Editorial
IS YOUR TRUST
STILL FULFILLING
YOUR OBJECTIVES?
People establish trusts for many different reasons.
Some for the management aspects to make sure their
assets will be properly invested and not squandered
away by a spendthrift child or spouse. Others
establish trusts to make sure that if sued, their assets
are protected from the claims of a creditor. A careful
parent or grandparent may establish a trust to
provide an inheritance earmarked for the next
generation and even to make certain that their child's
assets are protected in the event of a divorce. Trusts
can also be set up to provide for the welfare of a child,
to provide for their educational fund or to send a
birthday, graduation or wedding gift even after the
grantor has passed away. A Trust is an excellent way
to make a charitable bequest to assure your Legacy
will always be remembered.
Some individuals with sufficient assets that choose
to leave their IRA principal intact for a grandchild
might choose to set up a stretch IRA trust. Doing so
would allow the assets in the IRA to continue to grow
tax deferred and accumulate for many years without
having to take a distribution, a very smart and
effective way to defer taxes on assets and even gives
one an opportunity to skip a generation of taxes.
Creditor protection for a beneficiary may also be
another significant reason for a grantor to set up an
IRA trust especially if the beneficiary might be sued
because of their occupation, or spendthrift
personality.
Prior to the estate tax exclusion increasing to over
$5,250,000 many attorneys advised their clients to
use marital A B Trusts to reduce the size of the assets
in their estate to escape the federal estate and state
inheritance taxes. Many advisors also suggested that
clients place their primary homes in a Qualified
Personal Residence Trust (QPRT'S), to avoid having
their value included in their taxable estate for estate
tax purposes. .While there are many reasons for an
individual or family to consider the benefits of
establishing a trust, it is equally important that
individuals review their trusts to make certain they
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by Henry Montag
are still operating in their best interest today. For
example many individuals that placed their homes in
QPRT'S, may wind up passing the ownership of the
home from a parent to child while the owner is still
alive. However, in doing so they give up a significant
tax benefit known as a stepped up basis at death
unnecessarily as estate taxes may no longer apply
today as a result of the new higher estate tax
exclusions.
Many young families with children that have special
needs, set up a Special Needs Trusts (SNT) to enable
their child to receive whatever public assistance they
may qualify for, and in addition provide them with
other assets when parents are no longer alive. If there
aren't sufficient assets to guarantee an income for the
rest of a child's life, then the trust can be funded with
a life insurance contract. While it's always important
to choose a trustee wisely, never is it more important
than when it comes to providing management for a
special needs child for the rest of his or her life. Just
as much thought should go into the selection of a
trustee, as a trustee should carefully consider the
duties and responsibilities he/she is assuming by
agreeing to act as a trustee for their family or a close
friend.
Too often people just appoint or accept the title as
Trustee but don't understand the fiduciary liability
and moral responsibility they now assume as they
become personally liable to preserve the assets in the
trust. This most commonly occurs when a life
insurance contract was purchased in order to exclude
the death benefit from their taxable estate. At that
time, their attorney or accountant advised them to
select an individual to act as trustee for their trust
owned life insurance (T.O.L.I). Often times a son or
daughter or friend is chosen, unknowingly placing
them in a position where their lack of specialized
knowledge concerning their duties may place them
and the advisor making the suggestion in a position
where they can be sued by other family members.
This can happen if a universal life insurance contract
LIME Magazine