Trusts And Estates

The revocable living trust (RLT), is an ever more commonly utilized estate and financial planning tool for the control and disposition of a client’s property. In utilizing the RLT, a client transfers all or substantially all of his/her assets to the trust of which he or she is the trustee.

Reasons for the RLT instead of a conventional Will include: 1) avoidance of probate which is public and can be very time consuming; 2) asset management in the event of incapacity (trust document provides a successor trustee in the event of client incapacity); 3) where the possibility of a contested Will exists and/or where distributees (those who would inherit if there were no Will) will be difficult to determine and/or find; 4) desire for immediate asset distribution; and 5) the ease of amending the RLT as needed.

It should be noted that even where the RLT is utilized, a ‘pour-over’ Will is still appropriate as a catch-all for miscellaneous property not held by the RLT.

In any event, whether a client chooses a Will or RLT or both, experienced and qualified counsel is an absolute necessity.

An important consideration for some individuals is the continuity of a family owned business. When a business is family-owned, there are certain planning opportunities that should be addressed and used for tax savings and efficient distribution. Minority interest ownership, lack of marketability and restricted interests are varied but not mutually exclusive discounting methods that allow an individual effective use of his/her applicable exclusion amount and can facilitate transfers to children intent on remaining in the business. Seamless continuity can be accomplished through shareholder/operating agreements.

Also a significant consideration is the proper valuation and sale/transfer of shares/membership interests. Tax savings and efficiency can be accomplished through the use of various buy-sell arrangements.

Planning for retirement benefits has become increasingly important due to the composition of the average individual’s estate. Next to the residence, retirement accounts are often the largest part of an estate. Appropriate beneficiary designations can save significant income and estate taxes.

In the case of younger children and minors, naming a trust as beneficiary can prevent them from withdrawing most or all of a retirement plan account balance, in effect squandering any income tax deferral benefits. However, naming a trust is a complex issue as the trust must be a ‘see through’ trust to be a designated beneficiary under the Internal Revenue Code and corresponding regulations. If this is done incorrectly, distributions from a plan will be accelerated and the income tax consequences are severe.

Trust planning may also be appropriate where the retirement plan is needed for an individual to make full use of the applicable exclusion amount (discussed above).

IRA and Retirement Benefits Planning is a developing area of law. Accepted planning strategies are often the result of IRS Revenue and Private Letter Rulings.

Planning can be complicated when young children or grandchildren are involved. Parents or grandparents do not want to and should not leave property outright to minors, either during life or under the terms of a Will or trust. Proper trust drafting can effectively help protect a minor’s assets from creditors and more importantly, from the minor. Moreover, even though gifting to a trust would typically require the donor to file a gift tax return, an exception has been created for specific trusts for minors (IRC § 2503). Without this statutory trust, a state’s Uniform Trust/Gifts to Minor’s Act (UTMA/UGMA) will govern and the child/grandchild would receive the property outright at either 18 or 21, much too young in most cases.

When a person dies with a Will, and it becomes necessary to appoint an estate representative (often due to ownership of assets that are not jointly owned) a Probate application to the county Surrogate’s Court is necessary. In that case, the appointed representative is called an Executor. When there is no Will, an Administration application is necessary, and the estate representative is called an Administrator.

The administration of estates and trusts involves effective guidance and counseling of the acting fiduciaries (executors, administrators and trustees). This process will often entail accurate and efficient preparation of appropriate Surrogate’s Court documents, estate tax returns, fiduciary income tax returns, and estate and trust accountings. Prudent guidance is absolutely critical.

We advise executors and administrators on various matters, including: important deadlines, locating and marshaling estate assets, filing of appropriate estate tax and income tax returns, payment of consequential taxes, accountings and distributions to beneficiaries, as well as other post-mortem estate and tax planning.

We advise trustees on various matters, including: communication with beneficiaries, funding, and principal and income considerations, and preparation of appropriate tax returns. We also coordinate our efforts with all appropriate parties, including accounting firms, investment advisors and banks.

When your financial house is not in order, it can cost you and your family dearly. Protect your assets and the people you love with smart estate planning.