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Trust Options

Trust Options at MacCormack Law

There are many reasons to create a living trust, making this property distribution technique a popular choice when creating an estate plan. A living trust allows for the management of your assets during your lifetime and the transfer of those assets pursuant to the terms of the trust without a court-supervised probate proceeding. A living trust is a revocable trust. During your lifetime, you may serve as the trustee and primary beneficiary. By transferring your assets to a living trust, you would maintain control and beneficial enjoyment just as if you owned them as an individual. The account owner will be: (client name), Trustee, (client last name) Family Trust, under declaration of trust dated (date signed). If you fund your trust with an investment account, you would use your social security number to identify the trust account.

Estate Planning MacCormack LawIf the trust assets generate income, the trust would not be required to file income tax returns. The income generated from trust assets would be reported on your individual income tax returns. You should not fund your trust with retirement accounts because of the adverse income tax consequences. If you fund your trust with your residence, be sure to contact your insurance carrier and inform them of the new owner. Request that they send you a revised insurance declaration page which should list the trust as the insured.

One advantage of creating a living trust is the avoidance of the time and expenses associated with probate administration. Another advantage of creating a living trust is to minimize or eliminate federal and state estate taxes by fully utilizing each spouse's unified credit. As an example, if a married couple each had wills that left everything to the survivor, there would be no estate tax on the first death because of the unlimited marital deduction. Upon the surviving spouse's death, he or she would only be able to claim their own estate tax exemption and would lose the estate tax exemption of the predeceased spouse. The current federal estate tax exemption is $5,000,000. By creating a living trust, instead of the deceased's assets passing directly to the surviving spouse, the assets would be placed in a trust for the benefit of the surviving spouse. This way, both estate tax exemptions are fully utilized which may significantly reduce estate taxes.

Life Insurance Trusts

Generally, benefits paid under life insurance policies would be included as part of the deceased's taxable estate. In order to reduce the value of your estate you should consider creating an irrevocable life insurance trust. The life insurance trust would be the owner and beneficiary of the life insurance policy. This would remove the value of the policy from your gross taxable estate. See the attached example. You could name your spouse as trustee. The proceeds from the insurance policy would be payable to the trust, and distributions from the trust can be made payable to your surviving spouse and your issue.

It is important that you follow specific procedures regarding payment of the premiums for the life insurance policy. A tax identification number will be obtained for the insurance trust. The trustee should open a bank account in the name of the trust, and each year you will deposit an amount into the trust account sufficient to cover the cost of the premiums. The trustee will then pay the premium from the trust bank account. Your deposit to the trust account represents a gift which will be eligible for the $13,000 annual gift tax exclusion provided that "Crummey" notices are sent to the trust beneficiaries. This procedure must be followed each year.

There are other advanced estate planning techniques. Please contact us for a free consultation to discuss your particular situation.