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Quote for the Day

March 8, 2016 by Leave a Comment

 

On becoming a trustee one enters a relationship which is governed by rules and bounded by limits. A trustee who thinks of himself or herself as controlling the relationship is far more likely to encounter serious trouble than a trustee who recognizes that the more practical characterization is that of a faithful partner with the grantor and the beneficiaries, in fulfilling the trust’s objectives.

“What It Means to Be a Trustee: A Guide for Clients,” by the Fiduciary Matters Subcommittee of the ACTEC Practice Committee, 2005

Filed Under: Administration, Estate Planning, Quote for the Day, Trusts

Quote for the Day

March 7, 2016 by Leave a Comment

Regarding one of the drawbacks to joint trusts in a non-community or separate property state:

Loss of Creditor Protection

All of the assets of both spouses may become subject to the claims of creditors of just one spouse. In addition, all of the assets of both spouses may become subject to the environmental liabilities of just one spouse’s separate property. These results can usually be avoided if separate trusts are used.

Louis S. Harrison, “Marriage is Joint; Why Not Your Trusts? When to Use a Joint Trust As a Passthrough Entity in a Separate Property Jurisdiction,” Journal of Passthrough Entities, May-June 2005.

Filed Under: Asset Protection, Estate Planning, Quote for the Day, Trusts Tagged With: , ,

Quote for the Day

March 6, 2016 by Leave a Comment

“Revocable living trusts are useful vehicles for many people. Establishing a trust is certainly an act of love for one’s heirs – the streamlined transfer of assets upon one’s death being the main benefit of a revocable trust.”

Susan Bondy National Financial Expert and Columnist September 23, 2001

Filed Under: Estate Planning, Quote for the Day, Trusts

Trusts: You Can Avoid Probate, but You Can’t Avoid (All) the Costs

March 2, 2016 by Leave a Comment

Onassis_NYTThere’s a misconception out there that if you use a revocable living trust in your estate planning, you avoid probate and save on all those costs associated with probate. Well, maybe and maybe not.

First, in order to avoid probate, virtually everything you own has to be owned in a way that will do just that–avoid probate. Sounds circular, I know. What I mean is that if you own property

  1. As joint tenants with rights of survivorship–it will avoid probate.
  2. In so-called POD or Payable on Death accounts–it will avoid probate.
  3. That allows for you to name beneficiaries–a life insurance policy, for example–it will avoid probate.
  4. In a revocable trust–it will avoid probate.
  5. That doesn’t amount to much–you may avoid probate, or at least be eligible for some sort of simplified probate.

Put all that together, and you may avoid probate. But if you have a will, it will need to be proved valid in court–usually a routine process. If you own property that doesn’t fall in one of the categories I just listed, it will probably have to go through probate.

Bottom line, you may be able to avoid probate if you do everything right, own all of your property correctly, dot all your “i’s” and cross all your “t’s.” But if you don’t . . .

That said, to the extent that you do own your property as described above, you reap the big benefit of probate: You keep things private. For example, if your will says who gets the Picasso that hangs over the fireplace and who gets the cabin in the mountains when you die, anybody with the time to go down to the court and check can find that out. If, however, you say who gets what in your revocable trust, nobody has to know except for the people receiving the property. Maintaining your family’s privacy and saving time are the main benefits of avoiding probate to the degree possible. Don’t believe me? Ask Jackie Onassis’s family.

Now, about those costs. Yes, there are costs to probate. Attorney’s fees. Executor’s fees. Court costs. They all add up and can be expensive. But you know what, it costs money to administer a trust when you die: Attorney’s fees, again. Trustee’s fees, again. But typically no court costs. So yes, your estate will probably save money by avoiding probate, but your estate will still spend some money.

One more thing, a thing about revocable living trusts as an estate planning tool: They are predictable. You set them up. You outline all your plans, appoint trustees you trust, and tell them what you want them to do–in writing–and it’s all so predictable and happens almost seamlessly.

You turn that all over to the court in a probate proceeding, and predictability goes out the window.

Revocable living trusts are the way to go–for most people.

Filed Under: Administration, Estate Planning, Estate Planning 101, Funding, Probate, Trusts, Wealth Transfer, Wills Tagged With:

NFA Firearms in an Estate: What’s an Executor (or Trustee?) to Do?

March 1, 2016 by Leave a Comment

Question Mark_YellowYou’re the executor or personal representative of an estate (they’re the same thing, by the way) or a trustee of a trust. The owner of some NFA firearms has died, and you’re left to deal with the aftermath. (Of course, the real “owner” of any NFA arms in a trust is the trustee, but generally, the initial trustee is the grantor of the trust, who we on the outside looking in, view as the owner.) What can you do with the NFA firearms? If you turn them over to the decedent’s heir under the will or the beneficiaries of his trust, do you have to pay the transfer tax?

Fortunately, the BATFE has been fairly helpful on this point, though it could have been more clear. On September 5, 199, the Bureau issued a letter in which it said the following:

If there are unregistered NFA firearms in the estate, these firearms are contraband and cannot be registered by the estate. The executor of the estate should contact the local ATF office to arrange for the abandonment of the unregistered firearms.

So now you know what to do with unregistered NFA items–if you’re an “executor of the estate,” that is. Did the Bureau also mean “trustee of a trust”? Maybe. Later in the same letter, after the word “heir” has been repeated a number of times, we do see this language:

NFA firearms may be transferred directly interstate to a beneficiary of the estate.

Beneficiary. Is that the same as an heir? Though they are often used interchangeably, the two terms are not precise synonyms. Often the word heir is use to define someone who receives property under a will or via a state’s intestacy laws. Beneficiary, on the other hand, is just as often used to describe someone who receives property under trust. Again, they are also used interchangeably. How is the BATFE using the terms in this letter? Inquiring minds would like to know. Maybe this line from the letter helps,

A lawful heir is anyone named in the decedent’s will or, in the absence of a will, anyone entitled to inherit under the laws of the State in which the decedent last resided. (emphasis supplied)

Hmmm. This sounds like intestacy, but is that all? Does “under the laws of the State” mean the same thing as “operation of law” (see below)?

Well, recently, the Bureau issued the final Rule 41F, which affects so-call NFA or gun trusts, among other things:

It [the new rule] also adds a new section to ATF’s regulations to address the possession and transfer of firearms registered to a decedent. The new section clarifies that the executor, administrator, personal representative, or other person authorized under State law to dispose of property in an estate may possess a firearm registered to a decedent during the term of probate without such possession being treated as a “transfer” under the NF A. It also specifies that the transfer of the firearm to any beneficiary of the estate may be made on a tax-exempt basis. (emphasis supplied)

Such transfers are not taxable transfers because they are not “voluntary”; that is, the executor, personal representative, etc. must follow the terms of the will (or trust?) or law. He or she has no choice. That’s all fine and dandy, but are transfers from trust to beneficiaries tax exempt? Come on. Tell us BATFE. You can do it.

In the commentary on the new rule, the Bureau gets a clear as it’s probably going to get in answering that question, when it says:

Transfers of NFA firearms from an estate to a lawful heir are necessary because the deceased registrant can no longer possess the firearm. For this reason, ATF has long considered any transfer necessitated because of death to be involuntary and tax-free when the transfer is made to a lawful heir as designated by the decedent or State law. However, when an NFA firearm is transferred from an estate to a person other than a lawful heir, it is considered a voluntary transfer because the decision has been made to transfer the firearm to a person who would not take possession as a matter of law. Such transfers cannot be considered involuntary and should not be exempt from the transfer tax. Other tax-exempt transfers—including those made by operation of law—may be effected by submitting Form 5. Instructions are provided on the form. (emphasis supplied)

Operation of law would seem to include transfers mandated by language in trusts, trusts which are created under state law, laws that include fiduciary standards that compel trustees to carry out the wishes of the grantor of the trust, whose wishes are stated in the language of the trust. I’m hanging my hat on that.

There are a couple of other things I’d do to make sure that hat fits in every circumstance, but I won’t go into that here.

 

Filed Under: 41F, Administration, Estate Planning, Firearms, Gun Trusts, NFA Trusts, Probate, Trusts, Wills Tagged With: ,

Quote for the Day

February 27, 2016 by Leave a Comment

“Decanting is the act of distributing the assets of an old trust to a new one with more desirable terms. It provides an easy method for correcting errors or ambiguities, adapting a trust to changes in a settlor’s objectives or changes in a beneficiary’s circumstances, taking advantage of new planning opportunities or adding flexibility to a trust.”

Peter J. Melcher, Robert S. Keebler & Steven J. Oshins, “A Guide to Trust Decanting,” Estate Planing & Taxation, (2015)

Filed Under: Decanting, Estate Planning, Quote for the Day, Trusts

What’s on Your Family’s Wish List?

February 26, 2016 by Leave a Comment

I listened to an interesting seminar yesterday titled “Estate Planning in Agriculture: Protecting a Way of Life” sponsored by WealthCounsel.com. Stan Miller and Robert Serio were the presenters. Serio covered the Farm Service Agency (FSA) Subsidy Programs and the Natural Resource Conservation Service (NRCS) Programs. He cautioned attorneys to be careful to not to do anything in an estate plan that would cause their farmer and rancher clients to lose benefits under those programs. Quite interesting. I briefly reported on the take-a-way yesterday. 

Then Miller took over beginning with what he called “The Farm Family Wish List”:

  • Don’t disqualify for USDA subsidy payments and other government benefits,
  • Keep the court system of of the family business,
  • Keep the farm in the family forever,
  • Treat non-farming family members fairly,
  • Avoid the need to liquidate the farm in order to pay for the cost of long-term care, and
  • Avoid estate tax.

To that list, I would add “Avoid capital gains tax on appreciated property.”

Does Stan’s list mirror yours? What would you add to it or subtract from it?

More importantly, what have you done to make sure your wish list becomes a reality?

Filed Under: Business Planning, Estate Planning, Farms and Ranches, Probate, Trusts, Water and Water Rights, Wealth Transfer, Wills Tagged With: , ,

Quote for the Day

February 26, 2016 by Leave a Comment

“Serving as an executor or trustee is neither an honor, nor a game for beginners to play. Acting as an executor or trustee requires technical skills, experience, and an ability to deal with the family members involved. Nevertheless, clients often choose an executor and the trustee without fairly evaluating the needs of the estate or trust against the named fiduciary’s abilities to meet those needs.”

Schlesinger, Edward, Fifty-Two Questions to Ask Before Choosing Your Executor and Trustee, Successful Estate Planning Ideas and Method Service (1986).

Filed Under: Estate Planning, Trusts, Wills

Farm Service Agency (FSA) Subsidy Programs: When 1 + 1 = 1

February 25, 2016 by Leave a Comment

I’ll be brief, and in being brief, I’ll gloss over some details. But here’s the low down. A husband and wife farming couple can receive up to $250,000 annually in FSA program subsidies if they grow corn, soybeans, cotton, rice, and the like AND if they are actively engaged in farming AND if they are at risk of loss. Yes, that’s up to $250,000, but only so long as they are not considered “one entity.” (Yes, I realize that most couples don’t qualify for the maximum and that most receive much less, but this is a brief discussion, remember.)

The FSA treats joint trusts–essentially one trust for two spouses–corporations, and LLCs as one entity. Thus farm couples who fit the bill described in the first paragraph DO NOT want the enter into joint trusts, or they could stand to lose up to $125,000–per year. So if your estate planning attorney suggests a joint trust to you. think twice: will you lose out on farm subsidy payments if you go with a joint trust? If you would, then say no.

Filed Under: Estate Planning, Farms and Ranches, Trusts Tagged With: ,

Two-Year-Old Granddaughters and Estate Planning

February 23, 2016 by Leave a Comment

My entire immediate family was in town for the last five days. My three children, my son-in-law, and my one grandchild–a two-year-old girl with lots to say and not enough words to say it.

Now actually, what I just wrote is true and not true at the same time. What I just described is that part of my immediate family that has my blood flowing through its veins (no, my son-in-law, doesn’t, but you get my point). I also have four sons by marriage, three daughters-in-law, and four more grandchildren, plus two very much on the way. I love them all and treat them as my own. That part of my family–colloquially known as my stepfamily–presents estate planning issues, issues I’ve discussed elsewhere and which I’ll return to in the future.

But today it’s that two-year old. She’s sparked some thoughts on the nature of estate planning. Sure it’s about the immediate future. I want my wife taken care of should I die. I want to pass something on to my children. I was to avoid taxes if possible. And on and on. But what about the two-year old? What do I do about her, if anything?

My daughter, her mother, turns 40 a month from tomorrow. Forty years old. Her little girl won’t be 40 for 38 more years. Will my estate plan be durable and well-thought-out enough to have an impact on her life? I most likely won’t be around then to make it happen. So what can I do?

Two thoughts come to mind: trusts and life insurance. Both tools have more permanence than I do. If set up and funded properly, both can be there when I can’t to make sure my hopes and dreams for my granddaughter are fulfilled. Yes, I could rely on her parents–and I might–but if I absolutely, positively want my hopes for her fulfilled, trusts and life insurance are the tools of choice.

How are you going to insure that your dreams for your family come true?

Filed Under: Blended Families, Estate Planning, Life Insurance, Stepfamilies, Trust Protectors, Trusts
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