Selecting A Corporate Trustee

A comment on my recent post "Five Questions To Consider When Naming a Trustee" writes, "Your comment about a corporate trustee is interesting, as I am leaning significantly that direction because of a lack of qualified individuals within my personal relations to manage my trust. How would you recommend finding a suitable corporate trustee ?"

Corporate trust services are offered by trust companies, banks, some attorneys, and some financial advisors.

Your first step should be to determine just what services you expect to receive from the trustee. You can choose a trustee to perform the administrative functions only. This could include:

• Administration of the trust in accordance with the trust agreement.
• Accounting and reporting of income, expenses, and capital gains and losses.
• Distribution of income and/or principal to beneficiaries as determined by the trust.
• Annual administrative account reviews
• Issuance of broad fiduciary guidelines
• Filing of annual trust income tax returns.
• Providing custodial services and executing transactions.

Using only administrative trust services the beneficiaries or a trusted financial advisor could be entrusted with managing the assets of the trust.

You can also hire a trustee to provide both the administrative and asset management functions.

When you have determined exactly what services you want the trustee to provide you can move to the next phase which is where you should request proposals from several sources. If possible you should meet face to face with a trust officer from each firm you interview. While very intangible the personal touch is a large part of the function of corporate trustees.

Some of the questions you will want to ask include:

• What account minimums does the trustee require?
• How long have they been in the trust business?
• How many trusts do they manage and what is the average size of their trust accounts?
• What level of experience does the staff have and how did they acquire that experience?
• What is the staff turnover?
  
• Do they have an open architecture or are they limited to proprietary in house investment options?
• What conflict of interest might the have?
  

Of course you will also want to compare investment performance and fees along with the services provided. Location is also a consideration. Will they be accessible to your heirs? And finally, be sure they are really in the trust business, not just going through the motions so they can advertise that they offer trust services.

Letter of Instruction

In this months issue of Money Magazine, Jean Chatzky has a good article about writing a letter of instruction to your heirs to help them sort through your affairs should you die. Jean makes the point that often heirs are unaware of where to look to find important documents or whom to contact to find information on your estate. While a letter of instruction is not a legal document, it can help your children or other heirs during a very troubling time. Some of the items Jean suggests for inclusion are:

• The location of estate planning documents (wills, trusts etc.)
• The location of financial documents (tax returns, deeds, bank statements)
• The location of Safe deposit boxes and their keys
• Life insurance policies LTC policies
• Investment accounts and contact information
• Phone numbers for accountants, attorneys, financial and insurance advisors
• Funeral home information if you have made arrangements

Some other items that come to mind:

• Information and passwords for email accounts
  
• Information and passwords on home security systems
• Information and contacts for pensions

While planning for our own deaths is never something we wish to dwell on, making life easier for our heirs is probably a common goal. Maybe looking at it in this light will make this wonderful idea easier to implement.

Why bother with a will?

In going through some files this past weekend I came across this letter written tongue in cheek to someones heirs. It seems worthy of sharing.

Dear loved Ones,

While I understand that I have the right to determine who gets my property when I die, I have decided to let the fair, just and impartial court system make that decision for me. I have decided this, even though it might mean that people I never knew or liked could wind up as my heirs. I also understand that there are perfectly legal and legitimate ways of minimizing the estate taxes that you will have to pay. However, because of our governments kindness and generosity to me over the years, I have decided to let our beloved Uncle Sam take the biggest share of my assets that he can.

In addition, rather than decide who should take care of my children, I think that I would rather have my family fight about it publicly, and then let the courts go ahead and appoint anyone they like, not necessarily one of you. I would also like you to know that I think lawyers, as a group, are hugely underpaid and under loved, and so they should have a large share of my assets.

Finally, I want all the private details of my financial affairs to become part of the public record, so that anyone who is even remotely interested, for any reason, can simply look it up.

Good luck and much love.

Naming A Trust As An IRA Beneficiary

Sometimes there are good reasons to name a trust rather than an individual as a beneficiary of your IRA. Maybe you have a child who you fear will spend the money they inherit wastefully, or maybe you have a special needs heir and a direct inheritance would affect their qualifications for aid, maybe there is a second spouse you wish to provide for but children from a first marriage you want to protect also.

All of these goals can be achieved and the "stretch out" provisions of IRA rules preserved if you do some careful planning.

IRS rules only allow individuals to inherit IRAs without triggering immediate taxation. However if you structure a trust as a "see through" trust you can exert some control without losing the tax benefits of a "stretch IRA". To qualify as "see through" the trust must:

• The trust must be valid under state law;
• The trust must be irrevocable or become irrevocable at the death of the grantor;
• The trust beneficiaries must be identifiable individuals
  
• Documentation must be provided to the custodian of the IRA by Oct. 31 of the year after the owner dies
  

The trust must pay out the IRA's required minimum distributions to the beneficiaries or be subject to taxes at the trust level which reach the maximum tax rate (35%) with only $10,000 of income. The trust must base the RMD on the age of the oldest beneficiary so if there is a large difference in the ages of your desired beneficiaries you may want to consider splitting the IRA to allow a lower RMD for younger beneficiaries.

Having a trust as the beneficiary of your IRA can provide many benefits, but the price of making a mistake is high, so be sure to consult with a qualified legal and tax advisor before choosing this option.

technorati tags:Finance, IRA Beneficiary, estate planning

Tax Credit Trusts

Current tax law allows any individual to pass $2 million to their heirs without the estate being subject to federal estate taxes. This figure is slate to increase to $3.5 million in 2009. But what happens if your estate is greater than $2 million? Federal estate tax rates range from 18% to 46% on amount that exceed the $2 million exemption.

A Tax Credit Trust is one of the first tools families employ to eliminate estate tax liability. Sometimes called an A-B Trust, this tool can effectively double the estate tax exclusion amount for married couples. Here's how it works.

Each person can utilize the $2 million estate tax exclusion, so a married couple have up to $2 million each they can pass to their heirs without federal estate taxes. If you don't use it you loose it. Many couple have simple "I love you" wills that pass all assets directly to the surviving spouse in the event of death. This puts all the assets into the estate of the surviving spouse and relinquishes the estate tax exclusion of the first spouse to die.

What the tax credit trust can do is to receive up to the maximum federal exclusion amount keeping these assets out of the estate of the surviving spouse. The trust is usually set up to pass all income to the surviving spouse, and the surviving spouse can even invade the principle if needed. However because the assets never become a part of the surviving spouses estate they pass to the next heirs in line with no estate taxes due upon the death of the last spouse, and the last spouse still has their $2 million exclusion to pass without taxes also. So with just a little planning couple can pass $4 million to their heirs without triggering any federal estate tax bill.

Many individuals mistakenly believe they will not have a problem, but remember life insurance proceeds, family business interests, and real estate holdings are all part of your taxable estate. Another pitfall is making sure each spouse has enough assets to fully fund their tax credit trust. If a husband owns a business and is heavily insured it is easy to find assets to fund his trust with, but what about his wife. You should look at correctly titling your assets to avoid problems like this. The risks are high enough that you should seek competent counsel to be sure you make the right decisions.

technorati tags:Finance, Tax Credit Trust, financial planning