trust Archives - Bredemann & Shellander, PLC

When Should You Go Visit A Tax Planning Attorney?

September 26, 2016 by mary.r

Would you rather leave your hard earned money to your loved ones or to the tax man? Tax laws can be complicated and convoluted and estate planning is just one of many reasons you need to visit a tax planning attorney. If you find yourself in any of the situations below, be sure to consult with an experienced attorney and save yourself as many tax dollars as possible. Put your hard earned dollars where you want them to go, and not into Uncle Sam’s pocket.

You are leaving money or assets to loved ones. Whenever you are considering estate planning you should also take into consideration tax implications and visit a tax planning attorney. Tax planning and estate planning go hand in hand and work in tandem to plan for your wealth long-term. By consulting with a tax attorney you can often save yourself taxes on your estate now as well as your beneficiaries when it comes time for them to inherit. In some situations, it is better to gift your estate to your heirs a little at a time while you are still alive. You should also consider your state’s tax laws and how they will impact your estate. If you are creating a will or trust to distribute your assets, consult with a tax planning attorney to maximize the amount your heirs will inherit and minimize estate taxes.
You want to build a legacy. Leaving part of your wealth behind as a legacy might include creating a scholarship fund or gifting your estate to an educational institution. However you decide to leave your legacy, you need to plan and strategize. You should articulate what your financial goals are and make sure you are using tax laws to maximize benefits and available deductions while achieving those goals. Visit a tax planning attorney and ask for a sound advice.
You need specialized trusts. If you are considering a charitable trust or want to utilize a specialized trust to improve your estate tax, work with a tax planning attorney. For instance, a charitable remainder trust can be established and your estate and the charity of your choice can both enjoy tax benefits.

A specialized trust could also be used to address the disbursement of your estate for a child that has special needs or has excessive spending habits. Any of these scenarios greatly benefit from a knowledgeable tax attorney.

You are moving out of state. While it sounds so simple, an out of state move should warrant a visit to a tax attorney. Tax laws vary drastically from state to state and you will want to consult with an expert in your new location to make sure your current plan still makes sense. For instance, according to retirementliving.com, “Many people planning to retire use the presence or absence of a state income tax as a litmus test for a retirement destination. This is a serious miscalculation since higher sales and property taxes can more than offset the lack of a state income tax. The lack of a state income tax doesn’t necessarily ensure a low total tax burden.” A skilled tax attorney can looks at the state’s tax laws and help make sure you are taking advantage of all available deductions and not getting penalized with state tax unnecessarily.
Life changes happen, whether by choice or unexpectedly. Hopefully, you already have a tax strategy in place. Many factors go into this strategy such as your gross income, number of deductions, when you’d like to retire, etc. If you suffer a job loss, death of a close relative, birth of a child or any other life altering event; you should consult with your tax planning attorney. Any one of these items could impact your overall tax strategy which may need to be adjusted. Your tax planning should be an ongoing conversation that has room to be maneuvered and changed if needed.
You are starting a business. Congratulations! Starting a business is a huge step. Before you file any entity paperwork, consult a tax planning attorney. The specifics of your business setup can cost or save you a bundle in taxes. Your situation and financial projections will help determine if you need to set up an S-corp, C-corp, or LLC. The structure of your business and your long term plans need to be assessed to make sure your money is going back into your business and not to taxes.
You currently own a business. If you already have an established business you may still benefit from meeting with a tax attorney. There are many strategies and deductions available and you should be taking advantage of as many as possible. Entrepreneur.com gives a small sampling of tax tips for businesses. They list items such as putting your children on the payroll, implementing a 401k and purchasing a vehicle and taking advantage of the depreciation deduction. Not every available deduction will fit your situation and this list given by Entreprenuer.com is far from comprehensive. Existing business owners also need to consider their exit strategy. What does your business succession plan look like? Are you planning on selling your business or passing it down to your children? These are all questions that have potentially expensive tax implications. Work with your tax planning attorney to see which tax saving solutions fit your business.
You are considering paying medical or educational expenses for a loved one. If you would like to financially assist a loved one, work with a tax planning expert to see if paying for educational or medical expenses is the best financial route. While there is a gift exclusion of $14,000 for 2016, per the IRS, you may be able to give more money tax free by paying directly for medical or educational expenses. In each instance, the money has to go to the institution directly; but there is no dollar amount cap to how much you can pay for your loved ones medical care or education tax free. There are other limitations and caveats for each, so work with your tax attorney to make sure you are correctly using this strategy.

Your hard earned money is your own. Work with a tax planning attorney to keep it that way. If you find yourself in any of the scenarios above, it is particularly important to make the most of every tax advantage possible.

How to Minimize Tax with a Trust

August 5, 2016 by mary.r

Making long term decisions about what should happen to your assets and money after you are gone can be difficult. But putting these decisions in a legal document is critical to making sure your wishes are followed. You have several options when deciding what legal document to use to communicate your last wishes such as a will or trust. A trust functions differently than a will and has the opportunity to provide you and your heirs with tax savings. Below are examples of how to minimize tax with a trust.

What is a trust? A trust is a private document that provides instructions on how to distribute your assets and wealth after your death. A trust also allows you the opportunity to make your wishes known regarding healthcare decisions and how you would like your remains handled after death. Fidelity investments, a well known asset management company, describes the benefits of trusts stating,

“Control of your wealth. You can specify the terms of a trust precisely, controlling when and to whom distributions may be made. You may also, for example, set up a revocable trust so that the trust assets remain accessible to you during your lifetime while designating to whom the remaining assets will pass thereafter, even when there are complex situations such as children from more than one marriage.

Protection of your legacy. A properly constructed trust can help protect your estate from your heirs’ creditors or from beneficiaries who may not be adept at money management.

Privacy and probate savings. Probate is a matter of public record; a trust may allow assets to pass outside of probate and remain private, in addition to possibly reducing the amount lost to court fees and taxes in the process.”

A trust has many benefits that could make it the best tool for your long term estate planning. You will need to work with an experienced estate attorney such as those at Bredemann & Shellander, PLC to put together all pertinent information for your trust. Your individual circumstances and entire financial picture will determine which financial vehicles and tax savings strategies are best for you. Here are examples of different types of trusts and how they can help you minimize your estate tax burden.

Irrevocable Life Insurance Trust (ILIT): ILIT is a holding vehicle. You can put your life insurance policy in a trust, thereby removing it from your estate. You and your loved ones can still retain the benefits of the insurance policy after you die but you will no longer own the policy and the proceeds are not included in your estate. This an irrevocable trust and once you move the life insurance policy to the trust you cannot put the policy back in your name.

Charitable Remainder Trust (CRT): A charitable remainder trust allows you to donate to your favorite charity and earn some tax breaks for your estate. You can place a piece of property or assets in a trust and identify your qualifying charity as the beneficiary. You will receive income from the trust for a specified duration of time or your entire lifetime, whatever is specified in the trust. At the designated time, usually at your death, the property, or asset, would then transfer to the charity. By donating the asset to a charity you remove it from your estate and it is no longer subject to estate tax. You can also earn income tax deductions and avoid capital gains. A CRUT or CRAT are two common types of charitable remainder trusts. The differences between a CRUT (or charitable remainder unitrust) and CRAT (charitable remainder annuity trust) are described at: http://www.philanthromedia.org/archives/2004/10/crat_versus_crut_choosing_the.html. This site explains that with a CRUT you can receive a fixed annual payout of 5% but that payout will vary based on the market and how your assets are invested. With a CRAT, you would receive a fixed percentage of the asset based on the value at the time of donation. Consult an experienced estate planning attorney at Bredemann & Shellander, PLC to see if a CRT is an appropriate financial vehicle for you.

Tax savings should be just one part of your estate plan. You and your estate planning professional should consider your long term goals for your finances and legacy when deciding if and how to structure your trust. Work with your estate attorney to create the best structure for you and your beneficiaries.

Types of Trust & Are They Only for Wealthy People

June 30, 2016 by mary.r

Knowing the types of trust is a must and knowing what is suitable to your current situation is a clever step in planning your affairs. Many people are under the misconception that trusts are only for people who are extremely wealthy. And while there are certain types of trusts, irrevocable trusts most commonly, that are used by individuals who are very wealthy and thus subject to the federal estate tax, revocable living trusts are a valuable estate planning tool that shouldn’t be overlooked.

While you should consider talking with an experienced estate planning attorney about your estate plan, here’s some information about trusts and wills that you may find helpful.

Types of Trust

Irrevocable trusts vs. revocable living trusts

Wealthy individuals often set up an irrevocable trust for estate and tax considerations. The benefit is that an irrevocable trust removes all incidents of ownership, which means that the trust’s assets are removed from the grantor’s taxable estate. It also relieves the grantor of tax liability on the income generated by the trust’s assets.

When a grantor puts assets into an irrevocable trust, he or she removes all rights of ownership to the asset that the trust contains. This type of trust can’t be modified or terminated without the beneficiary’s permission.

Individuals will be subject to the federal estate tax if their estate (cash, real estate, and other assets) is worth $5.43 million or more, $10.86 per married couple.

Here are the main differences between irrevocable trusts and revocable living trusts:

Irrevocable Trust

Removes ownership of trust’s assets
Used for tax purposes, since the value of the assets in the trust aren’t calculated in the total value of the estate at the time of death
Commonly used among people with large estates who are subject to federal estate tax
Cannot be modified or revoked without beneficiary’s consent or special power of appointment
Assets are protected from creditors since they no longer belong to the grantor
Trustee is generally an independent person chosen by the grantor

Revocable Living Trust

Grantor retains ownership of assets in the trust
Assets in the trust are calculated into the total value of the estate at the time of death
Commonly used among individuals who don’t want their estate to go through probate
Can be modified or revoked by the grantor
Assets are not protected from creditors since they still belong to the grantor
Grantor usually also serves as the trustee

Will a revocable living trust work better for me than a will?

This depends on your situation. Certain personal or family situations are better suited for a living trust, like if you have concerns that your beneficiaries might not be able to manage financial affairs or if you have a disabled child for example, but some people are fine with just a will.

Yes, a revocable living trust, if used properly, will keep your estate out of probate court and can ensure that your assets pass to your beneficiaries in a timely manner after your death, but it is also important to keep in mind that although your loved ones may not have to pay probate court fees, trusts aren’t free, and that cost should be taken in to consideration when deciding whether or not a revocable living trust is the right option for you and your family. A living trust costs between $1000-$3000 while a simple will can cost $300 or less. That cost alone is enough to make some people stick to a will alone.

However, you should also take these comparisons into consideration:

Privacy: A revocable living trust also ensures that your family’s business isn’t made public in court and public documents after you die, so if that is important to you, this type of trust might be a good option. Court intervention isn’t necessary with a living trust unless there is an issue due to improper drafting.

Disability: A will itself doesn’t offer any provisions for if you become disabled, while a living trust will continue to manage assets if the grantor becomes disabled. However, if you do have a will, a power of attorney can be used in conjunction in order to provide instruction in case you do become disabled.

Creditor Protection: Neither a will nor a living trust will offer protection from creditors while you are alive. If you have a will, creditors have a specific amount of time that they are allowed to make a claim after you die. If they miss that window of opportunity, they will be barred from making a claim forever. This type of issue doesn’t come up often with living trusts because most people direct in the trust that debts be paid.

Ease of Disposition of Assets: wills normally take longer to settle after death and incur more costs than living trusts.

Cost: Wills don’t usually cost much unless you are doing tax planning. Living trusts tend to cost a little more than wills. There isn’t a big cost difference between wills and living trusts if you are doing tax planning. After death, the amount that it will cost to prove (probate) the will in court varies. If there is a contested probate, ancillary probate or another issue, it can be very expensive. Living trusts don’t usually cost much at all once you die.

Can I have both a living trust and a will?

Yes, estate planning attorneys recommend it. That’s because there are some things that a will can do that a trust simply can’t. For example, most people don’t put everything they own into their living trust. So the items that are left out need to be listed in a will so they can be distributed according to your wishes after your death. A will can be used like a catch all to name someone to get all the rest of the property that you haven’t left to a beneficiary or left to someone in a trust.

If you have questions about estate planning in Arizona, please reach out to an experienced attorney. At Bredemann & Shellander, P.L.C., we specialize in estate planning in Arizona and Pride ourselves on taking the time to understand your unique situation so we can guide you through the estate planning process. We are happy to look over your estate plan for free or help you build your perfect estate plan from start to finish. Give us a call at 800-836-4135 or schedule a free consultation online.