.png)
Some attorneys like to refer to a trust as a bucket. Depending on how the trust is drafted, you can retain full control of everything in that metaphorical bucket and stipulate how you would like the contents of it distributed upon your death. A trust is a brilliant way to plan your estate because it allows you to exercise control over your property both during your life and after. A skilled attorney can draft a trust that is specifically tailored to your unique needs, using provisions that are legally sound and that will direct a trustee to distribute your property from the trust "bucket" to whom you want, when you want, the way you want.
All of that, however, is contingent on the fact that the trust maker (referred to as the Grantor) put his or her property in the proverbial bucket to begin with. While this seems intuitive, it is not as simple at one might guess. Different types of property are treated differently under the law. These different types of treatment mean there are at least two considerations for every asset a client owns:
This article will look at several types of property and analyze each with these questions in mind.
Real Estate is probably one of the most commonly owned assets among those looking to create an estate plan. Many own a home as their primary place of residence and have some idea about how they would like to transfer it to their loved ones upon death. Putting your real estate into your trust can be a powerful estate planning tool if done properly.
Each state's law is slightly different, but for the most part there are two ways your real estate will pass upon your death absent directives in a will or trust. The first is referred to as a "right of survivorship." A right of survivorship means that upon one's death, the property will automatically be transferred to a certain individual. Whether the right of survivorship exists and who that individual is depends on the way the property is owned.
One such way real property can be owned is called joint tenancy or, in some states, tenancy by the entirety. In most states, property held as joint tenants passes directly to the other individual named on the deed without the need for probate. Another way real estate can be held is community property with the right of survivorship. Like joint tenancy, community property with the right of survivorship grants another individual—in this instance the spouse of the deceased—full ownership of the property.
The direct transfer to the surviving spouse or the joint tenant may be desirable in some instances. However, in circumstances where the trust maker desires the property to go to more than one individual, it may be undesirable and require more advanced estate planning. Another issue with right of survivorship arises when the surviving spouse has children from a previous marriage or where there is a high likelihood of remarriage. If the second spouse dies without a will or trust, the property would pass to that spouse's children only, and not those of the first spouse. Were that spouse to remarry, upon his or her death the property would pass entirely to the spouse of the second marriage, once again excluding the children of the spouse who died first and had originally had a substantial property interest in the home.
Also be aware that even with a right of survivorship, if a surviving spouse or joint tenant is deemed incapacitated, the property will pass directly to that spouse or joint tenant, but he or she will have no control over it. In such an instance, there would be a probate proceeding called guardianship. Only an authorized guardian of the incapacitated joint tenant could sign the paperwork for the sale of the property. This is yet another reason why holding the property in trust is a more advantageous estate plan than simply relying on the right of survivorship to pass the property upon death.
When one owns real estate outright without a mortgage, they are said to "hold title," to that piece of land and whatever is on it, barring some separate property agreement that designates ownership of its features or resources. This is not to say that one cannot transfer a primary residence encumbered by a mortgage into their trust. One can make such a transfer and federal law allows the transfer to occur without triggering a due-on-sale clause.
In many states, transfer of your real estate into your trust is not a taxable event. However, every state is different, and you should always consult with an estate planning attorney or a Certified Public Accountant as to the tax implications of doing so. In California, for instance, mere transfer of your property into a revocable living trust will not have tax consequences, however upon one's death, a transfer of ownership to anyone other than the surviving spouse will trigger a tax reassessment.
• Garmen St Germain
A brokerage account is an account that allows you to buy and sell a variety of investments, such as stocks, bonds, and mutual funds. Most people are familiar with them by the names of commonly used brokers such as TD Ameritrade, Fidelity, Charles Schwab, or Saturna, to name just a few. Brokerage accounts can, over time, be quite valuable and should absolutely be contemplated in your estate plan.
This answer to this depends on whether a beneficiary is named on the account. Nearly all brokerage accounts allow you to name a transfer-on-death (TOD) beneficiary. More than one beneficiary can be named in which case the account would be split equally among those named. In the absence of named beneficiaries, the account would have to go through the probate court process.
Placement of a brokerage account into a trust provides more precise control over the assets. If, for instance, one wanted to allocate a greater amount of the account to one beneficiary than to another, this could only be accomplished through directives in a trust. Further, with a trust, you can transfer a specific investment account to a particular beneficiary or have the investment accounts liquidated and the proceeds divided among the beneficiaries
Unlike with real estate, transferring brokerage accounts into a trust does not require a great deal of strategy. Transfer of brokerage accounts into a revocable trust does not trigger a taxable event nor is there an adjustment in basis.
Retirement plans are effectively brokerage accounts in that they hold shares of various investment assets. Where they differ dramatically, however, is their tax treatment. 401(k), IRA, 403(b) and 401(a) plans are all common examples of retirement plans. With the exception of a special type of IRA called a Roth IRA, taxes on these plans are deferred and only paid upon distributions, which are not even possible without penalty until 59 ½ and mandatory at age 72.
As with brokerage accounts, these transfer to whom is named as the beneficiary and, in the absence of such a named person or group of people, must go through probate.
One cannot transfer a retirement account like a 401(k) or an IRA into a trust. These must be owned by individuals. It is possible, however, to make the trust the beneficiary of a retirement account upon your death. Just because it is possible, though, does not mean it is recommended. The general rule is that a trust should not be the beneficiary of a retirement account because it is likely that at the point of death, the tax that has been deferred for so long will become due to anyone who is not the spouse of the owner.
If an individual is married, making the surviving spouse the beneficiary is probably the best option from a tax perspective. The IRS has special rules for tax-deferred retirement accounts that apply only to spouses that designated beneficiaries. A spouse who is made the sole beneficiary of an account can become the sole owner of it upon the account owner's death. In such an instance, the spouse now has all the same rights that the original account holder would have had. He or she can deposit money into the account or can choose to roll over the money into their own retirement accounts, all without triggering a taxable event.
Of course, tax is not the only consideration one may have. If there is a desire or need to transfer money from a retirement account to beneficiaries at unequal amounts, as with a brokerage account seen above, a trust is the best way to achieve that.
Bank accounts have a few different ways that they can transfer upon your death. For married individuals, it is quite common to have joint bank accounts. In such an instance, there is no transfer, but the surviving spouse may retain control and use or distribute from it as he or she pleases. As with brokerage accounts, one may name a transfer on death beneficiary of a bank account and may, in fact name more than one. In such an instance, a bank account can pass without probate. Absent a named beneficiary, after the death of both joint owners, the account would need to go through probate.
One problem with merely naming beneficiaries is that it does not control for incapacity. If one is temporarily incapacitated or becomes mentally incapacitated and the jointly owning spouse is not alive, the bank account cannot be accessed, and the court must be involved. Ways to solve for this are either by making a revocable living trust the owner of the account or, perhaps less effective, using a durable or springing power of attorney. One should be discouraged from naming a child as a joint owner of a bank account as a means of planning for incapacity as this makes the account vulnerable to that child's creditors.
Making a bank account owned by your trust does not trigger a taxable event. Therefore there are no tax implications to having your bank account owned by your trust.
Unlike all the assets listed above, Life Insurance is owned for the specific purpose of distributing it upon your death. For this reason, distribution mechanisms are already built in to life insurance: you must name a beneficiary and he or she may will receive the money in the event you die within the terms stated in the insurance agreement. No probate is necessary.
Trust-owned life insurance exists, but it is an estate planning tool designed to avoid paying estate taxes. In the current environment of high thresholds for estate tax exemption, most need not avail themselves of this. However, making the trust the beneficiary of the policy on death is a strategic consideration that goes beyond the world of tax savings.
It is likely the case that your life insurance beneficiary is your spouse if you are married. This is a suitable estate planning mechanism. However, it is prudent to think beyond your spouse's death. If something were to happen to both of you, then you may want to consider naming your children as an alternate beneficiary or a guardian who you have appointed to care for your children. (For more on this, read our blog post titled "Planning for Minor Children in the Event of Incapacity or Death") In either instance, you probably want the same thing: control on how the money is spent.
The problem is that simply naming a beneficiary will afford you no such control. In the case that a child is named, the money would be held in conservatorship until the child turns eighteen or twenty-one and then distributed in one lump sum. This is not ideal for many who would prefer their child reach an age of maturity before receiving a large amount of money. In the event you wish to name your child's guardian as beneficiary, then you also would probably want some stipulations on how the money is spent. A trust is the only mechanism that can afford you such control by making terms on how the money must be spent, when it is distributed, and more. For these reasons, making the trust the beneficiary of a life insurance policy after your spouse is ideal.
Consideration of business interests comes last in this article because it is the most complex. That is not to say that the way business interests pass upon the owner's death and the implications of placing them into a trust are complex. On the contrary, these matters are straightforward with the exception of S corporation shares (discussed below). Business interests pass to one's heirs through probate in the absence of a will or trust and and according to the directives of a will or trust if one exists. Placing them into a trust has, for the most part, no tax implications.
Rather, what makes the passing of business interests complex is that business interests, unlike any of the other property discussed above, are valued in large part based on the very fact that they are owned and run a certain way. A house is a house. It is worth the same whether you own it and live in it or your children do. This cannot be said for a business. A business owner must not fall victim to the mindset that his or her business will be valued after their death the same way it is valued during their lifetime with under their direction.
This is why an estate plan, which this article contemplates, is not enough, on its own, to secure the passing of a business to one's heirs or beneficiaries. Instead, it must be coupled with business succession planning, which is beyond the scope of this article. For more on this, read our article specifically devoted to business succession planning: "Mind My Own Business: Planning for Our Business Once it Leave our Hands". With all of that said, assuming a business succession plan is in place, let us examine the simpler aspect of how business interests pass.
A business succession plan as described above would As noted in the paragraph above, your interest in the business will transfer according to your heirs determined by your state's intestacy laws through the probate process.
This depends on what type of business you own. This article concerns itself with four types of businesses: Sole proprietorships, Partnerships, Limited Liability Companies (LLC's) and Corporations.
.png)
Lorem ipsum dolor sit amet, consectetur adipiscing elit, sed do eiusmod tempor incididunt ut labore. Lorem ipsum dolor sit amet, consectetur elit, sed do eiusmod.
Lorem ipsum dolor sit amet, consectetur adipiscing elit, sed do eiusmod tempor incididunt ut labore. Lorem ipsum dolor sit amet, consectetur elit, sed do eiusmod.
Lorem ipsum dolor sit amet, consectetur adipiscing elit, sed do eiusmod tempor incididunt ut labore. Lorem ipsum dolor sit amet, consectetur elit, sed do eiusmod.
%20(1).png)
Islamically-Compliant Estate Planning for Muslim Families in Texas. Protecting your family’s future while honoring the laws of Allah.
.png)
.png)
.png)
.png)
.png)
.png)
.png)
%20(1).png)
%20(1).png)
.png)