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| 1. What is a living trust? |
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A living trust is usually a revocable trust living trust, sometimes referred to as a revocable inter vivos trust. A living trust can hold a person’s assets during her lifetime. Often times, the donor of the property will act as her own trustee during her life. If she becomes incapable, the trust provides for a successor trustee to manage the donor’s assets until she regains capacity. A living trust is a wonderful vehicle for avoiding a probate conservatorship proceeding. If all of a person’s assets are titled in the living trust, then it is possible to avoid probate entirely when the donor dies. Are living trusts for everyone? My answer is no. Unfortunately many commentators and others do not speak about the costs of setting up a living trust. A person of modest means can often get by with a simple will for $250.00. The probate fee on an estate of $100,000 is $370. The decedent’s executor can often probate the estate herself with the assistance of the probate court. If the total cost of the estate plan and probate is under $650, why should this person spend thousands of dollars or more for a living trust? Not to mention the administrative headaches. A power of attorney may be sufficient to deal with incapacity and avoid a conservatorship proceeding. Each person’s needs are different. A recent Wall Street Journal article highlighted the pros and cons of living trusts. One size does not fit all. Beware of those who make blanket generalizations about estate planning and probate. In this office, each estate plan is tailored to your individual needs. |
| 2. How is personal property handled in the estate plan? |
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Through the will or living trust, or by a memorandum. Some of the worst conflicts in settling the estate center on the disposition or distribution of a decedent’s personal property. While a person can minimize conflicts by listing every article and its beneficiary in the will, that becomes cumbersome and costly, often requiring new wills or codicils (amendments to an existing will). We usually advise our clients to write a letter setting forth her intentions on the distribution of her personal property. We also encourage our clients to discuss these intentions with members of the family. Finally, many of our clients, depending on their age and circumstances, make gifts of important items during their lifetime to avoid family conflict after death. |
| 3. How has the Estate Tax Repeal law of 2001 changed estate planning for couples with assets under $3 million? |
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A client may want to postpone the decision of whether or not to fund a credit shelter trust. Before the Economic Growth and Tax Relief Reconciliation Act of 2001, married couples with substantial assets would typically set up a credit shelter trust within their wills or living trusts. When the unified credit amount was $600,000 that made a lot of sense resulting in a substantial estate tax reduction. Married couples could shelter up to $1.2 million. With the unified credit exemption amount rising to $1 million in 2002, $1.5 million in 2004, $2 million in 2006 and then $3.5 million in 2009, some couples may not want to fund the credit shelter trust at the first death. Instead, some clients may consider a disclaimer trust or “QTIP election” whereby the surviving spouse (in consultation with her advisors) can make the decision on whether to fund a credit shelter trust when the first spouse dies. For those who do not want to leave the decision to the surviving spouse, clients may want to put a “cap” on the amount that can be put into the trust. Another strategy might be to give the trustee the power to undo the trust once it is funded. |
| 4. How important are beneficiary designations on 401K plans, IRA’s and insurance policies? |
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They are critical, now more than ever. Many people forget that instruments with beneficiary designations do not pass by will or living trust to heirs and beneficiaries. The beneficiary designation determines the distribution of such instruments. Clients should carefully check, on an annual basis, the beneficiary designations on 401K plans, IRAs, annuities, insurance policies and the like. With 401K plans and IRAs becoming a substantial part of an individual’s estate, planning for these assets is taking on added importance. |
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