Last Monday we replayed Part 1, here in our post, one week later we wanted to re-roll out Part 2 of this all important Document review, checklist and explanation – Enjoy!
Trusts, in our opinion are most helpful for organization, directives for minors, and very useful in avoiding Estate Taxes, just to name a few.
Estate Tax Review
Estate taxes are the tax that is incurred upon the final death of an estate member. Unlike Federal taxes, Estate taxes are accessed on the TOTAL VALUE of all assets less liabilities. Currently these taxes begin just under $5.5 million for a single person and if done correctly can be double ($11 million total) for married couples. Above these total amounts, the tax rate quickly gets to 40%. For this reason, the popularity and needs of many of the following Trusts have grown and will continue.
Trusts – All Type Review
Over the last several years we have grown warmer to the use of Trusts. Residing in Texas, a low cost probate state, Trusts frequently have lessor place in the Estate plan. However, we are finding more and more uses for them, and as such wanted to have a detailed list of the various Trusts – This is the second, and more deep dive to our original Estate Planning Doc Summary.
Revocable Trust – By far the most common and most commonly misunderstood Trust of the bunch. Revocable means it can be changed at the grantors request. Due to this fact, there is very little tax or liability avoidance. The key positive for this trust is organization, especially over state borders. In high probate cost states may prevent substantial probate costs.
Testamentary Trust – Trust that is usually embedded in a Will and is created upon the grantors death. Testamentary trusts can take many forms, but are a key aspect of Estate planning for minors, estate tax, and generational transfers. It has virtually no existence until the grantor passes away.
Irrevocable Trust – The Hulk of Trusts. Being Irrevocable, once established and funded, this Trust is a beast. Estate tax, liability, inheritance are just a few items that can be addressed with an Irrevocable Trust. The biggest issue of this type of trust is it what makes it a beast, Irrevocable … once you put assets in it, there is no turning back. Careful use is advised.
QTIP Trust : Qualified Terminal Interest Trust – Most common set up by Grantor to give direction to assets beyond the spouse. Frequently used in second marriages to protect children from a prior marriage. Created and resides most frequently in a Will.
Credit Shelter/A:B Trust – Type of trust that is used to help minimize Estate taxes by maximizing the first person in a married couples Estate tax exemption upon death commonly resides in a Will. Can give directives to eventually end up to a non-spouse beneficiary, but living spouse maintains control during lifetime.
GST or Generation Skipping Trust – This handy estate planning trust gives relief to Grantors by jumping a generation and essentially skipping the Grantors children and passing to the grandchildren. Income may be distributed to the children, but the ultimate beneficiary will be the grandchildren. Under current law there is Estate tax relief from this trust.
ILIT : Irrevocable Life Insurance Trust – This trust is very useful in getting life insurance proceeds out of a Grantors estate. While life insurance is free from Federal taxes in most cases, proceeds are included in an Estate for Total Estate Tax purposes. Done correctly, the ILIT trust can limit most if not all of the proceeds from an estate and thereby estate taxes.
Pat yourself on the back (especially if you are still awake and made it this far.) With a reasonable understanding of these types of trusts, you now have deep knowledge of the types of Trusts available. Reach out if you have any questions.
Have a Great Day!
John A. Kvale CFA, CFP
June 2016 Video, Planning Tip-Economic and Capital Market Monthly Review, By John Kvale
Here is our June 2016, Extended view – Economic and Capital Market Review, with a great financial planning tip, and of course our Video for your viewing and listening pleasure.
Hope you enjoy!
June 2016 Video
Financial Planning Tip –
Estate Planning Docs In One Box
After discovering we DID NOT have a comprehensive high level Estate Planning article, a two-part series was happily created – for the record more articles similar to this are expected due to their popularity and handy reference ability:
ESTATE PLANNING DOCS
Will – Document that directs non-beneficiary directed assets (Ex ..house, property, cash and regular investment assets) and may create trusts for minors, names a Custodian, Executor and may also create trusts and Trustees for estate tax minimization and other uses (see final statement in article below on Trusts.)
Power of Attorney– Financial document that appoints someone other than you to make most financial decisions in your absence. .
Healthcare Power of Attorney – Document that appoints someone to make important healthcare decisions if you are unable.
HIPPA – Allows your appointed person to receive medical information on your behalf.
Living Will- Cease and Decease – DNR – These titles are one in the same and are frequently confusing. This document allows medical professionals to NOT mandate all possible care, should you become deceased mentally, but not in body function.
Estate Planning Docs Part Two – Trusts
TRUSTS – ALL TYPE REVIEW
Revocable Trust – By far the most common and most commonly misunderstood Trust of the bunch. Revocable means it can be changed at the grantors request.
Testamentary Trust – Trust that is usually embedded in a Will and is created upon the grantors death.
Irrevocable Trust – The Hulk of Trusts. Being Irrevocable, once established and funded, this Trust is a beast. Estate tax, liability, inheritance are just a few items that can be addressed with an Irrevocable Trust.
QTIP Trust : Qualified Terminal Interest Trust – Most common set up by Grantor to give direction to assets beyond the spouse.
Credit Shelter/A:B Trust – Type of trust that is used to help minimize Estate taxes by maximizing the first person in a married couples Estate tax exemption upon death commonly resides in a Will.
GST or Generation Skipping Trust – This handy estate planning trust gives relief to Grantors by jumping a generation and essentially skipping the Grantors children and passing to the grandchildren.
ILIT : Irrevocable Life Insurance Trust – This trust is very useful in getting life insurance proceeds out of a Grantors estate.
Here is a link to the original detailed post.
Economic Update
Brexit changes our view on rates
With the British vote to exit the European Union, the Federal Open Market Committee (FOMC) lead by chair Janet Yellen will be hard pressed to raise rates. The only reason we can see higher rates sooner rather than later now would be some (multiple reports needed) major inflationary factors that feed through to the economic reports- While big advocates of higher rates and our research shows rates have been raised during an election year, it’s likely off the table for the remainder of the year.
Brexit changes US Presidential Election
Brexit may also change the US Presidential election as the polls of the British were so far from accurate, we expect many to have less confidence in our current US Presidential polls.
Capital Markets Update
New all time high?
With the afore-mentioned rate increase off the table and possible international perceived disruption due to Brexit – US capital markets may be the recipient of fresh capital from global corners of the world.
New highs (S&P 500) would not surprise us at this time and the odds are now better than not from our perch. Minor expansion in Bunny like fashion (explanation to come upon occurrence) looks possible, of course twists and turns have been the norm lately.
Earnings are the ultimate driver of equity prices, and US capital markets are currently frothy if not overpriced. We think they can get more overpriced due to the above concerns.
Long term average is 15!
Have a Great Day!
See you again at the end of July !
John A. Kvale
Founder of J.K. Financial, Inc.
A Dallas Texas based fee only
Financial Planning Total Wealth
Management firm.
www.jkfinancialinc.com
www.street-cents.com
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Posted in Earnings, Economy, Estate Planning, Forecast, General Financial Planning, Interest Rates, Investing/Financial Planning, Market Comments, Monthly Review, Video
Tagged Brexit, Estate Planning, FOMC, Interest Rates, Janet Yellen, Will