If you have a living trust (sometimes referred to as an inter vivos trust) in your estate plan, you need to know how to administer it. That sounds like common sense, but there are some unique elements to consider that otherwise you probably wouldn’t think about. The following definitions and directions should help you with that process.
In the following descriptions I also include details of what role I play as a lawyer in assisting the process of funding and administering my clients’ living trusts.
As long as you are the trustee of the trust, the trust’s tax identification number is your social security number. No separate tax return will need to be filed for the trust for as long as you are the trustee.
Initial Funding of Trust
One of the primary reasons to use a trust is to give your trustees and beneficiaries the ability to avoid probate proceedings at your death. This only works if all your assets are owned by the trust. Accordingly, I suggest you transfer your assets to the trust as soon as you have signed your estate planning documents. The transfer can be easy or difficult, depending on the nature and extent of your assets. The following is a brief description of the process you should complete. I am available to assist you in the process if you wish. Your assets and accounts should be held as follows: (Your name), Trustee of the (Your name) Living Trust.
Bank Accounts
You should make an appointment with each of your bankers to transfer ownership of your bank account to the trust. When you go, take an updated list of your accounts with the bank or have the banker print one for you. Also take a copy of your trust agreement. If you open new accounts or certificates, please make sure that those new accounts are held in the name of the trust.
Option: If your bank requires you to establish a new bank account for your trust and you do not desire to replace your current account for various reasons, you can establish a “Payable on Death” (POD) designation on your bank account to provide that upon your death the account is paid to the Trustee of the ________ Living Trust. This should be handled by your bank.
Brokerage Accounts
The procedure for changing brokerage accounts should be the same as the procedure for transferring your bank accounts.
Stocks and Bonds Held in Certificate Form
If you own stocks and bonds in certificate form, you will need to obtain directions from the transfer agent for each individual stock or bond owned. An alternative would be to have your broker, if you have one, assist you with the transfer. I am often asked to assist my clients in the transfer of these types of assets; please let me know if I can assist you.
Savings Bonds
Savings bonds can be transferred to your trust; you should take your bonds to the bank to be reregistered. Current regulations do not require title to be changed if the total amount of the U.S. Savings Bonds are less than $100,000.
Closely Held Business Interests
If I am the attorney for the business, I can assist you in transferring ownership from the business to the trust. If I am not, you should contact the attorney for the business or whoever is in charge of the ownership record books. If they are not familiar with the use of living trusts or are hesitant to change ownership, please contact me.
Real Estate
As part of my service in preparing trusts, I prepare and record deeds transferring your Iowa real estate to your trust. For out-of-state property, you should contact an attorney in the state to complete the transaction. I can refer you to an out-of-state attorney if you do not know of one to assist you. It is particularly important to change ownership of out-of-state real estate. If you don’t, separate probate proceedings may be requited. You should also contact your liability insurance agent and ask them to add your trust as an additional insured on your household and liability policies.
Tangible Personal Property
Unless your household goods and personal effects are quite valuable, I would generally not prepare a bill of sale transferring those goods to your trust. Your will contains provisions regarding the distribution of personal property, and you can also write a list of memorandum specifically providing for the distribution of those goods. You do not need to retitle your automobiles, as your family will be able to sign an affidavit concerning the ownership of the automobile after your death.
Your trust will not control the disposition of assets you own with beneficiary designations, such as life insurance policies, annuities, IRAs, and other retirement plans. The beneficiary designation form controls the disposition of those assets. You should avoid listing your estate as the beneficiary of any of these types of assets unless we have specifically advised you to do so. You may list your trust, individuals or charities as the beneficiary or beneficiaries. If you list beneficiaries other than your trust, please remember that on your death the beneficiary will receive those assets in addition to his or her share of the trust assets.
Changing Trust Provisions
You can amend or revoke your trust at any time. Simply call me and I will prepare the appropriate paperwork.
When you are no Longer the Trustee
If you become unable to manage your financial affairs, or if you simply want to have the successor trustee act on your behalf, the successor trustee will need to obtain a separate tax identification number from the IRS and a short form information tax return will need to be filed each year.
Administration of Trust upon your Death
Upon your death, the successor trustee will administer and distribute the trust assets in accordance with the provisions of your trust. If you ever have any questions about the administration of the trust, please contact me.
Questions?
You probably still have some questions on living trusts…which is why I’m here! Don’t hesitate to contact me by phone (515-371-6077) or email (gordon@gordonfischerlawfirm.com). I offer a free one-hour consultation at which point we can discuss your personal situation, see if a trust is right for you, and set up the steps for your success.
https://www.gordonfischerlawfirm.com/wp-content/uploads/2017/06/jake-thacker-113197.jpg38405760Gordon Fischerhttps://www.gordonfischerlawfirm.com/wp-content/uploads/2017/05/GFLF-logo-300x141.pngGordon Fischer2021-06-08 13:00:372021-06-08 13:38:45Funding and Administering Your Living Trust
You are a superhero. Seriously, you have the ability to change the world or, at the very least, your little corner of it. In fact, changing the world can be as simple as asking yourself one question: what causes would I like to benefit in my will?
BEQUESTS TO CHARITIES IN YOUR WILL
You can include the nonprofits you care about most in your will, leaving a legacy after you have passed on. You can include charities like your church, alma mater, a local cause, or an international organization in your estate plan. If you ask the charity you care about most, I bet they’ll tell you that your charitable bequest, no matter how big or small, can make a huge impact.
WHAT ABOUT MY KIDS?
When folks come to me for estate planning help, a major reason they do so—perhaps even the single reason they do so—is to benefit their children. Parents often think, “I love Charity X, but of course, I love my kids even more, and I’ve got to take care of my family.” Of course you do, and you should! However, I implore you to ask yourself another question:
How much is enough for my kids?
If you have an abundance of assets, and/or your children are independent adults, could you provide adequate support for your children and include a bequest to one or more charities?
LET’S TALK
Invite the whole family to the kitchen table sometime (even if your kitchen table is a virtual one, via email or Zoom) and talk about the distributions you want to make at death. Ask if including gifts to charity from your estate plan would be appropriate and acceptable for your children. Perhaps it’s a charity the whole family supports. Perhaps this will be the beginning of a multigenerational cycle of giving.
Why not talk about it? This can be an especially productive conversation if you can explain that taxesare going to eat up a chunk of one or more of the assets, which can be avoided by giving said asset(s) to charity (since charities are tax-exempt).
LIFE INSURANCE
Sometimes when parents give a major asset(s) to charity, and their kid’s inheritance takes a real hit, they’ll buy a new life insurance policy to make up the shortfall to the kids. They may even buy a new life insurance policy and name the charity directly as a beneficiary. There’s also a very helpful kind of trust called an ILIT, that significantly increases the impact of life insurance.
Without getting too complicated, let me explain the basics. An ILIT is an irrevocable, non-amendable trust which is both the owner and beneficiary of one or more life insurance policies. Upon the death of the insured, the trustee invests the insurance proceeds and administers the trust to one or more beneficiaries.
WHAT IS THE ROLE OF AN ESTATE PLANNER?
When it comes to estate planning, you’re thinking about so many different variables and scenarios – so what if you forget to factor in charity? Lucky for you, I’m here to help you maximize your charitable giving. That means determining how your generosity can not only help an organization make a difference, but how you can maximize the financial and estate-related benefits of giving.
STUDIES SHOWED
A 2013 study showed how lawyers, like me, can help charitable giving in estate planning. The scientifically-conducted research from the UK-based Behavioral Insights Team showed that when lawyers asked clients specific questions regarding charitable giving, the results were significant. Here are the findings:
CONTROL GROUP/BASELINE
Lawyers who provided no reminder or inquiry to their clients about possibly benefiting a charity in their estate plan (bequests) resulted in 4.9 percent of those clients including a charity in their plans.
TEST GROUP ONE
Lawyers who asked their clients, “Would you like to leave any money to a charity in your will?” resulted in 10.8 percent of their clients including a charity.
TEST GROUP TWO
Lawyers who said, “Many of our clients like to leave money to a charity in their will. Are there causes you are passionate about?” resulted in 15.4 percent of their clients including a charity.
What a dramatic increase!
Here are the approximate dollar values associated with each group:
CONTROL GROUP/BASELINE
Average bequest – $5,000
TEST GROUP ONE
Average bequest – $4,800
TEST GROUP TWO
Average bequest – $10,200
Again, test group two gives a powerful example of the difference charity-minded estate planners can make.
In the study, there were a 1,000 people in each group. That means that “Test Group Two” raised over $1 million more than the control group.
Certainly, your lawyer plays an important role in reminding, guiding, and assisting you in your charitable giving so that you can use your superpower – charitable giving through your will – to the fullest extent.
Harness your superpowers and start your legacy today! The best place to start is by filling out my Estate Plan Questionnaire. It’s easy, free, and there’s no obligation. It’s simply a document to get you thinking and planning.
Already have an estate plan and want to update it to include the causes that are near and dear to your heart? Don’t hesitate to contact me.
*OK, not everything. But many things, let’s say, an excellent start.
https://www.gordonfischerlawfirm.com/wp-content/uploads/2021/06/Everything-You-Need-to-Know-About-Estate-Planning-Day-7.jpg6831024Gordon Fischerhttps://www.gordonfischerlawfirm.com/wp-content/uploads/2017/05/GFLF-logo-300x141.pngGordon Fischer2021-06-07 09:00:032022-01-10 14:35:49You Are A Superhero: Charitable Giving Through Estate Planning. (Everything* You Need to Know About Estate Planning: Day 7)
A trust is a very useful legal arrangement which may save you, your heirs, and beneficiaries a great deal of money, time, and trouble, as well as help to keep important matters private.
A trust is what one might consider an “extra” document to a basic estate plan (but an “extra” that can be super helpful, for the reasons discussed below). Over the last several blog posts, I discussed the six basic documents that should be part of most everyone’s estate plan:
In such cases, as well as others (talk to your estate planning lawyer!), a trust may be helpful.
WHAT IS A TRUST? HOW DOES IT WORK?
A trust will ensure that your wishes are followed and your assets appropriately handled after your death. A trust is simply a legal agreement among three parties—settlor, trustee, and beneficiary—that provides instructions on how and when to pass assets to the trust’s beneficiaries. Let’s look at the role of each of these three parties, then delve more deeply into how trusts work.
SETTLOR
A settlor—sometimes called the “donor, “grantor,” or “trustor”—is the person who creates the trust and has the legal authority to transfer assets into it.
TRUSTEE
The trustee is the person who agrees to accept, manage, and protect the assets delivered by the settlor. The trustee has a fiduciary duty to administer the assets according to the trust’s instructions, and distribute the trust income and principal according to the rules outlined in the trust document. Distribution is done in the best interests of the beneficiary.
A trustee can be one, two, or more people. A trustee can also be what is known as a “corporate trustee,” such as a financial institution (like a bank) or a law firm that performs trustee duties and charges fees for their services. There are no formal requirements for being a trustee, and nonprofessionals frequently serve as a trustee for family members and friends.
BENEFICIARY
The beneficiary is the person or entity benefiting from the trust. The beneficiary can be one person or entity or multiple parties. Trust beneficiaries don’t even have to exist at the time the trust is created (such as in the case of a future grandchild or a charitable foundation that has not yet been established).
TRUST PROPERTY
A trust can be either funded or unfunded. “Funded” means that the settlor’s assets—sometimes called the “principal” or the “corpus”—have been placed into the trust. A trust is “unfunded” until the assets are in it. Please note that failing to fund a trust is a common estate planning mistake!
TRUST ASSETS
Trusts can hold just about any kind of asset: real estate, intangible property, business interests, and personal property. Common trust properties include farms, buildings, vacation homes, stocks, bonds, savings and checking accounts, collections, personal possessions, and vehicles.
“IMAGINARY CONTAINER”
Think of a trust as an “imaginary container” that holds and protects your assets. After the trust is funded, the trust property will remain in the same place as before the trust was created—your land will remain where it always was, your artwork on the wall, your money in the bank, your comic book collection in the den. The only difference is the asset will have a different owner: “The Jane Jones Trust,” rather than Jane Jones.
TRANSFER OF OWNERSHIP
Putting property in a trust transfers it from personal ownership to the trustee, who holds the property for the beneficiary. The trustee has what is called “legal title” to the trust property and, in most instances, the law treats trust property as if it were now owned by the trustee. Each trust has its own taxpayer identification number, just like an individual.
Do not be mistaken, trustees are not the full owners of trust property. Trustees have a legal duty to use trust property as directed in the trust agreement and as allowed by law. However, the beneficiaries retain what is known as “equitable title”—the right to benefit from trust property as specified in the trust.
ASSETS TO BENEFICIARY
The settlor provides terms in a trust agreement directing how the fund’s assets are to be distributed to a beneficiary. The settlor can provide for the distribution of funds in any way, so long as it is not against the law or against public policy. The near-limitless flexibility of trusts is a primary advantage for setting one up.
TYPES OF TRUSTS
A joke among estate planners says that the only limit to trusts is the imagination of lawyers. It’s true, though, that the number and kind of trusts are virtually unlimited.
Let’s start by taking a look at the four primary categories of trusts:
INTER VIVOS AND TESTAMENTARY TRUSTS
Trusts that are set up during the settlor’s lifetime are called “inter vivos” trusts.
Those that arise upon the death of the settlor, generally by operation of a will, are called “testamentary” trusts. There are advantages and disadvantages to both types of trusts, and how one decides depends upon the goals and purposes of the settlor.
REVOCABLE AND IRREVOCABLE TRUSTS
Inter vivos and testamentary trusts can be broken down into two more categories: revocable trusts and irrevocable trusts. A revocable trust, just as you might infer from the name, can be changed at any time during the settlor’s lifetime. The settlor can alter parts of the trust or even revoke the entire document.
IRREVOCABLE TRUST
An irrevocable trust, again, is as it sounds – it’s a type of trust that can’t be changed by the settlor after the agreement has been signed and the trust has been formed and funded. The terms of an irrevocable trust can’t be modified, amended, or terminated without the permission of the settlor’s beneficiary or beneficiaries.
A revocable living trust becomes irrevocable when the settlor dies because he or she is no longer available to make changes to it. A revocable trust can be designed to break into separate irrevocable trusts at the time of the grantor’s death for the benefit of children or other beneficiaries.
You might wonder, “Why make a trust irrevocable? Wouldn’t you want to maintain the ability to change your mind about the trust or its terms?”
Not necessarily.
Irrevocable trusts, such as irrevocable life insurance trusts, are commonly used to remove assets from a person’s estate and thus avoids the assets being taxed. Transferring assets into an irrevocable trust gives those assets to the trustee and the trust beneficiaries forever. If a person no longer owns the assets, they don’t comprise or contribute to the value of his or her estate, therefore they are not subject to, say, estate taxesupon death.
REVOCABLE LIVING TRUSTS
There is no “one size fits all” trust—different kinds of trusts offer different benefits (and drawbacks) depending on a person’s circumstances. Age, number of children, health, and relative wealth are just a few of the factors to be considered.
The most common trust my clients use is a revocable living trust (sometimes referred to by its abbreviation, “RLT”).
A revocable living trust is created while you’re alive and can be revoked or amended by you. An RLT has huge advantages:
MONEY-SAVING
Establishing a revocable living trust helps avoid costly probate—the legal process required to determine that a will is valid. Probate generally eats up about two percent (2%) of an estate, which can add up to a chunk of change you’d probably rather see go to your beneficiaries.
Avoiding probate also means avoiding other fees, such as court costs, that go along with it.
TIME-SAVING
A revocable living trust not only eliminates the costs of probate, but the time-consuming process of probate as well. Here in Iowa, probate can take several months to a year, or sometimes even longer, perhaps leaving beneficiaries without their inheritances until th end of the probate process. The transfer of assets through a trust is much faster.
FLEXIBILITY
Don’t want your sixteen-year-old niece to inherit a half-million dollars in one big lump sum? I agree, it’s probably not a good idea.
A revocable living trust offers flexibility for the payout of an inheritance because you set the ground rules for when and how distributions are made. For example, you might decide your beneficiaries can receive certain distributions at specific ages (21, 25, 30, etc.), or for reaching certain milestones, such as marriage, the birth of a child, or graduation from college.
DRAWBACKS
Despite the significant advantages of establishing a revocable living trust, there are drawbacks people should be aware of. For starters, trusts are more expensive to prepare than basic estate plan documents such as a Will. However, the costs associated with sitting down with a lawyer and carefully creating a trust is, in my opinion, greatly outweighed by the money your estate will save in the end.
Creating a trust can also be an administrative bother because assets (farm land, business, stock funds, etc.) must be retitled in the name of the trust. All things considered, this is a small inconvenience that is greatly outweighed by the smooth operation of a trust when you pass away.
YOU CAN TRUST ME TO TALK ABOUT THE BEST TRUST(S) FOR YOU
Interested in learning more about trusts or questioning if you need one? Feel free to reach out at any time by email, gordon@gordonfischerlawfirm.com, or on my cell, 515-371-6077.
https://www.gordonfischerlawfirm.com/wp-content/uploads/2021/06/Everything-You-Need-to-Know-About-Estate-Planning-Day-6-cropped.jpg6831024Gordon Fischerhttps://www.gordonfischerlawfirm.com/wp-content/uploads/2017/05/GFLF-logo-300x141.pngGordon Fischer2021-06-06 09:00:572022-01-10 14:35:49In Trusts We Trust (Everything* You Need to Know About Estate Planning: Day 6)
Funding and Administering Your Living Trust
Trusts, Wills, Trusts & EstatesIf you have a living trust (sometimes referred to as an inter vivos trust) in your estate plan, you need to know how to administer it. That sounds like common sense, but there are some unique elements to consider that otherwise you probably wouldn’t think about. The following definitions and directions should help you with that process.
In the following descriptions I also include details of what role I play as a lawyer in assisting the process of funding and administering my clients’ living trusts.
(If you’re considering whether or not you need a living trust, this blog post helps break down the basics. Of course, don’t hesitate to contact me to discuss your individual situation.)
Tax Identification Number
As long as you are the trustee of the trust, the trust’s tax identification number is your social security number. No separate tax return will need to be filed for the trust for as long as you are the trustee.
Initial Funding of Trust
One of the primary reasons to use a trust is to give your trustees and beneficiaries the ability to avoid probate proceedings at your death. This only works if all your assets are owned by the trust. Accordingly, I suggest you transfer your assets to the trust as soon as you have signed your estate planning documents. The transfer can be easy or difficult, depending on the nature and extent of your assets. The following is a brief description of the process you should complete. I am available to assist you in the process if you wish. Your assets and accounts should be held as follows: (Your name), Trustee of the (Your name) Living Trust.
Bank Accounts
You should make an appointment with each of your bankers to transfer ownership of your bank account to the trust. When you go, take an updated list of your accounts with the bank or have the banker print one for you. Also take a copy of your trust agreement. If you open new accounts or certificates, please make sure that those new accounts are held in the name of the trust.
Option: If your bank requires you to establish a new bank account for your trust and you do not desire to replace your current account for various reasons, you can establish a “Payable on Death” (POD) designation on your bank account to provide that upon your death the account is paid to the Trustee of the ________ Living Trust. This should be handled by your bank.
Brokerage Accounts
The procedure for changing brokerage accounts should be the same as the procedure for transferring your bank accounts.
Stocks and Bonds Held in Certificate Form
If you own stocks and bonds in certificate form, you will need to obtain directions from the transfer agent for each individual stock or bond owned. An alternative would be to have your broker, if you have one, assist you with the transfer. I am often asked to assist my clients in the transfer of these types of assets; please let me know if I can assist you.
Savings Bonds
Savings bonds can be transferred to your trust; you should take your bonds to the bank to be reregistered. Current regulations do not require title to be changed if the total amount of the U.S. Savings Bonds are less than $100,000.
Closely Held Business Interests
If I am the attorney for the business, I can assist you in transferring ownership from the business to the trust. If I am not, you should contact the attorney for the business or whoever is in charge of the ownership record books. If they are not familiar with the use of living trusts or are hesitant to change ownership, please contact me.
Real Estate
As part of my service in preparing trusts, I prepare and record deeds transferring your Iowa real estate to your trust. For out-of-state property, you should contact an attorney in the state to complete the transaction. I can refer you to an out-of-state attorney if you do not know of one to assist you. It is particularly important to change ownership of out-of-state real estate. If you don’t, separate probate proceedings may be requited. You should also contact your liability insurance agent and ask them to add your trust as an additional insured on your household and liability policies.
Tangible Personal Property
Unless your household goods and personal effects are quite valuable, I would generally not prepare a bill of sale transferring those goods to your trust. Your will contains provisions regarding the distribution of personal property, and you can also write a list of memorandum specifically providing for the distribution of those goods. You do not need to retitle your automobiles, as your family will be able to sign an affidavit concerning the ownership of the automobile after your death.
Assets with Beneficiary Designations
Your trust will not control the disposition of assets you own with beneficiary designations, such as life insurance policies, annuities, IRAs, and other retirement plans. The beneficiary designation form controls the disposition of those assets. You should avoid listing your estate as the beneficiary of any of these types of assets unless we have specifically advised you to do so. You may list your trust, individuals or charities as the beneficiary or beneficiaries. If you list beneficiaries other than your trust, please remember that on your death the beneficiary will receive those assets in addition to his or her share of the trust assets.
Changing Trust Provisions
You can amend or revoke your trust at any time. Simply call me and I will prepare the appropriate paperwork.
When you are no Longer the Trustee
If you become unable to manage your financial affairs, or if you simply want to have the successor trustee act on your behalf, the successor trustee will need to obtain a separate tax identification number from the IRS and a short form information tax return will need to be filed each year.
Administration of Trust upon your Death
Upon your death, the successor trustee will administer and distribute the trust assets in accordance with the provisions of your trust. If you ever have any questions about the administration of the trust, please contact me.
Questions?
You probably still have some questions on living trusts…which is why I’m here! Don’t hesitate to contact me by phone (515-371-6077) or email (gordon@gordonfischerlawfirm.com). I offer a free one-hour consultation at which point we can discuss your personal situation, see if a trust is right for you, and set up the steps for your success.
You Are A Superhero: Charitable Giving Through Estate Planning. (Everything* You Need to Know About Estate Planning: Day 7)
Charitable Giving, Estates & Estate Planning, Nonprofits, Trusts, Wills, Wills, Trusts & EstatesYou are a superhero. Seriously, you have the ability to change the world or, at the very least, your little corner of it. In fact, changing the world can be as simple as asking yourself one question: what causes would I like to benefit in my will?
BEQUESTS TO CHARITIES IN YOUR WILL
You can include the nonprofits you care about most in your will, leaving a legacy after you have passed on. You can include charities like your church, alma mater, a local cause, or an international organization in your estate plan. If you ask the charity you care about most, I bet they’ll tell you that your charitable bequest, no matter how big or small, can make a huge impact.
WHAT ABOUT MY KIDS?
When folks come to me for estate planning help, a major reason they do so—perhaps even the single reason they do so—is to benefit their children. Parents often think, “I love Charity X, but of course, I love my kids even more, and I’ve got to take care of my family.” Of course you do, and you should! However, I implore you to ask yourself another question:
How much is enough for my kids?
If you have an abundance of assets, and/or your children are independent adults, could you provide adequate support for your children and include a bequest to one or more charities?
LET’S TALK
Invite the whole family to the kitchen table sometime (even if your kitchen table is a virtual one, via email or Zoom) and talk about the distributions you want to make at death. Ask if including gifts to charity from your estate plan would be appropriate and acceptable for your children. Perhaps it’s a charity the whole family supports. Perhaps this will be the beginning of a multigenerational cycle of giving.
Why not talk about it? This can be an especially productive conversation if you can explain that taxes are going to eat up a chunk of one or more of the assets, which can be avoided by giving said asset(s) to charity (since charities are tax-exempt).
LIFE INSURANCE
Sometimes when parents give a major asset(s) to charity, and their kid’s inheritance takes a real hit, they’ll buy a new life insurance policy to make up the shortfall to the kids. They may even buy a new life insurance policy and name the charity directly as a beneficiary. There’s also a very helpful kind of trust called an ILIT, that significantly increases the impact of life insurance.
Without getting too complicated, let me explain the basics. An ILIT is an irrevocable, non-amendable trust which is both the owner and beneficiary of one or more life insurance policies. Upon the death of the insured, the trustee invests the insurance proceeds and administers the trust to one or more beneficiaries.
WHAT IS THE ROLE OF AN ESTATE PLANNER?
When it comes to estate planning, you’re thinking about so many different variables and scenarios – so what if you forget to factor in charity? Lucky for you, I’m here to help you maximize your charitable giving. That means determining how your generosity can not only help an organization make a difference, but how you can maximize the financial and estate-related benefits of giving.
STUDIES SHOWED
A 2013 study showed how lawyers, like me, can help charitable giving in estate planning. The scientifically-conducted research from the UK-based Behavioral Insights Team showed that when lawyers asked clients specific questions regarding charitable giving, the results were significant. Here are the findings:
CONTROL GROUP/BASELINE
Lawyers who provided no reminder or inquiry to their clients about possibly benefiting a charity in their estate plan (bequests) resulted in 4.9 percent of those clients including a charity in their plans.
TEST GROUP ONE
Lawyers who asked their clients, “Would you like to leave any money to a charity in your will?” resulted in 10.8 percent of their clients including a charity.
TEST GROUP TWO
Lawyers who said, “Many of our clients like to leave money to a charity in their will. Are there causes you are passionate about?” resulted in 15.4 percent of their clients including a charity.
What a dramatic increase!
Here are the approximate dollar values associated with each group:
CONTROL GROUP/BASELINE
Average bequest – $5,000
TEST GROUP ONE
Average bequest – $4,800
TEST GROUP TWO
Average bequest – $10,200
Again, test group two gives a powerful example of the difference charity-minded estate planners can make.
In the study, there were a 1,000 people in each group. That means that “Test Group Two” raised over $1 million more than the control group.
Certainly, your lawyer plays an important role in reminding, guiding, and assisting you in your charitable giving so that you can use your superpower – charitable giving through your will – to the fullest extent.
In 2017, $35.70 billion was contributed to US charities through bequests. Imagine if everyone worked with a lawyer with a strong focus on charitable giving! The impact nonprofits make in our communities could be incredibly transformative.
LET’S GET STARTED
Harness your superpowers and start your legacy today! The best place to start is by filling out my Estate Plan Questionnaire. It’s easy, free, and there’s no obligation. It’s simply a document to get you thinking and planning.
Already have an estate plan and want to update it to include the causes that are near and dear to your heart? Don’t hesitate to contact me.
*OK, not everything. But many things, let’s say, an excellent start.
In Trusts We Trust (Everything* You Need to Know About Estate Planning: Day 6)
Estates & Estate Planning, Trusts, WillsA trust is a very useful legal arrangement which may save you, your heirs, and beneficiaries a great deal of money, time, and trouble, as well as help to keep important matters private.
A trust is what one might consider an “extra” document to a basic estate plan (but an “extra” that can be super helpful, for the reasons discussed below). Over the last several blog posts, I discussed the six basic documents that should be part of most everyone’s estate plan:
At the outset of this seven-part series of blog posts about estate planning, I explained the basics of a will. Then, I covered health care power of attorney, and also financial power of attorney. Most recently, I blogged about disposition of final remains.
When should you consider setting up a trust? You might consider a trust if you have:
In such cases, as well as others (talk to your estate planning lawyer!), a trust may be helpful.
WHAT IS A TRUST? HOW DOES IT WORK?
A trust will ensure that your wishes are followed and your assets appropriately handled after your death. A trust is simply a legal agreement among three parties—settlor, trustee, and beneficiary—that provides instructions on how and when to pass assets to the trust’s beneficiaries. Let’s look at the role of each of these three parties, then delve more deeply into how trusts work.
SETTLOR
A settlor—sometimes called the “donor, “grantor,” or “trustor”—is the person who creates the trust and has the legal authority to transfer assets into it.
TRUSTEE
The trustee is the person who agrees to accept, manage, and protect the assets delivered by the settlor. The trustee has a fiduciary duty to administer the assets according to the trust’s instructions, and distribute the trust income and principal according to the rules outlined in the trust document. Distribution is done in the best interests of the beneficiary.
A trustee can be one, two, or more people. A trustee can also be what is known as a “corporate trustee,” such as a financial institution (like a bank) or a law firm that performs trustee duties and charges fees for their services. There are no formal requirements for being a trustee, and nonprofessionals frequently serve as a trustee for family members and friends.
BENEFICIARY
The beneficiary is the person or entity benefiting from the trust. The beneficiary can be one person or entity or multiple parties. Trust beneficiaries don’t even have to exist at the time the trust is created (such as in the case of a future grandchild or a charitable foundation that has not yet been established).
TRUST PROPERTY
A trust can be either funded or unfunded. “Funded” means that the settlor’s assets—sometimes called the “principal” or the “corpus”—have been placed into the trust. A trust is “unfunded” until the assets are in it. Please note that failing to fund a trust is a common estate planning mistake!
TRUST ASSETS
Trusts can hold just about any kind of asset: real estate, intangible property, business interests, and personal property. Common trust properties include farms, buildings, vacation homes, stocks, bonds, savings and checking accounts, collections, personal possessions, and vehicles.
“IMAGINARY CONTAINER”
Think of a trust as an “imaginary container” that holds and protects your assets. After the trust is funded, the trust property will remain in the same place as before the trust was created—your land will remain where it always was, your artwork on the wall, your money in the bank, your comic book collection in the den. The only difference is the asset will have a different owner: “The Jane Jones Trust,” rather than Jane Jones.
TRANSFER OF OWNERSHIP
Putting property in a trust transfers it from personal ownership to the trustee, who holds the property for the beneficiary. The trustee has what is called “legal title” to the trust property and, in most instances, the law treats trust property as if it were now owned by the trustee. Each trust has its own taxpayer identification number, just like an individual.
Do not be mistaken, trustees are not the full owners of trust property. Trustees have a legal duty to use trust property as directed in the trust agreement and as allowed by law. However, the beneficiaries retain what is known as “equitable title”—the right to benefit from trust property as specified in the trust.
ASSETS TO BENEFICIARY
The settlor provides terms in a trust agreement directing how the fund’s assets are to be distributed to a beneficiary. The settlor can provide for the distribution of funds in any way, so long as it is not against the law or against public policy. The near-limitless flexibility of trusts is a primary advantage for setting one up.
TYPES OF TRUSTS
A joke among estate planners says that the only limit to trusts is the imagination of lawyers. It’s true, though, that the number and kind of trusts are virtually unlimited.
Let’s start by taking a look at the four primary categories of trusts:
INTER VIVOS AND TESTAMENTARY TRUSTS
Trusts that are set up during the settlor’s lifetime are called “inter vivos” trusts.
Those that arise upon the death of the settlor, generally by operation of a will, are called “testamentary” trusts. There are advantages and disadvantages to both types of trusts, and how one decides depends upon the goals and purposes of the settlor.
REVOCABLE AND IRREVOCABLE TRUSTS
Inter vivos and testamentary trusts can be broken down into two more categories: revocable trusts and irrevocable trusts. A revocable trust, just as you might infer from the name, can be changed at any time during the settlor’s lifetime. The settlor can alter parts of the trust or even revoke the entire document.
IRREVOCABLE TRUST
An irrevocable trust, again, is as it sounds – it’s a type of trust that can’t be changed by the settlor after the agreement has been signed and the trust has been formed and funded. The terms of an irrevocable trust can’t be modified, amended, or terminated without the permission of the settlor’s beneficiary or beneficiaries.
A revocable living trust becomes irrevocable when the settlor dies because he or she is no longer available to make changes to it. A revocable trust can be designed to break into separate irrevocable trusts at the time of the grantor’s death for the benefit of children or other beneficiaries.
You might wonder, “Why make a trust irrevocable? Wouldn’t you want to maintain the ability to change your mind about the trust or its terms?”
Not necessarily.
Irrevocable trusts, such as irrevocable life insurance trusts, are commonly used to remove assets from a person’s estate and thus avoids the assets being taxed. Transferring assets into an irrevocable trust gives those assets to the trustee and the trust beneficiaries forever. If a person no longer owns the assets, they don’t comprise or contribute to the value of his or her estate, therefore they are not subject to, say, estate taxes upon death.
REVOCABLE LIVING TRUSTS
There is no “one size fits all” trust—different kinds of trusts offer different benefits (and drawbacks) depending on a person’s circumstances. Age, number of children, health, and relative wealth are just a few of the factors to be considered.
The most common trust my clients use is a revocable living trust (sometimes referred to by its abbreviation, “RLT”).
A revocable living trust is created while you’re alive and can be revoked or amended by you. An RLT has huge advantages:
MONEY-SAVING
Establishing a revocable living trust helps avoid costly probate—the legal process required to determine that a will is valid. Probate generally eats up about two percent (2%) of an estate, which can add up to a chunk of change you’d probably rather see go to your beneficiaries.
Avoiding probate also means avoiding other fees, such as court costs, that go along with it.
TIME-SAVING
A revocable living trust not only eliminates the costs of probate, but the time-consuming process of probate as well. Here in Iowa, probate can take several months to a year, or sometimes even longer, perhaps leaving beneficiaries without their inheritances until th end of the probate process. The transfer of assets through a trust is much faster.
FLEXIBILITY
Don’t want your sixteen-year-old niece to inherit a half-million dollars in one big lump sum? I agree, it’s probably not a good idea.
A revocable living trust offers flexibility for the payout of an inheritance because you set the ground rules for when and how distributions are made. For example, you might decide your beneficiaries can receive certain distributions at specific ages (21, 25, 30, etc.), or for reaching certain milestones, such as marriage, the birth of a child, or graduation from college.
DRAWBACKS
Despite the significant advantages of establishing a revocable living trust, there are drawbacks people should be aware of. For starters, trusts are more expensive to prepare than basic estate plan documents such as a Will. However, the costs associated with sitting down with a lawyer and carefully creating a trust is, in my opinion, greatly outweighed by the money your estate will save in the end.
Creating a trust can also be an administrative bother because assets (farm land, business, stock funds, etc.) must be retitled in the name of the trust. All things considered, this is a small inconvenience that is greatly outweighed by the smooth operation of a trust when you pass away.
YOU CAN TRUST ME TO TALK ABOUT THE BEST TRUST(S) FOR YOU
Interested in learning more about trusts or questioning if you need one? Feel free to reach out at any time by email, gordon@gordonfischerlawfirm.com, or on my cell, 515-371-6077.
If you want to simply get started on an estate plan (everyone needs at least the basic documents in place!) check out my estate plan questionnaire, provided to you free, without any obligation.
*OK, not everything. But many things, let’s say, an excellent start.