Bobby’s Blog

How to Properly Establish a Living Trust

One of the best estate planning tools you can utilize is a living trust. Establishing a trust allows your loved ones to avoid lengthy and complicated probate and may save your family money in administrative expenses and taxes. So how do you set up a living trust? The requirements of a trust to be considered legally valid include:

  • You need to have the intent to create a trust. This is a fairly simple requirement to meet by stating your intent in the trust document.
  • You need to have the testamentary capacity to create a trust. This means you need to have the mental capability to create and sign the trust document.
  • Your trust must have a specific, legitimate purpose (e.g., for management of assets in your estate plan).
  • The trust must convey some form of property. This means you cannot simply create a trust and it be barren. Future interests in property are acceptable, but they must be in existence at the time you created the trust. Speculative property, such as future earnings from a non-existent business, is not valid.
  • You must name a trustee. This is the person in charge of holding the trust and transferring trust assets to a beneficiary, or beneficiaries.
  • Relatedly, you must name a beneficiary. This is the person, or individuals, who will receive the trust assets.
  • Sign the trust document in front of a notary public.
  • Some states also require that witnesses are present to see you sign the trust document.

Generally, living trusts take one of two forms – revocable and irrevocable. You, in consultation with your estate planning attorney, can decide what form the living trust will take at the time of creating and signing the trust document.

Here is a video where Bobby discusses some of the basics of a trust:

A Trust is Only One Component of an Estate Plan

Establishing a trust is a wise estate planning strategy, but it is not the end-all-be-all of your estate plan. You also need to have a legally valid Last Will and Testament, a Durable Power of Attorney, proper beneficiary designations for your IRAs, pensions, and other savings accounts, a list designating beneficiaries for family heirlooms and items with intangible value to you and your loved ones, and so on and so forth. This is why it makes sense to speak to an estate planning attorney to ensure you have a fully developed estate plan that is updated annually.

Is a Trust Permanent After It is Created?

A revocable trust can be terminated by you (the trustor) at any time and you can repossess the property that was transferred to the trust. Terminating an irrevocable trust is more complicated but it is possible if the trust has been drafted properly and the attorney understands the nuances. Both types of trusts avoid probate and estate tax protection if assets are properly titled in or to the trust (we see this as the biggest flaw in most of the trusts we review), but only irrevocable living trusts provides asset protection for you during your lifetime (if maintained properly).

Is My Living Trust Enforceable Across the Country?

Yes. Living trusts created in Virginia, Maryland, or D.C. are enforceable in any state. Similarly, a living trust created under another state’s laws is likewise enforceable in the DMV.

Other Benefits of Establishing a Trust

Living trusts offer an array of benefits including the ability to share property ownership with multiple family members and loved ones, the aforementioned potential to minimize estate taxes and the protection of your assets from creditors. This protects your property from potential legal seizure and sale.

A trust also empowers you to specifically explain how you want the trust to distribute money and property to each beneficiary and include stipulations on those distributions. For example, if you have a minor child, you can include provisions on when they can access their inheritance and a yearly or quarterly amount they can receive as well as protect the assets from divorce and other creditors.

Speak to an Experienced Trust and Estates Lawyer

Establishing a legally valid trust can get complicated, especially if you have a large estate with properties in different states and a large family of potential beneficiaries. This is why it makes sense to sit down and speak to an experienced estate planning attorney in your area.

As Insight Law, we can help both establish your trust and represent the personal representative or trustee through the administration process when that service is needed.

Contact our office today to schedule a meeting.

Passing On Your Lessons in a Metaphorical Message in a Bottle

Randy Pausch was an accomplished academic who taught computer science at both the University of Virginia and Carnegie Melon University. He became known across the country after giving a heart-wrenching “last lecture” to students at Carnegie Melon making him a Lou-Gehrig-like symbol of the beauty and briefness of life, according to the New York Times.

Professors at Carnegie Melon are sometimes asked to give lectures on what wisdom they would impart if they knew it was their last chance. Hence, the title, “last lecture.” Dr. Pausch accepted that challenge after learning he had only a few months left to live.

Dr. Paush’s advice to attendees of his “last lecture” was simple and clear – have fun and approach life with childlike wonder.

Here is a condensed version of his lecture that he presented on Oprah Winfrey’s show:

Metaphorical Message in a Bottle

Dr. Pausch also spoke of the immense love he had his wife and had a birthday cake for her wheeled on stage during his lecture. He also spoke glowingly about his three young children saying he

made a decision to speak to them mostly through video memory. Dr. Pausch described this as putting himself in a metaphorical bottle that his children might someday discover on a beach.

You Too Can Pass Your Wisdom and Advice on to the Next Generation

At Insight Law, we want to ensure your legacy is preserved and passed on to your children, grandchildren, and other loved ones. The real wealth in life is the living declaration of who we are as a unique human being. The experiences we’ve had in life; the trials, tribulations, and accomplishments. That is why Insight Law offers clients the ability to partake in “Priceless Conversations.” This service provides a structure for you to share your memories, accomplishments, and your meaning of life. We capture and preserve these conversations as a permanent legacy for you to pass on to the next generation. We can record your Priceless Conversations by audio or video and provide you with copies to share with family and friends.

To learn more, contact our office today.

New Administration May Mean Major Estate Tax Changes

The estate tax (also known as the “death tax”) may be on the proverbial chopping block with President-elect Donald Trump ascending to Commander-in-Chief, along with a Republican-controlled Congress. Most, if not all, Republicans oppose the estate tax. President-elect Trump’s tax plan expressly calls for an outright repeal of the tax and imposing a capital gains tax on assets left to heirs above $10 million, according to Forbes.com.

The estate tax is generally not an issue for most people due to the sizable exemptions afforded under the tax code. However, people often make the mistake that estate planning is the same thing as estate tax planning.  Rather, estate tax planning is one component of estate planning but there are many other issues your family must deal with on death as it is a major life event and you still will need to deal with local governments, financial institutions and family dynamics.

Here is a video discussing the estate tax debate:

Under current law, the estate and gift tax exemption is $5.49 million per individual for 2017, which is a slight increase from $5.45 million in 2016. That means you can leave $5.49 million to your heirs and pay no federal estate or gift tax. If you have a surviving spouse, they can carry over any unused portion of your exemptions which means a legally married couple can effectively protect $10.98 million from federal estate and gift taxes.

As you can see, the estate tax generally affects estates valued in the tens of millions. For example, in tax year 2015, nearly 5,000 estates paid $17 billion in estate taxes. More than a third of that total was raised from just 266 estates valued at $50 million or more (bringing in $7.4 billion in tax revenue).

If your estate exceeds the exempt amount, the rate is an onerous 40 percent. Fortunately, estate assets get a stepped up basis allowing capital gains to escape taxation if it is passed to heirs. So, for example, if you bought Apple stock for $50,000 and it’s worth $500,000 when you die, the $450,000 appreciation escapes the capital gains tax.

The “Compromise” Estate Tax Plan

As mentioned earlier, President-elect Trump’s compromise plan to reform estate taxation would involve repealing the estate tax and replacing it with effectively a capital gains tax at death. President-elect Trump would supplant the estate tax with a tax on capital gains held until death and valued over $10 million (though small businesses and family farms would be exempt). To prevent abuse, contributions of appreciated assets into a private charity established by the decedent or the decedent’s relatives would be prohibited, according to the aforementioned Forbes article.

Do Not Plan for a Standalone Estate Tax Repeal Bill

Considering the difficulty of attaining the necessary 60 votes in the U.S. Senate, the chance of anything happening on the federal estate tax will likely be part of an overall tax reform bill, according to Charles “Skip” Fox, who works for McGuireWoods in Charlottesville, Va. Though, the Republican majority in the senate could try to include an estate tax repeal in an overall tax reform bill and pass it through budget reconciliation with only 51 votes.

Have a Professional Review Your Estate Plan to Avoid Unnecessary Taxation

As you can see, taxes are a major issue when it comes to estate planning but remember it is not the only issue. You do not want your estate subjected to an unnecessary, burdensome tax if you are able to avoid it with effective estate planning strategies. This is why you should contact an experienced estate planning attorney in your area today. If you reside in McLean or Ashburn, Virginia, consider attending one of our free informational sessions to learn the truth about estate planning (registration required).

 

New Administration May Mean Major Estate Tax Changes

The estate tax (also known as the “death tax”) may be on the proverbial chopping block with President-elect Donald Trump ascending to Commander-in-Chief, along with a Republican-controlled Congress. Most, if not all, Republicans oppose the estate tax. President-elect Trump’s tax plan expressly calls for an outright repeal of the tax and imposing a capital gains tax on assets left to heirs above $10 million, according to Forbes.com.

The estate tax is generally not an issue for most people due to the sizable exemptions afforded under the tax code. However, people often make the mistake that estate planning is the same thing as estate tax planning.  Rather, estate tax planning is one component of estate planning but there are many other issues your family must deal with on death as it is a major life event and you still will need to deal with local governments, financial institutions and family dynamics.

Here is a video discussing the estate tax debate:

Under current law, the estate and gift tax exemption is $5.49 million per individual for 2017, which is a slight increase from $5.45 million in 2016. That means you can leave $5.49 million to your heirs and pay no federal estate or gift tax. If you have a surviving spouse, they can carry over any unused portion of your exemptions which means a legally married couple can effectively protect $10.98 million from federal estate and gift taxes.

As you can see, the estate tax generally affects estates valued in the tens of millions. For example, in tax year 2015, nearly 5,000 estates paid $17 billion in estate taxes. More than a third of that total was raised from just 266 estates valued at $50 million or more (bringing in $7.4 billion in tax revenue).

If your estate exceeds the exempt amount, the rate is an onerous 40 percent. Fortunately, estate assets get a stepped up basis allowing capital gains to escape taxation if it is passed to heirs. So, for example, if you bought Apple stock for $50,000 and it’s worth $500,000 when you die, the $450,000 appreciation escapes the capital gains tax.

The “Compromise” Estate Tax Plan

As mentioned earlier, President-elect Trump’s compromise plan to reform estate taxation would involve repealing the estate tax and replacing it with effectively a capital gains tax at death. President-elect Trump would supplant the estate tax with a tax on capital gains held until death and valued over $10 million (though small businesses and family farms would be exempt). To prevent abuse, contributions of appreciated assets into a private charity established by the decedent or the decedent’s relatives would be prohibited, according to the aforementioned Forbes article.

Do Not Plan for a Standalone Estate Tax Repeal Bill

Considering the difficulty of attaining the necessary 60 votes in the U.S. Senate, the chance of anything happening on the federal estate tax will likely be part of an overall tax reform bill, according to Charles “Skip” Fox, who works for McGuireWoods in Charlottesville, Va. Though, the Republican majority in the senate could try to include an estate tax repeal in an overall tax reform bill and pass it through budget reconciliation with only 51 votes.

Have a Professional Review Your Estate Plan to Avoid Unnecessary Taxation

As you can see, taxes are a major issue when it comes to estate planning but remember it is not the only issue. You do not want your estate subjected to an unnecessary, burdensome tax if you are able to avoid it with effective estate planning strategies. This is why you should contact an experienced estate planning attorney in your area today. If you reside in McLean or Ashburn, Virginia, consider attending one of our free informational sessions to learn the truth about estate planning (registration required).