Articles tagged with: revocable living trust

TOD or Living Trust?

A look at two basic methods for shielding assets from probate.

How do you keep assets out of probate? If that estate planning question is on your mind, you should know that there are two basic ways to accomplish that objective.

One, you could create a revocable living trust. You can serve as its trustee, and you can fund it by retitling certain accounts and assets into the name of the trust. A properly written and properly implemented revocable living trust allows you to have complete control over those retitled assets during your lifetime. At your death, the trust becomes irrevocable and the assets within it can pass to your heirs without being probated (but they will be counted in your taxable estate). In most states, assets within a revocable living trust transfer privately, i.e., the trust documents do not have to be publicly filed.1

If that sounds like too much bother, an even simpler way exists. Transfer-on-death (TOD) arrangements may be used to pass certain assets to designated beneficiaries. A beneficiary form states who will directly inherit the asset at your death. Under a TOD arrangement, you keep full control of the asset during your lifetime and pay taxes on any income the asset generates as you own it outright. TOD arrangements require minimal paperwork to establish.2

This is not an either/or decision; you can use both of these estate planning moves in pursuit of the same goal. The question becomes: which assets should transfer via a TOD arrangement versus a trust?

Many investment accounts can be made TOD accounts. Originally, that was not the case – for decades, only bank accounts and certain types of savings bonds could pass to beneficiaries through TOD arrangements. When the Uniform Transfer on Death Security Registration Act became law in the 1980s, the variety of assets that could be transferred through TOD language grew to include certificates of deposit and securities and brokerage accounts.2

Many investment & retirement savings accounts are TOD to begin with. Take IRAs and workplace retirement plans, for example. In the case of those assets, the beneficiary form legally precedes any bequest made in a will.3

The beauty of the TOD arrangement is that the beneficiary form establishes the simplest imaginable path for the asset as it transfers from one owner to another. The risk is that the instruction in the beneficiary form will contradict something you have stated in your will.

One common situation: a parent states in a will that her kids will receive equal percentages of her assets, but due to TOD language, the assets go to the kids not by equal percentage but by account, with the result that the heirs have slightly or even greatly unequal percentages of family wealth. Will they elect to redistribute the assets they have inherited this way, in fairness to one another? Perhaps, and perhaps not.

Placing valuable property items into a living trust makes sense. Real estate, ownership shares, precious metals, pricy collectibles such as fine art, classic cars, antiques, and rare stamps and coins – these are all worthy candidates for inclusion in a living trust. If your net worth happens to run well into the millions, these assets may constitute the bulk of it, and a trust offers a degree of protection for such assets that TOD language cannot. A trust also allows you to name a successor trustee, which TOD language cannot do for you.2

A “pour-over” will usually complements a revocable living trust. As your net worth will presumably keep growing after the trust is implemented, a “pour-over” will may be used to allow your executor to “pour over” assets not already in the trust at your death into the trust. That will mean added privacy for those assets in most states – but the downside is that these “poured-over” assets will be subject to probate.1

Of course, you can add and subtract from the original contents of a revocable living trust as you wish during your lifetime – you can remove assets retitled into it when it was originally created and retitle them again in your name, you can “pour in” new assets, and you can sell or give away specific assets in the trust.4

Is it ever wise to name a trust as the beneficiary of a retirement account? Under three circumstances, it might be worth doing. If you worry about your heirs rapidly spending down your IRA assets, for example, naming a trust as the IRA beneficiary more or less forces them to abide by a stretch IRA strategy. Are there “predators and creditors” who want some of your net worth? That is another reason to consider this move. If you want to leave your retirement account assets to someone who is currently a minor, this idea may be worthwhile as well.4

How complex should your estate planning be? A conversation with a trusted legal or financial professional may help you answer that question, and illuminate whether simple TOD language or a trust is right to keep certain assets away from probate.

Mike Moffitt may be reached at ph 641-782-5577 or email: mikem@cfgiowa.com

Website: www.cfgiowa.com 

Michael Moffitt is a Registered Representative with and Securities are offered through LPL Financial, Member FINRA/SIPC. Investments advice offered through Advantage Investment Management (AIM), a registered investment advisor. Cornerstone Financial Group and AIM are separate entities from LPL Financial.

LPL Financial Representatives offer access to Trust Services through The Private Trust Company N.A., an affiliate of LPL Financial.

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

Citations.

1 – individual.troweprice.com/public/Retail/Planning-&-Research/Estate-Planning/Considering-a-Trust/Revocable-Living-Trust [11/10/15]

2 – fdcpa.com/Tax/0807TaxNewsEstatePlanning.htm [11/10/15]

3 – forbes.com/sites/deborahljacobs/2014/01/03/how-to-leave-your-ira-to-those-you-love/ [1/3/14]

4 – nolo.com/legal-encyclopedia/free-books/avoid-probate-book/chapter7-7.html [11/9/15]

Legacy Planning for Women

Think about the eventual destiny of your Wealth.

 

Women often become guardians of family wealth. Many women outlive their spouses, and have the opportunity to have the “final say” (from an estate planning standpoint) about the wealth they have built or inherited. Legacy planning is essential for single women and couples, too, as one or two successful careers may leave a woman or a couple with a significant estate.

So how do you take steps to convey the bulk of your wealth to the next generation, or to your favorite causes or charities after you are gone? It all starts with a conversation today – a conversation with a legacy planning professional.

Analyze the risks to your net worth & strategize to alleviate them. You have years to go, perhaps many years, before you pass away. In those years or decades, you must manage portfolio risk, taxation, medical or long term care costs, and perhaps “predators and creditors” as well. What tax and risk management strategies can be put into place with an eye toward enhancing your net worth? Can you reduce the size of your taxable estate along the way?

How might trusts come into play? If you want to shrink your taxable estate, a well-crafted trust may provide a way to do it. There are many, many different kinds of trusts. A basic revocable living trust helps a family avoid probate, but it doesn’t do anything to reduce estate taxes. Other trusts do offer grantors and beneficiaries opportunities for substantial estate and/or income tax savings.1

For example, you can bequeath an amount of money up to the limit of the current estate tax exemption to a bypass trust; at your death, the remainder of your estate can therefore transfer to your spouse tax-free, or optionally your spouse can enjoy income from the trust while living with your heirs receiving the remaining principal tax-free at his or her death. Blended families sometimes choose to use a qualified terminable interest property trust (QTIP) plus a bypass trust to direct income derived from assets within an estate to a surviving spouse and then the bulk of the estate to their children and stepchildren. Grandparents sometimes use generation-skipping trusts (GSTs) to forward big chunks of money tax-free to grandchildren.2

Women business owners have employed irrevocable life insurance trusts (ILITs) to shrewdly remove their life insurance from their taxable estates. In an ILIT, the trust becomes the owner of the life insurance policy. When the business owner passes away, the beneficiaries receive tax-free policy proceeds, which can be used to sustain the family business and pay estate costs.
A qualified personal residence trust (QPRT) will permit you to gift your primary residence or vacation home to your children while you retain control of it for the term of the trust (typically 10 years). If your home seems poised to rise in value, the QPRT may lead to major estate and gift tax savings – it helps you transfer the home out of your taxable estate, thereby reducing its size. The hitch is that to validate the QPRT, you have to outlive the term of trust. Assuming you do, you can either a) move out of your house at that point or b) keep living in it while paying your heirs fair market rent as a tenant.2

How well can your legacy plan sustain your values? Can you design it to teach your adult children and grandchildren lessons in character, responsibility, ethics and social service? Philanthropically, what do you want to accomplish? If you want to direct wealth to charities or other non-profits, you will need to pick one or more vehicles with the help of a legacy planner – options may include a family foundation, a charitable remainder trust (CRT), a tax-deductible charitable gift of appreciated securities with a resulting income stream, or donor-advised funds. A conversation with a tax professional can inform you of the kinds of assets you do and don’t want to gift from a taxation perspective.

As you craft your legacy plan, can you do it at reasonable cost? There is truth in the old maxim “you get what you pay for”, but at the same time, you want to work with a legacy planner whose fees aren’t exorbitant. Even the fees for creating a simple living trust can vary widely. You definitely want the help of experienced professionals here; given that each legacy plan is on some level an agreement with the federal tax code, legacy planning is not a do-it-yourself project.

Your legacy plan can represent your final, thoughtful gift to your loved ones. When you think of it that way, it becomes easier to conceive and implement with the input of your spouse, your children and your grandchildren. Along the way, valuable money lessons can be taught and responsibilities shouldered.

Michael Moffitt may be reached at ph. 641-782-5577 or mikem@cfgiowa.com.
website: www.cfgiowa.com

Michael Moffitt is a Registered Representative with and Securities are offered through LPL Financial, Member FINRA/SIPC. Investments advice offered through Advantage Investment Management (AIM), a registered investment advisor. Cornerstone Financial Group and AIM are separate entities from LPL Financial.

LPL Financial Representatives offer access to Trust Services through The Private Trust Company N.A., an affiliate of LPL Financial.

This material was prepared by MarketingLibrary.Net Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

Citations.
1 – kiplinger.com/article/retirement/T021-C000-S001-four-facts-of-living-trusts.html#iwrC4LSHbmjf9emt.99 [4/4/13]
2 – money.cnn.com/magazines/moneymag/money101/lesson21/index6.htm [9/17/13]

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