What is an intentionally defective grantor trust?

What is an intentionally defective grantor trust?

An intentionally defective grantor trust (IDGT) is a very interesting estate planning tool. It can be used to freeze certain assets for estate tax purposes, but not for income tax purposes. It is best used, for example, for a business that you own that is expected to greatly increase in value over the upcoming years and is a business that you plan to transfer to your heirs upon your death. The intentionally defective trust is created as a grantor trust that ensures that the individual continues to pay income taxes. There are many benefits of an intentionally defective grantor trust. Below are some highlighted key points to keep in mind: There is no tax on sale of stock to the trust The trust income is taxed to the grantor Transfer freezes asset value for estate tax purposes at time of transfer No tax to beneficiaries when grantor dies Transfer can be by gift or sale using lifetime exemption Sale is done with a note due in typically 10-15 years with interest just below 1% interest only loan with a balloon payment (income from interest is taxable) Sale does not realize any gain for the grantor To retain control of assets, your attorney must separate voting and non-voting stock Client retains 100% voting stock (1% of overall) and transfers the rest to the trust Children are the beneficiaries and become owners upon death There is no tax upon the transfer to children Grantor is not entitled to any trust distributions but does enjoy the interest from the “loan” for the “sale” of the stock to the trust Powers retained by...
If you are Divorced, update your Estate Plan today!

If you are Divorced, update your Estate Plan today!

In the aftermath of a divorce, updating your estate plan may not be at the forefront of your mind. You may still be distraught and emotionally and/or physically exhausted. However, many clients don’t realize what could result if they don’t update their current estate plan in the face of a divorce. In the event of a post-divorce unanticipated death, your assets could end up being distributed to your ex-spouse. Exactly what you don’t want to have happen. The first and most important step one should take to avoid this outcome is to revoke one’s current will or trust and write a new one that excludes your ex-spouse. Because most of us, when we are happy and in love leave everything to our spouses upon our deaths, in the event of a divorce, you will most likely want the result to be different. Once your divorce has been finalized, or even if you are in the process of a divorce, you need to update your estate plan as soon as possible to make the desired changes in light of the resulting divorce. You should also think about who you now want making your decisions for you in the event your physician deems you to be disabled or incapacitated for some reason. Your ex-spouse may no longer be the person who you want making your decisions for you, but is probably still listed as your decision maker for healthcare and/or financial decisions. Some people may still trust the ex-spouse to be making those decisions for them, however, that is the exception, not the rule. In my experience, most clients want the...
How much should I own before it’s worth it for me to have a revocable trust?

How much should I own before it’s worth it for me to have a revocable trust?

There really is no set dollar amount before it makes sense for you to incorporate a revocable trust into your estate plan. Whether you are married or single, old or young, have a small or large estate, just about everyone can derive some benefit from a revocable trust. A properly drafted, fully funded revocable trust can eliminate probate costs; and depending on the size of your estate, it can also reduce federal estate taxes (Currently the federal estate tax is $5 million dollars, however Congress could lower that amount at any time to try and capture more taxes from smaller estates that are not organized to protect them). Generally, the larger your estate, the more money a trust can save your family. The biggest reasons individuals or families choose to use a trust is that regardless of the size of the estate, probate is slow and expensive and does not provide any creditor protection after your death; nor does your family have any privacy or control, and it can easily be contested in court. An additional benefit of using a trust is the protection it provides you against probate court while you are still alive. If, unfortunately, you ever become physically or mentally incapacitated, which is a real concern for millions of older Americans, having a trust prevents a court conservatorship because your successor trustee may step in at that point and handle your finances for you. If you have any questions about your Estate Plan, please don’t hesitate and contact me...
Can you change the trustee of a trust?

Can you change the trustee of a trust?

If you happen to be a beneficiary of a trust and you feel the trustee is not acting appropriately by either not following the terms of the trust, or is taking advantage of his or her authority, there may be a way to get the trustee removed from his or her position.   It partly depends on the terms of the trust. One way to find out whether a trustee may be removed is to review the terms of the trust and determine if the trustee has clearly violated any of the terms. If the trustee has, you could petition a court to have the trustee removed. It is not necessarily an easy or fast process, but depending on the size of the trust, or your share of the trust, it may be in your best interest to go through the process.   Another way to have a trustee removed is to show he or she has breached their fiduciary duty. Trustees have a duty to the beneficiaries of the trust and are required to make decisions that are in the best interests of the beneficiaries while utilizing a certain standard of care.  If you determine the trustee has not clearly violated any of the trust terms, but has made decisions that are not in the best interests of the beneficiaries, you may be able to sue him or her for breach of their fiduciary duties.  If you are the beneficiary of a trust and suspect the trustee is not carrying out his or her duties properly, the best course of action is to bring the trust to an...
Should I have a revocable living trust in my estate plan?

Should I have a revocable living trust in my estate plan?

A revocable living trust is a document that I can put together based on how you want to leave your estate. It is called a revocable living trust because you make the document when you are alive, you put your assets into it while you are alive and it can distribute your estate while you are alive, however it can be changed at any time with an amendment.   The up front cost of making a revocable living trust is more than a traditional will, but the benefits far outweigh the added expense.   My clients who do choose this document usually do so because it protects their assets and heirs from the expense and delay of the probate process.  It is also very beneficial in protecting the interests of young children.   Although a trust is a great estate planning tool, I do not recommend a revocable living trust to every single client that comes to my office. For some, it is not worth the expense and time it takes to transfer assets into the trust. That is one reason it is so hard to quote fees over the telephone. I really need to sit down with you and have a one on one interview to figure out the best course of action. EVERY estate plan that I write is different.  That is the most important reason why I would not recommend a service like LegalZoom where you can not get your documents tailored to your specific needs.   Please let me know if you have any questions  regarding a living trust or are interested in sitting down and...
How do I find a trust that was left for me?

How do I find a trust that was left for me?

Trusts are private documents.  They are not filed anywhere and nothing is reported to any court of law when the trust is signed or when the grantor of the trust passes away.  Your only option for finding out if you are named as a beneficiary in a trust is to determine who was nominated the successor trustee in the trust, contact that person and request a copy of the trust. If you are named a beneficiary of the trust you are entitled to a copy. However, keep in mind if you are not named in the trust the trustee does not have to give you a...