PROTECTING YOU, YOUR FAMILY, YOUR FUTURE | CALL US TODAY! (832) 408-0505

GP Schoemakers, PLLC

Protecting You, Your Family, Your Future

BOOK AN APPOINTMENT

Taxes

What is an Inheritor’s Trust?

When it comes to estate planning there are several types of tools you can use, depending on your circumstances. One such estate planning tool is the trust. There are numerous types of trusts aimed at fulfilling different estate planning purposes. If you are anticipating an inheritance, there is a special type of trust designed to help protect it: an inheritor’s trust.

Purpose of an Inheritor’s Trust

An inheritor’s trust is a trust that has been established for the purpose of receiving a beneficiary’s inheritance in a way that is protected legally and financially. In order to fulfill its intended purpose, an inheritor’s trust must be set up in a way that follows numerous tax and legal rules. Virtually every state in the country forbids what is referred to as a “self-settled trust.” A self-settled trust is an irrevocable trust established by an individual, for his or her own benefit, with the intent to protect the trust assets from creditors. Therefore, once you receive an inheritance, it is very challenging to protect the inheritance assets yourself. Luckily, the inheritor’s trust provides an option for people expecting an inheritance.

Inheritor’s Trust Explained

 If you are expecting an inheritance from a loved one, and he or she is unwilling or unable to leave your inheritance in a trust, you can protect these new assets with an inheritor’s trust. However, because you cannot set up the trust yourself because of the “self-settled trust” rule discussed earlier, you will need to work with your loved one to establish the trust. Instead of receiving the inheritance outright, the trust will be the recipient of the inheritance. The trust will typically include a spendthrift clause to protect against creditors, a more drawn out distribution schedule, or provisions granting only discretionary distributions to you. Once the trust has been drafted, your loved one will need to sign the instrument as the creator (grantor) but you will be the beneficiary.

There are several benefits to an inheritor’s trust:

  • The inheritance can be excluded from your taxable estate potentially saving your family estate taxes;
  • The trust can be a more cost effective way to protect the assets instead of your loved one revising their existing plans;
  • Upon your death, the inheritance will be distributed outside of your probate estate which can help ensure privacy and lower attorneys fees and administration costs;
  • The inheritance will be protected from creditors, lawsuits, and divorcing spouses;
  • In some circumstances, the inheritance can even be controlled and managed by you, as a trustee; and
  • You can decide how remaining trust assets will be distributed after you pass away if the trust gives you that power.

An inheritor’s trust is a sophisticated, but powerful estate planning tool. It is ideal for anyone who is to receive a substantial, outright inheritance that may need additional asset and tax protection.

Consult with an Estate Planning Professional

Estate planning can be complicated, but it is essential in protecting yourself and your loved one’s financial future. If you expect to receive an outright inheritance and desire to maintain control, gain superb asset protection, and use all possible avenues to avoid estate and transfer taxes, an inheritor’s trust may be right for you. Call or contact us today to learn about whether this estate planning tool is an option for you.

 

Financial Planning. Tax Planning. Legacy Planning. Estate Planning – How Many Plans Do I Need?!

Most folks have at least heard of an estate plan. But fewer realize that a simple will is not enough to prepare for your future. In fact, a combination of plans – financial, tax, legacy, and estate – are vital to your financial well-being and protection of your assets and family. All of these plans are closely linked, affecting one another but also serving different purposes.

Different Plans for Life Success

Contrary to popular belief, in order to get to where you want to go in life you need multiple plans, each intended for a specific area of your life.

Financial plan: The purpose of a financial plan is to grow your wealth. It defines your goals and objectives, determines what choices you need to make to achieve them, and creates a checklist so that you can meet your goals. Financial plans focus on sustaining your cash flow so that you are able to live the life that you want. Your financial plan may also involve saving for short and long term goals. In addition to investments and insurance, you may also take advantage of any benefits from your employer, including retirement fund contribution matching and group life insurance. Through a financial plan, you can also put together the necessary foundation so that your family is financially prepared in the event of an emergency.

Tax plan: Tax planning is analyzing your financial situation through a tax lens. Specifically, the purpose of tax planning is to make sure you are taking advantage of all opportunities to minimize your tax bill. For example, you may contribute to retirement plans or decide to sell or buy certain investments as part of your tax plan. Not surprisingly, tax planning and financial planning are closely intertwined. This is because taxes play a large part of many people’s annual expenses.

Estate plan: Estate planning is the process of arranging your legal affairs so people you trust are authorized to make decisions for you when you can’t and so that your assets are distributed to the beneficiaries you choose upon your death. Generally, an estate plan includes several legal strategies that protect your wealth and loved ones.  It will also ensure that someone you trust can help you if you can’t make your own decisions. This is one of the most important plans a person can create to ensure their final property and health care wishes are followed and that the loved ones left behind are provided for in their absence.

Legacy plan: A legacy plan is just what it sounds like — a plan to proactively create and take control of the legacy that you will leave behind. Legacies are built and a plan can help you accomplish this. Without a legacy plan, you may drift through your life reacting to circumstances as they arise without intentionally thinking about them. You may also miss opportunities to share meaningful lessons or values with your loved ones. A legacy plan enables you to consciously shape how you will be remembered after you die. This could include charitable giving, sharing family history, as well as conveying moral and spiritual values.

Bringing it All Together

It is important to have several advisors to help you properly craft your financial, tax, legacy, and estate plans for your life and beyond. An attorney’s role is to create and oversee the legal structure that serves as the vessel through which your plans achieve your goals. A wealth or financial advisor’s role is to handle the financial planning aspects to make sure you are on track to meet your goals. An accountant integrates tax planning through careful analysis of the latest tax laws applicable to your particular situation. Your clergy or spiritual advisor can provide you help in crafting your legacy plan. In short, not only should you have all of these plans, but you should also consult with professionals to help you create and execute it. If you would like to create or update your estate plan, call our office today to schedule a time for us to sit down and talk, we are here to help.

 

How to Fix 5 Common Estate Planning Problems

Not surprisingly, most people loathe reviewing their estate plan because it can be both confusing and daunting.  Others do not want to think about death and avoid the topic altogether.  If you already have put an estate plan together, you are ahead of the curve as many people do not have one.  If you do not yet have an estate plan, there is no better time than now to sit down and get one in place.  In either scenario, below are five common estate planning mistakes and how to fix them so that you are fully protecting your family.

  1. You Have Not Updated Your Plan

    Many people consider estate planning a “one and done” proposition.  This could not be further from the truth.  Life happens.  This may include adding new beneficiaries due to the birth of children or grandchildren, or removing beneficiaries due to a change in circumstances.  Your family’s needs will almost certainly have changed over the years since you first created your estate plan.  Likewise, your executor – the person who will be in charge of your assets in the event of your untimely death – may have passed away or may no longer be able to serve.  For these reasons, it is key to keep your beneficiaries and successor executors current.

  2. Your Plan is Missing Key Components

    While you may already have an estate plan in place, it may not be comprehensive enough to fully protect your loved ones after you have passed.  At a minimum everyone should have a last will and testament, a financial power of attorney, and a health care directive.  These documents should have been reviewed by a knowledgeable estate plan attorney within the last 5 years and immediately after any major life event, such as a marriage, divorce, birth or death of a child, receiving an inheritance, or significant increase or decrease in assets.  With these life changes, the level of protection you need may have also changed.  Relying on an old strategy may leave you and your loved ones vulnerable.

  3. You Have Not Kept Up with Changes in Tax Laws

    In the past twenty years, the estate tax exemption has increased by fifteen times.  If you have significant wealth you need to make sure your estate plan takes advantage of unique planning opportunities under current law.  This is because an outdated estate plan structure that has not kept up with current tax law can actually do more harm than good for your loved ones, since it may needlessly cause taxes to be paid.  Accordingly, a qualified estate planning attorney who fully understands your circumstances should review your documents and make any necessary adjustments.

  4. You Moved Without Updating Your Estate Documents

    It is important to understand that each state has different laws that governs estate planning.  For this reason, if you move from one state to another it is vital that you have a local estate planning attorney review and revise your documents.  You want to make certain your plan is compliant with the laws in the state in which you primarily reside.  This also applies to medical powers of attorney or advance directives that may be valid in your old state but ruled invalid in your new state, depending on the local law.

  5. You Failed to Focus on Life Insurance and Retirement Accounts

    One common mistake is for individuals to fail to review life insurance policies after they were originally issued.  Neglected policies may not be properly funded, resulting in a lapse in coverage and requiring hefty premiums to keep the policy in force.  Likewise, it is important to take advantage of listing beneficiaries on retirement accounts rather than leaving them to your estate.  When a beneficiary is listed, these assets avoid probate – the long and expensive legal process of distributing your assets upon your death through court supervision – and allows beneficiaries to keep the majority of these funds in tax-advantaged accounts.

We’re Here to Help.

Without proper maintenance and administration, your carefully put together estate plan may not work as you intend.  Instead of allowing this to happen, give us a call today, so we can begin reviewing your estate plan to make sure all of your bases are covered and any needed changes are made.  Call or contact us today.  We’re here to help.

The Biggest Threats to Successful Estate Planning

Poor estate planning is a recipe for disaster.  Look no further than Dickens’ Bleak House — or a telenovela — to witness the tragedy and melodrama inadequate estate planning can cause.  While having your estate planning documents prepared is the first hurdle to overcoming these types of disasters, there are several threats that lurk around the corner that might derail your wishes.

Family Conflict

According to a TF Wealth survey of over 100 estate planning professionals, family conflict is the number one risk to a peaceful inheritance.  If children are treated differently under the estate plan, there is often an assumption that a mistake was made in drafting the documents or that someone has exerted undue influence on the parent.  While this may not be the case, without any guidance from you, family members can begin to think the worst of each other.

Sloppy or No Estate Planning

If you have not done any estate planning or if what you have done is ineffective, your estate will be subject to your state’s intestate laws.  These laws predetermine who will inherit your assets and in what proportion.  While these statutory schemes might work for some people, they will have adverse consequences for those who have been married multiple times, have children from prior relationships, or children who need additional asset protection.  If you haven’t done any estate planning, you’re simply leaving your inheritance and your legacy in the hands of the government.

In order to ensure that your wishes are being carried out and safe from the ever present dangers, it is important that you know what a successful estate plan looks like.

No (or Little) Family Conflict

The goal here is for there to be no surprises.  If you are choosing to treat children or other family members differently, be open and honest about it.  It may be helpful to have a conversation about your wishes prior to your death so that those individuals understand why you have made those decisions.  Even if you choose to not have such a conversation, it’s important to discuss your plan and reasons with your attorney, so that the plan can be drafted to carry out your wishes.

Eliminate (or Minimize) Costs and Taxes

Watching inheritance get whittled away by taxes and fees will only lead to frustration and hard feelings.  When preparing your estate plan, your intent is to benefit your loved ones, not the government.  Working with a qualified estate planning attorney can help ensure that your assets are being handled in such a way that the administrative costs of your passing and any income or estate tax are minimized or avoided.

A Chosen Representative

It is possible that, later in life, you may not be able to handle all of your affairs yourself and may require some assistance from a loved one, whether it be with your finances or healthcare.  Look for someone you trust who understands you and your desires.  Don’t necessarily rely on someone just because they are the most convenient.  And, don’t rely on hope that everyone will know who you want to be in charge.  You must ensure that you’ve granted proper authority using a power of attorney, a trust, and a will.

Ensure that Everyone Gets What You Want

Your assets may be, or may in some way, represent your legacy.  Do some real soul-searching about how and what you want to share this with your family and friends.  To ensure that your legacy is passed on in a meaningful way, consider including an explanation as to why someone is receiving a particular inheritance.  If you have wishes as to how they use a gift of money, he or she may appreciate hearing the hopes and dreams you have for them and their future even though you are no longer with them.

Documents Are Up-to-Date

Life can change quickly.  It is important that you review your estate planning documents with each life change (i.e. birth or death of a family member, purchase or sale of a major asset, change in health, etc.).  It is also important that we stay in touch.  Contact us when these major life changes occur and we will contact you when there are changes in the law.  This will help ensure that your documents stay effective and your wishes are carried out.

So do the groundwork that a little planning requires.  And leave the melodrama for entertainment.  Call or contact us today.  We’re here to help.