Articles Posted in Estate Planning

Define WHO the Children are in the Trust or Face Expensive Uncertainty

The BASIC PURPOSE of a Trust in Estate Planning

Image of young girls in the 1950sA trust that is typically used to plan for asset transfer for the next generation is known as a “living trust” and is revocable and changeable during the lifetimes of the trust creators.  If the trust creators (known as “Trustors” under trust law) have children and/or grandchildren the trust document will explain which children or grandchildren gets which assets and when.

Can I Really Spend All My Inheritance Money, or Does Uncle Same Get a Portion?


taxableIs My Inheritance Taxable – Your inheritance of money or property may come from the estate of a deceased person or from a trust established previously.  These types of things are generally referred to as “bequests” or “gifts” as far as tax law is concerned.  People receiving bequests or gifts are referred to as “beneficiaries”.

How did that kid get so much money to blow!

18 is the age of majority

When a child turns 18 years he or she is considered to be an adult under California law. In legal terms, children under age 18 are called “minors” and when they reach age 18 they are called “adults”. Minors and adults are treated differently as far as inheritance rights are concerned. Minors still have rights to inherit but any inheritance which comes to them is subject to certain legal controls because the law presumes that minors are not capable of handling money or property as well as adults.

Image of family members who run a florist business

Partners pay tax on income earned even if it is not paid out to them

The taxation of Family Limited Partnerships should be carefully considered in advance of setting up and rolling out your new FLP.


State laws have provisions allowing people to establish limited partnerships.  Limited partnerships provide limited liability protection for the limited partners similar to the liability protection afforded corporation shareholders.  The limited partnership is established by filing a form in the state in which it is being established and by the preparation of a limited partnership agreement which governs the ownership income and management of the partnership. The limited partnership agreement is custom prepared by the attorney forming the limited partnership and can have many variable aspects that need to be considered as part of the formation process.

A family limited partnership is legally no different from any other limited partnership except that it’s only members are family members. The term “family limited partnership” is something commonly used in the estate planning and asset protection field. A family limited partnership will have one or more general partners and one or more limited partners. Their respective roles are defined in the chart below:

Living Trust Taxation – The IRS ignores revocable living trusts


Image of Old man resting on bench and cuddling dog and catThe term “living trust” is commonly used by estate lawyers and financial planners to describe a trust which is established during a person’s lifetime and which is revocable and changeable.

What is a Qualified Domestic Trust?

qualified domestic trustA Qualified Domestic Trust (also known as a “ QDOT”) is type of trust established where estate property passes to a non-U.S. citizen spouse to allow a marital deduction on the death of the first spouse.  A QDOT allows the amount transferred into the Trust to qualify for the estate tax marital deduction.  Without a QDOT, assets transferred from a decedent to a spouse who is a non-U.S. citizen do not qualify for the marital deduction on the decedent’s Federal Estate Tax return, form 709, and thus get taxed on the death of the spouse who is a U.S. citizen.

For a trust to qualify as a QDOT, the trust instrument requires that at least one trustee be a U.S. citizen or a domestic (U.S.) corporation and that no distribution of trust principal can be made unless that trustee has the right to withhold the tax imposed on QDOTs.  A QDOT is authorized under the IRC §2056(d) and regulations thereunder governing the marital deduction for property passing to a surviving spouse.


According to the tax laws, IRC §671-679,  a “grantor trust” is any trust in which the Trustor/Grantor retains control over the income or principal, or both to such an extent that he is regarded as the substantial owner of the trust property and income.  The power to revoke is a typical retained power that makes a trust a grantor trust.  Thus, the typical living trust used in estate planning is a revocable trust and hence a “grantor trust”.  The income tax significance is that the taxable income generated by the grantor trust is reported on the income tax return form 1040 of the Trustor/Grantor. Also, the tax due on such income is paid by the Trustor/Grantor on his personal income tax return, form 1040.  Thus, a grantor trust does not typically file any income tax return.


WHAT IS IT? – What is a Generation Skipping Trust?

Generation Skipping TrustA Generation Skipping Trust (GST) is a generic term for any trust where there are trust benefits which are skipping a generation.  A typical example is where a Trustor establishes a trust that does not benefit his children but instead benefits his grandchildren.  Thus, the trust “skips” giving anything to the Trustor’s children. The law imposes a “Generation Skipping Tax” of a flat 40% on certain transfers above an exemption amount to insure that property transfers are subject to transfer tax at least once at each generation. The exemption amount is the same as the estate tax exemption amount which for 2014 is $5,325,000. The relevant IRC sections are §2601 through §2642.