Page 7 - Estate Planning 101 - 201312

Q&A
How do I transfer my Bank and/or
Brokerage Accounts to a Trust?
How do I transfer my Life Insurance
Policies to a Trust?
How do I transfer my Retirement
Accounts (Pensions, 401(k), IRA
(Individual Retirement Accounts),
Annuities, etc.) to a Trust?
How does my Personal Business work
with a Trust?
What is an A/B Trust?
Do Revocable Living Trusts offer
liability protection?
ESTATE PLANNING 101
PREPARING A TRUST
(CONTINUED)
There are two options when transferring bank or brokerage accounts to a Revocable
Living Trust:
Option One: The first option is to transfer the ownership of the account to the Trust. For
example, if a person has an account at a bank or credit union listed under their name
“John Doe”, they would transfer the ownership of the account so their statement would
now read “The Doe Family Trust” because the Trust actually “owns” the account.
Option Two: The second option is to list “The Doe Family Trust” as beneficiary of the
account. For example, the account would stay the same and be in “John Doe’s” name,
but when he passed-away, “The Doe Family Trust” would be listed as the beneficiary or
paid-on-death (P.O.D.), meaning that all the assets in the account would go into the
Trust. Regardless of which option is chosen, it is extremely important to properly transfer
ALL accounts to the Trust.
When transferring life insurance policies to a Revocable Living Trust, the first
beneficiary of the policy should name the Trust. No alternate beneficiaries would be
required because the Trust establishes alternate trustees and beneficiaries.
If an individual is transferring retirement accounts (Pensions, 401(k), IRA (Individual
Retirement Accounts), Annuities, etc.) to a Revocable Living Trust, the first beneficiary
of the account or policy could be the Trust.
If an couple is transferring retirement accounts (Pensions, 401(k), IRA (Individual
Retirement Accounts), Annuities, etc.) to a Revocable Living Trust, the spouse could be
listed as the first beneficiary to give them the option to roll-over funds from a retirement
account and defer the tax. The second beneficiary could be the Trust.
The above examples do not apply in every situation and a financial advisor should be
consulted before changing beneficiaries on retirement accounts.
Business interests should be transferred to the Trust by completing a Transfer
Agreement and Assignment.
Federal tax law gives every individual a "Unified Gift and Estate Tax Credit." This
exemption is the amount of your assets which can pass to your heirs “estate tax free”;
there is an unlimited deduction for assets passing to a surviving spouse.
On January 1, 2013, President Obama signed into law The American Taxpayer Relief
Act of 2012 (“ATRA”). Among its many tax provisions, ATRA makes permanent the
$5.25 million gift and estate tax exemption amount.
The gift tax is still unified with the estate tax; a unified estate and gift tax exemption
means the $5.25M threshold is applied to total transfers, whether by gift during lifetime
or by inheritance on death. The 2012 Act also provides for a flat 40% tax rate for any
transfers in 2013 and future years that exceed the $5.25M gift or estate exemption
amount.
A/B Trusts allow spouses to maximize both the husband and the wife’s estate tax
exemptions. If the estate is close to or over the estate tax exemption amount, the Trust
can be split into two Trusts and the survivor would act as trustee and beneficiary of
only one of those Trusts. The other Trust would be there if the survivor needs it, but
the first Trust should be used by the survivor before going to the second Trust. By doing
this, a couple is able to maximize both spouses’ estate tax exemptions and the
beneficiaries pay far less estate tax.
Revocable Living Trusts do NOT protect property and assets from personal liabilities
and nursing home costs. Since the individual or couple who formed it can change the
Trust at any time, the income and assets in the Trust are considered available to cover
nursing home costs under current Medicaid rules.