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Descriptions of Estate Planning Tools
- See descriptions further below for each of the following -
Pour Over Will
Last Will & Testament
Testamentary Trust
Advance Directive for Health Care
Durable General Power of Attorney for Assets
and not necessarily basic, but essential . . .
Revocable Living Trust
Trusts
Asset Management Trust
Beneficiary Trust
Catastrophic Illness Trust
Charitable Remainder Trust
Children’s Trust
Generation Skipping Trust
IRA and Qualified Plan Trusts
Irrevocable Life Insurance Trust, (ILIT)
or Insurance Preservation Trust
Land Trust
Personal Property Trust
Private Annuity Trust
Qualified Personal Residence Trust
Revocable Living Trust
Special Needs Trust
Useful Entities For Asset Protection
"C" Corporation
"S" Corporation
Family Limited Partnership, (FLP)
Limited Liability Company, (LLC)
Consider These Types Of Useful Agreements
Buy-Sell Agreements
Non-Compete Agreements
Non-Disclosure Agreements
Independent Contractor Agreements
Partnership Agreements
Separate Property Agreements
Pour Over Will
A Pour Over Will is a type of a Will that is associated with a Revocable Living Trust. It instructs the Trustee to put any assets into the trust after your death that you had neglected to include in life.
Last Will & Testament
Res Ipsa Loquitur: A legal phrase meaning "the thing speaks for itself." We all know what a Will is. A Will tells a judge how to have your Executor distribute your estate.
Testamentary Trust
This is the type of trust that is created by a Last Will and Testament to provide for minor children at the death of their parents.
Advance Directive for Health Care
A document whereby you appoint the best person on the planet to make medical care decisions on your behalf in the event that you become incapacitated. This document will tell loved ones and medical providers what your desires are regarding hydration and nutrition in the event that you are ever in a "persistent vegetative state." It is in this document that you specify whether you want all measures taken to prolong life, or, “do not resuscitate.”
Durable General Power of Attorney (or Power of Attorney for Assets)
A document whereby you appoint another person as your “attorney in fact,” to handle your assets or business matters on your behalf in the event that you become incapacitated.
Revocable Living Trust
Minimizes taxes, maximizes privacy and avoids probate. This trust is at the same time, both the basic element and the ultimate in your estate planning. This is the trust that you want to have eventually “owning” all that you have. Transfer all stocks, bonds, real estate or any LLC’s that “own” your real estate to this trust. This trust will be the beneficiary of your personal property trusts and almost everything that you control.
Asset Management Trust
This trust can be either revocable or irrevocable and is ideal for one who wishes to leave assets for the use of a beneficiary that has money management problems – spendthrifts –where there is a lien or a judgment against the beneficiary, or perhaps substance abuse problems.
The assets would remain under the control of a third-party Trustee who will manage the trust assets for the benefit of this person. The Trustee must be independent, free of any control from the beneficiary, and the beneficiary can have no automatic right to any of the income or to any of the principle of the trust. The standard “health, education, maintenance and support” provisions are incorporated to assure the needs of the beneficiary are met. Special instructions for distribution may also be made.
Beneficiary Trust
This trust can be either revocable or irrevocable and is designed to give peace of mind that the assets that are left to your children will be protected against the claims of creditors, divorcing spouses and future estate taxes while your heirs have complete control during their lifetimes over the assets left to them. This trust should be used for the child of yours that can manage money wisely. This Trust may also be used for Medicaid planning if organized and funded 60 months prior to a client’s application for Medicaid.
Catastrophic Illness Trust
The Catastrophic Illness Trust is an irrevocable trust that if timely organized, appropriately used and timely funded can protect you from the cost of an illness or disability that would otherwise deplete an estate’s assets. There is a five year “look back” on this type of trust for Medicaid planning.
A revocable version of this type of trust is called a Family Catastrophic Illness Trust. It is usually established by your children. You would “gift” the assets to the children; they are the Trustors, Trustees and usually, the beneficiaries of the trust. Upon the death of both parents, the Allocation and Distribution of a Family Catastrophic Illness Trust must be equal and outright to all primary beneficiaries.
Charitable Remainder Trust
A Charitable Remainder Trust, or CRUT, can minimize or altogether eliminate taxes. It reduces capital gains and income taxes. It provides an income stream to beneficiaries, so that you have the use and benefit of the trust assets during your lifetime but are assured that upon your death, these assets will be transferred to your designated (IRS qualified), charities. This irrevocable trust is especially useful for one with highly appreciated assets.
Children’s Trust
To hold and distribute allocations for a minor child that you may wish to make to your children or grandchildren. (See also Special Needs Trust.)
Generation Skipping Trust
This trust is designed to reduce or altogether eliminate the impact of taxes that might otherwise be assessed on assets that are passed directly to grandchildren. The Generation Skipping Transfer Trust may be incorporated into your living trust. This Trust provides for the allocation to your grandchildren the property that remains after your Revocable Living Trust has divided your Trust Estate between sub-trusts upon the death of you or your spouse. It provides the available exclusion from the tax on generation skipping transfers an amount equal to that amount available under the then applicable tax law. The surviving spouse and/or children will receive the income from these assets during their lifetime. After the death of your last surviving child, the Generation Skipping Trust estate will then be distributed to your grandchildren equally. This gift is in addition to any other gifts you have made to your grandchildren.
“Own Nothing, Control Everything.”
- John D. Rockefeller
IRA and Qualified Plan Trusts
Used to protect your IRA or your Qualified Plan assets from being unnecessarily reduced by estate taxes. This trust becomes the beneficiary of your IRA or Qualified Plans. Using these trusts, the surviving spouse is able to allocate the assets from the IRA of a deceased spouse or their qualified plan to the marital trust and the credit shelter trust. Without a trust, this type of flexible allocation and subsequent tax savings would not be possible.
Irrevocable Life Insurance Trust, (ILIT) or Insurance Preservation Trust
Designed to keep the proceeds of life insurance outside of the taxable estate and thus avoid the consumption of life insurance proceeds through estate taxes. This type of trust is particularly useful also in providing for beneficiaries a way to pay estate taxes on an estate that exceeds the current federal estate tax exclusions.
Land Trust
A land trust is a contract where real property is conveyed to a trustee while reserving the control and benefits for the beneficiaries. Often referred to as an Illinois land trust, the use of land trusts has become quite popular around the country, particularly among real estate investors. A land trust is primarily an anonymity tool. As a defensive tool, it provides privacy, keeping your name off of the public record. As an offensive tool, it has the powerful effect of slowing down those who want to sue you. It also seriously increases their costs of litigation. These notable advantages, along with the avoidance of probate make it a very attractive entity.
Personal Property Trust
If you don’t own it, you can’t be sued for it. This entity is utilized to transfer personal property of all types into. It is particularly useful in holding automobiles, gun collections, or other items that might carry some potentially high liability. Think about a Personal Property Trust to hold your automobile when your teenager begins driving. Who would you rather be sued in the evert of their accident? You personally – your home, your bank account, etc.? Or the personal property trust that owns minimal (and now wrecked) assets?
Private Annuity Trust
This trust provides owners of highly appreciated assets such as businesses, real estate, and stocks the potential ability to defer capital gains tax, eliminate estate and/or inheritance taxes and transfer appreciated real estate to your heirs with deferred capital gains and depreciation recapture taxes.
Qualified Personal Residence Trust
A trust designed for those who have a large estate and are seeking legal ways to reduce or eliminate otherwise payable estate taxes. Particularly useful for those who have a home or second home that has significant value that can be gifted at a reduced or leveraged value to your children under an agreement permitting the client to continue to live in the home.
Revocable Living Trust
Minimizes taxes, maximizes privacy and avoids probate. This trust is at the same time, both the basic element and the ultimate in your estate planning. This is the trust that you want to have eventually “owning” all that you have. Transfer all stocks, bonds, real estate or the LLC’s that “own” your real estate to this trust. This trust will be the beneficiary of your personal property trusts and almost everything that you control.
Special Needs Trust
This trust is used to hold and distribute allocations for an individual with Special Needs or a handicap that you may wish to make without adversely affecting their other monetary or governmental benefits. (See also Children’s Trust.)
A Word About IRREVOCABLE Trusts
An Irrevocable Trust can be a wonderful thing because it allows you to take advantage of great tax advantages. You get great tax treatment because you no longer control the money or the property, a Trustee that you name does. The problem is, if you put your assets in something that is irrevocable, you no longer control it, and usually, you cannot change or amend it. This requires further counsel and conversation off-line in conjunction with your CPA to know what is best for you.
Buy-Sell Agreements
This is customarily and wisely entered into by those who have one or more business or professional partners, as a way of providing a framework for solving problems that may arise and to provide a plan of how transition will occur in a closely held business on the death of a partner.
Non-Compete Agreements
A Non-Compete Agreement, (or a Non-Compete Clause included in another document), is a contract in which one party agrees not to start a business in the same field of work and geographic area as another party. This agreement is very common with employees of large companies. This is to prevent an employee, former business partner or other from leaving the company to compete in the same industry as the former employer, diminishing that business income.
Most Non-Compete Agreements will be used in a certain state or for a certain geographical area. It should include the area in which the party cannot create a competing business. This could be a small surrounding area, an entire state, or even multiple states, depending on the particular circumstances of the situation and relationship.
Partnership Agreements
These are customarily entered into by those who enter into a business arrangement with a partner. The agreement addresses foreseeable circumstances and attempts to detail how contingencies will be handled in a variety of matters.
Separate Property Agreements
This is a supplement to a pre-nuptial agreement that identifies separate property of the husband or wife and thus prevents the unintentional disinheriting of rightful heirs. This could occur after Dad dies and Mom later remarries. Upon the death of Mom, property she and Dad meant for you could pass to the new spouse and upon Step-Dad’s death, your inheritance could go to Step Dad’s heirs.
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