Michigan Estate Planning Blog

What’s Involved with Being a Trustee?

There’s an old saying that the two best days in a boat owner’s life are the day they buy their boat and the day they sell it.

Forbes’ recent article entitled “How To Be An Effective Trustee” says that a similar notion applies to being a trustee – it’s an honor to be named and then a huge relief when it’s over. That’s because being a trustee is difficult.

Remember that a trust is a fiduciary relationship in which one party (the trustor) gives another party (the trustee) the right to hold title to property or assets for the benefit of a third party (the beneficiary). Trusts are created to provide legal protection for the trustor’s assets, to make certain those assets are distributed according to the wishes of the trustor, and to save time, reduce paperwork and, in some cases, avoid or reduce inheritance or estate taxes.

Being a trustee requires knowledge about a wide range of topics, including:

The trustee’s fiduciary duties, which include loyalty, impartiality, duty of care, protection of trust property, enforcement of claims and the duty to inform and account to beneficiaries, among others (violation of these duties exposes the trustee to liability).

Understanding the details of the trust, like the specifics of the distribution instructions.
Investments and the ability to engage and monitor investment managers.

Administrative matters, such as record keeping and principal and income accounting.

Estate planning, trusts and the basics of the estate, gift and generation skipping taxes.

Income tax, including how trusts are taxed both by the federal government and the state.

A trustee must also be able to productively communicate and work with the beneficiaries on their financial wellness and distribution needs, which is an area that can be full of conflict.

It’s a daunting list. Talk with an experienced estate planning attorney to discussion your situation in detail.

Reference: Forbes (May 31, 2022) “How To Be An Effective Trustee”

Has the Pandemic Made People More Aware of Estate Planning?

 

The COVID-19 pandemic has led many more Americans to pay attention to estate planning, but just a third of them have taken action, according to a recent report.

Financial Advisor IQ’s recent article entitled “More Americans Set Up Estate Plans Since Start of Pandemic” reports that more than 50% of Americans think estate planning is at least somewhat important, senior living referral service Caring.com found in a survey of more than 2,600 American adults. Caring.com didn't disclose when the survey was conducted.

The number of those aged 18 to 34 with estate planning documents has increased 50% since the beginning of the pandemic, according to the survey. Americans who’ve suffered through a serious COVID case are also 66% more likely to have a will than those who haven’t, Caring.com found.
Roughly 48% who have had a serious case have estate planning in place, as do 41% of those who have loved ones who had one. That’s compared to 29% who have no experience with a serious COVID -19 case, according to the survey.

Overall, two out of three American adults don’t have a will — the percentage has only inched up from 32.1% in 2020 to 32.9% in 2021 to 33.1% this year.

More than 60% of those without a will have done nothing toward getting a will or any estate planning document, according to the survey.

The most cited reason for not having a will is simply not getting around to it. That’s cited by 40% of all Americans without one.

That’s particularly prevalent among those earning $80,000 a year or more and without a will, 63% of whom say they haven’t had time to do so, as well as those with postgraduate education, two out of three of whom say they haven’t got around to it, according to the survey.

On the other hand, 48% of those earning $80,000 or more say they do have a will or another estate planning document.

That represents a 7% increase since 2020, Caring.com says.

However, a third (33%) of Americans overall say they don’t have an estate plan because they don’t have enough to leave behind, according to the survey.

Meanwhile, 12% say they don’t know how to get a will or living trust, and about 13% believe it’s too expensive to set up. Another 6% think it takes too long, and 9% say they don’t have anyone to leave their assets to, Caring.com found.

Reference: Financial Advisor IQ (April 25, 2022) “More Americans Set Up Estate Plans Since Start of Pandemic”

Should I have a Charitable Trust in My Estate Plan?

 

Charitable trusts can be created to provide a reliable income stream to you and your beneficiaries for a set period of time, says Bankrate’s recent article entitled “What is a charitable trust?”
Establishing a charitable trust can be a critical component of your estate plan and a rewarding way to make an impact for a cause you care deeply about. There are a few kinds of charitable trusts to consider based on your situation and what you may be looking to accomplish.
Charitable lead trust. This is an irrevocable trust that is created to distribute an income stream to a designated charity or nonprofit organization for a set number of years. It can be established with a gift of cash or securities made to the trust. Depending on the structure, the donor can benefit from a stream of income during the life of the trust, deductions for gift and estate taxes, as well as current year income tax deductions when the assets are donated to the trust.
If the charitable lead trust is funded with a donation of cash, the donor can claim a deduction of up to 60% of their adjusted gross income (AGI), and any unused deductions can generally be carried over into subsequent tax years. The deduction limit for appreciated securities or other assets is limited to no more than 30% of AGI in the year of the donation.
At the expiration of the charitable lead trust, the assets that remain in the trust revert back to the donor, their heirs, or designated beneficiaries—not the charity.
Charitable remainder trust. This trust is different from a charitable lead trust. It’s an irrevocable trust that’s funded with cash or securities. A CRT gives the donor or other beneficiaries an income stream with the remaining assets in the trust reverting to the charity upon death or the expiration of the trust period. There are two types of CRTs:
A charitable remainder annuity trust or CRAT distributes a fixed amount as an annuity each year, and there are no additional contributions can be made to a CRAT.
A charitable remainder unitrust or CRUT distributes a fixed percentage of the value of the trust, which is recalculated every year. Additional contributions can be made to a CRUT.
Here are the steps when using a CRT:
Make a partially tax-deductible donation of cash, stocks, ETFs, mutual funds or non-publicly traded assets, such as real estate, to the trust. The amount of the tax deduction is a function of the type of CRT, the term of the trust, the projected annual payments (usually stated as a percentage) and the IRS interest rates that determine the projected growth in the asset that’s in effect at the time.
Receive an income stream for you or your beneficiaries based on how the trust is created. The minimum percentage is 5% based on current IRS rules. Payments can be made monthly, quarterly or annually.
After a designated time or after the death of the last remaining income beneficiary, the remaining assets in the CRT revert to the designated charity or charities.
There are a number of benefits of a charitable trust that make them attractive for estate planning and other purposes. It’s a tax-efficient way to donate to the charities or nonprofit organizations of your choosing. The charitable trust provides benefits to the charity and the donor. The trust also provides upfront income tax benefits to the donor, when the contribution to the trust is made.
Donating highly appreciated assets, such as stocks, ETFs, and mutual funds, to the charitable trust can help avoid paying capital gains taxes that would be due if these assets were sold outright. Donations to a charitable trust can also help to reduce the value of your estate and reduce estate taxes on larger estates.
However, charitable trusts do have some disadvantages. First, they’re irrevocable, so you can’t undo the trust if your situation changes, and you were to need the money or assets donated to the trust. When you establish and fund the trust, the money’s no longer under your control and the trust can’t be revoked.
A charitable trust may be a good option if you have a desire to create a legacy with some of your assets. Talk with an experienced estate planning attorney about your specific situation.
Reference: Bankrate (Dec. 14, 2021) “What is a charitable trust?”

Asset Protection Shell Game Rejected

Asset protection is a difficult game, mostly because it’s not a “game” at all. Done right, asset protection is a natural consequence flowing from proper legal planning. Done wrong, asset protection is an unnatural manipulation of otherwise proper legal planning to defraud legitimate creditors. The case of Waldron v. Huber is illustrative of the latter. To say Waldron v. Huber is a complex case would be a gross understatement. The Huber case included Alaska LLCs, Washington properties, a failing partnership, and a Domestic Asset Protection Trust (DAPT). A recent Forbes article, titled “Domestic Asset Protection Trust Blows Up Bigger Than Alaska In Huber Case,” provides an accurate description of the outcome. Bottom line: in Huber, the courts found the legal planning to be too-good-to-be-true. The comprehensive analysis of the case by the Forbes article is instructive, highlighting certain considerations before electing to deploy a DAPT as part of your asset protection planning.

Reference: Forbes (May 22, 2013) “Domestic Asset Protection Trust Blows Up Bigger Than Alaska In Huber Case”

For more information, see www.jerryreiflawyer.com

 

Your Portfolio And Your Estate Planning

Your portfolio can be thought of a machine, with many moving parts all working and buzzing away on their own. If you direct your own investments, however, your portfolio is more likely to resemble a well-tended garden that responds to the care and direction of you, the caretaker. What happens to the portfolio when you pass away? This is a very real question in need of an answer, especially when you are both the caretaker and the family financial mind. Just as with any other matter, how you want your finances to be tended is important information you ought to share with your loved ones sooner rather than later. Unfortunately, you can plan it out and hold family meetings on the subject but there is always the very real – and perhaps also, likely – possibility that your advice won’t be heeded. Spouses can forget or be persuaded otherwise, and adult children may think they know best and make the same mistakes as a novice. To make matters worse still, an expensive and mediocre advisor might get called in instead. This is the message of a recent Forbes article on the topic. If this matter is a concern for you, then there are ways to plan around it. For some, proper planning will entail establishing relations with an advisor and handing over some of the reins early. In terms of your portfolio and its role in your estate plans as a whole, you might consider a trust and a faithful trustee to do the work you know needs to be done. Clearly, your investments are important to you and your family, and so they also are important to your estate plan.

Reference: Forbes (January 5, 2012) “My Spouse Will Call You When I’m Dead”

Estate Planning For Firearms

Proper estate planning for your assets depends, in large part, on what those assets are. Common assets in an estate include the obvious, such as real estate, collections, cash, brokerage accounts, retirement funds and stock portfolios. However, there can be less obvious assets requiring special attention. A recent article through Forbes points this out with a fairly common example that is all too easily forgotten: the special estate planning problem of guns. Guns are as natural to own for some as any other asset is. Indeed, to some, their firearms collection is really more akin to an art collection. That noted, under the law, passing down your firearms to your heirs may trigger a different set of laws than passing down your tools set or the painting in your hearth room. Firearms are highly regulated at both the federal and state levels. Consequently, the laws and regulations need to be followed, particularly if the firearms will be crossing state lines. Passing down firearms to heirs can take time and require the approval of several parties, such as the chief law enforcement officer for the respective jurisdictions. Enter the “gun trust.” This can be a simple and powerful tool to pass down your firearms. Practically speaking, it is a special purpose revocable living trust. At its formation, the owner of the trust is both trustee and beneficiary. At the owner’s death, the trust property (i.e., firearms) is passed down to the lifetime and remainder beneficiaries by the successor trustees. Of course, trust or not, there are some hard and fast rules imposed by the National Firearms Act and all parties have to comply with them (or risk incurring serious fines and possibly even forfeiture of the right to bear arms). Your firearms (and other atypical estate assets), may hold a unique status under federal and state laws. Make sure you comply with any law governing their transfer, as part of your estate planning.

Reference: Forbes (September 22, 2011) “Gun Collections Pose Special Estate Problems”