Inheritance Trusts

Leaving an IRA to a Trust

Published on: October 10, 2024 | by Ettinger Law Firm

An IRA may not be transferred to a trust without causing the whole IRA to be taxed. The “I” in IRA stands for “individual” — it must be owned by a single person. In practice, there is no need to transfer an IRA to a trust since IRA’s avoid probate by having a “designated beneficiary” and the principal of an IRA is exempt from being “spent down” for your long-term care needs. However, an IRA may be left to a trust. In other words you may name a trust as a designated beneficiary of an IRA.

There are many reasons why one would want to leave an IRA to a trust. The beneficiary may be a minor, they may be irresponsible, have substance or alcohol abuse issues, learning disabled, special needs, dominated by a spouse, facing divorce or bankruptcy, or you may simply want to control where the IRA money goes if your designated beneficiary dies before the IRA is completely distributed. Similarly an IRA is often left to the Inheritance Protection Trust to protect it from your child’s divorces or creditors and to keep the asset in the bloodline.

There are two types of trusts that may be named a beneficiary of an IRA — “conduit” trusts and “accumulation” trusts. A conduit trust simply acts as a conduit of the ten year payout under the SECURE Act. In other words, whatever is taken from the IRA must be distributed immediately to the trust beneficiary, the trust acting as a conduit only.

When Does a Trust Make Sense

Published on: February 17, 2023 | by Ettinger Law Firm

By now most people know that trusts avoid probate which is required with a will — if there are “probatable” assets, in other words those in your name alone. While many assets can be set up to avoid probate by putting joint owners on or by naming beneficiaries, titles to real estate in New York may not have beneficiaries and there are tax and liability reasons for not naming joint owners on real estate. As a result, real property generally goes through probate.

Other reasons to use trusts, besides avoiding probate for the home, are as follows:

Out-of-State Property. New York residents who own property in another state face two probates, one in New York and another in the other state. However, you may transfer both properties into your New York trust and avoid the “multiple probate problem”.

Estate Planning for the Estranged Child

Published on: December 1, 2022 | by Ettinger Law Firm

All too often a client comes in with a sad tale about an estranged child. Naturally, they are at a loss as to what to do about the situation when it comes to leaving that child an inheritance.

Years ago, the famous advice columnist Ann Landers wrote that her all time most requested column for reprint was on this very subject. Ann wrote that an inheritance should be considered a gift and that if the gift is not deserved one should not be expected. While that may have been good advice at the time and perhaps still is in most cases, like many things it is more complicated today.

In practice, we find that many of these once loving sons and daughters have married individuals with borderline or narcissistic personality disorders. Their spouses are manipulative and controlling. They seek to separate the loving son or daughter from their family so as to better control their spouse. The estranged child knows from experience that going against the wishes of their narcissistic spouse is like throwing gasoline on a fire — so they go along to get along.

Capital Gains Tax Tips

Published on: September 22, 2022 | by Ettinger Law Firm

Your “basis” for calculating capital gains taxes is what you paid for the stock or the real estate. For real estate, the basis gets raised by the amount of any capital improvements you make to the property. When you sell your primary residence you may exclude the first $500,000 of gain if you’re a couple or $250,000 if you’re single. The $500,000 exclusion for a couple get extended for a sale occurring up to two years after a spouse dies.

For gifts you receive of appreciated stock or real estate during the donor’s lifetime, no capital gains tax is payable, however the donee receives the donor’s basis. It is generally considered better to wait, if possible, and pass the gift to the donee at death, due to the “stepped-up basis”. The basis of any inherited property is “stepped-up” to date of death value. If the property is sold within six months of the date of death, then the sale price is deemed to be the date of death value.

If the property is going to be held for some time it is helpful to get date of death values to establish the new basis. For real estate, this means getting an appraisal from a licensed real estate appraiser (not a real estate broker!). For stocks, you simply ask the company holding the stocks to provide this information.

Estate Planning Alternatives to Quiet Trusts

Published on: June 22, 2022 | by Ettinger Law Firm

Many people want to avoid involving children in conversations about trusts. This article reviews some ideas that are helpful to consider when people decide whether to establish a quiet (or “silent”) trust or a trust that allows keeping the trust’s existence or details about the trust from beneficiaries as well as for the extent of time that the trust will remain quiet.

Research reveals that approximately 70% of wealth transfers do not operate properly by the third generation. Not operating properly in this context involves the receiving generation losing control of assets in the trust. Routinely, this is not due to inadequate wealth planning or unwise investing, but instead to an absence of trust, transparency, and lack of planning. Before considering quiet trusts, it’s a good idea to consider the wider picture of family governance as well as preparing children for the assets that they will one day receive. Instead of considering quiet trusts as an alternative to wills, you should also consider involving your beneficiaries directly in discussions about the trust once they reach the appropriate age. What constitutes an appropriate age is influenced by the structure of a family, but in many cases is earlier than a person thinks.

How Wealth Is Transferred

What to Consider Following the Increase in the Annual Gift Tax Exclusion

Published on: March 14, 2022 | by Ettinger Law Firm

In 2022, the annual exclusion for federal Gift Taxes was increased to $16,000 per individual annually. Even though a near-universal acceptance exists that gift-giving can play an important role in estate planning, a person should consider various issues before making gifts.

The way that gifts are made can have a substantial impact on beneficiaries. This is especially true if the party who receives a gift is below the age of 21. Direct gifts made to young people can have their own challenges which include exposure to creditors and limited control over how gifts are made. Consequently, it’s a wise idea in these situations to consider placing gifts in a trust.

The Danger Behind Direct Gifts

Hidden Estate Planning Advantage to This Year’s IRS Filing

Published on: March 10, 2022 | by Ettinger Law Firm

This year’s tax filing season has some hidden advantages. Amidst a backdrop of the Covid-19 pandemic and current tax laws, the Internal Revenue Service has predicted over 160 million Americans could start filing their federal tax returns at the end of January 2022. In regards to gift returns, this does not appear to be as nearly as problematic. The challenges primarily involve individual returns. Among the various tax strategies that clients have been using this year include under-the-radar trusts.

In 2021, donors could give up to $15,000 to another person like a friend or family member without this amount is subject to taxes. Each spouse in half of a married couple could utilize this limit to pass on assets to beneficiaries. Internal Revenue Service returns for many gifts over the threshold (As well as some under this threshold) are due on April 18, which is the same deadline that individual tax returns are due this year. Additionally, tax-payers can pursue an automatic six-month extension for both of these returns.

The Role of Annual Gifts

Riverside v. Snukst: A Lesson on How to Avoid Trust Disputes

Published on: February 21, 2022 | by Ettinger Law Firm

In the recent case of Riverside County Public Guardian v. Snukst, a California appellate Court resolved an issue involving the Medi-Cal program, which is California’s version of the federal Medicaid program. The program is overseen by the California Department of Health Services. In Riverside, the Department of Health Services pursued payment from a revocable inter vivos trust for the benefits provided on behalf of a person during his life. After the man’s death, the probate required the assets in the revocable inter vivos trust be passed on to the sole beneficiary instead of the Department of Health.

The Court of Appeals determined that federal and state law involving revocable inter vivos trusts required the Department of Health receive funds from the trust before any distribution to the beneficiary. Subsequently, the judgment was reversed and remanded.

For trusts to work as a person wants, the trust must avoid future disagreements and disputes among those impacted by the trust’s terms. This article reviews some of the best things that you can do to avoid trust disputes.

Avoiding Undesirable Estate Planning Situations

Published on: February 12, 2022 | by Ettinger Law Firm

TV shows often depict unpleasant estate planning situations that can arise including a deceased person leaving assets to a former spouse. While these situations often do not occur in the way depicted on TV or film including the recent Netflix film I Care A Lot, a former spouse could end up receiving assets from your assets or other undesirable situations can occur if you are not careful.

For a large number of people in New York as well as the rest of the country, estate planning documents including wills and trusts are a person’s final communication with their loved ones as well as the rest of the world.

Make Sure to Revise Your Estate Plan

The Advantage of Utilizing SPA Trusts in Your Estate Plan

Published on: February 1, 2022 | by Ettinger Law Firm

In times of economic uncertainty, estate plans can benefit substantially from flexibility. As the country both continues to recover from the COVID-19 pandemic as well as face the challenges brought on by new strains of COVID-19, it’s a good idea to consider how to make your estate plan flexible. Not to mention, looming changes brought on by changes to tax law also make it a good idea to consider flexibility while creating an estate plan.

What SPA Trusts Do

Special power of appointment (SPA) trusts (or as they are sometimes called SPAT trusts) is a type of irrevocable trust in which either the creator or settlor of the trust grants appointment power to another person. The person who receives these powers functions in a non-fiduciary role to direct the trustee to make distributions to anyone except for the person who made the appointment of powers.