From the Desk of LTN Tax Expert on Asset Protection
“This article is intended to familiarize our readers with the 3 primary types of Estate Trusts: Revocable, Irrevocable or Asset Protection” — Bruce WD Barren PhD
When you begin to determine who gets what, start with a written lists of their Assets and their respective liabilities are.
To start the Process, the initial focus should be a Last Will & Testament, which should be written, witnessed ideally by 2 independent witnesses, and with ideally the identification of whom the beneficiaries are to be.
Remember, many people think that estate and will planning is only for the elite. Nothing could be further from the truth. If you have an asset, it can be anything from a bike to a private airplane, you need to create a will.
Though more people now than ever realize the importance of creating a will, many people still downplay the significance of writing a will.
Ever wondered what happens to an estate of a person who passes away without making a will?
A person who dies without a will is said to have died intestate, meaning that the local intestacy laws (of the state) will decide how their property such as bank accounts, real estate, securities, and other assets will be divided.
Real Estate acquired in a different state than where the deceased person resided will be handled according to the intestacy laws of the state where it is located.
The laws of intestate succession will vary depending on whether the person was single or married and had children.
In most cases, the estate of a person who died without making a will is divided between their heirs, which can be their surviving spouse, uncle, aunt, parents, nieces, nephews, and distant relatives. If, however, no relatives come forward to claim their share in the property, the entire estate goes to the State where the descendent died.
Their primary responsibility is to protect and perpetuate Estate Assets for their heirs in order to protects one’s assets and to save tax dollars.
Whatever Trust instrument one selects, it is a complicated process and any estate planning should be done only in consultation with a qualified Estate Attorney.
For those who are unaware there are 15 types of Estate Trusts available and each should be treated with sophistication.
These include: Revocable Trust, Irrevocable Trust, Asset Protection Trust, Testamentary Trusts, Special Needs Trust, QTIP Trust (this allows an individual, called the Grantor, to leave assets for a surviving spouse and also determine how the trust’s assets are split up after the surviving spouse dies.), Blind Trust, Spendthrift Trusts, Charitable Trusts, the little known and less often used Totten Trust (see special comments below), Constructive Trusts, By-pass Trusts, Generation Skipping Trusts, Life Insurance Trusts, and Creditor Shelter Trusts.
Once the above is determined then the question moves to the question of heirs.
This is also complicated for too often disproportionate Trusts are sent up during a parent’s life, particularly referring to a father or an Estate is left totally to a wife.
This is where the problem begins to emerge but only after the primary asset spouse has long since passed away.
Just remember the average time to distribute trust assets ranges from 12 to 18 months.
Why does it take so long to settle an estate with a Trust to the beneficiaries and heirs?
Initially, when the Grantor passes, the Trustee has to come in and begin doing the initial steps of the trust administration process.
This so important because when an Estate has liabilities (in particular – real estate mortgages), a provision in a Will should address this in that it is the responsibility of the Estate to pay any liabilities in a timely fashion so as to avoid excess interest and penalty(s) expenses.
This is specifically handled by a Totten Trust which is a bank account that has a beneficiary, who the person who opens the account selects. It is also called a payable on death account.
Upon one’s death, the money in the account will automatically go to the chosen beneficiary. It will not have to go through the sometimes lengthy probate process. However, most Estates do not unfortunately have such a provision, they should.
In my Part Two follow-on to this article and as an Estate Specialist, not an attorney, I will consider several scenarios regarding heirs. So, stay tuned.
Have a prosperous week, Keep the Faith!