The audio portion of the conference may be accessed via the telephone or by using your computer's speakers. Please refer to the instructions emailed to registrants for additional information. If you have any questions, please contact Customer Service at 1-800-926-7926 ext. 10. Presenting a live 90-minute webinar with interactive Q&A Funding Trusts: Ensuring Optimal Asset Transfers, Changing Ownership, Monitoring Asset Performance Today’s faculty features: 1pm Eastern | 12pm Central | 11am Mountain | 10am Pacific TUESDAY, OCTOBER 18, 2016 Priya Prakash Royal, Esq. LL.M., Managing Attorney, Royal Law Firm, Washington, D.C. Yahne Miorini, LL.M, Founder and Principal, Miorini Law, McLean, Va.
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Funding Trusts By Yahne Miorini, LL.M
Miorini Law PLLC
Overview of the Types of
Trusts
6
Types of Trusts
Revocable Trust:
The creator (called Settlor, Trustor, Grantor) reserves the right to revoke and amend the Trust and is the primary beneficiary of the Trust.
An agent under a power of attorney can also revoke or amend the Trust, if the Trust authorizes it and the power authorizes it as well.
Irrevocable Trust:
The Settlor cannot terminate or revoke the Trust and is not the primary beneficiary of the Trust (except for Asset Protection Trusts).
Modification of the Trust is possible with a “decanting” provision or with the use of a Trust Advisor or Trust Protector.
There must be an agreement by all the beneficiaries to terminate the Trust.
7
Types of Trusts – Grantor
Trusts
A Grantor Trust is an IRS qualification. It means that the
income of the Trust can be reported on the individual
income tax return for the Grantor instead of being
reported as Trust income with a Trust income tax return.
If the Settlor’s SSN can be used for the Trust (if we have a
revocable trust + grantor is the trustee), the grantor trust
is an ignored entity.
If the Trust has a separate tax identification number (the
Settlor of the Revocable Trust is not a trustee or the Trust is
irrevocable), then an IRS Form 1041 needs to be filed.
8
Types of Trusts – Grantor
Trusts
Revocable Trust For Revocable Trusts,
the Settlor’s SSN can be
used as long as the
Settlor is a trustee
For Joint Revocable
Trusts, either Settlors’
SSNs can be used as
long as they are also a
trustee
IRS § 676: Power to
Revoke
Irrevocable Trust
Called “intentionally
defective irrevocable
grantor trusts”
IRS § 671 – 679
Substitution of Assets
Limited power of
Appointment
9
Types of Trusts- Tax Planning
GRAT (Grantor Retained Annuity Trust): Irrevocable Trust where the Settlor receives an annual annuity payment for a certain number of years. When the term ends, the Trust is distributed to the Trust beneficiaries.
CRAT (Charitable Remainder Annuity Trust): Irrevocable Trust that pays a fixed amount of income each year to the donor or the donor’s specified beneficiary for a period of time. At the end of the period, the balance of the Trust is distributed to a charity.
CRUT (Charitable Remainder Unitrust): Irrevocable Trust that distributes a fixed percentage of the value of its assets to a non-charitable beneficiary for a period of time. At the end of the period, the balance of the Trust is distributed to a charity.
QPRT (Qualified Personal Residence Trust): Irrevocable Trust for the personal residence that allows the Settlor to live on the property for a limited number of years.
ILIT (Life Insurance Trust): Irrevocable Trust that owns a life insurance policy, generally on the life of the Settlor.
10
Types of Trusts – Transfer to
generations
GST (Generation-skipping Trust): An Irrevocable Trust
where the beneficiaries are the grandchildren of the
settlor or where there is a difference of age of more
than 37 ½ years between the Settlor and the beneficiary.
Dynasty Trust: A long-term Trust created to pass wealth
from generation to generation without incurring transfer
of taxes such as estate and gift tax. Some states observe
the Rules Against Perpetuities, which limits the amount
of time a Trust can exist and therefore does not allow for
such Trusts.
11
Types of Trusts – Asset
protection
QSST (Qualified Self-settled Spendthrift Trust) or Asset
Protection Trust: Irrevocable trust that is protected
against creditors’ claims and where the Settlor is
entitled to receive distributions of income and principal.
These types of Trusts are only authorized in a limited
number of states. Each state has different rules.
Medicaid Qualifying Trusts: Irrevocable Trust where the
Settlor retains the right to receive income from the
Trust. This structure is aimed towards qualification for
Medicaid and income tax planning (step-up basis) rather
than focusing on estate or gift tax planning.
12
Initial Funding
Requirements
13
Trust Funding
Practice Tips:
Have a list of assets
Create a funding letter
Review the funding at the signing of the estate planning
documents
Monitor the funding
Explain how a client will sign as trustee
14
Funding Trusts
Letter of Instruction
with a Trustee
Certification
Bank Accounts
Portfolios
Assignment of
Interest
Tangible
Works of Art
Cars: DMV
Boats
Business Interests and
Closely Held
Corporations:
Cost of an appraisal
15
FUNDING INSTRUCTIONS
Authorization to release information when a funding
team will handle the funding.
16
Funding Instructions - Banks
We wish to change the title of all of our accounts (other than any IRA or other tax deferred accounts). Please change the owner of each account to the following:
JOHN DOE and MARIE DOE, or their successors, as Trustee of THE JOHN AND MARIE DOE REVOCABLE TRUST, U/A dated xxxx.
Please find a copy of a Certification of Trust which documents the establishment of our trust and sets out our unlimited powers for the future handling of the account(s) as trustees. Please continue to use the current Social Security Number on the account as the Tax Identification Number; pursuant to IRS Regulation 1.671-4(b), no separate Tax Identification Number is required for this type of Trust.
If you have any questions regarding this transfer, please contact us at the address below, or telephone us at XXXX. Thank you for your cooperation.
17
FUNDING TRUSTS – Assignment
of Tangibles I, John Doe, hereby declare that all articles of personal and household use and ornament of every kind and description and wheresoever situated which we presently own or hereafter acquire, regardless of the means by which acquired and/or the record title in which held; including, by way of illustration and not limitation, all automobiles, club memberships, china, digital assets and/or rights (including any “social media”, online accounts and/or email accounts), glass, clothing, jewelry, precious stones, furniture, rugs, paintings and other works of art, books, silverware, etc., and including all insurance with respect thereto) are transferred to and the same shall be owned by:
THE JOHN DOE REVOCABLE TRUST,
being a revocable living trust, which exists under a certain trust agreement created by me on xxxx.
The foregoing declaration and transfer shall apply even though "record" ownership or title, in some instances, may, presently or in the future, be registered in our respective individual name or names, in which event such record ownership shall hereafter be deemed held in Trust even though such trusteeship remains undisclosed. This declaration may be terminated by us by written notice to the trustee of the above-mentioned Trust. Notwithstanding this transfer in Trust, we reserve the unlimited right to the use of the aforementioned items.
Executed on xxxx.
18
Funding Trusts – Assignment of
Business Interests
Assignment
Be familiar with business entities and bookkeeping
structures
19
Funding Trusts – Assets That
Cannot Be Transferred
Purchase only
CDs
Life Insurance policies
(ILIT)
Annuities (CRAT)
Beneficiary
Designation
Retirement Accounts
Life insurance policies
Annuities
20
FUNDING INSTRUCTIONS –
BENEFICIARY DESIGNATION
Mysteries of the Beneficiary Designation forms:
DOB
SSN
Space
21
FUNDING INSTRUCTIONS –
BENEFICIARY DESIGNATION
I wish to change the contingent beneficiary of the above-
referenced policy. Please re-title your records (or provide
me with the appropriate Change of Beneficiary form to
effectuate this change) to the following:
Section 6.G. (2)(c), titled Children Trust, of the John DOE
Trust, U/A dated XXX
If you have any questions regarding this request, please
contact me at the address above, or telephone me at xxxx.
Thank you for your cooperation.
22
Funding Trusts – Special Rules
Real Estate Property Deeds
Recording fee
Deed in other states
TOD deeds
Notify insurance company
Notify loan
Refinance
Leases
Contact the Company
Royalties, patents and
copyrights
Paper stocks: Often
require a Medallion
Stamp
Time shares
Digital assets
23
Funding Trusts - Deeds
To have and to hold the said property by the Trustee of the Grantee Trust with the appurtenances thereunto belonging, in fee simple, upon the Trust and for the purposes set forth herein and under the said Trust and with the following rights, powers and privileges, in accordance with §55-17.1 of the Code of Virginia, as amended:
1. The Trustee, including any successor Trustee, shall have the power to sell, lease, encumber or otherwise dispose of the property herein described,
2. No one dealing with the Trustee, including any successor Trustee, shall be required to make further inquiry as to the right of such Trustee to act,
3. No one dealing with the Trustee, including any successor Trustee, shall inquire as to the disposition of any proceeds.
This conveyance is made subject to easements, conditions and restrictions of record insofar as they may lawfully affect the property.
The parties acknowledge that this Deed has been prepared for Estate Planning purposes and without the benefit of a title examination.
24
Funding Trusts – Classical
Problems
Banks:
May request a Power of Attorney (POA)
POA needs to have funding powers
May refuse to transfer accounts that:
Are TOD
Receive social security and automatic payments of bills
Joint
Financial Institutions:
Refuse to have account titled as tenant-in-common with 2
trusts
25
Funding Trusts – Classical
Problems
Client’s Memory:
Forgetting assets
Confused by all of the
funding rules
Cost of the Appraisal
Beneficiary Designations
Homeowner Insurance’s
Refusal
Employee Stock Options
Safe deposit boxes and
Cash
Assets abroad
Cemetery plots
26
Funding Trusts and the IRS
Don’t forget the Gift Tax Return for Irrevocable Trusts