Category: Trusts and Estates

Someone Just Died – What Now?

There are three scenarios upon the passing of an individual:

  1. With a Trust;
  2. With a Will;
  3. No Trust or Will.

Whatever the scenario, there are additional post death administrative tasks to handle.

Passing With a Trust

The most efficient and secure succession setup and mechanism is to have a Trust.

One major benefit is that it bypasses the need for Probate Court (more specifically explained below).

Of importance is understanding that assets have to be transferred into Trust before death and out of Trust after death.

Equally important is the before and after tax planning and management of the assets.

Common Post Death Trust Administration tasks include:

  • Inventorying, valuing, and managing trust assets;
  • Satisfying or resolving debts (e.g. mortgages, utilities, credit cards, auto loans..etc.);
  • Filing Tax Returns (sometimes outsourced to a CPA);
  • Trust asset distribution (including sub-trust funding if applicable);
  • Collecting and distributing assets outside of Trust where applicable.

Another Trust advantage is when a beneficiary is a Non-Resident Foreigner, bypassing delays, verification, and tax withholding by financial institutions or third parties.

Passing With a Will or No Will

Probate Court is required if you pass with a Will or No Will (“Intestate) and there is an asset worth more than $150,000.00 for which there is otherwise no succession mechanism (e.g. beneficiary designations).

For assets below $150,000.00 those items can be collected by an out of court small estates procedure on behalf of the successors-in-interest.

The Schedule of Probate Fees is as follows:

• 4% of the first 100,000 of the gross value of the probate estate
• 3% of the next $100,000
• 2% of the next $800,000
• 1% of the next $9 million

Both the executor (individual nominated in the Will) or administrator (individual appointed by the court) and the attorney are entitled to this fee. Thus, the Probate Fees when multiplied by two (2) can become costly when compared to a Trust setup where the settlor (person establish the trust) gets to set the Trustee fee according to her or his preference.

The executor or administrator will essentially handle the same functions as the Trustee but under court supervision and approval.

Another consideration and possible drawback includes the time lag for completing the Probate process, which could be anywhere from 1 year to 3 years.

Disclaimer

 

Trust Funding – Overlooked At One’s Own Peril

As an Estate Planner I often answer questions about the Mechanics of Trust Funding:

Some important concepts include:

  • Only Assets owned by or related to the Trust are controlled by the Trust Terms;
  • Common Trust funding Assets include: Real Estate, Bank Accounts, Brokerages, Business Shares, Intellectual Property, and Personal Items;
  • Common Assets to Relate to Trust include: Retirement Accounts (Pension, 401(K), IRAs) and Life Insurance.
  • The Schedule of Trust Assets is an important Information Sheet (usually at the back of the Trust Instrument);
  • Without the Schedule, an asset could become lost due to the Trust Beneficiaries being unaware of its existence;
  • A General Note of Assignment is used to transfer miscellaneous house objects and personal effects to the Trust;
  • Real Estate is transferred by retitling the Deed  into the name of the Trust and preparing Tax Forms.
  • Bank Accounts and Traditional Brokerages can be retitled into the name of the Trust;
  • Retirement Accounts, including IRAs, and Life Insurance, can rely on Beneficiary Designation. You can relate these to the Trust by naming the Trust as a beneficiary, often as a contingent beneficiary;
  • Beneficiary Designations may be inadequate as you cannot list or name a “Beneficiary Class”, i.e. a category of relatives, or your bloodline and heirs- at-law.

If an Asset is not owned or related to the Trust it will be handled outside of the Trust terms. Avoid having an Asset without a succession or inheritance mechanism. If no mechanism in place, it can be owned or related to the Trust, which avoids having to hire a lawyer to assist in its post death collection.

One often overlooked nuance is that you may want to relate tax deductions from the cost of the Tax Administration to taxable income. This means all taxable assets need to flow into the Trust directly (instead of listing an individual’s name in the beneficiary designation, meaning the income goes directly to the individual’s separate tax liability.)

Excess tax deductions from the Trust Administration, at its termination, can be carried over to the individual’s tax return and be claimed over time. This is not as ideal as direct offsets all within the trust.

Dislclaimer