When selecting a Trustee the most important qualities are honesty, stability, dependability, organization, financial experience, and ability to devote time and energy on an impartial basis for the benefit of all Beneficiaries. The Trustee is the most pivotal and critical part of any Trust Agreement.
Selecting a trustee is very important. So choose wisely. Read on to learn the aspects that constitute a trust and how selecting a trustee should be decided upon by you.
The Concept of a Trust Agreement
A Trust is a written contract between the Grantor and the Trustee
for the benefit of all Beneficiaries which can include the Grantor and anyone else he chooses including spouse, children, grandchildren, friends, or charities.
A Trust can be created during one’s life or by will upon death. A trust that is created at death by virtue of a will, is referred to as a Testamentary Trust by the “Testator” (the dead guy). A trust created during the life of an individual is referred to as, the “Settlor,” the “Grantor,” or “Trustor.” The Trust instrument is referred to as “inter vivos” formed during the life of its creator.
A Trust is an integral part of any estate plan for the purpose of avoiding the Probate Process, minimize the impact of taxation on the transfer of wealth from one generation to another or from one individual to another, or to protect against unwanted and unpleasant potential events like a lawsuit. A Trust can financially provide for a spouse, a minor child or children or yet unborn children, an incapacitated or disabled person, or for persons incapable of managing their financial affairs. A Trust must have enough provisions to adapt itself way beyond the life of the grantor(s) and the Trustee is at the center of the goals of the Trust creators.
Once a Trust is created, the Trust becomes the new legal titleholder of assets either transferred to the Trust, as a gift or as a sale. In order to avoid fraudulent conveyance, the individual giving up his legal right to possession or title and the right to own must in return receive equal fair cash value at the time of the transfer. Otherwise, it’s a “fraudulent transfer” to the detriment of all potential creditors or it’s a gift subject to a gift tax.
The Gift Tax on Taxable Gifts
The gift tax applies to the fair cash value given up at the time of the transfer (not the amount that was originally paid). Taxable gifts are reported on IRS form 709, taxable to the person giving up the right of possession by gifting his assets. The person receiving the gift (in this case the Trust) always receives the gift Tax Free. (Note: the person receiving the gift always obtains it tax-free and the person giving the gift is always taxed on it unless it’s less than $12,000 per person beginning in 2006).
Trustee’s Power Derived from Grantor
A Trust can be revocable or irrevocable, grantor or non-grantor. Revocable is when the “Grantor” retains a power to “void” the Trust Contract. Irrevocable is when the Grantor “severs” all power of possession, the legal title to own the Trust. The concept of “possession” is the legal right to own and vested exclusively to the TRUSTEE. The Trustee’s power is derived from the Grantor(s) by a written agreement (Trust Agreement). The most important person is therefore the Trustee.
Consequences When Grantor Names Himself Trustee
If there is a provision in the Trust Agreement for the Grantor to name himself as the Trustee for his list of Beneficiaries, which includes himself, then he runs the risk of frivolous liability and harsh tax consequences since he has elected himself the Pope by blessing himself and kissing his own ring.
Factors to Consider When Choosing a Trustee:
A true Trustee is an independent person not related to the Grantor(s) by blood or marriage or is an independent trust company, bank, or corporate body. The selection of a Trustee is the most significant part of any Trust Agreement.
When choosing a Trustee, several factors should be considered:
- Location of the assets. Real estate, for example, has a definite location and the Trustee more familiar with the financial and tax implications of the property should be given weight.
- The individual Trustee’s physical location (home address) in relation to the Beneficiaries.
- The types of assets. Tangible or intangible, cash or near cash.
- Relationship of the individual Trustee to the Grantor’s family.
- An understanding of the intra-family dynamics of all the Beneficiaries.
- Familiarity with the financial management of himself and others he may employ.
- The financial ability and level of experience with the assets entrusted.
- If it’s a family business, the nature and familiarity of the business.
- The willingness and vitality to serve as an impartial fiduciary.
- The legal capacity to interpret and administer the agreement fairly to all Beneficiaries.
- The willingness to accept the appointment and the willingness to accept potential legal liability from disgruntled beneficiaries.
- Succession planning for a successor Trustee.
Some Bad Trustees
When choosing a Trustee that is intended to last longer than the life of the original Grantors certain types of Trustees may not be the best qualified to serve.
- Corporate Trustees or Trust Companies. For the most part, these types of Trustees are nothing more than business robots driven by numbers staffed by individuals who have no connection to the Grantors or the Beneficiaries. They administer the Trust assets but they lack the sensitivity of the people they are hired to serve. Generally, they are very slow in responding to the needs of Beneficiaries and usually react in the interest of the Trust Company not their clients.
- Banks as Trustees. They are too slow in making decisions, are ultra-conservative, and always afraid to make decisions without first consulting their legal department. They have self-preserving motives and generally have no clue or understanding about the individual family dynamics of the people they are intended to serve.
- Lawyers are very up on the ins and outs of legal maneuvers and they have been trained to handle legal matters but generally have no financial experience or expertise in the management of assets. Even when they hire others in those financial roles, they are usually way too expensive and in some cases, they make the assets their life’s insurance policy.
- Accountants are good at keeping scores but generally lack visibility into the future. They have been trained to accumulate information but very tunneled visioned to make investment decisions. While there are notable exceptions to lawyers and accountants, generally they lack qualities to administer and provide full service or to take legal liability to serve as Trustees.
- Family members as Trustees. It’s not a very good idea to have a family member become the Trustee of anything. The problem is mistrust. If you want to watch a family tear itself apart when it comes to money, especially with lots of money, you can go to family court or watch Anna Nicole Smith’s made-for-TV drama.
Selecting a Trustee is Complicated
Selecting a Trustee can very complicated and you will not generally find individuals ready and willing to assume those fiduciary responsibilities, even when compensation is not an issue. Some Grantors have opted for co-Trustees and even Trust Protectors to ease the responsibility. See my article on “Trust Protectors.” Generally, Trustees are more willing to accept the position if they know that they have a backup for consultation with someone who is closer to the Grantor’s family.
Irrevocable Trust vs Will: The Top Five Differences
Posted on: July 21, 2020 at 4:19 am, in
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When meeting with your financial planner to prepare or modify your estate plan, a discussion about the best ways to accomplish your goals will invariably involve irrevocable trusts vs will
. Depending upon the types of assets you own, family circumstances, possible health concerns, and other factors, your financial advisor might recommend the use of an irrevocable trust
either alone or in collaboration with a will.
Irrevocable trusts can be an effective estate-planning vehicle
even though they involve relinquishing ownership of all or part of your assets to the trust. Understanding the role wills and trusts play in an estate plan can help to ease concerns. You can begin with the following top five differences between an irrevocable trust and a will:
If the children experience financial difficulty during the life of the parents, creditors may be able to put a lien on the residence. They could not force a foreclose on the lien while the parents were alive, but the existence of the lien would still cause problems for the children when the property transfers following the death of both parents. If a child gets divorced, the house in a life estate is considered a marital asset and the ex-spouse could get half.
1. Trust vs Will: Irrevocable trusts will reduce your estate tax liability.
The law treats assets properly transferred into an irrevocable trust as no longer being owned by you. One of many benefits of this fact is the removal of the property from your taxable estate when you die for both the federal government and your state
government – 20 STATES ask for a piece of your estate (find out if your state does
) and their exemptions are much lower
than the federal government. However, neither the property nor its appreciated value will increase your estate tax obligation
Unlike an irrevocable trust, a will does not change the ownership of your assets during your lifetime. A last will and testament does not become a legally enforceable document until it is probated with the surrogate’s or probate court after your death. The assets you own during your lifetime are taken into account when determining the value of your taxable estate when you die.
2. Trust vs Will: Avoiding the costs and delays of probate.
When considering a Trust vs Will, one of the biggest considerations is probate. Property passing to your heirs and beneficiaries
through a last will and testament require a probate proceeding
for the appointment of the person you designated in your will as your executor or personal representative. The executor named in the will does not have power to act until granted that authority by the probate court.
This can mean additional expenses for lawyer’s fees, appraisers, accountants, and court costs as well as delays unfreezing assets as they are evaluated by the court; a probate can take 6-12 months depending on the state – more if there are challenges. Difficulty processing the paperwork involved in a probate proceeding or challenges to the validity of the will from disgruntled relatives left out of the will can delay the transfer of assets to your designated heirs and beneficiaries.
An irrevocable trust avoids probate for the assets you transferred to the trust during your lifetime. When you die, your trustee distributes the property remaining in the trust in accordance with its terms. Court proceedings to appoint a representative are unnecessary because your trustee already is empowered to manage the trust assets.
3. Trust vs Will: Privacy – Protecting assets from creditors.
Property in an irrevocable trust that has been properly drafted, executed, and funded in any state is treated as legally belonging to the trust and no longer belongs to you; the trust property is out of reach of your personal creditors
. When created under the guidance and advice of an expert, an irrevocable trust can be an effective shield against personal creditors. If an attorney for a prospective lawsuit checks a person who created an irrevocable trust to hold assets, they won’t see any and the lawyer probably won’t be interested in taking the case on contingency. The lawsuit is stopped before it starts.
A will does not transfer your assets out of your name during your lifetime. As a result, assets you own might be subject to claims by your creditors. When you die, your creditors can file claims against your estate and might be entitled to payment from your estate assets before they are distributed. If an attorney for a prospective lawsuit checks a person who created a will for assets, they will see that they still own the assets in their name and will be able to attach or freeze assets with a preliminary judgement.
4. Planning for long-term care.
When considering a Trust vs Will, one of the biggest considerations is long term care. Assets you and your wife own are taken into consideration when determining your eligibility for Medicaid
nursing home assistance. Unlike Medicare that does not involve income and asset limits to qualify, Medicaid is not available if your income or assets are above the limits set by Medicaid.
This can become an issue for elderly individuals in the need of a higher level of care than they can receive at home. Medicaid pays the costs of extended nursing home care if you qualify financially. Some attorneys and financial planners use irrevocable trusts instead of wills to assist people to plan for future nursing home costs
. Assets in an irrevocable trust that is properly drafted, executed, and funded are not counted by Medicaid in determining eligibility, but the laws are complex and should be discussed fully and completely with a Medicaid Planning expert.
5. Property in an irrevocable trust is out of the creator’s reach.
The benefits derived from having your assets out of your name and owned by a trust that is properly drafted, executed, and funded are lost on some people who are concerned about giving up ownership to a trust managed by a trustee. A will does not create this type of concern during your lifetime, but a will does not offer any of the benefits and protections of an irrevocable trust
and the executor designated in your will controls your estate after your death in much the same manner as a trustee giving rise to the same potential concerns.
The peace of mind that a creator or grantor of a trust achieves depends upon the terms and conditions of the trust agreement. A trustee is a fiduciary
owing a legal duty of loyalty to the trust and those who benefit from it. The laws impose serious penalties and consequences on trustees who violate their fiduciary duties.
If you are looking to avoid probate as well as minimize estate taxes, protect asset from Medicaid, or Protect assets from creditors, then you may want to consider what makes a good irrevocable trust
because they are not all the same even though they both have the name irrevocable trust.
Top 8 Things People Overlook with Estate Planning
Posted on: May 5, 2020 at 4:45 am, in
1. The Entire Estate Plan
What do Jimi Hendrix, Steve McNair, Michael Jackson, and Bob Marley all have in common? They all died without a proper estate plan or even a will
and their heirs paid the price in legal fees, court costs, and endless delays. Many people die “intestate,” (without a will). Even though the states have continued to improve their intestate laws, your assets and your family’s lives could be stuck in probate court for 12 months or more if things aren’t completed correctly. That’s if your relatives don’t start fighting over your belongings. Or, how about this scenario? You die the day after your son turns 18. He inherits assets worth $800,000 and your life insurance pays him $1,000,000. An 18 year old with $1.8 million is a scary thought.
2. Failure to Review Beneficiary Designations and Directing of Assets
As you age or as you have aged, you acquire many different asset growing instruments. You have several different retirement accounts
, life insurance accounts, investment accounts, and real property
. All of these accounts may list beneficiaries. A lot of people forget about these accounts and they list people who you may no longer wish the assets to go to. Also, there may be specific ways to leave these assets in order to maximize the avoidance of taxes, avoid probate, and protect them from the nursing home spend-down.
3. Failure to Take Advantage of the Estate Tax Exemption in 2013
If you have a lot of assets, chances are you are going to be subject to federal estate tax
. This year’s exemption is $5.25M, but nobody knows what it will be 5-10 years from now, so it is prudent to take advantage of the exemptions while you can. With the United States debt growing to $17 Trillion, the likelihood of these exemptions lasting forever is slim. There are exemptions amounts and there are gifting exemptions. If you don’t take advantage of these exemptions while living, your estate will pay them when you are gone. A will doesn’t do it and all versions of revocable trusts don’t either.
4. Leaving assets outright to adult children
How about this scenario? We already discussed the $1.8 million teenager, but how about this one: You pass away, and all of your estate goes straight to your son… no wait, your son’s debtors. That’s right, your child could be in debt and all of your hard earned savings goes to pay off the dumb decisions your child made. Even worse, your son gets a divorce 6 months after he inherits your 50 years of assets; blood, sweat, and tears. His ex-wife now snatches $900,000 just because they were married for 4 years.
5. Leaving assets outright to minor children
Whether because you died intestate or whether your will specified that the assets go to the children, assets to minor children will normally be managed by whomever you decided should be guardian of your children. Your sister Meg may be great at teaching and fostering great children, but not so good at investing or banking. By the time your children are 18 there could be nothing left for them.
6. Don’t overlook states’ inheritance taxes
You may not think that you have enough assets to trigger inheritance taxes because the federal exemption is $5.25M in 2013, but it has changed 30 times in the last 40 years and with the current federal deficit nearing $20 Trillion, do you really think that it will be at $5.25M in 5-10 years? Plus, did you forget about state inheritance taxes
? Usually state taxes are at a smaller rate, but they also usually have a much smaller exemption. That means that your assets plus your $500,000 will put your heirs into a taxable situation. For example, Minnesota’s exemption is only $1M and the tax is 16%. Check out your state estate taxes
7. Use no-contest clauses properly
Lawyers love to talk about the no-contest clause when you are in their office. The no-contest clause
basically states that anyone who contests the will, collects nothing. Sounds bulletproof, right? I mean who would challenge that will? Well, if the will is not legal, then neither is the no-contest clause. Additionally, even if the will is effective, what stops a person who is collecting nothing from contesting the will. Nothing does, because they have nothing to lose. So, maybe you want to leave that person some money so if they challenge the will they lose it. Even better, you don’t want to use a will at all.
8. Picking the right trust for the right purpose
There are basically two types of trusts: revocable and irrevocable
. If you want to avoid probate, but not protect your assets and/or plan for Medicaid, the revocable trust
is for you. With this type of trust, you can take your assets out whenever you want, but Medicaid and your creditors can also. An irrevocable trust can hold your assets with all the benefits of an irrevocable trust, but if written correctly, it can protect assets from creditors. The difference here is that once the trust is set up and you put asset into it, you no longer own them, but you can still get the benefit from them – similar to leasing a car; it is in your driveway to drive whenever you like, but you don’t own it.
15 Things to consider when creating a trust
Posted on: April 8, 2020 at 1:06 am, in
In the realm of financial planning, creating a trust can be one of the most important steps in terms of achieving solid asset protection and designing an adequate estate plan. It doesn’t have to be a difficult process, but it does require thoughtful consideration and planning.
Choose the right legal or financial professional to Protect your Wealth for your family
Most individuals, and even most estate planning attorney’s unfortunately, are not familiar with estate law and how statutes can affect estate planning across different jurisdictions. It is unreasonable to expect someone who is not a legal or financial professional to be able to easily understand everything; however, certain key aspects of it can be sufficiently learned so that a do-it-yourself option becomes available.
The following 15 key points are of the essence when creating a trust. Once this information is fully understood, potential grantors will understand how to the point that they can begin the process of setting one up themselves.
1 – The Need and Purpose
They were originally created when the Renaissance period reached the nascent common law system of the English royal court. These legal instruments were born out of an important necessity: when English knights marched across Europe as Crusaders, they conveyed property ownership to trustworthy individuals to handle affairs such as managing land, paying feudal dues, etc. If the knight did not return to England after a battle, the terms of the entity would establish that the estate would transfer to beneficiaries, who were usually the spouse and children. In the absence of a structure, the Crown would simply claim royal rights over the deceased knight’s property, often leaving his surviving spouse and family penniless.
Good asset protection is like a puzzle placing together the right pieces in the right place
The historic needs of legal structures have not changed. They are still legal documents that establish a fiduciary relationship whereby personal ownership of assets is relinquished and the property is transferred so that it can be managed by a trustee for the benefit of others.
The modern purposes of these entities are: asset protection, wealth management, avoiding probate, Medicaid planning, and estate planning. Individuals and couples whose assets including real estate are worth more than $100,000 should consider creating a trust for their own benefit and to protect the financial futures of their loved ones. Please note, that only an irrevocable version protects assets from anything other than probate.
2 – The Laws and Rules Governing
In the United States, these entities fall under the laws of property, which can be different from one state to another. The most important aspects of them that can differ from one state to another are: validity, construction and administration. Validity deals with state-specific laws and rules that may render it invalid from one jurisdiction to another. For example, at one point many states adopted a rule against perpetuity, which is intended to prevent legal instruments from placing restrictions on property for too long; however, states such as Florida allows property interest that is non-vested to remain for 360 years instead of the suggested uniformity of 21 to 90 years.
Although there seems a fair amount of uniformity in terms of the laws that govern most estate planning across all states, it is imperative that individuals who set one up in one state to draft new documents when they move to another state or make sure that it’s amendable to change the situs. Once someone learns how to create one, the second time around will be substantially easier.
3 – Parties Involved
This structure create legal relationships that require at least three parties: grantor (also known as settlor), trustee and beneficiary. Each of these parties can be represented in plurality, which means that there can be more than one grantor, trustee, and beneficiary.
When learning about how to create one, the grantor must assume a decision-making role that includes certain responsibilities such as choosing the type, appointing the trustee, naming the beneficiaries, relinquishing property, and transferring the assets. Depending on the type and the way the assets are transferred, the grantor may incur into gift taxes; nonetheless, skilled advisors can come up with a strategy that can alleviate this financial burden even if your estate exceeds the federal limits for a gift exemption. The role of the grantor is pretty much completed after the assets are transferred and the paperwork is properly filed and settled.
The trustee is the party that takes over the management and oversight. The duties and responsibilities of the trustees are defined by the grantor during the construction. In some cases, grantors initially serve as trustees until they appoint someone else; some individual grantors set it up in a way that will appoint a trustee only when they become unable to assume management.
The beneficiaries are the parties who are named to eventually receive the benefits of the assets contingent on a trigger event – usually the death of the grantor(s). Beneficiaries also have duties and responsibilities: they may have to pay taxes based on the assets they receive as benefits, and they are also responsible for requesting an audit the work of the trustee to ensure that it’s being managed in accordance to the law and to the wishes of the grantor.
4 – How It Can Help a Family
With every created structure, there is an implied desire of keeping property and assets safe for the benefit of families. This implied desire is the historic factor that prompted the creation in the first place.
Structure your structure properly so conditions can be placed on distribution of assets when someone passes away
These things can be structured in ways that serve the interests of individuals who can be grantors, serve as trustees and also become beneficiaries; notwithstanding this asset protection strategy, creating an irrevocable trust (IT) is something that is more commonly associated with effective financial planning and protection for families.
With a properly structured entity, conditions can be placed on the distribution of assets when someone passes away. Gift and estate taxation can be reduced or eliminated, and family affairs can be kept away from public scrutiny by means of skipping probate court proceedings. Family fortunes can be protected from lawsuits and overzealous creditors, and trustees can be appointed with the understanding that they must adhere to the terms of the contract and help to make it grow.
5 – Do-It-Yourself (DIY) Platform
Asset protection and wealth preservation are part of an industry that generates billions of dollars in administration fees each year. Attorneys and CPA firms that offer services often charge hefty fees their planning expertise. As a result, many individuals and families shy away from setting up structures to protect wealth that they have worked hard to accumulate over several decades.
Although there is a certain amount of complexity involved, there are several DIY approaches that take each step into account making it easy that prospective grantors can take advantage of.
DIY structures are the result of advances in software and database technology and are so sophisticated and accurate today, that even most attorneys use them for their clients. Using an online platform that presents grantors with questionnaires about their finances, civil status and estate planning goals. The questions are related to the 15 key points discussed herein; once all the answers have been provided and the questionnaire is completed, two reviews take place. One review is automatically conducted by the software; the other review is conducted by seasoned professionals with years of experience. Once the correct documents are drafted, they are sent to the grantor for execution accompanied with instructions and guidance.
Once prospective grantors become familiar with the 15 key points presented in this article, going through the DIY process of creating an irrevocable version becomes a task that is not only easy to manage, but also beneficial in terms of avoiding considerable legal fees.
6 – Choosing the Trustee
Proper selection of a trustee
is crucial. Some individuals who choose a living trust as an instrument primarily for asset protection and not so much for estate planning may be tempted to serve as grantors, trustees and beneficiaries, but there some caveats in this regard. A similar situation arises in family structures, whereby parents may want to automatically choose their oldest child to serve as trustee.
The choice of trustee should take into account a few factors: knowledge, experience, potential conflict of interest, access to the assets, management abilities, cost, and relationship. Grantors are likely to immediately think about appointing relatives as trustees because they feel that they have confidence in to manage their assets and handle their financial affairs, but this could be a problem insofar as creating a burden for a trustee who has his own family and work responsibilities.
Independent trustees should always be preferred because they fulfill the aforementioned factors and they create a fiduciary duty which is golden in the eyes of a court. Fiduciary duty is synonymous with a legal obligation to protect the assets. A CPA, for example, is a professional under the oversight of a state regulator. Appointing a CPA to handle trustee duties is the best course of action for grantors who believe that appointing multiple trustees is a wise choice. While there are no limits with regard to whom you choose or the number of trustees who may be appointed, the conflict of interest factor is amplified with the presence of more individuals acting in a fiduciary capacity.
If for some reason the grantor feels that he or she must appoint various trustees, a protector provision may be included to ensure that potential conflicts between trustees can be quickly resolved.
7 – Including a Protector
Grantors who choose to appoint an independent trustee such as a CPA, friend, in-law, or lawyer do not have to worry about completely and permanently ceding all control of the assets and property transferred to the entity. Within the agreement document, a protector provision
can assign powers to an individual or an entity for the purpose of replacing the trustee as needed.
The protector strategy began being used by asset protection lawyers that operate in offshore financial havens such as the Cayman Islands, Cook Islands, and other jurisdictions and has since been implemented into the better domestic trusts.
Prospective grantors in the United States do not have to go offshore for the purpose of strong asset protection. States recognize that trustees and protectors can coexist within a fiduciary agreement. One such state is Delaware, where an individual or entity serving in this capacity is called an adviser under section 3313 of the Delaware Code.
The powers that can be assigned to a protector may include: the ability to replace trustees as needed, the right to control spending, the power to veto distributions, and the ability to step in whenever a conflict between trustees arises.
8 – Revocable vs. Irrevocable
Watch the video on revocable vs irrevocable
RT’s are designed to give grantors an opportunity to easily undo the terms of the agreement so that they can retain control and ownership over their assets. RTs can also be modified at will by grantors.
Irrevocable versions are designed to give grantors maximum benefits in terms of asset protection, estate planning, tax advantages, Medicaid planning, and others. Unlike RTs, grantors do not retain ownership or control of assets held in irrevocable structure, and the terms cannot be modified as easily.
Generally speaking, irrevocable versions are the better choice for individuals and for families.
9 – Married Couples
Couples who are either legally married or who live together under the terms of a common law marriage or civil union can draft agreements that reflect their lifestyle and their financial goals. To this effect, a joint irrevocable structure can be created to meet the needs of most couples. In such case, one or both spouses act as the grantor, but each spouse can designate beneficiaries who can receive a share of property owned in common.
The terms that govern the property held in a joint structure can be dictated by both spouses. The estate planning benefit, when one spouse dies, the assets and property remain in the structure for the enjoyment of the benefits. A provision can be included for the purpose of a final distribution to take place once both spouses pass away.
You can preplan a marriage with a prenuptial agreement
Individual structures can also be created by married couples who wish to keep their property separate. Reasons for doing this include: second marriages and the desire to not cede control of assets and property to a spouse. Couples who are engaged and wish to keep their property separate throughout their union can also set up individual an irrevocable structure vs a Prenup
which work 100% of the time in divorce situation whereas a prenup usually creates more problems than it solves; there is nothing more romantic than asking your wife to preplan a divorce with a prenup
before you commit to spending the rest of your life together.
10 – Naming Beneficiaries and Distributing Benefits
This is something that is done for the benefit of others, who are usually spouses, children, and relatives; these are the beneficiaries. By creating a one, grantors have certain advantages and can even create incentives with regard to financial planning for children and minor beneficiaries.
One common concern among grantors as they grow older is whether their children and grandchildren could be negatively affected when they inherit a substantial amount of money. When it comes to beneficiaries who are minors, it allows grantors to specify those incentives and conditions that must be met before the trustee can make a distribution. Age is an example of a broad condition; in these cases, a minor must reach certain ages before distributions are made. An incentive would be a specific condition, which could be graduating from high school or from college to encourage that beneficiaries pursue education or careers.
Avoiding lump sum inheritances that may be squandered by potentially not-yet-mature beneficiaries is a popular and wise provision among grantors in the United States.
Guardians can also be nominated for minor beneficiaries when creating an irrevocable structure, and this is a designation that should also be made in a will.
11 – Exclusions
When learning how to create a trust, prospective grantors must think about every angle that could apply in terms of estate planning and distribution of wealth over the next 50 years. One particular angle that certainly merits careful thought is not so much who will be the beneficiaries; it is important to think about who must be specifically left out of distributions.
Similar to leaving people out of a will or disinheriting someone, it can be set up in a discretionary manner so as to designate who should really benefit from the estate and who shouldn’t. Exclusions can be specified in DIY versions, but they must not run afoul of provisions against disinheritance in certain states.
12 – Depositing Assets
Transferring assets into a structure is known as “funding the structure.” Just about any type of asset or property can be transferred, and this includes personal and business assets. Cash, life insurance policies, investment accounts, precious metals, and even companies can be transferred, but grantors should keep in mind that they are ceding ownership to the entity, which means that business and investment decisions will be made by the trustee after consulting with their financial advisor, you.
It can have a home even though a mortgage is charged against it
With regard to real estate, if the property is shared with a business partner in what is known as a tenancy-in-common agreement, your equity share can be added. Personal checking accounts, everyday vehicles that have no luxury or collectible value, 401(k) and retirement accounts, and assets that are not really valuable typically are left out.
If your home has a mortgage, it can still be added and, due to the St. Germain Act of 1982
, the bank cannot call your loan due or accelerate your payment schedule with them. If you stop paying your mortgage, however, they can still foreclose on the home because they are still the first lien-holder. What they cannot do is go after other real estate or assets that are properly added.
13 – Jurisdiction and Venue
When choosing the state where the entity will be created, it is important to know about the applicable statutory provisions; this is known as the situs. The significance of choosing the situs cannot be ignored, and this was something that was partially discussed in the second point of this article with regard to the rule against perpetuities. Some states offer stronger asset protection than others; however, when real estate property will be transferred into the entity, the situs should be the same state where the real estate assets are located.
This means people with a summer home in Michigan or a winter home in Florida and Colorado, will likely need to set up more than one structure.
14 – Reasons for it
Protect your assets before entering into a nursing home with an irrevocable structure
Learning how to create an irrevocable structure is mostly a matter of function; understanding the reasons for creating an irrevocable structure and how financial goals will be achieved takes more thought and consideration. When the goals are clearly defined, drafting the agreement is easier.
The most common goals chosen by grantors include: passing wealth efficiently by avoiding the probate process
, reducing estate taxation, preserving assets for charities, retaining control over wealth distribution, and protecting assets by keeping them within the family instead of a creditor or nursing home
15 – Building a Legacy
An irrevocable structure asset protection diagram of the different types of relationships involved. (Click the above diagram to enlarge)
At some point in life, prospective grantors shift their focus from wealth creation to wealth preservation. These structures are not merely for estate planning; they can be used in life to structure distributions to minors as they grow older and start building their lives, or they can also be used to alleviate tax burdens so that gifting to charities can be conducted for maximum benefit.
A properly managed entity can help to build a legacy by providing business continuity over a family fortune across generations. This is how a legacy can be built; financial success does not have to always live in the present, it can also be preserved and protected so that a family can always enjoy its benefits.
We look forward to our visit with you and your professional representatives to assist you with the advancement of your estate planning.
Rocco Beatrice, CPA (Certified Public Accountant), MST (Master of Science in Taxation), MBA (Master of Business Administration), CWPP (Certified Wealth Protection Planner), CAPP (Certified Asset Protection Planner), CMP (Certified Medicaid Planner), MMB (Master Mortgage Broker)
Managing Director, Estate Street Partners, LLC
Riverside Center Building II, Suite 400, Newton, MA 02466
tel: (508) 429.0011
“Helping our clients resolve their problems quickly, effectively, and decisively.”
The Ultra Trust® “Precise Wealth Repositioning System”
This statement is required by IRS regulations (31 CFR Part 10, 10.35): Circular 230 disclaimer: To ensure compliance with requirements imposed by the IRS, we inform you that any U.S. federal tax advice contained in this communication (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein.
Top 10 Things to Do When Being Sued
Posted on: April 6, 2020 at 4:43 am, in
The threat of a lawsuit
, or the prospect of litigation, sends most people into an emotional state somewhere between panic and outrage, especially if that person hasn’t protected their assets
ahead of time. Running a business or getting through the daily routines of personal life can be overwhelming without the added stress of a process server, marshal or sheriff coming to your home or office with a summons and complaint.
Most people have never been involved in a lawsuit, so seeing your name or the name of your business in the caption followed by the word “DEFENDANT” can be unsettling. There are ten things you should know about lawsuits that will help you make the right decisions once the process server leaves.
1. It will not go away on its own. Lawsuits must be taken seriously.
Regardless of how frivolous or inconsequential
the lawsuit might seem to be, ignoring it can have serious consequences. Failing to file a formal, written answer to the allegations contained in the lawsuit can result in a default judgment against you in favor of the opposing party. A default judgment means potentially your plaintiff can go to your bank and freeze your account or go to the registry and put a lien on your home or rental property. You won’t find out about it until checks start to bounce and you “swear there was at least $10,000 in that account.”
2. That ticking sound is a clock.
The defendant in a lawsuit must file a formal answer or make a motion within a limited period of time that is set by the laws in each jurisdiction. Getting angry and tossing the lawsuit papers into a corner in your home or office to be dealt with later
is a mistake. Some states limit the time to submit an answer to just 20 days or less from the date the defendant is served.
3. I can do this without a lawyer.
Without getting into all of the reasons why representing yourself in a lawsuit is a mistake, and there are many, be aware that the laws in some states, such as New York, require that an attorney
appear on behalf of a corporation that is a defendant in a lawsuit. Yes, lawyers cost money that most people or small businesses cannot readily afford, but lawyers know the defenses allowed under the law and the procedures that to follow to avoid a costly errors.
4. Choose a lawyer you can depend upon.
If you are using an attorney for the first time, make certain your lawyer is familiar with the issues raised in the lawsuit. Attorney’s today are as specialized as doctors; one does not go to a brain surgeon to fix a broken leg. Ask the lawyer how many lawsuits like yours he has taken to verdict. Lawyers
who settle most of the cases they handle might be good negotiators, but you also want to know that the attorney you choose can handle a trial if one is necessary.
5. Be honest with your lawyer.
The second worst mistake you can make is to attempt to defend a lawsuit without having legal representation. The worst mistake is having an attorney but failing to disclose
all the facts in an honest and forthright manner. The lawyer you hire is on your side regardless of how good or how bad the facts and the evidence make you look. Lying to your lawyer, or withholding information because it portrays you in a bad light, will make it difficult for your lawyer to represent you and often times you are doing yourself a disservice because when that information you are hiding comes out in court, your lawyer will be caught off guard with no strong, well-thought out response.
6. Don’t ignore insurance options.
Some types of insurance policies provide coverage in the event of a lawsuit. Automobile insurance
or homeowners insurance are two policies with which most people are familiar, but there are other types of insurance, such as malpractice or errors and omissions policies that provide coverage in the event of a lawsuit. In most instances, the insurance company will take the lead, pay for your defense, and often times negotiate a settlement.
7. Listen to the expert you hired.
You are paying your lawyer to give you expert legal guidance, but the money is wasted unless you listen and heed the advice that is given to you. Telling your lawyer how you think your lawsuit
should be handled ignores the fact that your handling of the situation is probably what got you into a lawsuit in the first place.
8. Fighting over principle can get expensive and distracting.
Whether you are the defendant being sued or the plaintiff who started the lawsuit, at some point you have to consider exactly what it is that you are fighting about. Does defending or prosecuting the lawsuit make sense economically? If you find yourself spending large sums of money on legal fees
, court costs and related expenses that will exceed the amount you will recover if you win, it is probably time to reevaluate your position. Perhaps it is time to stop fighting and consider a negotiated settlement to put an end to the litigation. A lawsuit that goes to trial can easily cost $100,000-200,000. Imagine trying to run your business with a lawsuit hanging over your head for 3 years. The stress distracts you from positive things like growing your business.
9. Don’t assume your legal expenses will be paid by your opponent.
Absent an agreement, such as a contract or a law requiring the losing party in a lawsuit to pay the other party’s legal fees, the parties are responsible for their own costs of defending or prosecuting a lawsuit in the United States. Even if you have a contract that states the loser in a dispute will pay legal fees, it is rare that courts award full legal fees.
10. Expect to be in it for the long haul.
People want lawsuits to end quickly so they can go about their normal lives and business, but answers, counterclaims, motions and discovery can take months or, sometimes, years to complete. Lawsuits begin with a flurry of activity that dies down as the case progresses beyond the initial pleadings establishing each party’s position. The pace picks up again months later as each side engages in depositions and other discovery procedures. Patience and trusting in your legal representation are keys to lawsuit success.
Bonus Tip: When You are Being Sued
Evaluate your options. Most lawyers will tell you that you cannot take action to protect assets
once you know there might be a lawsuit coming. Most lawyers tell you this because they don’t fully understand fraudulent conveyance
and how to manage the resulting 4-5 years statute of limitations on asset transfers. If there is an opportunity to make it difficult for someone to sue you – even late in the game – it could put you in a position to negotiate with your attacker and thus minimize the pain, stress, costs, and distraction that a lawsuit can bring.
Fraudulent Transfers, Civil Conspiracy, Uniform Fraudulent Transfer Act
Posted on: February 7, 2020 at 11:49 pm, in
What are Fraudulent Transfers? What is Civil Conspiracy? What is the Uniform Fraudulent Act state regarding LLC and creditor claims? Discuss the Single Member LLC within the context of owning public shares in a stock and its role in asset protection.
Under the Uniform Transfer Act you would be committing a crime, see Section 19.40.041
“…(a) a transfer made or obligation incurred by a debtor is fraudulent as to a creditor whether the creditor’s claim arose before or after the transfer was made or the obligation was incurred, if the debtor made the transfer or incurred the obligation: (1) with actual intent to hinder, delay, or defraud any creditor of the debtor…”
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What are Fraudulent Transfers?
Fraudulent conveyance has to do with transferring assets at less than the “fair cash value” thereby defrauding a potential creditor or the intentional divesting of assets which become unavailable for satisfaction of the creditor’s claims. Fair cash value means cash or near cash value at the time of transfer, not the price you paid for the asset.
For example, you transfer your portion of your equity in your home to your wife for $200.00 and the fair cash value of your portion of the equity was $250,000 (total value of the home was $500,000) or you transfer title to your Mercedes to your brother for $100.00. Additionally the IRS would claim that such a transfer is a gift subject to a gift tax return and assess a penalty for the non-filing of Form 709 (PDF) United States Gift (and Generation-Skipping Transfer) Tax Return.
What is Civil Conspiracy?
The “civil conspiracy theory” has been defined by the courts as (1) an agreement (2) by two or more persons (3) to perform overt act(s) (4) in furtherance of the agreement or conspiracy (5) to accomplish an unlawful purpose or a lawful purpose by unlawful means (6) causing injury to another.
To be convincing, the creditor must allege not only the conspirators committed the act but also the act was tortious in nature. The conspiracy alone is not enough to trigger a claim for civil conspiracy without the underlying tort. Lately, however, advisors have been dragged into the creditor claims as co-conspirators for suggesting and implementing everyday common asset protection strategies. This has made me more cautious, making sure that I don’t get dragged in to my own legal nightmare.
Example of Single Member LLC Membership Units and Shares in a Public Stock
SINGLE MEMBER LLCs should be avoided. The example I can use is this: If you own 1,000 shares of General Motors it’s considered a personal asset subject to a creditor claim. If the claim is perfected by litigation in favor of the creditor the owner of the 1,000 shares of General Motors will have to transfer those shares to the creditor in satisfaction of his claim. Owning single member units of an LLC is not any different. The Owner of the LLC membership units is equivalent to owning the 1,000 shares of General Motors and therefore subject to a perfected creditor claim.
Asset Protection: Placing Title of Assets in Another Legal Entity
THE CONCEPT OF ASSET PROTECTION includes the possibility of placing title in certain assets in the name of a less vulnerable spouse or other family members, or a legal entity. One should be very attentive in transferring title without an open invitation to a “incorrect transfer” claim against the asset transferred or the possibility of death by the spouse or family member, or possible dissolution of the marriage, or a court judgment.
The most common methods of holding assets by INDIVIDUALS:
- Joint Tenancy
- Joint Tenancy with right of survivorship
- Tenants in Common
- Tenancy by the Entirety
- Community Property
LEGAL ENTITIES (Artificial person created by application of law):
- General Partnership
- Limited Partnership
- Limited Liability Company
- Corporation under Chapter “C”
- Corporation under Sub Chapter “S”
- Revocable Trust (There are many Revocable Trust variations, since a Trust is nothing more than a Contract)
- Irrevocable Trust (There are many Irrevocable Trust variations, since a Trust is nothing more than a Contract)
To learn more about avoiding conveyance rules and how to avoid civil conspiracy theories when repositioning assets and implementation of precise asset protection systems speak with an experienced and knowledgeable financial planner and advisor in these matters such as Estate Street Partners offering free initial consultations.
I always caution against simply speaking with only an attorney and only an accountant in complex financial planning with regards to single member LLC scenarios, partnerships in Limited Liability Company formations, regulations surrounding conveyance and civil conspiracy and asset protection. It’s best to develop or consult with a group or team consisting of an attorney, accountant and financial planner or advisor to offer you the best, well-rounded protection. You will gain a more thorough understanding of the nature of asset protection from LLC formations to avoid incorrect conveyance and civil conspiracy judgments.
What is Asset Protection
Posted on: October 31, 2019 at 5:12 am, in
Keys to an Asset Protection Plan
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“LATE-R” is already too “LATE.”
“If you’ve taken NO steps to protect yourself, your wealth, and your family from thieves, con artists, ruthless greedy lawyers, overzealous bureaucrats; you have underestimated the abilities of these shrewd, ruthless, invasive, money-hungry, predators.” – Rocco Beatrice, CPA, MST, MBA
It’s the concept of protecting and preserving one’s assets from frivolous, illogical, ill motivated, more often than not, devastating catastrophic claims against your wealth, designed to destroy your current and future lifestyle. In short, they want what you’ve got and they want to inflict maximum pain.
Asset protection has two goals:
- To make the enforcement of judgments against your protected assets virtually impossible, and
- To allow the “owner” of protected assets to retain engineered “control” over his assets
Learn the 3 core secrets to protecting you assets by clicking here
How Good Asset Protection can Protect Your Privacy:
“Identity Theft” is the fastest growing financial crime in America – source: the U.S. Secret Service
There are literally hundreds of ways to protect your assets. Some are just common sense. Don’t flash your money around; don’t talk too much at parties, etc. By implementing a properly crafted asset protection plan, your creditor will have to jump through several hoops, before he even finds your money. A contingent fee predator lawyer will want an easier target.
There are approximately 950,000 lawyers. Just go through your own yellow pages. Most of them live on what they can “squeeze out of you.” Don’t become a statistic. Learn from other people’s mistakes. Learn how to become every contingency-fee lawyer’s nightmare.
The Internet is spyware on steroids and can be used as invisible wealth snatchers. Information collection about you, your associates, your family, your finances, has been compromised by the enhancement of data gathering technology through the internet. “Even if you’ve got nothing to hide” your very basic privacy can be had for a few bucks by thieves, con artists, ruthless greedy lawyers, and overzealous bureaucrats.
How “paranoid” are you? How “paranoid” should you be? the problem is not the zillion merchants collecting data about your spending habits. The problem is who’s collecting the data without your knowledge. And, for what purpose?
A Good Plan will:
- Protect your current and future lifestyle
- Discourage litigation and promote settlements, in your favor
- Keep the ownership of your assets confidential and hard to find
- Eliminate the need of prenuptial agreements
- Internationalize your investments as a hedge against the unexpected surprise
- Spread out your control over your most valuable assets
- Help you in getting a fresh start, if you ever became insolvent in any of your other assets
- Hedge against potential political, economic, and personal instability
Chartered Blueprint of Wealth Preservation and Steps to Protecting Assets:
- What are your financial goals?
- Think about each of your personal/business assets that you need or wish to protect
- Will there be domestic and/or international platform(s)?
- Select the legal entities:
Steps to Asset Protection (Expounded):
- Your financial goals should be:
- Protecting Assets / wealth preservation
- Defer your Capital Gains Taxes
- Defer, reduce, possibly eliminate your “Income Taxes.”
- Eliminate “Probate Jail” and Eliminate ALL your “Inheritance Taxes.”
- Determine your personal and/or business assets which may include:
- Personal residence
- Personal checking
- Certificates of deposits
- Investment accounts
- Broker stock accounts
- Other real Estate
- Life insurance policy(ies)
- Automobiles, boats, planes, collectibles, antiques
- Individual retirement account(s)
- Inheritance #1, Inheritance #2
- Business #1
- Cash, Accounts receivable, Inventory Equipment, Goodwill, Other assets
- Business #2
- Partnership interest #1
- Partnership interest #2
- Note: Same planning applies for each of your business assets
- What are your financial goals:
- Domestic or Foreign/International
- Your financial goal(s) points: 1,2,3 & 4 OR combinations of 1+4 OR 2+4 OR 3+4, etc.
- Domestic Platform(s):
- Irrevocable Trust or Revocable Trust
- Grantor Trust or Non-grantor Trust
- Living Trust
- Insurance Trust
- Personal Residence Trust
- *Ultra Trust®
- General Partnership
- Limited Partnership
- Family Limited Partnership
- *Limited Liability Company (LLC)
- *Family Limited Liability Company (FLLC)
- *Customized Hybrids, i.e. LLC, Family LLC, Limited Partnership, Family Limited Partnership or General Partnership is owned by an UltraTrust®
- * = My preferred structures
- Foreign Platform(s)1 (please read note – 1)
- Foreign Bank Account
- International Business Company
- Foreign A/P Trust
- Foreign Security Trust
- Foreign Limited Liability Company (FAPT)
- Offshore Uni Trusts
- Offshore Mutual Fund
- International Trading Company
- Multi-Currency Bank Deposits
- Swiss Annuities
- Foreign Credit Card
- Foreign Stock Trading Account
- Registered Foreign Office
- Registered Foreign Sales Facilities
- Note – Use “Good” planning NOT “Secrecy.” Rely on “Law” NOT “Secrecy.”
1**Watch out for Foreign and Offshore Scams & Practitioners**
There’s a thriving industry of “offshore practitioners” advising IRS definition of “U.S. Person”
to set-up offshore bank accounts and other financial structures thinking that they have “just become NON-U.S. Taxable.” They persuade the U.S. Persons to trust the “Iron Clad” secrecy laws of the jurisdiction and not to report ownership of their funds or structures to the Internal Revenue Service and other agencies. This is pure and simple tax fraud and gets many U.S. Persons in trouble.
WARNING: Complexity(ies) of U.S. laws requires many tax reporting and other various reporting requirements. Protect yourself, make absolutely sure that you seek competent professional expert legal, accounting, and tax advice before you consider implementing your foreign A/P plan. Contact Estate Street Partners and get the facts for proper U.S. reporting procedures.
Authorities are looking for NON-COMPLIANCE, not for those who report and comply. We believe in full disclosure. If there’s no reporting form, we make-up our own and file.
To my knowledge, there are no laws prohibiting you from protecting your hard-earned money with offshore international structures, as long as you file all proper documentation with proper reporting agencies. When protecting your assets / wealth preservation plan is professionally and carefully implemented by competent professionals, the foreign side of life becomes significantly enhanced. Most international jurisdictions do not recognize U.S. based creditor judgments
For example: a proper utilization of a foreign bank account should be part of protecting your assets / wealth preservation plan, it’s the less complex and the most useful part of protecting your assets / wealth preservation strategy. Your cash will become an “A/P fortress,” just make sure that you check the box on your Form 1040 schedule B, and file TD F 90-22.1. NO BIG DEAL. There is absolutely no downside to proper reporting on the existence of a foreign bank account.
No Financial plan is ever 100% bullet proof: Know These Facts about a good plan
- You can’t lose your assets without first being sued and them winning the lawsuit. Winning and getting the money are two separate issues.
- Implement your A/P strategy when times are good. It’s too late when the crap starts flying. You will have to deal with several “fraudulent conveyance” laws – that is, if you had some warning, or you merely became aware (real or potential), or you should have been aware that someone was going to potentially sue you. By implementing any A/P plan, you made your assets unavailable to satisfy creditor claims. Therefore, you may be found guilty of a “fraudulent conveyance.” The judge may set aside your attempt to hide your assets and hand it over to your creditors. In addition, the judge may decide to throw the book at you with other financial and possibly other consequences. PLAN EARLY, when the sea is calm. Don’t become a statistic.
- Your creditors can’t take what you don’t have. Don’t put everything in your name. Don’t be so obvious.
- What your creditor’s don’t know becomes your asset. Don’t volunteer information, don’t flaunt your wealth, don’t talk too much at parties, don’t tell them your business, don’t tell them how smart you are.
- No country in the world will automatically honor a judgment against you. Outside the United States there are no contingency lawyers. Your creditor must re-litigate his case in the foreign country. Your creditor must put up a bond. Your creditor must pre-pay attorney fees. If your creditor loses his case he must pay your attorney fees. Finally, your creditor must prove that the laws of their country are invalid, the judge is a bum, and that the whole country should disappear into the sea.
- There’s a greater chance that you will be sued more times than you will have a hospital stay.
- Your Individual Retirement Account (IRA) is not protected by ERISA. Your Individual Retirement Account is usually the second asset to be attacked, behind your cash and investment account. Your IRA is an easy target because (1) It’s always in the United States and (2) Your IRA is usually in cash or near cash.
- The United States is the only country that permits contingent fee litigation.
- There are approximately 950,000 lawyers. Just go through your own yellow pages. Most of them live on what they can squeeze out of you. Don’t become a statistic.
For many self-made, hard working citizens, the “American Dream” can become the “American Nightmare.” Exorbitant taxes, lawsuit-friendly courtrooms, persistent predator plaintiffs, and contingent-fee clever lawyers are a constant threat to everything you’ve worked so hard to accomplish. It could all evaporate before your very eyes.
Take personal responsibility. If you’ve taken no steps to protect yourself, your wealth, and your family from thieves, con artists, ruthless greedy lawyers, overzealous bureaucrats…you have underestimated the abilities of these shrewd, ruthless, invasive, money-hungry predators.
5 Estate Planning Horrors to Avoid In Your Divorce
Posted on: May 5, 2019 at 4:46 am, in
“A person who never made a mistake
never tried anything new”
– Albert Einstein.
You do not want to make these mistakes.
Estate planning frequently takes a backseat to emotion in a divorce. Even when both parties agree that ending their relationship is the best solution for their marital woes, divorce can be an emotionally and financially excruciating experience. Regardless of how much you might think you have prepared for the roller coaster ride that your life becomes during, and immediately after a divorce, nothing can fully prepare you for it. Avoid the 5 estate planning mistakes:
1. Making it difficult to identify separate property.
Some states have established two classifications of property in a divorce: separate and marital. Marital property
is real or personal property acquired during the marriage or property acquired together by the parties prior to the marriage. Marital property is subject to distribution by the court in a divorce action.
Separate property is usually defined as property acquired prior to the marriage by one of the parties that retains its identity as belonging to one of the parties. Separate property is not subject to distribution by a court as part of a divorce. Problems occur when courts cannot identify property as being separate. For example, a home purchased and owned by a person prior to a marriage could lose its status as separate property if marital funds are used to pay the mortgage or do renovations on the home.//insurance.ultratrust.com/life-insurance-retirement-planning.html
Placing separate property in an irrevocable trust established prior to a marriage can eliminate or minimize questions concerning the legitimacy of a claim that property is separate rather than marital. Homes and businesses are properties that can be transferred to an irrevocable trust to retain their separate status because ownership is in the name of the trust and not the individual.
Irrevocable trusts that were created before the marriage or even jointly during the marriage most likely will NOT count as marital assets. Often a wealthy person, prior to marriage, may place a bulk of their assets in an irrevocable trust
to avoid having the awkward prenuptial conversation and still protect the assets in the event of divorce.
2. Failing to change your life insurance beneficiary.
A life insurance policy
is a contract between you and the insurance company. You agree to pay your premiums in return for which the insurance company agrees to pay a specified sum of money on your death to the beneficiary you name in the policy. The insurance company is obligated to pay the person whose name you list as the beneficiary even if that person is your ex-spouse.
A recent case Maretta v. Hillman, 722 S.E.2d 32 (Va. 2012)
, proves just how big this problem can be. A federal employee designated his wife as a beneficiary, divorced and remarried. He then died leaving everything to his current wife. His ex-wife however claimed the over $100,000 in life insurance and his current wife took him to court. Virginia has a law stating that, upon divorce, the ex-wife is no longer considered a beneficiary on life insurance policies. This was a federal policy, however the Supreme Court ruled in favor of the ex-wife.
This could also be a good time to evaluate your life insurance needs. If you do not have children, you might not need as much insurance as when you were married.
3. Forgetting to revoke a power of attorney.
Remember those forms you filled out at the attorneys office when you created your will? Most likely, one of them was a power of attorney
. This form gave your now ex-wife power to take care of your finances probably at any time, but at the very least when you become incapacitated.
The laws in a handful of states (but not most) terminate a power of attorney upon divorce, which names a spouse as the attorney in fact. This is not, however, the case in all states. The best course of action is to review your power of attorney with your legal advisor to determine the effect your divorce will have on it.
4. Thinking a divorce cancels provisions in your “Will” pertaining to your spouse.
Many married couples name each other in their last will and testament
as the executor and leave all or the bulk of their estates to each other. A divorce does not cancel or invalidate portions of your will pertaining to your spouse. It is up to you to change your will with a codicil that amends an existing will but does not terminate it, or you can prepare a new will and destroy the old one.
Some people become confused when they hear that the law in their state automatically terminates a person’s rights to inherit property from a divorced spouse. Such laws pertain to situations in which a person dies intestate without leaving a valid last will and testament. If you have a last will and testament, you must change it on your own to avoid having your former spouse share in your estate.
If you have an irrevocable trust, however, that does not name your ex-wife as beneficiary, you don’t have to do anything. A revocable trust
, however, was most likely divided during the divorce already!
5. Not contacting financial institutions.
Most people remember to close joint checking and savings accounts or at least arrange to remove their former spouse from the accounts. It is surprising how many divorced individuals forget to notify financial institutions about making changes to the places that hold typically the big money such as their IRA, 401(k) or other retirement plans
Retirement accounts or annuities usually have a beneficiary named to receive the money in the event the holder of the account dies. Contacting the financial institution or the human resources department at your place of employment will get you the information needed to update the information on your accounts including designating a new beneficiary.
Should You Consider Moving to Avoid State Estate Taxes?
Posted on: January 5, 2019 at 4:46 am, in
Wealthy individuals or couples who have reached maturity do not need to worry about raising their children or paying bills. Money gives them the financial freedom, economic stability and peace of mind to do what they want. As estate (death) taxes
rise, wealthy individuals wonder if it is financially beneficial to move to a more asset-friendly state to protect their assets.
Many “snowbirds” have vacationed in the warm weather states of Florida or Texas, so it is not a dramatic “leap of faith” for them to consider moving to these low-tax states permanently to protect their assets. But are the financial benefits in a more tax-friendly state attractive enough to justify the costs, expenses and hassles of moving? Here is an answer to this very important question.
Disadvantages of Moving to Low-Tax State
When you have lived your entire life in one state, you build up emotional, spiritual and social ties. Your core family may be concentrated in one area, but most Americans are very mobile. You might have good friends in your home state or you might have grown comfortable with the convenience of your home area. You also wonder about the costs of moving.
Many low-tax states have vibrant communities of people who have moved from high-tax states. So if people are socially-friendly and charismatic, they can make new friends. The Internet has made it easier to communicate over long distances, so your family will be electronically close. If you compare the money that can be saved by avoiding a high estate tax
to moving costs, it might make sense to move financially.
Governments with High Debts Must Increase Taxes
With government debts rising, the primary way they can balance their budgets is to increase tax rates
. The estate (death) and inheritance taxes are popular ways to generate revenue by transferring a portion of the wealth from private families to the public coffers. The government has been modifying the level at which the tax is “triggered” and experimenting with different rate levels.
According to W. Rod Stern, attorney-at-law, Entrepreneur Magazine’s Legal Guide Estate Planning
, Wills and Trusts affect an estimated 1 to 2% of American household estates are large enough to incur the estate tax. Most states have what is called an “exemption” for the primary family home. The first step is to compare the value of your estate to that minimum threshold.
Some states realize that if they raise the estate tax exemption, they can attract wealthy individuals. These figures are always changing, but here is a sample of state estate tax exemption levels for 2012:
2013 State Estate Tax and Inheritance Tax Chart
||Type of Death Tax
||2013 Top Tax Rate
|District of Columbia
||Up to $1,000
||Estate Tax, Inheritance Tax
||Up to $40,000
||Estate Tax, Inheritance Tax
||$675,000, Up to $25,000
If your estate is valued above one of these limits, it makes sense to move to a state that puts you below their estate tax exemption rate. If you time the housing market properly, the sale of your old home could pay for the moving costs to the low-tax state. States know the value of wealthy residents and are offering plenty of financial incentives to encourage you to move.
How do Estate Taxes Vary by State?
Once the estate is valued above the exemption limit, then each state has a different rate that they charge for the death tax. Also in the chart above are figures for estate tax rates in 2013 (these changing very frequently). You should also take into account the rates because they can make a huge difference.
For example, if you calculate the difference between 9.5% and 19% estate tax rates, the amounts are quite dramatic. When you consider probate, estate (death) and inheritance taxes, it makes sense to move to a more asset-friendly state. If you explain to your children (future heirs) that they will inherit more money in a low-tax state, then they may support the move, especially with the ability to communicate.
While the primary reason for moving to a state with lower estate taxes is financial, there is also a philosophical difference in low-tax states. While colder high-tax states try to siphon off the wealth built up by hard-working citizens, the warmer low-tax states emphasize increasing the “productivity” of the state. This can create a better environment in the long run. You should consider moving to avoid state estate taxes if it is financially advantageous to do so.
Another option exists to avoid estate taxes in your own state. UltraTrust.com has many articles on the advantages of the irrevocable trust
and how it can save you and your children from having to pay any estate taxes or even having to go through probate.
Five Estate Planning Things You Need to Know After Getting Married
Posted on: December 5, 2018 at 4:45 am, in
1. You both own everything.
You and your spouse are now the joint owners of all of the marital assets with a few exceptions and a few state specific variables. This means that if one spouse’s income has a lot more than the other, it doesn’t matter. Those savings accounts and even retirement accounts may be split evenly upon divorce
2. Children of prior marriages are forgotten.
Of course the children aren’t forgotten, but they are forgotten in the estate planning world. Most state intestate (without a will) laws state that your assets go to your spouse in the event of an untimely death. That leaves your children from a prior marriage directly out of the line of descendants that will receive your assets. Unless your spouse gives them assets in their will, as a beneficiary of a trust, or outright, your children of a prior marriage will never see any of it without proper estate planning.
3. Children of the current marriage may be forgotten.
If you die and your spouse takes all of the estate, your spouse can do whatever they please with all of that money. They can take trips around the world, spend it on their new love interest or even give it to their family. In most states, there is no law saying it has to go to your children. That’s right, your children with your current spouse may never get any of your estate without the right planning.
4. There is twice the chance of long term care eating up your assets.
People don’t generally think of long term care when they are under retirement age, but the sooner one acts, the sooner the time clock starts running on Medicaid’s 5 year look-back clock. To qualify for Medicaid to pay for you or your spouse’s nursing home care, you have to own very little; like less than $2000. Now you have two people to worry about. To get to the point where Medicaid thinks you own very little, the nursing home will bill you either to death or until you own very little and ultimately qualify for medicaid. If you give your money away and not enough time has passed, you won’t qualify for Medicaid and have to pay out of pocket. This can really be a problem if the person who you gave it to won’t give it back or cannot because they already spent it!
5. Your spouse could end up with half of your business, with the right to make decisions.
What could be worse than a spouse to whom you are divorced from telling you what to do with your business? Well, how about a spouse who decides you are not being cooperative, so they get a court to order you to sell the business.
What can you do to protect your assets after you get married:
In addition to the run-of-the-mill estate planning documents, a will, power of attorney, health care proxy and living will, one document can help with all of these estate planning items: An Irrevocable Trust
. When you are married, you and your spouse can choose to put money into an irrevocable trust. The assets will be safe in the trust from you or your spouse and the trustee who is in charge of the assets will have to distribute them in the manner prescribed by you – not the manner the State tells you. Thus, those particular assets are divided when, presumably, the couple is still in love and thinking rationally, rather than when you are at each others’ throats. With less to fight over at divorce, the process could be simpler, but the Irrevocable Trust can also help with the other matters listed above.
The instructions in the Irrevocable Trust can say whatever you and your spouse want them to say. When forming the trust, you can include your kids from a past marriage. You can also tell the trustee to hold the funds and only give them out for certain expenditures or landmarks, like college funding or on their wedding day. All the of kids can be provided for, but not just by giving them a bucket of money and letting them run free. The assets are protected by the trust and thoughtfully given out by the trustee.
Putting assets in an Irrevocable Trust
may also help you qualify for Medicaid. When you put assets in an Irrevocable trust, you are effectively getting them out of your name and into the name of the trust. You don’t own them anymore, although you can benefit from them – think about it like leasing a car. When you apply for Medicaid, if the lookback period has gone by, those assets will not be counted towards your net worth. For example, if you were to put $1.3M in an Irrevocable Trust, 10 years ago and applied for Medicaid with $20 in your personal bank account, Medicaid would pick up the tab for long term care. If you kept the $1.3M in your name, then you, or your spouse would not qualify for Medicaid and the long term care facility would upwards of $12,000 or more a month for your care until nearly all the assets are gone.
If you have your own business or are starting one you should learn about LLCs
and Irrevocable Trusts. You can put your new or existing LLC in a trust and specify how you want the profits distributed. In the event of a divorce, the business would continue to run exactly how it has run, the profits are distributed exactly how they have been and that pesky ex-spouse is written out of a controlling interest. After all, while a marriage is doing well, the spouse will say, “Oh honey, that’s your business. I never want to interfere,” but if the marriage goes sour, “I want to own your business, and if I can’t own it, I want it sold and half the profits, or if I can’t own it or sell it, I want to run it.” Better to decide when things are good with a well written Irrevocable Trust such as The UltraTrust