Understanding Trusts and Wills: An In Depth Look at the S-Trust and S-Will

Finance
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Understanding Trusts and Wills: An In Depth Look at the S-Trust and S-Will

Introduction

As individuals approach the later stages of life, estate planning becomes crucial not only for the orderly transfer of their assets but also to minimize the emotional and financial burden on their heirs. For parents aged 85 and 90, setting up a Revocable Living Trust (S-Trust) in combination with a Will (S-Will) can be a strategic move. This report explores the intricacies of these estate planning tools, focusing on their setup, common assets, and strategies to avoid probate.

Q1: Schedule A Trust Property - What Should Be Included and Excluded?

Included in Schedule A:

  1. Real Property: Deeds for homes, land, or rental properties are often placed in a trust to avoid probate. For example, if the S-Trust holds the family home, the transfer of title upon the parents’ passing is straightforward.

  2. Bank Accounts: Checking, savings, and Certificates of Deposit (CDs) can be transferred into the trust, which simplifies asset management and distribution.

  3. Investment Accounts: Stocks, bonds, mutual funds, and ETFs. For instance, if the parents have stock certificates from companies like Apple or Microsoft, these would be listed.

  4. Business Interests: Shares in family businesses or partnerships, ensuring continuity of business operations.

  5. Life Insurance Policies: Where the trust is the beneficiary, ensuring that insurance proceeds are managed according to the trust’s terms.

  6. Intellectual Property: Copyrights, patents, or royalties that generate income.

Excluded from Trust Property:

  1. Automobiles: Typically, personal vehicles are not included due to their depreciating value and the ease of transferring title through state DMV procedures.

  2. Personal Effects: Jewelry, clothing, and personal mementos, which are often distributed through specific bequests in the will or handled informally.

  3. Retirement Accounts: IRAs, 401(k)s, etc., are generally not part of a trust due to tax implications, although the trust can be named as a beneficiary.

  4. Foreign Assets: Managing foreign property or assets can be complex due to differing legal jurisdictions.

Q2: Pour-Over Provisions in the S-Will

The pour-over provision in the S-Will directs any assets not already in the S-Trust at the time of death into the trust. Here’s what might typically be covered:

  • Unanticipated Assets: Money or property acquired after the trust was established which wasn’t included initially.

  • Overlooked Assets: Assets that were meant to be transferred but were forgotten or inadvertently left out.

  • Residual Assets: After specific bequests in the will are made, the remainder goes into the trust.

This mechanism ensures that all assets are ultimately managed according to the trust’s stipulations, although assets transferred via pour-over still go through probate.

Q3: Purpose of Grantors Being Beneficiaries

  • Control: Grantors retain control over the trust assets during their lifetime, allowing for flexibility in managing finances.

  • Income: They can receive income from the trust, which might be necessary for their living expenses.

  • Tax Strategy: This setup can be beneficial for tax purposes, especially if structured correctly with regards to estate and income taxes.

Q4: Listing the K-Trust as a Beneficiary of the S-Trust

It’s not typical but can be done for several reasons:

  • Legacy Planning: To ensure wealth is passed down through generations in a structured manner.

  • Tax Efficiency: Potentially reducing estate taxes by moving assets into a trust for the next generation.

  • Asset Protection: Protecting assets from potential creditors or legal issues of the beneficiaries.

Q5: Avoiding Probate

To minimize the need for probate:

  • Fund the Trust Properly: Ensure all major assets are titled in the name of the trust.

  • Use Joint Tenancy or Beneficiary Designations: For assets like bank accounts or real estate, joint ownership with rights of survivorship can bypass probate.

  • Life Insurance and Retirement Accounts: Designate beneficiaries directly, avoiding probate.

  • Small Estate Provisions: Some states allow for simplified probate processes for smaller estates.

  • Legal Counsel: Engage with estate planning attorneys like @EstatePlanningLawyer, who specialize in probate avoidance strategies.

Conclusion

The setup of a Revocable Living Trust and Will, as in the case of the S-Trust and S-Will, requires careful consideration of what assets to include, how to structure beneficiary designations, and strategies to avoid probate. By understanding these elements, families can ensure that the transfer of wealth is as seamless as possible, reducing potential disputes and legal fees. This approach not only preserves family harmony but also honors the legacy of the grantors.

#EstatePlanning #ProbateAvoidance #FamilyWealthManagement