Trusts

1
Trusts

• Legal Document
• Settlor or Grantor Person who creates the
  trust
• Beneficiary or Beneficiaries Person or
  persons who receive the income and/or principal
  from the trust
• Trustee Person who manages the trust
• Corpus Property transferred to the trust

2
Living Trust

• Created during the settlor's lifetime
• Revocable Trust Can be amended, revoked,
  terminated or changed at any time by the grantor
• Irrevocable Trust If you transfer some or all
  of your property to an irrevocable living trust,
  you are giving up all your rights to that property

3
Testamentary Trust

• Created at death in the Will
• Revocable up until the grantor dies (assumes
  competency at time of revocation)
• It is created to address any estate accumulated
  during that person's lifetime or generated as a
  result of the death itself, such as a settlement
  in a wrongful-death suit, or the proceeds from a
  life insurance policy held on the settlor.
• A trustee is appointed to direct the trust until
  a set time when the trust expires, such as when
  minor beneficiaries reach a specified age or
  accomplish a deed such as completing a set
  educational goal or achieving a specified
  matrimonial status.

4
Advantages of a Trust

• Privacy (not usually recorded)
• Avoids probate costs
• Caution A simple probate-avoidance living trust
  has no effect on death taxes
• Lower risk of challenges
• By potential heirs
• By the Probate Court
• Allows for taking care of lifetime needs of
  invalid, minor, incapacitated, or adult persons
• Even possible to set up a trust for the benefit
  of a pet
• Missouri enacted the model honorary pet trust
  (Chapter 456..4-408) (2004)

5
Disadvantages of a Trust

• Initial and continuing legal and accounting costs
  
• Management fees
• Must make decisions now

6
Yes, PETS can be taken care of in a trust

• A pet trust refers to an arrangement whereby
  the caretakers right to receive any caretaking
  funds is limited.
• Statutory Pet Trust  In a growing number of
  states (33), special statutes have been enacted
  to impose an enforceable pet trust by allowing
  virtually any third party designated by the terms
  of the trust or a court to compel the
  caretaker-trustee to use the caretaking funds
  solely for the benefit of your pet.
• Yes, Missouri has an "honorary pet trust"
  statute  Mo. Rev. Stat. 456.4-408 (2004). 

7
Honorary Trusts

• A device by which a person establishes a trust
  for which there is neither a charitable purpose,
  nor a private beneficiary to enforce the trust.
• While such a trust would normally be void for
  lack of a beneficiary, many jurisdictions have
  carved out two specific exceptions to this rule
  
• Trusts for the care of that person's pets and
• Trusts to provide for the maintenance of cemetery
  plots

8
Trust Beneficiary Avoiding Inclusion in
Beneficiarys Estate

• Strategy  Restrict the beneficiarys outright
  control of the trust corpus
• If successful, the death tax will skip a
  generation
• This means on the death of the beneficiary there
  is no death tax on the trust property, as it goes
  straight to the remainder beneficiaries
• Key That the beneficiary never in his or her
  lifetime had the right to control disposition
  of the property

9
What are limited strings of control to avoid
outright control?

• Beneficiary can use all the annual income
• Beneficiary can use up to 5 of the trust corpus
  annually for any purpose
• Beneficiary can use any amount of the trust
  corpus for her/his health treatment and ordinary
  living expenses

10
What Is An AB Trust?

• Instead of leaving property outright to the
  surviving spouse, each spouse leaves most or all
  of his or her property to an irrevocable trust
  that can be used for the benefit of the surviving
  spouse.
• Because the surviving spouse does not own the
  property outright, the property isn't subject to
  estate tax when the surviving spouse dies.

11
How Does An AB Trust Work?

• Each spouse names final beneficiaries who will
  receive the trust's property when the surviving
  spouse dies
• Spouses often name the same people -- their
  children -- as final beneficiaries, but it's not
  mandatory.

12
Example Katie Josh Have A Combined 3 Million
Estate

• If each left his or her half, 1.5 million, to
  the surviving spouse outright, that spouse would
  be left with an estate of 3 million.
• If the surviving spouse dies in 2008, when the
  estate tax threshold is 2 million, 1 million
  would be subject to estate tax.

13
The AB Trust Approach To Katie Joshs 3
Million Estate

• Katie Josh divide up the 3 million
• Each creates an irrevocable living trust, with
  the surviving spouse as a lifetime beneficiary
  and their five children as the final
  beneficiaries

14
Katie Dies In 2008 . . . Followed by Josh in 2009

• Her 1.5 million goes into an irrevocable trust
  for Josh, and is subject to estate tax at that
  time.
• But because the amount in the irrevocable trust
  is less than the federal estate tax exemption, no
  tax is due.
• When Josh dies the following year (2009), his
  1.5 million estate is less than the exempt
  amount (3.5 million in 2009)

15
Drawbacks of the AB Trust

• Once one spouse dies, the trust cannot be changed
• Restrictions on the surviving spouse's use of the
  property
• Expense of legal or accounting help
• Trust tax returns
• Recordkeeping
• Uncertainty about the tax laws

16
Do You Need An AB Trust?

• Generally NOT for couples under 60
• Why? It ties up assets in a trust if one spouse
  dies unexpectedly
• Only if a couples combined estate is over the
  federal estate tax threshold
• 2011 and later 1,000,000 (present law)
• Not if one spouse is much younger
• Not for couples with children from prior marriages

17
If you have a living trust, do you still need a
Will?

• Yes, you always need a will.
• A will provides a backup plan for any property
  that doesnt make it into your trust.
• Without a will, any property not in your trust
  will be distributed according to Missouris
  intestate statute of descent

18
How do you make a living trust in Missouri?

• Create the trust document, which says who will
  inherit trust property and names you as trustee
  (the person in charge)
• Sign the document
• Recommended (not required) Notary Public
• Recommended (not required) Two witnesses
• Transfer your property, such as your house and
  car, to your name as trustee of the trust