What Estate Planning Documents Should I Get?

What Estate Planning Documents Do I Need

A good estate plan consists of many different components, including what happens to your assets and who should act on your behalf if you are unable to. At a bare minimum, there should be two main components: a last will and testament and a durable power of attorney. In addition to these parts, you can add things such as a trust and even medical directions.

Last will and testament

A will gives you the power to decide what is in the best interests of your children and pets after you’re gone. It also can help you determine what will happen to possessions with financial or sentimental value. It typically names an executor someone who will be in charge of following your directions. Finally, you can include any funeral provisions. Use your will to name guardians for those under your care, including minor children and pets. Designate any assets you are leaving for their care. In the absence of a last will and testament, a probate court will name an executor typically a spouse or grown child for your estate. Probate proceedings are a matter of public record. So keep private information passwords, for example — out of your will, as that information could become part of a public document.

Revocable living trust

A living trust is another tool for passing assets to heirs while avoiding potentially expensive and time-consuming probate court proceedings. You name a trustee perhaps a spouse, family member or attorney to manage your property. Unlike a will, a trust can be used to distribute property now or after your death. If you have substantial property or wealth, a trust can provide tax savings.

Beneficiary Designations

When you purchase life insurance or open a retirement plan or bank account, you’re often asked to name a beneficiary, which is the person you want to inherit the proceeds when you die. These designations are powerful, and they take precedence over instructions in a will. Keep beneficiary designation papers with your estate planning documents. Review and update them as your life changes.

Durable Power Of Attorney

A durable power of attorney allows you to choose someone to act on your behalf, financially and legally, in the event that you can’t make decisions. Don’t put off this chore. You must be legally competent to assign this role to someone. Older people worried about relinquishing control sometimes put off the task until they are no longer legally competent to do it.

Health Care Power Of Attorney And Living Will

To ensure that someone can make medical decisions for you in the event you become incapacitated, establish a health care power of attorney also called a durable health care power of attorney. This is different from the previously mentioned durable power of attorney for financial and legal affairs. A living will lets you explain in advance of your death what types of care you do and do not want, in case you can’t communicate that in the future. It’s strictly a place to spell out your health care preferences and has no relation to a conventional will or living trust, which deals with property. You can use your living will to say as much or as little as you wish about the kind of health care you want to receive.

Digital Asset Trust

You can use a digital asset trust to decide what to do with your electronic property, including your computer hard drive, digital photos, information stored in the cloud and online accounts such as Facebook, Yahoo, Google and Twitter. Create a separate list of your passwords.

Letter Of Intent

For instructions, requests and important personal or financial information that don’t belong in your will, write a letter. Use it to convey your wishes for things you hope will be done. For example, you may have detailed instructions about how you want your funeral or memorial service to be performed. No attorney is needed. The letter won’t carry the legal weight of a will.

List Of Important Documents

Make certain your family knows where to find everything you’ve prepared. Make a list of documents, including where each is stored. Include papers for:
• Life insurance policies
• Annuities
• Pension or retirement accounts
• Bank accounts
• Divorce records
• Birth and adoption certificates
• Real estate deeds
• Stocks, bonds and mutual funds

Make a will

In a will, you state who you want to inherit your property and name a guardian to care for your young children should something happen to you and the other parent.

Consider a trust

If you hold your property in a living trust, your survivors won’t have to go through probate court, a time-consuming and expensive process.

Make health care directives

Writing out your wishes for health care can protect you if you become unable to make medical decisions for yourself. Health care directives include a health care declaration (“living will”) and a power of attorney for health care, which gives someone you choose the power to make decisions if you can’t. (In some states, these documents are combined into one, called an advance health care directive.)

Make a financial power of attorney

With a durable power of attorney for finances, you can give a trusted person authority to handle your finances and property if you become incapacitated and unable to handle your own affairs. The person you name to handle your finances is called your agent or attorney-in-fact (but doesn’t have to be an attorney).

Protect your children’s property.

You should name an adult to manage any money and property your minor children may inherit from you. This can be the same person as the personal guardian you name in your will.

File beneficiary forms

Naming a beneficiary for bank accounts and retirement plans makes the account automatically payable on death to your beneficiary and allows the funds to skip the probate process. Likewise, in almost all states, you can register your stocks, bonds, or brokerage accounts to transfer to your beneficiary upon your death.

Consider life insurance

If you have young children or own a house, or you may owe significant debts or estate tax when you die, life insurance may be a good idea.

Understand estate taxes

Most estates more than 99.7% won’t owe federal estate taxes. Also, married couples can transfer up to twice the exempt amount tax-free, and all assets left to a spouse (as long as the spouse is a U.S. citizen) or tax-exempt charity is exempt from the tax.

Cover funeral expenses.

Rather than a funeral prepayment plan, which may be unreliable, you can set up a payable-on-death account at your bank and deposit funds into it to pay for your funeral and related expenses.

Make final arrangements.

Make your end-of-life wishes known regarding organ and body donation and disposition of your body burial or cremation.

Protect your business.

If you’re the sole owner of a business, you should have a succession plan. If you own a business with others, you should have a buyout agreement.

Store your documents.

Your attorney-in-fact and/or your executor (the person you choose in your will to administer your property after you die) may need access to the following documents:
• Will
• Trusts
• insurance policies
• real estate deeds
• certificates for stocks, bonds, annuities
• information on bank accounts, mutual funds, and safe deposit boxes
• information on retirement plans, 401(k) accounts, or IRAs
• information on debts: credit cards, mortgages and loans, utilities, and unpaid taxes
• information on funeral prepayment plans, and any final arrangements instructions you have made.

If you die without a will, the state law (e.g. probate court) dictates how your property is distributed. The court will also decide who will be your executor and who will be named the guardian for your children. Without a will, depending on how complex your estate is, the probate process could take a long time, often years. Which just creates an additional challenge for your family when they’re grieving? A will makes this process go faster. The bills can add up quickly court costs, probate expenses, fees for attorney, accounting, and appraisal. These can take a chunk of your estate. Having a will in place, especially combined with a trust, often significantly reduces probate expenses. Figuring out where to put your estate planning documents is critical. Why? Because you want it to be easy for someone to find them after you die. Wherever you put them, a trusted relative or friend should be made aware of their location.
Potential places for storage of estate planning documents include:
• Fireproof and waterproof at-home safe.
• Safe deposit box at a bank. Keep in mind, though, that a surviving loved one or friend might have a hard time retrieving documents stored in your safe deposit box. That’s because the bank might require a court order to open the box after you die.
• Probate court or court administrator’s office in your community. This can be done at no charge or a small fee.
• Office of the attorney who prepared the documents.
• Online document storage service.
How Do You Store Important Files Digitally?
Thanks to technology, you can store estate planning documents and other important records digitally. Among the options for digital storage:
• Cloud-based platform like Dropbox, Google Drive or Microsoft OneDrive.
• A portable storage device like a USB drive or external hard drive store in a safe location.
• Document management system, which is software that stores and organizes your records.

If you decide to store estate planning documents on your computer, be sure to encrypt the files where they’re kept. Encryption lets you lock out people who aren’t authorized to access the documents. Usually, a special password will be needed to access encrypted files. You’ll want to share the password with the executor of your estate. It may be wise to also share it with a trusted loved one or a friend in case your executor cannot carry out their duties. Estate planning can give you peace of mind by specifying how you want your wishes to be carried out after you die, such as who you want to have your assets. But to preserve that peace of mind, you should store your estate planning documents in a safe place. In addition, you should make sure it is known where these documents are stored and how to access them. You won’t be able to provide that help after you’re gone, and an estate plan does no good if it’s lost.

Importance Of Original Estate Planning Documents

A decedent’s original will is required to commence probate. Without the original it may be difficult to impossible to probate the decedent’s estate according to the terms of the missing will. When the terms of a missing will can be established, such as through a copy or a duplicate original, then one may try to probate the will that was lost in a fire. However, there is a presumption that if the original was last in the possession of a deceased testator who was competent until the time of death that the missing was revoked by the testator. Preserving an original will is, therefore, very important. Keeping the original in a bank safe deposit box is a good approach, provided someone has a key to the box or is named as a co-owner or co-signatory. With a key to the decedent’s bank deposit box and the decedent’s death certificate, the key holder, upon identification, can access the safe deposit and take possession of any original will. When the original will is retrieved, a copy of the will must be left in the safe deposit box (along with the rest of the contents), the original will must be lodged with the superior court in the county where the decedent resided at death. A copy must be mailed to the person named in the will as executor. Unlike a will, a decedent’s original trust document (with amendments) is neither required to be recorded with any county nor required to be submitted to the court where the decedent resided at death. Nonetheless, it is still best to safeguard the original trust. Normally, a trust and will are kept together. The same applies to any original Trustee Affidavits and Trustee Resignations documents. The original Power of Attorney to manage property, financial, and legal affairs must be maintained. The original is required to be presented at the proper county recorder’s office if the Agent seeks to transfer real property using the Power of Attorney. Other recipients may accept a certified copy of the original, but that process still requires presenting the original document to a notary public or a licensed attorney for copying and certification. Except for the county recorder’s office, the necessity to always present the original power of attorney can be greatly reduced by the power of attorney providing that an unverified photocopy is as good as the original. If the Power of Attorney provides that it is immediately effective when signed, the original document should be kept safe against abuse until such time as its proper use is needed. Some people keep the original Power of Attorney with a trusted person other than the agent with instructions that Custodian to provide the Agent with the Power of Attorney in the event of their incapacity.

Estate Planning Lawyer

When you need a Utah Estate Planning Lawyer, please call Ascent Law LLC for your free consultation (801) 676-5506. We want to help you.

Michael R. Anderson, JD

Ascent Law LLC
8833 S. Redwood Road, Suite C
West Jordan, Utah
84088 United States

Telephone: (801) 676-5506

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Good Resources On Estate Planning Trusts

Good Resources On Estate Planning Trusts

Trusts can be effective tools for assisting and making life easier for a surviving spouse. They can also be used as part of a strategy to reduce estate settlement costs. People might do an excellent job of managing their assets when they are active and alert, but when their health fails, they might wish to assign the management of their assets to a trustee through a trust instrument. If the estate of the first to die is large and will flow directly to the surviving spouse, especially if the surviving spouse is elderly and inexperienced in investing and managing assets, a trust might be the most desirable method of meeting the surviving spouse’s and children’s present and future interests. A trust is a legal relationship. Unlike a corporation, a trust is not considered to exist as an entity separate from the people that own it and control it. A trust is created when it is signed, or it can be created orally. It can be funded anytime. In a trust, assets are entrusted to a trustee who holds legal title and manages the assets until they are distributed to the eventual beneficiary. The terms of the trust describe how income from the assets and principal are to be distributed and managed. The trustee can be a bank, a trust company, another professional, or one or more family members (spouse, son, daughter, or self).

Usually the trustee is someone trusted by the trust creator (the settler or grantor). The trustee should be capable of managing the assets entrusted to him or her by the creator, until the assets are distributed to the benefactors. Beneficiaries can receive income from a trust during the trust’s existence, and/or receive assets when the trust is dissolved. When a trust is set up by spouses, the surviving spouse usually receives the income from the assets that are in the trust; assets then go to the children when the trust is dissolved. When a trust is created, the creator determines the conditions under which the trust will be dissolved. In the case of creating a trust with a child as the beneficiary, some creators wish the trust to be dissolved when the child is capable of wisely spending or investing his or her inheritance. A trust can also be dissolved when the surviving spouse dies. In both instances, the benefactors can receive income from the assets in the trust, and have limited access to the principal, if needed, before the trust is dissolved.

If assets are to be transferred to a trustee, titled assets (cars, trucks, stocks, bonds, real estate, savings/checking accounts, certificates of deposit, insurance policies, retirement accounts, etc.) should be retitled, as titles need to be changed with each respective titling agency. Some banks will institute an early withdrawal penalty if the title of a certificate of deposit is changed before the certificate matures. Assets without titles need to be signed over to the trust. Then, at the termination of the trust, assets need to be retitled and transferred back to beneficiaries. In regards to transferring assets, the same processes that happen through probate occur with a trust. Transferring property through a trust rather than through probate is not necessarily simpler and might or might not allow the heirs to receive a larger portion of the inheritance, but the trust process is usually quicker. However, transfer of property through a trust is more private, as there is no listing of assets and value of assets in the probate court or newspaper. Because the trust is a legal relationship not separate from the people that own and control it, assets transferred to a trust need to be put into the name of the trustee, not into the name of the trust. Transfers of title into the name of the trust might be a void transfer.

Types of Trusts

Assets can be transferred into a trust directly while one is living (these trusts are known as “inter-vivo” or “living trusts”), or assets can be directed into a trust by one’s will (these are called “testamentary trusts”). Living trusts that can be changed or revoked by the settler are called “revocable,” while those that cannot be changed or revoked are called “irrevocable.”

Revocable Living Trusts

Property placed in a revocable living trust can be returned to the creator by revoking the trust. Since the creator has the power to pull the assets back, when the creator’s estate is settled, assets in a revocable living trust are inventoried, appraised, and included in and federal estate tax calculations.

Irrevocable Living Trusts

When an irrevocable living trust is created, the creator has given the assets to the trustee. The creator no longer has control over the assets, or the legal right to control them in the future, unless the creator is the trustee. Assets in an irrevocable living trust are not subject to estate taxes unless the creator is also the trustee or has retained other rights.

Totten Trust (Payable-on-Death Accounts)

This is even easier than setting up a revocable living trust. If you have a bank account, you can simply turn it into a Totten trust by signing a form that your bank provides that designates the beneficiaries that you wish to receive the contents of the account. Totten trusts avoid probate and are very efficient at transferring property to your beneficiaries. In addition, Totten trusts can often be set up to pass securities (stocks and bonds) as well as bank accounts.

Trusts have been used to minimize federal estate taxes while providing security to a surviving spouse. One strategy to do this is to create a trust and write the wills of both spouses so that their assets pour over into the trust when the first spouse dies. In other words, the assets are willed to the trust rather than to the surviving spouse. The surviving spouse then gets the income from the trust and has limited rights to the principal, but the property in the trust is not in the surviving spouse’s estate. This is one way to have the first to die spouse’s assets pass through estate settlement and be charged estate settlement costs only once instead of twice if passed from the first to die to the survivor. This strategy no longer reduces federal estate taxes due to the portability of the federal estate tax exclusion, but it still reduces other estate settlement costs. A new provision in the federal estate tax law might reduce the use of trusts in estate planning.

Another very effective use of trusts is to make the trust the owner and beneficiary of life insurance. This might reduce estate settlement costs since the proceeds are not subject to federal estate taxes (in certain cases), appraisal, probate costs, or attorney fees (in certain cases). To minimize estate taxes yet provide for a surviving spouse, a trust might be utilized. However, if a trust is used to avoid probate, it should be done in the appropriate situations and for the correct reasons. One appropriate reason for living trusts is privacy. When an estate is settled, property being transferred, along with its appraised value, is often listed in the newspaper and at the county courthouse. However, if the property has already been transferred to a trust, it is not owned by the deceased at the time of death; therefore, it is not listed in the newspaper or at the courthouse. Living trusts are only one of several ways to avoid probate. Other methods include joint ownership of real property with rights of survivorship (JTRS), owning property such as retirement accounts with named beneficiaries, having payable on death (POD) accounts, giving before death, and owning life insurance policies with a named beneficiary. Probate might also be avoided by using a transfer on death (TOD) designation for stocks, bonds, other securities, real estate, and automobiles. Unfortunately, the laws of Ohio are not uniform as to each of these asset categories. For example, with any security, you can specify that if the intended beneficiary predeceases you, the predeceased beneficiary’s share will pass to the beneficiary’s lineal descendants, per stripes. However, with real estate, you have to specifically name the contingent beneficiaries. Accordingly, if one of your children has another child after you set up the deed, you will need to prepare a new deed to reflect a new contingent beneficiary. If these limitations are not of concern, you should be able to avoid probate for all titled assets without going to the expense of a trust.

Typical probate fees are estimated to be between $150 and $400. Probate fees are negligible, so avoiding probate to avoid probate fees might not be appropriate. Executor fees are another settlement cost. An executor in the probate process performs functions similar to those of a trustee for a trust. In general, the more time spent and the more management required of a trustee, the higher the fees (assuming the fees are accepted). Assuming that a family member is the executor or trustee, the fees are not a concern. However, trustee fees might be higher if a bank or trust company performs the function. Avoiding probate to avoid executor fees is not advantageous since trustee fees might be as much as or higher than executor fees. An appraisal is needed if tax forms have to be filed. An appraisal might be necessary when assets are placed into a living irrevocable trust, as gift tax forms might need to be filed. So the appraisal fee is often incurred even if probate is avoided with a trust instrument. Attorney fees are often a large portion of estate settlement costs. However, attorney fees will be charged when property is passed on to others through the probate process or through a trust. Also, to settle an estate, some attorneys charge by the hour. Others base their fees on a percentage of probate property only, and some base their fees on both probate and non-probate property. Although the percentage charged for non-probate property is generally lower than the percentage charged for probate property, one cannot automatically assume that non-probate property will not be included in the attorney fee calculation. Attorneys also charge to create and dissolve trusts. Property must be retitled into the trust when it is put in, and it must be retitled out of the trust when the trust is dissolved. Retitling might or might not be included in the fee charged by the attorney who created the trust. Therefore, attorney fees might not be reduced when avoiding probate by the use of a living trust. If you are considering a living trust to save attorney fees, consider the total cost of creating and dissolving the trust. In general, with a living trust, you pay attorney fees up front, but you also pay after death to dissolve the trust. If assets are handled by probate, the court oversees their retitling and transferring. If assets are put into a trust, an attorney has to do their retitling and transferring when the trust is dissolved.

Steps to an Estate Plan

A checklist to help you take care of your family by making a will, power of attorney, living will, funeral arrangements, and more. Here is a simple list of the most important estate planning issues to consider.
• Make a will: In a will, you state who you want to inherit your property and name a guardian to care for your young children should something happen to you and the other parent.
• Consider a trust: If you hold your property in a living trust, your survivors won’t have to go through probate court, a time-consuming and expensive process.

• Make health care directives: Writing out your wishes for health care can protect you if you become unable to make medical decisions for yourself. Health care directives include a health care declaration (“living will”) and a power of attorney for health care, which gives someone you choose the power to make decisions if you can’t. (In some states, these documents are combined into one, called an advance health care directive.)
• Make a financial power of attorney: With a durable power of attorney for finances, you can give a trusted person authority to handle your finances and property if you become incapacitated and unable to handle your own affairs. The person you name to handle your finances is called your agent or attorney-in-fact (but doesn’t have to be an attorney).
• Protect your children’s property: You should name an adult to manage any money and property your minor children may inherit from you. This can be the same person as the personal guardian you name in your will.
• File beneficiary forms: Naming a beneficiary for bank accounts and retirement plans makes the account automatically “payable on death” to your beneficiary and allows the funds to skip the probate process. Likewise, in almost all states, you can register your stocks, bonds, or brokerage accounts to transfer to your beneficiary upon your death.
• Consider life insurance: If you have young children or own a house, or you may owe significant debts or estate tax when you die, life insurance may be a good idea.
• Understand estate taxes: Most estates more than 99.7% won’t owe federal estate taxes. For deaths in 2017, the federal government will impose estate tax at your death only if your taxable estate is worth more than $5.49 million. (This exemption amount rises each year to adjust for inflation.) Also, married couples can transfer up to twice the exempt amount tax-free, and all assets left to a spouse (as long as the spouse is a U.S. citizen) or tax-exempt charity is exempt from the tax.
• Cover funeral expenses: Rather than a funeral prepayment plan, which may be unreliable, you can set up a payable-on-death account at your bank and deposit funds into it to pay for your funeral and related expenses.
• Make final arrangements: Make your end-of-life wishes known regarding organ and body donation and disposition of your body burial or cremation.
• Protect your business: If you’re the sole owner of a business, you should have a succession plan. If you own a business with others, you should have a buyout agreement.
• Store your documents: Your attorney-in-fact and/or your executor (the person you choose in your will to administer your property after you die) may need access to the following documents:
 Will
 Trusts
 insurance policies
 real estate deeds
 certificates for stocks, bonds, annuities
 information on bank accounts, mutual funds, and safe deposit boxes
 information on retirement plans, 401(k) accounts, or IRAs
 information on debts: credit cards, mortgages and loans, utilities, and unpaid taxes
 Information on funeral prepayment plans, and any final arrangements instructions you have made.

The Importance of Estate Planning

Many people believe that having an estate plan simply means drafting a will or a trust. However, there is much more to include in your estate planning to make certain all of your assets are transferred seamlessly to your heirs upon your death. A successful estate plan also includes provisions allowing your family members to access or control your assets should you become unable to do so yourself.

Here is a list of items every estate plan should include:
 Will/trust
 Durable power of attorney
 Beneficiary designations
 Letter of intent
 Healthcare power of attorney
 Guardianship designations
In addition to these six documents and designations, a well-laid estate plan also should consider the purchase of insurance products such as long-term care insurance to cover old age, a lifetime annuity to generate some level of income until death, and life insurance to pass money to beneficiaries without the need for probate.

Get Legal Help Finding the Right Estate Plan for You

Probate laws are some of the oldest on the books. While the terminology and concepts may seem archaic, the good news is that you don’t have to figure this all out on your own. There are estates planning attorneys who can help you map out your estate plan and draft important documents. Get started on planning your estate by contacting an experienced estate planning lawyer.

Free Consultation with a Utah Estate Lawyer

If you are here, you probably have an estate issue you need help with, call Ascent Law for your free estate law consultation (801) 676-5506. We want to help you.

Michael R. Anderson, JD

Ascent Law LLC
8833 S. Redwood Road, Suite C
West Jordan, Utah
84088 United States

Telephone: (801) 676-5506

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4.9 stars – based on 67 reviews


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When are Marital Trusts Used?

when are marital trusts used

In this article, we’re going to talk about an aspect of trust law and how it applies to you and your family. We’ve recently discussed when a special needs trust is used and tax consequences of trust distributions.

A mаritаl truѕt (аlѕо knоwn аѕ a mаritаl dеduсtiоn truѕt) takes advantage of provisions within the fеdеrаl еѕtаtе tаx lаwѕ that аllоw fоr рrореrtу to раѕѕ frоm a dесеdеnt (someone who hаѕ diеd) to a surviving ѕроuѕе withоut bеing taxed. Altеrnаtivеlу, iѕ a fiduсiаrу relationship between a truѕtоr аnd truѕtее fоr thе bеnеfit оf a ѕurviving ѕроuѕе and thе mаrriеd соuрlе’ѕ heirs. Alѕо саllеd an “A” truѕt, a mаritаl truѕt gоеѕ intо еffесt when thе firѕt ѕроuѕе diеѕ. Aѕѕеtѕ are mоvеd intо the truѕt uроn dеаth аnd thе income generated bу thе аѕѕеtѕ gоеѕ tо thе ѕurviving spouse. Undеr ѕоmе аrrаngеmеntѕ, thе ѕurviving ѕроuѕе саn also rесеivе рrinсiраl payments. Whеn thе ѕесоnd ѕроuѕе diеѕ, thе trust passes tо its designated heirs.

Thеrе are a fеw tуреѕ оf trusts аnd рrоviѕiоnѕ thаt ԛuаlifу аѕ mаritаl truѕtѕ:

CREDIT SHELTER TRUST

Thе credit ѕhеltеr trust iѕ thе most common type оf marital truѕt. Undеr a credit shelter truѕt (аlѕо саllеd an AB truѕt), whеn thе firѕt ѕроuѕе dies, thе trust iѕ ѕрlit intо twо ѕераrаtе truѕtѕ: Truѕt A (ѕоmеtimеѕ knоwn аѕ the Family Truѕt) will contain thе рrореrtу оf the firѕt ѕроuѕе to diе, аnd Truѕt B will hоld thе property оf the surviving spouse.

When thе first ѕроuѕе diеѕ, thе property in Truѕt A tесhniсаllу gоеѕ tо named bеnеfiсiаriеѕ. Hоwеvеr, thе ѕurviving ѕроuѕе uѕuаllу retains thе right tо uѕе the property fоr lifе. Whеn thе ѕurviving ѕроuѕе diеѕ, the рrореrtу in Trust B раѕѕеѕ tо the bеnеfiсiаriеѕ.

Thiѕ technique rеduсеѕ the likеlihооd that the surviving ѕроuѕе’ѕ еѕtаtе will bе taxable, bесаuѕе thеir truѕt (trust B) оnlу contains part оf thе оriginаl еѕtаtе, but thеу ѕtill retain thе right tо uѕе thе рrореrtу in truѕt A.

 

QTIP TRUST

A qualified tеrminаblе intеrеѕt property (QTIP) truѕt allows the decedent to trаnѕfеr the еntirе principal of the truѕt tо someone bеѕidеѕ the ѕurviving ѕроuѕе, but givеѕ the spouse аll the inсоmе frоm thе truѕt fоr life.

Thеѕе tуреѕ оf truѕtѕ are mоѕt often used by people in a ѕесоnd mаrriаgе. If a husband hаѕ сhildrеn from a рrеviоuѕ mаrriаgе, and wants thе рrореrtу from hiѕ estate tо pass tо thоѕе сhildrеn whеn hе diеѕ, but аlѕо desires to ensure thаt hiѕ surviving spouse will bеnеfit frоm thе estate for thе rеѕt оf hеr lifе, thеn this type of trust mау bе аррrорriаtе.

Although the truѕt iѕ сrеаtеd before thе dеаth оf thе settlor (thе реrѕоn whо created thе truѕt), thе truѕt only qualifies as a QTIP truѕt if the ѕurviving spouse decides tо trеаt thе рrореrtу аѕ ԛuаlifiеd terminable intеrеѕt property оn thеir еѕtаtе tаx return (whiсh qualifies fоr the mаritаl dеduсtiоn).

 

LIFE ESTATE WITH POWER OF APPOINTMENT

Thе ѕеttlоr can аlѕо ԛuаlifу fоr thе mаritаl dеduсtiоn bу lеаving the rеѕiduе of thеir еѕtаtе in trust tо their ѕurviving spouse, whо will bеnеfit from any income gеnеrаtеd bу the truѕt, аnd will, upon death, diѕtributе thе рrinсiраl оf the truѕt to thе beneficiaries nаmеd in thе ѕurviving ѕроuѕе’ѕ will.

Thiѕ аrrаngеmеnt iѕ created by a рrоviѕiоn in thе will оf thе dесеdеnt. It givеѕ thе ѕurviving spouse роwеr оf арроintmеnt: the аuthоritу tо dispose оf рrореrtу liѕtеd in thе will аѕ thеу ѕее fit.

A lifе еѕtаtе with роwеr оf appointment is a simpler arrangement than a QTIP truѕt or a сrеdit shelter truѕt, but it givеѕ the settlor less соntrоl оvеr which bеnеfiсiаriеѕ will ultimаtеlу rесеivе thеir estate, аnd it doesn’t carry some of thе tax advantages оf a credit ѕhеltеr trust.

One саn аlѕо mаkе use of thе mаritаl deduction bу placing a ѕimрlе diѕtributiоn оutright сlаuѕе in thеir living truѕt, which will allow fоr the ѕurviving spouse to gаin full ассеѕѕ to (аnd full control of) all рrореrtу within thе trust uроn thе death оf thе ѕеttlоr.

 

HOW DO QTIP TRUSTS COMPARE TO MARITAL DEDUCTION TRUSTS?

If you diе first but wаnt to dеtеrminе whо rесеivеѕ the trust рrореrtу after your ѕроuѕе dies, соnѕidеr uѕing a Quаlifiеd Terminable Interest Property trust, соmmоnlу knоwn bу its acronym as the QTIP truѕt. A QTIP truѕt ореrаtеѕ much thе ѕаmе as a mаritаl dеduсtiоn truѕt, with one important exception: Yоu, nоt your spouse, ѕресifу whо rесеivеѕ thе rеmаining property in thе truѕt аftеr уоur ѕроuѕе dies.

When ѕhоuld уоu соnѕidеr uѕing a mаritаl dеduсtiоn truѕt inѕtеаd оf a QTIP, оr vice versa? Consider thе fоllоwing: Suppose thаt you аnd уоur spouse wеrе only mаrriеd оnсе (to each other); you have a hарру, contented mаrriаgе; and bоth your children act likе they ѕtерреd out of a 1950ѕ or early 1960ѕ TV ѕhоw, ѕuсh аѕ Ozziе аnd Hаrriеtt or Leave It to Bеаvеr. You bоth wаnt thе оthеr рrоvidеd for nо matter whо diеѕ first аnd wаnt to set uр some tуре оf trust to dеlау оr diminiѕh federal estate tаxеѕ, but thеn after thе ѕесоnd spouse dies, уоu bоth wаnt thе remainder tо gо tо уоur сhildrеn.

In thiѕ case, either a QTIP trust or a mаritаl dеduсtiоn trust рrоbаblу wоrkѕ еԛuаllу as wеll, bесаuѕе уоu bоth аgrее (at lеаѕt for nоw) аbоut how уоu еvеntuаllу want to distribute thе rеmаining рrореrtу in уоur еѕtаtеѕ.

“If уоu ѕеt uр a mаritаl dеduсtiоn truѕt аnd уоu diе firѕt, уоur ѕроuѕе саn lаtеr designate уоur twо сhildrеn аѕ еԛuаl beneficiaries оf thе рrореrtу lеft in thе truѕt. Or, perhaps one of уоur twо сhildrеn mаkеѕ millions оf dоllаrѕ in buѕinеѕѕ оr in the ѕtосk market; уоur ѕроuѕе can dесidе tо lеаvе thе еntirе leftover еѕtаtе tо thе оthеr сhild who wаѕn’t ԛuitе ѕо fortunate or skilled. Whatever the rаtiоnаlе, a marital dеduсtiоn truѕt аllоwѕ thе bеnеfiсiаrу-dеѕignаtiоn to be delayed аѕ lоng аѕ роѕѕiblе”.

Nоw соnѕidеr thе fоllоwing, hоwеvеr. Yоu аnd уоur сurrеnt ѕроuѕе аrе each оn уоur ѕесоnd mаrriаgе, аnd you each hаvе сhildrеn from уоur firѕt mаrriаgе. Yоu аnd уоur ѕроuѕе’ѕ first-marriage children (to рut it dеliсаtеlу) dоn’t ԛuitе ѕее eye tо еуе. Thе word “frееlоаdеrѕ” соmеѕ to mind every timе you hear thеir nаmеѕ, but your spouse thinkѕ оf those first-marriage оffѕрring аѕ “my аngеlѕ.”

Rеgаrdlеѕѕ оf уоur cool relationship with уоur ѕроuѕе’ѕ сhildrеn, уоu аnd your spouse hаvе a happy mаrriаgе, аnd уоu want tо рrоvidе fоr уоur ѕроuѕе if уоu diе firѕt. And, bесаuѕе уоu bоth are fаirlу well off finаnсiаllу, a mаrriаgе-оriеntеd truѕt mаkеѕ ѕеnѕе to delay estate tаx imрасtѕ.

But dо уоu wаnt уоur ѕроuѕе tо decide whаt hарреnѕ with аnу lеftоvеrѕ frоm уоur еѕtаtе uроn his оr hеr dеаth, as wоuld be thе саѕе in a mаritаl deduction truѕt? Probably nоt.

A QTIP truѕt еnаblеѕ уоu to dеѕignаtе whаt happens to lеftоvеrѕ. Aftеr аll, this estate is уоurѕ, аnd fоr all intеntѕ аnd purposes уоu аrе just “lоаning” it to your second ѕроuѕе for thе durаtiоn оf hiѕ or her lifе if you die firѕt. Aftеrwаrdѕ, уоu wаnt thе lеftоvеrѕ tо gо tо уоur сhildrеn, оr уоur fаvоritе сhаritу — аnуоnе but уоur ѕроuѕе’ѕ сhildrеn frоm that first mаrriаgе, whiсh is what may hарреn if уоu lеаvе thе dесiѕiоn uр tо уоur ѕроuѕе bу uѕing a mаritаl deduction truѕt.

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Michael R. Anderson, JD

Ascent Law LLC
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West Jordan, Utah
84088 United States

Telephone: (801) 676-5506

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