Arizona Estate Planning

Irrevocable Trust Nonjudicial Settlement Agreements: The Good, the Bad, and the Ugly

Some trusts are irrevocable as soon as they are created, which means that, in general, the trustmaker (the person who created and funded the trust) cannot terminate or modify it and take back the money or property that it holds. You may wonder why anyone would want an irrevocable trust, but irrevocable trusts can provide some very important benefits, particularly asset protection, tax minimization, and maintaining eligibility for government benefits. In contrast, trustmakers may amend or revoke a revocable living trust at any time prior to their death, but at their death the trust becomes irrevocable.

Although irrevocable trusts generally cannot be changed, many states’ laws allow interested parties to modify a trust in certain circumstances using a binding nonjudicial settlement agreement—assuming there is no language in the trust document prohibiting their use or providing another way for the trustee and beneficiaries to consent to modifications. In the absence of a statute permitting a nonjudicial settlement agreement, the interested parties under state law, which may include the grantor, the trustee, or the current or future beneficiaries or their representatives, would have to petition a court to modify the trust or interpret unclear provisions. In states where nonjudicial settlement agreements are permitted, their use can avoid the costs, delays, and lack of privacy associated with judicial proceedings.

When May a Nonjudicial Settlement Agreement Be Used?

A nonjudicial settlement agreement is only valid if it does not violate a material purpose of the trust or terminate the trust in an impermissible manner and any modification would have been approved by a court if the parties had petitioned the court. Although there are variations in each state’s statute governing nonjudicial settlements, there are […]

On the Net2023-03-21T08:32:07-07:00March 18th, 2023|Asset Protection Trusts, Irrevocable Trusts, Trusts|

Have You Chosen the Right Trustee?

Whether you are reviewing your existing trust or creating a new trust, you should understand the important role that a trustee plays not only in handling trust matters but also in providing for and protecting your loved ones.

What is a trust?

A trust is an agreement between an owner of accounts and property (trustmaker) and another person (trustee) who agrees to manage the accounts and property on behalf of a third party (beneficiary). In most situations, there is a written document, called a trust agreement, that lays out the specific instructions or rules that govern the trust relationship.

What is a trustee?

A trustee is a trusted decision maker who is tasked with handling all matters that relate to your trust. Depending on the type of trust, you could be the trustee in the beginning and need someone else to act as trustee only when you are unable to manage the trust, or you could select a trustee to act immediately.

What types of trustees are there?

When creating an estate plan, there are several types of trustees to consider. An initial trustee is the decision maker that immediately starts managing the trust’s accounts and property. You may choose to be the initial trustee if you create a revocable living trust. However, for some types of irrevocable trusts, you will need to select someone else to be the initial trustee.

The successor trustee is the next in line to manage the trust. This person may need to act because the initial trustee becomes incapacitated, dies, or steps down from their role.

You could choose to have one trustee handle the entire trust. You could […]

On the Net2023-03-21T08:33:22-07:00March 14th, 2023|Asset Protection Trusts, FAQ, Irrevocable Trusts, Trusts|

What You Need to Know About Beneficiary-Controlled Trusts

Would you like to provide your children or loved ones with an inheritance but protect them from the risks that may accompany a large windfall? If so, you can create a beneficiary-controlled trust in which the person you name as the trust’s primary beneficiary has rights, benefits, and control over the property held by the trust, but with important protections. In a beneficiary-controlled trust, you can name the primary beneficiary as the sole trustee, or if you name a co-trustee, the beneficiary can be given the authority to remove the co-trustee and select a successor co-trustee if they choose. In addition, a beneficiary-controlled trust may include a broad, non-general power of appointment that enables a beneficiary who is also trustee to limit the ability of other more remote beneficiaries to enjoy the property held by the trust.

What Are the Pros?

If you want to provide an inheritance to a mature child or loved one that you trust to make prudent financial decisions, a beneficiary-controlled controlled trust is a strategy that you should consider. Even beneficiaries who handle money wisely could encounter situations in which their money and property are vulnerable to creditors’ claims, divorce, lawsuits, or estate taxes: a beneficiary-controlled trust can protect the property held in the trust against those claims. Although you can include terms in the trust document that limit the degree of involvement and control you would like the beneficiary to have, a beneficiary-controlled trust can still enable the beneficiary to have a considerable amount of control over their inheritance and how it is used.

Beneficiary as sole trustee. Under most states’ laws, even if a beneficiary is the sole trustee, most creditors may not […]

On the Net2023-02-25T13:03:20-08:00January 28th, 2023|Beneficiaries, Estate Planning, Trusts|

Red Flags When Hiring a Professional To Be Your Trustee

When you form a trust as part of your estate plan, one of the most important decisions you will make is who will oversee the trust’s management when you are no longer able to manage it (also known as your successor trustee). Because a trustee’s work may be time-consuming, complicated, and risk liability, many people who create a trust consider naming a professional fiduciary as their trustee. Keep in mind that if you ask your estate planning attorney to serve as your successor trustee, you should ask for a separate engagement letter from the one you sign engaging them to create your estate plan. When looking to hire a professional to serve as your trustee, the following are several red flags you should keep in mind.

Do They Have Adequate Resources?

A professional’s agreement to act as your trustee does not guarantee that they have the resources needed to administer your trust properly. Be proactive about asking questions. Trust administration is an important job, and you should satisfy yourself that the person you appoint as your trustee is well-equipped to fulfill the role. The following are some of the important functions you should ask the professional about:

The professional you hire should have a good system for trust accounting. Trust funds must be held in a separate account that is not commingled with their business’s funds, and there must be a system in place to keep separate records of income and principal, disbursements from the account, receipts, capital transactions, and more. The professional trustee has a duty to provide information to the trust’s beneficiaries, and current income or principal beneficiaries are entitled to a detailed accounting to enable them […]

On the Net2023-02-25T12:31:03-08:00December 21st, 2022|Common Problems, FAQ, Peace of Mind, Trusts|

Is a Defect a Good Thing? Intentionally Defective Grantor Trusts in Estate Planning

The notion that your estate plan contains a defect would not normally be welcomed as good news. But despite the moniker, an intentionally defective grantor trust (IDGT) can be an advantageous tool for minimizing estate taxes and maximizing the money and property that are passed on to a spouse, descendants, or other beneficiaries.

The defect in this case refers to trust provisions that make the grantor (the person creating the trust)—not the trust—the trust owner and therefore liable for trust income taxes. By not having annual income taxes come directly out of the trust’s money and property, more value remains for beneficiaries. Further, the appreciation of accounts and property is excluded from the trust owner’s taxable estate.

How an Intentionally Defective Grantor Trust Works

Typically used by wealthy families to preserve intergenerational wealth, IDGTs are a type of irrevocable trust best suited to holding appreciating assets, such as real estate and securities.

These assets are held outside of the grantor’s estate for transfer tax purposes (gift and estate tax), but for federal income tax purposes, they are treated as though they are owned by the grantor. Thus, the grantor pays income tax on the appreciation of the assets placed in the trust, but the appreciation of those assets is excluded from the grantor’s estate, which amounts to a tax-free gift to the trust. In other words, once the assets are placed in the trust, their value is effectively frozen. Any appreciation that occurs does so outside of the grantor’s estate.

The “defective” part of this arrangement is the intentional inclusion of a right of power that results in the grantor being treated as the trust owner from an […]

On the Net2023-02-25T13:06:37-08:00December 7th, 2022|Asset Protection Trusts, Estate Planning, Gifts, Trusts|

Spousal Lifetime Access Trusts: What You Should Know

No one wants to pay more taxes than they have to. To carry out this objective, many people search for the perfect estate planning tool that will allow them to control as much of their money and property as possible while reducing the amount they or their loved ones will have to pay the government. If you have looked for the tax-saving estate planning tools, chances are you might have come across the spousal lifetime access trust (SLAT). Here are some important things you should know before you settle on this tool as your estate planning solution.

What is a spousal lifetime access trust?

A SLAT is a type of irrevocable trust created by one spouse (trustmaker spouse) for the benefit of the other spouse (beneficiary spouse) that is used to transfer money and property out of the trustmaker spouse’s estate. This strategy allows married couples to take advantage of their lifetime gift and estate tax exclusion amounts by having the trustmaker spouse make sizable, permanent gifts to the SLAT that decrease the value of their estate while maintaining some limited access to the money and property that is gifted for the beneficiary spouse’s benefit.

How does it work?

The trustmaker spouse gifts money or property (of which they are the sole owner) to the SLAT for the benefit of the beneficiary spouse. If the couple resides in a community property state, they will likely need to convert community property into separate property through a partition agreement. The trustmaker spouse reports the gift on a gift tax return. The beneficiary spouse can receive distributions from the trust, from which the trustmaker spouse may also indirectly benefit. Upon the death […]

On the Net2023-02-25T12:34:37-08:00November 15th, 2022|Asset Protection Trusts, Beneficiaries, Estate Planning, FAQ, Peace of Mind, Spousal Lifetime Asset Trusts, Trusts|

An Introduction to Dynasty Trusts

When people create estate plans, they typically focus on handing down their money and property to their children, grandchildren, and other living heirs. But some people want to leave behind a more enduring legacy. For those interested in multigenerational wealth transfer, a dynasty trust could be the answer.

A dynasty trust is an irrevocable trust that offers the tax minimization and asset protection benefits of other types of trusts, but unlike a trust that ends with outright distributions to your children or grandchildren, a dynasty trust can span more than two generations. Also known as a perpetual trust, a dynasty trust theoretically can last forever—or at least for as long as trust money and property remain. Because the trust could last for many years, and the rules generally cannot be changed once the trust is created, a dynasty trust must be set up with great care.

How Does a Dynasty Trust Work?

A dynasty trust starts the same way as any other trust. The trust’s creator (i.e., the grantor) transfers money and property into the trust, either during their lifetime or at the time of their death, in which case the trust is a testamentary dynasty trust. Regardless, as an irrevocable trust, once the dynasty trust is funded, it is set in stone. It cannot be revoked, and the rules the grantor sets for the trust can only be altered under certain state statutes governing trust modifications.

Who Should Serve as Trustee of a Dynasty Trust?

One role that the grantor must seriously consider is who will act as the trustee. It is common for the grantor of a dynasty trust to name an independent trustee, such as […]

On the Net2023-02-25T13:42:24-08:00October 25th, 2022|Asset Protection Trusts, Beneficiaries, Estate Planning, Trusts|

Will Our Child Have to Handle Multiple Trusts after Our Deaths?

When a married couple creates an estate plan using a revocable living trust, they have the option of creating a single joint trust or two separate individual trusts. While the pros and cons of each are beyond the scope of this article, spouses may choose to create separate trusts for a variety of reasons including the following:

the desire to leave property to different beneficiaries or for greater asset protection from the financial risks of one spouse
the ability to keep inherited or individually owned property separate from jointly acquired property, or
the need for greater flexibility or more certainty with respect to tax planning after the death of the first spouse.

Whatever the reasons for creating separate trusts, when the ultimate beneficiary is the same for both spouses’ trusts (often the couple’s child or children), the question that inevitably arises is whether the beneficiary of these separate trusts will always have multiple trusts to deal with? Keeping track of the property owned and invested by each trust and filing tax returns for multiple trusts can be an administrative headache. The good news is that, in general, if multiple trusts have similar terms and neither the trust agreement nor state law prohibit the consolidation of the trusts, then the trusts can usually be combined into one.

Under section 417 of the Uniform Trust Code (UTC), which has been adopted (either completely or in some form) in thirty-five states and the District of Columbia^[1] as of the date of this writing, a trustee, after giving notice to the qualified beneficiaries, may combine two or more trusts into a single trust, “if the result does not impair rights of […]

On the Net2023-02-25T13:49:21-08:00October 20th, 2022|Asset Protection Trusts, Beneficiaries, Estate Planning, Trusts|

Should You Put Your Home in a Trust?

Simpleshowing's article discusses the pros and cons of putting your home in a revocable living trust.

“Once you become a homeowner, estate planning needs to include what will happen to your house after you pass away. If you don’t put those intentions in writing, your intended recipient may have to spend a lot of time and money in order for that to happen, or they could even end up losing it altogether. This is why you may want to put your home in a trust.”

On the Net2021-11-02T10:42:50-07:00November 2nd, 2021|Estate Planning, Trusts|

Do You Need a Trust?

Charles Schwab asked three of their own professionals important questions regarding the differences between wills and trusts.

A trust is a fiduciary arrangement that specifies how your assets are to be distributed, usually without the involvement of a probate court. They can be structured to take effect before death, after death, or in case of incapacitation. In contrast, wills take effect only upon death and typically need to be authenticated by a probate court, which can take time and involve additional costs.

Trusts can be arranged to accomplish a variety of different goals. For example, you can use a trust to transfer property, help minimize estate taxes, preserve assets for minors until they are adults, or benefit a charity.

Richard Keyt2021-11-05T15:21:20-07:00October 6th, 2021|Common Problems, Estate Planning, Estate Planning for Singles, Peace of Mind, Trusts, Wills|

How to Give Assets to Loved Ones in an Asset Protected Trust

Most of our estate planning clients create a trust because they want to leave assets to children and loved ones in a trust that protects the assets from the child's or loved one's creditors and ex-spouses. When we are hired to prepare an estate plan with a trust we prepare a revocable living trust that contains language that causes the successor trustee to create a beneficiary controlled asset protected trust (a BCAPT) for each child or loved one on the death of the trust maker or death of the second spouse if the trust is a joint trust. See the contents and prices of our two estate plan packages.

If the future beneficiary of the BCAPT ever got sued the creditor could not touch the assets in the trust. If the future beneficiary were to marry and get divorced the ex-spouse could not get any of the assets in the trust. You cannot predict if your child or loved one will ever have a creditor or ex-spouse problem, but it is prudent to protect against these two problems.

It is also possible to create a BCAPT while you are alive if you want to transfer valuable assets to your child or loved one now before you die. We prepare BCAPTs for people who want to give valuable assets to their children or loved ones now and protect the assets from their future creditors and ex-spouses. To learn more about the BCAPT see my article called “Beneficiary Controlled Asset Protected Trusts.”

Richard Keyt2023-03-04T09:07:58-08:00August 21st, 2021|Asset Protection Trusts, Estate Planning, Trusts|

How to Set Up a Trust Fund if You’re Not Rich

Investopedia discusses how to set up a trust fund if you're not rich:

Trust funds are designed to allow a person's money to continue to be used in specific ways after they pass away, and to avoid their estate going through probate court (a time-consuming and expensive legal process). But trusts aren't only useful for ultra-high-net-worth individuals, the middle-class can use trust funds as well, where setting one up isn't out of financial reach.

Richard Keyt2021-11-05T14:54:43-07:00December 22nd, 2020|Estate Planning, Estate Planning for Singles, Peace of Mind, Trusts|

Do Domestic Asset Protection Trusts Work?

A domestic asset protection trust (DAPT) is an irrevocable trust established under the laws of a state that adopted a DAPT statute. Currently 17 states have passed DAPT statutes. These states are Alaska, Delaware, Hawaii, Michigan, Mississippi, Missouri, Nevada, New Hampshire, Ohio, Oklahoma, Rhode Island, South Dakota, Tennessee, Utah, Virginia, West Virginia and Wyoming. Unfortunately Arizona does not yet have a DAPT statute.

A DAPT is an irrevocable trust that allows the trust maker to be a discretionary beneficiary and the trust's assets are protected against claims made by the trust maker's creditors. The trustmaker retains access to the trust's assets, but the assets are protected against many types of creditor claims.

A lawyer on a list serve I follow wrote:

“Why do people still push DAPTs? There are so many cases defeating them. And they are part of the bankruptcy estate unless they've been in existence for 10 years. I feel like it's the 1970s again, and everyone is telling each other how stupid seat belts are and that cigarettes are healthy and help with weight loss. Talking about Wyoming vs. South Dakota vs. Alaska vs. Nevada is like discussing which brand cigarette is healthier. None of them are good. And there are much better options that have tons of case law backing them … like special power of appointment trusts.”

The following text was written by Nevada DAPT attorney Steve Oshins in response to the above comment. Steve is a friend and my choice as the best domestic asset protection trust lawyer in the United States.

“I substantially agree with your comments about regular DAPTs for residents of non-DAPT states. However, not for residents […]

On the Net2020-11-05T04:01:52-08:00November 5th, 2020|Asset Protection Trusts, Estate Planning, Trusts|

Can I Give My Kids $15,000 a Year?

Chambliss: “If you have it to give, you certainly can, but there may be consequences should you apply for Medicaid long-term care coverage within five years after each gift. The $15,000 figure is the amount of the current gift tax exclusion (for 2018), meaning that any person who gives away $15,000 or less to any one individual in one particular year does not have to report the gift to the IRS, and you can give this amount to as many people as you like. If you give away more than $15,000 to any one person in a single year (other than your spouse), you will have to file a gift tax return. However, this does not necessarily mean you’ll pay a gift tax. You’ll have to pay a tax only if your reportable gifts total more than $11.18 million (2018 figure) during your lifetime.”

On the Net2018-11-06T14:21:14-08:00November 9th, 2018|Estate Planning, Estate Tax, Gifts, Trusts|

How to make sure your estate plan won’t cause a family fight

Market Watch: “Creating an estate plan is a gift to the people you leave behind. By expressing your wishes, you’re trying to guide your loved ones at a difficult, emotional time. All too often, though, well-meaning people do things destined to create discord, rancor and resentment among their heirs. What looks good on paper may play out disastrously in real life, says estate and trust attorney Marve Ann Alaimo, partner at Porter Wright Morris & Arthur in Naples, Florida. “People want to think everybody will be nice and do right,” Alaimo says. “Human nature is not always that way.” You can reduce the chances of family discord by doing these four things:”

On the Net2018-11-06T10:51:10-08:00November 8th, 2018|Estate Fights, Estate Planning, Trusts, Wills|

Disabled daughter of ‘Dandy Don’ Meredith at center of allegations of abuse, neglect since his death

FOX: “The daughter of the late legendary football star and sportscaster “Dandy Don” Meredith dealt with abuse and neglect after her stepmother took guardianship of her trust following Meredith's death, relatives said. Meredith, a former Dallas Cowboys quarterback, “Monday Night Football” commentator and TV pitchman who often referred to himself as “Jeff and Hazel's baby boy,” set up a trust to ensure lifetime care for his youngest child, Heather, now 49, who was born with physical and intellectual disabilities.”

On the Net2018-11-06T10:02:36-08:00November 6th, 2018|Estate Planning, Rich & Famous, Special Needs Trusts, Trusts|

Six important tips for estate planning success

Moneyweb: “The increased Value-Added Tax (VAT) rate – announced in the 2018 National Budget – dominated headlines for weeks thereafter, but this is not the only tax change affecting consumers and investors. Many tax changes also affect estate planning and the cost of estate administration. I asked Brenthurst’s Fiduciary Services Expert, Rozanne Heystek-Potgieter, for her top tips to navigate this. We compiled a list of six important issues to consider when navigating the complex field of deceased estate administration. More importantly, we have included tips on how to prepare for the inevitable and re-evaluate your existing will, the liquidity of your estate and estate planning goals in general.”

On the Net2018-10-15T14:46:06-07:00October 18th, 2018|Estate Planning, Estate Planning for Singles, Trusts, Wills|