A Look At QPRTs

Nov 17, 2010  /  By: Roger Levine, Estate Planning Attorney  /  Category: Advanced Planning, Estate Planning, inheritance planning, Wills & Trusts

Since the 2009 exemption was $3.5 million, the return of the estate tax with an exclusion amount of just $1 million in 2011 is leaving a lot more people vulnerable. For many, the value of their homes is what is going to drive the total worth of their estate over that figure, so this is the area that they need to focus on.

An estate planning tool that can be used to reduce the value of your house from your estate for tax purposes is the QPRT, or qualified personal residence trust. Let’s assume you have always planned to leave the home to your children after you pass away. You place the residence into the trust and name your children as the beneficiaries, but your life doesn’t change at all. You can live in the house rent free during the term of the trust for as long as you stipulate in the trust agreement, but you are liable for the cost of upkeep and property taxes as they become due. After the term of the trust, you can still live in the home but must pay rent (this also reduces your taxable estate).

At the end of the trust term if you are then surviving, the value of the house is no longer a part of your estate for estate tax purposes, since it was considered to be a gift to the trust and it was subject to the gift tax. However, the true market value at the time of the transfer was not used by the IRS to calculate your gift tax liability, but rather a discounted value .

The taxable value of the gift is reduced by your retained interest in the house, your use of your house during the trust term. So the longer the term of the trust, the larger your retained interest will be, and the lower the taxable gift value will be. When your beneficiaries assume ownership of the home at the end of your prescribed term, the home is no longer part of your taxable estate. However, if you do not survive the term of the trust the entire value of the house at your death is included in your estate. If you survived the term of the trust, you transferred this property to your heirs and either reduced or eliminated any estate or gift tax liability.

Levine & Furman, LLC is a member of the American Academy of Estate Planning Attorneys.

Inheritance Protection for Your Blended Family

Nov 01, 2010  /  By: Roger Levine, Estate Planning Attorney  /  Category: inheritance planning

Second marriages offer the complexities of blended families. A blended family is one where each spouse has brought children or property from a previous union. The situation is further complicated when you introduce new property and children from this second union. With proper estate planning, you can make sure every member of your blended family is provided for after your death.

Why to Plan

Estate planning allows you to choose specific beneficiaries to receive your assets. With a blended family plan, you can make sure your children receive the inheritance you want to leave to them. If you know one of your children is expecting a certain item, even if only of sentimental value, you should protect that expectation by including it in your estate plan.

If you do not use your estate plan to enumerate inheritances for your spouse and children, you are forcing them to work it out after you have passed away. This idea is not fair to any loved one and may create family fights and hard feelings.

If your spouse receives all of your property after your death, there is no guarantee that he or she will leave the same inheritance to your children that you would have left. Your estate plan allows you to ensure your children receive a proper inheritance.

Updating Your Plan

You and your spouse should also make sure your plans are up-to-date. If either or both plans are old, children on each side run the risk of disinheritance. For example, if your spouse receives everything, but his or her Will is out of date and only include his or her children, your offspring may receive nothing.

How to Plan

You can create a solid blended family estate plan by listing specific inheritances in your Last Will and Testament or with a Revocable Living Trust. You can also use an AB Trust for your spouse and separate individuals Trusts for your children. However you go about it, just make sure to protect the bequest of every loved one.

Levine & Furman, LLC is a member of the American Academy of Estate Planning Attorneys.

Should You Use a Irrevocable Trust for your IRA?

Oct 08, 2010  /  By: Roger Levine, Estate Planning Attorney  /  Category: Estate Planning, inheritance planning

When you pass away any funds that are left in your IRA will pass to your chosen beneficiary. In most cases, there is a good chance funds will be left to be inherited.

Directly to Heir

Passing funds directly to an heir creates three potential problems: if your heir withdraws all at once, he or she will owe income taxes on the entire account, your heir may spend the funds too quickly, or those funds may be taken to satisfy a creditor judgment, lawsuit or for a divorce settlement.

Special IRA Trust

Instead of passing IRA funds directly to an heir, you can house your IRA in a Special IRA Trust. This Trust is an Irrevocable Trust designed specifically for your IRA. There are many benefits to using an IRA Trust. Such a Trust offers asset protection, inheritance protection and a controlled disbursement of funds.

During your life, your IRA will most likely already be protected from your creditors and lawsuits. After your death, however, it will not be safe from your heir’s debts unless it is within an Irrevocable Trust of your IRA Trust. This can also protect funds from a beneficiary’s divorcing spouse.

If you are in a second marriage and you name your spouse as the beneficiary of your IRA, you may inadvertently disinherit your children. This is because your spouse is not required to pass those funds onto your offspring. If, however, you use an IRA Trust, your children’s inheritance will be protected.

If you are worried a beneficiary may spend funds too quickly if an IRA is received outright, a Trust may provide a steady income throughout your heir’s life. You can even use an IRA Trust to create Dynasty Trusts and allow for funds to continue into the lifetime of your beneficiary’s heirs.

Levine & Furman, LLC is a member of the American Academy of Estate Planning Attorneys.

Including Your Children in Your Estate Plan

Aug 30, 2010  /  By: Roger Levine, Estate Planning Attorney  /  Category: Guardianship, inheritance planning

An essential aspect of estate planning is providing for your family members after you are gone. This is especially important if you have minor children. Until your children have reached adulthood they will need someone to care for them and financially provide for their needs.

Name a Guardian

You must choose a guardian for your children in case they are still minors when you and your spouse pass away. If you do not name a guardian, the choice will be left up to a judge. In this case, your children may become wards of the state if no available guardian can be found, or they may become ensued in a heated custody battle if several family members wish to be the caregiver.

As you consider possible guardians look at specific attributes such as age, availability, and lifestyle. Your guardian must be someone who is of a mature age without having health problems that would hinder caregiver duties. If a possible guardian has a busy career or a large family, he or she may not be able to provide the love and time your children need. You may also want to consider your guardian’s marriage status, morals and values, and religious views. As you take all of these factors into account, create a final list of two to three possible guardian choices. It is best to have one or two back-up guardians in case your first choice should become unavailable.

Leave Funds

If your children are minors when you pass away, they will not be able to directly accept and use the inheritance you wish to leave. If you do not make other arrangements, the chosen guardian may have control of your children’s property and money.

It may be best, however, to create a special trust to manage your children’s inheritances. You can name a different trustee than your chosen guardian if you feel the guardian may not be good with money, or if you would simply like to split the duties between family members.

The trustee can distribute funds on behalf of the minors or to the guardian as needed until your children reach adulthood. Further, you may choose to have the trustee continue to disperse funds over a number of years even once your children are grown. This is an option often chosen when a parent feels early receipt of an inheritance may lead to mismanagement.

Levine & Furman, LLC is a member of the American Academy of Estate Planning Attorneys.