Trusts

What is a Revocable Living Trust?

A revocable living trust (RLT) is an agreement between its maker (sometimes called the grantor or settlor) and a trustee. Under that agreement, the maker transfers assets to the trustee and gives instructions to the trustee concerning the management of the assets while held in the trust. The instructions specify how the assets are to be held and used during the maker’s lifetime, as well as how the assets are to be distributed following the maker’s death. A person can be both the maker and the trustee of a RLT. The term “revocable” refers to the fact that the maker has the power to change or do away with the trust. The maker also has the power to add or remove assets from the trust and control and direct all payments from the trust. If the maker is also the trustee, he or she can make all decisions concerning the assets in the trust. The assets titled in a RLT will avoid probate at the maker’s death. Unlike wills, RLTs can provide a way to manage your assets during periods of disability.

Will a revocable living trust help me avoid taxes?

RLTs are tax neutral. Both wills and trusts can help avoid estate taxes, but must include specific provisions to do so. If you require tax planning, you should make sure that an experienced estate planning attorney handles your planning, whether you choose to do so by will or RLT.

Why do I hear so much about revocable living trusts?

Groups or individuals who are not attorneys, and are not bound by professional licensing boards or ethical rules, sometimes market living trusts.

Sometimes, exaggerated statements of costs and delays in the administration of estates are used as part of high-pressure sales tactics to convince the public to “buy” these trusts, even though the trust documents may not be suitable for a particular person. Always consult an attorney before agreeing to “buy” documents. A licensed attorney is the only professional who is authorized to draft documents pursuant to N.C. law, and he or she is bound by ethical requirements to help a client determine if a trust is a suitable estate planning tool for the client’s particular situation.

ABUSIVE TRUST ARRANGEMENTS

What is an “abusive trust arrangement?”

“Pay no income tax!” “Pass your property to your children free of federal estate tax!” “We can help you shelter your income and your property from state and federal taxes forever!” These are examples of claims made by promoters of abusive trust arrangements, who usually promise tax benefits with no meaningful change in the taxpayer’s control or use of his or her income or assets. Abusive trust arrangements are trust arrangements that claim to reduce or eliminate federal taxes in ways that are not permitted by federal tax laws.

How will I know if a trust is an abusive trust?

Abusive trust arrangements may be marketed under the following names: Pure Trust, Constitutional Trust, Contractual Trust, Patriot Trust, Freedom Trust, Unincorporated Business Trust, Complex Trust, and by any other names referring to constitutional issues, fairness, equity, or patriotic themes. The promoters of abusive trusts may claim that “The wealthy have been doing this for years” or “Your attorney wouldn’t understand it.”

What can I do to protect myself?

Remember, if it sounds too good to be true, it probably is.  Ask an attorney to review the materials provided by the promoter.

ESTATE TAXES

What is the estate tax?

The estate tax is a tax on the right to pass property to others at your death. While the federal Internal Revenue Service and some state departments of revenue assess an estate tax when a person dies, North Carolina repealed its estate tax effective for decedents dying on or after January 1, 2013.

Who is affected by the estate tax?

Fortunately, most people are not affected by the estate tax. A person who dies in 2013 or later can pass $5 million, indexed for inflation each year, to his or her heirs or other beneficiaries. The indexed amount for 2013 is $5.25 million. It is important to note that the law may change at any point in time, resulting in a larger or smaller state tax exemption.

Is it true that life insurance isn’t taxed at death?

Generally, life insurance is not subject to income tax when the proceeds are received by your beneficiaries; however, any assets that you own or control, including life insurance, IRAs, houses, bank accounts, and other property are part of your estate for estate tax purposes, and may be subject to estate tax depending on the size of your estate.

What should I do if I think my estate may be worth over $1 million?

You should see an attorney who regularly works with clients who have taxable estates. The attorney will be able to help you plan your estate to minimize or eliminate estate taxes.

How Do I Find an Attorney?

Please call us at (828) 452-2220 and schedule an in-person consultation or a consultation over the phone to discuss your case.  You may also contact us by clicking here and someone from our office will contact you within 24 hours to schedule an appointment.