Farmers, Don’t Make These Five Estate Mistakes
Several avoidable mistakes have been made by too many farm families.

Farmers, Don’t Make These Five Estate Mistakes

Estate planning for farmers and ranchers can involve many pitfalls for the unwary.

First mistake: some farmers think they don’t have to do anything because the federal estate tax exemption is so high, and their net worth is well under the limit. However, just because the estate tax exemption has doubled until 2025, does not mean they don’t need estate planning. The article “5 Estate Planning Mistakes You Don’t Want To Make” from Ag Web takes readers through some big mistakes that have been made by farm families in the past.

As far as we know, the estate exemption will only be this high for a limited period of time. When the Tax Act expires in 2025, the exemption will be back down to $5.5 million per person and $11 million for a couple under current law. Moreover, there is a Senate Bill out currently that would impose a separate California state estate tax on estates over $3.5 Million for individuals and $7 million for couples.

Second, farm families can make a huge mistake when they insist on treating their children the same. Fair does not always mean equal. Think about who is working on the farm, and who is not. Who is going to do a better job maintaining the family legacy, and who has already left to live in another state? Be mindful of the difference in your children’s values, and talk with them, both individually and in a group, so they know what your intentions are.

Third, you cannot simply title your property so your kids and your spouse own it together and it passes to them when you die. Although it sounds nice and simple, it’s a huge mistake. People think they want to do this to avoid probate, but it creates many other problems. For one thing, if you just add names on property and there is no bill of sale, you create a taxable gift. Perhaps more concerning is that the gift means that children will receive a carryover cost basis in the property, meaning they could be taxed on a very large capital gain if they later sell (which could have been avoided if they inherited the property instead).

Fourth, the plan to “sell off the farm, when I retire” plan is a terrible tax burden to place on yourself. If you sell the last crop and auction off the equipment, there will be a big income tax bite. Farmers tend not to pay a lot of income taxes. They sell this year’s grain next year, and they deduct next year’s expenses this year. They buy equipment in December and then depreciate it, but then when you do a retirement sell off, you get all the taxes that you’ve been pushing away all at once.

Fifth is the one that dooms so many families, both farmers and non-farmers alike. You can’t simply copy your neighbor’s estate plan and hope it will work. Every family is different, and no matter how small your town, everybody does not know the exact details of everybody else’s business. The farmer down the road may do a lifetime gifting that works for them—and lands your family in an un-fixable situation.

Estate planning is very precise, and every family has its own needs. Talk with an estate planning attorney who has experience with farm families and succession plans.

Reference: Ag Web (Jan. 15, 2019) “5 Estate Planning Mistakes You Don’t Want To Make”

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Estate Planning to Pass Along Your Prop 13 Tax Base
Heirs can use their inherited properties as second homes or rent them out for many times more than what they’re paying in Prop. 13-controlled property taxes if the estate plan is prepared correctly.

Estate Planning to Pass Along Your Prop 13 Tax Base

An important and often overlooked estate planning goal is to structure our estate plan in a way that allows our loved ones to inherit our current (and often relatively low) property tax base. Let’s face it, a major factor these days in housing related expenses is the cost of our property taxes. Our property taxes are based on our home’s assessed value from the county accessor’s office. The property tax rate is applied to its assessed value and viola, the annual tax is due. Therefore, we want to be sure and do whatever we can to keep the assessed value of our real estate as low as possible. (Note, this has nothing to do with “market value,” which is what a willing buyer would pay for a given piece of real estate.)

California Proposition 13 helped taxpayers a great deal by rolling back property values to their 1976 levels. Going forward, that base is preserved (subject to a maximum 2% annual increase) so long as the property is not sold or transferred in a way that triggers a reassessment. If it is sold, the property will be reassessed to its current value based on today, and property taxes typically go up, sometimes considerably. My home, for instance, was subject to an annual property tax increase of over $5,000 when we bought it from the builder.

When it comes to estate planning, we want to be sure and avoid having our loved ones inherit property in a way that causes the property to be reassessed. Fortunately, under California Revenue and Taxation Code Section 62(d) California property owners can transfer their real estate to a revocable trust without triggering a reassessment. In addition, pursuant to Revenue and Taxation Code Section 63, married spouses can transfer real estate to each other during lifetime, and at death through a will or trust, without triggering a reassessment. In addition, California Proposition 58 provides that, when a parent transfers property to a child, whether as a gift during lifetime, or through a will or trust at death, the transfer is exempt from reassessment. The exemption may be applied to a principal residence, and up to $1,000,000 in additional property. A claim must be filed for the parent child exemption to apply. In addition, California Proposition 193 provides for an exemption from reassessment if a grandparent transfers property to a grandchild (either during lifetime or at death through a will or trust) if the grandchild’s parent was deceased.

Having a low tax base on inherited property can be a tremendous benefit, as reported by the Los Angeles Times recently, who noted that many heirs are using their inherited properties as second homes or renting them out for many times more than what they’re paying in Prop. 13-controlled property taxes

Unfortunately, when drafting estate planning documents, attorneys often include provisions that cause property to be reassessed when it could have otherwise been exempt from reassessment. Such provisions include common provisions where a trustee has the express authorization (discretion) to sprinkle or spray income from a family trust to members of the family who aren’t exempt from reassessment (such as grandchildren when the grandchild’s parent is still living, nephews and nieces, etc.) or when a life estate is created in favor of someone who is not exempt from reassessment.

Based on the opportunities and pitfalls that exist, it is important that all estate planning documents be analyzed and prepared carefully by an attorney with knowledge in the area of California real property taxation.

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Top 3 Reasons to Have a Living Trust
A trust benefits family wealth in several ways, both during lifetime and after someone passes away.

Top 3 Reasons to Have a Living Trust

There are many reasons to have a Living Trust. Living trusts (also called revocable trusts and revocable living trusts) are a great estate planning option for people who own real estate or any significant investments, for those with more complicated family situations (including concerns of an heir who may challenge their estate plan), those with concerns of diminished capacity in later years, or those who simply value privacy over their affairs and want to ensure a smooth and efficient transfer of their assets when they are gone.

Forbes’ recent article, “Revocable Trusts And Why Should You Consider One,” explains that a living trust is created during your lifetime. On the other hand, a “testamentary trust” is created at death through a will (an inefficient option in my opinion). A living trust provides for the seamless transfer of assets upon your death, and names successor trustees to manage your property if you can’t. Best of all, this is all accomplished privately and with relatively little cost or delay.

Here are the top 3 reasons to consider a living trust, in detail:

1. A Living Trust Keeps Things Simple During Your Lifetime. A revocable trust is a flexible vehicle with few restrictions during your lifetime.  You usually designate yourself as the trustee and maintain control over the trust’s assets. You can move assets into or out of the trust by re-titling them. This movement has no income or other tax consequences, nor is it a problem to distribute income or assets from the trust to fund your current lifestyle. In other words, it’s pretty much the same as it is now while you are alive and well.

2. A Living Trust is the Best Way to Handle Future Incapacity. Another reason for creating a revocable trust is the possibility of future diminished mental capacity, at which time it may be necessary for another person, like a spouse or child, to help with your financial affairs. A co-trustee can pay bills and otherwise control the trust’s assets. This can also give you financial privacy, by eliminating the need for a court-ordered conservatorship or guardianship.

3. A Living Trust is Best Way to Transfer Property at Death. When you pass away, a living trust has some considerable advantages over having your entire estate flow through probate (which is the court process typically required to transfer assets in your name if you die without a trust). The primary advantages of having your assets avoid probate are the ease and speed of asset transfers, and the lower administrative costs. Another advantage of a trust is privacy. A probated will is a public document that anyone can view, whereas a trust remains private and outside of the public domain.

Even with a revocable trust however, you still need a will (referred to as a “pour-over will”) as a safety net in case you fail to transfer certain assets to your trust during your lifetime (whether intentionally or by oversight). The pour-over will names your revocable trust as the beneficiary of your estate.

Talk to an experienced estate planning attorney about the best options for your situation to protect your estate and provide you with peace of mind that your family will receive what you intend for them to inherit, with the least possible uncertainty, cost, and stress.

Reference: Forbes (March 11, 2019) “Revocable Trusts And Why Should You Consider One”

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Avoiding Probate in California
Avoiding probate is an important estate planning goal of many California individuals and families.

Avoiding Probate in California

Avoiding probate is a major estate planning objective of many California individuals and families. Probate is the legal court process necessary to recognize a person’s death, and administer their estate according to the terms of their will, or according to the laws of intestate succession of their was no will.

The probate process in California can be lengthy and expensive for those who have a will, and even more so for those without one. For example, the median value of a Bay Area home in January of 2019 (as supported by this article in the San Francisco Chronicle) was $730,000. The cost to transfer that home through the probate process can easily cost over $35,000 in attorney and executor fees, regardless of whether there is a mortgage on the property. For San Francisco, where the median price in January 2019 was $1,150,000, it can cost over $52,000 (again, even if mortgaged up to its eyeballs). Lower priced homes are costly as well, the cost to probate a $400,000 house can be well over $22,000. And that’s just for the house. Throw in the value of personal property such as furniture and automobiles, bank accounts and investments in a deceased person’s name, and all those numbers will increase, possibly considerably.

Then there is the time factor. A probate in California will take anywhere from 6 months (best case scenario) to up to 2 years or more.

The above gives you an idea of why avoiding probate in California is so important. The balance of this article describes ways to avoid probate. Probate can be avoided by taking some simple steps while you are alive to spare your family the hassle. It’s best to confer with a qualified estate planning attorney to review your personal situation and determine the best combination of strategies.

Assets that may not be subject to probate:

Certain assets may not have to be distributed through probate and are transferred directly to the beneficiary who is named following a death (if there is a named beneficiary that is – otherwise they will potentially be subject to probate). These non-probate estate assets include the following:

  • Life Insurance death benefits
  • 401(k) accounts
  • IRAs
  • Annuities
  • Trust assets
  • Money in Transfer on Death (TOD) or Payable on Death (POD) accounts
  • Property owned in joint tenancy with a right of survivorship (but only at the first owner’s death)

Using Living Trusts to Avoid Probate:

You can form a revocable living trust to avoid probate for virtually any asset you own, including but not limited to real estate, bank accounts, stocks and bonds, business interests and vehicles. In order for a living trust to be effective, the title of the assets in the trust must be changed from your individual name into the name of the trust. Because the trust is created during your life, the living trust is a twofold plan. It directs the administration of assets during your lifetime and it directs the disposition of your estate at the time of your death, allowing the trust beneficiaries to receive the assets without probate court proceedings.

To learn more about living trusts, read this article by the author: Should I Have a Trust?

Avoiding probate by taking responsibility for the transfer of your assets is easily accomplished by working with a qualified estate planning attorney. The money you spend will be a drop in the bucket compared to the costs saved down the line in attorney’s fees and possibly in estate and/or income taxes as well.

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How Can Life Insurance Be Used In Estate Planning?

Life insurance is great tool for estate planning. However, there are nuances that sometimes get overlooked. WTOP’s recent article, “4 questions to ask to maximize your life insurance benefits” focuses on key questions that need to be asked about life insurance.

Assessing the Need Properly. The amount of life insurance you need for estate planning is unique to each person’s financial and family circumstances. Remember that life insurance death benefits are used for more than just replacing immediate income from the family breadwinners. They can also pay off mortgage and other debts, cover college tuition, create a retirement nest egg for a surviving spouse, fund a business transfer, or be an important estate planning tool for paying estate and other taxes.

Families of all kinds need life insurance, including non-nuclear families and single income families. In the event of divorce with future child and spousal support obligations, the divorce settlement agreement should say that the ex-spouse, as payor, must maintain a sufficient life insurance policy naming the payee spouse, as the recipient-beneficiary, to cover all future commitments in the event of a premature death. The payee should also be notified by the insurance company of any policy changes or lapses, because she (or he) may be depending on this money if something were to happen. Stay-at-home spouses and caregivers also need life insurance, because replacing their duties could incur many unexpected costs for the survivor.

Up-To-Date Beneficiaries. Here are some do’s and don’ts, when naming a beneficiary:

  • DO designate named individuals or a trust to avoid probate on the death benefits of life insurance;
  • DON’T designate your estate, because this will lead to proceeds becoming involved in probate and allow creditors to place claims against the estate;
  • DON’T designate minors as beneficiaries, because assets will be paid outright to them as soon as they reach the age of majority in their state; and
  • DON’T designate a special-needs adult or child directly, because this may disqualify them from government benefits.

Trusts. Designating a trust as beneficiary for minor children, special-needs individuals, or a person with limited financial wherewithal lets you maintain control. Work with an estate attorney to establish the appropriate trust for your intended purpose. Remember however, if you’re the trust owner and the insured, the death benefit will be included in your gross estate for tax purposes. That means, for people with taxable estates who are buying life insurance for the purpose of having guaranteed liquid funds available to pay future estate taxes when they die, they will be getting taxed on the very life insurance proceeds they were counting on to pay taxes with in the first place. However, having life insurance owned by an irrevocable life insurance trust (ILIT) removes the death benefit proceeds from the insured’s estate (unless the three-year-look-back rule applies to policies issued before the ILIT is in place). Having life insurance owned by an ILIT may be particularly important in California in the coming years if Senate Bill 378 becomes law, which would impose a 40% tax on estates above $3.5 million, because life insurance proceeds won’t count towards that $3.5 million if owned by a properly drafted and maintained ILIT.

Policy Exclusions. Be aware of the following universal exclusions if they apply to your situation, as that may prevent your beneficiaries from receiving their intended death benefits:

  • The contestability period is a predetermined time period (usually two years from the date of issuance) where an insurance company can contest any information you submitted, and even cancel coverage or deny a claim, if there were misstatements or omissions made on the life insurance application. If you die during the contestability period and it’s shown that you made misrepresentations on your application, your claim can be denied—even if the cause of death had nothing to do with the actual misrepresentation.
  • Material misrepresentation is intentionally withholding material information or providing false information to the insurance company, that would’ve resulted in them not insuring you or insuring you under different terms. It extends during the entire policy term, because life insurance claims can be denied after the contestability period ends if fraud was committed to obtain the policy.
  • A suicide clause is included in nearly all life insurance contracts. The company won’t pay the death benefit and return premiums if the insured commits suicide within the first two years of the policy.

Some exclusions that aren’t universal but may be in the fine print of your life insurance policy include: illegal activity/committing a crime, dangerous activities (like sky diving or car racing), alcohol and/or drug use, and an aviation exclusion for private plane travel.

Using life insurance in estate planning is a great tool to protect your loved ones. So remember to review your life insurance needs regularly, and to update beneficiaries (and potentially even ownership of the policy) as warranted by your personal situation.

Reference: WTOP (March 6, 2019) “4 questions to ask to maximize your life insurance benefits”

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Estate Planning if You’re Childless

Estate planning is a very personal process. If you’re childless, it’s actually much more important to have an estate plan than you might realize. When a person has no children or close relatives (other than perhaps a spouse), the decisions needed to create an estate plan can be overwhelming. Kiplinger’s recent article, “No Children? Why You Still Need an Estate Plan,” provides some ideas:

Incapacity Planning Documents. Everyone should have an advance healthcare directive and a durable power of attorney for legal and financial decisions. After all, these documents are about you; they let you decide who will be in charge of your medical and legal affairs in the event you are no longer able to do so yourself. If you become incapacitated without these documents, you may become subject to a conservatorship proceeding where a judge appoints someone (who you may or may not know) to make these decisions for you.

Living Trusts (or at least a Will). A living trust is a legal document that can be used to manage many of your assets during your life and act as a substitute for your will when you die, giving you control over who will receive your assets when you pass on. A trust has two big advantages: it helps avoid probate (think court hearings and notices to remote relatives about your property) at your death and allows you to distribute your assets privately and at minimal cost and with little delay. Having a trust also helps with incapacity (even better than with the power of attorney document above) in that the trust document designates who can manage the property in your trust if you can’t do so yourself while you are still alive. When childless singles or couples die without a trust and have only a will, but no living trust, it offers no help if incapacity strikes, and a probate may be required at death, inviting in remote relatives that a person may not even have a relationship with in the event they want to contest the will. Worse yet, if a childless person dies without even having a will, those remote relatives could actually inherit your assets (as determined by the state intestacy laws). The best way to avoid these issues is to create a trust, which remains private and is inherently more difficult to challenge that a will.

For more information about whether a trust is right for you, check out this article.

Deciding What to Do with Your Assets. This can be a tough decision.  In my experience, when no children are involved, nieces and nephews are often named as beneficiaries, as well as cousins and siblings. Many also name friends, pets and charities (more on that below) or any combination of the above. Talk to your estate planning attorney to review the best way to leave your assets so that distant family members with whom you may have no real relationship (and who might otherwise inherit from you under state intestacy laws) will have difficulty contesting your decisions.

Charities. These can also be included in your estate plan. If the charitable gift is sizable, you may wish to contact the charity beforehand to be certain your gift is used in the way that makes you most comfortable (which you can then spell out in the terms of your trust or will). You may also wish to consider making charitable gifts from retirement accounts such as a 401(k) or IRA, since the charity will not have to pay income tax on that gift like a natural person would.

Pets. Your estate plan can also help establish who will take care of your pets when you’re no longer here. You can leave the pet and some money to a trusted friend or family member, or you can create a formal pet trust to provide for your pet. Either way, include important pets in your plan so they can be properly cared for if you are no longer able to do so.

When it comes to estate planning, you ultimately get to decide who will inherit your assets – but only if you take action. To be certain your wishes are executed as you intend, it is critical to have the proper planning in place to avoid probate and allow for an efficient transfer of our assets consistent with your values.

Reference: Kiplinger (February 11, 2019) “No Children? Why You Still Need an Estate Plan”

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Estate Planning for New Parents

Estate planning is something new parents need to put at the top of their must do list. I know you may be sleep-deprived, overwhelmed, and frazzled. But don’t let that become an excuse to put off your estate planning. Having a child dramatically changes one’s estate plan and makes having that plan all the more necessary, says ThinkAdvisor’s recent article, “5 Legacy Planning Basics for New Parents.”

Create a checklist—and set attainable dates to complete the items. Here are five things to put on that list:

  1. Will. This gives the probate court your instructions on who become your child’s guardian (backup parent) if something happens to both you and your spouse. It also details how your property will be left for your children and names people who manage it for their benefit until they are of age.
  2. Beneficiaries. Review your beneficiary designations for things such as bank accounts, life insurance and retirement accounts when you create your will, because you don’t want your will and beneficiary designations being in conflict. If there’s an issue, the beneficiary designation overrides the will, which might be a real problem.
  3. Trust. Created by an experienced estate planning attorney, a trust has some excellent benefits, particularly if you have young children. Everything in a trust is shielded from probate court. This avoids court fees and the hassle of lengthy and ongoing court management over your property. A trust also provides customization of when your children can receive property and what it can be used for. For more information on strategies for customizing trust terms for children, review this post by the author.
  4. Power of Attorney and Healthcare Directive. These are two separate documents, but they’re both used in the event you become incapacitated and unable to communicate. Power of attorney and health care agents make important financial and medical decisions when you’re incapable of doing so. Seriously, don’t go without these documents, as the court process that may be required in the event you fail to implement these documents (referred to as a conservatorship) can truly be a nightmare. For more information on a power of attorney, review this article, and for more information regarding healthcare directives, read this one.
  5. Life Insurance. Most people don’t think about purchasing life insurance until they have children. Therefore, if you haven’t thought about it, you’re not alone – but it’s time to get on it. If you are among the few who bought a policy pre-child, consider increasing the amount to replace the lost income your child will need if something happens to you.

A qualified estate planning attorney can help make accomplishing all of the above a breeze.

Reference: ThinkAdvisor (March 7, 2019) “5 Legacy Planning Basics for New Parents”

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Should I Put My Firearms in a “Gun Trust”?

If you own a gun or are a gun collector, although you likely have heard the term “gun trust,” you may not know what it is, how it works or how it can be of use in an estate plan.

Kiplinger’s recent article, “Own a Gun? Careful: You Might Need a Gun Trust,” explains that a gun trust is the common name for a revocable or irrevocable trust that’s created to take title to firearms.

Revocable trusts are used most often, because they can be changed during the lifetime of person who created the trust.

While it’s true that any legally owned weapon can be placed into a gun trust, these trusts are necessary for weapons that are classified under the National Firearms Act (NFA) Title II of the Gun Control Act of 1968. These include Title II weapons, such as a fully automatic machine gun, a short-barreled shotgun and a suppressor (“silencer”).

Why might a gun trust  be an important component of an estate plan? It’s very simple. If you own Title II weapons, the transport and transfer of ownership of such heavily regulated firearms can easily be a felony (without the owner or heir even realizing he or she is breaking the law).

A gun trust provides for an orderly transfer of the weapon upon the owner’s death to a family member or other beneficiary. However, the family member or beneficiary must submit to a background check and identification process before taking possession of the firearm.

An NFA Title II weapon, like a suppressor, can only be used by the person to whom it’s registered. Therefore, allowing a friend or family member to fire a few rounds with a Title II weapon at the local range is a felony! A gun trust however, allows for the use of the Title II weapon by multiple parties. Each party who will have access to and use of the weapon should be a co-trustee of the gun trust and must go through the same required background check and identification requirements.

An owner of a large collection of firearms may find it easier to transfer ownership of his or her weapons to a gun trust, even if the person doesn’t own any Title II weapons. There are several benefits to doing this, such as protecting your privacy, allowing for the disposition of your collection according to your wishes, and addressing the possibility of incapacity. A gun trust can also ease the entire process considerably. You don’t want to run afoul of the complex laws regarding the use and ownership of firearms, especially Title II firearms. Leaving a large collection of Title I weapons—or even a single Title II weapon—in an estate to be dealt with by an executor or trustee can be extremely troublesome. Fortunately, it’s avoidable with the use of a gun trust.

Speak to an estate planning attorney who has experience and understands the federal and state laws on the ownership and transfer requirements of all firearms.

Reference: Kiplinger (February 6, 2019) “Own a Gun? Careful: You Might Need a Gun Trust”

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California Estate Tax May Reach 2020 Ballot

Estate taxes have been less and less of a concern due to the steadily increasing exemption, which is currently $11.4 million per individual and $22.8 million for a married couple. However, that all may be changing for California residents come 2021.

A new Senate Bill, SB 378 (Scott Wiener), will propose a separate state estate tax for California residents with estates above $3.5 million, as explained in the LA Times Article “California voters could be asked to impose an estate tax, replacing the one Trump loosened.” If it makes it through the legislature, I wouldn’t be at all surprised if Governor Newsom signs off on it, and I suspect it would pass with the voters as well in the November 2020 statewide election if it makes it that far.

If the Bill becomes law, California would collect 40 percent of assets worth more than $3.5 million, or $7 million for married couples.

The tax would bring in an estimated $500 million to $1 billion a year, to be used on programs such as college savings accounts for low-income children. According to the latest estimates by the U.S. Census Bureau,
nearly 1 in 5 Californians lives in poverty, the highest rate of any state in the country.

This is definitely something to be aware of for estate tax planning purposes, especially if it makes it through the legislature and gets signed by Newsom later this year. The California estate tax is a much more ripe consideration than the potential for a reduction in the Federal exemption come 2026, in my opinion. If they can afford to so so, people with estates above $3.5 million ($7 million for couples) should consider making gifts to children and other beneficiaries no later than 2020 if this Bill makes it’s way into law.

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Inheritance Trusts Protect Children and Give You Control

Inheritance trusts are used to maintain some level of control in how assets of any size are passed on to and used by another person (referred to as a trust “beneficiary”). Leaving an inheritance to a beneficiary in a trust, as supported by the article from Times Herald-Record titled “Leaving inheritances to trusts puts you in control,” can protect money or property from being squandered through extravagant expenditures or lost due to creditor problems or failed marriages.

For many parents, the inheritance equation is simple. They leave their estate to their children, and, if a child predeceases the parent, the assets go to the deceased child’s children (i.e. the grandchildren), if any.

The details of those gifts to children are also typically pretty simple. The child will inherit money or other property “outright” if they are of age (18 or perhaps slightly older depending on the terms of the trust document). While simple, these trusts provide no protection from things like overspending by the child, divorces, lawsuits, etc.

An alternative is to create inheritance trusts for children. The inheritance trust is a great way for parents, who are concerned about the impact of their wealth on their children, to maintain some degree of control. The child may use the money in their inheritance trust as needed for their health, education, maintenance and support, and the trustee (typically someone older and more responsible) will determine whether any of the child’s purported needs are appropriate uses of the trust’s funds. The terms of the trust can be very specific as to what appropriate uses of trust funds are (i.e. to attend a four-year college or vocational school, or for a down payment on a house, for instance). In the absence of specificity in the trust document, the trustee must use his or her discretion.

In addition to helping against overspending or mismanagement of assets, the inheritance trust also protects the assets from divorces, lawsuits and creditors. That is a huge benefit that can come in really handy down the line if misfortune strikes. Because the trustee has discretion as to whether or not to provide money to the child at any given time, the money can be kept out of the child’s hands until the situation is resolved (perhaps making needed payments on behalf of the child in the meantime). In addition, including a provision referred to as a spendthrift clause (making the trust a “spendthrift trust”) provides that creditors cannot reach the trust property for any reason as long as it remains in the trust.

The length of the inheritance trust can vary. One strategy is a graduated payment plan. A certain amount of money is given to the child at certain ages, such as 1/3 when they reach age 30, 1/3 at age 35 and 1/3 at age at age 40. Until distributions are made at the stated ages, the trustee may provide money to the child or for the child’s benefit as needed.

Another strategy with the inheritance trust that is gaining increasing popularity with our clients is to leave the property in trust for the lifetime of the child, and provide that the child can become a co-trustee or sole trustee of the trust at a certain age (30 or 35 for instance). That gives the child some control and responsibility, but also protects the assets that remain in the trust throughout the child’s lifetime. In other words, the child can consume assets as needed, but the balance of the property will be safe from divorces, lawsuits and the like. The terms of the trust can provide the child with a power to appoint the property remaining in the trust at his or her death to another person or persons through their own will or other written instrument (referred to as a “power of appointment”), and can also specify who will receive the property  (often the grandchildren or surviving children) if the child fails to exercise that power.

Of course, there are many other strategies to consider, particularly if a child has special needs and is receiving government benefits, for instance. That said, the above provides you with an idea of some of the more popular options for a parent or other person who is simply looking to safeguard against common concerns regarding inherited property they leave behind for a child or loved one.  A qualified estate planning attorney will be able to review your family’s situation and help determine which trust strategy will be best for your family.

Reference: Times Herald-Record (Feb. 16, 2019) “Leaving inheritances to trusts puts you in control”

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