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Schwartz F03 T&E - 2 week overview 8-25 to 9-10

Schwartz F03 T&E - 2 week overview 8-25 to 9-10 -...

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8/25/03 Industrial National Bank vs. Maury , 183 Atl.2d 724: Classic estate planning failure – Half a century after the testator died, his will came up in court, and was held null and void because it violated the Rule Against Perpetuities. Preparatory overview: Myths of Estate Planning 1. Myth 1 : ‘Trusts and Estates’ is only concerned with the drafting and execution of simple wills. - Methods of Disposing of Property o Simple wills = Execution of a document where one spouse leaves all his/her property to the other spouse o Intervivos Gifts square4 Revocable square4 Irrevocable o Intervivos Trusts : Ownership of property interest is divided between at least two people (trustee and beneficiary). The trustee has the legal title; the beneficiary has equitable title. It is unclear whether a trustee has a fiduciary duty to the beneficiary. Used when donee/beneficiary isn’t competent, or when you want to leave something for the next beneficiary in a generation of beneficiaries. square4 Revocable square4 Irrevocable Trust for minors; ideal – creates safe harbor. IRC § 2503. G rantor R etain A nnuity T rust/ G rantor R etain U ni T rust o GRAT = Client transfers funds to irrevocable trust but retains the right for a period of time to receive income (fixed annuity). At the end of the period, benefits flow irrevocably not necessarily in trust to beneficiaries. Can reduce potential tax or almost eliminate gift tax. Donor retains the right to take out entitled money or it could be considered an additional gift. o GRUT = The amount to be paid to grantor is determined annually based upon value of assets valued annually. G rantor R etained I nterest T rust o GRIT = Personal residence trust; Retain right to live in residence for a period. C haritable R emainder A nnuity T rust/ C haritable R emainder U ni T rust o Grantor transfers assets by an irrevocable trust for life and retains the right for annuity but when he dies, the remainder goes to charity. square4 Advantage: IRC § 170 = Charitable deduction of income tax. Value of gift = present value. There is no gift tax because yourself and the charity are beneficiaries. Both the estate tax and gift tax are
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deductible to charities (unlike income tax where there is a limit). When the donor dies, if the economic interest is still with you, the money is in your estate, but the offset is included and then deducted. C haritable L ead A nnuity T rust/ C haritable L ead U ni T rust o A charity gets the economic benefit for a period of time and then someone else gets it. Usually used when concerned about estate tax and that beneficiaries will get benefit before they are mature enough. Estate tax reduction – can theoretically wipe out the estate tax. o Joint Ownership = Most commonly used vehicle because it is the most simple and has been around for a long time. It has similar advantages to an irrevocable trust; it avoids delays of probate; some have right of survivorship.
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