A trust is a legal arrangement where one person (or an institution such as a bank or law firm), called a “trustee”, holds legal title to property for another person, called a “beneficiary”. If you have been appointed the trustee of a trust, this is a strong vote of confidence in your judgment. It is also a major responsibility.

As a trustee, you stand in a fiduciary role with respect to the beneficiaries of the trust, both the current beneficiaries and any remaindermen named to receive trust assets upon the death of those entitled to income now. As a fiduciary, you will be held to a high standard, meaning that you must pay more attention to the trust investments and disbursements than you would for your own accounts.

Your investments must be prudent, meaning that you cannot place money in speculative or risky investments. In addition, your investments must take into account the interests of both current and future beneficiaries. For instance, you may have a current beneficiary who is entitled to income from the trust. He would be best off if you invested the funds to generate as much income as possible. However, this would not be in the interest of remainder beneficiaries who would be happiest if you invested for growth of the principal. In addition to balancing the interests of the various beneficiaries, you must consider their future financial needs. Does a trust beneficiary anticipate buying a house or going to school? Will he be depending on the trust income for retirement in 15 years? All of those questions need to be considered in determining an investment plan for the trust.

One of your jobs as trustee is to keep track of all income of the trust and expenditures by the trust. You must give a periodic account of this information to the beneficiaries.

Depending on whether the trust is revocable or irrevocable and whether it is considered a grantor trust for tax purposes, the trustee will have to file an annual tax return and may have to pay taxes. In many cases the trust will act as a pass through with the income being taxed to the beneficiary.

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Amy Winehouse’s death at age 27 illustrates the importance of having a Will, at any age. Ms. Winehouse and Blake Fielder-Civil were married briefly. Under English law, marriage negates any Wills made before the marriage, but if a couple divorces and there is no new Will, the ex-spouse is the favored beneficiary. Ms. Winehouse updated her Will to ensure that Fielder-Civil, who is currently in jail for burglary and possession of an imitation fire arm, would not inherit any of her estate. Under Winehouse’s Will, her estate estimated at $16 million, will go to her parents and her brother.

In Illinois, if you die without a Will, state law will determine who will inherit from you. If you are married, your spouse gets one-half of your estate and the rest is divided equally among your children.

If you have young children who will need a guardian, a Will is an important document to put in place to allow you to nominate that guardian. Planning your estate with a Will and a Trust is the best way to ensure that your assets are distributed as you want without the value of your assets and the beneficiaries who receive them made public. Continue reading

When making gifts to charities, keep in mind the following:

  • Give away appreciated stock which you have held for more than a year. You can deduct the market value of the stock, and you do not owe capital gains tax.
  • Get receipts in writing from the donee for gifts over $250.
  • If you are over 70 1/2 years old, transfer up to $100,000 from an IRA to charity and none will be included in your income. It will also count toward the required minimum distribution.
  • If you donate a car, you can deduct only what the charity actually sells it for.

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More and more seniors are living together without getting married. According to U.S. Census date, the number of cohabitating seniors nearly doubled between 1989 and 2000. For some seniors, marriage is not financially worth it or they do not want to lose their former spouses’ military pension or Social Security benefits. Other seniors do not want to have to pay their partner’s medical expenses or deal with the objections of children worried about their inheritance.

If you and your partner plan to live together without getting married, you can take a number of steps to ensure that you are protected and your wishes are followed.

Sign a cohabitation agreement. The agreement can state your intentions not to marry or to make any claims against each other. It can also specify the division of household expenses and what will happen to your house in the case of death or breakup.

Provide access to health care decision making. If you are not married, you have no right to participate in your partner’s health care decisions or even, in some circumstances, to visit your partner at the hospital. To avoid this situation, you need several documents. You can sign a Health Insurance Portability and Accountability Act (HIPAA) medical release to allow each other access to the other’s medical information. In addition, a Power of Attorney for Health Care allowing your partner to make health care decisions will give the partner those health care decision making rights.

Sign a durable power of attorney. A Durable Power of Attorney for Property allows your partner, or whomever you appoint, to make financial decisions for you if you become incapacitated. Without a Durable Power of Attorney for Property, the court will have to appoint a guardian to make those decisions. Annual filings with the court regarding your estate’s assets will be required along with other filings with the court.

Update your will. Your will should be clear about what happens to your possessions when you die, including your house and its contents. It is particularly important to specify what will happen to your house if it is owned by only one partner. Continue reading

Natalie Choate, widely recognized as the authority on IRAs and estate planning, turns 70 1/2 this year. This age is key as it is the time when required IRA payouts begin.

At 70 1/2, each year owners typically must withdraw a percentage of their total IRA assets. This percentage increases every year, and IRA owners have until April 1 after the year they turn 70 1/2 to take their first required withdrawal. After that, the annual deadline is December 31.

If you are considering making charitable gifts, a transfer from your IRA may be highly tax-efficient. IRA owners are allowed to give up to $100,000 in cash from an IRA to charity and have the donation count as part of their required withdrawal. The advantage is that Adjusted Gross Income (AGI) is  a trigger for many tax provisions like the 3.8% surtax on net investment income. It is also used to determine payments for some Medicare premiums and taxes on Social Security payments. Lowering Adjusted Gross Income can lower these taxes.

Laura Saunders cites an example in a recent article in the Wall Street Journal: A single IRA owner has AGI of $210,000, including $160,000 of investment income. The person, who has a $50,000 required IRA payout, will write checks for $15,000 to charities this year. Under current law, $10,000 of the investment income would be subject to the 3.8% surtax because the owner’s AGI is above $200,000.

If this IRA owner makes the $15,000 of charitable gifts from his IRA, the result is different. The owner’s taxable portion of his IRA payout drops to $35,000 and the AGI to $195,000 so there is no 3.8% surtax. Continue reading

  1.  LOSS OF CAPACITY. What if you become incompetent and unable to manage your own affairs? Without a plan, the court will select the person who manages your affairs. With a plan, you pick that person through a power of attorney.
  2. MINOR CHILDREN. Who will raise your children if you die? Without a plan, a court will make that decision. With a plan, you are able to nominate the guardian of your choice.
  3. DYING WITHOUT A WILL. Who will inherit your assets? Without a plan, your assets pass to your heirs according to your state’s laws of intestacy. Your family members will receive your assets without benefit of your direction or of trust protection. With a plan, you decide who gets your assets and when and how they receive them.
  4. BLENDED FAMILIES. What if your family is the result of multiple marriages? Without a plan, children from different marriages may not be treated as you would wish. With a plan, you determine what goes to your current spouse and to the children from a prior marriage.
  5. CHILDREN WITH SPECIAL NEEDS. Without a plan, a child with special needs risks being disqualified from receiving Medicaid or Supplemental Security Income benefits and may have to use his inheritance to pay for care. With a plan, you can set up a Supplemental Needs Trust which will allow the child to remain eligible for government benefits while using trust assets to pay for non-covered expenses.
  6. KEEPING ASSETS IN THE FAMILY. Would you prefer that your assets stay in your own family? Without a plan, your child’s spouse may wind up with your money if your child passes away prematurely. If your child divorces his current spouse, half of your assets could go to the spouse. With a plan, you can set up a trust that ensures that your assets will stay in your family and pass to whomever you wish.
  7. FINANCIAL SECURITY. Will your spouse and children be able to survive financially? Without a plan and the income replacement provided by life insurance, your family may be unable to maintain its current living standard. With a plan, life insurance can mean that your family will enjoy financial security.
  8. RETIREMENT ACCOUNTS. Do you have an IRA or similar retirement account? Without a plan, your designated beneficiary for the retirement account funds may not reflect your current wishes and may result in burdensome tax consequences for your heirs. With a plan, you can choose the optimal beneficiary.
  9. BUSINESS OWNERSHIP. Do you own a business? Without a plan, you do not name the successor, thereby risking that your family could lose control of the business. With a plan, you choose who will own and control the business after you are gone.
  10. AVOIDING PROBATE. Without a plan, your estate may be subject to delays and excess fees, and your assets will be a matter of public record. With a plan, you can structure avoidance of probate.

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Prenuptial agreements have become an important estate planning tool. Without a prenuptial agreement, a second spouse may be able to invalidate your existing estate plan. Prenuptial agreements are especially helpful if you have children from a previous marriage or important heirlooms which you want to keep on your side of the family.

It is important to make sure that your prenuptial agreement is valid. The following need consideration:

  • IN WRITING. To be valid, a prenuptial agreement must be in writing and signed by both spouses. A court will not enforce a verbal agreement.
  • NO PRESSURE. A prenuptial agreement will be invalid if one spouse is pressured into signing it.
  • REVIEW. Both spouses must read and understand the agreement. Each spouse should seek advise from separate attorneys.
  • FULL DISCLOSURE. Both spouses must fully disclose assets and liabilities. If either spouse lies or omits information about his or her finances, the agreement can be invalidated.

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One simple way you can reduce estate taxes is to give some of your assets to your children (or anyone else) during your life. There is no limit on how much you may give during your lifetime, but if you give any individual over $14,000 (in 2016) in one year, you must file an IRS Form 709 reporting the gift to the IRS. The amount over $14,000 will be counted against the $5.45 million lifetime tax exclusion for gifts.

The $14,000 figure is an exclusion from the Form 709 reporting requirement. You may give $14,000 to each of your children, their spouses and your grandchildren (or to anyone else you choose) each year without reporting these gifts to the IRS. In addition, your spouse can duplicate these gifts. For example, a married couple with four children can give away up to $112,000 in 2016 with no gift tax implications and no need to file anything with the IRS. However, if spouses elect to split a gift of $28,000 to one individual, Form 709 must be filed for both spouses to use the $14,000 exemption.

So an individual with $6 million in assets and two children and two grandchildren could gift to them in one year $56,000 (4 times $14,000) without filing anything with the IRS. If that individual made these gifts for ten years, he would have reduced his $6 million in assets to a figure under the current $5.45 million exemption and would owe no Federal Estate Tax at his death. Continue reading

In Illinois, assisted living facility residents covered by Medicaid are not at risk of being evicted if they leave the facility for a temporary hospitalization.

The Illinois Medicaid program pays for services not just in nursing homes but in assisted living facilities which are meant to provide a home-like alternative to nursing homes. The Nursing Home Reform Law authorizes Medicaid to pay a nursing home to hold a room for a Medicaid recipient who is temporarily absent due to hospitalization and entitles the resident to return to the first available room.

Medicaid does not make similar payments on behalf of residents of assisted living facilities and the facilities are not required to give admission priority to returning residents. Illinois is one of only a handful of states which makes retainer payments to assisted living facilities on behalf of residents who are temporarily absent. Because of this law, Illinois assisted living facility residents covered by Medicaid are not at risk of being evicted if they leave the facility for a temporary hospitalization. Continue reading

The Estate Tax was put in place in 1916 to raise revenue to finance World War I. In a recent article in the Wall Street Journal, Laura Saunders explains how this tax started as a levy with a top rate of 10% and an exemption of $50,000 (about $1,000,000 in current dollars) and today has a top rate of 40% and an exemption of $5.45 million.

The Estate Tax has never affected many people, often only affecting 2% of individuals who die each year. Also, the Estate Tax can be reduced or eliminated by putting in place planning techniques, such as gifting up to $14,000 each year to as many relatives and friends as one would like to reduce the estate size at death.

Proponents of the Estate Tax point to the goal it seeks to achieve of limiting concentrations of wealth. Opponents of the tax claim that it damages the nation’s economy by forcing sales of assets at depressed prices.

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