The Trust Lawyers Blog

Tax Planning for Trusts and Estates

Posted by Dave DePinto on Wed, Jun 22, 2016

I. CHOOSING THE STRATEGY TO USE FOR DIFFERENT TYPES OF PROPERTY

a. Real Property

A qualified personal residence trust ("QPRT") is a technique for gifting residential property at discounted values.  The QPRT is an irrevocable trust, which becomes the legal owner of the home during the trust term.  The grantor would continue to live in the home during the term of the trust, and continue to pay the real estate taxes, mortgage and maintenance expenses; the taxes and interest can be deducted on the grantor's personal income tax return, as it was before.  The grantor must remain personally and contractually bound to the trustee to pay off the mortgage indebtedness in order for the amount of the mortgage to be disregarded for valuation purposes.  At the end of the term, the beneficiaries would legally own the home but the grantor's spouse may have the right to live in the house for his/her lifetime.  At that point, the grantor may also remain living there due to spouse’s life estate.  Should the grantor's spouse predecease, the grantor could remain living in the house as long as fair market rent is paid.  The term of the trust is a period of years, selected by the grantor.  The longer the term, the greater the tax benefits.  However, if the grantor does not outlive the term, any tax benefit of this strategy is lost.

 

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Tags: trusts, QTIP, Estate Law, Life Estates, Elder Law, Minimize Taxes, Estate Planning, Asset Protection

Asset Protection for the Elderly

Posted by Dave DePinto on Mon, Jun 13, 2016
I.PROTECTING THE RESIDENCE

           

a. Life Estates

 

            An estate is used to express the nature, duration or extent of an interest in land. A life estate is an estate which is measured by the life of a specified person, by the joint lives of two or more specified persons, of by the last survivor of two or more specified persons.[1] A right to use and occupy is not a life estate.[2]

 

Advantages of a Life Estate:

    1. Right to live in house.
    2. Removes remainder interest in the house from Medicaid estate after five (5) years of transfer. 
    3. Medicaid will only count the value of the remainder interest on transfer, which is a significantly lower value than if the whole were transferred. 
    4. Original owner still maintains full control of property and its management also retains Veterans and STAR tax exemptions.
    5. Full value is included in original owner’s estate for tax purposes, but remainderman still receive a full basis step up to fair market value upon death.[3]

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Tags: Estate Law, Medicaid And Assets, Life Estates, Asset Protection, Advanced Elder Law, Elder Law, QTIP, Asset Protection for the Elderly

Life Estates

Posted by Dave DePinto on Fri, Jun 10, 2016

I. LIFE ESTATES

1. Definition: 

    a. An estate is used to express the nature, duration or extent of an interest in land. A life estate is an estate which is measured by the life of a specified person, by the joint lives of two or more specified persons, of by the last survivor of two or more specified persons.[1]

    b. Right to use and occupy is not a life estate.[2]

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Tags: Estate Law, Medicaid And Assets, Estate Planning, Asset Protection Trust, Life Estates, Asset Protection

Taxation Of Trusts

Posted by Dave DePinto on Fri, Jun 10, 2016

1. Simple Trust: A simple trust requires all income to be distributed annually to named beneficiaries. Income of the trust is taxable to recipient.

2. Complex Trust:   A complex trust does not require all income to be distributed annually. The trust provides that income may be distributed to beneficiaries or accumulated.   Income of the trust is taxable to recipient to the extent distributions are received.

3. Grantor Trust:  A grantor trust is a trust in which all items of income, gain, loss or deduction will be reported on the grantor’s personal income tax return.

 

 

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Tags: Estate Law, Dynasty Trusts, Estate Planning, Life Estates, Asset Protection

How to Know if A Revocable Trust Is Necessary

Posted by Bridget T. Faldetta, Esq on Tue, Jun 05, 2012

There are two (2) types of trusts: revocable and irrevocable. A revocable trust can be modified, revoked or changed during your lifetime, as opposed to an irrevocable trust, which is much less flexible. A revocable trust allows you to maintain full control over your assets; however, it cannot be used to protect your assets from potential creditor claims or medical costs, or reduce the value of your estate for estate tax purposes. If any of these is your goal, you may want an irrevocable trust.

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Tags: Revocable Trust, Asset Protection

How to Spread Wealth Over Generations & Never Pay Tax With Dynasty Trusts

Posted by Dave DePinto on Tue, Mar 27, 2012

If you have a large amount of wealth and are planning for the future of your estate, you probably want to ensure that the largest possible amount can pass to your descendants. Unfortunately, estate taxes can be punishingly high. Currently the top estate tax tier is 35%, and unless Congress acts soon, in 2013 that will rise to 55%. That's potentially over half of your wealth gone, before your family sees it. For those interested in avoiding this fate, dynasty trusts are a possible answer.

A dynasty trust is a form of irrevocable trust where the grantor (that's you and possibly your spouse) transfers a large portion of wealth into a trust, to be overseen by a trustee. Under current 2012 rules, you and your spouse can both contribute up to $5 million dollars each tax-free. There are further, more complex methods of transferring additional assets at substantially reduced tax rates that your financial adviser may be able to help you consider. The funds can be transferred either while you are alive or upon your death, although for long-term growth, the former option is better.

Once the trust is established, it can continue to invest its assets and grow in perpetuity, allowing future generations to benefit from it, even ones not yet born. As the grantor, you can set up detailed rules on who is allowed to benefit from it, and under what circumstances. You could, for example, mandate that future generations are not allowed access to it until after they graduate college, to prevent them from becoming “trust fund kids.”

Furthermore, imposing these sorts of spendthrift restrictions will also protect the trust from the beneficiaries' creditors or divorcing spouses. Properly established, a beneficiary cannot give up his claim in the dynasty trust either voluntarily or involuntarily. This makes dynasty trusts a reliable source of income for your descendants for decades and generations to come.

Perpetual trusts are not legal in all states, but several, such as Delaware or Nevada, merely require that the trustee have a presence there, but not the grantor or beneficiaries. Plus, there are few drawbacks, aside from the inevitable dilution of benefits that occurs as the generations pass. With an established corporation as trustee, a dynasty trust could last as long as your legacy.

If you are interested in dynasty trusts, now is definitely the time to act. Besides the real possibility of 2010's tax cuts expiring soon, President Obama's new budget is attempting to end dynasty trusts after 90 years. Trusts established today, however, would still be shielded from those rule changes. If you believe this could be an asset in your estate planning, contact a qualified financial adviser sooner rather than later.

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Tags: Dynasty Trusts, Asset Protection, Minimize Taxes

An Asset Protection Trust Is Like An Insurance Policy For Your Wealth

Posted by Dave DePinto on Thu, Mar 22, 2012

If you're concerned with protecting your assets against possible legal claims against them, there are a wide variety of sophisticated financial tools available to help with this. One of the most controversial, yet often highly effective, examples of these is the asset protection trust. That term can be applied to a wide variety of trust structures, but generally refers to self-created trusts meant to shield your assets by placing them under the control of a trust located in a state with favorable protection laws, such as Nevada or Delaware.

In general, they work much like any other trust. You – the settlor – take your assets and place them under the control of a trust, using a situs trustee in that state. Often with these asset protection trusts, there is also a designated protector you select who has power over what the trustee does with your assets.

One unique aspect of them, which often makes them preferable to other estate planning trusts,is that in many cases the settlor can also be a beneficiary. In some cases, it's even possible for you and/or your spouse to form a Limited Liability Company and exert some level of control over the assets, while still being legally shielded.

Properly set up, they can make it extremely difficult for a debtor, divorcing spouse, or other legal claimant to gain access to any of your assets. By being located in another state, one with secrecy and protection laws, they should be outside the reach of local courts. The trust can even be set up with instructions to ignore orders given under duress, effectively rendering you blameless if court orders directed at the trust are not fulfilled.

It's important to know one thing that an asset protection trust is not, however. It is not a tax shelter. The settlor is still responsible for taxes on any assets within the trust, and must report them in their tax filing. Any attempt to hide assets from the IRS in an asset protection trust is risking tax fraud charges. Also, these trusts should not be deliberately used to defraud legitimate debtors. There are substantial legal tools that can be brought to bear on the settlor if a court deems the trust to be fraudulent.

Asset protection trusts are not for everyone, and carry some risks and significant drawbacks,not the least of which being the deliberate transfer in a structure that makes practical sense to you. Nonetheless, in cases where they are needed, they can be extremely powerful tools for asset protection with relatively little risk to you other than the cost of creation and annual trustee fees. I like to think of these costs as insurance premiums for protecting your wealth.

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Tags: Asset Protection Trust, Fiduciary Services, Asset Protection

Estate Planning: How A QDOT Trust Can Help

Posted by Dave DePinto on Thu, Mar 15, 2012

A Qualified Domestic (QDOT) Trust is a very specific trust designed to address a somewhat common situation: what happens when the spouse of a non-US citizen dies while leaving significant assets to the non-citizen survivor.

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Tags: Estate Law, Asset Protection

Medicaid And Assets: 10 Questions To Ask Yourself

Posted by Dave DePinto on Tue, Mar 13, 2012

As you grow older, one of the most important things to think about is how you're going to handle long term care once you pass retirement age. This is especially important when considering if you're going to attempt to receive Medicaid to pay for these expenses.  

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Tags: Estate Law, Medicaid And Assets, Asset Protection Trust, Asset Protection

How To Set Up An Asset Protection Trust For Your Aging Parent

Posted by Dave DePinto on Thu, Mar 08, 2012

One of the hardest things for a child is becoming responsible for their parents' lives. It doesn't happen to all of us, but many people out there will one day find themselves with disabled parents who need to be cared for. If your parents have substantial assets, this becomes even more critical: they need money to pay for their care but, presumably, you and the rest of your family would also like to have an inheritance left.

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Tags: Asset Protection Trust, Asset Protection