Mark A. Bregman, Estates and Trusts Lawyer


Why Would A Person Choose To Establish Irrevocable Trust?

Once an irrevocable trust has been finalized it cannot be terminated, whether that occurs upon the grantor’s death or during their life. Set up with the help of a trust and probate attorney, trust account rules state that once property is placed into an irrevocable trust account it cannot be retrieved by the grantor.

A revocable trust offers some of the best flexibility for trust administration, allowing people to make changes and amendments as necessary throughout the duration of the trust. Why, then, would someone choose to establish an irrevocable trust, which has much more stringent rules?

There are a few benefits to selecting an irrevocable trust. One property is in an irrevocable trust it is no longer part of the grantor’s estate, so this trust administration setup can actually reduce taxes as it reduces the overall estate value. Because the assets essentially belong to the trust, not the grantor, it will not be subject to taxation.

There is also something to consider when it comes to trust and probate — an irrevocable trust is one way to potentially avoid the probate process.

Using an attorney with trust account rules knowledge you can also use irrevocable trusts to set up long-term plans. If you want to ensure continued support for someone, or protect assets into the future, an irrevocable trust is a way to set up an extended payment schedule or protect property from creditors. An attorney experienced in trust administration can guide you through the decision-making process, if you are considering an irrevocable trust for these reasons or similar factors.

To set up an irrevocable trust you certainly need to have confidence in your situation, your attorney, and the person you have selected to be your trustee, as you cannot easily regain control over an irrevocable trust once it is finalized.

Because of this, it is important to select a qualified and competent trust and probate attorney who can help you explore the pros and cons of irrevocable trusts versus revocable trusts, or other trust administration options. You most certainly will want to have all of the details possible when making this type of financial decision, especially if you go down the path of selecting an irrevocable trust to manage your assets. There are many reasons to do so, but you should be fully informed.

Posted in Irrevocable Trusts on October 1st, 2015 · Comments Off on Why Would A Person Choose To Establish Irrevocable Trust?

What Do the New Estate Tax Laws Mean to You?

By now you have probably heard that on December 17, 2010, Congress increased the estate tax exemption to 5 million dollars. You may also have heard the new term “portability” thrown about; read that the estate, gift, and GST taxes have once again been “reunified” at the 5 million dollar level; and that this is a 2 year fix indexed for inflation with a return to the $1 million level in 2014.

What has gotten much less publicity is the 3.8% surtax added on investment income for couples with AGI greater than $250,000 which is part of the Health Care bill and effective in 2013.

What does this mean for you?

1. You may now need a Life Insurance Trust. I have always held that life insurance and Irrevocable Life Insurance Trusts (ILITs) are a valuable tool, and I am even more convinced of this now. In fact, ILITs are even more desirable than before if you have wealth you intend to use primarily to create a legacy for your descendants.

Decision making no longer needs to be driven by the estate tax rules. And if you are thinking of waiting you have to consider that you don’t know if you will be medically qualified for life insurance a year or 2 years from now. It’s best to act now, and we can design trusts that will shield the proceeds from taxation in your estate while giving you access to the accumulated cash surrender value if circumstances change.

Life insurance remains the single best strategy for a healthy person to create a large legacy that eliminates the stress of a volatile investment strategy. And now policy premiums can be paid in advance and avoid the complexities of Crummey letters and hanging powers, and existing policies with large cash values can be transferred to ILITs to avoid potential taxation.

2. As much as I believe in ILITs, they are not your only option for Legacy Planning: Family partnerships, GRATs and other strategies can also be structured and more economically implemented to take advantage of the temporary uptick in the exemption amounts.

3. It is open season on outright gifts and gifts to dynastic trusts now that you have the opportunity to make tax free gifts up to 5 times larger than in the past. The multiplier effect for 2 or more generations will be astonishing!

4. The 3.8% surtax also makes pushing investment assets down to lower generation members in lower tax brackets an important income tax plan for multi-generation families.

5. Achieving creditor protection using spousal limited access trusts and lifetime QTIP trusts has become a tantalizing opportunity.

6. Portability, however, is a trap for the unwary, as is the increased federal exemption that may destroy your existing estate plan if you have a blended family or other targeted planning in place. Formula gifts to charity may disappear from your plan unless you make changes.

Your legacy is important, and now is the time to consider changes to your plan and to implement those changes you have considered–but avoided–until now.

If “getting it right” is important to you (as it should be); then planning right now is indispensable. To learn more about these Legacy Planning techniques — or any other estate and tax strategies –call me today.

Round Table Discussion: Estate Planning or Asset Protection?

(Photo courtesy of The Guardian)

A typical Thursday night finds me meeting with other lawyers and discussing ideas useful in our respective practices.  Although always trying to find new ideas to help clients, these meetings, reminiscent of old style writer’s salons, are particularly useful because of the opportunity to exchange views in an open setting.  No idea is too simple or outlandish and all opinions are welcome.  It is a refreshing opportunity to be the one asking the stupid question and being amply rewarded with a wealth of knowledge and experience.  The food and drink is usually good, but no match for the companionship.

Recently we were discussing provisions for naming and removing successor trustees and the differences between granting the right to trustees, protectors, and beneficiaries.  I was particularly interested in what powers could be used in what situations with or without running afoul of grantor trust rules that cause assets in an irrevocable trust to be included in the taxable estate of the grantor or beneficiary.

These are important discussions, but often buried in the “black box” of our trusts because the clients lose interest after answering the questions of control, use, and taxes.  My role is to understand the client’s intentions and providing the most flexible rules that still meet the client’s objectives.

Our discussions frequently involve the relatively new “decanting” power under Arizona law, which allows a trustee of an irrevocable trust to make a new trust and add or exclude beneficiaries under certain circumstances.

This evening the point was made that for asset protection purposes attorneys should ensure that there is a power to exclude beneficiaries, and the discussion then quickly turned to whether that was a power best granted to a trustee or a protector in the context of which office could best wield the power in conjunction with a beneficiary’s right to remove and replace the trustee or protector without inadvertently creating a general power of appointment—which would cause estate tax inclusion in the estate of the person wielding the power.

The flash of knowledge that struck me was that although the power to exclude beneficiaries was crucial to a thoughtful asset protection trust, it would almost certainly not sit well with most of my clients that their successor trustee could exclude their chosen beneficiaries, except under very limited circumstances.

That in turn led to the idea of how to design a trust which would grant the power, but include adequate guidelines as to when the power could be exercised, so as to enhance the protection beneficiaries will have from their creditors yet reassure the grantor that the power will not be used to subvert the client’s intentions.

The trusts I create contain many instances of this type of analysis to ensure that my clients are always on the leading edge of what is possible.

If you found this article interesting, please share it with a friend or make a comment.  If you would like to find out more about purposeful planning, please call me.

Changes to Trustee Reporting Requirements Under The Arizona Trust Code

If you are currently or soon may be serving as the trustee of an irrevocable trust you should be aware that the Arizona Trust Code (ATC), which became effective January 1, 2009, imposes certain new obligations on trustees of irrevocable trusts.

Prior to January 1, 2009, ARS §14-7303 required the trustee to provide beneficiaries reports of the trust activity only upon request of a beneficiary.  Who qualified as a beneficiary entitled to request information was ambiguous, but current income beneficiaries were clearly within the class of beneficiaries entitled to information.

Now the ATC defines both qualified and permissible beneficiaries to distinguish who must receive information and who may receive information.  Generally qualified beneficiaries are current income beneficiaries and those who become entitled to principal or income upon the death of the current income beneficiary.

Unless the trust agreement provides otherwise, the trustee of an irrevocable trust must provide a report to the qualified beneficiaries, permissible beneficiaries, and other beneficiaries who request it.

The report must be provided at least annually.  The first reporting period ends December 31, 2009.

The report must contain the following information:

  1. A list of the trust property and the market value of such property, if feasible.
  2. Liabilities
  3. Receipts and disbursements.

The report need not be prepared according to generally accepted accounting principles (GAAP).  There are no guidelines on what form the report must take, but a modified form loosely based on the form used to file a judicial accounting will probably be sufficient.  The outline for such a report is as follows:

Schedule A = Opening inventory.  A listing of the assets and their respective values.
Schedule B = List of outstanding debts.
Schedule C = List of all receipts
Schedule D = List of all expenditures
Schedule E = Summary of all other schedules ending with an ending balance.

An alternate format could be as simple as providing copies of account statements for the year (raw data).

If assets are held other than insured brokerage or bank accounts, a short narrative report describing the assets and their characteristics is probably appropriate.