by Josh Bryant
You may have heard of a revocable living trust (RLT), which is a commonly used estate planning solution. But what exactly are they, who is affected by them, how can they be changed, and what do they accomplish? Josh Bryant answers these questions.
What Are They?
Trusts, which are legal entities that hold title to property for the benefit of a living person, are often used as an alternative or supplement to a will. A revocable living trust (sometimes called a revocable trust, an inter vivos trust, or a living trust) is a trust that you create during your lifetime and can change at any time prior to your incapacity or death. RLTs are distinguishable from irrevocable living trusts, which are difficult to alter after their creation (though there are a few possible ways, for example, by making limited changes permitted by the terms of the trust, asking a court to order changes, or shifting the trust’s assets into a new trust). Josh Bryant usually advises an RLT for anyone who has children under 30 or assets over $75,000.
Who Is Affected by Them?
The living person or charity benefited by the trust, but who does not have legal title to the money or property in the trust, is called a beneficiary. The individual who creates the trust, decides how it will operate, and determines what property or funds to include in it is called the grantor (but may also be called the settlor or trustor). The trust is administered by a trustee, who is in charge of managing and investing the funds or property in the trust and distributing them to the trust beneficiary according to the grantor’s instructions, memorialized in a trust agreement. Typically, the grantor names a successor trustee in the trust agreemnt who will manage the trust if the original trustee becomes incapacitated, passes away, or is otherwise unable to serve.
Often, though not always, the grantor of the RLT is both the initial trustee and primary beneficiary. So, you create the trust and provide the funds or property for it, you manage, invest and control the property and money owned by the trust, and you distribute the trust funds to yourself as desired. While the grantor is alive and well, the tax identification number of an RLT is the grantor’s social security number, and any income earned by the trust is taxed as the grantor’s personal income.
How Can They Be Changed?
If circumstances change, as they often do, you can alter the RLT through amendment, restatement, or revocation. Typically, a trust amendment can be made by attaching a properly drafted and executed amendment to the original trust document. An amendment may be appropriate for minor changes or deletions, such as replacing a successor trustee. If more significant changes are needed, such as changing beneficiaries of the trust, or if the trust has already been amended multiple times, a document called a restatement of trust should be created. This document allows you to “restate” or rewrite the entire original trust agreement incorporating any necessary changes instead of revoking the original trust and creating and transferring assets to a completely new trust. There are circumstances that neither an amendment nor a restatement are appropriate, in which case you can revoke the trust. A revocation may be warranted if a major change such as a divorce or death of a beneficiary occurs and involves dissolving the trust entirely and transferring the assets owned by the trust back to yourself or into another trust.
The law of most states provides that changes should be made according to instructions provided in the trust document, or if there are no instructions, in a way that clearly evidences your intention to make the changes. For example, if you amend the trust, you should create a written document, signed by the grantor and trustee, with a title that shows it is an amendment to the specific trust you are amending. The document should set forth the trust’s name, the date, and the name of the trustee. It should also mention the portion of the trust document that allows amendments to be made and should identify the part of the trust that will be changed, deleted, or added. If there is more than one grantor and the changes are made by fewer than all of them, notice should be provided to the grantors who did not participate in the changes. Josh Bryant recommends reviewing your trust with your attorney no less frequently than every other year, but preferably every year.
Warning: If the trust has grantors who are spouses or domestic partners, and the trust document does not provide otherwise, most states have special rules regarding changes:
Joint property, that is, property you own with another person, can also be placed in an RLT. You can put your own interest in jointly owned property in a revocable trust without affecting the rights of other joint owners. Spouses can create a living trust to hold both joint, community, and separate/individually owned property, in which both are grantors and trustees, and which either of them can amend or revoke during their lifetime. In fact, each spouse should be given the power to withdraw his or her separate property at any time without the consent of the other spouse to avoid possible gift tax liability.
What Goals Can an RLT Help Accomplish?
Avoid probate. When you pass away, none of the assets properly titled in the trust will need to go through a long and potentially expensive probate process that could delay a beneficiary’s access to those assets for months or even years. In addition, the trust assets will be distributed privately, and do not become part of the public record, as is the case when a will must go through the probate process, which is overseen by a court. All probate files, including wills, asset inventories, and distribution reports, are open for any member of the public to review, but your family’s privacy is preserved when assets are distributed according to an RLT. Probate is an ancient, inefficient, and drawn out process. Josh Bryant recommends a trust to avoid it at all costs.
Protect inheritances. You can include provisions in your RLT that will help ensure that, after you die, the trust assets intended to benefit the next generation will not be spent too quickly, vulnerable to creditors, lost in a divorce, or wiped out as a result of other life events your beneficiaries may experience.
Plan for your own incapacity. Although an RLT allows you to retain control over your assets, it is important to plan ahead in case you are unable to do so in the future. In an RLT, you can authorize a co-trustee or a successor trustee to manage the trust property if you become incapacitated as a result of an illness, accident, or incapacity. Otherwise, your family member will have to rely on a financial power of attorney or go to court to ask for legal authority to manage your finances.
What to Do Next
An RLT has many benefits, including enabling you to continue to manage your assets while also providing protections for your beneficiaries. As experienced estate planning attorneys, we can help you plan for the future by establishing a new RLT or changing the terms of an existing one. Call us today to schedule an appointment to discuss this or any of your other estate planning needs.
So you have done the hard work of establishing an estate plan. Good for you! However, you still have serious work to do to ensure that the strategy you have selected will maximize your peace of mind and protect your legacy.
Josh Bryant agrees with the vast majority of estate planners: estate plans should be like living, breathing creations that reflect the changes in your life. Your life can and will change due to new births, children getting older, and other shifts in the family; changes to your investment portfolio, career and business; and changes to your health, where you live, and your core values. Likewise, external events, such as new tax legislation passed in our state or the development of a novel financial instrument, can throw your plan off track or open the door to new opportunities. Josh Bryant stays on top of these new laws and means of investment.
Obviously, you should do due diligence without spending inordinate amounts of time noodling over your plan. To that end, ask yourself the following “stress test” questions to assess whether you need to meet with Josh Bryant to update your approach:
1. When was the last time you updated your will or living trust? Since then, have you had new children or gotten divorced? Have you moved, opened or sold a business, or just changed your mind about the type of legacy you want to leave behind? Especially if big, tangible life events have occurred, strongly consider updating your documents as soon as possible. Also keep in mind that there may have been changes in the law since your last update that could significantly affect the viability of your plan.
2. Who have you named as executor and trustee? If you had to start your planning over from scratch today, would you still name the same people? If not, why not? Did you choose the best person for the job or was your choice based on less relevant factors? Is the person you chose still available to serve in that role?
3. Do you have adequate insurance? Many people do not have enough insurance for themselves or their businesses. They also fail to name contingent beneficiaries. Get your insurance policies in order, and make sure your designations match your estate plan.
4. How much of your property is jointly owned with someone other than your spouse? Jointly owned property has the potential to be double taxed. Take a look at your real property and seek advice on the proper adjustments to make in order to save on taxes when it's really necessary to save on taxes.
5. How's your record keeping? Nothing drives an executor crazy like sloppy record keeping.
6. When was the last time you gave your plan a thorough once-over? Even if nothing “huge” has happened in your life recently, if it’s been over five years since a qualified estate planning attorney has assessed your strategy, schedule a time to meet with Josh Bryant. Identify any issues, and iron out the kinks one at a time.
After going through the “stress test,” if you have any questions, please feel free to give Josh Bryant a call. Estate planning is an ongoing process, and he wants to make sure your wishes withstand the test of time.
by Josh Bryant
By now, many are realizing that it is much harder to itemize on their tax returns. That's because in 2017 Congress passed the Tax Cuts and Jobs Act, which raised the standard deduction to levels which many people will no longer reach. That can be both good and bad. However, a bigger deduction leads to lower taxes, and we're all about doing what we can to lower taxes and do good. Here are three things you need to know about how a private foundation can help you do good and lower taxes.
1. Maximize Your Tax Deduction
A private foundation can be a great way to maximize your tax deduction. If you run all charitable giving through your foundation and are keeping good enough records, you'll never have to wonder whether you've given enough at the end of the year to maximize your tax deductions. You can make a contribution to your foundation on December 31 and it count towards that year's tax return. What's more, a private foundation does not have to pay out all of its contributions. It only has to pay out 5% of its assets every year, which means you can invest the rest and grow your charitable impact over time. On top of that, the formerly exorbitant fee necessary to start a private foundation with the IRS has gone down significantly. Most people will only pay $225 instead of the $800 or more that the fee used to be.
2. Maximize Your Impact
As hinted to in paragraph 1, you can really maximize your charitable impact over time by not giving away all of the money you give to your foundation. You can invest up to 95% of the foundation's total assets. Early on you'll probably want to pay out quite a bit more than that, but that's ok. Even if you saved $5,000 per year and invested it at a modest 6% return for 30-years, you'd have almost $450,000 that you could give away and make a bigger impact than had you just spent the $150,000 that you had saved. You can triple your impact! As you get older, you can save more than $5,000 per year and do even more good.
3. Leave a Charitable Legacy
Often times, estate planners and development officers talk about a charitable legacy in terms of a charitable remainder trust, charitable lead trust, will, or other estate planning document. A charitable foundation is another way of doing that, but in an even broader sense. Not only could you leave a large sum of money to charity, you could leave control of the foundation to your children. You can involve them in the decision making process of giving money. You can teach them philanthropy, and then they can do the same for their kids. In three or four generations, you could have started a legacy that gives millions of dollars to charitable causes around the world. That's a legacy!
Josh Bryant has worked in churches and non-profits for most of his life as either a volunteer, board member, staff member, donor, and more. He loves helping people create something that does good in the world. Josh Bryant would love to help you start your legacy of philanthropy. Call Josh to establish your family foundation today.
Josh Bryant, Attorney at Law
An article from the Tax Foundation reports that Arkansas ranked second in the country in charitable giving in 2016, despite being 48th in average income. Arkansans are as generous a people as you'll find. What if there were a way to give more while preserving and securing income? Here are a few tips from attorney Josh Bryant.
1. Make A Tax Plan
If the most effective people start with the end in mind, then being effective with your money in taxes requires you to have a plan. Plan on how much income you are going to get, how much tax you may have to pay, and then plan to give. Make it part of your routine to give money, especially from bonus checks, capital gains, and other funds that may be subject to higher income tax rates.
2. Establish a Charitable Lead Trust
Do you have an asset that you aren't going to need for a while, like a large CD or brokerage account? You can establish a Charitable Lead Trust for a specific term from which the income goes to the charity of your choice. You get the benefit of the charitable tax deductions while preserving the principal of the asset itself.
3. Establish a Charitable Remainder Trust
Do you have a piece of income producing property like a rental property or a farm that has grown in value but that you've had to depreciate over the years? A Charitable Remainder Trust is a great opportunity for you to continue to earn an income while giving property to the charity of your choice. You get a large tax deduction immediately, which varies depending on how long you retain an income interest in the trust. For that period, you continue to receive the income from the property, and at the end of the term the asset goes to that charity. You get the benefit of both the income tax deduction and the avoidance of capital gains when sold.
4. Establish a Private Foundation
You don't have to have a ton of money to establish a foundation. You can give you your foundation like you would give to any other charity. As long as you spend 5% of the foundation's assets every year for charitable purposes, you can write off everything you give to the foundation. In other words, you can get a $10,000.00 tax deduction but only spend $500 for charitable purposes. Think of it like a charitable savings account. This is a great way to teach your children about charitable giving and philanthropy.
You may just now be sitting down to do your 2018 taxes, but don't wait until this time next year to make a plan that securely, effectively, and efficiently puts you in a good tax position and makes the world a better place. Set up an appointment and let's get started. P.S. - I can help you prepare your taxes too.
Josh Bryant is an attorney, entrepreneur, pastor, and visionary with a heart to see churches, businesses, and families more secure, more effective, and more efficient in fulfilling their mission and bringing glory to God.