Top 40 Facts About Estate and Trusts

What you should know about your assets

As your family grows, your estate matures and your assets become more substantial, it’s probably time to start thinking about an estate and trust plan. Estate and trust planning is a crucial step for those looking to ensure that their assets are distributed when and how they wish. Need more convincing? Here is our Top 40 List of Facts and Tips about Estate and Trusts.

Trusts

1. A trust avoids probate costs.  The probate process for an estate can be very expensive in terms of probate costs, fees, and attorney charges — especially in California.  If your assets are contained in a revocable living trust instead, you can avoid many of these costs.

2. A trust provides privacy.  Much of the estate probate process is recorded in the public record.  A living trust is private.  Upon your death, there does not need to be announcements in the paper to invite creditors to file claims, to contest your will or to notify disgruntled relatives.  Your beneficiaries do not need to be made public.

3. Ensure your beneficiaries are properly ordered. In California, unless you change the seniority of the beneficiaries of your estate, the order goes: spouse, dependents, parents, siblings, nieces/nephews, grandparents, aunts/uncles and cousins.

4. A trust saves time.  By avoiding potential court delays or judicial interferences, a trust can potentially allow your estate to be settled in a shorter period of time.

5. A trust allows you to keep control.  Your trust document contains instructions for managing your assets, as well as how the funds will be used in the event of your death or incapacity.  Without a trust, while you still get to designate who gets your assets, you do not have a say in what they do with those assets.

6. Reduce estate tax.  With special planning built into your trust agreement, you may be able to reduce any potential estate taxes which would be charged upon your death.

7. Effective pre-nuptial planning.  Any property placed in a trust before you marry remains the property of that trust.  As long as you do not commingle those assets with assets acquired during marriage, a trust can be an effective way for you to keep property separate and control who will receive it.

8. Plan for the possibility of your own incapacity.  While a will is only effective after your death, a trust can be used to control your assets when you are still living but no longer have the capacity to control the assets yourself.

9. Protect against mishandling.  If your beneficiaries don’t have the capability or desire to manage the assets you’ll be giving them, having trustees manage those assets can solve the problem.  A trust will allow access or control those heirs have over their inherited property to be limited.

10. Creditor protection.  Depending on the type of trust, a trust can protect assets from creditors, marriage breakdown, or from those who might influence your beneficiaries.

11. Hold life insurance proceeds outside your estate.  An irrevocable life insurance trust (ILIT) in which an independent trust purchases a life insurance policy can, within certain limitations, result in keeping the life insurance proceeds from being part of your taxable estate.

12. Control distributions for specific purposes.  A trust can be designed to allow distributions for specific purposes, such as for college tuition or health care expenses.

13. Control distributions at specific ages.  A trust can be designed to hold assets while a beneficiary is a minor or a young adult, and then distribute all or a portion of the assets once the beneficiary reaches a certain age.

14. Charitable giving that gives back.  Charitable remainder trusts can be designed to allow the grantor an annual payment during their lifetime, with the balance transferring to a charity when the trust terminates.  The grantor may also receive an income tax charitable deduction based on the charity’s remainder interest when the property is contributed to the charitable remainder trust.

15. Keep assets in your family.  You may be concerned that if your surviving spouse remarries, your assets could end up in the hands of his or her new family rather than your children.  A trust can be used to provide for a surviving spouse during their lifetime, with the remainder of the assets being transferred to the children upon the death of the surviving spouse.

16. Periodically review the titling of your assets.  Once you have established a revocable living trust, be certain to periodically review how your assets are titled.  If your assets are titled to you personally, rather than your trust, you have defeated the purpose of forming the trust in the first place.

17. Consider a trust if you own out-of-state or out-of-country real estate.  If you own assets in states or countries other than your state of residence or your country of citizenship, you may want to consider placing those assets in a trust.  Otherwise your estate may have to be probated in multiple states or countries due to having assets located in that state or the country.  It would also be prudent to meet with local attorneys in the countries you have assets in to ensure proper estate planning is done according to local laws and also to ensure double taxation does not occur at death, due to inconsistencies between estate tax rules that apply to the U.S. and the foreign country.

18. Consider special provisions. If you are married, your living trust can include a provision that will let you and your spouse utilize both of your exemptions, which can save a substantial amount of money for your loved ones down the road.

19. Set up a special needs trust. If one of your heirs requires special assistance, consider setting up a special needs trust. A special needs trust can be set up for a person who receives government benefits so as not to disqualify the beneficiary from such government benefits.

Estate planning tips

20. Consider estate tax portability.  If a deceased taxpayer has a sizable estate that is under the filing threshold for the federal estate tax, a surviving spouse should consider filing an estate tax return to take advantage of portability laws.  Portability allows the surviving spouse to apply a deceased spouse’s unused exemption to their own estate when they pass away. However, an estate tax return must have been filed for the estate of the first spouse to die in order to take advantage of the unused exemption.

21. Have an expert on your side. With the introduction of state-level estate taxation, estate planning strategies have become more complicated in recent years. There are currently 18 states (plus the District of Columbia) that impose either an estate or inheritance tax or both.

22. Get everyone acquainted. Introduce your team of advisors to your successor trustees. Inviting the team of advisors to family meetings is a good common practice and great way to ensure everyone is on the same page.

23. If you die without a will, state law determines who gets your assets.  That may not be whom you would like to receive your assets.  Estate planning is especially important for unmarried couples and blended families, as state law will award assets to biological relatives if there is no will.

24. Review your estate plan on a regular basis, during major life changes and at least every five years.  Heirs may have died or remarried, or the person you chose to administer your estate may longer be capable of doing so.  It is best to review your documents and make sure they are still relevant and still reflect your wishes.

25. Make sure your heirs know where to find your legal documents.  You can keep them in a strongbox at home, or in your lawyer’s vault, or both.  Do not keep them in a safe deposit box in a bank.  Without your will, your heirs may not be able to access the safe deposit box without a court order.

26. Make sure your heirs know where to find your financial information.  Remember that your heirs will need to file your final income tax return, so it is a good idea to make sure that someone knows where you keep your records.

27. Make sure someone knows where to find information about your online accounts.  Often these are overlooked in the estate planning process, but since so much of our lives are online, it is best to be certain someone can access your email and other online accounts after your death in order to handle your correspondence and ensure your accounts are shut down in an orderly fashion.  Also, not closing online accounts containing credit-card information can be an identity theft risk.

28. Make sure your heirs know where to find other key information.  This includes names and contact information for wealth managers, bankers, CPA, insurance agents, doctors, and attorneys.

29. Make a guardianship plan for minor children.  Who will raise your children if both parents are killed in an accident?  It is important to plan for their care, and to plan for how any life insurance payouts and money you leave to your children will be handled for their benefit.

30. Consider carefully who you choose as your executor.  You need to choose someone who will carry out your wishes.  A simple estate can be handled by a friend or relative with the help of an estate lawyer, but a more complex estate may require professional management.

31. Consider a medical power of attorney.  This names someone to make medical decisions for you if you cannot make them for yourself.  It helps avoid the threat of people having conflict over what you may have intended.

32. Consider a living will. Also called an advanced directive.  It provides guidance to the person making medical decisions about what you would want in certain scenarios.

33. Consider a financial power of attorney.  This allows someone to manage your affairs.  It can be limited to certain functions or can be all-encompassing.  Or you can have what is called a springing power of attorney, which only takes effect if a doctor declares you incapacitated.

34. Update the beneficiaries on your retirement accounts, pensions, life insurance, and brokerage accounts.  The beneficiary designations on these accounts control who receives the account, not your will, so it is important to keep these updated so that your account doesn’t get passed to someone you no longer want it to go to, such as an ex-spouse.

35.  Consider keeping an inventory of your assets and financial accounts with your will.  This will assist your executor in gaining control over your assets after you pass, and prevent them from having to dig through all the paperwork in your home to determine which financial institutions they need to reach out to.  This also applies if one spouse handles all the finances.

36. Consider life insurance.  You can skip life insurance if you have no one to support or you have enough money saved to provide for your spouse.  Otherwise, if you are the primary source of income for your family, you should consider buying enough life insurance coverage to meet your family’s expenses when after you are gone.

37. Consider pre-paying your funeral and making your wishes (burial or cremation) clear.  Funerals can be expensive, and typically occur before your executor has control of your assets.  Making arrangements ahead of time can help your children or other heirs deal with a stressful, unexpected, high cost event that they may not have the available funds to cover.

38. Consider organizing a family meeting.  After making all of your estate plans, consider meeting with your family and advising them of your choices.  This does not mean that you need to share all of your financial information with them, simply let them know where they can find the information if something happens to you, along with some idea as to what your wishes are.

39. Consider making annual tax-free gifts in order to reduce your taxable estate.  A gift of up to $14,000 ($15,000 in 2018) can be made by a donor to as many recipients as he or she likes free of federal gift tax.

40. Consider making tuition payments. Payments of tuition made direction to a college or university for the benefit of another, such as a grandchild, are not subject to federal gift tax.

If you have questions about estate and trusts, or want to learn more about how to start your own, contact our experts at 925.271.8700 or at info@ssfllp.com.