Archive for May, 2011

Living Trusts Provide Divorce Protections to Your Children.

Monday, May 16th, 2011

We have all had the question “My son is in a bad marriage.  What happens if we die and he gets divorced?  Does that mean his ex-wife gets some of our estate?”  This question can be solved by sharing one of the major, and often most overlooked, benefits of using a Living Trust – asset protection for the beneficiaries.

“Traditional” Living Trust Planning

The most common benefit of the Living Trust is to avoid the time delay and reduce the legal fees of after-death probate proceedings.  The time and dollar savings are significant.  In our experience, these benefits are “no brainer” benefits that should be enuogh to get any family to adopt the Living Trust as their estate planning strategy.

Interestingly enough, this is where a lot of planners stop in their design of an estate plan.  Once they are confident that the plan avoids probate, they call it a day and they’re done.  It works, but what if there was a bigger benefit beyond savings?

Protection from a Bad Marriage

The power of this benefit is often overlooked in traditional Living Trust planning.   If drafted properly, a Living Trust can provide divorceprotection to the after-death beneficiaires.  In our case, Mom and Dad are worried that their child is in a bad marriage and they don’t want to have what took a lifetime to build to go to his future ex-wife.  Their son is trying to make it work but it looks rocky.  Mom and Dad are losing sleep.  What can they do?

You, the clever advisor, recommend structuring their Living Trust so that if they die, their son can receive his inheritance; but since it’s kept in Mom and Dad’s trust, he never takes ownership of the assets.  The son can be in control of the money.  He can receive the income and, if necessary, access the principal; but if he gets divorced, his destined ex-wife can’t put a claim on his inheritance.  The power of this idea is astounding.  The ability to not only transfer wealth but do so in a manner that protects the assets for the next generation is a strategy that most families should strongly explore in their planning.

The “After-Death Pre-Nuptial”

The use of the Living Trust in this example allows Mom and Dad to sleep better at night.  They can provide their son with his inheritance and know that their Living Trust is providing the legal effectiveness of a pre-nuptial in that rocky marriage.  The flipside of this is if the son is in a good marriage.  Is this strategy still relevant?  Our answer: absolutely.  Relationships change: they con go from good to bad quickly.  Your clients can feel secure in knowing that you have helped them protect their children and their assets.

As always, I hope this was helpful to you.  If you have a specific case or concern, please contact our office (909)981-6177.

What is a Charitable Remainder Trust?

Tuesday, May 3rd, 2011

A charitable remainder trust (CRT) is a trust where there are two separate and distinct “beneficial interests” also known as “split interests.”  This means that two different entities have an interest in the assets of the trust.  These two interests are usually the “income interest,” which means income from the trust, and the “remainder interest,” which means what is left over at the termination of the trust.  In a CRT, a non-charitable beneficiary receives t he income interest and a charitable beneficiary receives the remainder interest.

A properly drafted CRT can allow the creator of the trust to take a Federal income tax deduction, as well as provide an income stream for life.

Is it possible that I might be able to increase my income and reduce my taxes at the same time by using a Charitable Remainder Trust?

Yes, depending on your circumstances.  If you hold property which has considerablly increased in value since you purchased it, you may incur a capital gains tax if you sell the property.  A properly drafted Charitable Remainder Trust will allow you to donate the property to the trust and take an income tax deduction and establish an income stream for yourself.  If the property is currently producing little or no income, the income stream from the trust may increase your present income as well.

Call us to learn more about CRT’s (909)981-6177.