Articles Posted in Estate Planning

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Image depicting Charitable Remainder Trust

WHAT IS IT?  – What is a Charitable Remainder Trust?

A Charitable Remainder Trust (also known as a “ CRT”) is a permanent, irrevocable trust that is established to pay an amount at least annually to the Trustor for a period of time and then at the end of that time pays the remainder in the trust to a charitable organization. The Trustor contributes assets to the CRT when it is established. The Trustor gets a current income tax deduction for the present value of the remainder interest and escapes capital gains tax on the assets placed in the trust. A CRT is established under the specific authority of Internal Revenue Code §664 and the regulations thereunder.

Typical Situation

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Image of Orange County Luxury Home

If you are rich enough your estate will pay a 40% tax above the exemption

UNIFIED TAX CONCEPT

Under the federal estate taxes and gift taxes laws, the amount that one gives away during one’s lifetime counts toward the entire exclusion from estate and gift taxes. The lifetime estate and gift tax exclusion is now at $5 million per person indexed for inflation. For  2014 the exclusion is $5,340,000 per person.  There is a federal estate tax of 40% of the net asset value of the estate over 5,340,000. Thus, if a person dying in 2014 has $6,340,000 in net asset value, he would have $1 million taxable and the tax would be $400,000. Under the unified tax concept, the exclusion is reduced for whatever gifts are made over and above the annual gift tax exclusion amount. Thus, one cannot escape estate taxes by giving away once estate prior to death.

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Letting Some of the Kids Live in Mom’s House May Lead to Costly Litigation

Frequently we run across situations where parents will leave their residences to one or more of their children in their will or their trust. If they only have one child then the situation is usually okay but when there are multiple children and some are living in the house and some are not there can be problems. Allowing some children to live in Mom’s house messes up the other sibling’s inheritance.

Image of smug child who mom like more than sibblings

The Back Story

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Irrevocable Life Insurance Trusts for Asset Protection

Don’t wait until you get sued to do asset protection

BENEFITS OF AN IRREVOCABLE LIFE INSURANCE TRUST (ILIT)

Irrevocable Life Insurance Trusts – These types of trusts are not often thought of as an asset protection device.  However, they have many benefits, including:

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OMG !!! I forgot to name a loved one in my will!

Will Definition

A Will is a written document which states to whom a person’s belongings, money and property are to be given upon death. A Will is typically effective upon a person’s death and can be changed or replaced any time as long as the Will maker is mentally competent.  People who die without wills are said to die “intestate” so their money and property passes under the laws of intestacy.  Refer to my blog on “passing without any will.”

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The wrong kind of deed can have expensive and unintended consequences. Once the horse is out of the barn you can get back!

What is a deed?

image of California property deedReal estate property ownership is legally changed by a document commonly known as a deed which is signed by the person making the ownership transfer. The deed is then recorded with the County recorder in the county where the property is located.

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Older Affluent Man – New Wife & Step Mother – Man’s Kids Lose!

We recently handled an unfortunate situation where a mature man who was quite successful and had a lot of assets including several companies married a younger woman. He was only married a couple of years when he unfortunately contracted cancer which turned out to be fatal.

Wanting to Take Care of New Wife, Inadvertently Cuts Own Kids from Inheritance

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A permanent estate builder that provides asset protection and covers future generations

Trust

What does a Life Insurance trust do?

Life Insurance Trusts – A Life Insurance Trust is a permanent, irrevocable trust that is established to own one or more life insurance policies that cannot be altered, amended, or revoked. When the insured named in the life insurance policy dies, the life insurance company pays the policy proceeds to the Life Insurance Trust, instead of to the estate of the insured. The Trustee of the Life Insurance Policy then distributes the proceeds to the beneficiaries of the Life Insurance Trust according to the instructions in the Declaration of Trust.

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Assets can be controlled through a trust for a long time

Trust determines who is in control

Trusts Used to Control Assets – Basically, the trust document establishing the trust states who controls the trust assets (monies, accounts and properties) and gives detailed instructions on how much, when, and under what circumstances money is paid out of the trust to the beneficiaries. The Trustee of the trust administers these instructions. However, if the trust is revocable, the Trustor can make changes in these instructions and/or revoke the trust altogether to prevent the instructions from being carried out if the Trustor changes his mind. On the other hand, if a trust is irrevocable, by definition it cannot be changed and the Trustor cannot make changes, with some minor exceptions. For example, the Trustor may retain the right to replace the Trustee if he doesn’t like what the Trustee is doing. However, when the Trustor retains rights, some of the income or estate tax benefits of a trust might be lost or diminished. Crockett Law Corporation can prepare your trust to suit your desires as to who controls the trust assets.

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Disabled persons on public assistance can lose benefits if they inherit money in the wrong form

Purposes of special needs trusts

Trusts for Special NeedsTrusts for Special Needs – Special Needs Trusts are used to hold money and property for specific periods of time, and to pay out the money and property according to detailed written instructions. Special Needs Trusts in particular are for lifetime financial and personal care for a Beneficiary who has a disability. The concept is to have money and property available for a disabled person but completely controlled by someone else, typically known as a Third Party Trustee. If properly structured and administered, the disabled person/Beneficiary, may still keep receiving public benefits such as Supplement Security Income (SSI) and Medi-Cal. Giving an inheritance to a disabled person by trust or through probate can be disastrous if they lose their public benefits.

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