Do trusts pay taxes?

People often set up a trust to makes things easier on their family when they pass away, and to provide for the future of their family. However, taxes on trusts can sometimes make things very complicated. The short answer to the question “do trusts pay taxes?” is . . . well, . . . it depends, and consulting a trusts lawyer Phoenix, AZ frequently relies upon is advised.
The long answer is that the structure of the trust will greatly influence how complicated the taxes will be. If simplicity is the goal, provisions can be included to accomplish that. And if complicity is the goal, lawyers can easily make things complicated. Trusts are taxable entities, however, who pays the taxes (the trust itself or the individual who created it) can vary depending on how the trust was set up.

Grantor (Revocable)Trusts

In a grantor trust, sometimes called a “revocable trust” the grantor (the person who created the trust) usually retains the right to add and remove assets from the trust. When the grantor retains this sort of control, the benefit is such that the trust itself generally does not need to file its own tax return. Rather the grantor, the person creating the trust, would file their own individual tax return and list any income from the trust assets.

Non-Grantor (Irrevocable) Trust

In an irrevocable trust where the grantor doesn’t have the ability to add and remove assets, the trust is considered an independent entity that owns the assets and the trust itself must file a tax return. If money is distributed to the beneficiaries, then whether it is taxable or not to the beneficiaries will depend on whether principal or income was distributed, and if it was income, then whether it was tax-free income or retained income from previous years that the trust has already paid tax on. If a trust distributes money to a beneficiary, the trust may also be entitled to deductions for any distributable net income. After that, any leftover income gets taxed directly to the trust.

Each person’s needs and wants are different and can lead to a variety of outcomes when it comes to estate planning. When in doubt, contact an estate planning attorney to talk you through the pros and cons of the different types of trusts.

 


Thank you for our friends and contributors at Kamper Estrada for their insight on this subject matter.

 

Contesting the Validity of a Will

It is not unusual for some family member to be shocked when the Last Will and Testament of a recently deceased person reveals that they have been disinherited. The following is an example of a situation that frequently occurs:

John Smith is an 87 year old widower, with four adult children – James, Robyn, Phillip and Jessica. Twenty years previously John signed a Will prepared by an attorney, like an estate planning or estate litigation lawyer Coeur d’Alene ID trusts. The Will stated that all his property would go to his wife, unless she predeceased him, in which case his property would be divided equally among his four children.

John dies just a few weeks before his 88th birthday. Five years prior to his death John had moved into the house owned by his daughter Robyn and her husband, and shortly thereafter signed a new Will leaving his entire estate to Robyn. What options are open to the remaining children to prevent being totally disinherited by this new Will?

  1. Mental Incompetence

After Robyn’s attorney files for a probate of the Will, the remaining children can contest the validity of the Will on the ground of mental incompetence. That is, they can try to persuade the judge that John Smith was suffering some a significant mental or psychological condition, such as Alzheimer’s disease, so as to render him mentally incompetent to sign a valid Will.

This will not be an easy task. The bar for mental competency to sign a Will is not very high. Moreover, most courts put the burden of proof on the persons contesting the Will to prove incompetence. That is, if the evidence is equally balanced on each side, the judge will uphold the Will.

Another barrier to remaining siblings’ case is that they will have to prove that their father was incompetent at the precise time that he signed the Will. Many persons with Alzheimer’s disease have periodic moments of lucidity during the course of their disease, and even in the course of a single day.

  1. Undue Influence

Some courts recognize the doctrine of undue influence to contest the validity of a Will. Undue influence has defined as domination by the guilty party over the testator to such an extent that his free agency is destroyed and the will of another person substituted for that of the testator. In the situation described above, the siblings may be able to prove that Robyn isolated their father from his other children, and intimidated him to change his Will be suggesting that his food and medicine were totally dependent on Robyn’s good graces.

If the remaining siblings can prove either mental incompetence or undue influence, the judge can declare the Will invalid and order John Smith’s property equally divided among his surviving children.


Thanks to our friends and contributors from Bendell Law Firm PLLC for their insight into contesting the validity of a will.

 

What Is The Definition of Probate?

What Does Probate Mean?

“Probate” is the term given to the process by which a will is dealt with in a court of law. During the time a will is in probate, an individual is named as the executor of the estate. This means that they are tasked with the responsibility to administer the estate which includes distributing the assets to those  named in the will or to the heirs.

Assets will enter probate if:

  • They are to be distributed according to a will.
  • There is no will or alternative form of ownership.

Assets that are not subject to probate are:

  • Any properties that were jointly owned.
  • Life insurance that has specifically named beneficiaries.
  • Assets that are belonging to an established living trust.

What Is the Importance of Probate?

Many people like to avoid having their will subject to probate for several reasons.

  • Because probate cases are of public record, anyone who would like access to the financial records of the family will have that access as they will be able to review any court records.
  • The probate process often involves an attorney which can be an unexpected expense.
  • The cost of probate itself can be high, as much as 5% of the estate’s value. This price will vary based on the complexity of the case.
  • The probate process can be lengthy.
  • During the time the will is in probate, no heirs will have access to any assets that they inherited.
  • The probate process often takes more than six months to complete.

Estate Planning to Avoid Probate

The process of estate planning is complex, and not one we want to think about. There comes a time, however, when we all need to work through end of life planning. A probate attorney may be able to help in planning for this type of occasion. Ensuring that you have adequately planned your estate not only provides you with a sense of relief but also eases the strain on your family when they are left to handle your estate.

It is possible to work ahead of time to reduce the portion of an estate that will be subject to probate. A few ways to do this are:

  • If you have real estate, consider a joint ownership with the person who you will give it to after you pass. The full title can then be transferred directly to that person, thereby avoiding probate.
  • Name beneficiaries for retirement plans and IRAs to keep these assets out of probate.
  • Create a “revocable living trust.” This is a trust you create while you are still alive. It is revocable and you can amend it as needed.

The Advantages of a Revocable Living Trust

There are many reasons for why such a trust is a popular choice for estate planning.

The trust clearly designates individuals and clearly describes how any assets are to be distributed and handled.

  • Your assets are put into the trust which you will be in charge of. You will be responsible for reporting any income of the trust on your yearly individual tax return.
  • Upon your death, the assets contained in the trust will be distributed as you have previously dictated.
  • A living trust works very similarly to how a will works, with the important difference that a trust is not subject to probate.

The goal of avoiding probate is just one of the many complex issues that can make estate planning a complicated process. However, ensuring that your estate is properly managed and cared for can be simplified with the assistance of an estate planning professional such as the estate planning attorney Scottsdale AZ locals turn to. Enlisting the aid of a professional is especially important if your estate is complex, or large.


Thanks to authors at Hildebrand Law for their insight into Estate Planning.

When an Elderly Parent When They Refuse to Write a Will

It is beneficial to create a will in order to preserve your final wishes and ensure your beneficiaries receive the assets you assign them. However, some choose to forego a will, which may be difficult for their family members to understand. In many ways, a will or trust can be useful for family members of the deceased so that they do not have to sort through the remaining assets and that may ease the stress on an already grieving group. There are reasons to pass on without a will, and if that is the wish of your loved one, then you may have difficulty in changing their mind.

Why Might You Avoid a Will?

There are some reasons it may be beneficial to not write a will, the most common ones are:

  • Dire financial situation
  • Unable to complete the will before passing on.
  • Procrastination
  • Deciding they do not have any assets worth including in a will or trust.
  • Unable to come to terms with their demise.

It is difficult to ensure that assets are divided as the deceased would like, partially because there are no instructions indicating what they prefer. The estate will almost surely pass through probate court and it will take a long time to distribute the assets at all. It can be challenging to convince your parent to write a will if they have already stated they do not wish to.

Three Steps to Start Off With

When you begin to work on a will with your parent, begin with a few small steps to promote them moving forward with it. The three steps you can start with are:

  1. Naming a Powers of Attorney for financial matters.
  2. You may include this designation in a living will if you wish, most people choose a close family member for this role.
  3. Have the designated Powers of Attorney look over the assets and financial status of the parent. It will be helpful to have this information to allow for proper representation of the parent later.

Consult an Experienced Estate Planning Lawyer

If you are having difficulties talking with your parent about writing a will, consider a consultation with an estate planning attorney such as the estate planning attorney Scottsdale AZ locals trust so they can speak with your parent about the benefits and importance of leaving instructions for your loved ones. If they decide to move forward, your parent can begin the stages of estate planning with the attorney to ensure their wishes are honored. The likelihood of a contested will, a painful probate process, and overall confusion can be minimized with the advice of an experienced attorney.


Thanks to authors at Hildebrand Law for their insight into Estate Planning.

Can I Avoid Probate Following the Passing of a Loved One?

When a loved one passes away, the grieving process can take a serious emotional toll. In many cases, there will be a lot to sort out when it comes to the obligations associated with disbursing the property of a loved one. In the absence of an estate plan, it can be an overwhelming process to figure out what the person may have wanted.

Probate

When there is no will in place, legal and financial affairs are deciphered through the probate process. Tackling the process of probate can be stressful, especially when you are still grieving the loss of a loved one. During the probate process, the court will look at beneficiaries and determine how assets such as property and money will be distributed amongst them. The probate process can be exorbitant if someone contests the will or in situations where the estate is large.

Estate Planning Options

  • Probate can be prevented by developing an estate plan or will that determines beneficiaries who will receive your assets and property upon your passing.
  • An estate plan will circumvent the need for probate as the beneficiary will inherit your assets.
  • Once a trust has taken effect, the person who inherits your assets will officially become responsible for them and will be able to distribute them in any way they see fit. Once this occurs, they are no longer considered part of your estate.
  • A beneficiary may have to pay estate taxes on the trust.
  • Joint ownership is when property is owned by more than one person, in most cases this occurs with married couples.
  • When a person passes away, it is even possible for more than one person, such as a close friend or relative to receive joint custody of a property.
  • In many cases an estate is divided within the will amongst people who are identified by the person creating the will. This allows for you to take a closer look at how you will divide your assets and who they will go to.
  • You will be able to gift assets to beneficiaries but it will be important to keep in mind that the beneficiary may be required to pay taxes on gifts.
  • Be sure that all accounts have been updated by designating a beneficiary on all insurance policies and retirement accounts in order to avoid probate.

Developing an understanding of the options you may have will be important when going through probate, contacting an estate planning attorney such as the Estate Planning lawyer Memphis, TN locals trust will be beneficial as they will be able to offer knowledge and guidance through the process. With their assistance, they can make sure that you comply with any legalities that may be required.


Thanks to authors at Wiseman Bray LLC for their insight into Personal Injury Law.

 

What Will I Need to Prepare an Estate Plan?

 

Providing Proper Documentation

A will is the most basic tool in estate planning; it can be used for both smaller and larger estates. A will designates who gets which asset from an estate when you die. It can also be useful for younger couples to designate guardians if they have children. Despite your age or size of estate, planning for the future should be a top priority.  

If your estate is larger than the state minimum or if you are concerned about your family struggling through a probate process, you may wish to consider a willing trust. A living trust allows your money to be placed in a fund after death. Any property added into the trust will not have to pass through probate before being distributed to any heirs.

Another important document that you should have prepared is a healthcare directive. This document lets family know if you want to be resuscitated in an emergency and whether you wish to be sustained on life support if you are rendered into a coma.

Listing Beneficiaries

Naming beneficiaries for all of your accounts will allow you to work around probate. All that the transfer of funds will need to be completed is a copy of your notarized death certificate. There may be some taxes due, but probate will be mostly unnecessary.

Naming beneficiaries also allows for privacy which means that the estate will be safe from creditors and collectors. SInce the accounts don’t go through the probate process, they are not a matter of public record and accounts with beneficiaries are not considered part of an estate.

Handling the process will be easier and faster if you provide a prepared list of beneficiaries and account information ready to be put into your documents. This makes the executor’s job easier when they have to contact the institutions and heirs. Any accounts unclaimed will close and become the state’s property.

Do You Have Business or Investment Interests?

You should include a business succession plan to ensure that your business will continue to operate after the owner or manager is gone. You can find the proper forms on most state websites in their business sections. Many states only request you draft a basic letter or list successor’s names and then filing the proper forms.

Having a record of all account information including passwords and usernames, program files and financial information are useful in case you have an online business. If your business used a particular bank account or money service, then you should make this information known to your successors as well.

Making Your Estate Plan

Preparing your estate plan can be a complicated process, even with prepared documents. In order to ensure your assets are received by the correct beneficiaries and are not impacted by excessive fees, you should consider hiring an estate planning attorney such as the estate planning attorney Scottsdale AZ. It is incredibly difficult to create a plan on your own and you should be as thorough as possible. Not to mention an attorney can help you revise it as life changes.


Thanks to authors at Hildebrand Law for their insight into Estate Planning.

What is the Job of a Trustee?

A trust is a legal entity that allows a person’s assets to be held safely on behalf of that person’s beneficiaries. Trusts are increasingly being used in estate planning because they help to control and protect a person’s wealth, and they can avoid probate and associated fees and taxes. There are numerous types of trusts, each with individual purposes geared towards achieving specific estate planning goals. Some of the most common types of trusts include:

  •         Revocable Living Trust
  •         Irrevocable Living Trust
  •         Retirement Benefit Trusts
  •         Special Needs Trust
  •         Asset and Divorce Protection Trust

With a trust comes a trustee. A trustee is essentially the person given control over the trust with the purpose of administering the assets according to the specified terms and instructions. It is important to note that a trustee does not own the assets of a trust. Essentially, a trustee manages and administers the property within the trust on behalf of the grantor and the beneficiaries it is intended for after the grantor dies. The trustee:

Responsibilities and duties of a trustee include:

  •         Following the specific instructions included in the trust documents.
  •         Keeping accurate records of the trust’s assets/property
  •         Filing necessary tax returns
  •         Reporting to beneficiaries as required by the trust
  •         Treating beneficiaries the same, unless instructed otherwise
  •         Investing trust assets in a manner that results in growth with little risk

You are required to perform the specified duties with care and good faith. As a trustee, you cannot:

  •         Mix assets of a trust with your own; you must keep accounts separate
  •         Use assets of the trust for your own benefit, unless instructed otherwise
  •         Disregard the interests of the beneficiaries and act in your own self-interest
  •         Fraudulently misappropriate assets of the trust
  •         Improperly handle financial matters
  •         Fail to comply with laws or regulation pertaining to the trust or estate

Seeking Legal Help

The job of a trustee can seem overwhelming. Fortunately, most trusts are created with the help of an experienced attorney and include clear and specific instruction. In addition, you do not have to this job all by yourself. In fact, it is advised to hire professional help for accounting and finance purposes. It is especially beneficial to consult with an experienced estate planning attorney, like a trust attorney O’Fallon MO can rely on. They can help you navigate the legal aspects of the process and offer proper guidance in handling certain matters.

 


Thanks to our friends and contributors from Legacy Law Center for their insight into trusts and trustee responsibilities.

 

How to Manage Beneficiaries Effectively as a Trustee

The wonderful thing about having a Trust is the avoidance of having to file for Probate within the Court system, as an estate planning or wills attorney Arlington TX trusts can attest. However, this does not deviate from the legal responsibilities of notifying all beneficiaries and communicating with them regarding assets.

Dealing with beneficiaries can be tricky and in order to maximize your fiduciary duty, our Firm strongly recommends retaining a law firm to assist you with these tasks. Beneficiaries have a right to be notified as to assets, sale of properties and a list of inventoried items. The more communication that you have with the beneficiaries the less likely you are to have a lawsuit filed against you for any misconduct.

Trust Administration can be lengthy on its own; however when you add beneficiaries into the situation it can become highly overwhelming. This is why we strongly urge you to seek counsel to assist in notifications, receipt of assets, inventory items and sale of the Estate assets.

A high assumption is that once the Decedent passes, the Estate can be distributed promptly and this is not the case. When you start to have inpatient heirs, or numerous beneficiaries the stress of complying with everyone’s needs can become overwhelming. This is usually where errors can occur and the stress of distributing assets before all proper documents are completed happens.

In turn, if you do not manage the Trust, or the Beneficiaries correctly, you could easily find yourself on the other end of a lawsuit defending your actions. This not only is a hassle but if you are found guilty of misconduct you could easily find yourself in jail for your actions. Mistakes can easily be made, however you have to remember that you are the Trustee and you have the ability to seek advice in administering the Trust correctly and efficiently.

Our Firm offers a free consultation to address any concerns with trust Administration. Please contact our office today to schedule yours. You have a fiduciary duty to the beneficiaries; but you have one to yourself also.


Thanks to our friends and contributors from Brandy Austin Law Firm PLLC for their insight into estate planning and beneficiaries.

 

How Do You Challenge a Will?

 

If a person dies with a valid Last Will and Testament, the deceased person is said to have died “testate,” and the distribution of assets will be governed by the terms of the Will. The only way a Will becomes valid is by proving it in court by having a judge declare it a “valid” Last Will and Testament.  But what if you think a Will is invalid? What do you do to bring the Court’s attention to the problem?  

A Will can be challenged directly by means of a “Will Contest.”  These types of actions are governed by state-specific statutes and there can be deadlines associated with filing them. Therefore, if you believe that a Will is invalid, you should immediately hire a probate attorney Memphis, TN routinely trusts so that he or she can advise you of what needs to be done.  Some of the reasons a Will might be challenged are:

  •      The Will wasn’t executed and witnessed as required by law.
  •      The Decedent wasn’t of sound mind at the time the Will was executed.
  •      The Will was obtained through the undue influence of someone.
  •      The Will was obtained through the fraud of someone.

The purpose of a will contest is to determine once and for all who is entitled to inherit the decedent’s property. The primary question to be decided in a will contest is whether or not the decedent left a valid will. Everyone who claims an interest in the decedent’s estate has a right to become a party to the will contest action and to demand a trial on disputed questions of fact.

Not anyone can file a will contest action. As soon as the probate court is made aware of a will contest, it must determine whether the person seeking to contest the will has “standing” to pursue a will contest. Standing to pursue a will contest action is limited to those people who would benefit under the terms of another will or the laws of intestate succession if the will contest is successful. In other words, if you want to file a will contest action, you must stand to benefit if the will you challenge is set aside.

If you need help initiating a will contest action,  or have questions about a Will or the probate process, contact the trusted probate attorney for advice.

 

Thanks to our friends and contributors at Wiseman Bray PLLC who have significant experience in Wills, Trusts, and Estate Planning.

kid on dad's shoulders

Creating an Estate Plan With Your Children In Mind

If you have any assets, property or important belongings, regardless of worth, it’s important to have an estate plan in place. An estate plan will allow you to arrange for the future of your belongings and your loved ones, which can give you peace of mind throughout your life. This is especially true after having children, because you will want to ensure that your children are taken care of in case something were to happen to you. When creating an estate plan to include your minor child or children, there are some significant things to consider.

 

Choosing a Caretaker For Your Children

Perhaps the most important aspect of an estate plan when you have minor children is legally appointing a caretaker for your children if you were to pass. Though this can be a difficult scenario to fathom, it is important to plan accordingly. Otherwise, if a tragedy were to occur, your family will be left deciding how best to care for your child. This could result in family feuds, custody battles or your child being left in the hands of the wrong person. In the case that both you and the other parent passed without appointing a caretaker, the state may take control over what happens to your child.

 

Having a legally appointed caretaker can ensure safety and security for your child. When choosing someone, it’s important to make the decision with the other parent. You will also need to talk to the person you wish to appoint as caretaker, so that you can ensure they are okay and capable of the potential responsibility. Properly planning this early on allows you to discuss your wishes with the appointed caretaker, as well as with the rest of the child’s family.

 

How Your Assets Will be Managed

You will likely wish to leave at least some major portion of your estate to your children. If they are minor, then you should create a trust where the money will go until the child is of the appropriate age. It is also vital that you name someone who can manage any assets or property until you child is old enough to receive them. You are able to include stipulations with these assets, for example by allowing money to be used toward your child’s education. If you fail to properly allocate parts of your estate to your child, then the state will be in charge of the assets. In such case, the court must be petitioned whenever funds are needed, which can be a long, difficult process.

 

When Your Children Will Receive Their Inheritance

You are generally able to decide when your child will receive their inheritance. This is a personal decision, but one that requires some thought. Some parents decide 18 is an appropriate age to receive an inheritance, but others believe that it’s best to wait until the child is 21. It may even be appropriate to choose an earlier or older age, such as when they marry, depending on your preference and the circumstances. It’s important to consider factors, such as when they may need the money most, or when you think they will be responsible enough to properly manage the money.  

 

With such significant and impactful decisions to make, it can be helpful to seek legal guidance from an experienced attorney. An estate planning attorney in Sacramento CA can help you determine how best to manage your estate based on your situation and children. In addition, they can help you properly establish necessary trusts, accounts and documentation regarding the future of your estate.

 

Contact Yee Law Group if you’d like to begin your estate planning process, either by filling out a contact form, or calling our office at 916-927-9001 for a free consultation.