Settlor (or Donor or Grantor)

The person who creates a trust is called the settlor (sometimes called the donor or grantor). It is the settlor’s intent which is of paramount importance. It is the intent of the settlor that determines whether a trust has been created.

Here’s a great read with a rundown on the basics of what a trust is:

Intent Is Everything

If a settlor transfers property to a recipient with the intent that the recipient hold the property for someone else, then a trust has indeed been created. If the settlor transfers property with the intent that the recipient use the property for her own benefit, then NO trust has been created.

BONUS WORD! Precatory Trust

What if a settlor transfers property to a recipient with just a wish that the recipient use the property for the benefit of someone else, but does not impose any legal obligation? In such a situation, no legal trust is created. Instead, this is called a precatory trust, but is not a trust at all, because the settlor placed no legal responsibilities on the recipient. A precatory trust is, again, not a trust and is not governed by the law of trusts.

Three Easy Hypotheticals

  • Let’s look at three quick examples to make this clear. Mackensie gives stock to Julie. Mackensie intends that stock be for Julie’s own use. Mackensie is NOT the settlor of a trust, because no trust has been created.

Stock market sheet

  • Mackensie gives a vacation house to Maddie, intending that Maddie hold the house for the benefit of Zach. Mackensie is the settlor of a trust. If a settlor transfers property to a recipient with the intent the recipient hold the property for the benefit of someone else, then a trust is created.

Vacation home in Santorini Greece

  • Mackensie gives a coin collection to Parker, just wishing that Parker would hold the coins for Tom. This is a mere precatory trust, not a trust at all, because the settlor is not imposing any legal responsibilities on the recipient.

coin collection

Questions? Let’s Talk.

This hopefully clarified the important role of settlor to assist your estate planning decisions, but you may have questions…which is great! Contact me to discuss further the status of your estate plan and decisions regarding your trust. Reach me by email at gordon@gordonfischerlawfirm.com or phone at 515-371-6077.

GoFisch blog

Mark Twain famously said, “A classic is something everybody wants to have read, but no one wants to read.” Life insurance is a little like that. Everyone needs it, but we don’t like to talk about it much.

Life Insurance as Key Estate Planning Tool

Life insurance is an amazing estate planning tool. I cannot stress enough the importance of life insurance. I, of course, don’t sell it, so I have no economic stake here. It’s just that life insurance is generally reasonably and affordably priced, yet still so helpful with so many financial goals. Replacing a breadwinner’s earnings is one of the most commons ways it is utilized. But, it can also provide liquid assets for a small business when a key partner dies.  Life insurance can also cover costs that you might forget about, like funeral costs or unpaid taxes.

A great resource for learning more about life insurance is an interview I did with insurance agent and industry expert, Christa Payne. (If you are an Iowan, you can just email Christa – she’ll be happy to answer any questions you have.)

While there are many advantages to life insurance, and you most definitely need it, life insurance can also create estate planning issues.

Three Estate Planning Issues Life Insurance May Create

The major issue created by life insurance is that of the “sudden windfall” to your beneficiary. Do you really want, say, your 19-year-old to inherit several hundred thousand dollars at once? Even oldsters with experience managing finances may find a huge influx of cash to be overwhelming.

Another issue to consider: does your beneficiary receive government benefits? If so, proceeds from your life insurance policy might make your beneficiary ineligible for further benefits. By the way, don’t think that those receiving government aid are all elderly. Quite the opposite! A vast majority of Medicaid recipients are under age 44. Regardless of age, any beneficiary on Medicaid, or similar government aid program, is at risk of losing benefits without careful estate planning.

Finally, for high-net worth (HNW) individuals and families, there is the issue of the federal estate tax. Everything owned in your name at death is included in your estate for estate tax purposes. Yes, that includes the death benefit proceeds of your life insurance policy. Considering that many policies carry quite hefty death benefits (several hundred thousand dollars, or more, not being unusual), this is definitely something for those with HNW to carefully consider.

Older person looking out at water

Photo by Ian Schneider on Unsplash

In Trusts we Trust

I’ve explained trusts generally before. A quick primer: in simplest terms, a trust is a legal agreement between three parties: grantor, trustee, and beneficiary. This allows a third party (the trustee) to hold assets for a beneficiary (or beneficiaries).

There are a nearly infinite variety of trusts. And, one type of trust is an Irrevocable Life Insurance Trust, or ILIT.

So, what IS an Irrevocable Life Insurance Trust?

Think of an ILIT as an “imaginary container,” which owns your life insurance policy for you. This provides several benefits. An ILIT removes the life insurance from your estate, i.e., lowers estate tax liability. Like other trusts, an ILIT allows you to decide how, when, and even why your named beneficiary receives life insurance proceeds.

Photo by Connor Betts on Unsplash

Wait, what was that about the three parties?

The grantor is you, the purchaser of life insurance.

The trustee can be anyone you, as grantor, chooses — an individual(s) or a qualified corporate trustee (like the trust department at your bank). But, note a major difference between an ILIT and other kinds of trusts – with a large number of other trusts, you can name yourself as trustee. With an ILIT, you wouldn’t want to do so, because the IRS may then determine that life insurance really hasn’t left your estate.

Who can be a beneficiary of an ILIT?

Most often, spouses, children, and/or grandchildren are the named beneficiaries of an ILIT. But really, it can be any individual(s) you, as grantor, choose.

Your beneficiary and your life insurance proceeds

The conditions under which a beneficiary receives distributions from an ILIT is up to you. You can, for example, specify that your beneficiary receives monthly or annual distributions. You can decide the amounts. You may even dictate that your beneficiary receives distributions when s/he reaches milestones which you choose. For example, you can provide for a large(r) distribution when a beneficiary reaches a certain age, graduates from college or post-graduate program, buys a first home, marries, or has a child. Or, really, just about any other condition or event that you decide is appropriate.

You also have the option to build in flexibility, so that your trustee has the discretion to provide distributions when your beneficiary needs it for a special purpose, like pursuing higher education, starting a business, making an investment, and so on.

And, of course, if your beneficiary is receiving government benefits, an ILIT can account for that, as well.

Good gosh, is there anything an ILIT CAN’T DO?

Once again, an ILIT is irrevocable. While an ILIT provides a great deal of flexibility, there’s one action for certain you can’t take — you cannot transfer a policy owned by an ILIT into your own name. So, if you think that someday you may need to access the policy’s cash value for your own purposes, you probably shouldn’t set up an ILIT.

Options for “ending” an ILIT

Now, I suppose, there’s nothing requiring you to continue making insurance payments into your ILIT. Depending on the kind of policy you have, your policy may lapse as soon as you miss your premium payment. Or, if your policy has cash value, these funds may be used to pay premiums until all the accumulated cash is exhausted. So, that’s an option for “ending” an ILIT.

I bet you have some questions. Let’s talk!

An ILIT can provide you, your loved ones, and your estate with significant benefits. To learn more, contact me at my email, gordon@gordonfischerlawfirm.com, for a free consultation, without obligation. You can also give me a call at 515-371-6077.


*Yes, you’re right – ILIT is really not a word, but an acronym. You caught me. It’s just that Legal Word of the Day sounds more exciting than Legal Acronym of the Day. Also, congratulations to you for being the kind of person who reads footnotes.

**In 2017, essentially, an individual must have an estate of more than about $5 million, and a married couple an estate of more than $11 million, before they need to worry about federal estate taxes.

Quid pro quo featured

You’ve probably heard it before on your favorite law show or movie court case, but do you know what “quid pro quo” actually means?

Quid pro quo (“something for something” in Latin) means an exchange of goods or services, where one transfer is contingent upon the other.

Quid pro quo can have different meanings in different areas of the law.

For example, the term has a very particular meaning in employment law where “Quid pro quo” is a type or kind of sexual harassment. “Quid pro quo” harassment occurs in the workplace when a manager or other authority figure offers that he or she will give the employee something (a raise or a promotion) in return for that employee’s satisfaction of a sexual demand. Obviously quid pro quo in this context creates a big illegal.

The singular mission of Gordon Fischer Law Firm, P.C. is to promote and maximize charitable giving in Iowa. So, in the arena of philanthropy and nonprofits, what does quid pro quo mean?

A charitable donation is deductible—to the extent the donation exceeds the value of any goods or services received in exchange. So what happens when you donate to your favorite charity and receive something tangible in return? This is the issue of “quid pro quo” in charitable gift law.

Quid Pro Quo Example

quid-pro-quo-meme

If a donor gives a charity $100 and receives an opera ticket valued at $40, the donor has made a quid pro quo contribution. In this example, the charitable contribution part of the payment is $60. The donor is entitled to a charitable deduction for $60, but not the entire $100.

Both the donor and donee have a responsibility here. The donor, of course, can only deduct the cost of the donation less the value of the goods/services received. The charity must provide their donors clear, written documentation of the value of donations.

In fact, in these quid pro quo situations, under IRS rules, the nonprofit must provide a written disclosure statement. This required written disclosure statement must both:

• Inform the donor that the amount of the contribution that is deductible for federal income tax purposes is limited to the excess of any money (and the value of any property other than money) contributed by the donor over the value of goods or services provided by the charity.

• Provide the donor with a good faith estimate of the value of the goods or services that the donor received.

Free Consultation

If your favorite charity wants to talk with me, no quid pro quo is required! I offer a free one-hour consultation, with absolutely no obligation. I can always be reached by email at Gordon@gordonfischerlawfirm.com, and by phone at 515-371-6077.