse’s death may be made as married filling jointly if you wish, but the last years income tax return for your spouse must be be filed.
Estate tax – If the property and other assets of the trust, including property passing by beneficiary designation and property in the name of your spouse outside of the trust , exceed the estate tax exemption amount( currently , $ 5,450,000) , but subject to change), since you should consent your accountant / attorney about the need for filing a federal estate tax return may still be required.
It is also very desirable to get provable valuations in place for all trust assets as of the date of death so that you can prove the values at that time, later it becomes difficult to establish after a year or two.
State inheritance Tax – Each state has a death tax separate from the federal tax. While only a few people will ever have to pay federal estate, tax based on the current rate, the sate tax inheritance tax may have a much lower thresholder.
Benefits – Contact the social security office to see what survivors’ benefit may be payable to the surving spouse or children as well as to apply for the social security death benefit.
Contact any previous employees to be certain that all employee benefit has been applied for.
Wrongful death – if death was or could have been the result of another person’s negligence, such as medical malpractice or an auto accident, contact your attorney to see what benefit may be available for the family.
2. identify and pay the debts and Obligations
“Priority of the claims” laws are implemented.
If the applicable estate property is insufficient to pay all claims and allowance in full , the following order of priority: –
Cost and expenses of administration.
Reasonable funeral and burial expensed
Homestead allowance.
Family allowance.
Exempt property.
3- Distribute the trust assets as directed in the trust document.
Conclusion
Thus trust is a fiduciary relationship between two parties in which beneficiary gets the real benefit as compared to probate of a will which is expensive and time consuming.
FAQ’s
1. What is the objectives of a trust ?
The trust should be created for a lawful purpose.
2. What if the beneficiary die before you?
Typically, you would direct that that share of the deceased person other children equally.
3. Can a trustee be a beneficiary?
There is no conflict of interest between somone’s role as a trustee and their position as beneficiary.
4. What type of trust is best?
As the name would suggest asset protection trusts (APT’s) are the best type of trust to protect your assets against creditors, legal disputes or judgements.
5. I have no children and very close to my dogs I want o set u plan so that after death all my pets haven been taken care for their lifetime
Trust allows you to create a trust for a pet, whether the pet is dog , cat , alligator etc.,
