|
If you would like to discuss wills and trusts for your family in a free initial conference, call me at (405) 842-7590 or click here to E-mail me.
If you own property in your own name alone and you die, who gets your property?
Does everyone rush over to your house and take what they want? No. That would be chaos and anarchy. The law provides an orderly process for deciding who will inherit your property. First, if you have done nothing, the law decides who will get it. In effect everyone has a State Will, called the law of descent and distribution. In Oklahoma, this law is found in Title 84 of the Oklahoma Statutes, Section 213.
However, if you do not like the way the State gives your property, you can write a will. A will is your written statement to the probate judge of how you want your property to be distributed. The will does not mean anything until the judge admits it to probate as your last valid will. Then it becomes the law of your estate. After payment of your debts, taxes and administration expenses, what is left will be ordered by the judge to be distributed as provided in your will. Probate often takes a year or more, there are usually substantial attorney fees, personal representative or executor fees, court hearings and administration expenses. However, you can avoid probate by using a trust.
Think of a trust as a bucket. You pour property into the top of the bucket, and the bucket has spigots at the bottom. When a spigot is turned, some property flows out to a beneficiary. The one who creates the trust is called the Settlor, Trustor, Grantor or Trust Maker. The person inside the bucket, who administers the Trust is called the Trustee. The person who benefits from getting property from a spigot in the bottom of the bucket is called a beneficiary of the trust. You build the bucket by signing a written trust agreement (lawyers write the agreement) between the Trust Maker and the Trustee (Usually, if you want, you can be both the Trust Maker and the Trustee of your revocable trust). That tells the trustee to whom to give the property and when. The trust agreement also tells what powers the trustee has with which to deal with the property.
It is possible to have a trust in a will, called a testamentary trust. When the judge orders the estate distributed, he orders the personal representative of the estate to transfer the estate property to the trustee of the testamentary trust. The trustee then owns title to the property to be held in trust for the benefit of the beneficiaries of the trust. The trustee must administer the property according to the terms of the trust in the will. However, a testamentary trust still requires probate.
If you want to avoid probate, create a revocable trust. A living trust, or revocable (changeable) trust can be set up during the Trust Maker's lifetime, and at his or her death, no probate is needed, because the trustee owns the property and has written directions what to do with it in the trust agreement. A judge is not needed. A revocable trust avoids both living probate (guardianship) and death probate (probate of a will). I consider these two "avoidances" to be the best reasons for having a revocable trust.
If you transferred all your property to your trustee, even if you are your own trustee, then there is no need for a probate. Just in case you forgot to transfer some property or had an interest in property you did not know about, when you create the revocable trust, you also sign a pour-over will, which simply pours any such "forgotten" property over into your revocable trust. Your trustee will probably not need your pour-over will, but it is valuable to have it in case your family needs it. Your revocable trust tells how you want your property distributed, so pour the forgotten property into the revocable trust and distribute it with the rest of your property.
There are different kinds of trusts, designed for different purposes. Here are some of the more popular ones.
Credit Shelter Trust
This is a trust, usually in a will or a revocable trust, which takes effect upon the death of the first of the spouses to die. This trust is used to save estate taxes, if the couple has combined assets more than the effective equivalent of the unified credit amount. All that gibberish means a deduction against the taxable estate of $600,000 or more. It has grown, especially by the 2001 tax act to $1,000,000 for 2002. Every estate less than that does not need a credit shelter trust. Every family estate (husband's and wife's combined assets, less liabilities) over that amount should seriously consider a credit shelter trust. In 2002, if you use it, you can shelter up to $2,000,000 in family assets from federal estate tax. If you do not use it, you can shelter only $1,000,000 in family assets. The choice is up to you. That is why some call it a voluntary tax. This is a Million Dollar Trust that produces estate tax savings for the family over the estates of husband and wife.
Irrevocable Life Insurance Trust (ILIT)
How would you like to have a large amount of cash paid at your death to nearly anyone you want, and have it totally estate tax free? That is what an irrevocable life insurance trust does. The trust owns the policy on your life and is the beneficiary. You have said what to do with the money in the trust agreement. The catch is that the trust is irrevocable, which means you have no control over it after you set it up, and cannot change what happens to the money. However, if the ILIT distributes the property the same as your will or revocable trust, who cares? The estate tax free money can be used to pay your estate taxes, provide money for your children, if you give much of your estate to charity (a wealth replacement ILIT), or to benefit charity or some person or cause.
Charitable Remainder Trust
How would you like to completely escape paying any federal estate tax and capital gains tax on the property you transfer, have an income from the property for life, and upon your death, give a large amount of property to your favorite church or charity, and give an equivalent amount of cash to your children. The income can be for the joint lives and the survivor's life of husband and wife. This can be done with a charitable remainder trust and a wealth replacement ILIT. There are two kinds of charitable remainder trusts, a unitrust and an annuity trust. With both you get an income from the trust, then upon your death, the charity gets the property in the trust. You get a large income tax charitable deduction from the gift of the remainder to the charity. You can use these income tax savings to buy insurance on your life for the ILIT. When you die there is a charitable deduction on what went to the charity, your children get the credit shelter amount tax free, plus they get the cash from the ILIT tax free. If your circumstances fit this plan, if can be a very successful estate planning tool.
Grantor Trusts
There are several types of grantor trusts, such as a grantor retained annuity trust (GRAT), qualified personal residence trust (QPERT) and others. These trusts typically pay the income or provide the use of the property to the Trust Maker (Grantor) for a term of years, and the remainder to someone else, such as a child. There is a taxable gift of the present value of the remainder at the time of the gift at the beginning of the term, but upon the expiration of the term of years, say 10 , 15 or 20 years, the property is transferred to the next generation tax free. You give the property away with a gift tax on a fraction of the value of the property. The risk is that if the grantor dies before the term of years is up, the property goes back into his taxable estate, and he loses all the benefit of this type of trust. Although there is some risk involved, the estate and gift tax savings can be very substantial.
There are many different kinds of trusts that can be designed for your particular estate planning needs. Using trusts to provide large benefits to families is one of the major services an estate planning attorney provides. We help in the design and we write the trusts. Many people do not know how a trust or will can help them and their families. I have taken the time and space here to give you some idea of how valuable they can be to you.
If you would like to get together to outline a plan for your family, so you could see what can be done, make an appointment for a free initial consultation, and learn what is possible for your family.
Call me at (405) 842-7590 or click here to E-mail me.
If you would like more detailed information on wills and trusts, see the following articles available for download. Click on the titles you want, follow the instructions, and they will download to your computer.
Top of Page
|
