Last Will and Testament, Trust, and Living Will Preparation

Will

If a trust is not desired, we will prepare a will at a minimal cost for our clients.

Trust

We will advise client and prepare the Trust Package

A Last Will & Testament, a Revocable Living Trust Agreement, and a Living Will (Power of Attorney for Health Care) are three of the most important documents most adult Americans should have and understand. 

Trust

In General

By placing assets in a Revocable Trust while you are living, your assets will automatically transfer to beneficiaries when you pass away without the need for probate. This will avoid lengthy delays and the public nature of probate. Living trusts allow a person avoid additional probate proceedings in states other than his or her state of domicile. Also, If a person anticipates the will could be challenged, due to the preparation and processes required to establish a trust, the trust may be more difficult to challenge (vs. a will) on theories such as incompetence or undue influence. Additionally, due to the revocable nature, the trust can always be modified based on changed conditions or desires.

Funding the Trust

If a person decides to utilize a living trust, he or she must transfer all of his or her assets to the trust in order to avoid probate completely. If any assets have not been transferred to the trust prior to death, the remainder of the estate will have to go through probate. In some situations the value of the assets may be low enough to permit use of the small estate procedure.  This issue is resolved by creating a “pour over” provision in a will.

Will

A will should be prepared in addition to the Revocable Trust Agreement.  The will shall state that items not identified in the trust will "pour over" into the trust. 

Protecting Assets

For Beneficiaries

A trust may entail transfer of legal title to real or personal property to an individual or entity as the "trustee." A trustee is a fiduciary who is bound by the instructions in the trust instrument regarding the management and distribution of the trust assets. A trust if properly drafted can protect assets from the creditors of a trust beneficiary.  The use of a "spendthrift clause" in a trust bars the trustee from allowing or recognizing any attempted encumbrance, sale or other transfer of an interest in the trust prior to distribution to the beneficiary. 

For Settlor

An Asset Protection Trust (APT) attempts to extend this same kind of protection to the person forming the trust (the "settlor"), i.e. the settlor transfers assets into the APT and continues to derive the use and benefit of the assets as a beneficiary of the trust, while creditors are barred from pursuing the assets of the trust. The APT serves to frustrate creditors, since creditors cannot force distributions or payments from the trust, but are only able to pursue collection from the debtor beneficiary after a distribution or payment is made to the debtor beneficiary.

The idea of allowing a debtor to establish a trust and retain the use and benefits of trust assets while preventing creditors from accessing trust assets to satisfy debts seemed unfair to most states, and for many years the laws of nearly every state prevented this. However, in the 1990's a handful of states, including Alaska and Delaware, changed their laws to permit the formation of APT's to provide protection from the settlor's creditors.  There are, however, limits to such APT's and serious questions about their effectiveness in protecting assets from creditors.

Privacy

With probate, the terms of a will, and the decedent’s assets, become a matter of public record. Living trusts do not always guarantee that a person’s assets will remain free from public scrutiny. For example, in order to open an account for the trust, many banks and brokerage firms require that the grantor provide a copy of the trust agreement.  However after death, there is no court supervision of the Trust nor is there a requirement for accounting.

Taxes

During the lifetime of the grantor (the person who creates the trust), the grantor is treated as the owner of the trust assets. Therefore, all of the income earned by the trust is included in the grantor income. Similarly, when the grantor dies, the assets of the trust are included in the grantor’s estate for federal estate tax purposes. All of the traditional methods of minimizing the federal estate tax (such as use of the unified estate tax credit, the unlimited marital deduction, and charitable deductions) can be incorporated into a living trust.

The estate tax rates range from 45% up to 48%. Your estate gets to take various deductions before applying these rates.

First, it gets a deduction equal to the amount of property or cash passing to your spouse. It also gets a deduction equal to the amount of property or cash passing to a qualified charity. In addition to both of those deductions, it gets what is effectively a $1.5 million standard exemption for all other property. (Under current law, that amount is increasing to $2 million in 2006 and $3.5 million in 2009. In 2010, the estate tax will be repealed, but is scheduled to be reinstated the next year with a $1 million exemption.)

Federal Transfer Tax 2001 - 2009

Each taxable gift you make during your lifetime uses up some of your estate tax exemption. If you make less than $1 million of taxable gifts during your life, the amount of taxable gifts you have made is simply added to your estate total when you die, and that's when you pay tax on them. If you make more than $1 million of taxable gifts, you have to start paying taxes on them during your life.

This system suggests two obvious ways to save estate taxes: Leave your entire estate to either your spouse or charity. But it also suggests a few more subtle ways, too.

1. Leave $1.5 million to a Bypass Trust, and the rest to your spouse.

If you leave everything to your spouse, you get a full marital deduction, but you waste your $1.5 million exemption. By leaving the exemption amount to a trust designed to bypass your spouse's estate, you can save hundreds of thousands of dollars in estate taxes.

Other Considerations

Powers of Attorney

Durable Power of Attorney

This document is used to appoint someone to handle your assets if you become incapacitated. At a minimum, a power of attorney should include the power to:

• Manage all personal assets
• Handle Business Issues

You don’t need to transfer any assets at the time you sign a power of attorney, but it’s a good idea to keep the person you’ve chosen informed about your ongoing financial matters.

Durable Power of Attorney for Health Care

This document is used to dedicate someone to make health care decisions for you when you are incapacitated. Decisions can be made now regarding your medical and financial situation should you become incapacitated later. 

Guardianship of Children or Animals

These decisions should be made as part of estate planning

Jointly Owned Property, Life Insurance, and Retirement Benefits

Jointly owned property passes automatically to the surviving joint owners without going through probate. Similarly, life insurance proceeds and retirement benefits pass directly to the designated beneficiaries. A life estate deed also will pass property to the remainder person without going through probate. So will other forms of ownership, such as a "pay on death" account.

Death Expenses

The trust should be responsible for paying the grantor’s debts, funeral expenses, legal fees, or death taxes.

 Phone:  909.941.2558
 Fax:        909.941.3203