California Probate - Law Offices of Janet Brewer Blog

The Path Common Types of Trusts and the Basic Structure that Allows for Security

Trusts are a common financial tool used in estate planning. Trusts are defined as legal entities created by a trustor through which a second party, the trustee, holds the right to manage the trustor’s assets for the benefit of a third party or beneficiary.

There are many types of trusts that work in slightly different ways to secure the assets for the beneficiaries. Trusts also allow the passage of these assets to occur quickly by avoiding probate, additional court fees, and they may even reduce the tax burden on the assets as well. An overview of some of the most common types of trusts and their basic structure is provided below.

Living Trusts

Living trusts are created by the trustor in their lifetime and allow them to continue using the assets and property placed in the trust while they are alive. The assets and property are conveyed to the beneficiary through a trustee upon the trustor’s death. This is the most common type of trust and allows individuals to pass on inheritances while avoiding probate court.

Revocable Trusts

Revocable trusts are very similar to living trusts in that they are created during the trustor’s lifetime, and they can be changed or altered by the trustor while they are still alive. These trusts move assets out of probate but allow the trustor to retain control of the assets.

Irrevocable Trusts

Unlike revocable trusts, irrevocable trusts don’t simply move assets out of probate, they move them out of the trustor’s estate, and these trusts cannot be altered once they have been executed, no matter whether the trustor is alive or not. The trustor loses all control over the assets and cannot thereafter change the terms or dissolve the trust. Irrevocable trusts are generally established to minimize or eliminate estate taxes or to reduce the tax liability on the income generated by the assets in the trust. In some instances, assets in an irrevocable trust may be sheltered against legal judgments against the trustor.

Testamentary/Will Trusts

Will or testamentary trusts are described in a trustor’s will and created upon their death. A will trust is instituted by an executor, who manages the trust for the trustor’s beneficiaries after their will has been created. The assets are subject to probate and transfer taxes, and this type of trust is irrevocable.

Insurance Trusts

Insurance trusts allow the trustor to include the value of their life insurance policies within the scope of the trust, thus avoiding estate taxes on the funds. These are irrevocable trusts that the trustor cannot change. In many instances, these policies can help pay for the expenses incurred by the estate after the death of the trustor.

Charitable Trusts

Charitable trusts name a non-profit organization or charity as the beneficiary. A charitable lead trust can be included as a component in another trust, allowing the trustor to assign some assets to family or inheritors and some to the charity. Charitable remainder trusts enable the trustor to receive the income generated by the trust’s assets for a defined period of time, with the remainder of the assets then going to the charity.

Blind Trusts

Blind trusts refer to trusts that are entirely handled by the trustees, and no knowledge of the trustees’ activities is conveyed to the beneficiaries. These types of trusts are desirable when there may be conflict between the beneficiaries and the trustees or amongst the beneficiaries.

Credit Shelter Trusts

Credit shelter trusts allow the trustor to grant beneficiaries an amount of assets up to the estate tax exemption limit, with the rest of the assets going to a spouse or family member. These trusts remain tax-free forever, no matter how much the assets may grow over time.

Generation-Skipping Trusts

Generation-skipping trusts employ generation-skipping tax exemption allowances to allow assets to be distributed to grandchildren or subsequent generations without incurring additional estate taxes upon the death of the trustor’s children.

Qualified Terminable Interest Property Trust

These trusts are frequently used to provide income for a surviving spouse. They allow the trustee to define asset distribution to different beneficiaries at different times – generally to a spouse after the trustor’s death, and then to children after the spouse’s death.

Asset Protection Trusts

Asset protection trusts are generally executed outside of the US in order to protect the trustor’s assets from creditor claims. They are generally irrevocable for a defined time period, and control of the assets is returned to the trustor upon the termination of the trust.

Trusts can be employed to meet many different financial and asset goals. If you are considering executing a trust, it’s always a good idea to meet with an experienced estate planning professional who can help identify the best type of trust to meet your unique financial needs and goals.

Choosing the Right Estate Planning Lawyer for Your Family

There are a lot of estate planning lawyers out there, but not all may be right for your family. When choosing an attorney, ask yourself a few key questions along the way.

What Are Your Goals in Estate Planning?

Think about the goals you want to achieve by making an estate plan. For example, would you rather get a basic plan done very quickly, or spend a bit more time tailoring the plan? You may think that you need only a will or only a trust, but after talking to a couple of attorneys it could become clear that you need more planning done. You also may have the goals of peace of mind that your plan is done, and comfort in working with a lawyer who understands you.

What Are Your Expectations for Your Lawyer?

Also think about your expectations for a lawyer, and talk to potential lawyers about those expectations when you meet them. You might prefer communication via email only, or you might want to meet in person several times. You might want to review all documents in advance before you sit down to sign them. Or you might want the lawyer to show you where each of your wishes are listed in your estate plan. Different lawyers have different styles of working and communicating, so thinking about what you prefer can help you decide whether someone is a good fit. But also be aware that most lawyers are very busy and may not respond to your emails or calls right away, though they should get back to you within a few days.

Do You Have Any Special Circumstances?

One big reason that you might want one lawyer over another is special expertise in a certain area. Your family might have circumstances that require a lawyer with related knowledge to make a proper estate plan. For instance, you might need a particular lawyer if you:

• Are not a U.S. citizen or have relatives who are not citizens
• Own a small business
• Have a child with special needs
• Are wealthy or earn a high salary
• Own a lot of real estate

Some estate planning lawyers focus on clients who need international estate planning or who have tax and business planning needs. Others have special knowledge of disability planning, high net worth estate options, or real estate management. Your needs can help you narrow down the pool of estate planning attorneys to find a good fit.

Planning your estate? Look to Janet Brewer, Esq. for thorough and thoughtful estate planning advice. Janet’s more than 20 years of legal experience and her knowledge of international and tax issues will give you confidence and peace of mind. You can read more about Janet here. To schedule a “Get Acquainted” meeting, visit Janet's website or call her office at (650) 469-8206.

QTIP Trust or QDOT Trust? What Is the Difference?

If you have a spouse and are doing some estate planning, you may wonder about the difference between a QTIP and a QDOT. The two have a few things in common: both are trusts leaving assets to the surviving spouse, and both help preserve availability of the marital deduction.

What Is a QTIP?

A QTIP (qualified terminable interest property) is a special kind of trust that allows married people to control distribution of assets to their spouses while still taking advantage of the marital deduction. A QDOT allows the same, but is usually used by couples that have one U.S. citizen and one non-citizen spouse. Any married couple can use a QTIP.

In a QTIP, one spouse decides when the other spouse can receive trust distributions, and in what amount. Those decisions are memorialized in a trust document. If the first spouse passes away first, then the second spouse can receive distributions from the trust.

Usually, the IRS does not assess taxes on money passed directly to a surviving U.S. citizen spouse. The spouse must have full, unrestricted ownership of the money. But a special law allows QTIP creators to take advantage of the marital deduction and still pay no taxes. The QTIP benefit is available as long as the surviving spouse has a lifetime interest in income from the trust.

What Is a QDOT?

A QDOT (qualified domestic trust) is a special kind of trust often used when one spouse is not a United States citizen. Because that spouse is not a citizen, he or she cannot take advantage of the marital deduction. The marital deduction is a tax provision that allows spouses to make unlimited transfers of property to one another without paying gift, estate, or transfer taxes, both during their lifetimes and afterwards.

Without the marital deduction, non-citizen spouses who inherit property from citizens could pay very expensive estate taxes – not to mention gift taxes on lifetime transfers. The QDOT can solve part of the problem.

When a U.S. citizen places property in a QDOT, he or she should name the non-citizen spouse as beneficiary. The IRS allows non-citizen beneficiaries of QDOTs to receive the benefit of the marital deduction – meaning fewer expensive estate taxes if the U.S. citizen passes away first. If the non-citizen spouse receives distributions from the QDOT at some point after the citizen’s death, he or she may owe taxes on those amounts. But the QDOT leaves the spouse in a better position than if he or she had inherited the trust assets outright.

Planning your estate? Look to Janet Brewer, Esq. for thorough and thoughtful estate planning advice. Janet’s more than 20 years of legal experience will give you confidence and peace of mind. To schedule a “Get Acquainted” meeting, visit Janet's website or call her office at (650) 469-8206.

Reducing Your Taxable Estate by Passing Wealth to Your Spouse

When you begin estate planning, transferring wealth to your spouse may top your list of priorities. Many people who are making estate plans want to protect their spouses and provide for them in the future. Further, you can accomplish even more with your plan by reducing your taxable estate.

Marital Deduction

Spouses who are U.S citizens can take advantage of the marital deduction, which allows them to transfer assets tax-free to one another. The transfers can take place at any time, even after the death of one spouse through estate planning structures such as a will.

While making a transfer to your spouse will reduce the size of your own taxable estate, it might have unforeseen consequences too. The transfer will increase the size of your spouse’s estate, which could result in estate taxes owed later. However, this usually does not occur unless you and your spouse exceed the joint estate tax exemption ($22.36 for married U.S. citizen couples in 2018).

Qualified Terminable Interest Property Trust (QTIP)

A qualified terminable interest property trust (QTIP) allows you to control distribution of assets to your spouse after your death, while still taking advantage of the marital deduction. To use the marital deduction, the IRS requires that the recipient spouse have full ownership of the property he or she receives from the other spouse. A QTIP is an exception to this rule. You can place property in a QTIP, also place restrictions on its distribution to your spouse, and still receive the marital deduction as long as your spouse has a lifetime income interest in the property.

Qualified Domestic Trust (QDOT)

If you or your spouse is not a U.S. citizen or permanent resident, you may want to consider a qualified domestic trust (QDOT). Non-citizen non-residents cannot receive the same estate tax exemption amount as citizens; instead, they receive a total exemption of just $60,000. To protect a non-citizen spouse from expensive taxes, you can transfer property into a QDOT. Like a QTIP, a QDOT allows you to receive the marital deduction despite the property being held by a trust.

In short, you have many options to consider when trying to pass wealth to your spouse and reduce your taxable estate at the same time. Speak to a local, experienced estate planning lawyer to learn more.

Planning your estate? Look to Janet Brewer, Esq. for thorough and thoughtful estate planning advice. Janet’s more than 20 years of legal experience will give you confidence and peace of mind. To schedule a “Get Acquainted” meeting, visit Janet's website or call her office at (650) 469-8206.

Do You Need a QTIP? Learn More Today

A QTIP trust is a special kind of trust that allows you to provide for your spouse and also preserve assets for your children. The term “QTIP trust” stands for Qualified Terminable Interest Property trust.

When Should You Consider Setting Up a QTIP Trust?

People often refer to QTIPs as marital trusts. A QTIP provides for a spouse after the trust creator has passed away. Once the spouse dies, children of the trust creator receive the remaining trust money. If the spouse remarries, the new husband or wife will not be able to access the trust property.

A QTIP works well when you are in your second marriage but still want to provide for children from your first marriage. You can leave money in the trust for your spouse’s support. When your spouse dies, your children from your first marriage will receive money too.

How Much Money Will Your Spouse Receive from the Trust?

You can control how much money your spouse receives, so that there is money left over for your children. Usually the trust will say that your spouse receives income and dividends earned by the trust property. Your spouse will not be able to make decisions about what happens to the trust assets, and he or will not be able to withdraw principal from the trust. If you wish, you can add in a provision giving your spouse the greater of $5,000 or 5% of the trust assets each year.

Does a QTIP Trust Have Tax Benefits?

U.S. tax law permits spouses to transfer property to each other without paying taxes. This is called the marital deduction. The marital deduction ordinarily does not apply to assets placed in trusts that place so many restrictions on the surviving spouse’s ability to access the assets. However, if your executor makes a special election on the estate’s tax return, your estate can claim the marital deduction for amounts you transferred to a QTIP trust during your lifetime. This exception applies because your spouse receives a lifetime income interest in assets placed in the trust.

If your estate claims the marital deduction, then estate tax payments are deferred until later. Any assets remaining in the QTIP are considered to be part of the surviving spouse’s estate for tax purposes after the surviving spouse passes away. 

Planning your estate? Look to Janet Brewer, Esq. for thorough and thoughtful estate planning advice. Janet’s more than 20 years of legal experience will give you confidence and peace of mind. To schedule a “Get Acquainted” meeting, visit Janet's website or call her office at (650) 469-8206.

So Many Trusts, So Little Time!

Trusts are a time-tested pragmatic tool to help individuals and couples achieve specific goals, whether they are related to transferring assets, managing tax liabilities or protecting yourself or your family from other financial threats. Trusts are not just for the wealthy. However, they are not do-it-yourself projects. There are many different kinds of trusts, and it is important to know which one is the right one to achieve your goals.

Here’s the basic concept behind trusts: a trust allows an individual to separate the legal ownership of property from the beneficial enjoyment of the property. In “What Is a Trust, and Why Should I Have One?” Fox Business explains the different kinds of trusts, how trusts can be used to manage and preserve property and the relationship between the trusts, the beneficiaries of the trusts and the responsibilities of the trustees.

Revocable trusts are also known as living trusts. The creators of this trust can ensure the proper management of their assets during their lifetime and after they pass. A revocable trust can be changed at any time by the creator. However, instructions in the trust document tell the trustees how to act after the creator’s death. Revocable trusts are used in estate planning to pass assets to heirs in private and to avoid probate, which can reduce costs and stress.

Testamentary trusts. These are created in a person's will and they don't keep the assets out of probate. A court proceeding is required to fund the testamentary trust. Testamentary trusts provide flexibility.

Irrevocable trusts can be used to make gifts that allow subsequent protection from creditors and estate taxation. These trusts are typically created to hold high-value life insurance policies and keep the insurance proceeds out of the taxable estate of the insured person. The trust languagecan state that any trust money used for the beneficiary won't run into issues with Medicaid and Supplemental Security Income.

Charitable trusts, as the name implies,allows an individual to make a gift to charity but retain an interest in the donated property. Charitable remainder trusts will let you keep an income stream that continues for a specific time or for the rest of your life—the charity will receive any remaining funds at your death. These trusts provide income tax benefits from the value of the donation, even though you still receive income from the trust assets.

Other trusts are used for estate planning purposes, such as credit shelter trusts. These are used to preserve the estate tax exemption of a deceased spouse for future use. A Qualified Terminable Interest Property trust, or QTIP, gives a spouse access to funds while preserving their eventual distribution to children or other heirs. Finally, a Qualified Personal Residence Trust, or QPRT, lets you transfer an interest in your home to family members while you are still alive in a way that reduces gift and estate taxes.

All of these trusts have the same benefit: guaranteeing that your assets will be used to meet your wishes and provide income for you and your loved ones. Talk with an experienced estate planning attorney and see if you can benefit from establishing a trust for yourself or your family.

Reference: Fox Business (September 7, 2015) “What Is a Trust, and Why Should I Have One?”

QTIP Trust Frequently Asked Questions

QTIP trusts are excellent options for a number of married couples, especially those who have been married two or more times, or those with blended families. However, not many people understand what a QTIP trust is, what the benefits are, or even what it stands for. Below, we’ve answered a few of the most common questions we field at our office regarding remarriage, estate planning, and QTIP trusts.

What does QTIP stand for?

QTIP stands for qualified terminable interest property trust. Now you see why everyone sticks with “QTIP.”

How does a QTIP trust work?

A QTIP trust allows a person to leave the bulk of their property to two different groups of people over time. After a person’s death, their spouse receives all income from the trust each year. When the second spouse dies, the trust is given to another group, usually the person’s children from a previous marriage.

Who is most likely to benefit from a QTIP trust?

QTIP Trusts are almost always used by people who have been married more than once. This is because it allows blended families to fairly share the deceased’s estate while avoiding many common conflicts: both the new spouse and the children from the previous marriage benefit, and all of the decision making regarding the estate is complete. However, there are a few less common reasons choose a QTIP trust while planning your estate. For example, if a spouse is worried about their spouse caring for the estate after his or her death, a QTIP can ensure that the surviving spouse is cared for even if they do not control the estate.

What are the advantages of the QTIP trust?

If you are remarried and have children from a previous marriage, the major advantage of a QTIP trust is the ability to leave much of your estate to your children while still caring for your current spouse until his or her death. In addition, a QTIP trust takes full advantage of the unlimited marital deduction when it comes to estate tax law.

Does a QTIP trust eliminate estate taxes?

While a QTIP trust does not eliminate the estate tax, it does delay payment of the tax. Under the unlimited marital deduction laws, the second spouse will not have to pay estate taxes if he or she is a United States citizen. However, when the surviving spouse dies and the trust passes to children from a previous marriage, taxes will need to be paid.

San Francisco Bay Area Estate Planning Attorney

Planning your estate after a marriage or after blending families can be a sensitive and complex matter. To learn more about QTIPs, trusts, and estate planning after remarriage in California, call The Law Office of Janet Brewer today to schedule a consultation with an experienced attorney: (650) 325-8276.

Remarriage & Estate Planning: Common Errors (Part 2)

This week on our blog we have been discussing remarriage and estate planning – including the questions you should ask yourself about estate planning after a second marriage and which documents you need to review and update after a second marriage. Yesterday, we listed four common estate planning mistakes made by those who remarry, and today we will continue the list with four more pitfalls to avoid.

Mistake #5: Not considering utilizing a life insurance policy.

Although life insurance plans are usually used to provide for dependents, spouses, and minor children, they can also be used to navigate sensitive issues related to blended families and inheritance. Leaving life insurance money to your children can help ease any hard feelings that they may have about you leaving your property to your second spouse.

Mistake #6: Making a do-it-yourself will without professional legal help.

There is a time and a place for do-it-yourself wills and estate planning and some may benefit from online will kits. However, those who have been married more than once, or those with blended families, should most probably consult with an attorney to draft a will. Those who do not may make small mistakes that could have disastrous consequences.

Mistake #7: Not communicating openly with your new spouse.

When it comes to estate planning, it is absolutely essential to be on the same page with your new spouse about three things: your current financial situation, your current estate plans, and your plans for blending your finances after your marriage. Far too many people do not clearly understand their finances after a divorce or make assumptions about who will support them after new spouse’s death.

Mistake #8: Choosing the wrong person as a trustee.

Although it may feel like an easy choice to make your new spouse, one of your children, or one of your stepchildren a trustee, it is probably a poor decision. Any one of these choices could create family problems, have troubles with objectivity, or make others suspicious of their objectivity, while the trustee himself or herself could be placed in an uncomfortable situation. There’s no reason not to pick a trustee that is not emotionally involved in the situation, such as a corporate trustee or bank.

Palo Alto Estate Planning Services for Blended Families

At The Law Office of Janet Brewer, we have extensive experience working with blended families and those who have been married multiple times. Let us help you come up with a plan that works best for your unique needs and your unique family. To learn more about our services, or about estate planning laws in California, call The Law Office of Janet Brewer today: (650) 325-8276.

photo credit: Wedding Photos via photopin (license)

Remarriage & Estate Planning: Common Errors (Part 1)

Marrying again gives us a second chance of happiness, whether our first marriage ended with the death of our spouse or with a divorce. In recent years, remarriage has become even more common, especially as people live longer and healthier lives. However, while remarriage can open a wonderful new chapter in your life, it can also come with issues and complexities when it comes to your estate planning.

Below, our estate planning experts have listed four common mistakes that people make after remarrying regarding their estate plan.

Mistake #1: Not updating your will.

Far too many people write their will, pat themselves on the back, and then never think about it again. This may be fine for some, but for those who remarry, the results can be disastrous. In addition to updating your will, be sure to update your other legal papers and plans, such as updating your beneficiaries on all of your policies and accounts.

Mistake #2: Not looking closely at the language in your will.

Some people don’t realize how ambiguous language can be when it comes to drafting wills and blended families. For example, if you leave something to “my children,” are you referring to your biological children, your stepchildren, or both? When you leave something to “my family,” who does that include?

Mistake #3: Not considering the feelings of everyone in your family.

In our law office, we often see that individuals don’t realize just how sensitive other family members can be about estate planning issues – especially when it comes to children and stepchildren in blended families. Even if family relations are good now, that can quickly change when a bio parent dies and leaves his or her assets to a stepparent. You must plan these sensitive matters carefully.

Mistake #4: Not considering a QTIP trust.

Don’t be intimidated by this odd-sounding trust, known as the “Qualified Terminable Interest Property” trust, which can be extremely useful for those in second marriages who want to provide both for their current spouse as well as their children from their first marriage. QTIP trusts allow the surviving spouse to live off of your assets and live on your property, but ultimately leave everything to your kids. A QTIP also delays estate taxes.

The Law Office of Janet Brewer: California Estate Planning Attorneys

Although estate planning after a second marriage can be sensitive and complex, an experienced CA estate planning attorney can make certain that your assets are protected and that your family is supported after your death. If you have a question about estate planning for blended families, or if you would like to schedule an appointment with an estate planning lawyer, please call The Law Office of Janet Brewer today: (650) 325-8276.

photo credit: Wedding Photos via photopin (license)

Remarriage: Bay Area Blended Families and the Importance of Estate Planning

In my many years as an estate planning attorney in the Palo Alto, Stanford, Silicon Valley, and San Francisco Bay areas, I have seen my share of family squabbles between children of the deceased by marriage #1 and the current spouse and children of the deceased by mariage #2, 3, or 4 because of non-existent, outdated, or insufficient estate planning.  If you have children from your current marriage and your former marriage, not having an estate plan is truly a disservice to your family.

A current estate plan is essential

The combination of a 50% divorce rate and people living longer has made remarriage more and more common.  Many people make the mistake of not planning for their deaths because the relationship between the members of their blended family is so good.  Unfortunately, death tends to bring out the worst in people.  Therefore, if you have children from a former marriage and also with your present spouse, having a current estate plan is arguably the best way to minimize familial conflict after you die.

Estate Planning Options for Blended Families

Estate planning is a method for establishing long-term goals for the growth, management, and distribution of your wealth and assetsupon your death.  A well-formulated estate plan affords maximum asset protection and minimum tax exposure. 

Wills – A simple will is not sufficient if you have a blended family.  Most simple wills assume that both parties have only been married to each other and have children only with one another.  Additionally, a simple will assumes that at death, each spouse desires to bequeath his or her assets to the surviving spouse and their children, with no provisions for former spouses and children from prior marriages.

To avoid the problems that can arise by using a simple will when you are remarried and have children and stepchildren you may wish to provide for, you need to have a will drafted that specifically addresses your family structure and your wishes for taking care of your spouse, former spouse, children, and stepchildren, as the case may be.  A well-written will clearly and definitively sets forth your wishes so as to avoid conflict and misunderstandings.

QTIP Trusts – Upon your death, a Qualified Terminable Interest Property (QTIP) Trust gives your surviving spouse limited access to your assets during his or her lifetime while ensuring that the remaining assets in the trust are distributed to your children from a prior marriage upon your spouse’s death.  The requirements for a QTIP trust are:

• Creation of the trust for your spouse;
• Use of trust assets for the sole benefit of surviving spouse during his or her lifetime;
• Entitlement of surviving spouse to 100% of income from trust assets, payable at least once per year; and
• Irrevocable election by your executor to treat trust assets as “qualified terminable interest property”

Life Insurance – If you wish to leave the bulk of your estate to your current spouse, consider purchasing a life insurance policy and naming the children from your former marriage as the beneficiaries. 

Why?  For several reasons. 

• First, your children receive “something” at the time of your death; they don’t have to wait until the “wicked stepparent” dies to receive their inheritance. 
• Secondly, they don’t have to worry that the “wicked stepparent” will spend all the assets and leave them nothing.
• And third, if you tell them that this is all they should expect (and that it’s up to your spouse whether to leave them more or not), it reduces the tension considerably.

Living Trusts – A living trust is also an option if your spouse needs your assets to maintain his or her standard of living.  A living trust allows your spouse to have continued access to your assets during his or her lifetime.  Upon your spouse’s death, the assets will go to your children or your other designated beneficiaries.

Planning to Create an Estate Plan

Because remarriage estate planning can be a very emotional process, I advise my clients to take the following steps before beginning the estate planning process:

• List your assets and debts;
• Decide which spouse will be responsible for paying which debts;
• Decide how you wish your assets to be divided between children and stepchildren;
• Review your life insurance policies and update the beneficiaries, if necessary;
• Share the terms of your divorce decrees with one another to avoid any surprises;
• Discuss your estate planning goals in general terms with your children and stepchildren

Next steps

Once you've completed these steps, you are ready to meet with an estate planning attorney to formalize your estate plan. If you live in Atherton, Menlo Park, Stanford, Palo Alto, or the San Francisco Bay area, contact the Law Offices of Janet Brewer for all of your estate planning needs. Janet has extensive experience in drafting complex estate plans for mid to high net worth clients in traditional, non-traditional, and blended family situations.