SUMMARY OF THE BENEFITS OF A LIVING TRUST
WITH YOUR FULLY FUNDED LIVING TRUST ESTATE PLAN, you can take steps to help assure that you and your loved ones can:
1. AVOID PROBATE upon the death of both the 1st and 2nd spouse.
2. AVOID CONSERVATORSHIPS as to both the husband and wife in the event of disability.
3. Offer CREDITOR PROTECTION for your beneficiaries to help assure that the assets you will leave them may not be taken from them by creditors or lawsuits as long as the monies are in the trust.
4. Help to secure FAILED MARRIAGE PROTECTION for your children.
5. Help to make certain that your ASSETS PASS QUICKLY to your loved ones upon your death, avoiding most of the delays involved in the probate process.
6. Take steps to AVOID PUBLICITY due to the private nature of the transfer to your loved ones.
7. MAINTAIN CONTROL of your own financial affairs in the future, since you will be acting as your own trustees.
8. MAINTAIN FLEXIBILITY since you can change your living trust in the future while you are both alive.
9. Establish SPECIAL NEEDS CHILD PROTECTION by creating a Spray Trust for your children or grandchildren, wherein they may receive a portion of the assets initially and balance a few years thereafter.
10. Set up a COLLEGE TRUST for your children and any and all future grandchildren.
11. Help prevent WILL CONTESTS.
12. AVOID PROBATE IN OTHER STATES for any out of state real estate you may own, either now or in the future.
13. AVOID COSTLY LIFE SUPPORT with your Living Will, under circumstances where artificial life support would serve only to artificially prolong the dying process.
14. Arrange to PREVENT YOUR ESTATE FROM BEING TIED UP IN A CONSERVATORSHIP in future years when the assets pass to your children or grandchildren.
15. SAVE FEDERAL ESTATE TAXES - Up to $200,000 or more, with special tax planning which can be added to your Living Trust.
16. Help AVOID unnecessary placement in a NURSING HOME, as to both the husband and the wife in the event of disability with special disability planning which can be added to your Living Trust.
A Living Trust gives you the opportunity to save money, take control of your life, and protect yourself and your loved ones.
WHAT ARE MY ESTATE PLANNING OPTIONS?
There are a number of options each of us has in planning our estates ranging from doing nothing to creating a very advanced estate plan. Following is a list of the most common types of estate plans and the advantages and disadvantages of each.
I. DO NOTHING - THE INTESTACY LAWS
What many people don't understand is that even if they take no affirmative steps toward planning their estates, they still have an estate plan, it's called the "Oklahoma Intestacy Laws." If you have not prepared a will, trust or other formal testamentary document setting out the distribution of your estate at death, by statute, the State of Oklahoma has written a will for you establishing the distribution of your estate.
1. This plan takes no effort. The Intestacy Laws are a default and control only when the deceased has not executed a valid testamentary instrument such as a will or trust.
2. This plan is free. It requires no fees or costs.
1. In essence, the State of Oklahoma intestacy plan is a one-size-fits-all will. More than likely, the intestacy laws will not distribute your estate assets in the manner you wanted.
2. Intestacy guarantees probate. In order for the your assets to be distributed, a court action known as a probate must be initiated. Unfortunately, probate can be very time consuming and expensive.
3. Intestacy offers no lifetime protection. If during your lifetime you become incapacitated, a court action, known as a guardianship, will be required in order to authorize someone to act on your behalf and to manage your affairs. Again, guardianships can be time consuming and expensive.
4. Intestacy offers no estate tax planning. Therefore, if your estate exceeds the amount of the current estate tax exemption (e.g.$650,000 per individual in 1999) your estate will likely owe estate taxes at the rate of 37% to 55% of the value of your gross estate that exceed the exemption amount.
II. SPEND IT ALL
Another option available to each of us is to spend all our estate assets prior to our deaths.
1. This type plan is easy to implement. You're required to give no real thought to the distribution of your assets after your death because your intent is to have nothing left at death.
2. This type plan is inexpensive to set up because no fees or costs are involved.
1. Unless you are a psychic, or can afford to call one, it is virtually impossible for you to plan your spending so that your estate will support you until you die. Under this estate plan, there is a good chance that all of your assets will be liquidated prior to your death possibly leaving you impoverished for the last days, weeks, months, or years of your life.
2. Most of us want to leave something to our loved ones to increase their standard of living or just to show them we love them. Of course under this plan, you would have nothing is left to leave to your loved ones.
3. If there are any assets of your estate remaining at your death, these assets would be probated under the intestacy laws resulting in the disadvantages discussed under the "Do Nothing" section.
III. JOINT TENANCY
Another estate planning option is to title all of your assets in joint tenancy. Joint tenancy is a way of holding title to property in more than one name such that upon your death, the surviving tenant(s) takes your share of the property.
1. Joint tenancy is simple to create. It merely requires you title or re-title your property in "Joint Tenancy."
2. Joint tenancy avoids probate. Joint tenancy property passes to your surviving joint tenant(s) by operation of law and does not require probate.
1. If the proper language is not used, joint tenancy is not effective.
2. Upon the death of the last joint tenant, probate is guaranteed.
3. Property passed by joint tenancy, rather than by will or trust, may not get a "Step Up in Basis" for capital gains tax purposes. Therefore, income taxes are triggered when the surviving joint tenant sells the property.
4. Property held in joint tenancy is subject to the other joint tenant's creditors and judgments.
5. If you put property in joint tenancy, you loose exclusive control of that property. In order to sell or mortgage your property you will need the other join tenant's approval. Also, if the other joint tenant is married to someone other than yourself, you will need the spouse's approval.
6. Joint tenancy may unintentionally disinherit one or more of your heirs. Joint tenancy supersedes and takes precedence over anything in a will or trust. Therefore if property is in joint tenancy, your will or trust will not control the distribution of that property.
Although living trusts are rapidly gaining acceptance as the preferred basic estate planning tool, wills are still the most common instrument by which estates are distributed after death. Wills are favored by many attorneys because of the attorney's lack of knowledge regarding the advantages of trusts and/or the attorney's lack of expertise in drafting such a trust, combined with the fact that a will gives the drafting attorney an opportunity to collect two fees, the will fee and the probate fee after the death of the client.
1. Wills are fairly inexpensive to create.
2. In theory, wills distribute property in the manner you choose.
3. Wills require no lifetime maintenance.
1. Wills usually guarantee your estate will go through probate. This will result in excessive probate fees and costs, unnecessary stress on loved ones, as well as time delays.
2. Between joint tenancy taking priority over the terms of your will and actual will challenges, it is not uncommon for your estate to be distributed in a manner inconsistent with your intent.
3. If you become incapacitated, your will won't offer any lifetime protection against guardianship.
4. Simple wills offer no estate tax benefits. By executing a simple will, you guarantee paying the maximum in estate taxes.
5. Simple wills will not efficiently control whom, when, and how you want your estate to be distributed.
V. LIVING TRUST
Fortunately, the Living Trust (hereafter the "Trust") is available as a better solution to the other estate planning options previously discussed. The Trust is basically a contract by which you appoint someone to take care of your estate after you become disabled or die. The Trust avoids many, if not all, of the disadvantages of the other estate planning options. Although the will is still the most common affirmative estate planning tool, the Trust, for obvious reasons, is rapidly gaining in popularity.
1. The average cost to create a Trust is greater than the average cost to create a will. However, the costs to administrate a Trust upon disability or death are usually less than a will because a Trust avoids probate fees, guardianship fees, and minimizes, if not eliminates, estate taxes.
2. The creation of a Trust requires somewhat more effort from you than a will. To properly set up a Trust, you, with the assistance of your attorney, must generate an accurate list of the property you own.
1. The Trust, properly drafted and funded, will eliminate the necessity for probate saving your estate large probate, attorney, and administrative fees.
2. The Trust will protect against guardianship by designating "successor trustees" that will take over management of your financial affairs if you become incapacitated.
3. The Trust will efficiently distribute your estate to whom you want, how you want, and when you want while greatly reducing the possibility of a successful challenge.
4. The Trust can minimize, if not eliminate, estate taxes.
VII. ADVANCED ESTATE PLANNING
For estates over $1,300,000 for married couples, in 1999, or over $650,000 for single persons,in 1999, more advanced estate planning alternatives are available to eliminate or minimize estate tax obligations. Discussions of advanced estate planning options are very specific to each client and should be carefully reviewed on a one-on-one basis; however, for your information, following are a few of the most common approaches:
1. Family Limited Partnerships - Family assets are put into a partnership . By definition, sale or transfer of partnership assets are restricted. When restrictions are placed on an asset, the marketability of that asset is reduced ( called "Discounting"). Generally, the assets of an estate put into a partnership such as this will receive a discount of twenty-five percent (25%) or greater, reducing the size of an estate for estate tax computation purposes.
2. Irrevocable Life Insurance Trust - Your life insurance policies are placed in an irrevocable trust (cannot be amended or revoked). At your death, the insurance proceeds from your policies are not includable in your estate for estate tax purposes. This approach is commonly used to fund payment of estate taxes that may be due.
3. Qualified Personal Residence Trust - Your residence is placed in an irrevocable trust. After a period of time, your residence is no longer considered an asset of your estate for estate tax purposes. This approach is commonly used for people who have taxable estates and whose homes have substantial value.
4. Charitable Remainder Trust - You recieve a annuity from the property (property that has markedly increased in value) is placed in an irrevocable trust under the terms of which a charity of your choice is designated as the beneficiary. You retain the income stream from the property some or all of which may be used to pay for a life insurance policy which may equal the value of the asset. The life insurance policy may be placed in an Irrevocable Life Insurance Trust so that the proceeds are not taxable to your estate. Under this approach, neither capital gains on the increase in the value of the property, nor estate taxes on the value of the property are due.