Wills, Trusts, & Estate Planning » By-pass trust

Estate Plan Updates at Transition Points

stevenberger — Mon, 13 Jun 2011 21:36:51 +0000

This is the time of year for graduations and we are proud that our youngest daughter graduated from Williams College. We are also relieved of our obligation to write those tuition checks twice a year. As an estate planning attorney I realize that the last college graduation means our estate plan needs to be updated. No longer do we need a common trust to ensure that assets will be available to cover the cost of educating all of our children. We reached the point where putting our assets into a revocable trust makes sense for disability management and probate avoidance. We created a Bypass Trust to double our Maryland Estate Tax exemption and to ensure that our daughters are the beneficiaries of our career savings. We have a Standalone Retirement Trust to ensure that our retirement accounts receive their maximum stretch to delay income taxes while providing asset protection and management. Our life insurance policies are owned by an Irrevocable Trust that keeps the proceeds out of our estate. Finally, we updated our advance medical directives and executed the new Maryland statutory power of attorney. We are glad to be finished with this phase of our life and looking forward to the new challenges that life will bring.

WealthCounsel Training on Retirement Plans

stevenberger — Sun, 06 Mar 2011 20:56:32 +0000

I just returned from three days in Grapevine, Texas getting trained on the latest features of WealthCounsel software and the latest changes in Estate Planning. The change I am bringing back to my practice is the use of Standalone Retirement Trusts to hold retirement assets. WealthCounsel has developed a trust that can hold a retirement asset such as an Individual Retirement Plan or other Qualified Plan. By proper drafting the trust can stretch the distributions over the life of the beneficiary instead of the life of the deceased. If the trust is designed as a conduit trust, all distributions flow directly to the beneficiary. If the trust is designed as an accumulation trust, the trust can hold the distributions for further growth, allow for creditor protection, and allow a minor to reach an age where he or she can receive the funds.

The retirement account can also be used to fund a bypass trust to avoid federal and state estate taxes. The trust can hold assets for a surviving spouse using the deceased spouse’s exemption. The use of this strategy depends on the couples’ estate plan and what other assets are available to utilize the deceased spouse’s estate exemption.

The drafting of a retirement trust depends on the beneficiary’s circumstances, the type of retirement asset, and the other assets available to the beneficiary. I am available to consult with you on whether a retirement trust fits into your estate plan.

Training in Texas.

Summer Vacation

stevenberger — Fri, 09 Jul 2010 18:43:01 +0000

Estate planning is not just for retirees. Summer is a busy time in the office for completing wills of young parents. Planning a summer vacation forces parents to think about who would look after their children if they both perished in an airplane or car accident.

The first step of the will is to name a Guardian avoiding the need for the Court to determine who should be responsible for their children. In addition to naming a guardian, the parents usually select a Trustee to manage the money (usually life insurance proceeds) they have set aside to raise their children. The question is always whether that person should be the same person as the Guardian. The answer is always “It depends”. A Trustee who is also a Guardian is in a position to watch over all aspects of the child’s development. An independent Trustee provides a second opinion on the child’s “best interest” and splits the workload of raising the child.

Preparing for the common disaster is often the extent of planning that most young parents accomplish and it is the most important planning they can do. However, statistics tell us that it is much more likely for just one of the parents to pass away before the children are independent. A simple will that leaves everything to the surviving spouse may not be the best thing for the children.

My recommendation is to establish a trust for the benefit of the children at the death of either parent. The trust can reduce estate taxes, provide a means to manage the money set aside for the children, provide creditor protection against the surviving parent’s creditors, and prevent the children’s money from being mixed into the new family’s funds if the surviving parent remarries.

A children’s trust can be setup in a will or by an Irrevocable Life Insurance Trust. The Irrevocable Life Insurance Trust is going to become a very popular tax planning device with the Federal Estate Tax being reinstated in 2011. Estate planning is not just for retirees. Think about meeting with an experienced Estate Planning Attorney before your summer vacation or your next business trip.

Unintended Consequences of Estate Tax Repeal

stevenberger — Mon, 03 May 2010 18:55:34 +0000

This year’s temporary repeal of the Federal Estate Tax has created a new set of problems for those inheriting appreciated assets. Amy Feldman details these problems in her article “Trouble For Heirs” found in the April 25, 2010 issue of Bloomberg Businessweek. There is no Federal Estate Tax in 2010, but stepped-up basis of assets is limited to:

1. $1.3 Million of assets determined at date of death.

2. An additional $3 million for the surviving spouse.

3. Basis allocation based on the Executor’s discretion.

In addition, there exists the practical problem of finding all the records to determine the basis especially where dividends have been reinvested or improvements have been made to real property. How many people have all those records that could go back 50 to 60 years or more.

Maryland heirs’ situation is further complicated by the State’s Estate Tax of up to 16% on amounts exceeding $1 million. The Maryland Legislature did pass emergency legislation to protect the bypass exemption to the December 31, 2009 amount of $3.5 million. The legislation solves one of the problems that Amy Feldman mentions in her companion article “Wills That Won’t”. However, for most families putting up to $3.5 million in a bypass trust leaves nothing to pass outright to the surviving spouse creating even more unintended consequences.

Families with wills or trusts that contain bypass provisions should schedule an appointment with their attorney to review their documents. Changes may be needed to comply with the 2010 Estate Tax Laws. Most Estate Tax Lawyers predicted that Congress would act to extend the Federal Estate Tax at least by early 2010. It is now May 2010 and time for astute families to act to ensure their legacy is protected.

Four Reasons You should have a By-Pass Trust

stevenberger — Fri, 05 Jun 2009 22:26:49 +0000

1. Tax Savings – A trust established by the first spouse to die effectively doubles the estate tax exemption. For 2009 the Federal exemption is $3.5 million and the state exemption is $1 million in Maryland.
2. Keep the money in the family – The first spouse to die leaves the money for the survivor to use according to standards such as health, maintenance, and support. Ultimately, the money passes to their children. The survivor’s new spouse cannot inherit the trust money and does not have any right to the trust.
3. Administration – A trustee provides a check on how the trust assets are spent and provides a means to dispense funds in the event of a disability.
4. The trust can contain provisions to protect the assets from creditors.

By-Pass Trust

stevenberger — Wed, 04 Mar 2009 21:55:48 +0000

Many of you have seen your estate values cut in half or more while the Federal Estate tax minimum has gone from $2 million to $3.5 million. The feeling is that you do not need to do any estate planning. The problem is that you do not know what the law will be at the time when you pass away. Moreover, the law is even more likely to change by the time the second spouse dies.

As an example, we frequently see widows that have outlived their husbands by ten, twenty, or even thirty years. When their husbands passed away the value of his estate was often less than the federal limit at that time of $675,000. The surviving wife ended up with home, investments, and a pension. The pension and social security covered all her living expenses. The home and investments continued to double every seven to nine years depending on the market conditions. The widow continues to hold the investments concerned that she may need the money in the event of a serious illness. More than likely, the state of Maryland will receive 16% of the amount the estate exceeds $1 million dollars or the estate will be devoured by medical expenses.

This scenario could easily repeat itself if assets return to their historic values. Establishing a By-pass trust upon the death of the husband would have protected the couple’s moderately valued estate for their children by effectively doubly the estate tax exemption. Long care health insurance provides protection for the expense of nursing care.