What is a Trust Protector

A Trust Protector is a fourth participant in a trust arrangement. The others include the Settlor (or Grantor), the Trustee, and the Beneficiary.

A Trust Protector advises on limited but fundamental and important trust decisions. The Trust Protector is not a fiduciary like the Trustee.

Common powers entrusted to the Trust Protector include: removing and replacing the Trustee, amending Trust terms for tax purposes, removing and adding Beneficiaries, and amending distribution provisions.

A Trust Protector should not be the settlor, the beneficiary, or the trustee, or an agent thereof, but an impartial fourth party.

A Trust protector can be added to a Revocable or Irrevocable Trust.

A Trust Protector can become important within the context of an irrevocable trust where the Settlor does not wish to totally relinquish all important rights, but instead entrusts the Protector as a check and oversight on the Trustee.

For more questions or inquiries please contact the Law Offices of Hanlen J. Chang


About That A/B Trust

It is common to encounter A/B Trusts created for married couples before the year 2010.

Back in the day the A/B Trust was primarily established to avoid the tax impact of exceeding the then much lower Estate Tax limit.

The mechanics of an A/B trust involves setting up so called reciprocal “lockboxes”, first coming into effect when the first spouse passes.

At the time of the first death, the Trust estate (assuming all community property) gets divided 50-50 , with one-half transferred into the deceased spouse’s “Bypasss Trust” and the other half into the surviving Spouse’s “Survivor’s Trust”.

Once the first spouse passes, the surviving Spouse will only be able to modify or dispose of the A/B trust mechanism with a Court Order, as the so called “lockbox” becomes irrevocable.

In the year 2018 each spouse has an Estate Tax credit of eleven million dollars ($11,000,000.00). Thus, the A/B Trust is no longer a required tax planning mechanism for the vast majority of U.S. taxpayers.

Other overlooked implications of the A/B Trust are that illiquid assets, e.g. real estate, at the time of death, have to be divided into two (2) shares, the Survivor’s Trust and the Bypass Trust. This could be impracticable and contrary to long term estate planning goals.

If a married couple has a strong and straight forward relationship, where the goal is to simply leave everything to the Surviving Spouse, then it is strongly advised to have an Estate Planning attorney review the Trust documents, and if indicated, update it to a Non-Formula Trust.

If you are unsure if you have an A/B Trust or want to update to a Non-Formula Trust, please contact the Law Offices of Hanlen J. Chang located in San Francisco and Palo Alto.



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.


Gift Tax: Advantage of Foreign Investment in U.S. Stocks and Bonds

One of the foreign investor’s favorite investments is U.S. real estate. However, from a tax planning perspective there are other asset categories to consider.

In the U.S. the “estate tax” refers to taxation upon death. The “gift tax” means transfer tax, and applies to gifts made while alive.

From a gift tax perspective, intangible assets such as U.S. stocks and bonds are a preferred asset.

In the U.S. the gift tax only applies to real property and tangible property. It does not apply to intangible property.

The advantage for a Non-Resident Alien (“NRA”) acquiring stocks and bonds is that it can be gifted to anyone, including other NRAs, family, or U.S. residents, all without incurring any U.S. tax liability. There may however still be a tax reporting requirement.

There is also an opportunity to avoid U.S. estate (“death”) taxation for the NRA. As long as the NRA investor holding the intangible property has advance notice and awareness of his or her failing health, he or she can gift the asset to the preferred recipient.

The NRA can also take precaution for a sudden or unexpected death. The most common solutions include life insurance and an Estate Plan, such as a Trust.