What Is Estate Planning?

Estate planning is the process of analyzing your family dynamics, your assets and liabilities, what you wish to happen after your death and creating documents to ensure Remember, you are planning for the next three years only. It’s too hard to plan for contingencies and possibilities much further out into the future than three years. Therefore, you should plan to review your estate planning documents every three years.

What Is A Trust?

A Trust is a way to ensure that your family is cared for if you die or become disabled. You transfer your money and property to a trust, designate trustees and specify the terms of the distribution of your property. The trustee then has fiduciary duties to preserve and safeguard the assets of the trust, ensure that they earn a sufficient rate of return and make distributions when and to whom you indicate in the trust.

One of the most important things is that under the law the money or property in the trust can only be used for the benefit of the beneficiaries.

How Does A Trust Work?

Create the Trust-

You create the trust by writing the trust document. You sign it, notarize it then you must fund it. That means you must transfer some money or property to the trust. This is a revocable grantor trust that becomes effective immediately. You are the trustor, settlor and grantor- person who creates the trust.

Revocable Trust:

· A revocable trust can be changed during your lifetime.
· You can change the beneficiaries
· You can put money and property into and take it out of the trust at any time (subject to community property rules)
· Community property remains community property- either spouse can take it out
· Separate property remains separate property- only the owner of the separate property can take it out
· You are the initial trustee and beneficiary of the trust (both spouses, if married)
· You can change the distributions rules
· The trust becomes irrevocable on your death (50% of it if a married couple)

Grantor Trust:

Creator of the trust retains incidents of ownership over assets, receives benefits of assets
· Creator handles all investment decisions, takes all income, can take property out & put property into the trust at will
· Creator reports all income and expenses on his or her income tax returns
· Trust uses creator’s social security number

Or you can put a provision in your will or your living trust to create the trust on your death. This is also an irrevocable trust that only comes into being when you die.

Name the Trustee-

If you are creating the trust and funding it now, you (both of you, for a married couple) can be the trustee and name someone as the alternate trustee to serve when you can no longer do it. It should be someone who can manage money and invest it properly.

The trustee will be responsible for:
· investing funds to get a good rate of return
· perhaps selling assets, especially real estate
· transferring money and assets
· ensuring the validity of and paying debts
· making sure all distributions are made on time
· responding to requests for additional distributions from beneficiaries
· completing all required accountings on a timely basis
· making sure all income tax returns are filed and taxes are paid timely

If you think about it, this is too much for many adult children to handle, especially if they are young adults eighteen to twenty five years old. The trustee does not have to be the same person as the executor of your will, but oftentimes is.

You should ask this person if they are willing to do it and ask him or her to sign the trust document accepting the job.

You should name as many alternate trustees as you can in case those persons named can no longer do it. If you don’t have any alternates you can appoint a bank, such as Wells Fargo, or a professional trustee. Remember, you are planning for the next three years only.

Give the Specifics of the Distributions to Beneficiaries-

What will your children need after you’re gone? Here’s a list of considerations for child beneficiaries:

· Are they minors who will need someone to care of them?
· How much will they need for their own support per month?
· How much income will your assets generate per month?
· Will they remain in your current residence or live some where else?
· Do they have private school tuition?
· Will they be attending college soon?
· Do they have any special medical or other needs?
· Are they mature enough to manage their own assets?
· Could they be a cotrustee?
· Are there any drug or alcohol abuse problems?
· Do they have good relations with their siblings?

This is not a complete list. You also want to consider if there are services, such as a nanny, that would have to be hired out when one spouse dies.

Describe How the Trustee Will Make Distributions-

You can give the trustee discretion to decide what the reasonable distributions to the beneficiaries are for the trust or you can give specific instructions and require the payment of a certain set monthly amount to be paid or require that all income be paid out to the beneficiaries each month. Likewise, for the principal of the trust you can decide whether the principal of the trust must be paid out to the beneficiaries at certain times or whether to leave it to the discretion of the trustee to decide. Oftentimes trust distributions are required to be made as follows:

One-third of trust principal is distributed when the children reach age 25
One-half of trust principal is distributed when the children reach age 30
The balance of trust principal is distributed when the children reach age 35

Morre to come in my next post! Please leave a comment and forward this to Twitter, Facebook, etc.