Determining a process for passing assets on to heirs is an integral part of the estate planning process. But it's not always easy to determine the wisest path, given the many options available, as well as changing tax laws. Beneficiary designations on life insurance policies and retirement plans are one way to avoid sending assets through the probate process. Homes and autos are usually jointly owned. If an individual is single or the asset is held in just one name, the estate will go through probate. Assets passing via a will document also go through probate.
The (Anderson, IN) Herald Bulletin article, "Changes in laws can affect your estate planning," explains that the revocable grantor trust was created with the thought of assisting people in avoiding probate. A revocable grantor trust roles include the grantor (the person making the gift), the trustee in charge of the trust (typically the grantor), the income beneficiary (also usually the grantor), and the remainder beneficiary. Taxes from investments and income are reported on a standard tax return. When assets are placed in a trust ("funding the trust"), individuals have control and the use of the assets. Ownership is structured so that there is no probate. Individuals should fund the trust with as many assets with which they are comfortable (except IRAs and retirement accounts).
The article notes that under previous laws, a lot of time would be taken in deciding whose trust would be funded with what assets. Typically, two trusts would be set up right away for married couples, with the idea that when the first spouse passed, the survivor would be able to use unified credit to avoid tax liability. Before a recent law change on "portability," or the application of the tax credit, individuals had to use it or lose it. As a result, spouses would have to have two trusts—both revocable—and when one spouse passed, their trust would become irrevocable. Income typically would all be paid out to the surviving spouse. However, the assets remained in the trust for subsequent beneficiaries.
With portability, a person doesn't have to use it or lose it when the first spouse dies. This change makes it imperative that people reexamine their trusts and fund a single trust. But before you go and make changes, you need to sit down with your estate planning attorney to see if your estate plan needs to be updated.
The article acknowledges that we all like to compartmentalize decisions, and that it's especially easy to do so with estate planning. Who wants to talk about what's going to happen after you're dead? Not a popular topic with most people. Even so, poor planning—or no planning—can really impact investments and tax planning, as well as plant the seeds for a major headache for your heirs.
Reference: The (Anderson, IN) Herald Bulletin (July 10, 2015) "Changes in laws can affect your estate planning"
Talk over all of these important matters with your estate planning attorney, so that you can make informed decisions about the future. Give us a call at (978) 342-1914 or visit us at www.dellamonaca.com.