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
August 2018 Podcast Video, Financial Planning and Capital Market Update – By John Kvale
Hello and Welcome to our August 2018 Financial Planning and Capital Market Update!
If you are too busy to read, feel free to listen as we describe our post and thoughts in friendly podcast format as well as Video too!
Newbies – we like to articulate our thoughts and review on a Monthly basis our Financial Planning Tips, Capital Markets and current events!
August 2018 Video
Financial Planning Tip (s) –
The PLUP – Personal Liability Umbrella Policy
In our post here, a shortened version of an article in the coming Newsletter, we review the PLUP or Personal Liability Umbrella Policy- You likely need one!
Cost
In a world of sometimes seemingly ever higher costs, the PLUP is very affordable. Experiences have shown annually, cost of usually between $200 – $500 for $1 Million – $2 Million in coverage.
Insures your base Coverage are correct
Another neat and settling feature of the PLUP is that it mandates that your standard or base coverage are correct.
What you are protecting Coverage
The most obvious assets at risk are after tax dollars such as checking, savings and investments including Revocable Trusts.
Estate Planning Part 1 – Wills and the Basics
In a reappearance due to constant usage, we also brought back our Estate Planning Series here, Part 1.
Estate Planning Part 2 – Trusts
In Part 2, a second repeat article, here, we discuss Trusts of all sorts and their usage.
Capital Market Comments
Small Business Optimism Hits All Time High –
With earnings booming it is not surprising to see Small Business Optimism reaching all time highs — It is always nice to recall that while there are fast moving machines, making trades in nanoseconds and huge amount of data is being deciphered electronically to get and edge – BUT and it is a big BUT – There is ultimately a human behind the machine!
Have a Great Day – Talk to you at the end of September!
John A. Kvale CFA, CFP
Founder of J.K. Financial, Inc.
A Dallas Texas based fee only
Financial Planning Total Wealth
Management firm.
www.jkfinancialinc.com
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Posted in General Financial Planning, Insurance, Investing/Financial Planning, Market Comments, Monthly Review, Podcast, Video
Tagged Estate Planning, Plup, Small Business Optimism, Trusts, Umbrella