A trust is a powerful estate planning tool, and there is more than one way to create a trust, including…

Totten Trusts

When you wish to create a simplistic trust with a relatively small amount of cash, some people choose to create a Totten Trust.  This type of trust is also referred to as a Payable on Death, or POD, account. A Totten Trust is a relatively simple arrangement since there is no detailed trust agreement, but rather a simple form provided by many financial institutions that allows you to name a beneficiary to receive the funds in the event of your death. The depositor keeps total control over the funds until his or her death.  Upon his or her death, the named beneficiary can be paid the funds when they present the death certificate to the institution.

Uniform Transfers to Minors Act

If you need to create a trust to manage money for minors, and if the amount involved is small, you may also set up a bank account under the Uniform Transfers to Minors Act (UTMA.) This law allows you to hold a bank account in the name of a minor, with an adult named as the custodian of the account. The minor child would receive the funds when he or she reaches a certain age, which varies by state, and can be as young as 18 years old in a few states, to as late as 25 years old in other states.  Until the time of final distribution, the custodian is able to use this money for the minor’s needs.  Again, this is a simplistic tool that can be helpful in some cases, such as when your minor child inherits money from a grandparent.

Trust Attorneys

The most effective way to create a trust is to work with a trust attorney or estate planning attorney to determine the type of trust best suited for your needs.  The attorney will draft a trust agreement specifically tailored to meet your family’s goals.

Deborah Sexton Law Office, PA is a member of the American Academy of Estate Planning Attorneys.

We certainly hope that our loved ones will accept our final wishes, but unfortunately, disagreements and old hurts can make an appearance during such an emotional time.  When someone is left out of a will, or feels they did not receive their fair share of an estate, they may contest the will based on one or more of the following:

• The testator, the person who had the will created, lacked the capacity to make a will.
• Another person had undue influence over the testator.
• There was fraud involved before, during or after the will was created.
• There was a mistake in the will – for example, another child was born after the will was drafted.

Who can file a will contest?  Generally, anyone who has a legitimate financial interest in the estate can challenge the will. The person’s financial interest must be considered to be more than speculative. In other words, you cannot contest a will if you were friends with the deceased and think he or she should have left you something. However, if you were not left anything in the will, but would be entitled to something under the state intestacy laws as an heir, then you would be in a position to challenge the will.  Why?  Consider what would happen if you were to win the will contest, the will would be found invalid and the estate would be distributed according to the laws of intestacy to the heirs.  If you would not receive a share under these laws, what would be the point of filing a will contest?

Proper estate planning can help reduce the chances of a will contest, and there are tools an estate planning attorney can use should you worry about a loved one challenging your will.

Deborah Sexton Law Office, PA is a member of the American Academy of Estate Planning Attorneys.

Many people choose to include a revocable living trust in their estate plan.  A trust is a powerful estate planning tool with a number of benefits.  However, you may have concerns about whether you will lose control over your assets when utilizing this planning device. You won’t.  Take a look at the following information, to learn more about a revocable living trust.  If you have any questions about the use of a revocable living trust, contact an estate planning attorney.

A Revocable Living Trust Helps You to Maintain Control

When you create a revocable living trust, you’re in full control!  You can decide what instructions to include in your trust, who will be given your assets, and who will help handle your trust’s affairs during any period of incapacity and after your death.  You’re also able to make changes to your trust during your lifetime, as long as you have legal capacity.  Thus, you will not lose control over your assets.

Only Irrevocable Trusts are a Loss of Control, not Revocable Trusts

While an irrevocable trust’s terms can’t technically be adjusted once it’s created, you can always make changes to a revocable living trust, as needed.

Be Sure to Fund Your Revocable Living Trust

In order to take advantage of the many benefits of a revocable living trust, you will need to correctly re-title your assets in the name of your trust.  It’s important to work with an attorney to ensure all of your affairs are handled correctly.  This will also allow you to take advantage of all of the benefits of a revocable living trust, including probate avoidance.

If you’d like to have full control over your assets and decide how these assets will be used during incapacity and distributed after your death, consider creating a revocable living trust.  If you have any questions, consult with a qualified estate planning attorney.

Deborah Sexton Law Office, PA is a member of the American Academy of Estate Planning Attorneys.

While designing your estate plan, you will need to select successor trustees of your revocable living trust.  Successor trustees step in and act during any period of incapacity and after your death.  By choosing successor trustees yourself and outlining instructions in your revocable living trust, you maintain control and your wishes will be followed.  All of this means that your estate plan works.

• Choose trustees who care about you and are willing to dedicate the time necessary to the task, want to serve, and are financially savvy, willing to ask for professional help, and good record keepers.
• Always ask permission before naming someone.  You may think that a loved one is ideal for the role, but he may be feeling completely overwhelmed with his own responsibilities at the time.
• Always name contingent trustees to serve if your primary trustee is unable or unwilling to serve.  This prevents a gap in authority as well as preventing the court’s interference in your finances and family.
• Don’t feel obligated to choose a spouse or a child if it’s not a good fit.  However, if you don’t, definitely talk over your decision with your family so questions can be answered and much anger and resentment can be averted.
• Don’t name all three of your children at once.  Legally, you certainly can name all three kids, but, in practicality, it is cumbersome to carry out the duties of trustee with three trustees.
• There are professional trustees available if none of your loved ones are a good fit.  Banks, trust companies, and CPAs commonly serve as professional trustees.  Consider giving your beneficiaries the power to fire a trustee and hire another one because corporate fiduciaries (i.e. banks and trust companies) can be challenging to work with.

If you need additional guidance regarding the selection of successor trustees for your revocable living trust, consult with a qualified estate planning attorney.

Deborah Sexton Law Office, PA is a member of the American Academy of Estate Planning Attorneys.

Revocable living trusts have many benefits.  In fact, most estate planning attorneys consider themselves to be trust based attorneys and love living trusts.  However, there are myths that are passed around the kitchen table that just aren’t true.

We’re here to set the record straight:

• Revocable living trusts do NOT protect assets from the nursing home.

While you can provide asset protection for assets you pass to your beneficiaries via your living trust, your assets are not protected.  You need good insurances and other means (such as Medicaid) to protect your assets.

• Settling up a revocable living trust does NOT mean all the work is done.

If you become disabled and when you die, your trusted helpers, called “trustees,” must take action and follow the instructions in your revocable living trust.  The trust is NOT a magic book.

• Your revocable living trust is NOT a once and done.

Your trust and your overall estate plan must be updated on a regular basis, every three to five years or upon the occurrence of a significant life event such as marriage, divorce, the arrival of a new child, or a move to a new state.

• Your revocable living trust does NOT avoid probate unless fully funded.

Just executing a trust does not guarantee probate avoidance.  Your trust must be fully funded to avoid probate.  This means that all of your assets must be funded into your trust.  In other words, all of your assets must be titled in the name of your trust to avoid probate.

• Revocable living trusts are only for rich people.

Actually, trusts are appropriate for most people.  So long as you aren’t trying to qualify for Medicaid to pay for a nursing home or aren’t otherwise destitute, it is likely that you would benefit from including a revocable living trust in your estate plan.

If you have questions about living trusts, be sure to consult with a qualified estate planning attorney.

Deborah Sexton Law Office, PA is a member of the American Academy of Estate Planning Attorneys.

There are lots of ways you can have your trust distribute money to your beneficiaries.

Here is a checklist of some of the jargon, considerations, and approaches involved in trust distribution. Too often people view these critical and personal decisions as mere “boilerplate”. Doing so may well jeopardize your intended goals for setting up a trust. You need to take the time, and think through the “what ifs” to make it work.

When preparing a trust agreement consider all aspects of distributions decisions. Who should make the decisions? Who are the trustees? Should you instead provide for a distribution committee to make these decisions? When and how should these decisions be made? Start with personal details, and then conform those decisions to meet tax law requirements for the particular trust. Here are some points to consider:

• Should there be any limits on the standards for distributions?
• Should different trustees have different standards by which they can make distributions? For example, an institutional co-trustee may be given an unlimited standard (“comfort and welfare”) while an individual trustee may be limited to maintaining a beneficiary’s lifestyle (“ascertainable standard”). You may view the institution as a stronger and more independent decision maker that will not be pressured by a beneficiary in the same way that a family member trustee might be.
• It’s common to limit distributions to the beneficiaries in the areas of health, education, maintenance and support (“HEMS) to what the tax law calls an “ascertainable standard”. This is loosely translated as maintaining the beneficiary’s “standard of living”.  Lots of people are comfortable with this standard for distribution, but what does it mean? What is a beneficiary’s standard of living? When should it be determined? When you sign the trust (or the will creating the trust)? After you die? After Junior starts spending that big insurance policy he collected after your death?
• How should the trustee balance distributions when there are multiple current beneficiaries of one trust? It is common to name the surviving spouse, and the children all as beneficiaries of a by pass trust (intended to safeguard the current $2 million federal exclusion, or often a lower state exclusion, from tax in the surviving spouse’s estate). Who should be favored, if anyone?
• How should the trustee balance distributions when there are current beneficiaries (e.g., your third spouse), and remainder beneficiaries (children of your first marriage) of one trust? Some guidance as to how the trustee should balance distribution decisions should be provided. Who, if anyone, should be favored ? In some cases a unitrust approach is advisable (e.g., pay 4% of the value of the trust each year to the spouse, the remainder on her death to the children). It’s reasonable and clear. But often it’s too simplistic and rigid to accomplish your goals. If so, you need to provide parameters.
• Who should be included in the definition of beneficiaries? If your children are named as beneficiaries of a trust, should their children also be included (although generation Skipping Transfer tax (GST issues) will have to be considered)?  How do you define grandchildren? Should adopted children be included? Should your children’s spouses be included? Partners?
• Should the other resources available to a beneficiary be considered? If grandma set up a trust to pay for you daughter’s lifestyle, should the trust you set up distribute what effectively will be a duplicative amount? Should a beneficiary be required to take out a reverse mortgage (or otherwise tap home equity) before the trust can pay out? If you mandate that support be considered, this could be a risk. If your spouse is a beneficiary of a by pass trust (not included in her estate) and the QTIP trust (marital trust taxed in her estate) mandates that distributions consider all resources, increasing the distributions from the by pass trust will effectively increase the tax on her death. Is that the intent?
• Must all beneficiaries of a trust be treated equally? Equal sounds simple and superficially “fair” but does nothing to account for changed circumstances, different needs, etc. If one child beneficiary has a major health issue, is equal distribution really appropriate?

Contact the Deborah Sexton Law Office at (479) 443-0062 or www.arkansas-estateplanning.com to get answers to questions you may have.  Deb offers free half-hour consultations.

This information in this article is brought to you by Martin M. Shenkman, CPA, PFS, MBA, JD, AEP® through The NAEPC Foundation.

Deborah Sexton Law Office, PA is a member of the American Academy of Estate Planning Attorneys.

Power of attorney grants the power to a second party, often your child, to make legal and financial decisions for you. It is usually a back up a plan, in case an unexpected accident happens and you are unable to keep your affairs in order.  But what if you are uncomfortable handing over all rights to a child now, under a power of attorney, while you are still capable of managing your own affairs?

Implementing a springing power of attorney could be your solution.

A springing power is a power of attorney that only becomes effective if you (the grantor or person signing the power) become disabled. This approach addresses the exact concern raised. You do not provide powers to your kid as agent until you really need the help, i.e. when you cannot handle matters on your own.

While this sounds seductively good and simple, as the saying goes, the devil is in the details. If you cannot trust your kid while you are alive, well and astute to keep an eye on the kid, why and how can you trust the kid to do right when you’re disabled? Furthermore, the entire concept of a springing power is often questionable. How do you define “disabled” such that the power of attorney springs into effect? There is no simple definition.

What if you have a temporary illness? If you recover, how do you get the financial reins back from junior? All these issues can be dealt with, but they add complexity. Also, do not forget about HIPAA complications. This law imposes strict limitations on the disclosure of medical information. To prove disability, you need to address these
requirements.  Once you get through all that, your kid will have to convince the bank, or other person to accept the power. This is not always so simple.

So, while a springing power can address a common parental worry, it also creates a host of issues. A power effective immediately might mitigate some of the concerns. A funded revocable living trust can provide an even more comprehensive alternative. The bottom line is, even a power of attorney, which too many people dismiss as “simple” and “standard” process, is fraught with issues that you should only ignore at
your own peril.

For answers to your estate planning questions, contact the Deborah Sexton Law Office at (479) 443-0062 or www.arkansas-estateplanning.com.  Deb offers free half-hour consultations.

This information is brought to you by Martin M. Shenkman, CPA, PFS, MBA, JD, AEP® through the NAEPC Foundation. 

Deborah Sexton Law Office, PA is a member of the American Academy of Estate Planning Attorneys.

There are many different varieties of wills and trusts to fit the needs of each individual.  Only a qualified attorney should draft these documents.  To give
you an idea of the options available to you, please see the below common definitions of several types of wills and trusts.  If you have further questions, please contact the Deborah Sexton Law Office at (479) 443-0062 or www.arkansas-estateplanning.com.
Deb offers free half-hour consultations.

Basic will:  A basic or simple will generally gives everything outright to a surviving spouse, children or other heirs.

Will with contingent testamentary trust:  Frequently, married couples with minor children will pass everything to their spouse, if living, and if not, to a trust for their minor children until they become more mature.

Pour-over will:  The so-called “pour-over” will is generally used in conjunction with a living trust.  It picks up any assets that were not transferred to the trust during the
person’s lifetime and pours them into the trust upon death.  The assets may be subject to probate administration, however.

Tax-saving will:  A will may be used to create a testamentary credit shelter trust.  This trust provides lifetime benefits to the surviving spouse, without having those trust assets included in the survivor’s estate at his or her subsequent death.

Living trust without tax planning:  Generally, the surviving spouse has full
control of the principal and income of this type of trust.  Its main purpose is to avoid probate.  If required, the trust can also be used to manage the assets for beneficiaries who are not yet ready to inherit the assets outright because they lack experience in financial and investment matters.

Bypass trust:  This type of trust avoids probate and allows the first spouse to die of a married couple to set aside up to $5,000,000* in assets for specific heirs while  providing income and flexibility to the surviving spouse.  The appreciation on assets in the trust can avoid estate tax.

QTIP trust:  A type of trust known as a QTIP trust allows the first spouse to die to specify who will receive his or her assets after the surviving spouse dies.  Use of a QTIP also permits the deferral of death taxes on the assets until the death of the surviving spouse.

QTIP means “qualified terminable interest property.”  The income earned on assets in a QTIP trust must be given to the surviving spouse for his or her lifetime.  After the death of the surviving spouse, however, the assets then pass to beneficiaries chosen by the first spouse to die, frequently children of a prior marriage.

Qualified domestic trust:  Transfers at death to a noncitizen spouse will not qualify for the marital deduction unless the assets pass to a qualified domestic trust (QDOT).  The QDOT rules require a U.S. Trustee  (unless waived by the IRS) and other measures that help ensure collection of a death tax at the surviving noncitizen spouse’s later demise.

For more information or to set up a free half-hour consultation, contact the Deborah Sexton Law Office at (479) 443-0062 or go to www.arkansas-estateplanning.com.

Note:  Additional trusts may be used for current income tax savings or to remove life insurance from the taxable estate, but the above-described documents are generally at the center of a person’s estate plan.

*The applicable exclusion amount is the dollar value of assets protected from federal estate tax by an individual’s applicable credit amount.  For 2011, the applicable  exclusion amount is $5,000.000.

Deborah Sexton Law Office, PA is a member of the American Academy of Estate Planning Attorneys.

While working on your estate planning, you may consider a number of documents, including a revocable living trust and a will.  Are you confused about the differences and similarities between these two legal documents?

Take a look at some of the information below to learn a little more about each document.  You will find that both documents are extremely beneficial estate planning tools.

What does a will allow you to do?

A will allows you to do three main things.  You’re able to decide how your assets will be distributed to the beneficiaries of your choice after your death.  You’re also able to appoint an executor who will be responsible for handling your estate’s affairs and managing and distributing your assets.  Additionally, you’re able to appoint a guardian for the care of your minor children.  During your lifetime, you’re able to make changes to your will so long as you’re well.

Here’s a breakdown of some important things that set this document apart from a revocable living trust:

• A will is a document that becomes effective after your death
• A will’s assets are subject to the process of probate.  This very public process can be extremely costly and timely.
• A will is not able to be used during your lifetime.

What does a revocable living trust allow you to do?

Similarly to a will, a revocable living trust allows you to choose how some of your assets will be distributed after your death.  With this trust, you hold certain assets in your trust and determine how they will be distributed to your beneficiaries.  This trust can be changed at any time you are alive and well.

A revocable living trust is used after your death and or during your lifetime.  You will name a successor trustee to manage your trust’s affairs after your death.

Here’s a breakdown of some important things that set this document a part from a will:

• You’re unable to appoint a guardian for your children in your trust.
• The assets in your trust are not subject to probate, which means that your affairs will remain private.
• You’re able to appoint a successor trustee who will be able to handle your trust’s assets and affairs if you become incapacitated.

As you can see, each document has its benefits.  You actually likely need both.  If you have any additional questions about using a revocable living trust and or a will, consult with a qualified estate planning attorney.

Deborah Sexton Law Office, PA is a member of the American Academy of Estate Planning Attorneys.

If you’re like most people, you’ve heard at least one of these revocable living trust myths.  Today, we set the record straight.  But, if you have further questions or wonder whether a revocable living trust is right for you, be sure to consult a qualified estate planning attorney.

MYTH:  A revocable living trust provides asset protection.

FACT:  By creating trust shares for your beneficiaries, you can give their inheritances with asset protection that you can’t get for yourself without taking your assets off shore.  During your lifetime, you cannot use a revocable living trust to create asset protection for your own assets.

MYTH:  A revocable living trust always avoids probate.

FACT:  A revocable living trust avoids probate only for those assets owned by the trust.  In other words, your assets must be funded into your trust to avoid probate.  Assets own in your individual name guarantee probate even if you have a trust.

MYTH:  A revocable living trust is only for the wealthy.

FACT:  Revocable living trusts benefit most people.  Benefits include incapacity planning, pet planning, special needs beneficiary planning, asset protection for beneficiaries, federal estate tax savings for married couples, and probate avoidance.

These trusts are easy to set up and simple to administer.

MYTH:  A revocable living trust eliminates all of the work after you die.

FACT:  While a revocable living trust lessens the work to be done after you die, it does not eliminate it completely.  A trust is not a magical legal document that jumps up and pays last bills, manages investments, maintains and sells real estate, files appropriate tax returns, and distributes assets to trust shares for beneficiaries.  The trustee does all that.

MYTH:  A revocable living trust saves federal estate taxes for everyone.

FACT:  For an unmarried individual, a revocable living trust does not offer reduced federal estate taxes.  For a married couple, a trust can make full use of each spouse’s lifetime unified credit which reduces the federal estate tax bill.

Deborah Sexton Law Office, PA is a member of the American Academy of Estate Planning Attorneys.