Your Living Trust & Estate Plan
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Your Living Trust & Estate Plan

How to Maximize Your Family's Assets and Protect Your Loved Ones, Fifth Edition

Harvey J. Platt

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eBook - ePub

Your Living Trust & Estate Plan

How to Maximize Your Family's Assets and Protect Your Loved Ones, Fifth Edition

Harvey J. Platt

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About This Book

This revised fifth edition from estate-planning expert Harvey J. Platt details the most up-to-date strategies for using a living trust to create a flexible estate plan. Platt explains the latest tax laws, including the American Taxpayer Relief Act of 2012, the broadening of statutes for amending trusts, and the rule against perpetuities (RAP). Platt also addresses updates on many existing topics, including lifetime exemptions; the estate, gift, and generation-skipping tax; charitable deductions; state estate tax savings; and private annuities.
Your Living Trust & Estate Plan maps out the most effective techniques for saving money and property and covers the essentials of successful estate planning. Other resources frequently overlook vital areas such as unlocking the benefits of living trusts, protecting beneficiaries, using life insurance, handling retirement benefits properly, and fixing inadequate estate planning postmortem, but Your Living Trust is the complete guide. This invaluable resource will teach you how to maximize your family's assets, plan your estate, and provide for your loved ones well into the future.

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Information

Publisher
Allworth
Year
2013
ISBN
9781621533917

CHAPTER 1

The Development of an Estate Plan

This chapter provides an overview of the entire process of the planning of an estate. In other words, what are the things that must be considered and prioritized, e.g., where and what are my assets; what form should my estate plan take (living trust or will); who will inherit my estate; how much will he or she receive and in what manner (outright or in trust); who should assist in the development of my plan; what steps should I consider to reduce the eventual taxes both during my lifetime and upon my death; who shall be the managers of my estate; who will take care of my minor children; have I forgotten anything or overlooked anyone; have I balanced the inheritances depending on the needs of my survivors; have I created potential litigation among my survivors; and have I coordinated all strategies and devices?
The answers to these questions will form the foundation for the plan itself.

What Is an Estate?

An estate includes all property owned by you less all of your liabilities. To plan an estate, its values and components must be first determined. Therefore, a critical and important step in the process of estate planning is the creation of a written inventory. Not only is the identity of assets important, but where they are located can be just as significant. Assets that are held in a safe deposit box or property not readily identifiable, such as foreign bank accounts or real property, may never be found.
The inventory should contain the following information: (1) the description and location of the property; (2) the ownership (individual, tenancy-in-common, joint or shared) and the percentage owned; (3) the cost and fair market value of each of the assets; (4) liabilities and debts; (5) beneficiary designations (who is to receive retirement benefits, life insurance proceeds, annuities, and similar benefits); (6) whether any assets are subject to any agreements (corporate or partnership interests); and (7) whether it is community or separate property.
A complete inventory of your property will not only avoid the headaches that can be created in locating the property after your death, but also minimize the costs that are incident to such a process. At the end of this book, there is a suggested inventory form to aid in the preparation of this information.

The Probate Estate

This is the portion of the estate that must go through the probate process before it can be transferred. Property left by a will is normally subject to this procedure. All property that is inherited at death by various probate-avoidance methods, such as the living trust, joint tenancy, insurance, and beneficiary designations, is not included in the probate estate. Property that is held in the living trust is not subject to probate because it is not owned by you. The optimum estate plan should be totally free of probate assets.

The Taxable Estate

This is the property that’s currently subject to potential transfer tax, when you die. It is the gross value of all property owned by you less all administration and funeral expenses, claims against the estate, debts, marital and charitable deductions, and casualty and theft losses.

The Beneficiaries

The selection of the beneficiaries is a basic element of the estate plan. The choice of who will inherit what depends upon many factors, i.e., personal, need, tax considerations, age, and competence. Questions have to be posed and resolved: Can my survivors manage their affairs? What will be required for their support and maintenance? What is best for their comfort and welfare?

Special Assets

Certain assets may require special consideration, such as an asset that will have to be sold after your death, like a business interest. Thought has to be given as to its valuation and the method of its liquidation. If similar types of interests are to be retained by your survivors, you should determine who will manage such interests and the liquidity needs of assets of this nature.

Participants in the Process

Those participants who are necessary to create and implement your plan and assume the final responsibility for the achievement of the desired results must be included in the planning process. The attorney is usually responsible for the overall creation of the plan. An accountant may be called upon to provide financial information required to properly identify and define your assets and liabilities. Other individuals, such as life insurance agents, financial consultants, and financial planners, may help to provide a view as to other aspects of the financial plan such as benefit recommendations, tax information, budgets, and investment management.

Liquidity Needs

The liquidity needs of an estate must be considered and defined. This would include deciding whether the size of the estate should be increased. Steps can be put into place, for both short- and long-term planning, to achieve these results, such as (1) an increase in life insurance coverage; (2) gifts of income-producing property to lower-tax-bracket family members; (3) an increase in employee benefit programs; (4) changes in existing portfolio investments; and (5) consideration of the asset appreciation potential of tax shelter annuities.

Reduction of Transfer Tax Costs

In addition, you must consider in this process the various ways to reduce costs that will arise at death. These will include (1) making lifetime gifts and sales; (2) maximizing the use of the deductions, tax deferrals, avoidances, and credits that are available; (3) the use of life insurance trusts; (4) providing instructions for the management and assistance in the distribution of certain assets that require special expertise; (5) creating a structure for the valuation of assets that do not have a readily ascertainable fair market value, such as shares of stock of a closely held corporation, real estate, or certain tangible personal property; (6) contemplation of making the estate eligible for the use of any relief payment section under any transfer tax code in effect at such time; (7) avoiding probate through the use of trusts and survivor property arrangements; and (8) consideration of the state of your domicile when you die. Each state maintains its own laws controlling property located in it, in addition to potentially imposing transfer taxes.

Fiduciaries

The selection of fiduciaries (executors or personal representatives, trustees, or guardians) is probably one of the most difficult tasks in formulating an estate plan. Consideration in this regard must be given, where applicable, to corporate representatives, such as banks and trust companies, in the appropriate situations.

Coordination of All Plans

The increased use of probate-avoidance devices makes estate planning even more complicated. As such, consideration must be given to the coordination of the disposition of probate and nonprobate assets. You should consider nonprobate assets as property that you have transferred during your lifetime except that you have retained the total right during your lifetime to alter the distribution upon your death. This would include life insurance, Totten trusts, joint bank accounts, and plans with beneficiary designations. Your living trust, will, and any other documents providing death payment instructions must be reviewed to be sure there are no ambiguities among all of these devices.

Personal Concerns

In the planning process, an order of priorities must be observed. For example, if your assets are insufficient to provide financial security for your surviving spouse and children, your spouse is usually given the larger share of your estate and your children are provided solely for their educational needs. This is a personal decision that you must make. Consideration must be given to the short- and long-term needs of the beneficiaries—their competency, ability to be self-supporting, and ability to manage money and property. Their ages and health must be weighed in this process as well. You may wish to favor a handicapped beneficiary. On the other hand, irresponsible beneficiaries may be given a larger share than their siblings, on the theory that their needs or their families’ needs may be greater than those of beneficiaries who are committed to a work ethic.

The Human Element

The success of any estate plan depends on the human element. An estate plan that is balanced should not cause litigation or dissension among family members or hatred of you. Money, it has been said, “is the root of all evil.” Weaknesses, such as greed, dishonesty, and divisiveness, often surface when money is involved. Measures should be taken to deflect conflicts of this kind, such as (1) the equalization of bequests to children both in amounts and in the manner of the distribution (outright or in trust); (2) careful selection of the guardian for a minor child, since the guardian must supervise the management of the minor’s property; and (3) the proper balance if you have had multiple marriages and you have multiple sets of children. Other considerations include children who have special needs that require planning by special experts in order to coordinate the programs available to them. Unmarried couples who have no statutory rights to inherit the other’s property must create special methods for transferring their property to the survivor in order, in many cases, to avoid litigation with a hostile family. Finally, it is worth noting that, just as we have the right to leave our property to whomever we want (subject to statutory restrictions), we have the right to disinherit anyone (subject to the same restrictions).

Preventing a Challenge to the Estate

An excellent method of preventing a challenge to your estate is an “in terrorem” provision in your living trust or will that provides for the revocation or forfeiture of a legacy if a beneficiary contests the validity of the document or its distribution of property.

Funeral and Burial Plans

Your estate plan should consider funeral and burial plans as well, which may include cremation arrangements and the donation of body parts to organ banks for medical transplants and/or research. The use of a will or a living trust as a device for an anatomical gift is usually not a good idea. The effectiveness of any organ for transplant depends upon immediate removal. Usually this can be best planned by creating an instrument in the form of a card (which should be witnessed by at least two witnesses) or other documents to provide for the anatomical gift, which can be carried by you.
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CHAPTER 2

Selecting Who Receives the Benefits of Your Estate

This chapter describes the process of designating those who will receive your property: who they are, how much you should leave them, and in what form (outright or in trust). You will also find out whether you can disinherit anyone (which in many cases depends upon the laws of the state where you live); what happens if you fail to provide for alternatives in case a beneficiary should predecease you, and what can be done with pets.
A beneficiary is the recipient of all or a portion of your estate. Beneficiaries can be members of your immediate family, charities, trusts, relatives, friends, and other organizations.
The selection process requires consideration of (1) the laws of the state that controls the distributions; (2) the potential transfer tax, consequences, if any; and (3) the needs of the particular individuals involved. Your beneficiaries can receive their inheritances either outright or in trust. If a beneficiary is a child, his or her share will be held by a custodian until he or she attains majority (usually eighteen years of age). Bequests can be made in a dollar amount or of a percent of the estate.

Alternates

Alternate beneficiaries should be selected in the event the primary beneficiaries predecease the estate owner. If a primary beneficiary dies before the estate owner, the inheritance might lapse. Bequests that lapse will either pass through a residuary disposition or by intestacy, if none exists. A residuary disposition can be effectuated by including a provision in your living trust or will that sets forth who is to receive all of your remaining property not specifically given to the named beneficiaries. Certain inheritances, however, are prevented from lapsing by state law, as the result of the blood relationship of the parties. In New York State, for example, a bequest to a child who predeceases a parent will not lapse, but will pass down to the children of the predeceased child.

Intestacy

Passing assets by intestacy means that, if one dies owning assets in his or her name and has not created a distribution instrument (living trust or will), the property will pass to the closest blood heirs of that person under the laws of the state where he or she maintained permanent residence (domicile) at the time of death. In such event, it is the state that provides the terms of the stream of distribution. This would not apply, however, if the asset itself has a distribution beneficiary, such as the designation of a beneficiary of an insurance policy, a retirement plan, or a jointly held asset.

Surviving Spouse

In most states, a surviving spouse is protected by law and must receive part of the estate. Therefore, appropriate provisions must be made for the spouse in order for that person to receive no less than his or her legal share and is the form prescribed by state law (outright or in trust). An example of the protection afforded spouses by law is illustrated in community property states. In this case, a surviving spouse has no legal claim to the other spouse’s property. This is because community property states automatically divide property between the spouses as they acquire it during their marriage. Each spouse has the right to dispose of his or her one-half of the community property as he or she sees fit. Unmarried couples living together, however, have no such rights of inheritance unless a binding agreement, giving the other person specific rights of inheritance, has been entered into during their lifetimes.

Minors

When minors are named as beneficiaries, they can receive their share outright or it can be placed in a trust. Most states prevent a minor (someone under eighteen years of age) from owning property outright. A guardian of the property can be designated to be responsible for managing the bequest until the minor attains majority. The guardian’s management is subject to whatever restrictions are placed on the gift. (For a more detailed description of minors as beneficiaries, see chapter 18.)

Common Disaster

The laws of most states provide that, in the event of a common disaster, each of the people involved is presumed to have survived the other. That means if you and your spouse die in a common accident and it cannot be ascertained who died first, each of you will be deemed to have survived the other and your estates will be distributed accordingly. This means that each of your respective estates would pass as if the other person had died first. States that follow the Uniform Probate Code require a beneficiary to survive the estate owner by 120 hours. A clause can be inserted in a living trust or will that not only creates a different presumption, but provides that a beneficiary must survive by a certain amount of time to be considered to have survived the other person. However, for a spouse, potential transfer tax law limits the period to six (6) months for the unlimited marital deduction to be available.

Pets

Pets are an estate planning challenge. In most jurisdictions, pets are considered just another piece of property. However, for many, a pet is extremely important and considered a person and not just property. Certain states, like California, allow people to leave part of their estate to an animal in “honorary trust” (which is not a legal trust).
Many states have legislation similar to that passed in New York in 1996, which allows a pet owner to create a trust, either inter vivos (during lifetime) or testamentary (by living trust or will) to provide for the care of a pet. Before this law was passed, a trust could not be established for a pet nor could a pet be the beneficiary of a trust or receive an outright gift.
The use of the principal and income of the trust may be enforced by a person designated for that purpose, or if no one is appointed, the court may appoint an enforcer. The trust mu...

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