Lisa's Estate Planning Methods

Lisa's Estate Planning Methods - ESTATEPLANNINGVEHICLES I....

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ESTATE PLANNING VEHICLES I. WILLS a. Disadvantage: i. Major disadvantage is a destruction of affairs and a delay b/c of probate and until the executor is appointed ii. The process stops when the person dies iii. Many formalities are required to create, change and modify b. Uses: i. To dispose of stuff that was not disposed of in the trust, and then, the will will say whatever wasn’t disposed of in the will should be added to the trust. ii. To nominate guardian for minor children (technically is appointed by the court, but the court will defer to the expression of wishes in the will II. LIFE INSURANCE III. LIFE INSURANCE TRUST IV. CONTRACTS V. TOTTEN TRUST a. A goes to bank, asks the bank to pay the balance of the account at his death to person B. i. B has no stake to the money while A is alive ii. Doesn’t avoid creditors – if A is insolvent at death, B gets nothing. b. Benefit is that it is easy to create, revocable and avoids probate. VI. JOINT OWNERSHIP a. SEE WILL SUBSTITUTES VII. REVOCABLE TRUSTS a. SEE WILL SUBSTITUTES b. Cornerstone of estate planning – Every estate plan has one c. Trust: Person occupies role of trustee and acquires legal title to the assets, for the benefit of beneficiaries. The beneficiaries have equitable title (rights historically enforceable in court of equity). The trustee is a fiduciary and has a slew of responsibilities, ie. prudence, loyalty, no self- dealing, etc. d. Creator = settler, grantor, donor or trustor e. Revocable Trust: settler retains the power to revoke or change in its discretion, but upon the death of the settlor there are further dispositions for the property – it becomes irrevocable i. Creditors can reach during S’s lifetime ii. No major tax advantages 1. Estate Tax : Includable in estate for estate tax b/c of revocable nature 2. Income Tax : While trust creator is living, the income is income taxable and attributable to the settler under IRC § 676 b/c of revocable nature f. Advantages: i. Gift Tax : Creation of trust is not a gift for gift tax purposes b/c the gift is incomplete since revocable – still have “dominion and control” ii. Can be created and amended with little formality iii. Not a public document (a will is public) iv. *Avoids probate – avoids a disruption in affairs of settler both at death and in lifetime if there is a disability* 1
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1. Clause : “In the event the donor becomes incompetent (Trustee’s determine, or certified by medical fact) the other trustees will be able to pay out the income/principle for the benefit of the donor and his wife” so that there will be no disruption and they can do this (cant do this with wills) a. Trap Hypo: H makes a revocable trust, child and wife are co-trustees. Trust has the above clause. They have the benefit of taking the property for their own benefit – a general power of appointment : if child/wife are trustees and they can use the income and principle to their own benefit, then if the wife dies first, then it could be includable in the wife’s estate for federal estate tax!! i.
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Lisa's Estate Planning Methods - ESTATEPLANNINGVEHICLES I....

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