...A/B Trusts An A/B Trust is any type of trust that splits into two separate and distinct trusts upon the death of the grantor. One of the separate and distinct trusts is a Credit Shelter Trust, which is designed to hold as much of the grantor's property as is sheltered from the federal estate tax by virtue of the unified credit; i.e., $2,000,000 for decedent's dying in years 2006, 2007, and 2008, and $3,500,000 for decedent's dying in the year 2009. The other separate and distinct trust is a Marital Trust, which is designed to hold the remainder of the decedent's property, which is sheltered from the federal estate tax by virtue of the unlimited marital deduction. These separate and distinct trusts are designed to eliminate or reduce the federal estate tax liability of a married couple over the deaths of both spouses. An A/B Trust arrangement can be created under a living trust or a testamentary trust, since these provisions do not take effect until after the grantor's death. See "Credit Shelter Trusts" and "Marital Trusts." See also "Family Trusts" and "By-Pass Trusts." Back to Table of Contents Asset Protection Trusts An "Asset Protection Trust" is a type of trust that is designed to protect assets from the claims of creditors. There are two types of Asset Protection Trusts - a Domestic Asset Protection Trust (also known as an "Onshore Trust" or "DAPT") and a Foreign Asset Protection Trust (also known as an "Offshore Trust"). Both types of trusts are also referred to...
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... Customer Service Center News Room Learning Center > Article Library > Flexible Irrevocable Trust Add Flexibility to Irrevocable Life Insurance Trusts By Elizabeth B. Taylor, Director - Estate Market and Barbara A. Bombaci, Director - Advanced Planning Given the present uncertainty about future transfer tax rules, an estate plan should be drafted to provide as much flexibility as possible so it can adapt to changes. To a great degree, estate planning is the art of dealing with uncertainty. When will someone die? What will his or her estate be worth at that time? What will happen in the meantime? How will beneficiaries turn out? Furthermore, the current state of transfer tax legislation adds one more aspect of uncertainty: What will the tax laws be in the future? For most clients, what happens to our transfer tax rules this year or next year is not particularly relevant. Most clients considering their estate plan now are going to live for decades into the future. The transfer tax rules are likely to change multiple times before their estate plan (at least the “at death” portion) is implemented. One response in the face of so much uncertainty is to do nothing – freeze up. Another, better response is to plan, but with as much flexibility as possible in order for an estate plan to adapt to changes in the future. But with planning that is irrevocable – irrevocable life insurance trusts (ILITs) in particular – flexibility seems impossible. Yet this is not so. With a little...
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...IRREVOCABLE OR NOT? MODIFICATIONS TO TRUSTS ERIC G. REIS Partner Thompson & Knight, LLP 1722 Routh Street, Suite 1500 Dallas, Texas 75201 Phone: (214) 969-1118 Fax: (214) 880-3183 State Bar of Texas 33 Annual Advanced Estate Planning and Probate Course June 10-12, 2009 Houston, Texas rd CHAPTER 10 NOTICE: In compliance with requirements imposed by IRS Circular 230, please be advised that any tax advice contained in this outline is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or other matter addressed herein. TABLE OF CONTENTS I. II. INTRODUCTION. ...................................................................................................................................................................1 LEGAL CONSIDERATIONS. .................................................................................................................................................1 A. Texas Trust Code Provisions on Modification of Trusts. ....................................................................................................1 B. Merger of Trusts..................................................................................................................................................................2 C. Sale to New Trust. .............................................
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...After taxes, John earns about $400,000 to $600,000 more per year than he and Jane spend. The balance of John's wealth includes two homes (a main residence and a vacation home) worth a combined $2.7 million; $1.7 million in his 401(k) plan; cash assets and a stock and bond portfolio totaling $1.8 million; $2.9 million in income-producing real estate; and $300,000 in sundry assets. There also is $6.2 million in insurance on John's life that is now owned by an irrevocable life insurance trust (ILIT). This insurance includes a $1.2 million whole life policy and $5 million in 10-year term insurance with six years remaining in the term. Business This first thing I need to get a handle on is John’s company. The $5.6 million value of Victory Company represents over one-third of John’s estate, and grows $1.5 million in value each year before taxes. This is not an asset I want in John’s estate when the grim reaper comes knocking on John’s door. Currently, John’s son, Paul, is managing the company and John would like for Paul to someday own the company. It seems that John trusts Paul enough to take over the business. As John’s financial advisor, I was torn...
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...CH 12 The scope of the estate tax Sec 2033 Section 2033 · Gross estate: Value of the property to extend of interest at time of death Section A · estate tax is excise tax: “tax included on the property” · Tax base must include the value of the property that most obviously is transferred (FUNCTION OF 2033) · Section 2033 includes (GROSS ESTATE) o Decedent’s securities o Bank deposits o Real state o Income earned before death are collectible by the estate § Rent § Interest § Dividends § Partnership profits § Refunds § Vested rights § Promissory notes (matured or not) § Insurance policies § Saleable (commercial) leasehold interest § Interest in rented property · By either tenants in common or one-half community. § Federal and State bonds are includable despite their exemption from other taxation either by their express terms or by law · REG 20.2033 o Descendant hold only legal title (trustee) under enforceable oral or written does not possess an interest taxable under section 2033. § Ex: agent o ONLY DIRECTLY OWNED PROPERTY · Principal reliance on judicial and administrative interpretation of Sec 2033’s simple language potentially would yield over inclusions “many” o There are not many limits o Limits must be established o Congress explicit responded what property interest that are to be taxed, eventhough they lied beyond the reach of 2033. § 2033- Base line § Section 2041 · in...
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...Wills, Trusts, and Estates FIN 4004 Spring, 2013 CRN 13341 (MW 4:00-5:15pm) Jason Bryan Malone, Esq. 2117 Pamplin Hall Email: jbmalone@vt.edu Office Hours: MW 12:10pm-1:10pm (Additional hours will be posted on Scholar throughout the semester) (Please feel free to make an appointment or come by during other times) Text: Estate Planning for Financial Planners, 6th ed., Michael A. Dalton and Thomas P. Langdon Course Description: Estate Planning focuses on the efficient conservation and transfer of wealth, consistent with the client’s goals. It is a study of the legal, financial and non-financial aspects of this process, covering topics such as trusts, wills, probate, advanced directives, charitable giving, wealth transfers and related taxes. Course Objectives: At the end of this course, the student should be able to understand, explain, analyze and evaluate estate planning needs and taxation in order to recommend appropriate techniques for meeting estate planning and objectives, including without limitation: • Determine client estate planning needs and objectives, taking into account financial and non-financial (behavioral/social/emotional) aspects of estate planning • Understand the effects of the lack of estate planning, including state laws of intestacy • Project estate taxation and liquidity needs in various situations • Recommend appropriate and efficient methods of wealth transfer for a client’s situation, including...
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...Personal Financial Planning The number one goal of Century Management is to assist our clients in the attainment of financial security through financial planning and money management. The financial planning process combines planning with ongoing advice to help each client make certain that the total financial picture is constantly being evaluated with respect to changing conditions. We make specific recommendations that are designed to provide more efficient use of the client's growing resources, to improve net worth, to reduce income and estate taxes, and to increase after-tax cash flow. A fact-finding session helps us become totally familiar with your current financial situation, as well as your personal goals and priorities. Working from the comprehensive information gathered in the fact-finding session, a detailed financial plan is prepared which documents your current situation, identifies all areas that will be impacted, and makes specific goal-oriented recommendations. Recognizing our ever-changing tax environment, we also work to assure that you are positioned in the most effective manner relative to your personal tax situation. Each recommendation in our analysis is then thoroughly reviewed with you to confirm your understanding and support of each recommendation. If desired, we actively assist in the full implementation of every plan recommendation in conjunction with the other members of your financial advisory team. The following example is a combination...
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...mechanisms provide certain advantages, they are also accompanied by various disadvantages. II. Wills A will is an instrument by which a person directs dispositions of property to take effect upon death. It is the only document that allows a decedent’s probate assets to pass testate to persons of his or her choosing as opposed to passing via the strict laws of intestacy, under which the surviving partner would receive nothing. Even in the presence of strategies used to avoid probate such as intervivos trusts, wills are an essential precautionary measure to demonstrate the intent to pass property outside of probate, to demonstrate the intent to dispose of personal effects, or “in the event of forgotten or unanticipated assets.” III. Trusts The major disadvantage in trust lies in their funding—the trust terms can only operate to dictate distribution of assets that are titled in the trust’ name and, therefore, the grantor will have to retitle any assets to be controlled by the trust. Any assets that are...
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...individual’s final wishes for dividing assets and protecting the family. Every estate planning situation will be different. Families with members who are physically, mentally or developmentally incapacitated will require special provisions. A special need trust can be set up to ensure the best possible care of a disabled family member. What is a Special Need Trust? The care for a disabled loved one can be a challenging and rewarding experience. The continuous care must be met throughout the disabled person’s life time. Making legal provisions with the use of a trust will give family members peace of mind for long-lasting quality care. A special need trust is a...
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...2007 Workbook Chapter 6: Death of a Taxpayer Federal Tax Forms ................................................... 189 Income in Respect of a Decedent (IRD).................. 194 Deductions in Respect of a Decedent ...................... 201 Inherited Property.................................................... 202 Trusts ......................................................................... 205 Special Issues ............................................................ 210 Corrections were made to this workbook through January of 2008. No subsequent modifications were made. Tax professionals are frequently called on to guide fiduciaries through income tax complications resulting from the death of a taxpayer. While a tax preparer should never try to replace the estate attorney, there are services she can provide. This chapter gives an overview of what might be expected. When a taxpayer dies, the court appoints someone (a fiduciary) to handle the taxpayer’s estate. This fiduciary’s title can be executor, executrix, administrator, administratrix, or personal representative. The fiduciary has a responsibility to the decedent’s estate. Primarily, the fiduciary has the responsibility to follow the guidelines of the will and handle the assets of the estate for the best interests of the beneficiaries. Consequently, it is important for the fiduciary to have a basic understanding of various issues that arise when a taxpayer dies. The fiduciary completes a Form 56, Notice Concerning...
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...The Federal gift tax is imposed on the right to transfer property by one person (the donor) to another (the donee) for less than full and adequate consideration. The tax is payable by the donor. If the donor fails to pay the tax when due, the donee may be held liable for the tax to the extent of the value of the property received Since the donor cannot pay or cannot be located, as in the this case, the IRS can pursue the donees for the tax under the doctrine of transferee liability. For individual who are neither residents nor citizens of the United States (i.e. nonresidents a liens, or NRAs), the Federal gift tax appliles only to gifts of property situated within the United States. Exempted, however, are gifts of intangibles, such as stock and bonds. For decedents who are nonresident aliens, the Federal estate tax is imposed on the value of property located within the United States. However, unlike the gift tax, the estate tax applies to stock in U.S. corporations. Mr. Kim's concerns are groundless. Except for property located within the United States, the Federal estate tax does not apply to nonresident aliens. The country in which a person happens to die has no relevance in regard to the application of U.S. transfer taxes. For NRAs, any gifts of properties (other than intangibles) located within the United States will be subject to the federal gift tax. Arturo could avoid any U.S. gift tax by having the children buy the properties in their own names. For decedents who...
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...ASB 353 Chapter 5 1/5 of Americans are home when they die, over 30% die in nursing homes, and 50% die in hospitals. Three major categories of institutional medical care * Hospital are devoted mainly to acute intensive care of a limited duration. * Nursing homes provide long-term residential care for people who are chronically ill and those whose illness does not require acute, intensive care. * Hospice care is distinguished by its orientation toward the needs of dying patients and their families Rationing-refers to the allocation of scarce resources among competing individuals. In health care it is defined as any system that limits the amount of health care a person can receive. Paternalism- the assumption of parent like authority by medical practitioners, is seen as infringing on a patient’s autonomy or freedom to make medical decisions. Covenantal relationship- which implies a mutuality of interest between provider and patients. Eight principles that are important when delivering bad news 1. Keep it simple 2. Ask yourself, “What does this diagnosis mean to the patient?” 3. Meet on “cool ground” first. Get to know a patient prior to presenting the news. 4. Wait for questions. 5. Do not argue with denial. 6. Ask questions yourself. 7. Do not destroy all hope. 8. Do not say anything that is untrue. Strategies that either curtail or encourage conversation when speaking of death by a caregiver * Reassurance * Denial ...
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...FORMATION OF CONTRACT FORMATION OF CONTRACT 1. INTENTION to create legal relations Carlill v Carbolic Smoke Ball Co ‘Test’ of intention (I) to determine if agreement between parties were intended to have contractual force Edmonds v Lawson Domestic Agreement (NI) btwn close family members are not legally binding Balfour v Balfour Cohen v Cohen Domestic Agreement (I) with additional circumstances Merritt v Merritt Wakeling v Ripley Agreement btwn friends/ to provide charitable services (NI) are not legally binding Teen Ranch Pty Ltd v Brown Agreement btwn friends/ to provide charitable services (I) with additional circumstances Ermogenous v Greek Orthodox Community of SA Inc Commercial Agreement (I) have intention to be legally bound Carlill v Carbolic Smoke Ball Co Esso Petroluem Co Ltd v Commissioners of Customs & Excise Final creation of contract can be delayed if that is what the parties intended – when formalities are completed Masters v Cameron Perry v Coolangatta Investments Pty Ltd ‘Letter of Comfort’ given by creditor to debtor as obligations assurance may/may not intend to be legally binding MAY - Banque Brussels Lambert SA v Australian National Industries Ltd MAY NOT - Commonwealth Bank of Australia v TLI Management Pty Ltd 1. INTENTION to create legal relations Carlill v Carbolic Smoke Ball Co ‘Test’ of intention (I) to determine if agreement between parties were intended to have contractual force Edmonds v Lawson Domestic Agreement (NI) btwn close...
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...Entities in Multiple Jurisdictions by Richard Kahler, CFP®, CCIM, and Richard K. Colman, J.D. Executive Summary * It is important for financial planners to understand the basics of asset protection. Asset protection is a shield against unscrupulous lawsuits—not a way to hide from legitimate obligations. * The history of asset protection through the legal system, including trusts, corporations, and insurance, goes back to ancient times. * Recent U.S. and state statutes have significantly expanded options for asset protection. * The three rules of asset protection are (1) do not own significant assets in your own name, (2) use multiple entities to own your assets, and (3) keep assets and the entities that hold your assets in different or in multiple jurisdictions. * The first line of defense, which is limited, includes statutory protection and insurance. * The second line of defense is owning separate assets through multiple entities, including trusts, corporations, partnerships, limited liability corporations and partnerships, foreign grantor trusts, and domestic asset protection trusts. * The third line of defense is locating those entities in multiple jurisdictions. * A hypothetical client situation is used to illustrate specific methods of applying this knowledge. * In the future, informed planners will be those who understand their professional responsibility to help clients protect their assets.Richard Kahler, CFP®, CCIM, offers integrated financial...
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...Arising at Death 5 “Property” versus “Expectancy” 6 Bank Deposits, Checks, and Notes 6 Right to Accrued Payments 7 The Scope of the Gift Tax: §§ 2501 and 2511 7 Is There a “Transfer” of “Property?” 7 Interest-Free Loans and Rent-Free Use of Other Assets 8 When is the Transfer “Completed?” 8 Transferred Interest Incapable of Valuation 9 Indirect Transfers 10 What is a “Gift”? 10 Donative Intent and “Adequate and Full Consideration” 10 Transfers of Property in Satisfaction of Marital Rights 11 Dower and Curtesy Interests in the Gross Estate 11 Marital Rights as Consideration 11 Transfers Incident to Separation and Divorce 12 Transfers with Retained Powers and Rights 13 Transfers with Retained Life Estates: § 2036 13 Reciprocal Trusts 14 Retention of Right to Income from Property: § 2036(a)(1) 14 Retention of Possession or Enjoyment of the Property: §§ 2036(a)(1) and 2036(b) 14 Retention of Power to Designate Who Shall Possess or Enjoy the Property: § 2036(a)(2) 16 Transfers with Retained Powers to Alter, Amend, Revoke or Terminate: § 2038 17 Differences Between § 2036(a)(2) and § 2038 19 Transfers with Retained Reversionary Interests: § 2037 19 The “Adequate and Full Consideration” Exception for §§ 2036- 2038 20 Gift Tax on Transfers with Retained Interests or Powers 20 Transfers with Retained Interests 21 Annuities and...
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