Using a QTIP Trust in Estate Planning

Estate planning is crucial when managing valuable assets and ensuring the smooth transfer of wealth to future generations.

There are various types of estate planning tools available, some of which may be more useful depending on your circumstances. For some, a qualified terminable interest property (QTIP) trust may be one practical option to take into consideration. Note that this type of trust can prove especially suitable for people who have married more than once.

QTIP trusts enable individuals to maintain control over their assets while providing for their loved ones. This type of trust isan essential tool for those seeking to preserve wealth and leave a meaningful legacy.

What Is a QTIP Trust?

A QTIP trust is an irrevocable trust. It allows an individual (the grantor) to transfer assets into a trust to benefit their spouse and other named beneficiaries. What sets QTIP trusts apart is not just their ability to provide for the surviving spouse. These trusts also outline how to distribute the remaining assets after their surviving spouse's passing.

This arrangement is especially beneficial when the grantor wants to provide for their spouse during the remainder of their spouse's lifetime. It also ensures that the remaining assets go to designated beneficiaries, such as children from a previous marriage.

Advantages of QTIP Trusts

Asset Distribution

One of the primary advantages of a QTIP trust is the grantor's ability to control the distribution of assets. The terms of the trust ensure that the grantor’s spouse has the financial support they need once the grantor passes away.

In addition, the trust directs how to distribute any remaining assets after the surviving spouse's death. This preserves wealth within the family and also prevents the dissipation of assets through future marriages or other unforeseen circumstances.

Estate Tax Benefits

QTIP trusts also provide significant estate tax benefits. By transferring assets into a QTIP trust, the grantor effectively removes those assets from their taxable estate. This can lead to substantial tax savings. This is because the assets held in the trust are not subject to estate taxes upon the grantor’s death.

Instead, estate taxes are deferred until the surviving spouse passes away. This provides an opportunity for additional estate planning strategies to minimize the tax burden further.

Note that, as of 2023, federal estate taxes will apply only to significantly sized estates – those worth more than $12.92 million.

Protection From Creditors

QTIP trusts also protect assets by placing them in an irrevocable trust. This effectively shields the assets from potential creditors and legal claims. For example, a QTIP trust can be particularly valuable when the grantor or surviving spouse faces potential financial liabilities or risks. The assets held within the QTIP trust remain protected and preserved for the intended beneficiaries, even in challenging circumstances.

QTIP Trust Considerations

QTIP trusts do have some limitations to consider, however.

Because they are irrevocable trusts, you generally cannot:

• revoke them,
• remove assets you have put into them, or
• return assets to the grantor.

Therefore, it’s crucial to plan carefully and consider the specific circumstances and goals you have for this particular kind of trust.

The surviving spouse must receive income payments at least once per year from the trust while they are alive. If the assets in the trust are not generating any income, the surviving spouse can require the trustee to convert them into assets that do generate income. Income-generating assets might include rental property, for example.

Given the circumstances that often lead to the creation of a QTIP trust, it's usually better if the surviving spouse is not the trustee. The goal of a QTIP trust is to provide a consistent income stream to a surviving spouse while also protecting the principal for other beneficiaries, such as the grantor's children. So, it may be best to choose a trustee who is likely to outlive the surviving spouse. An estate planning attorney or financial advisor would be good options.

Will a QTIP Trust Work for You? Consult Your Estate Planning Attorney

A QTIP trust could be a valuable part of your estate plan, but it does depend on your unique situation. Creating these types of trusts can also get complicated.

Contact your estate planning attorney today to talk through the benefits and requirements of QTIP trusts. 

Contact us

Questions? Contact us at Elise Lampert, Attorney at Law

   

Elise Lampert, Esq.

Law Office of Elise Lampert

9595 Wilshire Blvd. | Suite 900 | Beverly Hills , CA 90212

Phone: (818) 905-0601 / Email: elise@elampertlaw.com

https://www.eliselampert.com

 

What Does Incapacitated Mean in Elder Law & Estate Planning?

When working with an attorney to prepare for your future and address the challenges associated with aging, you will likely come across the term “incapacitated.”

Incapacitated Definition

Someone who is incapacitated cannot make personal decisions or understand legal documents. An incapacitated person requires a surrogate decision-maker, such as an agent under a health care power of attorney or a guardian.

When a person has the mental state to execute a valid legal document, such as a will or trust, this is known as having capacity. Capacity is the opposite of incapacity. If a court finds that a person signed a will while incapacitated, the court can invalidate the will.

(Note that while certain states use the term “incapacity,” others refer to this same concept as “incompentence.”)

Causes of Incapacity

You or your loved one could become incapacitated for a variety of reasons, including illnesses, injuries, and disabilities. A person with a severe developmental disability may be legally incapacitated for their entire adult life.

Someone who experiences a disability later in life may become incapacitated after the onset of an illness or injury. For example, an older adult who develops dementia may become incapacitated once the dementia progresses, such that the individual cannot understand a legal document or make personal decisions.

Incapacity in Elder Law

Elder law involves preparing for and addressing incapacity associated with injury, illness, disability, or aging. It is essential to understand the concept of incapacity applies to power of attorneys, wills and estate planning, and guardianship of an adult.

Power of Attorney

A power of attorney is a legal document that allows you to appoint someone else to make decisions for you.

• A health care power of attorney allows you to select someone to make health care decisions for you. You can also give your agent instructions for the type of care you would like to receive, including end-of-life care.
• With a power of attorney for property, you can give someone the authority to handle your financial affairs, such as paying your bills and managing your accounts.

Creating a valid power of attorney requires you to have mental capacity to understand the contents of the power of attorney. If you become incapacitated, a power of attorney allows you to preserve your autonomy, as you have selected a surrogate decision-maker to make decisions according to your wishes.

Depending on how you and your attorney structure your power of attorney, it could take effect only after you become incapacitated, once a physician determines that you cannot make decisions for yourself. However, many choose to allow trusted individuals authority as soon as they create a power of attorney, as this avoids having to wait for a physician’s determination of incapacity.

The court may appoint a guardian for those who become incapacitated without a power of attorney.

Guardianship of an Adult

Incapacity is a central concept in the guardianship of an adult. Guardianship of an adult is a court-supervised arrangement where one person assumes responsibility for an adult who is incapacitated.

The court must first determine that a person is incapacitated before permitting someone to become the legal guardian of an adult. In making this determination, the court relies on evidence from the individual’s physician.

According to the National Core Indicators Data Brief, those with significant autism, severe intellectual disability, or Down syndrome are more likely to have guardians.

Wills and Estate Planning

Making a will or any estate planning document that needs your signature, such as a trust or transfer on death deed, requires you to have capacity. You must understand what you are signing.

A will is only valid if you had the required mental capacity when you signed it. The court can invalidate your will if it finds that you were incapacitated when you signed it.

For people with cognitive difficulties impacting capacity, it is possible for capacity to fluctuate. A person with dementia may cycle through periods of lucidity and incapacity.

Consult With Your Estate Planner

As you age, it is a good idea to meet with your estate planner early and begin the process of developing a will and estate plan. Dementia, a disease that can affect capacity, impacts approximately 10 percent of adults 65 and older, according to Columbia University.

By working with your estate planner, you can help prevent others from challenging the validity of your will after you pass and ensure that you have a valid will in place. 

Contact us

Questions? Contact us at Elise Lampert, Attorney at Law

   

Elise Lampert, Esq.

Law Office of Elise Lampert

9595 Wilshire Blvd. | Suite 900 | Beverly Hills , CA 90212

Phone: (818) 905-0601 / Email: elise@elampertlaw.com

https://www.eliselampert.com

 

Reducing the Risk of a Family Fight in Probate Court

Many family circumstances can increase the risk of probate litigation.

High-risk factors that often bring about probate litigation can include sibling rivalry, second marriages without a prenuptial agreement, and dysfunctional family dynamics. Also, a non-standard estate plan may treat children differently, omit a child, maintain an overly detailed trust, or appoint a substandard fiduciary.

There are two fundamental reasons for probate litigation:

1. Disputes about how to handle an incapacitated family member
2. Disagreements regarding the dissolution of the estate after death

Risk Assessment

Take common risks into account and have an open dialogue with your family about your estate plan and intentions should you become incapacitated or pass away. Your estate plan should include:

• Comprehensive protective measures if you become unable to handle your own affairs
• Simple transfers of real estate
• Documented evidence of gifts given to family members during your lifetime

Early document drafting with your estate planning and probate attorney and an honest evaluation of the likelihood of interpersonal family issues will mitigate the risk of costly probate litigation that can damage relationships.

Defective Estate Planning Documents

Probate litigation often involves estates with self-prepared estate documents. Handwritten forms and documents from online resources lead to many mistakes you may not foresee.

Litigating over legally defective documents often far exceeds the cost of hiring an estate planning attorney to prepare them correctly. 

Fiduciary Roles in Estate Planning

Be hyper-realistic about your family dynamics. This can often prove difficult for a parent since it means owning up to sibling rivalry and identifying hostilities in blended family situations. Selecting one adult child over another to act as a financial or medical power of attorney can cause conflict and mistrust among siblings. You may consider selecting a trusted but neutral third party or professional fiduciary to administer your estate.

Fiduciaries can be patient advocates, guardians, trustees, and personal representatives of an estate. These individuals must make important legal, medical, or financial decisions for the benefit of others. Family members making these decisions may unintentionally violate their fiduciary duties, leading to litigation. It is best to consult your estate planning attorney when appointing your fiduciaries to understand the rules and role they will fulfill.

Undue Influence

When you begin your estate planning process, it’s best not to include your beneficiaries. Undue influence can become a legal issue if family members sense someone is attempting to influence the decision-making process. Undue influence can come about if a family member is seen driving you to the attorney’s office and attending your estate planning meetings. Questions about whether the plan truly reflects your wishes and who authored the estate plan can lead to probate litigation.

Consider having a medical evaluation if you have concerns about a challenge to your estate plan. A doctor’s examination confirms you are of sound mind and body when creating your plan and that you can make informed decisions. No one will be able to challenge your mental fitness.

Verbal Agreements

Don’t make verbal promises about inheritances. They are legally unenforceable and can contribute to someone challenging your estate plan. The best strategy is to manage the expectations of your inheritors honestly and directly by only making promises you are willing to document legally.

Legal Updates and Reviews

Some probate disputes arise because estate planning documents reflect outdated or inaccurate information. Life changes that include births, marriages, divorces, deaths, and changes in your intentions may all affect your estate plan wishes. Keeping your relevant legal documents safely stored and knowing they are accurate and routinely undergoing review will reduce the likelihood of probate litigation.

Your estate planning attorney can help you mitigate the risks of probate litigation within your family with well-crafted legal documents reflecting your wishes. 

Contact us

Questions? Contact us at Elise Lampert, Attorney at Law

   

Elise Lampert, Esq.

Law Office of Elise Lampert

9595 Wilshire Blvd. | Suite 900 | Beverly Hills , CA 90212

Phone: (818) 905-0601 / Email: elise@elampertlaw.com

https://www.eliselampert.com

 

What to Know About Probate: Estate Planning Basics

Most estate planning attorneys can help you craft an estate plan that minimizes or avoids probate altogether. Probate proceedings are part of the public record and can be very time-consuming and expensive. However, in nearly every case, to some extent probate is necessary. So, it’s important to understand how to navigate the process.

Probate proceedings seek to validate the decedent’s last will. In addition, this process retitles the estate’s assets into the name of heirs according to the deceased person’s wishes. A court supervises these types of proceedings to ensure that the estate pays its debts and heirs receive their assets.

After losing a loved one, family members generally look for a properly written will and other crucial estate planning documents. Without a well-organized plan, relatives of the deceased may have to gather information needed by the court. This can mean that the probate process takes much longer.

Probate Court Proceedings

The petitioner, usually the estate executor or personal representative, begins the process. First, they file a death certificate and a last will to the probate court. It is also useful to produce a list of known creditors and names and contact data of the decedent’s heirs. Smaller estates and those estates not contested by heirs can usually work through the process fairly quickly and efficiently.

Laws regarding probate are state-specific, and most states set valuation thresholds. If, for instance, an estate value is less than $75,000 and no one contests the will, hearings may move more quickly.

For larger value estates, there is a substantially greater amount of paperwork necessary. The process may include not only validating the will, but also the following:

• Determining asset distribution,
• settling disputes,
• paying off remaining debts, and
• ultimately closing the estate by paying the decedent’s final taxes.

A checklist of documents to gather may include:

• Death certificates
• Final will
• Revocable trust documents
• Contact information for heirs
• Beneficiary designations
• Pre- or post-nuptial agreements
• Previous three years of federal and state income and gift tax returns
• Life insurance policies
• Real estate deeds
• Vehicle titles
• Statements of financial accounts
• Contracts and business agreement documents
• Appraisals for high-value art, collectibles, or jewelry
• Other known assets
• Known debts
• Ongoing bills
• Medical and funeral expenses

Probate Proceedings Without a Will

The decedent’s residence state intestacy laws will apply if your loved one dies without a last will (intestate succession). All personal property without a beneficiary designation will be subject to the probate process at the court’s direction.

Some assets will avoid the probate process under state property title, state contract, or state trust law. These assets may include:

• Beneficiary designate life insurance policies
• Beneficiary designate retirement funds
• Beneficiary designate annuities
• Pay-on-death or transfer-on-death accounts
• Joint tenancy property with rights of survivorship
• Tenancy by the entirety
• All trust property

Cost of Probate

Complex probate processes can be costly and take years to finalize. This is why many individuals retain an estate planning attorney to minimize probate proceedings.

Lengthy proceedings can be frustrating for heirs who are rightful beneficiaries but must comply with the probate process. The average cost of probate varies by state. However, 5 percent to 10 percent of an estate’s value in administrative costs and legal fees is typical. Some estates may lose as much as 20 percent of their value as a result of the process.

Other fees may include executor compensation, court fees for filings and paperwork, and a probate bond. After the probate proceedings are complete, the court may refund the probate bond.

The most common reason for high probate costs occurs when someone contests the will, as ongoing litigation can be expensive. Issues relating to preparing and filing the decedent’s last federal estate tax return and any ensuing audit may also increase the cost of the probate process.

Consult With Your Estate Planning Attorney

Most individuals create an estate plan with their lawyer that allows their assets to pass outside the probate process. Typically, this is possible by creating a revocable living trust. Depending on your situation, your estate planning attorney may recommend other types of trusts.

Be sure to review your estate plan with your attorney as needed. Work with them to update the names of beneficiaries on any of your accounts that will pass outside of probate. Your attorney can also help minimize probate court interactions and streamline your heir’s inheritance process. 

Contact us

Questions? Contact us at Elise Lampert, Attorney at Law

   

Elise Lampert, Esq.

Law Office of Elise Lampert

9595 Wilshire Blvd. | Suite 900 | Beverly Hills , CA 90212

Phone: (818) 905-0601 / Email: elise@elampertlaw.com

https://www.eliselampert.com

 

Is Your Financial Information in Order?

Preparing and organizing your financial information for when you are no longer capable will bring peace of mind to you today. At the same time, it may relieve your loved ones’ burden in the future. You’ll ensure proper management of your financial situation and remain in control over your end-of-life care and legacy. The goal is to make and maintain accurate financial records.

Planners and books like “My Life Directory” and “I’m Dead. Now What?” are readily available to help you understand the scope of such a project. These resources can get you started with the process of organizing all your records and personal information. Whether you are a parent, near retirement, or both, putting together informational instructions on your finances now could help spare your family a great deal of work and heartache down the road.

Keep This Information With Your Estate Planning Documents

The assumption is that you already have an estate plan with necessary documents such as a will, living will, durable power of attorney, and health care proxy.

If this is not the case, retain your estate planning attorney to create these important legal documents. They can properly outline documents that instruct your family not only on your wishes in medical emergencies, but also on how to distribute your money and property after you’re gone.

You can then focus your attention on the financial details they will need to carry out your wishes. These steps should include a list of all relevant information, such as:

• Names and contact information for bankers, lawyers, and insurance agents
• Digital and hard assets
• Bank accounts, bills, debts, credit cards
• Insurance policies, annuities, pensions
• PINs and passwords

Include a list of all companies and invoice types (monthly, quarterly, annually) that automatically debit money from your checking account. This list is about anyone and anything that is part of your financial life.

Planning Resources

The numerous books, planners, and online free worksheets available today can serve as your starting point. They may help you identify things to include in your list of financial information. There are also websites and apps designed to store your data and instructions securely for a one-time or recurring fee. These sites are typically referred to as estate planning organizers, end-of-life planners, document storage, and even death apps.

While these options may sound intriguing, a self-directed approach is generally best. Turning over consolidated personal financial data comes with some risk. Using these services may open you to the possibility of identity theft, hacking, misuse of your records, erasure, and loss.

Safely Storing Information at Home

Digitize your information in a computer document or spreadsheet and store it on a flash drive. Print hard copies of your instructions and information, and leave them with other important documents like your will or the deed to your home.

Are you low-tech? There is no shame in a binder or spiral notebook containing this information.

It’s a bit more cumbersome to update, but many people choose to leave instructions to family members in handwritten letters, lists, and notebooks. Perhaps consider purchasing a fireproof, floodproof safe for your home, where you can store this information. (Or, find a safe deposit box at a bank.)

Ensure your handwritten instructions don't vary with multiple scattered and undated papers. Stick to a standard method and throw out old documents.

Updating Your Information

Keep these records accurate with annual updates. Whenever there is a fundamental shift in how you (or someone else) manage your finances, revised your records accordingly. Be sure your executor and other relevant family members know the location of this information for future reference.

You may want your wishes to remain private. Consider sealing your information by storing them on flash drives and as hard copies in envelopes.

Preparing your financial records for your family can be time-consuming, but it’s not complicated. The true goal of this task is organization and consolidation. And it’s one of the most important financial tasks you will undertake during your life.

When you feel your project is near completion (other than annual updates), ensure you are not overlooking anything. Consult your attorney. They will not only make sure you have all the necessary legal documents in place, but they also can talk with you in further detail about your planning needs.

Contact us

Questions? Contact us at Elise Lampert, Attorney at Law

   

Elise Lampert, Esq.

Law Office of Elise Lampert

9595 Wilshire Blvd. | Suite 900 | Beverly Hills , CA 90212

Phone: (818) 905-0601 / Email: elise@elampertlaw.com

https://www.eliselampert.com

 

Mitigating the Impacts: Sunsetting the Tax Cuts and Jobs Act

The Tax Cuts and Jobs Act (TCJA) took effect on Jan. 1, 2018, and impacted personal income taxes, small businesses, estate tax rules, capital gains rules, special needs accounts, and much more. The TCJA is scheduled to sunset at the end of 2025. This will lead to significant changes for taxpayers. So, are there ways to avoid potential tax impacts to you or your loved ones? Read on to learn more.

Gift Now and Get the Benefit of the Current Gift Exclusion

One of the most discussed effects of the TCJA sunsetting is the slashing of the federal estate and gift tax exclusion to pre-2018 levels, as adjusted for inflation. The current exemption is $12,920,000 per individual. Starting in 2026, it will go down to the 2017 exemption of $5,490,000 per individual (as adjusted for inflation). This drop is potentially a big hit for the heirs of anyone who passes away after Jan 1, 2026.

The estate and gift tax exclusion is essentially a credit applied to gifts made by a person while they are alive or a person’s total taxable estate upon their death to minimize how much will be subject to federal tax. So, for example, under current rules, if a person has a total taxable estate of $8 million and made $1 million of gifts in their lifetime, their estate can apply a $9 million exclusion or “credit,” and not owe taxes. However, if this person passes away in 2026, their estate will likely suffer tax consequences as there would not be a credit sufficient to cover an $8 million taxable estate (if the gifts were made before 2026, they may be covered, as explained below).

It is possible to mitigate this potential scenario in several ways. One of them is making large gifts before December 31, 2025, while the gift tax exclusion amount in effect is at record highs. The IRS has stated that this practice won’t harm estates after 2025. Specifically, IRS regulations have a special rule that allows an estate to take an estate tax credit using the greater of the exclusion applicable to gifts made during life, or the exclusion in effect on the date of death. The result is that if gifting makes sense in your situation, you can make large gifts up to the exclusion limits until 2025 without worrying that the temporarily higher tax benefits will be lost if you pass away after 2025.

And don’t forget that a person can gift up to $17,000 per year (or $34,000 per year for couples who file jointly) to as many people as they wish. These gifts don’t count toward their lifetime exclusion. So, for a couple with three children and six grandchildren, they can gift these individuals $153,000 per year without touching their exclusion. This can be an easy way to transfer wealth to the next generation tax-free.

Maximize Gifts to 529 Plans

Another option to get ahead of the TCJA ending is to contribute the maximum amount of money to 529 plans set up for children and grandchildren (and other selected categories of people). Current law allows up to five years of annual gifts to a 529 plan in one shot. And, starting in 2024, distributions from 529 accounts will no longer be counted as income to the student when applying for federal student aid.

So, if you want to give funds to loved ones but have concerns about how it may be spent, you can deposit $17,000 ($34,000 for a couple) into a 529 account for their benefit. Current rules also allow you to make an accelerated gift of up to five years’ worth of gifts to a 529 account in one year and spread out the gift tax liability over five years. If you gift less than the annual gift tax-free amount, there is no tax liability.

The result is that a couple could gift $170,000 now to a 529 account. They would, however, need to file a gift tax return and elect the five-year treatment. One caveat to this option is that the gift giver must survive beyond the five-year period for the gifts to be fully excluded from their taxable estate. To ensure this is done correctly, it is essential to consult with a qualified tax professional. However, if done properly, it is an effective way to reduce a person’s taxable estate.

Consider an Irrevocable Life Insurance Trust

Another potential way to leave money to loved ones and not increase your taxable estate above the impending lowered exclusion amount is to purchase a policy owned by an irrevocable life insurance trust. The benefit paid to your beneficiaries is also potentially tax-free income for them. This planning technique should not be undertaken without the counsel of an attorney, as it may have other implications for your personal situation.

Max Out ABLE Account Contributions

An ABLE account is a savings program run by the state for certain individuals with disabilities. Beneficiaries may use ABLE account funds to pay for qualified expenses tax-free. ABLE accounts are also disregarded as assets when determining if a person qualifies for Supplemental Security Income (SSI) and certain other means-tested federal benefits. If your loved one qualifies for an ABLE account, you may be able to improve their quality of life while reducing your future taxable estate. You can contribute up to the annual gift tax exclusion amount.

Furthermore, the TCJA allows an employed beneficiary who does not participate in an employer-sponsored retirement plan to contribute up to 100 percent of their earned income to their ABLE account up to the prior year’s poverty line amount for a one-person household ($14,580 as of 2023).

So, ABLE accounts can be built up quickly where a parent makes a gift contribution and the disabled child also contributes their earned income. The child, if over 18, may also be able to claim the Saver’s Credit on their tax return for up to $2,000 of contributions they made to their ABLE account. But, as with other TCJA provisions, these benefits will end on December 31, 2025.

Not all these options may be appropriate for everyone, and it is always prudent to make any financial planning decisions with the advice and counsel of a professional. However, the sooner you act, the more options you may have before the TCJA sunsets.

Contact us

Questions? Contact us at Elise Lampert, Attorney at Law

   

Elise Lampert, Esq.

Law Office of Elise Lampert

9595 Wilshire Blvd. | Suite 900 | Beverly Hills , CA 90212

Phone: (818) 905-0601 / Email: elise@elampertlaw.com

https://www.eliselampert.com