As of the new year, the IRS raised the amount that can be passed estate tax free to $5.5 million. Each person can give this total amount as a gift during life or upon death without having to pay gift or estate tax. This is a good time to review your Revocable Trust and make sure that everything is in order to assure you and your family have access to assets due to illness or death. A Revocable Trust allows you to create the legal framework for your assets to be handled if you become incapacitated or upon your death. Here are 12 of the top ways to use a trust:
1. Avoid a court conservatorship when you want to leave more than $10,000 to minor children or grandchildren. Conservatorships are more expensive and restrictive than a trust for a minor—annual accountings are required as well as a court appointed attorney for the minor. Further, conservatorships which are created because of an inheritance must pay out at age 18. However, the court will not pay out the funds until there is a final accounting and court papers filed which must be reviewed by a judge at a court hearing. These expenses and delays can be avoided with a trust that creates a trust for a minor.
2. With a trust, you choose who will oversee the funds for minors or other beneficiaries, including how to invest, use and distribute the funds. Many trusts allow for stair stepping of control so that beneficiary can take control over three different ages, such as 1/3 at 25, a similar amount at 30 and the rest at 35. This allows the beneficiary to get used to having the funds and become responsible. This is especially significant since statistics show that heirs and judgment recipients can spend their funds in 18 months, no matter the amount inherited or the age of the beneficiary.
3. A trust can include incentives for children to go to college or pursue an advance degree. Trust provisions can require beneficiaries to limit drug and alcohol use and become gainfully employed.
4. A married couple can utilize provision which will limit the amount of estate tax assessed on the death of the couple.
5. With the increases in the amount that can be passed estate tax free,it is important to revise old provisions which required a trust to split when one of a married couple died. A trust amendment may be needed to make the split optional instead of automatic.
6. A trust provides the easiest way to manage the distribution of 401k's, IRA's, life insurance, real estate and other investments.
7. If you are planning to give to a charity, make sure that your IRAs and qualified retirement accounts are synced with your trust. Since charities do not pay income tax, you can increase your donation by utilizing assets that are subject to income tax. You can also fortify the assets you distribute to friends and family members by making sure the non-taxable accounts go to them.
8. With LLCs or corporations, listing the Trust as the Member or Shareholder limits delays and eases access for your family to continue business if you becomes incapacitated or die.
9. You can be sure that you have the right persons named as your Successor Trustee to take care of your assets when you cannot. The Successor Trustee does not have to be a financial expert—just someone responsible to get the financial experts involved, such as accountants, financial advisors and attorneys. If you want to name a financial institution to serve as Successor Trustee, realize that some have a financial minimum and will refuse to serve if the trust does not have enough assets invested. Thus, you want to be sure you have listed an alternate Successor Trustee who is a trusted person or another financial institution which has a lower financial minimum if necessary.
10. Avoid court involvement when there are disputes after your death about the trust administration by incorporating Arizona's statutes which allow for alternative dispute resolution. Those same statutes also require certain disclosure of asset information which can be limited by provisions in the trust agreement—something very important to use to protect the surviving spouse from nosy children or other family members.
11. Avoid probate court involvement and publishing of your personal worth after your death by making sure your assets are properly titled in your trust. Be sure the title or ownership names the Trustee and the trust; for example: "John and Jane Doe, as Co-Trustees, of the Doe Revocable Trust dated [insert date of signature]." The date that the trust agreement is signed becomes part of the name of the Trust, even if the trust agreement is later amended.