10 Types of Trusts: A Quick Look

Considering the myriad of trusts available, creating an estate plan that works can seem daunting.  However, that’s what we, as estate planning attorneys, do every day. We know the laws and will design a plan which addresses your specific situation. 

Here’s a look at the basics of ten common trusts to provide a general understanding. There will not be a quiz at the end. All you need to do when we meet is share your goals and insight into your family and financial situation, we’ll design a plan that incorporates the best documents for your situation.

1. Bypass Trusts. Commonly referred to as Credit Shelter Trust, Family Trust, or B Trust, Bypass Trusts do just that: bypass the surviving spouse’s estate to take advantage of tax exclusions and provide asset protection. 

2. Charitable Lead Trusts. CLT's are split interest trusts which provide a stream of income to a charity of your choice for a period of years or a lifetime. Whatever’s left goes to you or your loved ones.

3. Charitable Remainder Trusts. CRTs are split interest trusts which provide a stream of income to you for a period of years or a lifetime and the remainder goes to the charity of your choice. 

4. Special Needs Trusts. SNT's allow you to benefit someone with special needs without disqualifying them for governmental benefits. Federal laws allow special needs beneficiaries to obtain benefits from a carefully crafted trust without defeating eligibility for government benefits.

5. Generation-Skipping Trusts.  GST Trusts allow you to distribute your assets to your grandchildren, or even to later generations, without paying the generation-skipping tax.

6. Grantor Retained Annuity Trusts. GRAT's are irrevocable trusts which are used to make large financial gifts to family members while limiting estate and gift taxes.

7. Irrevocable Life Insurance Trusts. ILIT's are designed to exclude life insurance proceeds from the deceased’s estate for tax purposes. However, proceeds are still available to provide liquidity to pay taxes, equalize inheritances, fund buy-sell agreements, or provide an inheritance.

8. Marital Trusts. Marital Trusts are designed to provide asset protection and financial benefits to a surviving spouse. Trust assets are included in his or her estate for tax purposes.

9. Qualified Terminable Interest Property Trusts.  QTIP's initially provide income to a surviving spouse and, upon his or her death, the remaining assets are distributed to other named beneficiaries. These are commonly used in second marriage situations and to maximize estate and generation-skipping tax exemptions and tax planning flexibility.

10.  Testamentary Trusts. Testamentary Trusts are created in a will. These trusts are created upon an individual's death and are commonly used to provide for a beneficiary. They are commonly used when a beneficiary is too young, has medical or drug issues, or may be a spendthrift. Trusts also provide asset protection from lawsuits brought against the beneficiary.

There are many types of trusts available. We’ll help you select which trusts, if any, are a good fit for you. If you want to ensure that your family is cared for, please click here to schedule your complimentary Estate Planning Strategy Call with San Francisco’s premier estate planning attorney, Matthew J. Tuller.

Take Control of Your Wealth Distribution!—Wills v. Trusts

You work hard for your money and want to ensure that your wealth distribution goes according to your wishes upon death. Sadly, many people simply don't understand the difference between wills and trusts and how they can affect inheritance. Don’t be one of them!  Take control of your wealth distribution by understanding what wills don’t control and the benefits of a trust.

 5 Things a Will Does NOT Control:

Most people believe that a will encompasses and controls all of your assets. That is simply not the case. Proper asset ownership for will-based plans can be confusing. However, the bottom line is that a will only controls assets in individual names; it does not control:

1.    Trust assets

2.    Retirement accounts / pension plans

3.    Life insurance

4.    Annuities

5.    Employee benefits

While having a will allows you to avoid having a court decide who gets what, a trust can generally protect you even further. 

 5 Benefits of a Living Trust:

 While there are many benefits to a living trust, here are five of the key highlights:

1.    Avoiding the public, costly and time-consuming court processes at death (probate);

2.    Avoiding the same regarding incapacity (conservatorship or guardianship);

3.    Providing for spouses without disinheriting children;

4.    Saving estate taxes in some cases;

5.    Protecting inheritances for children and grandchildren from the courts, creditors, spouses, divorce proceedings, and irresponsible spending.

 There are many types of assets which can be funded into your trust, such as real estate, bank accounts, investment accounts, and intellectual property rights. Others might include:

1.    Notes payable to you

2.    Life insurance – if you don’t have an irrevocable life insurance trust

3.    Business interests

4.    Oil and gas interests

5.    Personal effects – artwork, jewelry, collectibles, antiques

 It’s important to work closely with your estate planning attorney to make certain that all of your assets are distributed according to your wishes—and done so with the least amount of cost and time delay. Contact us today for more information about wills, trusts, and other financial planning issues and let us help you decide what’s best for your situation!

 If you want to ensure that your family is cared for, please click here to schedule your complimentary Estate Planning Strategy Call with San Francisco’s premier estate planning attorney, Matthew J. Tuller.

What the Recently Released 2016 IRS Inflation Adjustments Mean for You

The Internal Revenue Service recently released the official inflation adjustments affecting the 2016 federal reporting for estate taxes, gift taxes, generation-skipping transfer taxes, and estate and trust income taxes. These changes will affect the way your accountant and your attorney help you plan as 2015 comes to an end.

 2016 Federal Estate Tax Exemption:

 In 2016 the estate tax exemption will be $5,450,000.  This is an increase of $20,000 over the 2015 exemption and a total increase of $1,950,000 since 2009. The maximum federal estate tax rate remains unchanged at 40%.

 What this means is that a person can die in 2016 with up to $5,450,000 of assets before his or her estate will need to file an estate tax return. Of course, there are certain circumstances where an estate tax return will still be necessary – such as to elect “portability” or if a person made substantial gifts during their life. The exact deadline to file an estate tax return varies depending on a person’s date of death, because an estate tax return is due within nine months of the deceased person’s date of death.

 Although the estate tax exemption has been increasing and now generally means that most people don’t need to worry about estate taxes, almost everyone still needs a will or a trust to ensure that their assets pass to their intended beneficiaries.

 2016 Federal Lifetime Gift Tax Exemption:

 In 2016 the lifetime gift tax exemption will also be $5,450,000.  This is an increase of $20,000 over the 2015 exemption and a total increase of $1,950,000 since 2009. The maximum federal gift tax rate remains unchanged at 40%.

 What this means is that if a person makes any taxable gifts in 2016 (in general a taxable gift is one that exceeds the annual gift tax exclusion – see more on that below), then they will need to file a federal gift tax return. For taxable gifts made in 2016, the gift tax return is due on or before April 17, 2017 (the same day as your 2016 income taxes).

 2016 Federal Generation-Skipping Transfer Tax Exemption:

 In 2015 the exemption from generation-skipping transfer taxes (GSTT) will also be $5,450,000.  This is an increase of $20,000 over the 2015 exemption and a total increase of $1,950,000 since 2009. The maximum federal GSTT rate remains unchanged at 40%.

 What this means is that if a person makes any transfers that are subject to the GSTT in 2016, then they will need to file a federal gift tax return.  For generation-skipping transfers made during 2016, the gift tax return is due on or before April 17, 2017 (the same date as your income taxes for 2016). If the generation-skipping transfer does not exceed $5,450,000, then no GSTT will be due; instead, the transferor’s GSTT exemption will be reduced by the amount of the transfer.

 For example, if Bob has not made any prior generation-skipping transfers and makes one of $500,000 in 2016, then his GSTT exemption will be reduced to $4,950,000 ($5,450,000 GSTT exemption - $500,000 generation-skipping transfer = $4,950,000 GSTT exemption remaining). The generation-skipping transfer tax is a complex tax, so you’ll definitely want to check with your accountant and attorney before making any large gifts during 2016 (or 2015 for that matter).

 2016 Annual Gift Tax Exclusion:

 In 2016, the annual gift tax exclusion will remain at $14,000. However, one adjustment is happening next year - the first $148,000 of gifts to a spouse who is not a U.S. citizen are not included in the total amount of taxable gifts.  This is an increase of $1,000 above the 2015 exclusion.

 Here’s how the annual gift tax exclusion works. If you make gifts to the same person that are $14,000 or less, then no gift tax return will probably be necessary. However, if the gifts to one person exceed $14,000 in 2016, then you’ll need to file a federal gift tax return.  For taxable gifts made in 2016, the gift tax return is due on or before April 17, 2017 (the same day as 2016 income tax returns).

 If the taxable gift does not exceed $5,450,000, then no gift tax will be due; instead, the lifetime gift tax exemption of the person who made the gift will be reduced by the amount of the taxable gift.

 For example, if Bob has not made any taxable gifts in prior years and makes a gift of $500,000 to his daughter in 2016, then Bob’s lifetime gift tax exemption will be reduced to $4,964,000 ($500,000 gift - $14,000 annual exclusion = $486,000 taxable gift; $5,450,000 lifetime gift tax exemption - $486,000 taxable gift = $4,964,000 lifetime gift tax exemption remaining). As you can see, the interplay between the annual gift tax exclusion and the gift tax exemption can become complex once you add multiple gifts and recipients, so you’ll want to check with your accountant or attorney before making any substantial gifts.

2016 Estate and Trust Income Tax Brackets:

 Finally, estates and trusts will be subject to the following income tax brackets in 2016:

If Taxable Income Is:                          The Tax Is:

 Not over $2,550                                  15% of the taxable income

Over $2,550 but                                  $382.50 plus 25% of

not over $5,950                                   the excess over $2,550

Over $5,950 but                                  $1,232.50 plus 28% of

not over $9,050                                   the excess over $5,950

Over $9,050 but                                  $2,100.50 plus 33% of

not over $12,400                                 the excess over $9,050

Over $12,400                                      $3,206 plus 39.6% of

                                                            the excess over $12,400

The income tax rates for estates and trusts are very compressed. An estate or trust will hit the top 39.6% rate at only $12,400 of taxable income in 2016.  Estates and trusts are also potentially subject to the 3.8% net investment income tax (on top of the above rates), depending on their income level and source of income.

 Bottom line: if you’re a trustee or executor, you should talk to your accountant and attorney now to ensure that you’re making the most income tax efficient decisions possible given the circumstances of the estate or trust.

 If you want to ensure that your family is cared for, please click here to schedule your complimentary Estate Planning Strategy Call with San Francisco’s premier estate planning attorney, Matthew J. Tuller.

Annual Summary: The Six Hottest Estate Planning Topics in 2015

In case you missed any of them, here is a rundown of six hottest estate planning topics we covered this past year:

A.    5 Things You Need to Know About the ABLE Act: 

On December 19, 2014, President Obama signed the Achieving a Better Life Experience Act (ABLE Act) into law.  The Act will allow certain individuals with disabilities to establish tax-free savings accounts that can be used to cover expenses not otherwise covered by government sponsored programs.  This blog covers five important things you need to know about the Act:

1.      What an ABLE account is,

2.      Who can set one up,

3.      Contribution limits,

4.      What expenses can be paid from an ABLE account, and

5.      When they will be available

Federal regulations were issued in June and several states have already passed or are in the process of passing implementing legislation. Talk with us now if you think an ABLE account might be a good fit for your plan.

B.    4 Steps to Stop Mail Addressed to a Deceased Person: 

One of the first things you should do as a newly appointed executor of a deceased person’s probate estate or successor trustee of a deceased Grantor’s trust, is ask the post office to forward the deceased person’s mail to your address. Regrettably, along with important pieces of mail, many not-so-important pieces – catalogs, solicitations, and plain old junk mail – will end up in your mailbox. On the other hand, you may have purchased a home from a deceased person’s estate or trust and have received some of their mail at your new address. This blog covers four steps you can take to stop mail addressed to a deceased person, which can help to reduce the pile of annoying junk mail and protect against post-mortem identify theft.

C.    Financial Firms Roll Out Form Aimed at Stopping Financial Elder Abuse:

With cases of financial exploitation of the elderly on the rise, advisors who work with older clients are looking for ways to head off the abuse before it happens. Enter the “Emergency Contact Authorization Form” - a document in which clients can list a trusted person who should be contacted if an advisor suspects a client is starting to lose their mental capacity or, worse yet, being financially abused or scammed. This blog covers how the Emergency Contact Authorization Form works and what steps can be taken to protect you or a loved one from financial elder abuse. Learn today whether this option should be added to your plan.

D.    What You Need to Know About the Final Portability Rules: 

This summer the IRS issued the final rules governing the “portability election” as it relates to the federal estate tax exemption.  This blog covers:

1.      What the “portability election” is;

2.      How the election is made;

3.      Which estates are subject to the final rules;

4.      What the final rules provide; and

5.      How they will affect existing estate plans and recent widows and widowers.

The “portability election” can be a great planning option. But, it only works well if your will or trust has been designed with portability in mind. Portability was first introduced in 2011 and the IRS has (finally) provided final rules on how it works. If you haven’t updated your will or trust since 2011, now is the time to see whether portability-based planning is right for you and your family.

E.    These States Will Usher in Changes to Their Death Taxes in 2016: 

In 2015 there are still 20 U.S. jurisdictions that collect a death tax at the state level. This blog outlines changes that will occur in 2016 to state death taxes in the following states:  Connecticut, Delaware, District of Columbia, Hawaii, Maine, Maryland, Minnesota, New York, Rhode Island, Tennessee and Washington. If you live or own real estate in any of these states, you will want to read this blog to understand how these changes may affect your estate and your estate plan.

F.    IRS Releases 2016 Inflation Adjustments for Estate Tax and Related Exemptions and Estate and Trust Income Tax Brackets: 

In October, the Internal Revenue Service released the official inflation adjustments that will affect 2016 federal reporting for estate taxes, gift taxes, generation-skipping transfer taxes, and estate and trust income taxes.  This blog lists the 2016 transfer tax exemptions along with the 2016 income tax brackets for estates and trusts. This important information helps you plan the receipt of income that you can control (such as a large capital gain resulting from a sale of an asset), gifts to family members or charities, and deductions.

 As you can see, a great deal has changed over 2015. If your will, trust, power of attorney, health care directive, or other estate planning documents are more than two years old, they may be in need of an update. Contact us today to see how you can use these updated laws to improve your estate plan and protect your family.

 If you want to ensure that your family is cared for, please click here to schedule your complimentary Estate Planning Strategy Call with San Francisco’s premier estate planning attorney, Matthew J. Tuller.