The QTIP Provision In A Living Trust

On this mornings conference call we briefly discussed the QTIP trust. This topic is important but detailed enough that it deserves more study than a telephone conference call can provide. So I have decided to detail it here this morning for you to study. For clarity I will use the material from Henry W. Abts III, author of “The Living Trust”, a book I highly recommend. Mr. Abts put the QTIP quite succinctly in his book...and I quote. 

“The A-B-C Trust is used for a married couple whose estate exceeds $10 million in 2012 and reducing to $2 million in January of 2013 (two federal estate tax equivalent exemptions). this form of Trust is used to provide the right to forgo any estate taxes upon the first to die, regardless of the size of the estate. Of the decedent’s portion of the estate, $5 million will flow down into the decedents B Trust, and the excess will flow into the C Trust, in order to prevent estate taxation upon the death of the first spouse.

the C Trust is also known as a Q-Tip Trust. “Q-Tip” stands for Qualified Terminal Interest Property, which means that, to qualify for this right, the surviving spuse must have two rights:

 1. Right to Income-The surviving spouse must have a right to all of the income, a right that must be granted for the the life of the surviving spouse. The income right may not be terminated, for example, in only ten years or during the life of the surviving spouse. For the Trust to qualify, the surviving spouse must not be given the right to use the principal. In other words, the asset is preserved for the heirs, but the spouse may use any income derived from the asset (such as rental income from an apartment).

 2. Right to Change Beneficiaries-In addition, the surviving spouse may be given a testamentary right to change the beneficiaries of Trust C, which means that, during the remaining life of surviving spouse, he or she may change the beneficiaries of Trust C.

Occasionally, a situation arises where, for example, a couple have married, each spouse has children by a previous marriage, and both spouses have accumulated substantial estates prior to their new marriage. If one spouse (for example, the husband) desired that a large share of his estate pass directly to his children upon his death, his assets would not qualify for inclusion in the Q-Tip Trust, since the surviving spouse would not have the right to income from these assets. Therefore, the husband’s excess assets would be subject to federal estate taxes upon his death. 

The husband may pass the assets directly from the B Trust to his heirs without those assets being subject to further federal estate taxation, leaving his excess assets in the C Trust for the use of his surviving spouse.

The C Trust is expandable. The surviving spouse may pass any amount in excess of $5 million (in 2012) to the C Trust (whether the amount is $150,000, $1.5 million, or $15 million) and thereby defer any assessment of estate taxes until the death of the surviving spouse.

The amount of tax saved will increase for larger estates, but the principle is the same. However, generally speaking, dollars in hand today are more valuable than money saved tomorrow. 

Following a seminar some time ago, a young man came up to me and rather pompously announced that he knew about the Q-Tip Trust and knew that it was better to pay the decedent’s estate tax up front. My response to the young man was that, if the surviving spouse knows he or she will die within only a few months of the decedent spouse, then paying tax on the decedent’ share of the estate may have merit. However, as a practical matter, the intent of most people is to preserve as much of the estate as possible for the survivor. After settling hundreds of estates, I have found only this one estate where it as appropriate to recommend paying taxes on the decedent’s estate following the death of the decedent, rather than waiting until the death of the surviving spouse. the Q-Tip Trust is an ideal estate-planning tool and a protection for the surviving spouse.”

Until Next Time....

Is Protecting Your Stuff Really Important?

I have intended to start this blog for many months and it’s one of the things that keeps getting pushed back in favor of more pressing tasks. I believe it is so important that I assigned a new priority to it and I will spend the coming months getting the word out and helping those who want to avoid the disaster it creates. There is an urgency that threatens every American family that has worked to secure their later years and intends to leave the benefits of that hard work to their children and grandchildren. That urgency is the unseen threat of Probate and Estate Taxes, both of which are lurking in the background to threaten and destroy what they have worked so hard for. 

I have worked diligently for the past 20 years to broadcast a message for Americans that will help them avoid this huge financial disaster and have made the Living Trust my specialty. Today 70% of Americans don’t have a scrap of paper to say what is going to happen to their assets when they die. Those unfortunate folks are going to leave the job to a Probate Court to write their Will and the sad thing is that the legal profession will get tens of thousands of the dollars that could have gone to their children if they had only prepared in advance. 

People like Suze Orman and AARP have consistently talked about the revocable living trust and the message is always, “get it done”. I want to add my voice to that message through this Blog. It is such an important issue to every family that values what they have worked so hard to build and accumulate. 

I want to keep these entries short and easily digestible so I will close this one with our information resources and encourage you to research this subject for yourself. I am also making myself available to anyone who wants to respond or ask questions. I will give them my personal attention. You can reach me at 

888-437-8778. There is an extensive Q&A at our website at www.heritagelivingtrust.com

Until next time...

The Price of Ignorance

When I speak of ignorance I'm not speaking of stupidity. I'm speaking of a lack of information upon which one can act for ones own benefit. We live in a day and age where regulatory policies exist beyond the common knowledge but never-the-less affect us profoundly. This ignorance of law and regulation can dramatically effect us and our families but in the eyes of the law there is no excuse for not “knowing”.

The challenge for each of us then becomes to discover and understand the pitfalls to our financial existence and utilize the remedies that are available to us. The "informed" always survive better than those who ignorantly go through life at the mercy of whatever may happen. Living an uninformed life and making no effort to inform and protect ones-self then becomes stupidity. 

My career and expertise is focused on financial matters and as I practice my craft I continuously come across tragic stories of people who were "unaware", and the consequences were often devastating. Improper steps taken because of ignorance of the law, Wills and Trusts never prepared, Estate Taxes costing families millions of dollars, Children left in the hands of the Court, Assets held in Probate for months and years while the value of assets dwindles. These situations are not confined to the middle class or the poor. The affluent and the wealthy seem to be most vulnerable to these circumstances...because they have the most to lose. The sad irony is that all of these problems could have been totally avoided with a little bit of advance preparation.

As I viewed the news this morning I heard that Michael Jackson had a Will. This advice was no doubt given and done by his very expensive lawyers. this means that Michael Jackson’s estate will pay something like a minimum of 10% of the GROSS assets of his estate in legal fees to take his estate through Probate and most of that money will go to his attorneys. If Michael had prepared a Living Trust there would be no Probate and millions of dollars would have gone to his children instead of the attorneys. There is an old adage about legal fees...”they rise to meet the amount of money available” We can expect Michael Jackson’s estate settlement to go on for years and cost his estate millions....all because his attorney’s didn’t do a Living Trust. 

My commitment is to make the necessary information available to everyone who wants it. I am not an attorney but I have made this subject a 30 year specialization and I will tell the truth about the double standard that often exists in the legal profession. This will be the subject of future blogs. My motive is to educate. If you have questions you may contact me at the email on this blog or 888-437-8778. Our information is posted at:

www.heritagelivingtrust.com

Until next time...

Funding Your Trust Is Most Important

Today I want to talk about the most important thing you need to do when setting up your Living Trust...Funding it. Funding is just another way of saying that you are putting your assets into the trust. This need not be a confusing process. I get questions from people about how a living trust actually protects assets from Probate. The answer couldn’t be more simple. You need to change the vesting or ownership of your assets to the name of the Living Trust. That’s what “putting your assets into the trust” means. Any assets left outside (not funded into) the trust are subject to Probate if their combined value is greater than the Probate levels set by your respective state. In California where I live that level is about $20,000 worth of real estate or $100,000 in personal property. Each state has its own regulations and the Heritage website makes it easy for you to reference them by listing each states limits. So, anyone with total assets less than those limits will not have a Probate issue to deal with. They may have to fill out a form but there will be no Probate involvement or delays or costs.

If you do not fund your assets into your Living Trust you leave them open to Probate and your Trust is nothing more than an expensive Will. Funding takes a little time and effort...but it only has to be done once. Any new assets you acquire should be titled in the name of your Living Trust to be sure they are protected.

There are two types of assets I want to talk about here. There are titled assets and untitled assets. Titled assets are titled in the public record. For example, a home is titled with a recorded deed, a car is registered with the DMV, a stock or bond is titled with the broker, and so forth. If it’s recorded or registered in any form in the public record, it is a titled asset and that ownership title must be changed from your name to the name of your Living Trust. Once you do that with each titled asset it is protected from Probate. A Living Trust titling looks something like this:

The John and Mary Doe Family Trust
John and Mary Doe, Trustees
Dated: October 8, 2009

Untitled assets are usually referred to as your “Personal Property” and they are things like your cash, jewelry, antiques, collections, furniture, or anything you have that doesn’t have to be registered or titled in the public domain. This type of asset is easily funded into your living trust by writing a description of them into your trust in the Asset Inventory section. It’s an inventory of things you “intend” to have in the trust. “Intent”, is an important legal determiner. If you have more than $100,000 worth of personal property, (depending on your state) and you have not written them into your Trust, they may become subject to Probate. This inventory of personal property is also valuable to you for insurance purposes if a house fire or natural disaster destroys your home. Needless to say you should store your trust in a fire-proof safe.

So, you can see that there is a little work to do, but it’s an easy project and just takes a little leg-work. The greatest risk is that people often dread launching into such a project so they procrastinate on funding their trust only to find that their neglect causes the family to deal with Probate later. The best way is to make a project out of it and keep that living trust out where you can see it until you finish funding it. Then and only then should you put the Trust away in a safe place. Be sure your successor trustee knows where you put it because they will need it when you die.

The Heritage Living Trust comes with complete instructions on how to fund the trust and details each and every type of asset with the procedure for putting it into the trust. It involves no more than following simple instructions. In most cases a Living Trust can be fully funded in 30 days or less...even taking it at a casual pace. It's the most important thing you do with your trust and the primary reason you set up the trust in the first place. Don’t neglect this very very important step.

If you have questions regarding this topic, feel free to email me or post a question on this blog and I will be glad to respond.

Until Next Time...

Why You Need A Living Trust Before Your Spouse Dies

This is an interesting but fair question that has occasionally been asked so today I will address it. There are certain vital precautions and preplanning that should be done prior to the death of you or your spouse. I heard a funny line from a comedian on my XM radio other day that relates in logic to this question. He said, “my doctor told me not to work-out until I was in better physical condition...I told him okay, don’t send me a bill until I have paid you”.

First of all, unless you know the exact day and time you will die, its best to prepare for the unknown in advance of the event. It is never good to die intestate (without written provisions for the settlement of your estate). It can be devastating for your family. So until the day comes when we can all see the future and know our moment of death...it seems like a good idea to prepare for the unknown. This is accomplished with either a Will or a Living Trust and a Living Trust is better than a Will on so many levels.

Secondly, there are so many things that can happen before we die that need to be taken into consideration. You will all remember the Terry Schiavo case. The young woman in Florida who suffered a terrible accident and was brain dead (or so they thought) she laid in the hospital on life support for 15 years while her husband and her parents fought the issue of withdrawing her life support through the courts. Finally the Court ruled that they should remove her life support, but low-and-behold, she didn’t die! The doctors said she was brain dead...her parents said she wasn’t. It finally went to the Supreme Court and they ruled...Starve Her To Death!! Which they did. It was a tragic case. All of this happened because she didn’t have a written Living Will. If she had prepared that one document prior to her accident it would have all been settled 15 years earlier and in a much more humane way. Everyone needs a Living Will which is a vital part of the Living Trust.

Then there are the situations where you may be seriously ill or injured to the extent that you are personally unable to attend to your financial affairs, or make responsible decisions regarding your healthcare, or be too old or incapacitated to even care for yourself and require assisted living under the direction of a Conservator. Without the proper Power of Attorneys, or the Nomination of Conservator, your life will be directed by the courts until you finally die. Even your spouse or children will be accountable to the Courts for your care. With a Living Trust, all of these problems are taken care of in accordance with your wishes and advance directives.

The Living Trust is the most effective way to maintain control of your life and life circumstances. Finally, remember this, at the very moment of your death it becomes too late to do anything about all of these issues. There is no gray area or way to grandfather in these benefits once you are dead. In the blink of an eye your opportunity to be prepared is snatched from you and your family pays a terrible price.

So, do you need a trust now? Unless you are unconcerned about what happens to you in ill health, and feel no concern for the consequences to your family, the answer is an emphatic YES! To fail in this regard is like trying to buy life insurance AFTER you die!

Until Next Time...