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What Is A Credit Shelter Trust?

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Cleveland, Ohio estate planning lawyer, Daniel A. Baron, of Cleveland, Ohio, offers the following information on what a Credit Shelter Trust is and should it be part of your comprehensive estate planning.

If you are married and an investor, for example, consider establishing a Credit Shelter Trust. This can also be referred to as an A-B Trust and is an Irrevocable Trust.

The benefits of a Credit Shelter Trust is, that it allows the assets of the trust (up to a predetermined amount, i.e. $500,000) to transfer to the beneficiaries specified within the trust, typically your children, without any estate taxes being assessed.    Also, your spouse continues to have all rights to the assets of the trust and any income generated until the spouse passes away.

If you are a blended family, a Credit Shelter Trust might be the right tool for you as part of your comprehensive estate planning. If at the time of death of the first spouse the assets of the deceased spouse to immediately into the Credit Shelter Trust.  If the assets transferred are larger than the predetermined amount (we used $500,000 as the example), the excess assets go into a trust which qualifies for the Marital Deduction.  Since the Credit Shelter Trust is irrevocable, it has great estate tax liability advantages as well as making certain your assets are passed along to your beneficiaries, typically your surviving spouse and your children.  Establishing a Credit Shelter Trust insures that the worry of the step-parent now getting all the assets, your assets will now be distributed to the beneficiaries as you intended them.

In the event your spouse is still living and would need to dip into the trust’s assets that were set aside for your children, it would be up to your Trustee to assess the necessity of the transfer of funds. The step-parent would not have carte blanche to the funds.

For answers to any questions you may have on a Credit Shelter Trust and making it a part of or your Comprehensive Estate Planning, contact Daniel A. Baron of Baron Law today at 216-573-3723. Let’s work together to see what the best Trust is for your situation.

Helping You and Your Loved Ones Plan for the Future

 

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Why Do I Need A Guardianship?

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Cleveland, Ohio, Estate Planning and elder law attorney, Daniel A. Baron, offers the following information on creating a Children’s Testamentary Trust for your loved ones. Is it the best option for you when creating your estate plan?

Most people understand and realize that they should name a Legal Guardian for their minor children. However, many people don’t take the necessary step further to consider the financial aspects of guardianship after a parent passes away. Creating a testamentary trust can alleviate this worry and for the most part is inexpensive to create.

Consider Establishing a Children’s Trust. 

Establishing a Children’s Trust, aka a Testamentary Trust, in your will, now creates a way for you to take care of your minor children after you have passed away. By naming a Trustee to oversee the trust allows them to take care of your children’s financial needs for everyday living and any health issues which may arise, as well as their future education needs.

What happens to your property should you pass and have minor children?

Unless specifically noted otherwise in your will, when you pass and your children are of legal age, they will automatically inherit all your property. But what happens if your children are minors?  When a Children’s Trust is established you can appoint a Trustee, or ‘Property Manager’ to oversee the property to make certain your minor children have a place to live and are cared for.  In the absence of a Property Manager being named, the courts will appoint a Property Custodian.  Depending on your individual circumstances, you may want to consider creating a Life Estate.

Should I create a trust for each of my minor children?

Upon your passing any children of legal age will automatically inherit your assets unless otherwise specified in your will. Let’s assume you have minor children, then it would be wise to set up a trust for each child and name a trustee to oversee the trust to make certain that the funds and property are used for the child’s needs and in their best interest.

If you do not wish to establish a trust for each child, consider a revocable living Trust or  Family Trust.  The Trustee(s) would handle this single trust in the same manner as if you were to set up individual trusts for each child.

When creating your Comprehensive Estate Plan you need to speak with an experienced Estate Planning lawyer. Contact Daniel A. Baron or Baron Law today at 216-573-3723 to answer any questions you may have on a creating a Children’s Trust.  I welcome the opportunity to work with you and help recommend the best solution for your needs.

Helping You and Your Loved Ones Plan for the Future

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The Importance of an Elder Law Attorney

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Cleveland, Ohio estate planning attorney, Daniel A. Baron, offers information on the importance of having an Elder Law Attorney to help plan for your future: Elder law attorneys are sometimes considered “authorities” as, although they can handle a wide range of other legal issues, they primarily focus on the needs of older adults and also […]

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AN AB Trust – What are the benefits for your estate?

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Cleveland, Ohio estate planning attorney, Daniel A. Baron, offers information on an AB Trust and the benefits realized from including this as part of your Tax and Estate Planning:

For Tax and Estate Planning purposes, as a married couple, maximize the use of your Federal Estate Tax Exemptions through the utilization of an AB Trust.

There are two vehicles available in which to set up an AB Trust

  • Living Will and Last Testament
  • Revocable Living Trust

The “A Trust” also referred to as the

  • Marital Trust
  • Marital Deduction Trust
  • QTip Trust

The “B Trust” is also known as the

  • Family Trust
  • Bypass Trust
  • Credit Shelter Trust

In 2011, the Federal Estate Tax Exemption   was made transferrable between married couples.  Should one pass away in 2011 or after, their entire Federal Estate Tax Exemption is not needed to avoid Estate Taxes.

If you are on your second, third, or additional marriage and have different beneficiaries, it is in your best interest to explore the benefits of the AB Trust.

The AB Trust can only function if you secure them while both spouses are alive. Don’t put off securing this beneficial part of your estate and tax planning as once you become a widow or widower, it is too late.

Below is an example of how the AB Trust works to your benefit:

For more information on setting up an AB Trust as part of your Estate and Tax Planning, contact Daniel A. Baron of Baron Law to maximize your Federal Estate Tax savings upon your passing. Contact us today at 216-573-3723.

Medicaid Planning

Applying for Medicaid? Here’s What You Need to Know About Activities of Daily Living vs. Instrumental Activities of Daily Living

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Cleveland, Ohio estate planning and elder law attorney, Daniel A. Baron, offers the following information on the definition of ADL’s and IADL’s and how to plan on Long Term Care as part of your Estate and Medicaid Plan: As we are all well aware, there is only one alternative to aging. If you are fortunate […]

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The Definition and Role of an Executor of an Estate

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Cleveland, Ohio estate planning attorney, Daniel A. Baron, offers the following information on the Definition and Role of an Executor of your Estate.

Last Will and Testament Picture

 

Being named and then carrying out the duties of an executor can be one of life’s most frightening tasks however; keep in mind that this is also an honor. Being named an Executor of someone’s estate shows that the person naming you has entrusted you with the great responsibility of making sure their last wishes are granted with respects to the settlement of their property and assets.  Fundamentally, an executor of any will is responsible for making sure that any and all  debts and creditors of the deceased are paid off, and that any remaining money and/or property of the estate is distributed according to the decedent’s wishes.

Bear in mind that the law does not require an executor to be a lawyer or for that matter a financial expert; however, it does require that every executor fulfill their duties with the utmost honesty and attentiveness. In other words, according to law, you have a “fiduciary duty,” that as the executor, you are going to act in good faith with regards to a person’s will.

As the executor, generally you are not entitled to proceeds from the sale of any property of the estate. The executor however, is entitled to a fee as compensation for administering the will. The fees could be mandated that it be reasonable depending on the size or involvedness of the will.

Executor Definition:

To Fulfill Specific Duties; there are many obligations that an executor of a will may have to realize, depending upon the involvedness of the will and the property to be distributed.

These duties normally include but are not limited to:

Finding the assets: The executor is responsible for finding all the decedent’s assets  and for keeping the assets safe until they can be appropriately dispersed to those named in the will and/or to creditors and debtors. This controlling of assets can include upon deciding which types of assets to sell as well as what kinds of assets to keep.

Winding up the deceased’s affairs:   This can cover a multitude of items to be dealt with

  • Canceling any/and all credit cards that may still be open
  • Notifying any bank or other financial institutions about the death of the individual.
  • Notifying brokerage or financial advisors overseeing investments
  • Contacting the Social Security Administration if the decedent was collecting Social Security Benefits
  • Contacting any and all life insurance carriers to claim death benefits to add to the assets of the estate
  • Cancelling home and auto insurance carriers to cancel policies once the estate has settled or property sold
  • Contacting utility companies if services are no longer needed

Locating and communicating the heirs: Locating and contacting those who have been named and who are supposed to inherit money and/or property can be a challenge at times.  If the will has not been updated, people may have moved so you the executor will need to be vigilant in finding all the heirs listed.  There are some cases the deceased has designated certain property/assets go directly to an individual or charity.  So it is imperative that the correct heir be found.

Deciding whether or not probating the last will and testament in court is necessary: Probating a will is the process of getting a court to approve the legitimacy of the will.

Verifying that the Will has been filed in the proper probate court:  This is commonly required by law even if the will does not need to be probated

Should I set up a Separate Bank Account for the Estate?

Setting up a bank account for the estate: Since it is wise not to co-mingle the Executors funds and the deceased party’s funds, the executor is typically required to keep the estate’s money separate from their own funds. Opening up a bank account in the name of the estate makes paying off creditors and the heirs so much easier and helps prove what went into the estate, came out of the estate until such time it has been completed.

Pay ongoing required payments:  Monies in the estate’s bank account are used for making mortgage, insurance and any additional ongoing payments that need to be paid during the management of the will until the estate is settled with all property being sold.

Do Heirs get paid before debtors and creditors:  First and foremost; all of the decedent’s debts and creditors need to be paid off before any heirs can inherit the remaining assets.  The executor of the will should notify all creditors of the death of the individual and see how they wish to proceed.

Paying final income taxes:  You know that there are two things certain in life – death and taxes.  One of the responsibilities the executor of a will has it that they are in charge of making certain that the decedent’s income taxes are paid for the last year they were alive.

Distributing deceased’s property: If listed in the will that certain property goes to certain heirs, the job of the Executor has it to make sure that it gets to the rightful heirs and recorded that it was given to the appropriate party.  If there is other property that is not named in the will, it should pass according to the laws of the State of Ohio.

If no will is in place, the party in charge is typically called the administrator and will be responsible for reviewing the state law to see who the estate’s property will pass to in “intestate succession.”

Having an Executor of your Estate is only one part to a comprehensive estate plan. For information regarding living wills, Last Will and Testaments, trusts, powers of attorney, or a pour-over will, contact Daniel A. Baron of Baron Law today at 216-573-3723.

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Grantor vs Non-Grantor Trusts

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Cleveland, Ohio estate planning attorney, Daniel A. Baron, offers information on the differences between and Grantor and a Non-Grantor Trusts and further considerations to as part of your Tax and Estate Plan:

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Understanding tax benefits and pitfalls of a trust and putting together a trust which is most beneficial for your personal situation is best left to an experienced trust attorney who can explain the differences in trusts and customize your Estate Plan.

Consequently, understand that the term used; Grantor Trust and Non-Grantor Trust are important.  These terms mean very different things but are both associated with tax implications.

The Grantor is the party who establishes the trust and maintains control while living and mentally capable.

Some examples of Grantor Trusts

  • Revocable Living Trust
  • Dynasty Trust
  • Grantor Retained Annuity Trust (GRAT)
  • Spousal Access Trusts
  • The majority of Irrevocable Trusts
  • Defective Grantor Trust (IDGT or DIGIT)

When setting up your trust as part of your Estate Planning, tax planning is an integral part of each and every plan and is as individual as you are.

Planning for Tax implications

How is the trust going to be taxed? Does the American Tax Relief Act of 2012 (ATRA) affect the taxes of your trust?  By setting up a Grantor Trust you can realize a number of tax advantages.  Some of these advantages are but not limited to:

  • Sell assets to the trust and not have to pay for the gains of the sale
  • Loan money to the trust – keeping in mind that the trust must pay the minimal IRS interest rate; however the income recognized from the interest is not taxable to you
  • The trusts income tax, paid by you (the Grantor), is not viewed as a gift to the trust

Plain and simple, the assets of the trust grows, which in turn benefits the beneficiaries without paying income tax. Essentially this is a tax free gift.

Non Grantor Trust

A Non-Grantor Trust is where the donor of the assets relinquishes all control within the trust. The donor of the trust funds is not a beneficiary or a trustee and has no input on how the funds are disbursed or controlled.  When the donor establishes a Non-Grantor Trust (aka irrevocable trust) they give up their rights to amend, revoke, or terminate the trust as this now becomes the functions of the trustee(s) either acting by themselves or with a Trust Protector.

Although the assets used to establish the trust were once owned by the donor, they are now owned by the trust. Any income being generated from the assets now is the sole responsibility of the trust.  As is with the Grantor Trust, any distribution to a beneficiary must now the proper IRS forms issued and provided to the recipient.

When a non-grantor trust is established it becomes a taxable entity and a Federal Employer Identification Number is issued. This also means that an income tax return needs to be filed on behalf of the trust each year.

Understanding tax benefits and pitfalls of a trust and putting together a trust which is most beneficial for your personal situation is best left to an attorney who can explain the differences in trusts and customize your Estate Plan. Contact Daniel A Baron of Baron Law Cleveland, Ohio at 1-216-573-3723.

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The Marital Deduction – What are the benefits?

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Cleveland, Ohio estate planning attorney, Daniel A. Baron, offers information on The Marital Deduction as well as other Tax Planning Advice and what to make part of your Estate Planning.

What are the benefits?

The most important deduction a married couple has is the The Marital Deduction.  The amount of assets which can be passed upon death from one spouse to the other is unlimited and is also used to defer ALL estate taxes until the surviving spouse passes.  Current tax laws allow one spouse to give the other spouse assets where there is little to no tax imposed upon the transfer of these assets.  No matter what the value of the assets which are being transferred, whether it is $50,000 or $50,000,000.

What if there is a divorce?

If you happen to be divorced from your spouse, you can still pass assets to the ex-spouse after you pass with little or no tax being imposed if it is stated in the divorce decree.

My spouse is not a U.S. Citizen – Do the same tax laws apply?

The Marital Deduction is unlimited as long as both spouses are U.S. Citizens. So what happens when one of the spouses is not a US Citizen?

Should the first spouse to pass away be a U.S. Citizen and the surviving spouse a noncitizen of the U.S., unfortunately the unlimited marital deduction for Federal Estate Taxes is not available.

However, the taxes can be deferred by setting up a Qualified Domestic Trust (AKA QDOT), and having the assets pass through this specialized trust.

Should you own real property, consider adding this to the trust as the taxes will be deferred until the noncitizen spouse passes away.

For more information on The Marital Deduction and implementing other tax savings ideas as part of your Estate and Tax Planning, contact Daniel A. Baron of Baron Law to maximize tax savings upon your passing.  Contact us today at 216-573-3723.

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QDOT – What is it and should I have one?

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Cleveland, Ohio estate planning attorney, Daniel A. Baron, offers information on a Qualified Domestic Trust and the benefits realized from including this as part of your Tax and Estate Planning:

 

 

The specific goal of a Qualified Domestic Trust (or QDOT) is to defer Federal Estate Tax on assets which are transferred from a spouse who is a US Citizen upon their death to the other spouse who is not a citizen of the US. If your marriage consists of both a US Citizen and a non US Citizen and your assets are minimally several million which the non US Citizen spouse has the possibility of inheriting,  it would be wise for you to secure a Qualified Domestic Trust.

What are some of the tax issues for spouses who are not US Citizens?

In the absence of Qualified Domestic Trust the non-citizen spouse now has to pay Federal Estate Tax on any assets transferred from the US Citizen spouse into the non-citizen spouse’s name, just as any other party who inherits assets from any other person when they pass.

 

What happens when no Qualified Domestic Trust exists and the spouse who is the

US Citizen passes away first?

If the surviving spouse is a non-citizen of the US, then as stated previously, Federal Estate Taxes will need to be paid on any assets which transfer to the surviving spouse. The surviving spouse would not have the unlimited Marital Deduction as it is should both spouses be US Citizens.  Paying the Federal Estate Taxes is the government’s way of collecting taxes so that the non-citizen spouse does not take all the assets back to their native country and avoid paying the necessary taxes.

There are two avenues which could be taken to avoid paying any inheritance tax:

  • Become a US Citizen
  • Set up a Qualified Domestic Trust

There are a number of requirements however set forth for set up a Qualified Domestic Trust after the spouse who is a US Citizen passes away, but it can be done. If your family situation is such that one spouse is a US Citizen and the other is not and has no intention of becoming one, it would be most advantageous for you to contact an Estate Planning Attorney to set up a Qualified Domestic Trust while you are both still living and of sound mind.

For more information on setting up a Qualified Domestic Trust as part of your Estate and Tax Planning, contact Daniel A. Baron of Baron Law to maximize your Federal Estate Tax savings upon your passing at 216-573-3723.

Cleveland Estate Planning Attorney

What is a Trust Protector?

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Cleveland, Ohio estate planning attorney, Daniel A. Baron, offers information on a Trust Protector and their Role and benefits realized as part of your Comprehensive Estate Plan:

Who is a Trust Protector?

As it sounds, a Trust Protector is appointed to oversee the assets in the trust and to protect against the trustees so that they do not give into temptation and embezzle from the trust or squander the assets of the trust with unnecessary fees or legal issues.

Having a Trust Protector typically was only used with the upper echelons of society but some may say that if there is a trust, there should be a Trust Protector.   It is wise to appoint a Trust Protector especially in cases that the trust will be a long term trust such as:

  • Trust for your spouse so that they will live a certain lifestyle after you pass
  • Your children, grandchildren, or other heirs, that need to reach a goal in life prior to releasing the funds of the trust
  • Charitable goals – what is your legacy

Upon setting up a trust and should the trust have more than one trustee, there is a possibility of issues coming up which are believed to not be in the best interest of the trust. Having a Trust Protector can potentially quash any conflicts which may arise.  In addition, a Trust Protector can be very beneficial in other instances where conflict may arise.

Can I appoint anyone to be my Trust Protector?

You can appoint anyone you would like to protect your trust. Some ideas may be:

  • Someone who is close to your family
  • A Certified Public Accountant (CPA)
  • An attorney
  • Corporate Entity or Bank
  • Financial Planner CFP

What are the duties of a Trust Protector and Why would I need one?

Additional duties of a Trust Protector are, but not limited to:

  • If the trustee or trustees are performing in such a manner that is not advantageous to the beneficiaries of the trust OR are being unresponsive, the Trust Protector has the authority to remove the trustee and replace them if necessary.
  • Should any disputes or conflicts arise between the trustees, the Trust Protector’s Role is to resolve the disputes.
  • If there is a change of status with any of the beneficiaries, it would be the Trust Protector’s responsibility to update the trust accordingly.
  • Should there be any new beneficiaries which needed to be added, the Trust Protector would make the necessary changes to the Trust.
  • The Trust Protector also has VETO power of any financial / investment decisions which may not be in the best interest of the trust and it’s beneficiaries.
  • If the laws governing trusts change, the Trust Protector has the ability to amend the trust if the changes are advantageous to the trust.
  • The Trust Protector can manage the amount of money the trustees can spend by setting a dollar amount and/or requiring two signatures on a check before it can be released. The dollar amount will be predetermined upon the penning of the trust so that all the trustees and the Trust Protector are aware of this stipulation.
  • The Trust Protector has the ability to dissolve the trust for specific reasons such as;

 

  • There are no more funds in the trust as they have been released to the heirs as set forth in the trust and will

 

  • The goals of the heirs have been met and all the funds are released therefore leaving no assets in the trust

It is wise to put in writing what role you would like the Trust Protector to have handling your assets. To start a discussion  on your personalized comprehensive estate plan, including; living wills, trusts, power of attorney, or a pour-over will, or further questions on a Trust Protector, contact Daniel A. Baron of Baron Law.  Baron Law provides estate planning services for the greater Cleveland, Ohio area.  Contact us today at 216-573-3723.