February 1

Why You Should Set Up an Irrevocable Trust

You should have an Irrevocable Trust for the protection of your assets!

 

An Irrevocable Trust is a trust that you generally cannot revoke or change. You may want to set up an Irrevocable Trust to reduce estate taxes, or even protect your property against Divorces, Lawsuits and/or Creditors. Here’s how Irrevocable Trusts are structured, and the benefits they can provide…

An Irrevocable Trust typically involves three key players: the Grantor, the Trustee and the Beneficiary/Beneficiaries. The Grantor is the person who creates the trust, the Trustee administers the trust and is the Beneficiary or Beneficiaries are entitled to receive the benefit of the trust and any distributions the trust states. These trusts are established by a Trust agreement, which is a writing that sets forth the individuals filling the three key roles described above, as well as describes how the trust property will be managed and distributed. The trust agreement, which is generally drafted by an attorney, is then precisely executed in a manner that is governed by state law.

 

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Assets owned by an Irrevocable Trust generally are EXCLUDED from the Grantor’s taxable estate.  This is extremely important in the context of large estates, which may trigger the dreaded federal estate tax (40% on all assets above 5.49M per individual in 2017).  There is also a Connecticut estate tax that applies to assets north of 2M per individual.  Excluding the value of assets held in an Irrevocable Trust has the potential to save your family a substantial tax liability upon your death.

Additionally, customized distribution instructions are available for trust Beneficiaries. You may not want a child or a loved one to receive all the property that they are inheriting at once (an “outright” distribution). As an alternative, trusts provide an opportunity for the Trustee to oversee and manage all trust property. The assets are still earmarked for the Beneficiary, but to the extent that the property remains safeguarded in trust, the property enjoys significant protection against divorces, lawsuits and creditor attacks.  Appointing an independent Trustee is also an effective way to ensure that the Beneficiary can’t directly access the money, which could lead to inappropriate spending decisions that you wouldn’t have approved of!

 

Overall, the time and money that you spend on the services of an Estate Planning attorney to assist you with your Irrevocable Trust will absolutely pay off in the long-run.  These trusts protect your hard-earned money and other assets for those you care about the most, and can also greatly reduce your estate’s exposure to estate taxes.

December 28

Trust Planning for Families with Special Needs

Children with special needs typically require special parents. This article is intended to provide peace-of-mind through education for those incredible moms and dads who invest so heavily into the daily lives of their children, and would like to learn more about how to best protect their children in the future.

What is a Special Needs Trust?

A special (or “supplemental”) needs trust (SNT) is generally used for children, or other family members, that may qualify for needs-based government benefits. The classic case: a child has a physical disability or mental illness that qualifies him/her for Medicaid or Supplemental Security Income (SSI) benefits that would be lost if the child received an inheritance. Such a disability or illness may not be known to us today—what if the child is in an accident later in life, which causes them to qualify for state aid? As unfortunate as it is when a loved one is afflicted with disability or illness, the situation can be made much worse without proper SNT planning.

How Does a Special Needs Trust Work?

Medicaid benefits are based on the applicant’s total assets and income. The SNT provides that the Trustee has total discretion as to making distributions that benefit the special needs beneficiary. Using this “discretionary language” means that neither the assets nor the income of the trust are treated as “owned” by the special needs beneficiary. The result—Medicaid will pay for medical expenses and basic living costs, but the assets in the SNT can be used to provide the beneficiary with some of the niceties not generally provided by the state (a “slush fund”).

 

For example, the SNT can purchase a wheelchair that’s more expensive, and hopefully more comfortable, than one that the government would provide. Or, funds from the SNT can be used to allow your child to stay in a single room at an assisted living facility or rehabilitation center, as opposed to a group room. In essence, the SNT ensures that the child’s inheritance won’t disqualify them from state aid, and creates a separate pool of money available to purchase higher level comfort items. By avoiding program disqualification, this strategy also makes your child’s inheritance last much longer!

 

The parents of a special needs child will know that their child’s inheritance will be shielded from being consumed by medical expenses, even if the need is not currently known, as in the accident example. This is a great sense of relief for many of our clients who are concerned about their children when the clients are no longer there to protect and care for them.

 

Thank you for reading, and for ensuring that your sons, daughters and/or grandchildren are well taken care of!

 

-Attorney Bryan M. Etter
Wiley Etter, LLC

December 7

No Will? Big Problem For You and Your Heirs!

A Will ensures that your wishes are taken into account after your death!

24912749440_b2cc8efe52_oA Will is a legal declaration of your wishes in regards to the final distribution of your personal property.  It is often considered the “core” document of any estate plan. A Will can help protect your assets by ensuring that your property is distributed according to your wishes.  A Will can also provide instructions for the care of your minor children, as well as name an Executor to carry out your wishes. Attorneys caution that dying intestate will result in a state court deciding who gets your assets and, if you have children, who will care for them.

Wills can perform several different functions…          

One simple function of a Will includes the outright distribution of your assets to your designated beneficiaries.  Additionally, a more complex function of a Will involves creating Testamentary Trusts within your Will in order to provide asset protection for your beneficiaries.  In essence, a Will facilitates the distribution of your assets to your family members, friends and charities, according to your wishes, and it can be customized to meet all of your needs.  Therefore, with a Will, you are in charge!

It is not recommended that you use a do-it-yourself Will or an internet Will! 

Unlike the federal estate tax laws, which apply to all U.S. citizens, state laws are all over the place when it comes to probate, trusts and procedures required to write and sign valid estate planning documents.  There are many specific state law issues that can affect an estate plan, including the definition of descendants, common law marriages, putative spouses and so on.  Overall, generic forms cannot cover all of these state law issues.

business handshake over blue background/apreton de manos sobre fondo azulYou get what you pay for!

While doing things yourself may save you money in the short term, the long term result may not be what you want or expect.  It is best to hire an attorney that specializes in estate planning to help you with your Will, such as the attorneys here at Wiley Etter, LLC!

 

November 17

When Loved Ones Pass: What You Need to Know about the CT Estate Tax Lien

When a person passes away, their loved ones left behind are undoubtedly thrust into one of the most trying times of their lives.  The harsh reality is that the person charged with the responsibility of handling the deceased’s affairs (the “Executor,” “Trustee,” or “Administrator,” as the case may be) most often enjoyed the closest relationship with the deceased, and is therefore experiencing much grief as the probate process begins.

 

Most of us know “probate” to be the excruciating process of carrying out the administration of a loved one’s estate.  Despite this general awareness, most members of our community do not have a full understanding of all of probate’s components, and the exact implications of failing to properly complete the process when a loved one passes.  To some, “ignorance is bliss” when it comes to such unpleasant topics.  To that, I can genuinely say that I fully understand.  Nevertheless, “knowledge is power” when dealing with any venture life throws our way.  Which brings us to the topic of this article…

 

What is the CT Estate Tax Lien?

The CT Estate Tax Lien is an “inchoate” (i.e., invisible) lien attached to any real estate, owned in whole or in part, by any person who has passed away.  The lien attaches automatically upon the property owner’s passing, and remains on the property until such time as a Lien Release is obtained.  In the meantime, the house will be “encumbered,” meaning that the lien will appear in a title search, making it essentially impossible to sell.

 

So how do you “release” the lien?  Proper navigation through the probate process is your answer.  In Connecticut, no Estate Tax is due unless the deceased’s estate exceeds $2M (or $4M if married, and with proper Estate Planning).  So, the estate’s representative must prove that the estate’s value fell short of $2M, or in the alternative, pay the associated Estate Tax.  This is accomplished through the preparation and filing of a CT-706 NT (if $2M or less) or the CT-706/709 (if over $2M).  Once the applicable form is properly filed, the presiding probate court will issue a CT Estate Tax Lien Release.  The estate’s representative should record this document on the land records in the town where the property is located.  At this point, the issue has been resolved, and the property is no longer encumbered by probate’s black cloud.

 

The probate process is not an easy obstacle course to navigate, and the negative emotions we experience following a loved one’s passing only strengthens that sentiment.  It is important to consult with a Probate Attorney to ensure the proper administration of your loved one’s estate, to avoid running into much larger problems down the road than most of us contemplated as possible.  Thank you for reading, and I hope you’re having a wonderful Summer!

 

-Attorney Bryan M. Etter

Wiley Etter, LLC

November 1

Continuing Lifetime Trusts for Your Children: What’s the Benefit?

When it comes to Estate Planning, most of us think of the classic document that we’ve always heard references to—the Will.  The piece of paper that says who gets your “stuff” after you pass away.  Surely everything will go to the children when you and your partner have passed, right?  That’s perfectly fine.  However, let’s introduce a better way to send money and other assets to your children (especially minor children) that will truly set them up to thrive once you’re gone.

Why Wills Leave your Children Exposed

Wills, and even Living Trusts that call for “outright” distributions, are generally deficient when it comes to protecting assets for your children.  When you say “everything will go equally to my son and my daughter” without any associated trust language, each of them will inherit 50% in a lump sum, and without any legal protections or direction.  Consider these scenarios:

  • A young boy’s parents die tragically when he’s 12. On his 18th birthday, everything that he inherited from them will become available for him to spend as he pleases.  His parents had no reason to know that he’d be addicted to drugs and have many negative influences in his circle of friends.
  • A 42-year old woman inherits from her mother. To make matters worse, her husband files for divorce 8 months later.  The entire inheritance, which was deposited into a joint checking account, is subject to the divorce proceedings.

These examples illustrate that we are doing our children a horrible disservice (“grossly negligent,” in attorney-talk) if we fail to trust-protect money for them using continuing lifetime trusts.

What is a Continuing Lifetime Trust?

In short, it’s a declaration of “I love you” as you make your grand departure.  A continuing lifetime trust is a trust fund that you establish for your children within your Living Trust, that they benefit from after your death.  These trusts hold and protect the money your children inherit from you, and can even enjoy broad protection from divorce, creditors, lawsuits and bankruptcy proceedings!  This is possible because, technically speaking, your children don’t “own” the money residing in these trusts—the trusts do.  In general, if we don’t own something, it can’t be taken from us.  However, your children are the only people who have the right to access the account, so for all intents and purposes, it is earmarked for them.  What’s more… you can also fully customize these trusts, so that the exact purposes for which you’d want them (or not want them) to be able to access money are plainly laid out.

 

To capitalize on the gift that the law provides us, contact an Estate Planning attorney to establish a Living Trust for yourself.  Make sure that the attorney is proficient in higher-level Estate Planning, since continuing lifetime trusts are not your run of the mill documents that every attorney can prepare.  Next, “fund” your trust properly by asking your Financial Advisor to change the beneficiary of your account or life insurance policy to your trust.  This routes all dollars to your trust after your death, so that all the protections and other benefits discussed here can be enjoyed by your children.

 

-Attorney Bryan M. Etter

Wiley Etter, LLC