Trusts: An Essential Planning Tool

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Trusts: An Essential Planning Tool

  1. 1. Trusts: An Essential Planning Tool January 30, 2013 Presented by Michael C. McBratnie, Esq. and Gregory M. Wirt, Esq.Trusts: An Essential Planning Tool© 2013 Fox Rothschild
  2. 2. Introduction Basic Concept of a Trust A legal relationship in which one persons agrees to hold property or assets for another.Trusts: An Essential Planning Tool© 2013 Fox Rothschild
  3. 3. Introduction Four Elements to a Trust - Grantor/Settlor - person who creates the trust - Trustee - person or entity that agrees to hold the trust assets for the beneficiary - Beneficiary - person that benefits from the trust - Trust Assets - assets or property contributed to the trust by the grantor/settlorTrusts: An Essential Planning Tool© 2013 Fox Rothschild
  4. 4. Introduction Grantor/Settlor Trust Assets Beneficiary TrusteeTrusts: An Essential Planning Tool© 2013 Fox Rothschild
  5. 5. Types of Trusts Testamentary Trust - A trust created under an individual’s Last Will and Testament - Becomes effective upon the death of the decedentTrusts: An Essential Planning Tool© 2013 Fox Rothschild
  6. 6. Types of Trusts Inter-Vivos Trusts - A trust created during the settlor’s lifetime - Becomes effective upon execution of the trust document and funding of the trustTrusts: An Essential Planning Tool© 2013 Fox Rothschild
  7. 7. Types of Trusts Revocable Trusts (“Living Trusts”) - An inter-vivos trust created during the settlor’s lifetime that can be amended or revoked by the settlor at any time - Includes provisions governing distributions of trust assets during the settlor’s lifetime and following the settlor’s death - May serve as a Will substitute - Assets within the trust avoid probate upon the settlor’s deathTrusts: An Essential Planning Tool© 2013 Fox Rothschild
  8. 8. Types of Trusts Irrevocable Trusts - A trust that can not be modified or terminated after being created by the settlor - Irrevocable trusts may be inter-vivos or testamentary trusts - One of the primary purposes of an inter-vivos irrevocable trust is to avoid “incidents of ownership” by the settlor and exclude the trust assets from the settlor’s estateTrusts: An Essential Planning Tool© 2013 Fox Rothschild
  9. 9. Types of Trusts Grantor Trust - Grantor trusts are created if the “owner” has certain interests in the trust or retains certain powers over the trust under Sections 671 – 679 of the Code - All income of the trust is reported on the settlor’s income tax returnTrusts: An Essential Planning Tool© 2013 Fox Rothschild
  10. 10. Types of Trusts Intentionally Defective Grantor Trust - Irrevocable trust in which the settlor intentionally retains powers or interests to cause the trust to be a grantor trust - Settlor reports the trust income on his/her income tax return but the trust assets are excluded from the settlor’s estateTrusts: An Essential Planning Tool© 2013 Fox Rothschild
  11. 11. Types of Trusts Grantor Retained Annuity Trust (“GRAT”) and Grantor Retained Unitrust (“GRUT”) - Created by the settlor transferring assets into an irrevocable trust and retaining the right to an annuity interest for a fixed term of years - When the term ends, assets remaining in the trust are distributed to the remainder beneficiaries, outright or in further trustTrusts: An Essential Planning Tool© 2013 Fox Rothschild
  12. 12. Types of Trusts Charitable Remainder Annuity Trusts (“CRAT”) and Charitable Remainder Unitrust (“CRUT”) - Irrevocable trust with a non-charitable annuity interest and charitable remainder interest - Donor receives an income tax deduction for the present value of the charitable remainder interestTrusts: An Essential Planning Tool© 2013 Fox Rothschild
  13. 13. Types of Trusts Charitable Lead Annuity Trust (“CLAT”) and Charitable Lead Unitrust (“CLUT”) - Irrevocable trust with a charitable lead interest and non-charitable remainder interest - Provides a large charitable income tax deduction in the first year and allows a “discounted” gift to the non-charitable beneficiariesTrusts: An Essential Planning Tool© 2013 Fox Rothschild
  14. 14. Types of Trusts Qualified Personal Residence Trust (“QPRT”) - An irrevocable trust that is designed to reduce the value of a personal residence for gift tax purposes - Settlor transfers the personal residence into the QPRT and is permitted to continue living in the residence for a term of yearsTrusts: An Essential Planning Tool© 2013 Fox Rothschild
  15. 15. Types of Trusts Irrevocable Life Insurance Trust (“ILIT”) - Irrevocable trust designed to own a life insurance policy on the life of the settlor - ILIT is the owner and beneficiary of the policy - Intended to avoid inclusion of the life insurance policy in the settlor’s estateTrusts: An Essential Planning Tool© 2013 Fox Rothschild
  16. 16. Types of Trusts Dynasty Trust - Irrevocable trust designed to last for multiple generations (or forever) without estate, gift or GST taxes - May be limited by the Rule Against Perpetuities - Repeal of the Rule Against Perpetuities by states has increased the popularity of Dynasty TrustsTrusts: An Essential Planning Tool© 2013 Fox Rothschild
  17. 17. Types of Trusts Spousal Lifetime Access Trusts (“SLAT”) - Irrevocable trust that names the settlor’s spouse as a beneficiary and possibly settlor’s descendants as additional beneficiaries - Includes provisions that allow distributions to the spouse during his or her lifetimeTrusts: An Essential Planning Tool© 2013 Fox Rothschild
  18. 18. Asset Protection Spendthrift Trusts Self-Settled Asset Protection Trusts - Domestic (Alaska, Delaware, Nevada, etc.) - Off-shoreTrusts: An Essential Planning Tool© 2013 Fox Rothschild
  19. 19. PA Uniform Trust Act Is an irrevocable trust really irrevocable? - Non-judicial settlement agreements - Modification or termination of trusts upon consent of the settlor and beneficiaries - Modification or termination of trusts by the beneficiaries with court approval - Federal estate tax consequences?Trusts: An Essential Planning Tool© 2013 Fox Rothschild
  20. 20. Thank You. Michael C. McBratnie, Esq. 610.458.4946 mmcbratnie@foxrothschild.com Gregory M. Wirt, Esq. 610.458.3113 gwirt@foxrothschild.comTrusts: An Essential Planning Tool© 2013 Fox Rothschild

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