Slides Lesson 20

7/28/2019 Slides Lesson 20

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ThissecondlessononEstatePlanningprovidesanintroduction toTrusts.


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Atrust isalegalentitysetupforsomespecificpurpose.Ingeneralitholdspropertyforthe

futurebenefitofsomebody.

Thereisagoodchancethatyourealreadyinvolvedinatrust.Lookatthestatementof

yourIRA,401kor403b. YouwillseewordslikeSoandSoTrustCompanyFBOyour

name.Or

Such

and

such,

Bank

Custodian

for

Rollover

IRA

of

your

name.

Essentially,alloftheretirementassetswithinyouraccountbelongtoalargerpool

ofmoneythatisheldinatrustforyourprotection. Thistrustaccountissegregated

fromthegeneralassetsofthefinancialinstitution. Theydholdingyourpropertyin

trustforyourbenefit. Althoughthisisatrust,wewillfocusmoretruststhatpeople

setupforeachothersbenefits.


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BeinginvolvedinaTrustissortoflikeplayingapartinaplay. Regardlessofwhoyouarein

reallife,inthetrustyouhavetoplaythepartassignedtoyou. Sinceyoumayhavemultiple

parts,youneedtorememberwhatpartyouareplayingwhenyoutakeaction.

ItbeginswiththeSettlors orTrustors. Theyarethepersonswhodecidetocreateatrust.

Theyalso

set

the

rules

of

the

trust.

Of

course

there

are

some

government

rules

here,

but

forthemostpart,ifyoucanimagineasetofrules,thereisasmartlawyerwhocanthinkof

awaytowritethemintoatrust.

ThetrusteeplaysthepartoftheChiefOperatingOfficer. Hesinchargeofcarryingoutthe

intentofthetrustbasedonthewordsinthetrust. ThepropertyisheldintheTrustees

name,notpersonallybutastrustee.

Thebeneficiaryisthepersonorentitytowhichpropertymaybedistributed.


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tscomeinTwoTypes: RevocableandIrrevocable.

Revocable TrusttheSettlorcanchangetherules.

IrrevocableTrustthe rulescannotbechangedexceptbyCourtaction.


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TheClassicLivingTrustis revocable.TheLivingTrusthasyouasthe Settlor,asaTrusteeand

asaBeneficiaryandisalsocalledanIntervivostrust.


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Alivingtrusthasanumberoffeatures.

Thetrustownsyourpropertyeventhoughyouretainfullcontrolofit.

Youstillpaytaxesontheincomegeneratedbythetrustatpersonalincometaxrates.

Itremainspartofyourestateforestatetaxpurposes.

ItspecifieswhoshouldserveasTrusteeincaseofyourincapacityordeath.

Itspecifieswhattodowiththepropertyincaseofyourincapacityordeath.


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Thepropertydoesnotchangehandsatdeath,anditremainsinthenameofthetrusteeof

thetrust.Forthatreasonitdoesnotpassthroughprobate.Inotherwords,abasicliving

trustallowspropertytoavoidprobateandtoquicklyandefficientlypasstothe

beneficiariesyouassign.


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Withmarriedcouplesthereisthepossibilitythateachmayhavedifferent ideasabouthow

theirpropertyshouldbedistributed.

Whiletheyarebothalivetheywillhavetoworkitoutthemselves.Butwhatdoyouthink

happensifthebothdieinacarwreck?Oroneofthemdiespredeceasestheother. These

scenariospresent

major

challenges

in

developing

asuitable

Living

Trust.

Lets

take

alook

at

this.


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Dealingwithsimultaneousdeathisprettystraightforwardinmodestestates. Inpreparing

theTrust,youestablishwhatisSeparateProperty,JointProperty,andCommunityProperty.

TheTrustwilldirectthe successor Trusteeto dividejointandcommunitypropertyequally

intoeach descendantestate andseparatepropertytotheestateoftheindividualowner.

Incomplicatedorunbalancedestates,theresthepossibilitytomakeotherchoicesinorder

tominimizeestatetaxes.


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TheABCTrustisaconceptualframeworkforhandlingthedivisionofpropertyofamarried

coupleatthefirstdeath. Itcanbecustomizedtomeetyourspecificneeds. Itiscalledan

ABCTrustbecausetheclausesdirectthetrusteeoftherevocablelivingtrusttodividethe

trustintothreetrustsknownastheATrust,theBTrustandtheCTrust (atthedeathofone

ofthespouses)


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In ordertobepreparedforthepotentialofwidelyseparateddeaths,provisionsshouldbe

madetotakethefollowingactionsatthedeathofthefirstspouse.

TheTrusteeisdirectedtosplitthepropertyofthelivingTrustintotwoorpotentiallythree

successortrusts.

TheA

Trust,

often

called

the

Survivors

Trust,

is

arevocable

trust

with

the

Surviving

Spouse

astheSettlorandcontainshisorhershareoftheproperty.

TheBTrust, oftencalledtheBypassTrustorCreditShelterTrust,isanirrevocabletrust

containingthedeceasedSpouse'spropertyuptotheestatetaxexclusionamount.

However,thedeceasedsspousehasalreadymadeanunchangeableelectionastowhois

nextinlinetoreceivetheirassets. Thelivingspousehasnorealabilitytoalterthatwritten

command. Thiscouldpotentialprotectthechildrenofthedeceasedspouseiftheliving

spousefallsoutoffavorwiththemorhasmorechildrenoftheirownwithanewpartner.

TheCTrust,asanirrevocabletrustcontainingtheremainderofthedeceasedspouses

propertywiththesameunalterableelection.


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Thustheprimaryproblemsaresolved

ThesurvivingspousegetunfetteredaccesstotheirpartofthejointEstatebyvirtueofthe

ATrust.

Thedeceased

spouse

gets

to

declare

the

who,

what,

and

when,

for

the

distribution

of

their

estate.

Theycantakefulladvantageoftheestatetaxexclusionforboth.

ThisconcludestheLesson.Inthenextlesson, wellexamineGiftsandEstateTaxes.

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