Living Trusts

Second Marriage Planning

Published on: July 12, 2024 | by Ettinger Law Firm

In second marriage planning, a co-trustee is sometimes recommended on the death of the first spouse. While both spouses are living and competent they run their trust or trusts together. But when one spouse dies, what prevents the other spouse from diverting all of the assets to their own children? Nothing at all, if they alone are in charge. While most people are honorable, and many are certain their spouse would never do such a thing, strange things often happen later in life. A spouse may become forgetful, delusional or senile or may be influenced by other parties. Not only that, but the children of the deceased spouse tend to feel very insecure when they find out their stepparent is in charge of all of the couple’s assets.

If you choose one of the deceased spouse’s children to act as co-trustee with the surviving spouse there is a conflict that exists whereby the stepchild may be reluctant to spend assets for the surviving spouse, because whatever is spent on that spouse comes out of the child’s inheritance. Then what if stepparent gets remarried? How will the stepchild trustee react to that event? What if it turns out the stepchild liked the stepparent when his parent was living, but not so much afterwards?

Here is where the lawyer as co-trustee may provide an ideal solution. When one parent dies, the lawyer steps in as co-trustee with the surviving spouse. The lawyer helps the stepparent to invest for their own benefit as well as making sure the principal grows to offset inflation, for the benefit of the deceased spouse’s heirs. The stepparent in this case takes care of all their business privately with their lawyer. The trusts cannot be raided. These protections may also be extended for IRA and 401(k) money passing to the spouse through the use of the “IRA Contract”. Surviving spouse agrees ahead of time that they will make an irrevocable designation of the deceased spouse’s children as beneficiaries when the IRA is left to the surviving spouse, and further agrees that any withdrawals in excess of the required minimum distribution (RMD) may only be made on consent of the lawyer.

Taxation of Trusts

Published on: July 13, 2023 | by Ettinger Law Firm

Revocable living trusts, where the grantor (creator) and the trustee (manager) are the same person, use the grantor’s social security number and are not required to file an income tax return. All income and capital gains taxes are reported on the individual’s Form 1040.

Irrevocable living trusts come in two main varieties, “grantor” and “non-grantor” trusts. Non-grantor trusts are often used by the wealthy to give assets away during their lifetime and for all income and capital gains taxes to be paid either by the trust or the trust beneficiary but not by them. Gifts to non-grantor trusts are reported to the IRS but are rarely taxable. Currently, the annual exclusion is $17,000 per person per year to as many people as you wish. However, if you go over the $17,000 to any one person you must report the gift to Uncle Sam, but they merely subtract the excess gift from the $12,920,000 each person is allowed to give at death. Most of our clients are “comfortably under” as we like to say. These gifts then grow estate tax-free to the recipient.

Grantor trusts, such as the Medicaid Asset Protection Trust (MAPT), are designed to get the assets out of your name for Medicaid purposes but keep them in your name for tax purposes. You continue to receive income from the MAPT and pay income tax the same as before. The MAPT files an “informational return” (Form 1041) telling the IRS that all the income is passing through to you. Gifts to non-grantor trusts take the grantor’s “basis” for calculating capital gains taxes on sale, i.e. what the grantor originally paid and, if real estate, plus any capital improvements.

Trusts Create Order Out of Chaos

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

At Ettinger Law Firm, we are fond of saying “trusts create order out of chaos” — for three major reasons:

First, as noted in previous columns, an ever-increasing number of Americans suffer a period of legal disability later in life. Without your own private plan for disability, consisting of a trust and a “prescription strength” elder law power of attorney, you run the risk of a state appointed legal guardian. Do you want the people you choose to be in charge in the event of your disability, with the freedom to act immediately in your best interests, or do you want the state to appoint someone who will require court permission to protect your assets and your family — which permission is sometimes denied. A guardianship proceeding is expensive, time-consuming and stressful — in other words, chaotic. Trusts create an orderly process whereby your appointed trustees consult with your elder law attorney and are free to act immediately without court interference.

Secondly, trusts avoid probate court proceedings on death whereby wills, even though supervised by an attorney, with two witnesses and a notary, must first be proven to be valid in court proceedings. The client has no control over probate court proceedings – the time they will take or the amount they will cost. Typically, it takes months and, not unusually, one to two years or more. Meantime, property cannot be sold and assets cannot be reached to pay bills. In other words, chaos. With a trust, the trustee may act immediately upon death, list property for sale and access investments and bank accounts.

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”.

In Wills We Trusted

Published on: January 19, 2023 | by Ettinger Law Firm

Ask most people if they’ve done their estate planning and a common answer is, “Yes, I have a will.” However, estate planning is not just a plan for death. It’s a plan for life that addresses what happens if you become disabled. About half of us will eventually becoming disabled. You can choose ahead of time who will be in charge of your affairs if you become disabled through a power of attorney, health care proxy, and a trust.

A will cannot provide for disability. A will tells the world where you want your assets to go when you die. A will is probated, which means proven, in court, and becomes a public document. Those without their own living trust plan, with their personal choices for who will be in charge if they become disabled, risk getting the state’s plan of guardianship proceedings where the court chooses who will handle your affairs if you become disabled.

Probate court proceedings can go smoothly but they may also be complicated, such as having a special needs child or disinheriting a child. Also, if you own property in another state, a trust makes more sense than a will because you may deed the out-of-state property into the name of your trust, and avoid both a New York probate and a probate in the other state.

Avoiding Guardianship in New York

Published on: October 13, 2022 | by Ettinger Law Firm

For the ever-increasing number of those who become legally incapacitated later in life (i.e. unable to handle their legal and financial affairs) having a legal guardian appointed looms as a distinct possibility.

A guardianship proceeding may be commenced by a hospital, nursing home, assisted living residence, family member or a professional involved in the affairs of the “alleged incapacitated person” or “AIP”. These proceedings arise for various reasons such as the facility looking to secure payment or a family member or professional finding that the AIP is either not handling their affairs well or is being taken advantage of financially.

Once the proceeding is commenced a vast bureaucratic process begins to unfold. Notice of the proceeding and of the date and location of any hearings are sent to all interested parties, including all immediate family members.

Estate Planning for Pets

Published on: October 5, 2022 | by Ettinger Law Firm

In the event of their death, many people wish to provide for the adequate care and feeding of their beloved dog, cat, bird or other pet. Here is an abridged version of New York’s statute authorizing a trust for your pet;

The intended use of the principal or income, of a trust for the care of a designated domestic or pet animal, may be enforced by an individual designated for that purpose in the trust instrument. Such trust shall terminate when no living animal is covered by the trust.
No portion of the principal or income may be converted to the use of the trustee or to any use other than for the benefit of a covered animal.

Utilizing Trusts to Reduce Taxes Faced by Your Legacy

Published on: June 16, 2022 | by Ettinger Law Firm

Many people are curious about what happens after they are no longer able to manage their assets. Many chances are created when it comes to estate planning arrangements and trusts play a large role in estate planning. If you choose wisely, trusts fortunately can prove to be an excellent way to reduce the taxes ultimately placed on your estate.

Establishing a Trust

Trusts are a type of arrangement used to the advantage of entities or people that the trust creator selects. Trusts vary greatly in activation as well as how they are accessed. Trusts tend to break down into the following kinds:

What You Need to Know about Living Trusts

Published on: April 18, 2022 | by Ettinger Law Firm

If you’re creating a plan for what will happen to your estate after you pass away or become incapacitated, you’ve likely familiar with the advantages you can realize by creating a living trust. Items positioned in a trust do not pass through probate, which can be a costly and time-intensive process. Living trusts (also referred to as revocable trusts) let a person appoints a trust administrator to look after an estate after the creator passes away.

Living trusts often simplify how assets in estates are passed on. Unfortunately, countless opportunities exist to make errors, especially if you’re tasked with transferring items to a trust. Certain kinds of accounts should never pass into a trust. These certain accounts should not pass into a trust even in situations where they represent the majority of an estate. This category includes retirement accounts like 401(k) plans as well as other types of retirement accounts.

If you pass on assets to a trust, the Internal Revenue Service will classify the interaction as a distribution and you will be required to pay income taxes.

Minnesota Case Emphasizes Important Trust Management Lessons

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

In a recent opinion, a Minnesota Appellate Court rejected a petition to revise a trust’s terms to permit the early distribution of trust assets to beneficiaries. The court also rejected a request by the petition for the trust to pay attorney’s fees and held that the litigation was neither necessary nor existed for the benefit of the trust. This opinion functions as a reminder of the high threshold that a person must overcome when beneficiaries attempt to revise a trust’s distribution terms.

The Court’s Decision

In Skarsten-Dineman v. Milton, a trust settlor established a revocable naming his six children as the primary beneficiaries following his death. Assets were to be passed to the man’s children until three of them had passed away then the trustee was to end the trust and pass on the principal equally divided to the surviving children.