The Role of Trusts

A trust is an estate planning tool available to achieve two goals. First, a trust will manage personal matters such as the transfer of personal responsibilities in the event of your incapacity. Secondly, a trust will manage financial matters such as the management and distribution of assets as well as planning for and minimizing estate and other taxes.

You likely have heard the words "estate taxes" a lot. This is because the estate tax rate is over 40%! An effective estate plan usually can result in significant tax savings in addition to other advantages.

Federal Estate Taxes

*The Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA 2001), signed into law by President Bush on June 7, 2001, repeals the estate tax for one year in 2010. Under this law, the federal estate tax continues, but with increasing unified credits and decreasing top estate tax rates, until 2010 when it is repealed only for that year. Without future Congressional action, the 2001 federal estate tax rules will be reinstated in 2011, but with a $1 million exemption equivalent (as scheduled to increase prior to the Act).

Types of Trusts

At our initial conference we will discuss which, if any, of trust options is right for you. We will also explain how each plan will work. The appropriateness of such options will be discussed once we have an understanding of the complexity of your estate and your personal estate planning goals. The following are some brief descriptions of the various types of trusts that may be appropriate in your estate plan. One trust may actually have several of the characteristics or purposes described below.

Revocable Living Trust: A living trust can minimize the trouble and cost for your family by avoiding the probate process. A living trust can also help protect your privacy by avoiding a public filing in probate court. Additionally, this plan will provide for the management of your assets if you become incapacitated. It will also reduce the likelihood that your estate plan will be challenged by potential heirs. A living trust may be particularly important if you have property in another state.

This type of trust is established by an individual or a married couple and becomes effective immediately upon establishment while the person establishing it, known as the Grantor (also referred to as Settlor or Trustor), is still alive (thus "Living"). The trust remains revocable and amendable during the lifetime of the Grantor (thus "Revocable") and is used to avoid probate, facilitate some tax planning, provide for management during periods of incapacity without need for a guardianship or conservatorship, address family circumstances and provide for ultimate distribution of the estate.

Irrevocable Trust: A trust that cannot be revoked, modified or amended once it has been established. Irrevocable trusts are often used in tax planning to get property "out" of an individual's estate so that it will not be subject to estate tax upon his or her death. While the trust cannot be changed once made, there is greater flexibility then it may seem because the Grantor has much leeway in determining nearly every aspect of the trust during its creation.

A/B Trust or A/B/C Trust Estate Plan: Any two persons, "grantors", can create an A/B trust. This type of trust begins as a single revocable trust, but when one of the persons dies, the trust divides into subtrusts. The A/B/C trust adds a third option when appropriate.

Bypass Trust: Once your estate grows near or beyond the amount taxable under the tax code, you may want to create a "bypass trust" to minimize the estate taxes due when you and your spouse die.

Charitable Trust: A trust created for the purpose of performing charity or providing social benefits and to achieve income and estate tax savings for the person who created the trust. Unlike most trusts, a charitable trust does not require definite beneficiaries and may exist in perpetuity.

Crummey Trust: An irrevocable trust established to qualify contributions for the annual federal gift tax exclusion for gifts of a present interest. So-called because the trust contains "Crummey Powers," enabling a beneficiary to withdraw assets contributed to the trust for a limited period of time.

Gift Trust: An irrevocable trust established to act as the repository of gifts to its beneficiaries, drafted such that the gifts to the trust will be excluded from the donor's taxable estate at death.

Insurance Trust: An irrevocable trust established to own life insurance on a person, so designed to exclude the proceeds of the policy - the death benefit - from the insured person's taxable estate at death. Although life insurance is generally exempt from income tax, it can still be subject to estate tax. A life insurance trust can avoid both taxes, generating potentially enormous savings. These trusts are also useful for providing liquidity for specific needs after death.

Qualified Income ("Miller") Trust: Also called special needs trust, it is designed to provide benefits to, and protect the assets of, physically disabled or mentally disabled persons and still allow such persons to be qualified for and receive governmental health care benefits. They may be created with the proceeds from a judgment or settlement or by a loved one with concerns for a disabled beneficiary.

Spendthrift Trust: During your lifetime the assets in a revocable trust are treated as owned by you and subject to the claims of your creditor as if you owned them in your personal name. If the trust assets remain in trust after your death, the interests of the beneficiaries may be protected from their creditors by a "spendthrift" provision in the trust agreement.

The list above includes only a few of the possible estate devices that may be appropriate to meet your needs and wishes. There are many other techniques that may be used in various combinations to suit a variety of circumstances. The selections depend upon the type and complexity of the plan being developed; the asset mix; the extent of tax planning or planning for closely held business interests involved; and other factors. More complex planning may include vehicles such as Charitable Remainder Trusts, Business Buy-Out Agreements, Grantor Retained Annuity Trusts, Grantor Retained Interest Trusts, Family Limited Partnerships or Family Limited Liability Corporations. It is impossible to say which trust or combination of trusts or approach is appropriate until we have the your personal and financial information; know your estate planning goals and objectives; and have an opportunity to discuss various estate planning alternatives personally with you personally. Read more about Estate Planning Services and Fees If you are interested in maintaining management and control of your estate while avoiding probate, protecting family members, ensuring financial privacy and obtaining peace of mind, we offer estate plans which include wills, powers of attorney for property management, health care surrogates and living wills and appropriate trusts.

In addition, we will help you create an estate plan that minimizes or eliminates your tax liability. While each situation is different, an attorney who regularly practices in the field of wills, trusts and estate planning is able to provide you with sound legal advice as you put your estate plan into place.

We can guide you through the complexities of determining how you would like your legacy managed and help you create an estate plan that meets your needs and goals.

Contact The McCall Moody Law Firm at 850-656-7753 to speak with a dedicated estate planning lawyer today if you or a family member would like to set up an appointment to begin the process of preparing an estate plan tailored for your life. We are available to assist people in Tallahassee, Florida and the surrounding area, including Mexico Beach, Inlet Beach, Miramar Beach, and Navarre Beach.