Ensuring that your assets are passed on to heirs in a way that you wish is not always easy because of the many options available and the fact that the tax laws are always changing. While certain facts are relatively fixed – i.e., beneficiary designations on life insurance policies and retirement plans avoid having these particular assets subject to probate, others are subject to change. Keep up with these changes by meeting with your estate planning attorney on a timely basis.
The use of trusts to help estates avoid probate is well established in any estate planning law practice, but when laws change, estate planning must change also. An explanation comes from The (Anderson, IN) Herald Bulletin article, "Changes in laws can affect your estate planning," which explains how the revocable grantor trust works and why it was created: to help people avoid 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 that are generated from investments and income are reported on a standard tax return. When assets are placed in a 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 re-examine 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. Talk over all of these important matters with your estate planning attorney, so that you can make informed decisions about the future.
Reference: The (Anderson, IN) Herald Bulletin (July 10, 2015) "Changes in laws can affect your estate planning."