Living Trusts
A Living Trust is generally revocable. The person creating the Trust (the “Grantor”) initially transfers ownership of his/her assets to the Trust.
For example, a husband and wife may re-title their house so that the house that was titled to Robert Smith and Jean Smith (husband and wife) is now titled to “The Smith Family Trust”.
The Trust document gives the Grantor complete control over everything, including the right to alter or terminate the Trust at anytime, during the Grantor's life.
This means that The Smith Family Trust is completely controlled by Robert and Jean Smith. They have the power to sell, rent or lease the house, take out second mortgage or home equity loan, and are personally responsible for all debt on the property.
If there is/becomes only one Grantor, the Living Trust becomes irrevocable at his/her death and functions much like a Will. If the Grantor has been serving as his/her own Trustee (the person administering the Trust who makes decisions and manages finances), it is it is important that there is an alternate Trustee named in the Trust document so that there is someone in place to settle the estate and distribute property when the Grantor dies. Otherwise, the heirs will have to go to court to have a Trustee appointed.
The assets are distributed by the Trustee as directed by the Trust, which eliminates the need for the assets to be distributed via the Probate Court. Along with the Trust, it is also advisable to have a specially drafted Will which compliments the Trust. These Wills are sometimes called "Pour-Over" Wills, because any assets that were not transferred into the Trust prior to the Grantor’s death, will "pour-over" into and become part of the Trust at the Grantor’s death.
In the common case of a married couple with children, upon the death of the first spouse, the Trust can be written to remain revocable until the death of the. Usually, the survivor stays in control as the sole Trustee.
Perhaps the most significant advantage of a Living Trust is that it can be designed to manage assets in the event a person becomes disabled or incapacitated. While other estate planning tools, such as the Durable Power of Attorney, can be used to provide asset management in the event of a disability, none is more flexible than the Living Trust. When used to provide asset management in the event of a disability, the Trust is created today, but certain assets are not transferred to the Trust unless and until you become disabled.
A Living Trust can also be used by those who need current management of their wealth, even when they are competent and healthy. This would include people who have little or no experience handling money and those who would rather allow someone else handle his/her finances. For example, a widow who has just received a large inheritance could create a Living Trust and name a bank or a trusted financial planner as the Trustee. The Trustee would then invest the inheritance for the widow's benefit and handle financial affairs. One important aspect of such an arrangement is that the Trustee is governed by certain well-settled legal principles which require the Trustee to exercise a high degree of care in managing the Trust funds. Failure to do so can result in criminal prosecution.
Another reason to consider the Living Trust is in cases where the Grantor owns real estate in different states. For example, if you live in and own property in North Carolina and also own property in Maryland, then upon your death it will be necessary to conduct estate settlement proceedings in both states. If, however, the Maryland real estate is transferred to a Living Trust, the estate administration in Maryland could be avoided.
Living Trusts are also suggested if a Will is likely to be contested. While generally uncommon, if an individual believes there may be challenge from heirs, using a Living Trust as a substitute for, on in conjunction with, his or her Will may be the best option for those wishing to protect their estate. It is difficult to successfully challenge either document; however, the Trust requires a higher standard to refute.
There are statutory guidelines for how Trusts can be created and a number of technical requirements that must be fulfilled. For proper estate planning and wealth preservation, consult an attorney at Haas McNeil & Associates, P.A. to ensure compliance.
An irrevocable Living Trust is one in which the Grantor (person creating the Trust) completely gives up all rights to the property transferred into the Trust and retains no rights to revoke, terminate or modify the Trust in any way. The major benefits of this type of Trust include.
Avoiding Estate Taxes
A Trust is a separate taxable entity and pays tax on its accumulated income. The property in the Trust is not part of the Grantor's estate and will not be subject to estate taxes.
Long-term Care
Irrevocable Trusts can be set up as a way to protect assets from long-term care expenses. The Irrevocable Trust is the owner of the assets and the Grantor no longer has a claim to them. Because the Grantor no longer owns any assets, he/she could qualify for Medicaid assistance.
An irrevocable Trust is exactly what it says it is - irrevocable. The information provided here is only on a small part of irrevocable Trusts. Consult an attorney at Haas McNeil & Associates, P.A. to explore all the options in estate planning and ensure that your family is provided for in the way you intend.
Marital Trusts
One of the most powerful estate planning tools available to married couples is the Unlimited Marital Deduction. This is a federal tax law that provides spouses with the ability to distribute unlimited assets to a surviving spouse without the penalty of estate or gift tax.
A Marital Trust can be used even if the intent is not for all the assets to go solely to the spouse. Assets can be held in a Marital Trust for the benefit of the spouse until his/her death, then pass to other named beneficiaries and still qualify for the marital deduction. This is the QTIP Trust, discussed below.
A Marital Trust pays all of its income to the surviving spouse. This is a requirement. The spouse may also be entitled to certain amounts of principal upon request. The Grantor (person who created the Trust) may name a Trustee (who is not the spouse) and give the Trustee discretion to make distributions to the surviving spouse as the Trustee feels appropriate.
There is one other requirement that the Marital Trust must meet; it must be included in the surviving spouse's gross estate when that spouse dies. If the estate of the surviving spouse, including those assets, is large enough, it may be subject to estate taxes. Estate tax is deferred at the time of the first spouse's death, but not avoided altogether.
Qualified Terminable Interest Property (QTIP) is a special type of marital Trust. The QTIP Trust provides a surviving spouse with income from the Trust for the spouse's lifetime. However, unlike other marital Trusts, once the surviving spouse dies, the remaining Trust assets are passed to those beneficiaries named in the first spouse's Will. Thus, an individual may provide financial support for a surviving spouse, but retain control of, or direct, the Trust assets after the surviving spouse's death. Upon the death of the surviving spouse, the entire value of the QTIP Trust is included in the surviving spouse's gross estate and may be subject to estate taxes.
A Credit Shelter Trust (also referred to as a Family Trust, By-Pass Trust, or Trust "B" in an "A-B plan") is a valuable tool which helps married couples avoid paying unnecessary estate taxes. It does this by ensuring that the Applicable Exclusion Amounts of both spouses are fully utilized. The exclusion amount is currently $3,500,000 (2009). In 2010 federal estate taxes will be temporarily repealed. In 2011, the applicable exemption amount will be $1,000,000.
At the first spouse's death, the estate transfers a sum equal to the applicable exclusion amount into the bypass Trust. Although the Trust property will bypass the surviving spouse's estate, the spouse will still be able to receive benefits from the Trust during life. Upon the first spouse's death, no estate taxes will be assessed on the transfer because the amount in the Trust equals the applicable exclusion amount, which is the amount that will be protected from estate tax liability by the estate tax credit.
The second portion of the estate will be either given outright to the spouse or placed in a marital Trust. The Trust will hold the amount of the estate above the applicable exemption amount. The Trust property will pass as the surviving spouse directs under a general power of appointment. With the marital Trust, on the first spouse's death, no estate taxes will be assessed on the transfer. The marital Trust will qualify for the unlimited marital deduction, allowing assets to pass tax-free to the surviving spouse. Upon the second spouse's death, the estate can make full use of the second spouse's available applicable exemption amount, to shelter part of the marital share from estate tax.
Marital Trusts have a number of technical requirements. For marital deduction planning or other estate planning tools consult an attorney at Haas McNeil & Associates, P.A. to ensure compliance with current tax laws and maximum tax savings for your loved ones
Special Needs Trusts / Supplemental Needs Trusts
Special Needs Trusts (also referred to as “Supplemental Needs Trusts”) are often used when a dependent or beneficiary has a physical or mental disability, and the Grantor of the Trust is concerned about providing for the future needs of the disabled person.
Often well-intentioned parents, siblings, spouses or other relatives don't realize that an inheritance may cause problems for the heir. Under current federal law, an inheritance of more than a certain amount disqualifies disabled individuals from most federal needs-based assistance. Benefits from state public assistance programs may also be affected.
Assets left outright to someone receiving governmental benefits would likely rendered that person ineligible for the government benefits. Yet, special equipment or rehabilitation programs can be expensive and could quickly use up whatever inheritance is left. The beneficiary could end up on government benefits anyway, without the resources the Grantor wanted to provide.
With a properly drafted Special Needs Trust, the person may receive government benefits and still enjoy the inheritance that the Grantor wants to provide. It is essential that the Trust clearly states that it may be used only to provide benefits that are above and beyond the benefits the person receives from any government agency. No part of the Trust can be used to duplicate public assistance benefits of any county, State, federal, or other governmental agency, but it may be used to supplement these benefits. For example, the Trust might provide the means for the person to acquire some specific medical equipment (that the government benefits do not cover), to have dental work done, to buy clothes, or to put a down payment on a house. It can also be used to supplement the government funds provided to pay for home heath aide care.
The Grantor appoints a Trustee who's job is to manage the Trust assets and income, and makes purchases for the benefit of the disabled person (beneficiary). The Trustee is also responsible for helping the beneficiary apply for and receive benefits from available public resources, such as Supplemental Security Income (SSI), Federal Social Security Disability Insurance (SSDI), and the appropriate state or local services for the disabled. The Trust can be drafted so that it lasts for the beneficiary's lifetime, or until it is determined that the beneficiary is able to manage on his/her own.
An important point to remember is that the disabled person (beneficiary) cannot server as the Trustee. The whole premise of a Special Needs Trust is that the beneficiary is not considered to have access to the principal or the income of the Trust. The assets of the Trust are for the benefit of the person with the disability, however, the disabled person has no power or authority over the Trust assets.
Do not try to draw this up on your own, or use a form off the Internet. Even a small mistake may render the beneficiary ineligible for government benefits. The law changes frequently and the Trust language must comply with the current regulations. To provide for your loved one, contact an attorney at Haas McNeil & Associates, P.A. to draft the Trust.
Advanced Directives
An Advanced Directive is a legal document which allows you to appoint an individual (your “Agent”) to make medical and/or mental health decisions for you in the event you become temporarily or permanently unable to make those decisions yourself. Your Agent will have the same authority you would have (if you were able) to hire and fire health care providers; admit or discharge you from a health care institution; and consent to or refuse tests or treatments. Unless you chose to limit your Agent's authority, your Agent will be able to make almost every treatment decision that you could make if you were able to do so. If your wishes are not known or cannot be determined, your Agent has the duty to act in your best interest in the performance of his/her duties, unless otherwise stated in the document. These decisions can include authorizing, refusing or withdrawing treatment, even if it means that you will die as a result.
You can appoint almost any competent individual 18 years of age or older as your Agent. The only person who cannot serve as your Agent is any person whom you are paying to provide you health care services. Additionally, if you select your spouse and the marriage is dissolved or annulled, the appointment of your spouse as your Agent is revoked. It is important to ensure that the person you select as your Agent is knowledgeable about your wishes, values, and religious beliefs. Discuss your wishes with the person you have chosen and make sure that they understand and agree to accept the responsibility.
North Carolina law recognizes 3 types of Advanced Directives:
1. Health Care Powers of Attorney
2. Living Will (Declaration Of A Desire For A Natural Death)
3. Advanced Instruction for Mental Health Treatment
All three of these documents work together to ensure your wishes regarding your medical and mental health treatment are honored. Each is valid by themselves and all three are not required for each to be effective. However, each serves a different purpose and is important to discuss the importance of each with an attorney.
In addition, a Medical Directive can be used to supplement these documents.
Both North Carolina and federal law give every alert competent adult, 18 years old or older, the right to make their own decisions regarding their health care and mental health treatment. These rights include the right to choose what care or treatment to accept, reject, or discontinue altogether. If you do not want to receive certain types of treatment or you wish to name someone to make health care decisions for you, you have the right and responsibility to make these desires known to your doctor, hospital or other health care providers. North Carolina law (the Right to a Natural Death Act) states that a properly written and executed Advanced Directive must be honored by any health care personnel taking care of you. In the event that your doctor or other health care provider cannot or will not follow your Advanced Directives for moral, religious or professional reasons, they must immediately tell you or your representative. They must also help transfer you to another doctor or facility that will honor your directives.