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Wills & Trusts

Q: What are the Various Types of Trusts?
  • Revocable Living Trusts (Most common type)
  • General Irrevocable Trusts
  • Life Insurance Irrevocable Trusts (For high asset individuals)
  • Qualified Personal Residence Trusts (For high asset individuals)
  • Special Needs Trusts
  • Testamentary Trusts
Q: What is a Revocable Living Trust?
It is the opposite of a “Irrevocable Trust”, and permits the grantor to change the Trust. A Revocable Living Trust can be used to hold legal title to and provide a mechanism for the management your property. You and your spouse can be the Trustees and beneficiaries of your Trust during your lifetime. You may also designate Successor Trustees to carry out your instructions in case of death or incapacity. Unlike a Will, a Trust usually becomes effective immediately when you become incapacity or die. Your Revocable Living Trust allows you to make changes and even to terminate it. One of the great benefits of a properly funded Revocable Living Trust is the fact that it will avoid or minimize the expense, delays and publicity associated with the probate process.
Q: What is a General Irrevocable Trust?
An Irrevocable Trust is one that can’t be modified or terminated without the permission of the beneficiary. The grantor, having transferred assets into the Irrevocable Trust, effectively removes all of his or her rights of ownership to the assets and the Trust.

Estate and tax considerations are the main reasons for setting up an Irrevocable Trust. The advantage of this type of Trust for estate assets is that it eliminates all incidents of ownership, successfully removing the Trust’s assets from the grantor’s taxable estate. The grantor is also relieved of the tax liability on the income generated by the Trust assets. While the tax rules will differ between jurisdictions, in most cases, the grantor can’t receive these benefits if he or she is the Trustee (manager) of the Trust.
Q: What is an Irrevocable Life Insurance Trust (LIT) and how does it work?
For those with estates in excess of $5,000,000, a LIT may be a valuable tax saving option. There is a common misconception that life insurance proceeds are not subject to estate tax. While the proceeds are received by your loved ones free of any income taxes, they are countable as part of your taxable estate and therefore your loved ones can lose over forty percent of its value to federal estate taxes. An Irrevocable Life Insurance Trust keeps the death benefits of your life insurance policy outside your estate so that they are not subject to estate taxes. There are many options available when setting up an LIT. For example, LITs can be structured to provide income to a surviving spouse with the remainder going to your children from a previous marriage. You can also provide for distribution of a limited amount of the insurance proceeds over a period of time to a financially irresponsible child.
Q: What is a Qualified Personal Residence Trust (QPRT) and how does it work?
For those with estates in excess of $5,000,000, a QPRT may be a valuable tax saving option. Our homes are often our most valuable assets and hence one of the largest components of our taxable estate. A Qualified Personal Residence Trust, or a QPRT (pronounced “cue-pert”) allows you to give away your house or vacation home at a great discount, freeze its value for estate tax purposes, and still continue to live in it. Here is how it works: You transfer the title to your house to the QPRT (usually for the benefit of your family members), reserving the right to live in the house for a specified number of years. If you live to the end of the specified period, the house (as well as any appreciation in its value since the transfer) passes to your children or other beneficiaries free of any additional estate or gift taxes. After the end of the specified period, you may continue to live in the home, but you must pay rent to your family or designated beneficiary in order to avoid inclusion of the residence in your estate. This may be an added benefit as it serves to further reduce the value of your taxable estate, though the rent income does have income tax consequences for your family. If you die before the end of the period, the full value of the house will be included in your estate for estate tax purposes, though in most cases you are no worse off than you would have been had you not established a QPRT. An added benefit of the QPRT is that it also serves as an excellent asset/creditor protection vehicle since you no longer technically own the property once the Trust is established.
Q: What is a Special Needs Trust and Who Needs one?
For anyone who has parent, child or sibling with special needs that depends on you for financial assistance, creating or making provisions for a Special Needs Trust is critical for ensuring that if something were to happen to you that financial resources would be made available to them without jeopardizing their government benefits (SSI). Without proper planning, your dependent could inherit your assets, become disqualified from their government benefits and then be forced to spend their inheritance before they can re-qualify for those benefits. Setting up or making a provisions for a Special Needs Trust is the first step in making sure they can both receive their government benefits and financial assistance from your estate.
Q: What is a Testamentary Trust?
Testamentary Trusts are Trusts that are based on instructions inside your Will; such Trusts are not established until after the probate process. They do not address the management of your assets during your lifetime. They can, however, provide for young children and others who would need someone to manage their assets after your death.
Q: Who Should Have a Trust?
Young married couples without significant assets or children, who intend to leave their assets to each other when the first one of them dies, do not need a Revocable Living Trust and would not benefit from having a Revocable Living Trust. Other persons who do not have significant assets and have very simple estate plans also do not need a Revocable Living Trust. Finally, anyone who wants Court supervision over the administration of his or her estate should not have a Revocable Living Trust. The greater the value of your assets (particularly if you own real estate), the greater the need for a Revocable Living Trust.
Q: What are the Advantages of a Revocable Living Trust
Advantage # 1: Ability To Select Your Beneficiaries: This is seldom mentioned as a reason for creating and executing an estate plan which includes a Trust, but it’s an important reason. Minor children are not allowed to own real property in the State of Utah and require an adult Guardian to oversee the property until the child reaches majority age. Even then, many parents do not want a newly minted 18-year-old adult to over see property for himself or herself or for others. Parents do not want to give an 18-year-old an incentive to quit college or purchase a brand-new Corvette.

But, minor children aren’t the only ones who might squander an inheritance. Most experts agree that no one under the age of 25 should be given a large inheritance outright, because they generally are not mature enough to handle large sums of money. A Trust allows you to give your hard-earned money and property to those you care about while protecting those funds for them at the same time.

Let’s take a look at a typical example and see how it works. Let’s say that you have a 18-year-old son who just graduated from high school. If you and your wife both die, you'd probably want your only son to get all of your property, including the equity in your home, your life insurance, retirement plans, etc. If you reduce all of your property to cash, it could easily amount to a good sum of money. For illustration purposes, let's assume it's $350,000. Having the executor of your estate write a check to your 18-year-old son for $350,000 is probably not a good idea. Instead, it would be far better to create a Trust for the benefit of your son with someone you trust -- say a friend, family relative, or an attorney serving as Trustee. The Trustee would then hold the money and invest it for your son’s benefit until he reached a more mature age, say age 25 or even 30. In the meantime, the Trustee would use the money to pay for your son’s college or training, his general living expenses, and any other expenses you specify in the Trust instrument -- including a down payment on a home. Then, when your son reaches the age specified in your Trust, the Trust would end, and all property held by the Trustee would be turned over to your son. Because your son will probably be finished with college or job training at that time and already embarking on a career of his own, he'll probably be mature enough to make good decisions regarding his inheritance.

Advantage #2: Selecting the Trustee: Many people serve as Trustees of their own Revocable Living Trusts until they become incompetent or die. Others decide they need assistance simply because they are too busy or too inexperienced or do not want to manage their day-to-day financial affairs.

Choosing the right Trustee to act on your behalf is very important. Your Trustee will have considerable authority and responsibility and will not be under direct Court supervision.

You might choose a spouse, adult child, domestic partner, other relative, family friend, business associate, or professional fiduciary to be your Trustee. The professional fiduciary could be a licensed, registered individual, or a bank or trust company licensed by the State of Utah. You may also name co-Trustees.

Discuss your choice with an estate planning lawyer. There are many issues to consider. For example, would the appointment of one of your grown children cause a problem with his or her siblings? What conflicts of interest would be created if you name a spouse, child, business associate, or partner as your Trustee? And will the person named as your Successor Trustee have the time, organizational ability and experience to do the job effectively?

Advantage #3: Reducing or Eliminating Estate Taxes: Many people say that a Revocable Living Trust doesn’t save estate taxes. Technically, they’re right. There are no provisions in the federal tax laws that exempt Revocable Living Trusts from estate taxes. However, Revocable Living Trusts are often used by individuals and families to take advantage of certain deductions and credits that are allowed under the tax laws.

That sounds like double-talk, so let me explain. For individuals dying in 2014, up to $5,250,000 was exempt from federal estate taxes. That exempt amount was made possible by virtue of a so-called “unified credit.” In addition to the unified credit, all property that passed to a surviving spouse was exempt from federal estate taxes by virtue of a so-called "marital deduction." The marital deduction was unlimited, so you could transfer any amount of money or property to your spouse without paying any estate taxes on it.

Because these estate issues are in a constant state of flux in Washington, D.C., if you have an estate larger than $1,000,000, you should update your estate plan every few years to make sure you understand the latest Washington D.C. craziness.

Because of the complexity of this issue, estate valuations, death taxes and death tax deductions are discussed further below.

Advantage #4: Managing Property Upon Incapacity: Most people name themselves as the Trustee in charge of managing their Trust's assets. This way, even though your assets have been put into the Trust, you can remain in control of your assets during your lifetime. You can also name a Successor Trustee who will manage the Trust's assets if you ever become unable or unwilling to do so yourself.

Here are some of the instructions your Revocable Living Trust could provide:
  • Give the Trustee the legal right to manage and control the assets held in your Trust.
  • Instruct the Trustee to manage the Trust's assets for your benefit during your lifetime.
  • Name the beneficiaries who are to receive your Trust's assets when you die.
  • Give guidance, certain powers and authority to the Trustee to manage and distribute your Trust's assets. The Trustee is a fiduciary, which means he or she holds a position of trust and confidence and is subject to strict responsibilities and very high standards. For example, the Trustee cannot use your Trust's assets for his or her own personal use or benefit without your explicit permission. Instead, the Trustee must hold and use Trust assets solely for the benefit of the Trust's beneficiaries.
If your assets were not in a Revocable Living Trust, however, someone else would have to manage them. How this would be accomplished might depend on whether your assets were separate or marital property. This will require the Court to appoint a “Conservator” to manage your assets while you are incapacitated. Your Conservator might be someone whom you previously nominated. Alternatively, if no one had been nominated, it might be your spouse, registered domestic partner or another family member. If none of those persons are available, then it might be the Public Guardian. Any time the Court is required to get involved, the proceedings are public in nature and can be costly depending on the level of Court intervention required.

Advantage # 5: Managing Property Upon Death: At your death, the Trustee -- similar to the executor of a Will -- would then gather your assets, pay any debts, claims, or taxes, and distribute your Trust assets according to your instructions. Unlike a Will, however, this can all be done without Court supervision or approval, and your assets will not become a public record.

Rather than simply distributing your assets, the assets held in your Revocable Living Trust could be managed by the Trustee, and the proceeds of that management could be distributed according to your directions without Court supervision and involvement. This can save your heirs time and money. Your heirs and beneficiaries would still have to be notified about the Revocable Living Trust by the Trustee and advised, among other things, of their right to obtain a copy of the Trust.

If your assets (those in your name alone) are not in a Revocable Living Trust when you die, they would be subject to probate. Probate is a court-supervised process for transferring assets to the beneficiaries listed in one's Will. After your death, a petition would be filed with the Court. After notice is given, a hearing would be held. Then your Will would be admitted to probate and an executor would be appointed. An inventory of your assets would be filed with the Court and notice would be given to your creditors so they could file claims. The process would end once the court approved a final distribution of assets.

Probate can take more time to complete than the distribution of property held in a Revocable Living Trust. In addition, assets tied up in probate may not be as readily accessible to the beneficiaries as those held in a Revocable Living Trust. And the cost of a probate is often greater than the cost of managing and distributing comparable assets held in a Revocable Living Trust.

Advantage #6: Avoiding Probate: It is true that property in your Revocable Living Trust will not go through probate when you die. That’s because the Trust instrument spells out who gets the property. It’s a lot like life insurance, annuities, 401(k) plans, IRAs, and company retirement plans -- those properties do not go through probate because they each have a designated beneficiary. Jointly owned property, with rights of survivorship, does not go through probate process either. It passes automatically to the surviving joint owner.

That does not mean, however, that your Successor Trustee is free to distribute the Trust property immediately. It’s not as simple as that. Just because your property is in Trust doesn’t mean that your outstanding debts don’t have to be paid. Likewise, the federal government still wants to collect its estate taxes; your state government still wants to collect its inheritance taxes; and the probate Court still wants some fees even though most of your property may avoid probate. There probably will be Trustee’s fees and attorney’s fees as well. In light of all these expenses, the Successor Trustee may be able to make some advanced distributions from the Trust, but enough money has to be retained in the Trust to pay all the debts and expenses.

Still, a reasonably efficient Successor Trustee will be able to determine, fairly quickly, just how much the potential debts and expenses will be, and he or she will then be able to make advanced distributions accordingly. In the final analysis, most Revocable Living Trusts are able to distribute property more quickly and with much less cost than is possible through probate.

Advantage #7: Avoiding a Will Contest: It is true that a Will is far more likely to be contested than a Revocable Living Trust. That’s because a Will goes into effect only when a person dies, whereas a Revocable Living Trust goes into effect as soon as the Trust instrument is signed and generally lasts for some time after the owner’s death. If you’re going to contest a Will, all you have to do is prove that the testator was either incompetent or under undue influence at the precise moment the Will was signed. To contest a Revocable Living Trust, you have to prove that the grantor was incompetent or under undue influence not only when the Trust instrument was signed, but also when each property was transferred to the Trust, when each investment decision was made, and when each and every distribution was made to the owner or anyone else. That is virtually impossible to do.

Moreover, it costs nothing to contest a Will. All a disgruntled family member has to do is object when the Will is presented for probate, then hire an attorney on a contingency fee basis, and wait for the final outcome. A disgruntled family member has nothing to lose. On the other hand, contesting a Revocable Living Trust generally involves a substantial commitment of time and money. Whereas a Will contest is heard under the probate calendar procedures, a Revocable Living Trust contest is heard on the general civil calendar, where there are filing fees and formal procedures that have to be followed.

Still, some people argue that Will contests are seldom successful, so why bother with a Revocable Living Trust? The answer is threefold: First, a Will contest puts a screeching halt to the settlement of an estate. Most Will contests take a minimum of two or more years to complete and, during that period, no distributions will be made to anyone. Second, defending a Will contest involves lots of attorney time that results in large attorneys’ fees. Even unsuccessful Will contests can end up costing $50,000 or more in attorney’s fees. And, those fees come out of the estate, which means that much less for the beneficiaries. Third, many Will contests are settled before they ever get to Court. In that case, the estate will be further diminished by the amount of the settlement that is eventually reached. In the final analysis, Will contests are time consuming and expensive. The best way to avoid them is through a Revocable Living Trust.

Advantage #8: Privacy: Most of us naturally dislike the concept of probate because it is a public process. Theoretically, anyone can go into probate Court when a person dies and look at the estate file. You can read the Will, find out who the relatives and beneficiaries are, look at the claims of creditors and the list of assets, and you can find the phone numbers and addresses of the beneficiaries. Unscrupulous sales people often go through estate files to locate grieving heirs to prey on. Disgruntled heirs, even friends and neighbors, often like to poke their noses into an estate file to see what’s there. And, with the advent of the internet, they don't even have to get themselves down to the probate Court to take a look. All they have to do is fire up their computer in the comfort of their own homes.

Revocable Living Trusts can prevent all of that. Revocable Living Trusts are private; they don’t get filed with the probate Court, and no one gets to look at them unless the grantor or the Trustee allows it. Some people put a high value on privacy -- some people don’t. In my experience, most individuals know whether they will have a problem with a family member or some other person regarding their estate. In those cases, privacy becomes a very important concern and one that should properly be addressed with a Revocable Living Trust. It's no accident that most the famous people utilized a Revocable Living Trust to keep their affairs private.

Q: How Are Assets Transferred into a Revocable Living Trust?
Once your Revocable Living Trust has been signed, an important task remains. This is known as “funding the Revocable Living Trust.” Deeds to your real estate must be prepared and recorded with the appropriate County Recorder’s Office. If Bank accounts, stock and bond accounts, or certificates are to become part of your Revocable Living Trust, they too must be officially transferred into the Revocable Living Trust. These tasks are not necessarily expensive, but they are important and do require some paperwork.

A Revocable Living Trust can hold both separate and marital property. This makes it convenient for spouses to plan for the management and ultimate distribution of their assets in one document. If you own real estate in another state, you might (depending on that state's law) transfer that asset to your Trust as well to avoid probate in that other state. A lawyer from that state can help you prepare the deed and complete the transfer. If the real estate is located in Utah, a Utah lawyer should prepare the transfer deed and advise you on transferring such real property to your Revocable Living Trust.

A lawyer can help you transfer other assets as well. For example, you should consider changing the beneficiary designations on life insurance to your Revocable Living Trust. As for the beneficiary designations on a qualified plan (such as a 401(k) or an IRA), you should seek a qualified professional's advice because there are serious income tax issues.
Q: Do I Have to Transfer All My Assets to My Revocable Living Trust?
Assets with beneficiary designations, such as a life insurance policy or annuity payable directly to a named beneficiary, need not be transferred to your Revocable Living Trust. Furthermore, money from IRAs, Keoghs, 401(k) accounts and most other retirement accounts transfer automatically, outside probate, to the persons named as beneficiaries. Bank accounts that are set up as a payable-on-death account (POD for short) or an "in trust for" account ("Totten Trust") with a named beneficiary also pass to that beneficiary without having to be titled into your Trust. It is important, however, to seek the counsel of an experienced estate planning attorney who can advise on and assist with transferring necessary assets to your Trust.
Q: If I Transfer Title to My Real Property to My Revocable Living Trust Can The Bank Accelerate My Mortgage?
Federal law prohibits financial institutions from calling or accelerating your loan when you transfer property to your Revocable Living Trust as long as you continue to live in that home. The only exception to the federal law, enacted as part of the 1982 Garn-St. Germain Act, is that it does not provide for such protection for residential real estate with more than five dwelling units.
Q: Will a Revocable Living Trust Help Reduce Estate Taxes?
The short answer is No. While a Revocable Living Trust may contain provisions that can postpone, reduce or even eliminate estate taxes, similar provisions could be placed in a Will to accomplish the same tax planning.
Q: Will My Estate be Subject to Death Taxes?
There are two types of death taxes that you should be concerned about: the federal estate tax and state estate tax. The federal estate tax is computed as a percentage of your net estate. Your net taxable estate is comprised of all assets you own or control minus certain deductions. Such deductions can be for administrative expenses such as funeral and burial costs as well as charitable donations. The federal estate tax as of 2013 taxes estates with net assets of $5,250,000 or greater. Even if you believe that you may not be affected by the federal estate tax, you still need to determine whether you may be subject to state estate and inheritance taxes. Further, you may have a taxable estate in the future as your assets appreciate in value. You should regularly review your estate plan with an estate planning attorney to ensure your estate plan takes into account changes in the tax laws as well as shifts in your individual circumstances.
Q: What is My Taxable Estate?
Your taxable estate comprises of the total value of your assets including your home, other real estate, business interests, your share of joint accounts, retirement accounts, and life insurance policies minus liabilities and deductions such as funeral expenses paid out of the estate, debts owed by you at the time of death, bequests to charities and value of the assets passed on to your U.S. citizen spouse. The taxes imposed on the taxable portion of the estate are then paid out of the estate itself before distribution to your beneficiaries.
Q: What is the “Unlimited Marital Deduction?”
The federal government allows every married individual to give an unlimited amount of assets either by gift or bequest, to his or her spouse without the imposition of any federal gift or estate taxes. In effect, the unlimited marital deduction allows married couples to delay the payment of estate taxes at the passing of the first spouse because at the death of the surviving spouse, all assets in the estate over the applicable exclusion amount ($5,250,000 in 2013) will be included in the survivor's taxable estate. It is important to keep in mind that the unlimited marital deduction is only available to surviving spouses who are United States citizens.
Q: Will I have to file a Separate Income Tax Return for my Revocable Living Trust?
No, not during your lifetime. The taxpayer identification number for accounts held in the Trust is your Social Security number, and all income and deductions related to the Trust's assets are reportable on your individual income tax returns.
Q: Who Should Prepare a Revocable Living Trust for Me?
A qualified estate planning lawyer can help you prepare your Revocable Living Trust, as well as a Will and other estate planning documents. While other professionals and business representatives may be involved in your estate planning, a Revocable Living Trust is a legal document which should be prepared by a qualified Utah attorney. If another professional offers to prepare a Revocable Living Trust for you, ask that professional about his or her qualifications. While other professional may be licensed to sell you an “annuity” or “life insurance” as an investment or as part of your overall estate plan, you should still have a licensed estate planning attorney prepare your Revocable Living Trust to make sure it is done correctly.
Q: Should I Beware of "Promoters" of Financial and Estate Planning Services?
Yes. There are many professionals who hold themselves out as "trust specialists," "certified planners" or other titles that suggest the person has received advanced training in estate planning. Utah is experiencing an explosion of promotions by unqualified individuals and entities which only have one real goal: to gain access to your finances. To better protect yourself: • Ask if the promoter is associated with, and works under a knowledgeable estate planning attorney. Be wary of organizations or offices that are staffed by non-lawyer personnel and that promote one-size-fits-all Living Trusts or Living Trust kits. An estate plan created by someone who is not a qualified lawyer can have enormous and costly consequences for your estate. • Consult with a lawyer or other financial advisor who is knowledgeable in estate planning before considering a Revocable Living Trust or any other estate or financial planning document or service. • Always ask for time to consider and reflect on your decision. Do not allow yourself to be pressured into purchasing an estate or financial planning product.
Q: How Much does a Revocable Living Trust Cost?
It depends on your individual circumstances, the complexity of documentation and planning required to achieve your goals and objectives. Generally, the costs will include the lawyer's charges for discussing your estate plan with you and for preparing a Revocable Living Trust agreement, your Will, Power of Attorney or other necessary legal documents; supervision over their execution; and services or instructions for funding your Revocable Living Trust.

When you retain a lawyer, you should understand what services are to be provided and how much they will cost. Some lawyers charge a flat fee for simple estate planning services. Other lawyers charge on an hourly basis or use a combination of both types of fees for more complex estate planning services.