You Earned It – Protect It or Lose It – Those Are The Options

Protecting You and Your Family’s Future

Together we plan for what is best for you and your situation. Some of the strategies that may be important to protecting what you want protected, for who you want and for when you want, are:

LAST WILL AND TESTAMENT. This protects your family from probate so the courts and/or other people cannot make decisions about what you worked for all your life. But, a will by itself does not provide very much protection.

Probate is expensive. Up to ten percent of your estate can be lost to probate costs alone. Costs may include court fees, legal fees to the executor of the estate, appraisals, legal fees to resolve disputes, and accounting services.

Probate can be a lengthy process. While it is possible for an estate to be probated in six to twelve months, it is not uncommon for the probate process to extend to one to three years before the estate is settled, especially if there is a fight over the assets.

Probate is an invasion of privacy. Your entire estate will become a matter of public record during the probate process. Anyone can go to the courthouse and find out what assets are in the estate, their value, and to whom the assets are to be distributed. There are many dishonest people who research the probate records to find ways to take the assets of the deceased. Others seek to take advantage of an heir by having them invest in some scheme or any number of cons.

LIVING WILL. A living will provide instructions from you about your medical care in the event that you are incapacitated and unable to make decisions for yourself about your estate/assets. A living will does not take effect until you are incapacitated. Until then, you are able to say what treatments you want or do not want. A living will specifies which treatments/procedures you do not want performed and gives consent to treatments/procedures you do want performed. One of the directives of a living will is to state whether or not you would like to receive life-sustaining support when you are in a vegetative state and when there is no reasonable medical probability of recovery. But, you get to decide before any such event occurs. Medical directive, proxy, special power of attorney for health care is a necessity to control your future.

DURABLE POWER OF ATTORNEY. A durable power of attorney allows someone to act in your place should you become unable to act on your own behalf. A durable power of attorney allows your designated agent to manage your everyday affairs—from simple tasks such as paying a utility bill from your account to major decisions such as selling your home. This document allows you to decide who will manage your affairs in the event you are incapacitated (or at any time for that matter), and the power can be defined as limited or general. If you are incapacitated and do not have a durable power of attorney, a court proceeding would be held, and the court would appoint someone to make decisions on your behalf with the court overseeing the actions. Creating a durable power of attorney allows you to designate your agent of choice.

REVOCABLE TRUST. A revocable trust allows you to at least get assets out of your personal name and protected. It ensures your assets quickly transfer according to your wishes upon your death and much more as a part of your overall plan of protection. With a revocable living trust, no court action is involved, and the property is distributed privately. Setting up and funding a revocable living trust enables you to effectively pass your assets to whomever you want, and it is one of the most loving things you can do for your family. Through a revocable trust there are ways to protect the assets you put into your trust. You get to decide how your money and other assets will used. But a trust by itself does not provide the control you may want. There are many strategies to take care of this issue.

IRREVOCABLE TRUST. A revocable trust is a good way to make your estate plan stronger. If the total value of your estate assets exceeds the exemption amount, the proceeds of your insurance policies will be subject to estate taxes. An irrevocable life insurance trust (ILIT) is an irrevocable trust designed to hold life insurance so that the value of the policy is not included in the value of your estate, therefore the proceeds of an insurance policy avoids estate tax. By removing the insurance policy’s death benefit from the owner’s taxable estate, an ILIT allows the full amount of the death benefit to go to beneficiaries—without being subject to probate or estate taxes. Plus, there are other benefits to protect your trust asset through your business/personal structures.

An ILIT might be particularly useful if you own a family business that is set to remain in your estate when you pass away. You can create an ILIT ahead of time to ensure that business stays in your family, despite estate bills, by gifting the premium on your life insurance into the ILIT each year.

Your trustee will own the policy, and when you pass away, the trustee collects the policy proceeds. Those proceeds can be distributed to the trust’s beneficiaries, who can use them to pay estate taxes, ensuring they will not have to sell the family business. They may also use it to fund a buy/sell agreement where they buy out the remaining owners once you pass away so they can control the company.

PERSONAL AND BUSINESS STRUCTURING provides keys to bringing your estate and asset protection strategies together.

SPECIAL NEEDS TRUST. A special needs trust is a legal arrangement and fiduciary relationship that allows a physically or mentally disabled or chronically ill person to receive income without reducing their eligibility for the public assistance disability benefits provided by Social Security, Supplemental Security Income (SSI), or Medicaid.

A grantor creates a trust and a trustee oversees the disbursement of assets from the trust. A beneficiary is a person for whose benefit the trust is established. The trust will supplement the beneficiary’s government benefits but not replace them.

A special needs trust is a popular strategy for those who want to help someone in need without risking that the person will lose their eligibility for programs that require their income or assets to remain below a certain limit.

CHARITABLE LEAD TRUST. This trust type first distributes a portion of its proceeds to a charity, for which you’ll receive a charitable donation tax deduction equal to those payments. The remainder of the principal is then distributed to your beneficiaries.

CHARITABLE REMAINDER TRUST. This is not a strategy that will work for everyone, but it can be a very powerful tool for some. If you have a highly appreciated asset (like real estate, stocks, business) that you do not want to pay capital gains tax on, you first need to transfer the asset to a CRT. Next you have the CRT sell the asset. The CRT is recognized by the IRS as a charitable organization so the CRT is not required to pay capital gains tax on the sale of the asset. You then receive a charitable tax deduction for your contribution of the asset to the CRT, which will reduce your income taxes; and you can receive income from the CRT each month for the rest of your life. The assets in the CRT are designated to go to a charity upon your death —or if married, upon the death of you and your spouse. If you wish to still have the assets go to your family to manage upon your death, you can set up a Family Foundation and designate this family charity as the beneficiary of your CRT.

SPENDTHRIFT TRUST. A spendthrift trust is a trust designed so that the beneficiary is unable to sell or give away an equitable interest in the trust property. The trustee is in control of managing the property. Thus, the beneficiary of the trust is not in control of the property and any creditors of the beneficiary cannot reach those assets.

There are many trusts for many reasons that offer protective strategies that can enhance your estate plan.