Standalone Retirement Trusts

Nowadays, most Americans hold their wealth in retirement accounts. When it comes to
inheritance and estate planning, special considerations are necessary to ensure that these assets are protected and distributed according to the account holder’s wishes.

Retirement assets, such as IRAs, are typically passed via beneficiary designation. For example, for a married couple with children, it would be common to designate the spouse as primary beneficiary and children as secondary. However, in almost all occasions it is advantageous to name a trust—rather than a particular individual—as the designated beneficiary. Once the retirement account becomes inherited by a non-spouse beneficiary (i.e. children), it is important to understand that IRS regulations
treat this inherited retirement account differently. Specifically, once inherited, the beneficiary is obligated to begin taking required minimum distributions from such funds within a more immediate time horizon of either five years or over the beneficiary’s life expectancy. An IRA administrator will also offer the option of receiving the proceeds as a lump sum payment, which is very often discouraged, especially in the case of minor or financially irresponsible children. The preferred goal in planning for inheriting retirement assets is to maximize this window of time so that the tax-sheltered, long-term growth benefits of retirement accounts are maximized.

IRAs and other retirement instruments were designed precisely for a specific purpose: retirement. They were not intended as a savings mechanism for future generations. Tax laws work according to this assumption, and so foresight and planning are necessary when including such holdings in an estate to be passed on to beneficiaries. Trusts can serve as an appropriate conduit to protect and preserve these assets.

Some will consider a standard revocable living trust by default when structuring a retirement trust. This could cause unfavorable consequences, however, including a more fixed distribution schedule and the lack of creditor protection. Further, the IRS may a not consider the revocable living trust as a designated third party beneficiary, resulting in the assets becoming immediately, taxable income.

A Standalone Retirement Trust is a trust that is created for the sole purpose of serving as the beneficiary of the remainder of your IRA funds (and other qualified funds, e.g. 401(k)). Thus, the trust will be funded after you pass with whatever is left of your retirement assets. Then, the trustee of the Standalone Retirement Trust will oversee the distribution of the funds to your heir(s) in a manner you see fit.

A Standalone Retirement Trust will provide you with significantly greater control over the manner in which your remaining retirement funds are distributed to your loved ones, rather than just control who will receive the funds after you die—as is the case with leaving your IRA through a simple beneficiary designation.

Other potential benefits of Standalone Retirement Trusts include

Asset protection in the event of a divorce;
Creditor protection;
Generation-skipping tax benefits;
Special Needs/Supplemental Trust benefits;
Alerts the beneficiary of any tax consequences of an immediate payout;
Allows beneficiary’s to thinly stretch tax obligations over time;
Alleviates the need for a court appointed guardian for minor beneficiaries
Provides a beneficiary with asset protection in the event the beneficiary becomes disabled; and
Allows for successor beneficiaries.

For more information on Standalone Retirement Trusts contact our office today.

Funding Your Living Trust

Hopefully by now you’ve heard about the benefits of having a living trust as part of your estate plan. The most notable benefit is the ability to keep your assets from having to go through probate. You can retain control of assets during your life, and exercise control over how they are managed and used after your death. A trust can reduce, and in many cases eliminate income, estate, and capital gains taxes on assets.

Meeting with a skilled estate planning attorney and creating the best type of trust for your particular needs is a big step. Creating the trust, however, isn’t all you need to do. Consider how silly it’d look if you bought a safe deposit box or opened a bank account, but never put anything in it. They can only protect your assets if they’re inside. If you die or become incapacitated and your trust is not funded, it is mostly useless, no matter how well-drafted it might have been.

How to Fund a Living Trust

So how exactly do you go about funding a living trust? That depends on the nature of the assets intended to be placed in the trust. Many types of assets can be used to fund a trust by re-titling them in the name of the trust.

For instance, if your name is John Doe and you currently have a bank account or cars in your sole name, you could change the name on the bank account or vehicles to that of the trust, with yourself listed as trustee of the trust. Also, if you are married, you and your spouse can both be listed on an account as co-trustees.

Other assets that can be re-titled in order to fund a trust are real estate, stocks, and other investment accounts. Legal requirements for funding a trust with real estate are somewhat complicated, and it is best to have an attorney’s assistance to make sure you use the right type of deed and that it is properly prepared. More likely than not, you will deed the property directly to the trust.

Certain types of assets may be used to fund a trust by designating the trust as the beneficiary of those assets. Many of our clients choose to make their trust the primary beneficiary of their life insurance policies. This allows the client to have lots of control on how the policy proceeds are disposed of at the death of the policyholder. Annuities or retirement accounts, including 401(k), 403(b), and IRAs can also fund a living trust after death through beneficiary designations.

Having retirement account assets payable to certain trusts can significantly reduce the tax deferral period for your taxes. On the other hand, other trusts can enhance the likelihood of attaining the maximum stretch-out period for your heirs. At the Law Office of Rodney Davis, LLC, we can assist you in re-titling your accounts to avoid a bad outcome.

Getting the Help You Need to Fund Your Living Trust

If you have not yet had your attorney draft your trust, prepare a list of the assets that you want to place in the trust. Understanding how you plan to fund your trust will help your attorney guide you in doing so efficiently. If you have created your trust, but have not yet funded it, don’t delay, act now! Call our office today to learn how you can fund your living trust.

Where Should I Store My Estate Planning Documents?

One of the most common questions that estate planning attorneys are asked is where original estate planning documents – Wills, Trusts, Powers of Attorney, and Health Care Directives – should be stored for safekeeping. While there is no right or wrong answer to this question, there are a few things to consider: Continue reading Where Should I Store My Estate Planning Documents?

Can I Put My Home in a Trust?

The short and simple answer is yes. Any property you own and have legal title to can be transferred into trust. That includes real property. Even real property that is subject to a mortgage can be placed into a trust. Most people, after all, don’t own their houses free and clear of a mortgage when putting their homes into trust. But transferring real property into the trust does not change your obligation to continue to pay the mortgage–if you don’t pay, they can still take back the house. In fact, if you’re thinking of putting your home into trust you should consider contacting your lender first. You might trigger a due on sale clause if one is included in your mortgage contract. The lender can call the entire mortgage due all at once because you technically no longer own the home. Further, if after placing your home into trust you decide to refinance your home the lender may require that you take your home out of trust before getting the new loan and putting it back into trust after getting the new loan.

Advantages of Putting a Home into Trust

Homestead Exemption Issues

If your line of work leaves you vulnerable to lawsuits you may want to consider your state’s homestead exemption laws. These laws put your house – or at least a portion of its value – out of reach of judgments or, in a worst-case scenario, your bankruptcy estate. When it comes to trusts, homestead laws can vary significantly from state to state. In some states, your property is only protected if you personally hold title. If you transfer ownership of your house to an irrevocable trust, however, this shouldn’t be a consideration. This type of trust also shields assets from creditors, so you’d just be exchanging one form of protection for another.

Avoidance of Probate Issues

Most living trusts are structured to avoid probate and its costs. While some states have streamlined their probate process, many still require cost, time and attendance at multiple hearings. Most homeowners wishing to avoid probate and transfer title to their home to their heirs quickly find avoiding probate through a trust to be a strong advantage.

Consider the Deed Used to Transfer the Home into Trust

The deed you use to transfer your property to your trust can present another issue. Real property can be transferred by two main instruments: a warranty deed or a quitclaim deed. A warranty deed guarantees a future buyer that there are no hidden liens or claims against your property, and that you – or your trust – actually own it. Thus, you have something to sell. A quitclaim deed, on the other hand, makes no such representations. It simply transfers any ownership interest you might have without guaranteeing that you have an interest or that it’s not encumbered by liens. A future buyer would be wary of this type of deed if your trustee finds that he must sell the house after your death. Depending on the type of deed you use to make the transfer to your trust, you could create a big estate issue in the process of settling your estate at your death.

For more information about how we can help with your estate planning needs please contact our office today!

5 Legal Documents You Should Have

All too often we find ourselves in situations where we need immediate access and use of certain legal documents. No matter who you are, it is important that you take the necessary steps to acquire these documents. After you get these documents put them in a safe place and retrieve them when needed. Below are 5 legal documents that every individual should have before the need for them comes:

I. Will

Let’s face it, no one wants to think about dying. As a result, most individuals die without a will. Writing a will, however, does not have to be a daunting experience. In fact, everyone needs a will to make sure your assets are distributed correctly. If you are a parent of a young child, you will need to appoint a guardian to take care of your kids. Dying without a will could lead to extensive bickering and fighting among your family over the distribution of your estate. Do your loved ones a favor and invest in having a will written by an estate planning attorney. Click here to learn more about having your will written by our office.

II. Power of Attorney

A power of attorney is a legal document giving another individual (referred to as your attorney in fact) the authority to act and make certain decisions on your behalf. If you ever become debilitated or otherwise incapacitated, the attorney in fact will make decisions for you. If you are out of town or out of the country, you can also authorize your attorney in fact to make decisions for you and manage your affairs in your absence. Click here to learn more about having your power of attorney written by our office.

III. Advanced Medical Directive

In addition to having a power of attorney written to handle business affairs and other miscellaneous matters, an advanced medical directive is very important to have as soon as possible. An advanced medical directive is a legal document that states your wishes in regards to your health care. An advanced medical directive addresses issues such as life support and whether to resuscitate you if you are unresponsive. Remember the Terri Schiavo case? The seven-year legal battle between in-laws could have been avoided with an advanced medical directive. Click here to learn more about advanced medical directives and living wills.

IV. Life Insurance

Again, no one wants to think about death, so most people don’t take the time to invest in life insurance. Life insurance, however, is imperative to have in order to make sure all of your debts and memorial services are taken care of. Neglecting to do so will leave your family with the responsibility of handling these costs.

V. Living Trust

A trust is an arrangement created by you under which one person, called a trustee, holds legal title to property for another person, called a beneficiary. You can be the trustee of your own living trust, keeping full control over all property held in trust. Just like a will, a living trust spells out exactly what your desires are with regard to your assets, your dependents, and your heirs. The difference between the two, however, is that a will becomes effective when you die and is probated, but a living trust does not have to go through the costly time-consuming probate process. If you have a trust, it is important to make sure that trust is properly funded and that all of your personal property is transferred to your trust. Click here to learn how our office can assist you in creating a trust.

You never know when you’ll need either of these documents, so give us a call today and let us help you plan for the unexpected.