Charitable Trusts a Rewarding way to make an Impact

March 16, 2022

Charitable trusts can be a critical component of your estate plan and a rewarding way to make an impact for a cause you care deeply about. Charitable trusts can be created to provide a reliable income stream to you and your beneficiaries for a set period of time, says Bankrate’s recent article entitled “What is a charitable trust?”

There are a few kinds of charitable trusts to consider based on your situation and what you may be looking to accomplish.

Charitable lead trust. This is an irrevocable trust that is created to distribute an income stream to a designated charity or nonprofit organization for a set number of years. It can be established with a gift of cash or securities made to the trust. Depending on the structure, the donor can benefit from a stream of income during the life of the trust, deductions for gift and estate taxes, as well as current year income tax deductions when the assets are donated to the trust.

If the charitable lead trust is funded with a donation of cash, the donor can claim a deduction of up to 60% of their adjusted gross income (AGI), and any unused deductions can generally be carried over into subsequent tax years. The deduction limit for appreciated securities or other assets is limited to no more than 30% of AGI in the year of the donation.

At the expiration of the charitable lead trust, the assets that remain in the trust revert back to the donor, their heirs, or designated beneficiaries—not the charity.

Charitable remainder trust. This trust is different from a charitable lead trust. It’s an irrevocable trust that’s funded with cash or securities. A CRT gives the donor or other beneficiaries an income stream with the remaining assets in the trust reverting to the charity upon death or the expiration of the trust period. There are two types of CRTs:

A charitable remainder annuity trust or CRAT distributes a fixed amount as an annuity each year, and there are no additional contributions can be made to a CRAT.
A charitable remainder unitrust or CRUT distributes a fixed percentage of the value of the trust, which is recalculated every year. Additional contributions can be made to a CRUT.

Here are the steps when using a CRT:

Make a partially tax-deductible donation of cash, stocks, ETFs, mutual funds or non-publicly traded assets, such as real estate, to the trust. The amount of the tax deduction is a function of the type of CRT, the term of the trust, the projected annual payments (usually stated as a percentage) and the IRS interest rates that determine the projected growth in the asset that’s in effect at the time.
Receive an income stream for you or your beneficiaries based on how the trust is created. The minimum percentage is 5% based on current IRS rules. Payments can be made monthly, quarterly or annually.
After a designated time or after the death of the last remaining income beneficiary, the remaining assets in the CRT revert to the designated charity or charities.

There are a number of benefits of a charitable trust that make them attractive for estate planning and other purposes. It’s a tax-efficient way to donate to the charities or nonprofit organizations of your choosing. The charitable trust provides benefits to the charity and the donor. The trust also provides upfront income tax benefits to the donor, when the contribution to the trust is made.

Donating highly appreciated assets, such as stocks, ETFs, and mutual funds, to the charitable trust can help avoid paying capital gains taxes that would be due if these assets were sold outright. Donations to a charitable trust can also help to reduce the value of your estate and reduce estate taxes on larger estates.

However, charitable trusts do have some disadvantages. First, they’re irrevocable, so you can’t undo the trust if your situation changes, and you were to need the money or assets donated to the trust. When you establish and fund the trust, the money’s no longer under your control and the trust can’t be revoked.

Charitable trusts may be a good option if you have a desire a rewarding way to make an impact with some of your assets. Talk with an experienced estate planning attorney about your specific situation. If you would like to learn more about charitable planning, please visit our previous posts.

Reference: Bankrate (Dec. 14, 2021) “What is a charitable trust?”

Photo by RODNAE Productions from Pexels

A Trust can Protect your Pet

February 2, 2022

One of the goals of estate planning is to care for loved ones, particularly those who depend on us for care after we have passed on. Wills, trusts, life insurance and beneficiary designations are all used to provide support to people—but what about pets? There is something you can do to protect your furry companions. A trust can protect your pet says a recent article from The Sentinel, “Elder Care: Estate planning for your furry friends.”

We love our pets, to the tune of $103.6 billion in expenditures in 2020, including everything from pet food, toys, bedding, veterinary care, grooming, training and even Renaissance style portraits of pets. Scientific studies have proven the emotional and physical advantages pet ownership confers, not to mention the unconditional love pets bring to the household. So why not protect your pets, as well as other family members?

Many people rely on informal agreements with good friends or family members to take care of Fluffy or Spice, if the owner dies or becomes sick to take care of their pet. Here’s the problem: these informal agreements are not binding. Even if you’ve left a certain sum of money to a person in your will and ask it to be used solely for the care and well-being of your pet, it’s not enforceable.

We know all things change. What if your chosen pet caretaker has a child or a new romance with someone with a deathly allergy to pet dander? Or if their pet, who always used to play well during your visits, won’t tolerate your beloved pet as a housemate?

The informal agreement won’t hold the person accountable, and the funds may be spent elsewhere.

A better option is to use a trust to protect your pet. These have been recognized in all fifty states as a lawful way to provide for your animal companion’s needs. A pet trust can be created to provide for your pet during your lifetime, as well as after you have passed, allowing for continuity of care if you become incapacitated and need someone else to have the resources and guidance to care for your pet.

A pet trust is a legal document, prepared by an estate planning attorney and usually includes financial accounts in the name of the trust. Note the pet does not own the trust (animals may not own property), nor do you as the creator of the trust (the grantor). The trust is a legal entity, managed by the trustee.

A few of the things you’ll need to consider before having a pet trust created:

Who is to be the pet’s guardian? Have more than one person in mind, in case the primary pet guardian cannot serve or changes their mind.

If all of your guardians end up unable or unwilling to serve, name a no-kill animal shelter or rescue organization to take your pet. They may require you to plan in advance to cover the cost of caring for your pet. Larger organizations may have a process for a charitable remainder trust (CRT) as part of this type of arrangement.

Give details about pet preferences. If they are AKC registered, use their formal name as well as their regular name. People often fail to use the correct name in legal documents, even for humans, which can lead to legal challenges.

Do you want the same person to serve as trustee, managing funds for the pet, as the guardian? This is a similar decision for naming a guardian for minor children. Sometimes the person who is wonderful with care, is not so skilled at handling finances.

Finally, include instructions about what should happen to the money left after the pet passes. It may be used as a thank you to the person who cared for your beloved companion, or a gift to an animal organization. If you would like to read more about pet trusts, please visit our previous posts.

Reference: The Sentinel (Jan. 7, 2022) “Elder Care: Estate planning for your furry friends.”

The Estate of The Union Season 3|Episode 3

The Estate of The Union Episode 12 is out now!

December 14, 2021

The Estate of The Union Episode 12 is out now!

This is the traditional time for giving. Giving to a cause and giving of ourselves.

The newest episode of The Estate of The Union focuses on the topic of charitable giving. Brad chats with Stacey Wedding, an expert on charitable giving, about how it can play a role in your planning strategy and help the people and organizations that have meaning in your life. They discuss both the How and the Why of giving – and Stacy will share tips on becoming a smarter giver too!

Laws concerning charitable giving can change, so be sure your gifting strategies are still appropriate for your estate. Charitable remainder trusts (CRTs) and Donor Advised Funds (DAFs) are options for people who are already charitably inclined to reduce estate taxes. Charitable Remainder Trust can reduce taxes for people who would be making gifts to support meaningful causes. DAFs can be created and funded by individuals or a family and receive a deduction that very same year.

In each episode of The Estate of The Union podcast, host and lawyer Brad Wiewel will give valuable insights into the confusing world of estate planning, making an often daunting subject easier to understand.

It is Estate Planning Made Simple!

To learn more about Stacey Wedding and the Stacey Wedding Group, please visit her website:

The Estate of The Union episode 12-Giving Yourself Away can be found on Spotify, Apple podcasts, or anywhere you get your podcasts. Please click on the link below to listen to the new installment of The Estate of The Union podcast. You can also view this podcast on our YouTube page. The Estate of The Union Episode 12 out now. We hope you enjoy it.

Texas Trust Law/Texas Trust Law focuses its practice exclusively in the area of wills, probate, estate planning, asset protection, and special needs planning. Brad Wiewel is Board Certified in Estate Planning and Probate Law by the Texas Board of Legal Specialization. We provide estate planning services, asset protection planning, business planning, and retirement exit strategies.

Can You Sue A Trust Directly?

December 13, 2021

If you have a trust, plan to create one or are the beneficiary of one, you’ll want to understand whether or not a trust can be sued. It’s not a simple yes/no, according to a recent article titled “Estate Planning: Can You Sue a Trust?” from Yahoo! Finance. Can you sue a trust directly? Generally, no, but you can sue the trustee of a trust. You can also sue beneficiaries of a trust.

Understanding when a lawsuit can be brought against a trust should be considered when creating an estate plan, a good reason to work with an experienced estate planning attorney.

A trust is a legal entity used to hold and manage assets on behalf of one or more beneficiaries. A trustee can be a person or business entity responsible for managing the trust and the assets it holds. Trusts can be revocable, meaning the person who created them (the grantor) can make changes, or irrevocable, meaning transfer of assets is permanent (for the most part).

Trusts are used to manage assets while the grantor is living and after they have died. There are many different types of trusts, from a Special Needs Trust (SNT) used to manage assets for a disabled person, or a CRT (Charitable Remainder Trust) used for charitable giving. For instance, a trust generally cannot be sued, but a trustee can.

A trust cannot always protect the grantor or beneficiaries from litigation. If a person has debt and creditors want to be paid, they can sue a revocable trust, as you have not given up much in the way of control using this type of trust—you still directly own the assets in the trust!

Irrevocable trusts provide more protection. Once assets are in the trust, the grantor has given up control of the assets. However, if the trust was created mainly to protect assets from creditors, a court could determine the trust was created fraudulently, and rule against the grantor, leaving all of the assets in the trust vulnerable to creditor lawsuits.

Here’s an example. If you transfer a car into a revocable living trust and cause an accident leading to the death or serious injury of another driver, the driver or their family could sue the trust for damages indirectly, by suing you as the trustee.

Trustees are bound as fiduciaries to manage the trust assets as directed by the grantor and for the best interest of the beneficiaries. The trustee can be sued if someone, typically a beneficiary, believes the trustee is not carrying out their duties. A beneficiary might sue a trustee, if they were supposed to receive a certain amount of money at a specific time, but the trustee has not distributed the funds. This is known as a “breach of fiduciary duty.”

Trustees are also prevented from self-dealing or using trust assets for their own benefit. If a beneficiary believes a trustee is taking money from the trust for their own benefit, they can sue the trustee.

While you can sue a trust directly, it is only under very specific circumstances. A trust can also be “contested,” which is different from suing. Contesting a trust occurs when someone believes the grantor was coerced or subjected to undue influence in creating the trust. It also happens if someone believes the trust or amendments to the trust were the result of elder financial abuse, or if it appears trust documents have been forged or fraudulently altered.

Before a trust can be contested, there needs to be a valid suspicion the trust is somehow in violation of your state’s estate planning laws. You also have to have legal standing to bring a claim. The court may or may not side with you, so there are no guarantees. If you would like to learn more about how trusts works, please visit our previous posts.

Reference: Yahoo! Finance (Nov. 17, 2021) “Estate Planning: Can You Sue a Trust?”

Photo by Sora Shimazaki from Pexels

Charitable Remainder Trusts can reduce Taxes

August 25, 2021

Rising prices for investments and real estate is making owners of these assets concerned about paying exorbitant taxes amid discussions of possible changes in the near future. According to a recent article from The Street titled “Retirement Saving and Charitable Remainder Trusts,” having a strategy on hand to prepare for or even avoid these taxes is a wise move. People who are charitably inclined may want to take a closer look at how Charitable Remainder Trusts, or CRTs, can reduce taxes and provide a generous gift to worthy charities.

There are two basic types of CRTs: the Charitable Remainder UniTrust, or CRUT, and the Charitable Remainder Annuity Trust, or CRAT. In both types of trusts, the charity receives the “remainder” of the principal once the income interest ends. Income from the trust is given to a non-charity beneficiary for a certain period of time, or as in many cases, for the entire life of the beneficiary until it’s time for the remainder principal to be donated.

The key difference between the CRAT and the CRUT are how the income payment is calculated. In a CRUT with a 5% payout, the 5% is based on the value of the CRUT each and every year. Obviously that payment amount fluctuates according to the performance of the assets held by the CRUT. In a CRAT, payments are fixed based on in the initial contribution made to set up the account. Your estate planning attorney will be able to recommend the right vehicle for you and your family.

A CRT may be funded with highly appreciated assets because selling within the CRT results in no capital gains to the donor. Any proceeds may be reinvested to generate the needed income, while at the same time potentially growing the remainder asset for charity.

An administrator is hired to evaluate the trust to ensure its compliance, and the administrator’s role is to advise the trustee on the amount of the distribution annually to the beneficiary.

Since the charity is the remainder beneficiary, the grantor is not able to deduct the entire amount of the contribution to the CRT. The deduction is determined by the income payments selected and the terms of the CRT. There are software programs used to calculate the approximate deduction based on the input. The higher the income payment, the lower the deduction.

Note that if you are giving highly appreciated long-term capital gains assets, only 30% of the adjusted gross income can be given. The rest may be carried forward for five years. This should be considered when determining how much to contribute to the CRT.

The choice of CRTs lets you design a desired income stream from the trust. The taxability of the CRT is based on the types of assets used. There are four tiers, as defined by the IRS: ordinary income (which includes current year and accumulated income) and qualified dividends; capital gains; other tax-exempt income; and return of principal.

To solve the problem of choosing a charity, many prefer to use a Donor Advised Fund as a beneficiary. The DAF can be treated like a charity for tax purposes. The DAF lets you control how the account is funded and the timing of distribution of assets. The charities do not need to be named when the CRT is first created.

The Charitable Remainder Trust can reduce taxes for people who would be making gifts to support meaningful causes. Your estate planning attorney will be able to help you set up a CRT to work in tandem with the rest of your estate plan.

If you would like to learn more about Charitable Remainder Trusts and how they can benefit your planning, please visit our previous posts.

Reference: The Street (June 25, 2021) “Retirement Saving and Charitable Remainder Trusts”

Charitable options to Reduce Estate Taxes

July 7, 2021

Increasing tax changes for the wealthy are coming, and motivation to find ways to protect the wealth is getting increased attention, according to a recent article from CNBC entitled “Here’s how to reduce exposure to tax increases with charitable contributions.” Charitable remainder trusts (CRTs) and Donor Advised Funds (DAFs) are options for people who are already charitably inclined to reduce estate taxes. The CRT is complicated, requiring estate planning attorneys to create them and accountants to maintain them. The DAF is simpler, less expensive and is growing in popularity.

Both enable income tax deductions, in the current year or carried forward for five years, on cash contributions of up to 60% of the donors’ AGI and up to 30% of AGI on contributed assets. These contributions also reduce the size of taxable estates.

CRTs funnel asset income into a tax-advantaged cash stream that goes to the donor or another designated non-charitable beneficiary. The income stream flows for a set term or, if desired, for the lifetime of the non-charitable beneficiary. The trusts must be designed, so that at the end of the term, at least 10% of the funds remain to be donated to a charity, which must be designated at the outset.

No tax is due on proceeds from the sale of trust assets, until the cash makes its way to the non-charitable beneficiary. When assets are held by individuals, their sale creates capital gains tax in the year they are sold.

CRT donors can fund the trusts with highly appreciated assets, then manage them for optimal returns while minimizing tax exposure by adjusting the income stream to spread the tax burden over an extended period of time. If capital gains tax rates are raised by Congress, this would be even better for high earners.

DAFs do not allow dispersals to non-charitable beneficiaries. All gains must ultimately be donated to charity. However, the DAF provides advantages. They are easy to create and can be set up with most large financial service companies. Their cost is lower than CRTs, which have recurring fees for handling required IRS filings and trust management. Charges from financial institutions typically range from 0.1% to 1% annually, depending upon the size, and a custodial fee for holding the account.

DAFs can be created and funded by individuals or a family and receive a deduction that very same year. There is no hurry to name the charitable beneficiaries or direct donations. With a CRT, donors must name a charitable beneficiary when the trust is created. These elections are difficult to change in the future, since the CRT is an irrevocable trust. The DAF allows ongoing review of giving goals.

Funding a DAF can be done with as little as $5,000. The DAF contribution can include shares of privately owned businesses, collectibles, even cryptocurrency, as long as the valuation methods used for the assets meet IRS rules. Donors can get tax deductions without having to use cash, since a wide range of assets may be used.

The DAF is a good way for less wealthy individuals and families to qualify for itemizing tax deductions, rather than taking the standard deduction. DAF donations are deductible the year they are made, so filers may consolidate what may be normally two years’ worth of donations into a single year for tax purposes. This is a way of meeting the IRS threshold to qualify for itemizing deductions.

Both charitable options are effective ways to reduce estate taxes. Which of these two works best depends upon your individual situation. With your estate planning attorney, you’ll want to determine how much of your wealth would benefit from this type of protection and how it would work with your overall estate plan.

If you would like to learn more about charitable contributions, please visit our previous posts.

Reference: CNBC (April 20, 201) “Here’s how to reduce exposure to tax increases with charitable contributions.”

Estate planning is a lot more than simply a tax strategy

Estate Planning is more than a Tax Strategy

May 18, 2021

Estate planning is more than a tax strategy. It’s about creating a legacy and protecting your family for the short and long term, explains the article “Create A Holistic Estate Plan Now For Bigger Payoffs In The Future” from Forbes. The process begins with as much disclosure as possible. That means talking with your estate planning attorney about the challenges your family faces, as well as the assets to be left for loved ones.

One change to the tax code can disrupt decades of careful planning and leave people scrambling to protect loved ones. Market tumult can require assets to be sold to meet cash flow needs. Charitable contributions may also need to be reviewed and possibly changed, if the family’s asset level changes.

There are three aspects to consider when creating an estate plan: a lifetime spending strategy, a charitable legacy and bequests. All of these are impacted by taxes and need to be reviewed as a whole.

Lifetime spending strategy. These questions are centered on your goals and plans. Where do you want to live during retirement and how do you wish to live, travel and entertain? Will you stay in place and focus on charitable organizations, or travel throughout the year? It’s good to set a budget and stress-test it to see what different outcomes may arise.

A family that owns businesses or large real estate holdings may benefit from strategies, like family limited partnerships. A sale of the business to an outsider or a family member could create many different options, and all should be considered.

Charitable gift planning. Estate planning offers a way to clarify charitable giving goals and create a road map for how gifting can be transformed into a legacy. A well-planned charitable gift strategy can also minimize estate taxes and maximize the future of the gift, for both the family and the charities you favor.

A Charitable Remainder Trust is used to provide an income stream during your lifetime and reach gifting goals at the same time. One way to accomplish this is to transfer an asset, like highly appreciated stocks or bonds, into an irrevocable trust, thereby removing the asset from your taxable estate. The trustee may then sell the asset at market value and reinvest, creating a lifelong income stream for you or a beneficiary.

Leaving assets, not estate tax bills, for heirs. Families who own multiple properties in their own names or in a single LLC can lead to a lot of administrative headaches when the owners die. One simple fix is to place each property into a separate LLC, which increases the availability of strategic tax savings.

Another way to minimize estate taxes is through the use of life insurance. This is a strategy to do while you are still relatively healthy, as it becomes increasing difficult to obtain once you turn 60 or 70.

Estate planning is a lot more than simply a tax strategy. All of these planning tools take knowledge and time to set up, so creating an estate plan and working through the many different strategies is best done with an experienced estate planning attorney and before any trigger events occur.

If you would like to learn more about strategies to ensure your wealth goes where you want it, please visit our previous posts.

Reference: Forbes (April 6, 2021) “Create A Holistic Estate Plan Now For Bigger Payoffs In The Future”

Extend IRA distributions with a Charitable Remainder Trust

March 1, 2021

Since the mid-1970s, saving in a tax-deferred employer-sponsored retirement plan has been a great way to save for retirement, while also deferring current income tax. Many workers put some of their paychecks into 401(k)s, which can later be transferred to a traditional Individual Retirement Account (IRA). Others save directly in IRAs. You may also extend IRA distributions with a Charitable Remainder Trust.

Kiplinger’s recent article entitled “Worried about Passing Down a Big IRA? Consider a CRT” says that taking lifetime IRA distributions can give a retiree a comfortable standard of living long after he or she gets their last paycheck. Another benefit of saving in an IRA is that the investor’s children can continue to take distributions taxed as ordinary income after his or her death, until the IRA is depleted.

Saving in a tax-deferred plan and letting a non-spouse beneficiary take an extended stretch payout using a beneficiary IRA has been a significant component of leaving a legacy for families. However, the Setting Every Community Up for Retirement Enhancement Act of 2019 (the SECURE Act), which went into effect on Jan. 1, 2020, eliminated this.

Under the new law (with a few exceptions for minors, disabled beneficiaries, or the chronically ill), a beneficiary who isn’t the IRA owner’s spouse is required to withdraw all funds from a beneficiary IRA within 10 years. Therefore, the “stretch IRA” has been eliminated.

However, there is an option for extending IRA distributions to a child beyond the 10-year limit imposed by the SECURE Act: it’s a Charitable Remainder Trust (CRT). This trust provides for distributions of a fixed percentage or fixed amount to one or more beneficiaries for life or a term of less than 20 years. The remainder of the assets will then be paid to one or more charities at the end of the trust term.

Charitable Remainder Trusts can provide that a fixed percentage of the trust assets at the time of creation will be given to the current individual beneficiaries, with the remainder being given to charity, in the case of a Charitable Remainder Annuity Trust (CRAT). There is also a Charitable Remainder Unitrust (CRUT), where the amount distributed to the individual beneficiaries will vary from year to year, based on the changing value of the trust. With both trusts, the amount of the charity’s remainder interest must be at least 10% of the value of the trust at its inception.

Implementing a CRT to extend distributions from a traditional IRA can have tax advantages and can complement the rest of a comprehensive estate plan. It can be very effective when your current beneficiary has taxable income from other sources and resources, in addition to the beneficiary IRA. It can also be effective in protecting the IRA assets from a beneficiary’s creditors or for planning with potential marital property, while providing the beneficiary a lengthy predictable income stream.

Ask an experienced estate planning attorney, if one of these trusts might fit into your comprehensive estate plan. If you would like to learn more about Charitable Remainder Trusts, please visit our previous posts.

Reference: Kiplinger (Feb. 8, 2021) “Worried about Passing Down a Big IRA? Consider a CRT”

There are Pros and Cons to Charitable Trusts

January 21, 2021

A charitable trust can provide an alternative to meeting your wishes for charities and your loved ones, while serving to minimize tax liabilities. There are pros and cons to charitable trusts, according to a recent article titled “Here’s how to create a charitable trust as part of an estate plan” from CNBC. Many families are considering their tax planning for the next few years, aware that the individual income tax provisions of the 2017 Tax Cuts and Jobs Act will expire after 2025.

Creating a charitable trust may work to achieve wishes for charities, as well as loved ones.

A charitable trust is a set of assets, usually liquid, that a donor signs over to or uses to create a charitable foundation. The assets are then managed by the charity for a specific period of time, with some or all of the interest the assets produce benefitting the charity.

When the period of time ends, the assets, now called the remainder, can go to heirs, or can be donated to the charity (although they are usually returned to heirs).

There are pros and cons to charitable trusts such as Charitable Remainder Trusts and Charitable Lead Trusts. Your estate planning attorney will determine which one, if any, is appropriate for you and your family.

A charitable trust allows you to give generously to an organization that has meaning to you, while providing an equally generous tax break for you and your heirs. However, to achieve this, the charitable trust must be irrevocable, so you can’t change your mind once it’s set in place.

Charitable trusts provide a way to ensure current or future distributions to you or to your loved ones, depending on your unique circumstances and goals.

A Charitable Remainder Trust, or CRT, provides an income stream either to you or to individuals you select for a set period of time, which is typically your lifetime, your spouse’s lifetime, or the lifetimes of your beneficiaries. The remaining assets are ultimately distributed to one or more charities.

By contrast, the Charitable Lead Trust (CLT) pays income to one or more charities for a set term, and the remaining assets pass to individuals, such as heirs.

For CRTs and CLTs, the annual distribution during the initial term can happen in two ways; a Unitrust (CRUT or CLUT) or an Annuity Trust (CRAT or CLAT).

In a Unitrust, the income distribution for the coming year is calculated at the end of each calendar year and it changes, as the value of the trust increases or decreases.

In an Annuity Trust, the distribution is a fixed annual distribution determined as a percentage of the initial funding value and does not change in future years.

Interest rates are a key element in determining whether to use a CLT or a CRT. Right now, with interest rates at historically low levels, a CRT yields minimal income.

The key benefits to a CRT include income tax deductions, avoidance of capital gains taxation, annual income and a wish to support nonprofit organizations.

Your estate planning attorney and a member of the development team from the charity can work together to ensure that your charitable strategy achieves your goals of supporting the charity and building your legacy.

If you are interested in learning more about charitable giving, please visit our previous posts.

Reference: CNBC (Dec. 22, 2020) “Here’s how to create a charitable trust as part of an estate plan”

Using Trusts in Your Planning is a Smart Move

December 29, 2020

Trusts are used to solve problems in estate planning, giving great flexibility in how assets are divided after your death, no matter how modest or massive the size of your estate, according to an article titled “3 Reasons a trust may make sense for your family even though your name isn’t Trump, Gates or Rockefeller” from Market Watch. Don’t worry about anyone thinking your children are “trust fund babies.” Using trusts in your planning is a smart move, for many reasons.

There are two basic types of trust. A Revocable Trust is flexible and can be changed at any time by the person who creates the trust, known as the “grantor.” These are commonly used because they allow a high degree of control, while you are living. It’s as if you owned the asset, but you don’t—the trust does.

Once the trust is created, homes, bank and investment accounts and any other asset you want to be owned by the trust are retitled in the name of the trust. This is a step that sometimes gets forgotten, with terrible consequences. Once that’s done, then any documents that need to be signed regarding the trust are signed by you as the trustee, not as yourself. You can continue to sell or manage the assets as you did before they were moved into the trust.

There are many kinds of trusts for particular situations. A Special Needs Trust, or “SNT,” is used to help a disabled person, without making them ineligible for government benefits. A Charitable Trust is used to leave money to a favorite charity, while providing income to a family member during their lifetime. A real estate trust can be used for real property.

Assets that are placed in trusts do not go through the probate process and can control how your assets are distributed to heirs, both in timing and conditions.

An Irrevocable Trust is permanent and once created, cannot be changed. This type of trust is often used to save on estate taxes, by taking the asset out of your taxable estate. Funds you want to take out of your estate and bequeath to grandchildren are often placed in an irrevocable trust.

If you have relationships, properties or goals that are not straightforward, talk with your estate planning attorney about how trusts might benefit you and your family. Here’s why this makes sense:

Reducing estate taxes. While the federal exemption is $11.58 million in 2020 and $11.7 million in 2021, state estate tax exemptions are far lower. New York excludes $6 million, but Massachusetts exempts $1 million. An estate planning attorney in your state will know what your state’s estate taxes are, and how trusts can be used to protect your assets.

If you own property in a second or third state, your heirs will face a second or third round of probate and estate taxes. If the properties are placed in a trust, there’s less management, paperwork and costs to settling your estate.

Avoiding family battles. Families are a bit more complicated now than in the past. There are second and third marriages, children born to parents who don’t feel the need to marry and long-term relationships that serve couples without being married. Trusts can be established for estate planning goals in a way that traditional wills do not. For instance, stepchildren do not enjoy any legal protection when it comes to estate law. If you die when your children are young, a trust can be set up so your children will receive income and/or principal at whatever age you determine. Otherwise, with a will, the child will receive their full inheritance when they reach the legal age set by the state. An 18- or 21-year-old is rarely mature enough to manage a sudden influx of money. You can control how the money is distributed.

Protect your assets while you are living. Having a trust in place prepares you and your family for the changes that often accompany aging, like Alzheimer’s disease. A trust also protects aging adults from predators who seek to take advantage of them. Elder financial abuse is an enormous problem, when trusting adults give money to unscrupulous people—even family members.

Using trusts in your planning is a smart move. Talk with an estate planning attorney about your wishes and your worries. They will be able to create an estate plan and trusts that will protect you, your family and your legacy.

If you would like to learn more about how trusts work, please visit our previous posts.

Reference: Market Watch (Dec. 4, 2020) “3 Reasons a trust may make sense for your family even though your name isn’t Trump, Gates or Rockefeller”

Category: Charitable Remainder Trust

Charitable Trusts a Rewarding way to make an Impact

A Trust can Protect your Pet

The Estate of The Union Episode 12 is out now!

Can You Sue A Trust Directly?

Charitable Remainder Trusts can reduce Taxes

Charitable options to Reduce Estate Taxes

Estate Planning is more than a Tax Strategy

Extend IRA distributions with a Charitable Remainder Trust

There are Pros and Cons to Charitable Trusts

Using Trusts in Your Planning is a Smart Move

Categories

View Blog Archives

Watch the

Estate Of The Union

Join Our

eNewsletter and Blog Digest List

Listen to the

Estate Of The Union

Texas Trust Law

Quick Links

Connect With Us