Today many estate plans contain irrevocable trusts that will continue for the benefit of a spouse’s lifetime and then for the benefit of several generations.  Since these trusts are designed to span multiple decades, it is important that they include trust decanting provisions to address changes in circumstances, beneficiaries, and governing laws.

What is Trust Decanting?

When a bottle of wine is decanted, it is poured from one container into another.  When a trust is “decanted,” the funds from an existing trust are removed and distributed into a new trust that has different and more favorable terms.

When Should a Trust Be Decanted?

Provisions for trust decanting should be included in trusts that are intended to last decades into the future. Decanting allows the following to be addressed:

1. Clarifying ambiguities or drafting errors in the trust agreement.  As trust beneficiaries die and younger generations become the new heirs, vague provisions or outright mistakes in the original trust agreement may become apparent.  Decanting can be used to correct these problems.
2. Providing for a special needs beneficiary.  A trust that is not tailored to provide for a special needs beneficiary will cause the beneficiary to lose government benefits.  Decanting can be used to turn a support trust into a full supplementary needs trust.
3. Protecting the trust assets from the beneficiary’s creditors.  A trust that is not designed to protect the trust assets from being snatched by the beneficiary’s creditors can be rapidly depleted if the beneficiary is sued.  Decanting can be used to convert a support trust into a full discretionary trust that the beneficiary’s creditors will not be able to reach.
4. Merging similar trusts into a single trust or creating separate trusts from a single trust.  An individual may be the beneficiary of multiple […]
   

Today many estate plans contain irrevocable trusts that will continue for the benefit of a surviving spouse’s lifetime and then for the benefit of several generations.  Since these trusts are designed to span multiple decades, it is crucial to choose the right succession of trustees.

Should You Name Family Members as Your Successor Trustees?

Choosing the right succession of trustees for your irrevocable trust that is intended to continue for years is critical to its longevity and ultimate success.

Initially you may think that a family member, such as your spouse, a sibling, or an adult child, will be the best person to serve as your successor trustee. You may think family members will better understand the varying needs of your beneficiaries and keep the costs of administering the trust down.

But in reality family members will not be able to fulfill all of their fiduciary obligations without hiring legal, investment, and tax advisors.  The expense of all these outside advisors will add up and can ultimately cost more than a corporate trustee, such as a bank or trust company. One advantage of a bank or trust company is that they can often meet all fiduciary obligations under one roof for one fee.  In addition, a corporate trustee will act in an unbiased manner in making distributions and investments which will benefit both the current and remainder beneficiaries, and a corporate trustee will not get sick or too busy to oversee the day-to-day administration of the trust.

Should You Give Your Beneficiaries the Power to Remove and Replace Trustees?

Forcing your trust beneficiaries to be stuck with the wrong trustee without a reasonable means for removing and replacing the trustees may cause an expensive visit to the courthouse.

It is necessary to […]

Today many estate plans contain trusts that will continue for the benefit of a spouse’s lifetime and then for the benefit of several generations.  Since these trusts are designed to span multiple decades, it is important for the trust creator to consider including powers of appointment in the trust agreement to allow trust beneficiaries to be added or excluded at each generation.

What is a Power of Appointment?

In broad terms a power of appointment is the right granted to an individual under the terms of a trust to change the provisions of that trust.

Powers of appointment can be given to the current beneficiaries or trustees of a trust or to an outside third party such as a trust protector.  They also come in many different forms and include powers that can be exercised while the individual is living (a “lifetime” power of appointment), or after the individual dies (such as a power of appointment exercised in the individual’s own will or trust, which is a “testamentary” power of appointment).

Powers of appointment can be as broad or limited as the trust creator desires.  In other words, the trust creator can give the power holder the ability to make broad changes to the trust or to make very limited changes under limited circumstances.

Examples of Powers of Appointment in Action

Below are some examples of how a power of appointment can be used to change the beneficiaries of a trust:

• The trust creator’s spouse can be given the power to include or exclude children, grandchildren, and other heirs as trust beneficiaries after the spouse dies.
• The trust creator’s child can be given the power to include or exclude the child’s own heirs or the child’s spouse, siblings (brothers and sisters), or heirs […]
  

As a result of a 2010 tax law, a surviving spouse can receive his or her deceased spouse’s unused estate tax exemption. This is called a “portability” election. You may have seen it called the “deceased spousal exclusion amount” or “DSUE amount.”

In essence, a portability election allows a surviving spouse to apply the DSUE amount to his or her own taxable transfers during life and after death. Using the portability election can save a significant amount of estate tax and income tax, depending on your circumstances and assets.

Portability under the 2010 law was originally only a temporary option, available for estates of people dying during 2011 and 2012. But as a result of a 2012 tax law, the portability election became “permanent.” But, as you’ll see below, this change and other legal developments have created a great deal of confusion about portability.

In summary, a portability election is available for estates of people who died after January 1, 2011, and who left surviving spouses. Making a portability election can save you a significant amount of estate tax and income tax, depending on your circumstances and assets.

When and How is the Portability Election Made?

In order to make an effective portability election, the executor of the estate of the deceased spouse must timely file an estate tax return (Form 706) and include a computation of the DSUE amount.  The due date for Form 706 is the later of (i) 9 months after the deceased person’s date of death, or (ii) the last day of the period covered by an extension if an extension of time for filing has been obtained. Extensions are typically six months. So […]

Why do people procrastinate when it comes to estate planning?  There are many reasons.  See this article on EstatePlanning.com for a good list of reasons.

A recent article on EstatePlanning.com contains the following lists of misconceptions about a Living Trust:

1. A living trust is expensive
2. Trusts are for wealthy people
3. Most people go through probate anyway so a living trust is a waste of money
4. Giving up control over assets
5. High Trustee Fees
6. Separate Tax Identification Number and Tax Return to file

However, most of these misconceptions are not true.  First, a living trust can save money even though the cost to setup the living trust is higher than the cost to setup a will.  A properly funded living trust can avoid a costly conservatorship during the life of the Trustmaker and avoid the need for a probate at the death of the Trustmaker.  Further, asset protection benefits may exist for the Trustmaker's beneficiaries.

Second, living trusts are not only for wealthy people.  Living trusts can help all sorts of people.  As mentioned above, a living trust can avoid conservatorships, probate, and possible asset protection benefits for the Trustmaker's beneficiaries.  Especially for those adults with minor children, a living trust can avoid having a conservator appointed in charge of all the assets the minor will inherit without the living trust.

Third, a well drafted Trust that is completely funded by the Trustmaker avoids probate.  This saves the time, effort and money involved with the probate process.  Why not be one of those few people that actually avoid probate and the expense of it for your loved ones?

Fourth, a person does not give up control over their assets as long as they are the trustee of their living trust.  A trustee of a living trust has complete power to do whatever they want with the assets of […]

Forbes.com:  “Nearly 2.5 million Americans die each year, and many haven’t signed the basic documents needed to protect loved ones. But let’s say you took this important step. How often do you need to revisit your estate plan?

To most, our Facebook and Twitter accounts are the furthest thing from our mind when it comes to getting our affairs in order after death, or perhaps it is a legitimate concern.  Blog posts, pictures, and content that we share with the world through our social media accounts give people a glimpse of our personal lives.  So what happens to those accounts after we die?

“Technology companies are making it possible for you to send a pre-written email, Facebook status update or Tweet after death. Some are even coming up with ways to keep your Twitter account active with regular updates that mimic your Twitter personality after you die.  The founder of DeadSocial said, it's a social media savvy way for people to say their final goodbyes.”

George Washington's Will

Leisure Hours, the Ninth day of July, 1799

George Washington composed his own will without the consult of an attorney or a person of professional character. His distinctive style of writing both powerful and lucid, left no room for question as to how is estate was to be distributed upon his death. Washington's will showed his strong sense of character and views about his divergent and valuable properties that he had attained over the course of his lifetime.

“The extraordinary care and precision with which he spelled out how and under what conditions his land and other possessions should be distributed among the numerous members of his extended family, among his old friends, and among various dependents, provide further insight into the workings of his mind and the impulses of his heart. The language of Washington's will and its contents combine to make it a document of particular importance among his papers.”

The passing of high-profile celebrities thrust the issue of proper distribution of their estate.  Most notably being Michael Jackson, who ranked as the top earning deceased celebrity in 2010-2011.  Jackson's estate accrued $170 million, a significant drop form the previous year with $275 million, from sales in music and his stake in Sony/ATV catalog.

“It's clear that while the stories may all be tragically unique, the contributing factors remain relatively consistent.  Collectively, these cases obviate the need for a unified approach to wealth management that balances short- and long-term lifestyle concerns against the desire to effectively transfer wealth and preserve legacies. . . .Without an estate plan, a celebrity is unable to ensure that the proper individuals are left in control of their estate and legacy.”

Interestingly enough, the public becomes even more captivated with celebrities upon their death, especially if there is any controversy with their estate. It is not uncommon for celebrities to continue to generate substantial revenue long after their death, with royalties from their body of work, but where does it all go?