The most important thing to know about a revocable living trust is that it will pay for itself. By creating, funding and maintaining a revocable living trust, we guarantee you will save thousands of dollars at the time of your death. This is because all assets not in trust when a person dies are subject to probate.
The average cost of probate is 5%-7% of the total value of your estate. If your estate is worth $60,000 or more, the probate fees exceed the cost of a revocable living trust. The high price of dying is enough to make you consider implementing one. The additional benefits available with our trust agreement, the Family Fortress Dynasty Trust (FFDT), are enough to make you regret not having one.
A revocable living trust is actually a device that enables you to give away your property without giving up any control. You, as the Grantor, give your assets to the Trustee, who may also be you, to hold and manage for your benefit. The Trust may be revoked and dissolved at any time prior to the death of the Grantor. This maneuver is the foundation upon which this trust agreement is based. The rest of the trust agreement is designed to deal with all possible situations in the most cost effective manner, all the while ensuring that your wishes are carried out.
In actuality, the FFDT is really over 10 trusts in one. The document is designed to breakdown into numerous Sub-Trusts depending on the circumstances. This way you maintain the greatest benefits without any need to revise the document as your life changes.
This is preventative law at work again. Remember, you need to plan for the likely and the unlikely to achieve the highest level of legal protection. The FFDT is designed to afford our clients the most benefits available under the law. We have seen hundreds of trusts over the years and are confident that the FFDT is the best trust in estate planning today.
Once you have created and funded the revocable FFDT, you will:
1. Have centralized management of your assets – All of your assets are owned by the Trust. The Trustee is responsible for investment decisions, asset protection and record keeping. If you, the Grantor, are the Trustee, this means you make all the decisions concerning the assets. When you die, or if you choose another Trustee initially, the designated Trustee will make those decisions.
The designated Trustee’s knowledge, experience and access to information, particularly when a professional Trustee is used, often may be helpful in increasing both income and principal. Thus, your choice of a Trustee is very important and must be made with great care. If you have apprehension about giving one person this responsibility, feel leaving out a child will cause dissension or have mixed feelings for any reason, this Trust is designed to work the same with Co-Trustees or even a Board of Trustees.
2. Be protected during incapacity and avoid probate upon death of the Grantor(s) – The FFDT is designed to work with your basic legal and medical documents to completely avoid probate, guardianship and/or conservatorship proceedings if you are incapacitated. Probate is costly, both in time and money. The strain on the family alone is incentive enough to avoid it.
Any assets owned by the FFDT will not be subject to probate at your death(s). This is because “technically” you do not own the assets. The Trustee owns the legal title to the assets. You, as the beneficiary only own the equitable title to the assets, which allows you to receive the income from the trust assets. This is true even if you are the Trustee. There are no probate fees, proceedings or delays. The death of a Trustee, other than the Grantor, has no effect on the Trust either. A previously designated successor Trustee takes over without any court involvement and a minimum of documentation.
3. Prevent delays and maintain continuity upon death, disability or disappearance – The Trust continues to operate no matter what happens to you. Without a trust, your family must go through costly probate proceedings. No one may act on your behalf until the court appoints someone. This means there will be a period of time when your family cannot access your assets or make decisions for you.
With a Trust, there is no delay, extra cost or court involvement. You appoint ahead of time those who will act on your behalf. Your family will not suffer unnecessarily waiting for funds. The Trustee has the power to distribute needed funds without any delay or piles of paperwork. You may rest assured that whatever happens to you, your family will have what they need, when they need it.
4. Achieve more privacy than with a Will – A Last Will and Testament is a public document, once it is probated, all its provisions are open to inspection by anyone. The FFDT is designed to limit the information shared to a minimum. Concurrently with the preparation of the FFDT, we also prepare what is called a Certification of Trust Power and Authority and an Abstract of Trust. The former documents the details of operating the Trust, such as the names of professional advisors and locations of asset accounts. The latter contains all the relevant information pertaining to the Trust that may need to be disclosed to outsiders (i.e., the Trustee’s powers, the beneficiaries identities and the Trust’s situs). The Abstract retains privacy because it does not disclose the Grantor’s objectives in establishing the Trust or the distribution schedule of the Trust.
5. Maximize tax avoidance by using all your unified credit – The government allows $3,500,000 of assets ($7,000,000 if married) to pass to your heirs, free of estate tax. Upon the death of the Grantor or the first Grantor spouse, many people fail to take full advantage of this exemption. This is because the assets that pass tax free are given to another person directly. The amount of the inheritance is then added to the heir’s estate and either depletes their exemption or creates estate exposure. This can be avoided through the use of the B trust (Unified Credit Shelter Trust).
Upon the death of the Grantor or the first Grantor Spouse, an amount of assets equal to the decedent’s available credit is put into an irrevocable trust. The B Trust retains these assets and distributes income and principal as needed to the beneficiaries. The assets in this trust will escape estate taxation, predator creditors and greedy ex-spouses until finally distributed to your grandchildren at age 65.
6. Maintain the ownership status of assets as they existed outside of the Trust – Assets that are a Grantor’s separate property keep that status inside the Trust also. Community property remains community property and joint property remains joint property. You may also alter the ownership status of assets easily at the time the Trust is funded if your situation warrants.
7. Rest assured that the realities of life will not impede your plan – A new child, divorce, or remarriage will not prevent your distribution plan from working. If there is a new child in the family, the FFDT has provisions that ensure equal treatment. A subsequent divorce triggers provisions that work to remove the divorced spouse’s name from the Trust and all powers granted to that spouse are extinguished. If you get remarried, the document is designed to allow the insertion of new beneficiaries easily with a minimum of cost and paperwork.
8. Know that your surviving spouse will not waste your assets on a new spouse – If the surviving spouse remarries, the FFDT is designed to eliminate payments and all other rights under the numerous Sub-Trusts, except the Marital Trust. This is not to punish the surviving spouse, but rather protect him/her from things like bedroom blackmail.
Imagine an elderly person who begins to enjoy the company of a younger person. Reality suggests that the older person will be more anxious to get “in the sack” and we all know that this may be a very mentally debilitating urge. This provision prevents the younger, and maybe greedy, person from making monetary demands because all the “real money” is not under the control of the surviving spouse, but rather the Trust.
9. Protect the assets from your beneficiaries’ creditors – Once the initial Trust sub-divides upon the death of the Grantor, the newly created Sub-Trusts will be Spendthrift Trusts. If there is a surviving Grantor Spouse, all the sub-trusts, except the A Trust, will be of this type. A Spendthrift Trust is one that is not reachable by the creditors of the Trust’s beneficiaries, including ex-spouses. The creditor must find the beneficiary with money in hand.
Even though the beneficiary is entitled to the money, the creditor cannot force the Trustee to make the required distribution directly to the creditor. This fact has caused many a Trustee to constantly alter the payoff location, thus hindering the creditor’s ability to track and attach the money.
10. Eliminate the chance that your assets will support an addicted beneficiary – The trustee is empowered to “cut-off” a beneficiary that is addicted to gambling, alcohol or drugs, or engaged in any other self destructive behavior that is facilitated by payments of money.
The wayward beneficiary is not left to fight the recovery battle alone. When the beneficiary is ready, the Trustee is also empowered to pay for all the rehabilitation required to get that beneficiary back on his/her feet. The FFDT also provides a system of monitoring that enables the Trustee to be sure that the beneficiary is living a clean life, such as drug testing.
11. Enjoy knowing that your assets will help your beneficiaries get started in life – There are provisions in the FFDT that allow the Trustee to distribute funds to a beneficiary to assist that beneficiary in purchasing a first home, funding a first wedding or launching a new business. This way your hard earned money will go to good use and provide joy and happiness to those who gave you so much of the same.
12. Have the built-in flexibility needed to alter or amend Sub-Trusts – Almost all of the Sub-Trusts are irrevocable and by definition cannot be changed. Our document contains a special Protector provision that allows alteration or amendment to the Trust in case of a dire need. An independent third party is designated as the Protector. The Protector is given the power to facilitate required changes.
The Protector also monitors the Trustee and may remove a bad Trustee if it is in the best interest of the beneficiaries. This guarantees that a renegade Trustee may be removed easily without court involvement or ongoing damage to the Trust. The estate planning attorney is usually the Protector because of his/her special relationship with the Grantor and his/her family. The Protector provision only applies once the Grantor ceases to be a Trustee.
13. Have a family bank in place – The Trustee is empowered to make loans to family members. The loans are secured by the borrower’s assets, such as the equity in their home or their stock in a business. This technique also protects the secured assets from creditors because any liens or encumbrances attached to the asset at a later date are subordinate to the Trust as a creditor.
14. Take satisfaction in knowing all your legal documents have been designed to work together as a team to provide unequaled advantages – All of our documents overlap and are designed to back-up one another. The Last Will and Testament serves as a safety net for any assets that are not placed in Trust and pours over those assets into the Trust. The Living Will, Medical Power Of Attorney and Durable General Power of Attorney are given “teeth” through provisions in the FFDT that provide financial backing to those who try to assist you and your agents in carrying out your requests.
The Confidentiality Agreement helps reduce the chance for conflict and create an atmosphere of harmony among the signers. The Statement of Wishes guides your Trustee in distributing the assets in Trust. Tangible Personal Property Inventory Lists allow you to designate who will receive individual pieces of your personal property, and to add items or change beneficiaries informally.
The only thing more impressive than what the FFDT does is how easy the FFDT is to operate. All you have to do is follow these simple steps. First, the Trust must be funded. “Funding” the Trust means legally transferring ownership of each asset to the Trust.
You simply prepare a deed, bill of sale or assignment that covers each asset or group of assets with you as the Grantor, Seller, or Assignor and the Trustee as the Grantee, Buyer or Assignee. You document the assets transferred to the Trust with a Schedule of Assets that is attached as an appendix to the Trust agreement. It is crucial that all your assets be transferred to the Trust; any asset not in trust is subject to probate as discussed above.
Next, since the Trust is completely funded, it needs to be administered. The Trustee or Trustees are responsible for the actual running of the Trust. The Trustee signs all documents, handles all distributions, and makes all decisions.
If there is more than one acting Trustee, one person is appointed the Managing Co-Trustee and is given most of the power. All decisions made under these circumstances must be unanimous. No one Trustee is given absolute power. The FFDT also contains designations for back-up Trustees that ensure that the Trust will continue to function regardless of whether the initial Trustee is willing and able to act.
The Trustee is personally liable for any willful misconduct or bad faith acts he/she commits while acting as such. We drafted the FFDT to remove any bond requirements on the Trustee and to give the Trustee the freedom to do what you would have wanted, even when this does not garner the highest monetary return. The FFDT makes it easy to carry out your distribution plans with a minimum of formalities.
Finally, the initial Trust is broken down into Sub-Trusts when the Grantor or first Grantor Spouse dies. For a single Grantor, the revocable FFDT becomes irrevocable.
The goal is to have the value of the assets in Trust equal the Grantor’s remaining unified credit against gift and estate tax. This way the largest amount of money is sheltered from subsequent taxation as long as possible. It is impossible to remove the money from taxation forever because the government limits the duration of trusts, although the FFDT is designed to last as long as legally possible.
The new Trust is called a Primary Beneficiary Trust and provides benefits for the primary beneficiaries lifetimes. When the primary beneficiaries die, another Trust is created, the Secondary Beneficiary Trust. This Trust continues on until these beneficiaries die and the assets are finally distributed.
As a result of this strategy, you, your parents and your children will receive income and principal as necessary to live comfortably and deal with emergencies. Your grandchildren will receive the same payments over most of their lives and they will also be the final recipients of the Trust assets. If all goes well, the grandchildren will not even need this final distribution and may disclaim their interests.
The remaining assets will then go to the heirs of the secondary beneficiaries. If there are none, a foundation is set up in the family name, thereby completely escaping any further taxation by the government. Your family will control the foundation, just like the Fords and Rockefellers, and be able to use it to indirectly benefit your family for many future generations. This is really disinheriting the IRS forever.
If the Grantors are spouses, the initial breakdown functions differently. When the first Grantor Spouse dies, the initial Trust is split into two shares, the decedent’s share and the surviving spouse’s share.
The decedent’s share includes all his/her separate property and one half of the community property or joint property. The balance belongs to the surviving spouse. The decedent’s share is put into the B Trust (Unified Credit Shelter Trust) and optimally would equal the decedent’s remaining unified credit.
The surviving Grantor Spouse’s share remains in a revocable QTIP Trust and the assets are used to support the surviving Grantor Spouse. The assets in excess of $3,500,000, or whatever is the then lifetime exemption, in the QTIP Trust are subject to estate taxes on the death of the surviving Grantor Spouse. Thus, the QTIP Trust needs to be depleted before the assets in the B Trust, in order to maximize tax avoidance. On the death of the surviving spouse, the QTIP and B Trust assets are then combined to create the Primary Beneficiary Trust.
This description of the breakdown of the Sub-Trusts is very general. The actual breakdown may differ depending on the circumstances of the client. For example, the FFDT is designed to breakdown into Qualified Subchapter S Trusts if the Grantor owns an S corporation. The Marital Trust may be a Qualified Domestic Trust if the surviving spouse is not a U.S. citizen. An additional trust may be created to hold disclaimed property. Your situation could require a Generation Skipping Transfer Tax Trust. All of these various Trusts are included in the FFDT and only need to be funded and administered.
The revocable living trust is the backbone of any good estate plan. The quality of the estate plan is directly related to the foundation upon which it is built. That is why we have put so much time and effort into thinking of contingencies and planning for them.
It is very important to remember that having a Trust is critical, but it is not enough to disinherit the IRS and frustrate predator creditors. If your estate is greater than $3,500,000 ($7,000,000, or whatever is the then lifetime exemption if married), you need to reduce your estate to avoid 45% taxation. Gifting may eliminate this tax cost. If you have a business, a lawsuit may wipe you out in one shot. The choice of business entity and its function in your estate plan may eliminate or significantly reduce this exposure. There are countless legal maneuvers that may assist your situation; all we need is your desire to accomplish the goals.