The Basics Of Owning Trusts

You work hard for the things that you have. It is important that you take the proper legal steps to protect your assets from getting into the wrong hands. Setting up trusts is the best way for you to ensure that the assets and income that you presently possess will not be stripped away from you for unjust causes.

Trusts are legal entities that are created in writing. The individual that owns the trust and the actual trusts that are owned are considered to be separate legal entities. Any asset that an individual decides to have transferred into trusts will become the trusts property that they have been transferred into. Therefore,Guest Posting if someone chooses to come after the owner who possesses the trusts, the trusts cannot be touched.

The way that the owner protects the trusts that they have is to place themselves as the beneficiary of any assets it contains. By being the protector of the legal entity, you will protect yourself and anything that you have put into the account. A beneficiary can be an individual or multiple people.

When a beneficiary is named on trusts they will be able to obtain the assets that it possesses. Any income or any amount of assets that have been given to the trusts will be dispersed to the beneficiary. Property, income or any substantial asset will be awarded at a designated time stated by the owner of the account.

Trusts are asset protection tools. Most people that own trusts will utilize these tools to hold stock shares, money, properties, or other assets that they do not want to be touched. Trusts can allow an individual to name a beneficiary, which takes any liability to an asset out of the individual’s hands. Beneficiaries can be named on multiple trusts.

The legal authorities for trusts are English Common Law. When trusts are set up lawfully, courts do not have the ability to touch or obtain any of the assets that are contained within it. Courts do not have the ability to remove any assets from the trusts, to anyone else but the beneficiaries that are named in it.

An international asset protection trust is a great way to protect any and all assets that an individual or individuals own. Trusts are not listed as public information. Therefore, courts will not be able to pull up the origin of the accounts, stopping them from using any assets contained in them against the protector of the trust.

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The New Portability and Disclaimer Trusts

The Tax Relief Act of 2010 provides for a $5 million exemption (indexed for inflation in 2012) per person from federal estate and gift taxes, and a top tax rate of 35%. In addition, the unused portion of the estate tax exemption of the first spouse to die may be transferred to the surviving spouse (so-called “portability”).


This portability provision makes it possible for a married couple to transfer up to $10 million free of federal estate tax without having to use a Family Trust (see below). However,Guest Posting without further Congressional action, on January 1, 2013, the estate and gift tax exemption decreases to $1 million per person, the top tax rate increases to 55%, and portability is repealed.

Portability is available to a surviving spouse only if an election is made on a timely-filed estate tax return (Form 706) by the predeceased spouse’s estate – even if the estate is not otherwise required to file a Form 706. However, only the last spouse’s exemption is portable. So one cannot re-marry in a serial manner to accumulate estate tax exemptions.

Family Trusts:

When a married person dies, he or she can pass all of his/her property to a surviving spouse without incurring any estate tax because of the unlimited marital deduction. So, if husband and wife each have an estate of $5 million, husband can pass his $5 million to wife estate tax free. So when wife dies, her estate would be worth $10 million. Without portability, wife could pass up to $5 million estate tax free, but her estate would be required to pay a 35% estate tax on the excess.

Prior to the existence of portability, the most common way to use both estate tax exemptions of a married couple was to create a “Family Trust” upon the death of the first spouse. Other names used for a Family Trust are “Credit Shelter Trust”, “Bypass Trust” and “Residuary Trust”. Upon the first spouse’s death, an amount equal to the decedent’s estate tax exemption is allocated to the Family Trust. The surviving spouse has access to the property in the Trust, but upon the surviving spouse’s death, the property remaining in the Trust is not included in his/her estate.

The provisions that the surviving spouse can enjoy from a Family Trust during his/her lifetime are:

The spouse can receive all of the income of the Trust. The trustee can also be given the power to “sprinkle” the income of the Trust to children and grandchildren (so as to shift that income to lower tax brackets, unless the so-called “kiddie-tax” rules apply), or accumulate the income and add it to principal.
The spouse can receive principal distributions from the Trust (see below).
The spouse can have the power to withdraw the greater of $5,000 or 5% of the principal of the Trust each year.
The spouse can be given a testamentary limited power of appointment (LPA) over the assets in the Trust. An LPA allows the spouse to “rewrite” the dispositive provisions of the Trust. However, the LPA is usually drafted so that it can only be exercised in favor of the grantor’s descendants and/or charities. The LPA cannot be exercised in favor of the spouse, his/her creditors, his/her estate, or the ¨ creditors of his/her estate.
The spouse can be the sole trustee of the Family Trust, provided that distributions to the spouse are limited to an “ascertainable standard” (i.e., health, education, maintenance and support).
Distributions to the spouse in excess of the ascertainable standard can be made from the Trust if an independent co-trustee is named to serve with the spouse, but discretion on such distributions must rest solely with the independent co-trustee.
The spouse can be given the power to remove the co-trustee and appoint an individual or corporate successor co-trustee that is not related or subordinate to the spouse.

Problems with Portability:

Despite the relative simplicity of just letting the surviving spouse use the predeceased spouse’s unused estate tax exemption in 2011 and 2012, there are several reasons for still using Family Trusts, including the following:

The predeceased spouse’s unused exemption is not indexed for inflation.
The first predeceased spouse’s unused exemption could be lost if the surviving spouse remarries and survives his/her next spouse.
There is no transfer to the surviving spouse of the predeceased spouse’s unused generation-skipping transfer tax exemption.
Assets that are left to a surviving spouse in trust (rather than outright) are protected from creditors.
The predeceased spouse cannot control who receives the remaining assets upon the surviving spouse’s death.
If the surviving spouse remarries and commingles his/her assets with those of the new spouse, it may result in the intentional or unintentional disinheritance of the children.
The future appreciation in the predeceased spouse’s assets could be subject to estate taxes at the surviving spouse’s death.
The portability provision is scheduled to sunset on December 31, 2012.

Problems with Family Trusts:

But, there are disadvantages to a Family Trust as well. Before the first death, the couple’s assets must be divided into separate “his and her” trusts, thereby affording a spouse the opportunity to redirect assets to others (by amendment) without the other spouse’s knowledge. For this reason and for mutual access to assets, most couples prefer to hold assets jointly. After the first death, the surviving spouse’s access to the assets in the Trust, albeit broad, is (as noted above) restricted.

If the surviving spouse withdraws more from the Family Trust than permitted, he/she may be accountable to the ultimate beneficiaries of the Trust (i.e., children and grandchildren). Moreover, the assets in the Trust do not receive a stepped-up basis upon the death of the surviving spouse. The Family Trust also adds complexity to the surviving spouse’s life in that separate records for the Family Trust must be maintained and annual trust income tax returns (Form 1041) must be filed for the remainder of the spouse’s lifetime. And, if a co-trustee over the Family Trust is used, the spouse will have to cooperate with that trustee and pay him or her a trustee’s fee.

For many couples with non-taxable estates, particularly those with children all from the same marriage, the potential problems with a Family Trust may outweigh the benefits. Therefore, they will prefer to simply leave their estate to the surviving spouse. But, if portability is repealed, or if their estate values were to increase, or if the estate tax exemption is reduced by future legislation, they could still want the ability to use both spouses’ estate tax exemptio

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