Estate planning is more than just deciding where your assets should go after you pass away; it's also about ensuring that your estate is managed competently and according to your wishes. A revocable living trust is a powerful tool in estate planning that directs the management of your assets during your life if you become incapacitated, in addition to after your death. However, you need a representative to carry out your directions, and choosing the right trustee is paramount. For most revocable living trusts, you are your own trustee for as long as you are able, but you need to nominate successors. The trustee role carries significant responsibilities, and the decision should not be taken lightly. Here are some key considerations when nominating a successor trustee for your revocable living trust.
Understanding the Role
Firstly, understand the role of a successor trustee. They will manage your trust's assets if you're unable to do so, either due to incapacity or death. Their duties include paying bills, managing investments, and eventually, distributing assets to your beneficiaries according to the terms you've set in your trust, whether all at once or over an extended period. Your attorney would help you prepare the terms that governed the trustee.
Trustworthiness and Impartiality
The most critical quality in a successor trustee is trustworthiness. They must manage your estate with integrity and in the best interests of the beneficiaries. Impartiality is also vital, especially if the trustee will manage assets for multiple beneficiaries who may have conflicting interests. In many cases, the trustee is also one of the beneficiaries, making their ability to put the estate’s interests above their own essential.
Financial Acumen
While the successor trustee does not need to be a financial expert, a solid understanding of financial matters is beneficial. Even in straightforward estates, they need to be able to balance a checkbook, keep good records, and follow directions closely. If they lack experience, they must be willing to consult with attorneys and accountants to manage the trust assets effectively. If the individual has trouble keeping up with their own personal financial affairs, it’s doubtful they’d be able to manage yours effectively.
Availability and Willingness
The person you choose should be willing and able to take on the responsibilities of the role. It's a time-consuming task, and they should be prepared for the long-term commitment it requires. On a different but related subject, you will want to ensure that the trustee is adequately compensated for the role. Many good trustee candidates are busy professionals, and you can’t reasonably expect them to sacrifice their living unless they are compensated for their efforts in carrying out your estate.
Proximity and Familiarity with the Estate
Ideally, the successor trustee should be someone who lives nearby and is familiar with your estate and your wishes. In fact, for estate plans we prepare, we prefer to meet with both you and your first nominated successor so that they can get familiar and comfortable with their role. This is designed to make the management of the trust more efficient. Of course, with modern communication tools, living nearby is not essential, but if your estate involves real estate and personal property, it’s likely they’ll have to come to the location to handle some of that business.
Health and Age
Consider the age and health of potential trustees. If you are older, choosing someone of your generation may not be wise if you want them to manage the trust in the event of your incapacity or death. It may be prudent to select a younger individual who is more likely to outlive you and be capable of managing the trust when needed. In any case, however, we suggest nominating enough backups to cover the possibility that your first nominated successor is not around to do the job.
Willingness to Seek Assistance
While you want to nominate someone with at least a baseline competency in managing financial resources, a suitable successor trustee is also someone who acknowledges their limitations and is willing to seek professional help when necessary, whether it's for tax matters, legal issues, or investment advice.
Backup Successor Trustees
Always nominate backup successor trustees. Life is unpredictable, and if your first choice is unable to serve, having a second or even third option can save your estate from costly delays and legal proceedings to appoint a new trustee.
Legal Advice
Lastly, consult with an estate planning attorney to ensure that the nomination of your successor trustee aligns with the rest of your estate plan. There are many misunderstandings about what a “trustee” is and how a trustee obtains fiduciary custody of your assets. There are a number of moving parts that have to be coordinated, and you will want to invest in an estate planning lawyer that does more than just prepares documents.
How Many Trustees?
When choosing a trustee, you can select one trustee (and successors), or you can select multiple co-trustees who serve together. In my experience, the ideal situation is where you have a single trustee who is serious about doing their job the right way, and they hire the necessary advisors to help them meet their duties. However, I’ve seen clients choose self-interested or unmotivated individual trustees who turn out to be a problem. Fear of the latter problem causes some people to choose co-trustees, but the problem there is that conflicts in personality between the two trustees can create deadlock. Therefore, before choosing co-trustees, it’s advisable to consider how well the co-trustees will work together.
What if You Don’t Have a Good Candidate in Mind?
Sometimes you might prefer an attorney, CPA, or corporate trustee to act as your trustee rather than an individual within your personal circle. While there will certainly be professional fees involved, the professional costs may create economic benefits to your beneficiaries that would be much better than resources poorly managed by an ill-equipped trustee. Also, in some cases with intrafamily conflict, it’s better to have someone completely independent, assuming they know what they’re doing.
Conclusion
Selecting a successor trustee is a decision that can have lasting repercussions on your estate and your beneficiaries. Consider these factors carefully and make a choice that will honor your legacy and protect the interests of those you care about the most. At Bryant & O’Connor Law Firm, we understand the intricacies involved in this process and are here to offer guidance and support. Contact us to discuss your estate planning needs and ensure that your trust is in good hands.
As always, this article is not legal advice, and consideration of how to arrange your estate plan is something you will need to discuss with a lawyer with whom you can personally discuss your situation and concerns.
]]>As an estate planning lawyer at Bryant & O'Connor Law Firm, I often come across clients who have concerns about the impact of trusts on their taxes. This concern is a smart thing to ask about, but it's a common misconception that placing assets in a trust will automatically lead to higher taxes. In this blog, we will debunk this myth and provide you with clarity on how a revocable living trust affects your tax obligations.
Understanding Revocable Living Trusts:
Before we delve into the tax implications, let's quickly go over what a revocable living trust is. Essentially, it is a legal arrangement that allows you to transfer your assets into a trust while retaining control over them during your lifetime. You are also almost always the beneficiary. This type of trust can be modified or revoked as you see fit, providing flexibility and peace of mind. The trust becomes irrevocable at your death, at which point a different set of rules (which you created) apply. Revocable living trusts have become popular among our clients because they create an organized and flexible framework designed to make succession planning for events like incapacity and death easier for your intended successors.
Debunking the Tax Myth:
Contrary to popular belief, a revocable living trust has no direct effect on your taxes during your lifetime. This is because, as the grantor of the trust, you maintain ownership and control over the assets placed within it. In the eyes of the IRS, the trust is treated as an extension of yourself, and therefore, any income generated by the trust is still taxable to you personally.
The source of concern is that the federal trust income tax rate is 37% for income over $14,450.00, which is much higher than the individual rate in almost all cases. What many people miss, however, is that this rate only applies if the trust actually realizes income that is not distributed to beneficiaries. Further, as discussed below, a revocable trust is a grantor trust during the grantor’s life, and all income is usually taxed to the creator of the trust just as if there were no trust at all.
Income Tax Considerations:
With a revocable living trust, all income generated by the trust's assets is reported on your personal tax return (Form 1040). The trust itself does not have its own separate tax identification number. This means that the trust's income is subject to the same tax rates and deductions that would apply if the assets were still in your individual name.
This is great news because it means that the trust's income is subject to the same tax rates and deductions that would apply if the assets were still in your individual name. So, you don't have to deal with any additional complexities or higher tax rates. Your trust's income is treated just like your own.
By setting up a revocable living trust, you can enjoy the benefits of managing your assets while still maintaining the same tax advantages as if you held them individually. It's a smart and convenient way to plan for your future.
Capital Gains Tax:
Another concern often raised is whether transferring assets into a revocable living trust will trigger capital gains tax. The good news is that assets held in a revocable living trust are not subject to capital gains tax upon transfer into the trust. This is because the trust is disregarded for tax purposes, and the assets are still considered yours. However, upon your death, assets held in a revocable living trust enjoy an adjusted basis (usually a step up) in the same way that the assets would get an adjusted basis if left through your estate. This is most helpful for appreciated assets like real estate and can save substantial sums.
Estate Tax Considerations:
Upon your passing, assets in a revocable living trust are treated as being part of your estate for estate tax purposes, meaning that your trust by itself won’t affect your estate tax liability if you are single. However, if you are married, your trust can be designed to maximize the unified estate and gift tax exemption between both spouses. The exemptions amount is currently (in 2023) more than twelve million dollars, so most estates are not taxable, but it’s still a good thing to discuss with your estate planning attorney to be sure you’re not missing something. Laws might change before your death, and if you were to have a taxable estate, the estate tax is very high.
Seeking Professional Advice:
It's vital to remember that this blog is informational only and is not intended to provide legal or tax advice. Even for my estate planning clients, I always encourage my clients to consult with their CPA for tax questions. However, not all CPAs or Attorneys are familiar with revocable living trusts, and it’s important that whoever is providing you with advice understands the type of trust involved before scaring you with the idea that your taxes will be higher. In short, a revocable living trust is very unlikely to make your tax situation worse. Be sure whoever is giving you advice about taxes and trusts understands what kind of trust you are talking about.
Conclusion:
In conclusion, the belief that placing assets in a revocable living trust will automatically lead to higher taxes is a common misconception. During your lifetime, a revocable living trust has no direct impact on your tax obligations. The trust's income is reported on your personal tax return, and the assets are still considered yours for tax purposes. However, it's always prudent to seek professional advice to fully understand the tax implications of trusts and ensure you make informed decisions regarding your estate planning.
Disclaimer: The information provided on this blog is for general informational purposes only and should not be construed as legal advice or relied upon as a substitute for professional consultation. While we strive to keep the information up to date and accurate, we make no representations or warranties of any kind, expressed or implied, about the completeness, accuracy, reliability, suitability, or availability with respect to the blog or the information, products, services, or related graphics contained on the blog for any purpose. Any reliance you place on such information is therefore strictly at your own risk. The content on this blog is not intended to create, and receipt or viewing of this information does not constitute, an attorney-client relationship. Online readers should not act upon any information provided on this blog without seeking professional legal counsel.]]>You may be wondering, what is owner's title insurance, and why is it an important investment? Let's dive into the details.
Imagine this scenario: You have found the perfect property, negotiated a fair price, and are ready to close the deal. The excitement builds as you envision creating memories in your new home or reaping the rewards of a profitable investment. But what if, after the purchase, you discover that the property has hidden liens, unpaid taxes, or even claims from previous owners?
This is where owner's title insurance plays a vital role. It provides protection against financial loss due to title defects or undisclosed claims on the property that existed before the purchase. While it may not be a legal requirement, it is an essential safeguard that every purchaser should consider.
Is a Title Search Enough?
One common misconception is that a thorough title search conducted by a qualified attorney is sufficient protection. While a title search is a crucial step in the buying process, it is not foolproof. Title issues can arise even after a diligent search has been performed. For example, what if the seller actually sold the property to a third party hours before they closed on their sale to you. The first transaction would not be recorded in time for your closing attorney to have discovered it. Without owner's title insurance, you could be left with hefty legal expenses and potential loss of your investment.
Examples of What Title Insurance Might Cover (Please Verify in Your Commitment Before You Close)
So, in what situations would owner's title insurance be valuable? Let's explore just a few scenarios:
These are just a few examples of situations where owner's title insurance can provide invaluable protection. It is important to note that owner's title insurance is a one-time payment made at the time of closing, typically based on the property's purchase price. This small investment can save you from significant financial loss and stress down the road.
Choose a Competent Attorney
When choosing owner's title insurance, it is wise to work with a closing attorney who writes title insurance policies through a reputable title insurance company. Also, it’s important to ask for a title commitment before closing so that you can know exactly what your policy will cover before you close on the transaction. Your attorney should be able to guide you through the process, explain the policy coverage, and ensure you have adequate protection for your specific situation.
Be a Smart Purchaser
In conclusion, owner's title insurance is a valuable safeguard that protects your investment and provides peace of mind. It shields you from unforeseen title defects, hidden liens, and other potential issues that could jeopardize your property rights. Don't overlook this essential aspect of the homebuying process – make sure you secure owner's title insurance and protect your investment from day one. As a caveat, title insurance does not necessarily cover every risk, and therefore you must review your policy to determine exactly what is covered. As examples only, title insurance does not generally insure you against losses related to zoning issues. It also does not insure anything related to the condition of the property, and it does not insure against unrecorded easements or matters that can be seen by visual inspection.
At Bryant & O'Connor Law Firm, we understand the importance of owner's title insurance. Our team of experienced real estate attorneys is here to guide you through the process, answer your questions, and ensure your investment is protected. Contact us today to learn more about how we can assist you in securing owner's title insurance and navigating all aspects of your real estate transaction.
Disclaimer: The information provided on this blog is for general informational purposes only and should not be construed as legal advice or relied upon as a substitute for professional consultation. While we strive to keep the information up to date and accurate, we make no representations or warranties of any kind, express or implied, about the completeness, accuracy, reliability, suitability, or availability with respect to the blog or the information, products, services, or related graphics contained on the blog for any purpose. Any reliance you place on such information is therefore strictly at your own risk.
The content on this blog is not intended to create, and receipt or viewing of this information does not constitute, an attorney-client relationship. Online readers should not act upon any information provided on this blog without seeking professional legal counsel.
]]>As an estate planning and probate lawyer in Georgia, I have witnessed the unfortunate consequences of individuals using free or cheap services for their estate planning. It is not uncommon for families to believe they have made the right decisions, only to later discover that critical mistakes were made. In this blog article, I want to shed light on five bad things that can happen when you opt for these services, not with the intention of gaining business, but because I genuinely care about the well-being of families and want to prevent such distressing situations.
When it comes to estate planning, it's important to understand that free or cheap services may not provide the level of expertise and attention to detail that your specific situation requires. While generic templates or automated software might seem convenient, they may not take into account the specific laws and regulations of your state. Estate planning, as well as any probate or administration process that will occur after your death, is a complex legal process, and without professional guidance, you run the risk of inadvertently overlooking crucial details that could invalidate your plans.
By relying on professional estate planning services, you can ensure that your plans are tailored to your unique circumstances and comply with the laws of your state. Estate planning professionals have the knowledge and experience to navigate the intricacies of the legal system and provide you with comprehensive guidance. They can help you understand the implications of various decisions, such as choosing beneficiaries, setting up trusts, or planning for incapacity.
Estate planning is not a one-size-fits-all solution. Each family has unique circumstances, assets, and goals. Free or cheap services often overlook the importance of personalization, resulting in incomplete or inappropriate documentation. Failing to tailor your estate plan to your specific needs can lead to confusion, disputes, and unintended consequences for your loved ones.
While these services may initially appear cost-effective, they often have hidden fees or charge extra for additional services. For example, maybe a lawyer can make a will for $250.00, but at that price there is no way that they are doing more than a short meeting and filling in a few blanks on a form. Moreover, the documents provided may be incomplete or fail to address all necessary aspects of estate planning. This can leave your loved ones vulnerable to legal complications, delays, and unnecessary expenses in the future.
Estate planning involves more than just drafting documents. It requires a deep understanding of legal nuances, tax implications, and potential challenges that may arise. Free or cheap services typically lack the expertise and ongoing support necessary to address complex issues and provide guidance throughout the estate planning process. Without professional advice, you may unknowingly make critical mistakes that could have long-lasting consequences.
When you attempt to do your own estate planning, it is easy to overlook potential mistakes or misunderstand the implications of certain decisions. Without proper legal knowledge, you might not realize the significance of certain clauses, the need for specific documents, or the impact of tax laws. These unnoticed errors can have a devastating impact on your legacy and the well-being of your loved ones.
For example, a form or template that you print from the Internet may have two witness signature spots, but do you know who is qualified to be a witness? Are you comfortable with the formality that is required related to witnessing of wills? Did you know that if it’s not done correctly and properly recited, the will can be thrown out completely? There are many traps for the unwary, and none of it is as simple as it might seem to the inexperienced.
Conclusion:
Estate planning is not something to be taken lightly or approached with a do-it-yourself mentality. The risks associated with using free or cheap services can outweigh the apparent savings. By consulting with an experienced estate planning lawyer, you can ensure that your wishes are accurately documented, your assets are protected, and your loved ones are spared unnecessary burdens. Don't leave the future of your family to chance – seek professional guidance and secure your peace of mind.
]]>Did you know that your business can receive the coveted S Corp tax status without actually being a corporation? Many business owners conflate tax classification with entity type, believing that they are one and the same. However, these are distinct concepts with different legal and tax implications. This article explores the difference between tax classification and entity type, focusing on how entities like LLCs can have different tax classifications, including S Corp status.
DISTINGUISHING ENTITY TYPE AND TAX CLASSIFICATION
A: Entity Type
Entity type refers to the legal structure of a business. Different entity types come with various legal rights, obligations, and protections. Here's an overview of common entity types in Georgia:
B: Tax Classification
Tax classification, on the other hand, pertains to how a business is taxed by the Internal Revenue Service (IRS) and should be selected after consultation with a CPA. A default classification will apply unless you file the correct paperwork with the IRS. Here are the primary tax classifications:
THE RELATIVE FLEXIBILITY OF AN LLC
An interesting aspect of tax classification and entity type lies in the flexibility of LLCs. Before discussing this flexibility, it’s important to discuss the limited options for the other entity types:
MAKING THE RIGHT CHOICE
Choosing the right entity type and tax classification is crucial for optimizing legal protection and tax benefits. Factors to consider include:
CONCLUSION
Understanding the distinction between tax classification and entity type is vital for business planning. However, if any of this is still confusing, please don’t feel discouraged. It has taken me years of dealing with these concepts to get to my current understanding, and I continue to learn new things to help my clients. Even the most experienced business owners use accountants and lawyers to navigate these issues.
At Bryant & O’Connor Law Firm, we guide both new and experienced business owners through these complexities, providing legal advice to complement tax advice provided by your CPA. Whether you are starting a new venture or considering a change in your existing structure, our experienced team can help you navigate these decisions to find the most beneficial arrangement for your specific needs.
Feel free to contact us at Bryant & O’Connor Law Firm for more information or to schedule a consultation. As always, our blog articles provide general information to make you think about the planning you need to do. However, blog articles are not legal, financial, or accounting advice tailored to your specific situation, so you may not rely on this or any article we produce as professional advice. Please consult with the appropriate professional for your needs.
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