An increasing number of people are utilizing the revocable living trust as the primary document in their estate plans. A revocable living trust is an entity created during lifetime in which an individual (called a trustee) holds legal title to property on behalf of a beneficiary, who is typically the individual establishing the trust (or the grantor).

It is a revocable trust because the grantor, at all times and for any reason, retains the absolute power and right to revoke the trust, or to otherwise amend or change the trust terms in any fashion. In addition, the grantor may withdraw the trust assets at anytime by taking the properties back into his or her individual name.

The living trust is beneficial because it permits an individual to transfer title of his or her assets now, but that transfer is not to the individual's beneficiaries, but rather to the trust entity. In fact, the re-titling of assets during lifetime is generally considered to be the revocable trust's principal advantage since assets held by the trust will not be subject to court supervision. Furthermore, the grantor typically serves as initial trustee so as to maintain complete control over the management of the assets.

In the event of an incapacity or illness, a successor takes over as trustee to manage the trust and otherwise provide for the grantor, without the necessity of seeking the appointment of a legal guardian to take title to his or her assets.

Upon death, the successor trustee would be in charge of the assets without the necessity for probate proceedings. If probate were required, delays in transferring the properties to one's family and the potential for additional legal, accounting and court costs could result. Without court involvement, the trustee can expeditiously transfer the assets in accordance with the grantor's wishes, which will remain private, as a trust agreement need not be deposited with the probate court at death.

The trust will often contain significant tax planning provisions as well as terms of ongoing trusts for the grantor's family. This arrangement could permit the grantor's assets to be kept together in one piece for the family's benefit for a period of years. In addition, the trust could also provide for the protection of the properties from creditors or claims against the family.

While the revocable trust will, in effect, take the place of a Last Will and Testament, in that the trust will provide for the disposition of the grantor's assets at death, a Will is nonetheless a necessary instrument in every estate plan. If a trust is established, but one's assets are not properly transferred to the trust during lifetime, a Will would be required to direct the disposition of assets at death. In an estate plan that includes a revocable trust, a Will could merely provide that any assets that might be titled in a grantor's individual name pass to the trust to be held by the successor trustee under the general provisions of the grantor's estate plan. Moreover, a Will would name a guardian for any minor children.

Notwithstanding the advantages of the revocable living trust, it is not appropriate or necessary in every instance. Therefore, any person interested in exploring the applicability of a revocable trust in their estate plan should consult their attorney.

By: Joshua Keleske
Joshua T. Keleske, P.A. proudly serves families in the Tampa Bay area with their estate planning, estate and trust administration, and business planning needs. If you have questions regarding how we can be of assistance to you and your family, please contact us at anytime at 813-254-0044. We are happy to answer your questions and arrange for an appointment to speak with you.

Please also visit http://www.trustedcounselors.com to learn more about Joshua T. Keleske, P.A.

An individual's largest asset is usually their homes. In an attempt to keep these large assets in the family and to avoid probate, individuals are either gifting the homes away to children early by signing over the deed or setting up a living revocable or irrevocable trust. Unfortunately sometimes these instruments are not used properly, don't take in all that needs to be done in estate planning and could cause harms not initially apparent when initially create them.

Trusts are used to manage assets. They can be set up to accomplish any number of goals such as providing income for a child, grandchild or other family member or it can provide income for a favorite charity or distribute assets in an attempt to reduce tax consequences or security assets from those inevitable issues that come with aging.

If you are setting up a trust in order to protect your assets from creditors or other unforeseeable situations which may arise as you age you must look at both types of trust closely to determine which is best for your circumstance. There are two types of living trusts, revocable and irrevocable. The difference being that the revocable trust can be changed or modified, giving the creator the flexibility of continued control over the assets during his lifetime. The other type of trust is an irrevocable trust. Once an irrevocable trust is established it cannot be changed. The creator will have no access or control over the assets any further through their lifetime once it is placed in the irrevocable trust. Some individuals do not like particular aspect of irrevocable trusts. They want the protection of the trust however they do not want to give up all control of their assets. Depending on what needs to be done in the protection of the assets, an individual might have to give up all control over the property in order to get the protection necessary from creditors or lien holders.

It is important to understand prior to forming such an instrument, that general creditors may use the Uniform Fraudulent Transfer Act (UFTA) under G.L. c. 109A to void or rescind a transfer by a individual debtor for less than fair consideration, regardless of whether the transfer is to an individual or a trust. The Fraudulent Transfer Act can be used by an individual's creditor if they can show that: 1) the debtor had "actual intent" to "defraud either present or future creditors"; or 2) the debtor believed "that he will incur debts beyond his ability to pay as they mature"; or 3) even if there was no fraudulent intent, the debtor was "thereby rendered insolvent". What this act will do is render an individual's trust void and rendered charges against the individual for a fraudulent transfer. This "look back" period as it is called is a statute of four years. If for example an individual has placed a piece of property into a trust and then enters a nursing home the creditor or Medicaid will look back four years from the date of incurring the charges to see if any property was transferred. If such property was transferred and the intent is considered fraudulent then the trust is considered void and the nursing home will be able to attach the home for charges incurred.

Also prior to placing assets into a trust the individual must understand that in bankruptcy, debtors must report all transfers made within one year of signing the bankruptcy petition. In conjunction with the one year "look back" period in bankruptcy, creditors may also use the Fraudulent Transfer Act to reach assets that have been transferred without fair consideration within their four year "look back" period as well.

If after discussing all aspects of why you need an instrument for estate planning with your attorney understanding the difference in the instruments, what they can and can't do is the next step. While a revocable trust gives the individual the ability to continue to control their assets, this control makes it impossible for the trust to offer any protection to an individual from creditors seeking to collect on a debt. "The established policy of the Commonwealth long has been that a Settlor (person who creates the trust) cannot place property in the trust for his own benefit and keep it beyond the reach of his creditors". Following, after the settlor's death, creditors of a settlor also have access to any and all trust assets that the trustee could have distributed during his lifetime. The plain meaning is that a revocable trust offers no creditor protection to the creator of such a trust.

A revocable trust may also result in loss of homestead protection and right of survivorship. A homestead or homestead exemption means that your home is protected from creditors up to the limit of the exemption for as long as the house is your primary residence. A homestead prevents most creditors from taking the house away from you to satisfy a debt that you owe the creditor. It will also protect your home in the event that you have to file for bankruptcy. If the home is placed in a trust, the homestead does not work. The home is no longer a primary residence, it is placed in the trust name and is no longer in your name. The placing of the home in a trust also will break the right of survivorship relative to a spouse that survives you.

An irrevocable trust in turn will protect you from your creditors as long as the trust is created in such a way the individual has no control over the trust asset for which it was made. In making any type of long term estate plan it is the best policy to speak to an attorney regarding your assets, your long term planning, and how you would like to manage such assets during and after your lifetime. Due to the "look back" period this should be done sooner rather than later.

By: Michael A. Goldstein
The foregoing article was drafted by The Law Office of Goldstein and Clegg, LLC. For additional articles, see their Bankruptcy Law blog.

Since 1993 it has been public policy in New York State to allow parents (or other relatives) of a disabled child to set up a trust for their inheritance which will not disqualify them from government benefits, such as Social Security and Medicaid. The reasoning behind these supplemental needs trusts is simple - prior to the protection now afforded by these trusts, parents would simply disinherit their disabled children rather than see them lose their benefits. Since the state wasn't getting the inheritance monies anyway, why not allow it to go to the disabled child for his or her extra needs, above and beyond what the state supplies, such as sundries, clothing, meals, vacations, over-the-counter medicines, upgraded medical procedures, reading material, recreation, improved housing, etc.

These trusts, however, offer traps for the unwary. Since payments to the child will generally reduce their SSI payments dollar for dollar, trustees of such trusts should be advised to make payments directly to the providers of goods and services. Preserving SSI benefits is crucial since eligibility for SSI determines eligibility for Medicaid. In other words, if SSI is lost the recipient also loses their Medicaid benefits. In addition, any benefits previously paid by Medicaid may be recovered. As such, one also has to be mindful of bequests from well-meaning grandparents.

Distributions from the trust to the beneficiary should be "in kind" rather than in cash. For example, the trust may own items such as furniture and allow the beneficiary child the use of them. In addition, the supplemental needs trust must be carefully drafted so that it only allows payments for any benefits over and above what the government provides, not only now but also in the future. The child may not control or have direct access to any portion of the trust.

A major issue for parents today is the increased life expectancy of their disabled child. With major advances in medical care, many disabled children, who would have in earlier days predeceased their parents, are now surviving them. In order to solve this problem, parents often make the planning error of leaving a disproportionate share of the estate to the disabled child. This can engender hard feelings in siblings who, although agreeable to such an arrangement initially, may find themselves in need of funds later on and resentful of the uneven distribution in favor of the disabled child. The surviving siblings are often the only support network available for the special needs child so that it is all the more important to keep peace and harmony in the family.

Often, an analysis with the estate planning attorney will reveal that the income from an equal division of the estate will, in fact, be sufficient to provide for the disabled child's needs. If such is not the case, "second-to-die" insurance may be purchased to provide for any additional funds needed. The policies are written over two lives, those of both parents. Since the insurance company only has to pay when the second parent dies (i.e., when the funds are needed) the premiums are significantly lower than on a single life policy.

Some parents, feeling the family is close enough, think that they can simply leave the inheritance to a brother or sister who will then take care of the disabled sibling. This offers no protection to the disabled child in the event the sibling runs into financial difficulties, has a divorce or predeceases the disabled child. The supplemental needs trust allows the sibling, as trustee, to manage the assets for the benefit of the disabled child while providing complete protection for the funds and the naming of back-up trustees to continue the trust in the event of the death or disability of the initial trustee. Remember, these trusts may have to last for many years.

With the complexity of modern trust administration, many parents are choosing both a personal and a professional trustee, so that the family member can provide the personal input while having the professional trustee handle the administrative items, such as monitoring investments and preparing tax returns.

It is also a good idea to review beneficiary designations on IRA's and 401(k)'s as well as on annuities and insurance policies so that the disabled child's supplemental needs trust is named as the beneficiary rather than the child themselves. Watch out for simple designations such as "my spouse first and my children second".

Another key issue is continuity of care for the child upon the surviving parent's death. Revocable living trusts are often used as the estate plan of choice since the trustee may use and distribute assets for the benefit of the disabled child immediately after the parent's death, unlike in the case of a will, which must first be probated, a court proceeding to determine its validity. These proceedings may tie up the estate assets for many months or even years in some cases.

Not to be overlooked in planning for the disabled child is the "Letter of Intent" or Personal Needs Notebook, where the parents should provide the following information to the trustees (1) the nature of the child's disability (2) emotional and financial care provided by the family (3) persons involved with the child (4) the child's capabilities and limitations (5) their likes and dislikes (6) their behavioral quirks and nuances (7) their daily routine, and (8) how they act with other people and in other places when the parents are not around.

One final word of caution. Where a disabled child is involved, it is of greater importance that funds be available when needed. As such, long-term care insurance for the parents should be arranged so that the money the family is depending on to support the disabled child is not lost for the parents' potential nursing home expenses.

By: Michael Ettinger, Esq.
Principal attorney Michael Ettinger has been a member of the New York State Bar since 1980. He is a law graduate of McGill University in Montreal, Canada and obtained his Master of Laws from the London School of Economics in 1978. Ettinger Law Firm, dedicated exclusively to estate planning and elder law, was formed in 1991. Mr. Ettinger is a founding member of both the American Academy of Estate Planning Attorneys and the American Association of Trust, Estate and Elder Law Attorneys. Ettinger Law Firm has prepared thousands of estate plans using trusts and Medicaid applications. Their staff of attorneys and experienced Medicaid professionals provide over fifty years of combined experience in estate planning and elder law.

Ettinger Law Firm offices are located throughout New York State in Albany, Fishkill, Nyack, White Plains and Staten Island. Please visit their website, http://www.trustlaw.com, for directions and more information about estate planning and elder law.

An important goal of estate planning is to protect income and assets from creditors' claims and tax collection. While many people think asset protection involves dishonest techniques, there are many ways to protect personal property, real estate and other assets. In addition to federal and state laws that exempt certain types of property from creditors' claims, there are numerous estate planning tools that may be able to shield assets from future creditors and reduce or eliminate estate or income taxation. One such tool is the family limited partnership (FLP).

Family Limited Partnerships and Asset Protection.

An FLP is a valuable asset protection strategy for a family whose members want to preserve their assets while retaining control over them. An FLP is a specially designed limited partnership, consisting of one or more general partners who are responsible for managing partnership affairs. The other partners are called limited partners, and they are not permitted to participate in any management decisions and generally have no vote and have limited rights.

Valuation Discounts.

Because interests in FLPs are generally not marketable (that is, interests in FLPs cannot be converted easily to cash at a known market price), a discount for lack of marketability is typically appropriate. Such a discount significantly reduces an FLP's value for estate tax purposes. A minority discount may also be available to reduce the valuation of an FLP interest given to a limited partner who has a noncontrolling interest in the FLP.

Annual Gift Tax Exclusion and Gift Tax Exemption.

FLPs are often designed to reduce estate and gift taxes by taking advantage of valuation discounts while making gifts utilizing one's annual gift tax exclusion of $12,000 and the gift tax exemption of $1,000,000.

Once an FLP has been established and property is transferred thereto, limited partnership interests may be given to on family by means of an annual program taking advantage of the $12,000 annual gift tax exclusion. Larger blocks of limited partnership interests, taking advantage of the gift tax exemption, may also be made without incurring gift tax.

Shielding Assets from Creditors.

An FLP provides a substantial measure of protection against creditors. By using such an entity, the family assets will be titled away from one's family, although they are given ownership in the family assets. Without the partnership, a transfer to a child could involve giving title to the child, exposing the title to creditors, spouses, and taxing authorities. The transfer of limited partnership interests passes no control, and any claims by creditors, spouses, or taxing authorities against a child may only be asserted against the limited partnership interests without the ability to reach the property itself.

Absent a fraudulent conveyance, a Florida judgment creditor cannot reach the assets inside the partnership and cannot attach the partnership interest. A creditor is limited to obtaining a charging lien. This means that the creditor would be entitled to distributions only when the FLP actually declares distributions.

If no distributions were made, then the creditor would receive nothing. Additionally, the IRS has ruled that a creditor with a charging lien on a partnership interest must recognize a pro rate share of the partnership's income, whether or not it is distributed. Accordingly, creditors rarely assert charging liens against partnership interests or will settle their claims at a substantial discount.

Conclusion.

Taking steps to protect your assets from creditors' claims, the availability of valuation discounts to reduce the estate or gift tax value of an FLP, and strategic use of the annual gift tax exclusion and gift tax exemption can result in significant preservation of your assets.

By: Joshua Keleske
Joshua T. Keleske, P.A. proudly serves families in the Tampa Bay area with their estate planning, estate and trust administration, and business planning needs. If you have questions regarding how we can be of assistance to you and your family, please contact us at anytime at 813-254-0044. We are happy to answer your questions and arrange for an appointment to speak with you.

Please also visit http://www.trustedcounselors.com to learn more about Joshua T. Keleske, P.A.