Definitions

Conservatorship If you become unable to manage your finances and haven’t prepared a durable power of attorney, your spouse or closest relatives will have to ask a court for authority over at least some of your financial affairs. It is a time-consuming and expensive procedure. By contrast, preparing a durable power of attorney is simple and inexpensive. Blended Families In second or subsequent marriages, spouses may feel conflicted about estate planning. Consider this example: Bill and Jane get married. Both have children from previous marriages. When Bill passes, Jane will need income from Bill’s property to live and care for her children, but Bill’s children will want an inheritance as well. They are worried that if they wait until Jane passes, none of Bill’s estate will be left, or she can leave all of it to her own children, leaving nothing for them. I can craft a trust offering assurance to each spouse that both their surviving spouse and their children will be provided for. Special Needs Children Money and property left directly to a disabled person may disqualify him or her from receiving continuing government assistance. The best way to avoid this problem is to create a Special Needs Trust in which with property is left to the trust. The disabled person is the beneficiary of the trust. Under the Social Security Administration guidelines, the property in a Special Needs Trust does not affect eligibility for Social Security benefits as long as the trustee controls payment to the beneficiary. The beneficiary can have no rights to demand and receive money from the trust income or principal, nor can he or she terminate the trust and take all the money in it. Financially Irresponsible Beneficiaries Some people (especially parents) are leery of leaving their money to someone who has proven him- or herself to be financially irresponsible. A Spendthrift Trust can alleviate those concerns by appointing a Successor Trustee to manage the fiscally irresponsible beneficiary’s inheritance. In a Spendthrift Trust, the beneficiary has no direct ownership rights over the trust property and cannot pledge trust property as security for a loan. This protects the trust property from the beneficiary’s creditors. You can creatively determine by what means and under what circumstances you want the beneficiary to receive trust property or income. Tax Issues/Avoiding Estate Tax A living trust has no effect on your taxes, either your income taxes while you live or estate tax when you die. During your life, your living trust does not have a separate existence for income tax purposes. The IRS treats your trust property as it does any other property you own. Because the trust is not functionally distinct from you while you are alive, it cannot be used to lower your income tax. In 2009, no federal estate tax is assessed if the net value of your taxable estate at death is worth less than $3.5 million. In 2010, there will be no estate tax no matter how large your estate. But in 2011, the estate tax is scheduled to return with an exemption limited to $1 million. The marital deduction exempts from all tax property, no matter how much it is worth, left by a deceased spouse to a surviving spouse, as long as surviving spouse is a U.S. Citizen. (Gifts worth up to $125,000 per year can be made to a non-citizen spouse tax-free.) The marital deduction only applies to married couples, not to domestic partners or civil unions. The charitable deduction exempts all property left to a tax-exempt charity. The gift tax exclusion allows you to give up to $13,000 per year to any number of beneficiaries free of gift tax. Also, you can pay someone else’s medical bills or school tuition free of gift tax. There are other creative ways to avoid estate taxes. Call to set up a free consultation! Other Probate-Avoidance Methods Pay-on-Death Bank Accounts Transfer-on-Death Accounts for Securities Transfer-on-Death Car Registration Transfer-on-Death Deeds for Real Estate Joint Tenancy Community Property with Right of Survivorship Simplified Probate Proceedings (for small estates) Life Insurance Gifts Please call to set up a free consultation and to discuss your estate planning needs. I look forward to hearing from you!