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Tag: Trusts

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Attorney-Client Privilege Is not Absolute

Bigstock-Young-man-holding-a-trash-bin--26453660[1]When you go to an estate planning attorney you expect that what you tell the attorney will be protected by attorney-client privilege. However, that might not always be the case.

Attorney-client privilege is one of the most important legal doctrines in the U.S. It allows people to be open and honest with their attorneys without fear that the attorney can later be forced to use any information obtained against the client. This doctrine even has an important place in estate planning.

To properly plan an estate a client needs to be able to tell the attorney what his assets are. The client would not be willing to do so if the attorney could later be forced to testify in a different legal dispute about those assets.

However, there are exceptions to attorney-client privilege as the Wills, Trusts & Estates Prof Blog reports in "Treasure-Hunter's Documents Might Be in Deep Water."

In the case discussed, a former treasure hunter hired an attorney to create an offshore trust. The client then got financing for an expedition in which he recovered gold from a sunken ship. However, he refused to pay the people who had financed his treasure hunt.

They are asking the judge to force the attorney to reveal the trust documents so that they will have an easier time recovering the money.

The judge in the case, while not making a decision, has acknowledged that the crime-fraud exception to attorney-client privilege might apply in this case. In other words, if the attorney's services are knowingly used to commit a crime or a fraud, attorney-client privilege does not apply.

Reference: Wills, Trusts & Estates Prof Blog (Nov. 17, 2016) "Treasure-Hunter's Documents Might Be in Deep Water."

 

 

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Charitable Trust Deductions

man holding a lot of coins in his handsLike individuals, trusts have to pay tax on any trust income. Also, like individuals, trusts can take income tax deductions for donations to charity as long as the trust is set up properly.

No one really likes paying income taxes. Almost everyone will seek to pay as little as they possibly can. That holds true for trusts that are required to pay federal income tax on any income from trust assets.

One way to lower the amount of taxes that have to be paid is to donate money to charity and take a charitable donation. Trusts can do that just as individuals can.

However, a recent tax court case contains a warning for trusts as Wealth Management discusses in “Tax Court Disallows Trust’s Charitable Deduction for Want of Charitable Intent.”

For years the trust in question had made annual distributions to beneficiaries as required. The trust administrators also set aside funds for charity so they could use that money to take charitable deductions on the trust’s taxes.

However, when the IRS audited the trust, it balked at the deductions.

The tax court agreed with the IRS.

The issue was that the trust documents contained no language of charitable intent. The court refused to read such an intent into the trust.

What does this mean? If you would like your trust to be able to use charitable deductions to offset trust income, then it needs to be clear in the trust documents that the trust has a charitable purpose in part.  If you want to set up a trust that can make charitable deductions, contact Profit Law Firm.  Schedule a consultation with us.

Reference: Wealth Management (Nov. 7, 2016) “Tax Court Disallows Trust’s Charitable Deduction for Want of Charitable Intent.”

 

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A Bypass Trust Might Still Be Your Best Option

Senior couple standing togetherRelatively recent changes to federal estate tax law have made bypass trusts less popular than they used to be. However, they are still good in many circumstances.

It used to be a complicated process for a married couple to get the most out of the estate tax exemption. When one spouse passed away his or her estate tax exemption could be useless if all of the assets went to the other spouse directly. When the second spouse passed away all of the couple’s assets would be considered part of his or her estate and the individual estate tax exemption would be applied.

To get around this couples had to get a “bypass” trust of which there were many types. Essentially, the surviving spouse was bypassed in the estate plan.

The relatively new federal law of spousal “portability” changed this and made bypass trusts less necessary. Now, if the paperwork is properly filled out, a surviving spouse can elect to carry over the deceased spouse’s estate tax exemption and use it along with his or her own later.

This move essentially doubles the estate tax exemption.

However, there are some situations where a bypass trust is still a good idea as discussed by the Poughkeepsie Journal in “Bypass trust works better for many families.”

Many states have estate taxes of their own and they do not all allow spousal portability. For instance, Maryland has a state estate tax and the District of Columbia has a state estate tax. Thus, in Maryland and the District of Columbia a bypass trust is still necessary to take full advantage of estate tax exemptions. A bypass trust can also be used to protect against a surviving spouse getting remarried and having all of the couple’s property eventually ending up in the new spouse’s family. As a result, bypass trusts are a useful estate tool for blended families, learn more here. They can also be used as a great way to include other family members in the estate plan, especially grandchildren.

If all this sounds a bit confusing, do not worry. That is why there are estate planning attorneys and firms like us.

Tell the attorney what you want done with your possessions after you pass away and let the attorney worry about the best way to accomplish that while minimizing the estate tax burden on your estate.

Reference: Poughkeepsie Journal (Nov. 4, 2016) “Bypass trust works better for many families.”

 

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Trusts – What Different Types of Trusts Exist?

Business_meeting[1]Learning about trusts can sometimes be difficult as there are several different types of trusts that you can get that are designed to do different things.

When attorneys talk about trusts they often end up confusing laypersons with all of the legal jargon. There are many different types of trusts out there and each type has its own terminology. This legalese can be difficult for the uninitiated to understand.

This is a problem for people who would like to set up a trust. They need to know what it is their attorneys are talking about so they can choose the right type of trust.

Recently, the Motley Fool discussed some common trust types in "Navigating the World of Trust Funds: Your Quick Guide," including:

  • Revocable Living Trusts – These are trusts the settlor (the person who creates the trust) can easily dissolve. If circumstances change, assets in the trust can be removed and a different trust can be created. These trusts avoid probate.  They do not reduce taxes.
  • Irrevocable Trusts – These trusts cannot be revoked. They often have estate tax benefits, while revocable trusts don't.
  • Credit Shelter Trusts – While not as useful as they used to be, these trusts still offer a good way to avoid some estate taxes. They are particularly useful in Maryland and DC, which currently have state estate taxes for estates greater than $2million and $1 million. Assets in the trust are held for the benefit of children normally, but a spouse can still use those assets while he or she is alive. The assets are not counted as part of the spouse's estate for tax purposes.
  • Generation-skipping Trusts – These trusts are created for the benefit of grandchildren instead of children. This is normally done for estate tax purposes, but the trusts need to be set up by experts to avoid other tax issues.
  • Qualified Personal Residence Trusts – These very specific trusts are a way to pass a home on to heirs while minimizing estate and gift taxes on the home.

When it comes to deciding which trust “flavor,” if any, is appropriate for you, be sure to contact a qualified estate planning attorney.

Reference: Motley Fool (Sept. 18, 2016) "Navigating the World of Trust Funds: Your Quick Guide."

Suggested Key Words: Estate Planning, Trusts

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Not the Best Advice

Sometimes people who have good intentions can give bad advice. An illustration of this comes from a recent Dear Abby column that advised a woman to tell her mother to set up a trust.

The columnist known as Dear Abby has been giving advice for decades to newspaper readers who write in with problems. To her loyal readers she is seen as a wise woman who can always be counted on to assess a situation, cut to the chase and dispense good advice.

However, a recent column in which she advises a woman to tell her mother to get a trust illustrates why some types of advice are better left to lawyers.

The column was published in the Chicago Sun Times as “Dear Abby: He wants a night when wife dresses sexy.”

A woman wrote in to say that her mother has given her older brother an allowance for many years. The brother lives in another country because he is a fugitive from the law with outstanding warrants. The mother fears that without the money the brother will become homeless and not be able to support himself. Because of this the mother expects the daughter to continue giving money to her brother after the mother passes away.

Abby suggests that the woman tell her mother to set up a trust for the brother so that he will be taken care of and it will not be the letter writer’s problem.

At first glance, that advice might seem reasonable. A trust would be a great way for a mother to provide for a son who needs money but is not able to take care of himself.

Under ordinary circumstances a trust lawyer would be happy to set up this type of trust. However, this is not an ordinary circumstance. Since the brother is a fugitive, anyone who knowingly helps him could face legal consequences. The better advice may have been to consult an attorney.

Reference: Chicago Sun Times (Sept. 12, 2016) “Dear Abby: He wants a night when wife dresses sexy.”