Frequently Asked Questions

 

1.  What assets should be placed in a revocable living trust?

The assets that should commonly be placed in a revocable living trust are your home(s), other real property, time shares, personal property, bank savings accounts, certificates of deposit, credit union accounts, savings and loan accounts, stock certificates, brokerage accounts, mutual funds, interests in any business and exotic or collectible/classic cars.

2.  What assets need not be put in a revocable living trust?

Transfer to the trust of some assets may not be necessary, provided the value of this property combined with other assets outside the trust is less than $100,000.  Probate is required if the assets in a person's name at death exceed $100,000 in total value.

For the sake of convenience, certain assets such as a car and checking account are often kept out of a revocable living trust.  With the exception of exotic or collectible/classic cars, transfer of automobiles to a trust is uncommon due to the required paperwork with the Department of Motor Vehicles.


3.  Should Life Insurance be paid to a revocable living trust?

Yes, life insurance should be paid to a revocable living trust for the following reasons:

            (a)            a trust will provide for a number of contingent beneficiaries and distribution plans that a life insurance beneficiary form alone can not accomplish;

            (b)            in order to change beneficiaries of the policy, all that would be required is a simple amendment to the trust versus contacting your insurance provider, waiting for the form, and reiterating the entire form each time you wanted to change beneficiaries;

            (c)            for married individuals, an insurance policy that pays to the trust will provide the trustee with the necessary proceeds to fund the Decedent’s Trust if there are not enough assets already in trust to maximize the Decedent’s tax credit;

            (d)            an insurance policy that pays to the trust will avoid the possibility that the insurance proceeds will be probated. Probate of the policy would occur if only one individual was named on the beneficiary form and that individual died before the policy holder. If the policy holder fails to name a contingent beneficiary and then also dies, the life insurance proceeds will be probated. With the trust as the beneficiary, there may be numerous beneficiaries that the insurance proceeds can flow down to in the event the prior beneficiary is deceased and there will be no need for the proceeds to be probated.


4.  How can I keep my trust and estate plan documents up to date?

Once you have completed your estate plan, it is good practice to review your documents once a year to ensure that your estate planning documents still fulfill your desires. We often tell clients to pick one day out of the year, such as the day after Thanksgiving, and review your documents each year on that same day so as to create an established review date. You do not need to see your attorney each year to go over your documents unless there is the need to change your estate plan. However, we do suggest making an appointment with your attorney every three to five years to review and update the trust if needed.  Changes in the law, the value of assets, and family circumstances can necessitate revision of an estate plan.

5.  How much can be given in a year without incurring any gift tax?


Each individual is allowed to give completed gifts of up to eleven thousand ($11,000) dollars a year to as many individuals as desired without incurring gift tax. For example, Joe Smith would like to give away $110,000 in the year 2001. Joe may give ten (10) people a gift of eleven thousand ($11,000) dollars each and not incur any gift tax or have to file a gift tax return. However, should Joe buy a $100,000 sports car for his girlfriend Jane Doe, he will have to pay gift tax on any amount over eleven thousand ($11,000) dollars given to Jane, i.e. $89,000, and file a gift tax return. You should note that the gift tax due will be deducted from your applicable credit amount allocated for gift and estate taxes. Therefore, until your gifts exceed the maximum life time amount, $1,000,000, no actual money will need to be sent to the IRS.

6.  What information should a client bring to an initial estate planning meeting?


The new client information letter found under the new client section of this website will provide you with the information that should be brought at the first estate planning meeting. (ADD LINK TO PAGE WHERE LETTER IS)


7.  Do I need a revocable living trust?


There are many reasons why people set up revocable living trusts, however, the main motivators are to avoid probate, maximize tax savings, and control how and when assets are to be distributed to beneficiaries.

For individuals with estates over $100,000, a trust should be established in order to avoid probate. Most people want to avoid probate due to the length of time and cost it takes to probate the estate. Additionally, probate is a public proceeding that allows anyone access to information regarding your estate. Thus, revocable living trusts are often established to maintain privacy and avoid the probate process.

Another reason to establish a revocable living trust is to minimize or eliminate taxes due at death.  Presently, each individual can pass up to $1,000,000 tax free at their death. This amount will increase over the next few years and by 2009 will reach $3,500,000. For married couples with estates over $1,000,000, a revocable living trust should be set up to make use of both spouses ability to pass $1,000,000 tax free at death. With an estate over $1,000,000 and no trust in place, one spouse's credit will be wasted.  With a properly drafted trust which divides the assets to cause a portion of the total estate to be taxed at each death, a married couple will presently be able to pass $2,000,000 tax free by having up to $1,000,000 taxed at each death.  Without this "A-B Trust" provision, only $1,000,000 would pass tax free at the Survivor's death if the estate were all taxed after both spouses were deceased.

Finally, one of the most common reasons people set up revocable living trusts is to control how and when assets are distributed. Often people want trusts so they may delay the distribution period for beneficiaries who are unable to handle large sums of money all at one time. In addition, a trust will allow an individual to set up many kinds of conditions and protections for asset distribution and preservation.