On a daily basis in our office, we get a lot of estate planning questions because of all the estate planning that we do. In this column, I like to periodically cover the questions we get. Today, we are going to discuss five estate planning questions that we have recently been regularly getting in our office.
If I put my assets in my trust, can I still get at them?
Absolutely! You can do everything with your assets in your trust that you can do with your assets outside the trust. You can buy, sell, trade or gift assets that are in your trust, just like you could do with assets that are outside your trust. They are just titled in the name of your trust rather than your individual name. Think of your trust as one of your pockets in your coat. You can still put your hat, gloves and keys in the pocket, you just need to use your other hand to get them out.
How much does a will/trust cost?
We get people calling our office and asking this question all the time. Calling an estate planner for the cost of an estate plan is like asking a realtor how much does a house cost? For a house, it depends on size, number and types of rooms, whether there is a garage or basement, surface finishes, etc. Similarly with an estate plan. Firstly, you should never ask for just a will or just a trust. You should have additional documents put in place. At a minimum, you should have a will, a financial power of attorney and a health care power of attorney. Many people also would benefit from a trust, and if you have minor children, a parental appointment of guardian.
And secondly, you should have the proper instructions in those documents. There are lots of provisions that you can put in your plan for the benefit of yourself during your lifetime or for the protection of your loved ones after you are gone. These include privacy, probate avoidance, creditor protection, divorce protection, re-marriage (Bambi & Thor) protection, addiction protection, disability protection, minor protection, provide for pets, preserve the family real estate, provide for loved ones’ education, encourage employment, lack of money-management skills protection, governmental benefit protection and charitable planning.
And if you have a trust, it must be funded, which is also part of the initial cost of the plan. Trust funding is completely and correctly designating your trust and individuals as owners, beneficiaries and insured parties of your assets. Basically, it’s putting your stuff in your trust. You have to retitle assets, change beneficiary designations and add additional insureds to your casualty and liability insurance policies.
How can anyone properly advise you on what your plan should look like or what it is going to cost without discussing with you your goals and objectives and reviewing the nature and extent of your assets? If an attorney’s office can quote an estate planning fee over the phone before they even meet with you, then you probably do not want use them; they are most likely only going to treat you like they treat everyone else and just grab a form out of a formbook and slap your name on it.
I can give away $14,000 per person per year with no tax, right?
You can actually gift more, a whole lot more, without paying any taxes. While it is true that pursuant to the Federal gift tax laws, you can gift up to $14,000 per person, per year in 2017 ($15,000 in 2018) without having to report it or pay Federal gift tax on it, you can also gift an additional amount of $5.49 million in 2017 ($5.6 million in 2018) during your lifetime or after your death with no estate or gift taxes due. A married couple can gift $28,000 per person per year in 2017 ($30,000 in 2018) and an additional amount of lifetime or after death gifts of $10.98 million in 2017 ($11.2 million in 2018), all without and estate or gift taxes to you or your loved ones.
Although these gifts are not taxable for Federal gift or estate tax purposes, in other circumstances, these gifts are fully reportable and countable. For example, you need to report gifts of any amount that you or your spouse have made within the last five years of an application for Medicaid to pay for nursing home care. There is no minimum gift which is excludable. Every single one of those gifts, no matter how small, must be counted and reported as divestments. These divestments will create a penalty period during which Medicaid will not pay for your nursing home care.
If my spouse and I die together, what happens?
If you have put a provision in your will or trust that governs what happens when you and a spouse or other beneficiary die at the same time, then those instructions will govern your assets. In the absence of such a provision in your will or trust, if a spouse or other beneficiary does not survive you by at least 120 hours (5 days), they are deemed to have predeceased you, and do not benefit from your assets or your estate. If however, it cannot be determined that at least one of 2 or more co-owners of an asset survived the other(s) by at least 120 hours, then the property passes in equal shares to the estates of each of the co-owners.
My advisor says that I should not name my trust as the primary beneficiary of my IRA. Why should I?
This advice is often given by financial advisors, tax preparers, bankers and insurance agents who have not reviewed either the trust provisions, nor the required minimum distribution rules, which have been in place since 2002. If your trust is drafted as a designated beneficiary under the required minimum distribution rules, your trust can “stretch out” the distributions from the retirement account over the life expectancy of your trust beneficiary.
In addition, if your trust is the primary beneficiary of your retirement account, your beneficiaries get all of the protections of your trust, such as creditor protection, divorce protection, re-marriage (Bambi & Thor) protection, addiction protection, disability protection, minor protection, provide for loved ones’ education, encourage employment and lack of money-management skills protection.
You can also pay income taxes on the distributions at the lower individual rates if the distributions are then passed down to the trust beneficiary. And by naming your spouse as the contingent beneficiary of your retirement account, if it makes sense to have your surviving spouse do a spousal rollover of your IRA, then your trust could do a disclaimer or legal no thank you of your IRA.
By Matthew M. Wallace, CPA, JD
Published edited November 12, 2017 in The Times Herald newspaper Port Huron, Michigan as: Frequently asked estate planning questions