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| 1. Question: How do I go about transferring my assets into a revocable living trust? Many people have established revocable living trusts in an effort to avoid probate administration, reduce death taxes, or provide management of assets for minor children. A great number of these trusts are completely unfunded. In other words, title to the person's assets has never been transferred into the name of the trust. In order to avoid probate, the assets must be "in" the trust (the trust must be the "legal" owner of the assets) at the time the estate owner dies. Individuals who have established revocable living trusts should periodically check the title of their assets to verify that they are held in the trust name. Below is an overview of how a revocable living trust may be funded. Again, your estate planning team will guide you through this process. A. Savings and loan and bank accounts can be easily changed into the trust name by the institution. B. Real estate is generally transferred into the trust name by having an attorney prepare a new deed in the trust name. C. Promissory notes and deeds of trust can be assigned to the trust. D. Personal effects, furniture, furnishings, clothing, jewelry and items which have no certificate or ownership can be transferred with a "Deed of Gift" or "Assignment or Personal Property." E. A stock broker can assist you in transferring your securities. F. Certificates of Limited Partnership should be examined for instructions and requirements for making the transfer. G. Close Corporation Stock must be changed into the trustee’s name. If there is a Buy-Sell Agreement, it must be reviewed for any prohibition against this type of transfer. Also, if the corporation is either an S Corporation or a Professional Corporation, special rules must be followed. H. General Partnership interests can be put into the trust if the partnership agreement permits such transfers. I. Sole Proprietorships require a "Bill of Sale" or an "Assignment of Interest," which includes the goodwill of the business. J. Life insurance proceeds made payable to the Living Trust will be managed for the benefit of your heirs along with the other assets in the trust until such time as they are to be distributed. K. Qualified Plan Benefits and IRAs should be paid to the surviving spouse, if living; otherwise they may be paid to the Living Trust. Note: Check with an attorney concerning all transfers to your trust. The transfer of various assets after death with an affidavit may be permitted. 2. Question: I hear people talk about an AB credit shelter trust. What is this? Under current law, a person can pass any size estate to his or her spouse without concern for a federal estate tax because of the unlimited marital deduction. IRC Sec. 2056 However, when the surviving spouse later dies and passes the combined estate to his or her heirs, there is only that spouse’s unified credit to reduce the death tax. Therefore, the unified credit of the first spouse to die was wasted. To preserve the unified credit of the first spouse to die, many couples use an AB credit shelter trust (also called a "by-pass" or "exemption" trust). When the first spouse dies, an amount equal to the unified credit (up to $625,000) is placed into the shelter trust. This trust is not taxed at that time nor at the later death of the surviving spouse, even though it may appreciate greatly in value. The surviving spouse, however, can have access to the income from the trust for life and can use the principal if necessary for his or her health, education, support and maintenance. Estates of married couples which are less than the applicable exclusion amount now (including life insurance), and are not likely to exceed these amounts in the future, will generally not benefit tax-wise from this type of trust. 3. Question: Exactly what is the function of a will? A will allows you to give direction and authorization to others to act on your behalf after your death. Your will outlines specific instruction as to what you want done with your assets and property. Your will also allows you to name a guardian to care for your minor children should you die or become incapacitated. Also, your will allows you to name an executor who will oversee the settlement of your estate. Without a will, your estate planning is left to your state's government. It is extremely important that you review your will periodically to insure that it meets your current wishes. See the comparison chart below to learn exactly what happens when an individual dies without a will. 4. Question: Can I see a comparison of having no will, having a will, and utilizing a living trust?
5. Question: What is a durable power of attorney? A durable power of attorney is a written, legal document that gives another person the authority to act on your behalf. The document is durable in that it is in effect even if you become incapacitated. 6. Question: Why would I want a durable power of attorney? A durable power of attorney acts as a safety net for you and your family. For instance, if you were to become temporarily incapacitated by illness or injury, this important document allows you transfer authority to another trusted person who will manage your financial affairs. This is a very powerful document (it can be revoked) and it is imperative that you carefully select the individual you intend to empower. The time to execute this document is now as you can never be sure of your future. Below is a brief overview of the powers that a durable power of attorney enables. Durable Power Of Attorney Non-Tax Power Which May Be Included A. To buy, sell, or lease assets. B. To sue on the principal’s behalf. C. To collect from creditors. D. To refuse life-prolonging procedures. E. To operate the principal’s business. Tax-Related Powers Which May Be Included A. The power to make gifts to the spouse (to equalize the estates) and to children, grandchildren, etc. (to utilize the annual gift tax exclusions). B. The power to make disclaimers. C. The power to create living trusts to benefit the principal, spouse and heirs. D. The power to complete transfers to a living trust if the principal becomes incompetent. E. The power to buy "Flower Bombs" which may "reduce" federal estate taxes. F. The power to join the competent spouse in signing income and gift tax returns. G. The power to exercise special powers of appointment. There are certain powers that you can not give to another person. They include:
Powers of attorney are usually notarized, and those affecting real property may need to be recorded. |
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