Protect Your Assets with Trust & Estate Planning
Get Expert Advice and Support with Mount Bonnell Advisors
Estate planning is a vital part of ensuring your assets are protected in the event of your death or becoming disabled. In this page, we’ll discuss what trusts are and how they can be created as well how you can access expert support to ensure your business and family are protected if needed.
On This Page
- What is an Estate Plan?
- How Trusts are Created
- What are the Purposes of Trusts?
- Can Trusts be Changed?
- Tax Considerations and Trusts
- Tax and Estate Planning
- Mount Bonnell Advisors Can Help you to Protect Your Interests
- Frequently asked questions (FAQs) about taxes, company formaition, and residency in the U.S.
- Get advice on taxation, company formation, and residency in the U.S.
There can be many variations to an estate plan so each plan will be customized to the individual’s personal circumstances. A professionally prepared estate plan will help to protect your family and ensure they avoid stressful and expensive probate court proceedings.
A typical plan creates a trust. Trusts were developed in the middle ages in England. Knights and noblemen who were taking part in crusades needed a way to ensure their family and property would be protected while they were gone or if they didn’t return. So, they created trusts and the concept has been part of laws since those times.
A modern trust offers several features. It will:
- Be revocable (changeable).
- Keep your affairs private, as well as keeping your estate out of the probate court system.
- Have a firm plan regarding who will receive money/property when you die.
- Be clear on who the successor trustee will be to control the trust and how long for.
- Provide for your surviving spouse and be set up to save on estate and gift taxes.
- Minimize property tax issues such as increases after your passing.
- Take income tax implications regarding transfers of money and property into consideration.
Below are more details on how trusts are created and how they function.
A trust is created using a written declaration of trust, which is funded by the transfer of money or property into the ownership of the trust. The creator of the trust is known as the “Trustor” or “Settlor”. The trust will be created in a way so that it’s tailored to meet the specific requirements of the Settlor.
Because each trust is unique, and there are different types of trusts, a skilled attorney is usually used to create it. This helps to ensure everything is in order and that the language of the trust is legally correct. Incorrect language or mistakes can lead to future misunderstandings or even litigation.
The Persons Involved in a Trust
The trust is established by the Settler or Trustor. It also has a Trustee or Trustors who are responsible for administering the trust, and the Beneficiaries who receive the benefits of the trust. The Trustee is bound by law to follow all the directions contained in the trust. In lots of trusts, the Trustor may also be a Beneficiary, such as in a living trust created to avoid probate.
Effective Date of the Trust
The trust is usually effective as soon as the declaration of trust is signed. However, it can go into effect either on your death or on another future event. If it becomes effective while you are still living it’s known as a “Living Trust” or “Intervivos Trust”. If it is to become effective only upon the event of your passing it is generally part of your will and known as a “Testamentary Trust”.
Trusts are used to hold money and other assets such as property for specific periods of time, and to pay out the assets according to the instructions detailed within the trust. They can be used in a variety of ways, including:
- Safekeeping of money & property. This can include safekeeping assets to prevent them from being paid outright to your heirs when they reach 18. They can be used to save tax estate taxes by “generation skipping”.
- To protect heirs from having to handle the estate if the heir(s) is not yet old enough for the responsibility or is unable to take on the responsibility for any other reason.
- To benefit charities by paying out money over a period of time, rather than all at once.
- In some cases, trusts can be used to protect assets by keeping creditors and/or beneficiaries from accessing the money or property in the trust.
- To save in income and estate taxes.
If you create a living trust it will normally be made so it is revocable and amendable during the lifetime of one or both or the Trustors. This helps to provide flexibility in case you or another Trustor change your mind about requirements later down the road.
Trust amendments might include changing the names of successor Trustees or changing the amount of money to be paid to trust beneficiaries. Other changes might include adding additional money or property to the trust or removing money and property. Trustors must be mentally competent to make changes to the trust. Restrictions are put in place if one of the Trustors is mentally competent but the other is not.
Changes should be made carefully and with the support of skilled advisors in order to avoid potential misunderstandings or future litigation. In the case of one of the Trustors not being mentally competent, or any question of undue influence in making amendments, there can be lengthy and expensive issues with litigation.
Living trusts can be made irrevocable. This means they are permanent, and money and property in the trust cannot be removed and has to stay in the trust for the time period specified in the declaration of trust.
If your trust is amendable and revocable then it isn’t recognized as a separate entity by the IRS. When there is a death of one or more of the Trustors and all or part of the trust becomes permanent the trust then has to obtain a Tax ID and file trust income tax returns. Income taxes, property taxes, and estate taxes must all be taken into account during trust formation, amendment and termination.
Trust Documents and Custom Preparation
The U.S. government and state laws do not have specific forms that need filling in for a trust to be valid. When it comes to state law the requirements are minimal – typically all that’s needed is a Beneficiary, a Trustee, and an asset which is the subject of the trust. The parties involved are responsible for drawing up the instructions for the trust. This is commonly referred to as a Declaration of Trust.
Despite this, as with any serious business endeavor, the Declaration of Trust should be meticulously prepared. This is to avoid issues with litigation and probate – which can bring out a range of issues that many trust preparations overlook, forget about or do not discuss. At Mount Bonnell Advisors, we work with highly skilled lawyers who are able to deal with a wide range of factors and provisions, based on years of experience with trust litigation.
Support for Estate Planning – Who Gets involved?
Creating an effective and workable estate plan can require the support of different professionals. Estate plans often involve skilled attorneys, who can advise on areas such as trusts, wills, probate court procedure, taxation, and real estate. Estate plans need to consider implications of property taxes, estate taxes, and income taxes.
Certified Public Accountants and Securities Brokers are often consulted in this complex decision-making process. In addition, a Real Estate Broker and Property Manager might be involved in estate planning where real estate is involved.
There are several different considerations regarding tax to take into account when it comes to estate planning. These include:
- Finding out if the money and property in the trust will be subject to Federal estate taxes upon the death of the Trustors.
- Who will pay tax on the income generated by the trust? Will ordinary income, portfolio income or capital gains be taxed on the Trustor’s personal income tax returns, or will the trust pay the tax. Or will the beneficiaries pay the tax?
- Whether there will be gift taxes on transfers into the trust.
- If there will be an increase in property taxes on property placed into the trust.
- Who will pay income taxes on income generated by a trust or estate?
- What happens to the income tax basis of properties and assets if they are transferred into a trust, rather than giving them directly to heirs before death.
As you can see, estate planning can be complex and has to consider a huge range of factors. In order to protect your interests and ensure your wishes are carried out, it’s best that you choose expert support to help guide you through the estate planning process.
At MBA we work with highly skilled lawyers, certified public accountants, and real estate brokers to provide you with a higher level of estate planning services. Our resources help our clients to delve deeper and handle more complex levels of estate planning. This especially extends to taxation planning to help you get the best possible outcome.
We can help with all aspects of estate planning, including assisting with all documents and government registrations if needed for:
- Name those who will inherit assets after your death. Estate Plans typically include a will that states all assets will be placed into the living trust.
- Living (revocable) Trusts. Create a Living Trust to avoid costly taxes and probate and ensure your estate is handled according to your specific desires.
- Powers of attorney. Appoint a person you trust to handle your affairs (personal and business) if you become unable to do so (for example you become disabled).
- Health care directives. Decide how your health care preferences will be carried out.
- Asset protection. Get help to safeguard personal and business assets from creditors by creating a corporation, family limited partnerships, and limited liability companies.
- Business assets. Protect your business assets and limit liabilities within statutory guidelines.
- Real estate.We’ll advise you on a full spectrum of residential and commercial real estate law and marketing issues.
- Life insurance trusts. Help to create this special type of permanent trust which holds life insurance policies to keep death benefit proceeds out of your estate and pass them tax-free to the next generation.
- Special needs trusts. These trusts can preserve and control assets for people with mental or physical disabilities. We can advise you on how to create them.
- Life estates. Get assistance to set up a life estate that will allow your partner or another person of your choice to live in your home for the rest of their life and leave the home to your children or to others as you designate.
Frequently Asked Questions (FAQs) About Taxes, Company Formation, and Residency in the U.S.
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