Trusts and Estates Blog

What do I do if the grantor is incapacitated? (Part 2)

If there are minors or other dependents, you will need to look after their care. The trust may have specific instructions. If the grantor’s incapacity is expected to be lengthy, a guardian (of the person, not assets) may need to be appointed by the court. The attorney can help you with this.

Become familiar with the finances. You need to know what the assets are, where they are located and their current values. You also need to know where the income comes from, how much it is and when it is paid, as well as regular ongoing expenses. You may need to put together a budget.

If you cannot readily find this information, others (family members, banker, employer, accountant) may be able to help you. Last year’s tax returns may be helpful. Also, if you discover any assets that were left out of the trust, the attorney can help you determine if they need to be put into the trust and can then assist you with this.

Apply for disability benefits through the grantor’s employer, social security, private insurance and veteran’s services. Notify the bank and other professionals that you are now the trustee for this person. And put together a team of professionals (attorney, accountant, banker, insurance and financial advisors) to help you. Be sure to consult with them before you sell any assets.

Now you can start to transact any necessary business. You can receive and deposit funds, pay bills and, in general, use the person’s assets to take care of him or her and any dependents until recovery or death.

You’ll need to keep careful records of medical expenses and file claims promptly. Keep a ledger of income received and bills paid. An accountant can show you how to set up these records properly. The trust may require you to send accountings to the beneficiaries. Also, don’t forget income taxes (due April 15) and property taxes.

What do I do if the grantor is incapacitated? (Part 1)

If all assets have been transferred to the trust, you will be able to step in as trustee and manage the grantor’s financial affairs quickly and easily, with no court interference.

First, make sure the grantor is receiving quality care in a supportive environment. Give copies of health care documents (medical power of attorney, living will, etc.) to the physician. If someone has been appointed to make health care decisions, make sure he or she has been notified. Offer to help notify the grantor’s employer, friends and relatives.

Next, find and review the trust document. (Hopefully, you already know where it is.) Notify any co-trustees as soon as possible. Also, notify the attorney who prepared the trust document; he or she can be very helpful if you have questions. You may want to meet with the attorney to review the trust and your responsibilities. The attorney can also prepare a certificate of trust, a shortened version of the trust that also proves you have legal authority to act.

You will want to become familiar with the grantor’s insurance (medical and long term care, if any) and understand the benefits and limitations. Assuming the insurance will cover a certain procedure or facility could be a costly mistake.

Have the doctor(s) document the incapacity as required in the trust document. Banks and others may ask to see this and a certificate of trust before they let you transact business.

cont…

What responsibilities will I have as a trustee?

The most important thing to remember when you step in as trustee is that these are not your assets. You are safeguarding them for others: for the grantor (if living) and for the beneficiaries, who will receive them after the grantor dies.

As a trustee, you have certain responsibilities. For example:

• You must follow the instructions in the trust document.

• You cannot mix trust assets with your own. You must keep separate checking accounts and investments.

• You cannot use trust assets for your own benefit (unless the trust authorizes it).

• You must treat trust beneficiaries the same; you cannot favor one over another (unless the trust says you can).

• Trust assets must be invested in a prudent (conservative) manner, in a way that will result in reasonable growth with minimum risk.

• You are responsible for keeping accurate records, filing tax returns and reporting to the beneficiaries as the trust requires.

What You Will Need To Do At The Grantor’s Incapacity And/or Death

Who are the people involved with a living trust?

The grantor (also called settlor, trustor, creator or trustmaker) is the person whose trust it is. Married couples who set up one trust together are co-grantors of their trust. Only the grantor(s) can make changes to his or her trust.

The trustee manages the assets that are in the trust. Many people choose to be their own trustee and continue to manage their affairs for as long as they are able. Married couples are often co-trustees, so that when one dies or becomes incapacitated, the surviving spouse can continue to handle their finances with no other actions or steps required, including court interference.

A successor trustee is named to step in and manage the trust when the trustee is no longer able to continue (usually due to incapacity or death). Typically, several are named in succession in case one or more cannot act. Sometimes two or more adult children are named to act together. Sometimes a corporate trustee (bank or trust company) is named. Sometimes it is a combination of the two.

The beneficiaries are the persons or organizations who will receive the trust assets after the grantor dies.

What do I need to know now?

The grantor should make you familiar with the trust and its provisions. You need to know where the trust document, trust assets, insurance policies (medical, life, disability, long term care) and other important papers are located. However, don’t be offended if the grantor does not want to show you values of the trust assets; some people are very private about their finances. This would be a good time to make sure appropriate titles and beneficiary designations have been changed to the trust. (Some assets, like annuities and IRAs, will list the trust as contingent beneficiary.)

You also need to know who the trustees are, who other successor trustees are, the order in which you are slated to act, and if you will be acting alone or with someone else.

Thompson Von Tungeln Advises California Business Owners To Check Their Business Succession Plan For Blind Spots

Antelope Valley estate planning law firm Thompson Von Tungeln advises California business owners to review their business succession plans and estate plans to ensure that the plans provide for a smooth transition.

Lancaster, California (PRWEB) January 19, 2010 — Antelope Valley estate planning law firm Thompson Von Tungeln is advising California business owners to review their succession plans to ensure that their estate plan and their business succession plan work well together to ensure a smooth transition.

“Handing down a family business isn’t just a matter of changing titles,” said Kevin Von Tungeln, partner at Thompson Von Tungeln. “An effective succession plan needs to be integrated into an estate plan. That is where a certified estate planning specialist, working in conjunction with your accountant, financial advisor and business attorney, can ensure that your estate plan not only provides for your family after your death, but protects the assets of your business from wealth transfer taxes.”

An estate planning attorney can create an estate plan that minimizes the taxes that, if not properly planned for, can force your heirs to sell some or all of your business to pay the wealth transfer taxes.

“California estate plans can contain sophisticated measures for this such as estate freezes and discounts, or they can use more simple techniques such as life insurance outside of the estate to pay estate and wealth transfer taxes,” said Von Tungeln. “One question to ask is whether their business has outgrown its advisors. The advisor who served them well at $1 million in revenue may not be capable of handling their affairs properly at $50 million. Often the business owner sees the accountant, business attorney, estate planning attorney, business coach and other advisors as separate functions, which may lead to them inadvertently working against each other, instead of working in tandem.”

Business owners should sit down with their estate planning attorney and review their business succession plan and estate plan together. Allow him or her suggest ways to marry the two plans to accomplish their goal of succession without a major tax bite. Their estate planning attorney can create an estate plan that minimizes the taxes that, if not properly planned for, can force their heirs to sell some or all of their business to pay the wealth transfer taxes.

About Kevin Von Tungeln
With more than 18 years’ legal experience, Kevin L. Von Tungeln serves Thompson Von Tungeln in the areas of estate planning, probate, trusts, wills, trust administration, conservatorships, guardianships and elder law. He is certified by the State Bar of California Board of Legal Specialists as a Board Certified Specialist in Estate Planning. Get to know more about Kevin’s approach to estate planning by viewing his informational videos at: http://www.youtube.com/user/EstateLawyers. Kevin can also be found at LinkedIn by going to: (www.linkedin.com/in/kevinvontungeln)

About Thompson Von Tungeln
Antelope Valley estate planning law firm Thompson Von Tungeln (TVT) offers sophisticated estate planning and administration for the affluent, discriminating client. As Board Certified Specialists in Estate Planning, Trusts and Probate as certified by the State Bar of California Board of Legal Specialization, partners Mark E. Thompson and Kevin L. Von Tungeln are expertly equipped to serve these clients with the creative, effective and custom solutions they demand. For more information, contact TVT at 661-945-5868 or visit their website at www.EstatePlanningSpecialists.com.

Antelope Valley Estate Planning Law Firm Offers Tips On Being Fiscally Fit In 2010

Antelope Valley estate planning law firm Thompson Von Tungeln explains simple steps that can improve your tax situation and make life easier for your heirs in the event of your death. Reviewing your will and trust documents on a regular basis, along with your insurance coverage and powers of attorney will ensure that your wishes are carried out after your death.

Antelope Valley estate planning law firm Thompson Von Tungeln encourages California residents to start the new year by resolving to take simple, but vital steps, to ensure that their estate planning and financial documents are in order. Reviewing these steps on an annual basis can prevent a great deal of heartache for your heirs and loved ones after your death.

“Many people mistakenly believe that estate planning is a one-time process,” said Kevin Von Tungeln, partner at Thompson Von Tungeln. “They have the mistaken belief that once they complete an estate plan, that they don’t need to do anything with it after that. A good estate plan should be reviewed every two or three years, or after every significant life event such as weddings, divorces, births and deaths.”

Here are some questions to ask as you review your estate planning documents:

- Do you have a valid estate plan, signed and dated?
- When was the last time you reviewed your will or trust? Was it within the last three years?
- Does your estate plan allow you and your spouse to double your tax-free transfers?
- Do your heirs have your estate planning attorney’s contact information in the event of your death?
- Have you reviewed your Executor or Trustee decisions to determine if the individual is still the right person for the job?
- Does your estate plan include a durable power of attorney that allows your attorney-in-fact make gifts of your property?
- Is a life insurance trust included in your estate plan to lower your taxable estate?
- Does your estate plan name a guardian for your minor children or disabled adult children and provide for their care?
- Has your estate planning attorney integrated your IRA, Pension and life insurance beneficiary designations into your estate plan?
- Does your estate plan include provisions to allow you to use the $13,000 per person gift allowance?

“The new year is a perfect time to make a resolution to review your estate plan,” advised Von Tungeln. “With all of the economic changes of the past few years, many of the assumptions built into older economic plans may no longer be true.”

About Kevin Von Tungeln

With more than 18 years’ legal experience, Kevin L. Von Tungeln serves Thompson Von Tungeln in the areas of estate planning, probate, trusts, wills, trust administration, conservatorships, guardianships and elder law. He is certified by the State Bar of California Board of Legal Specialists as a Board Certified Specialist in Estate Planning. Get to know more about Kevin’s approach to estate planning by viewing his informational videos at: http://www.youtube.com/user/EstateLawyers. Kevin can also be found at LinkedIn by going to: (www.linkedin.com/in/kevinvontungeln)

About Thompson Von Tungeln:
Antelope Valley estate planning law firm Thompson Von Tungeln (TVT) offers sophisticated estate planning and administration for the affluent, discriminating client. As Board Certified Specialists in Estate Planning, Trusts and Probate as certified by the State Bar of California Board of Legal Specialization, partners Mark E. Thompson and Kevin L. Von Tungeln are expertly equipped to serve these clients with the creative, effective and custom solutions they demand. For more information, contact TVT at 661-945-5868 or visit their website at EstatePlanningSpecialists.com.

Summary of Living Trust Benefits

* Avoids probate at death, including multiple probates if you own property in other states
* Prevents court control of assets at incapacity
* Brings all your assets together under one plan
* Provides maximum privacy
* Quicker distribution of assets to beneficiaries
* Assets can remain in trust until you want beneficiaries to inherit
* Can reduce or eliminate estate taxes
* Inexpensive, easy to set up and maintain
* Can be changed or cancelled at any time
* Difficult to contest
* Prevents court control of minors’ inheritances
* Can protect dependents with special needs
* Prevents unintentional disinheriting and other problems of joint ownership
* Professional management with corporate trustee
* Peace of mind

©1989-2010 by Schumacher Publishing, Inc.

Should You Convert to a Roth IRA in 2010?

Previously, if your adjusted gross income was $100,000 or more, you did not qualify to convert your tax-deferred savings to a Roth IRA. But beginning this year, in 2010, the income restriction has been eliminated, so everyone is now eligible to convert to a Roth IRA.

You can roll over amounts from your traditional IRA and from eligible retirement plans, which include qualified pension, profit sharing or stock bonus plans such as 401(k)s; annuity plans, tax-sheltered annuity plans; and deferred compensation plans of a state or local government. You do not have to roll these into a traditional IRA first.

Of course, you will have to pay income taxes on the amount you convert. But if you do the conversion this year, in 2010, you will be able to claim half of the conversion amount as income in 2011 and half in 2012. This offer from Uncle Sam is a “limited time offer” and is only available in 2010. After 2010, you can still do a conversion but it will all be included in that year’s income.

BENEFITS OF A ROTH IRA

* Unlike a traditional IRA that requires you to start taking your money out at age 70 ½, with a Roth IRA there are no required minimum distributions during your lifetime.
* Unlike a traditional IRA, you can continue to make contributions to a Roth IRA after you have reached age 70 ½. (See restrictions below.)
* As a general rule, after five years or age 59 ½, whichever is later, all distributions to you and your beneficiaries will be income tax-free. So your money doesn’t grow tax-deferred…it grows tax-free.
* Withdrawals before age 59 ½ are considered contributions first, then earnings. So there is no income tax or penalty until all contributions have been withdrawn from the account.
* Money can be withdrawn at any time without penalty for college expenses, and up to $10,000 can be withdrawn tax-free at any time to buy or rebuild a home.
* You can stretch out a Roth IRA just like a traditional IRA. After you die, distributions will be paid over the actual life expectance of your beneficiary. Also, your spouse can do a rollover and name a new, younger beneficiary with a longer life expectancy and get the maximum stretch out.

CONVERSION CONSIDERATIONS

This is an excellent opportunity, but make sure you evaluate your situation and run the numbers before you make a decision. Consider how much you would pay in income taxes. Are you currently in a low tax bracket? Will your retirement tax bracket be the same or higher than it is now? Can you pay the tax without dipping into your tax-deferred savings? Did you make any non-deductible contributions that won’t be taxed when you convert? Do you want to eliminate your required annual distribution? Should you convert some or all of your tax-deferred savings?

CAN YOU MAKE CONTRIBUTIONS TO A ROTH IRA?

There are still restrictions on who can contribute to a Roth IRA.

Maximum Contribution Limits: If you are under age 50 and meet the income limits below, you can contribute up to $5,000 per year. If you are age 50 and older, the maximum you can contribute is $6,000 per year.

Income Limits in 2010: If you are a single or head of household taxpayer with up to $105,000 adjusted gross income, you can contribute the maximum amount. (Smaller contributions are allowed if your AGI is $105,000 to $120,000). If you are married, filing jointly or a qualifying widow(er) with up to $167,000 AGI, you can contribute the maximum amount. (Smaller contributions are allowed if your AGI is $167,000 to $177,000.)

SEEK EXPERT ADVICE

This is an appropriate time to get advice from a qualified professional who has experience in this area. There may be a substantial amount of money involved, and while you certainly want to take advantage of this opportunity if it applies to you, you also want to make sure you act wisely.

© 2010 by Schumacher Publishing, Inc.

Make Gifts to Reduce Your Estate

One thing you can do to save estate taxes, whether you are married or single, is to start giving away some of your assets now to the people or organizations who will eventually receive them after you die.

This is an excellent way to reduce estate taxes because you are reducing the size of your taxable estate. (Just make sure you don’t give away any assets you may need later.) But what may be even more satisfying is that you can see the results of something that may not have happened without your help.

You can currently make annual tax-free gifts of up to $13,000 per recipient. If you are married, you and your spouse together can give $26,000 per recipient per year. (You can either give $13,000 each, or one spouse can make a $26,000 gift with the consent of the other spouse on a timely-filed gift tax return.) You can also give an unlimited amount for tuition and medical expenses if you make the gifts directly to the educational organization or health care provider.

You do not have to give cash. For example, if you want to give some land worth $52,000 to your child, you can give your child a $13,000 “interest” in the property each year for four years.

As long as the gift is within these limits, you don’t have to report it to Uncle Sam. Just the same, it’s a good idea to get appraisals (especially for real estate) and document these gifts in case the IRS later tries to challenge the values.

What if you want to give someone more than $13,000? You can, it just starts using up your $1 million federal gift tax exemption. If your gift exceeds the annual tax-free limit, you’ll need to let Uncle Sam know by filing an informational gift tax return (Form 709) for the year in which the gift is made. After you have used up your exemption, you’ll have to pay a gift tax on any gifts over $13,000 (or whatever the annual tax-free amount is at that time). The gift tax rate is equal to the highest estate tax rate in effect at the time the gift is made. In 2009, it is 45%.

Making gifts now can reduce your estate taxes later.

Note: The amount allowed for annual tax-free gifts has been tied to inflation since 1999. However, it will only increase in increments of $1,000 and it will be rounded down instead of up. So, for example, if adjustments for inflation would increase the amount to $13,999, it would remain at $13,000.

Pay The Tax Now – And Save

Remember, once your federal gift tax exemption is completely used, you will have to pay a gift tax if you make any taxable gifts (currently, those more than $13,000) while you are living. Or, you could wait until after you die and have your estate pay an estate tax. (If the transfer is made while you are living, the tax is a gift tax; if the transfer occurs after you die, the tax is an estate tax.)

The tax rate is the same, whether you pay it now or after you die. But it costs you less to pay the gift tax now than to pay the estate tax after you die.

As explained in Part Three of “Understanding Living Trusts,®” after you die, taxable gifts you have made since 1976 are added back into your estate before estate taxes are calculated. (This is so Uncle Sam can calculate your estate taxes at the highest tax rate.) The amount you have paid in gift taxes is then subtracted from the estate taxes due. (Think of the gift tax as a prepayment of the estate taxes you will owe.)

But the amount you’ve already paid in gift taxes is not in your taxable estate when you die. You’ve already paid it to Uncle Sam. Making the gift now lets you forever remove the amount paid in gift tax from your taxable estate.

If, on the other hand, you keep the asset in your estate until you die, the amount you would have paid in gift taxes is still in your estate. This makes your taxable estate larger and increases the amount of estate taxes your estate will have to pay. Keeping the asset in your estate until after you die forces you to pay estate taxes on the amount you would have paid in gift tax. In effect, you’re paying a tax on the tax!

This is best explained with an example. Let’s assume you have completely used your federal gift tax exemption through prior gifts and, as a result, you are now in a 45% gift and estate tax bracket.

If you give your children $1 million as a gift (while you are living), the gift tax will be $450,000 ($1 million times .45 = $450,000). You, the donor, pay the gift tax. So your children would receive the full $1 million, and an additional $450,000 would be removed from your taxable estate to pay the gift tax. In other words, it would cost you $450,000 to give your children $1 million.

If, on the other hand, you wait until after you die, it would take $1,818,182 to leave them $1 million (45% of $1,818,182 = $818,182 in taxes, leaving a net of $1 million for your children). That’s $368,182 more than if you gave them the $1 million while you were living!

Which Assets Are The Best To Gift?

It can be especially smart to give away assets that are appreciating in value, because any income and appreciation that occur after the gift is made are also removed from your taxable estate.

But you also have to look at the estate tax savings compared to what the recipient may have to pay in capital gains tax if the asset is later sold. Remember, when you give away an appreciated asset, it keeps your original cost basis (plus any gift tax paid). And if the recipient decides to sell it, he/she will have to pay capital gains tax on the difference between the selling price and what you paid for it.

If, on the other hand, you don’t give it away and it stays in your estate, the asset will receive a full step up in basis as of the date of your death (saving capital gains tax on the subsequent sale of the asset). But, depending on the size of your estate when you die, there may be estate taxes. So it’s a trade off.

Currently, the maximum federal long term capital gains rate (for assets held longer than 12 months) is 15%, while the estate tax in 2009 is 45%. But it isn’t always better to give away an asset and let the recipient pay the lower capital gains tax. Among other things, you have to consider what you paid for the asset, what it’s worth now, what you think it will be worth when you die and if the recipient plans to sell or keep it.

Making Gifts From Your Living Trust

You may have heard that you should remove an asset from your living trust before making the gift. For example, if you wanted to give your son a $5,000 gift in cash and your checking account is titled in the name of your trust, you would make the check payable to yourself, cash it, then make the gift in cash or use a cashier’s check.

That’s because, in the past, if the grantor died within three years of making a gift directly from his/her living trust, the IRS tried to include the gift – -even annual tax-free gifts — in the grantor’s taxable estate.

You don’t have to play this shell game anymore. Gifts made directly from a revocable living trust are now considered the same as if they were made directly from you, even if they are made within three years of your death.

How to Get The Most Out of the Increasing Estate Tax Exemption

Estate taxes must be paid when you die if the net value of your estate (assets less debts) is more than the amount exempt from taxes at that time.

In 2001 President Bush signed a tax bill that increases the estate tax “exemption” from $675,000 in 2001 to $3.5 million in 2009. Congress went so far this time as to “repeal” the estate tax in 2010, but unless it takes further action, the estate tax is automatically scheduled to return in 2011 with the exemption back at $1 million.
Year

Exemption
2001

$675,000
2002 – 2003

$1 million
2004 – 2005

$1.5 million
2006 – 2008

$2 million
2009

$3.5 million
2010

n/a (repealed)
2011

$1 million

Federal estate taxes still carry a wallop. In 2009, the tax rate is 45% on every dollar over $3.5 million. Estate taxes must be paid in cash, usually within nine months after you die. But with careful planning, they can be substantially reduced or even eliminated, especially now. Here’s what you can do to get the most out of the increasing estate tax exemption.

1. Married? You can “double” your exemption. By setting up an A-B living trust, both spouses can use their estate tax exemptions and in 2009 protect up to $7 million from estate taxes. But unless you plan ahead, you can waste one spouse’s exemption. The cost to your family: $1,575,000!

2. Check the wording. If you already have an A-B living trust, make sure the language to use your exemptions is flexible and does not state a specific dollar amount (e.g., $1 million or $2 million). Instead, it should apply a formula or use language such as “the amount that is exempt from estate taxes at the time of the grantor’s death.”

3. Shift assets. If you and your spouse have separate trusts, you may need to move assets from one trust to the other as the exemption increases.

4. Switch to a trust. If a will is your only estate plan, consider changing to a living trust now. It will probably cost more initially, but it can avoid probate, prevent court control of assets at incapacity, and will give you more control over the distribution of your estate after you die.

5. Review your plan annually with a qualified attorney. Your estate plan is a snapshot of you, your assets, your family, your goals and the tax laws in effect at the time it was prepared. Any time one of these changes, you need to review your plan. As frequently as the laws are changing these days, it would be smart to do this every year. A qualified attorney can quickly review your plan and see if any changes need to be made.

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