Estate Planning and other legal discussions

When you buy a new car, everything works perfectly.  (At least, you hope it does.)  But then in 3,000 miles, it’s time for an oil change.  Also, you must keep your eye on the level of coolant in the radiator, your transmission fluid, and your power steering fluid.  You must make sure your alternator works to keep the battery charged.

What happens if you don’t maintain your car?  Your engine could burn up.  Your transmission could fail.  Your car could overheat.  Your battery could go dead.  All of which mean you’re stuck on the side of the road trying to hitchhike to the nearest town.

Your estate plan is like your car.  When you set it up, everything is current and accurate.  But you need to keep your eye on your assets, insurance, Powers of Attorney, gifting program, distribution plan, successor trustees, beneficiaries, and so much more.  That’s why it’s important that you meet with your estate planning attorney every year.

You wouldn’t think of going on a long trip without making sure that your car was in tip-top shape.  Yet every day, people embark on the long trip we call life.  And the problem with our “life trip” is that we’re never sure when that trip might end.  It’s a good idea to review your estate plan with your lawyer every year or two to see if changes in your family’s circumstances need to be reflected in your estate plan.

For example: You should review your estate plan with your estate planning attorney any time (1) you get married, (2) you and your spouse divorce, (3) your spouse dies or becomes incapacitated, (4) your health changes, (5) you have or adopt a child, (6) your children marry or divorce, (7) a potential problem arises with a beneficiary, (8) the value of your assets changes, (9) your employment changes, (10)your  business interests change, (11) you retire, (12) you acquire property in another state, (13) you move to a different state, or (14) something happens to a person named in your estate plan that could affect your relationship or the duties they are to perform on your behalf.

But wait.  Is your estate plan really like your car?  It’s more accurate to say it’s like a fire engine – ready to handle any emergency at a moment’s notice.  When your spouse has a heart attack, you want the paramedics – right now!  You don’t want to call 9-1-1 and have the dispatcher explain to you that the fire truck has a dead battery, or a flat tire. 

It would be ridiculous to buy a new fire engine, back it into the fire station where it waits for the next emergency, and then not have a mechanic check under the hood for a year.  Do you know how many things can go wrong with a fire truck’s engine if it goes without service for a year?

Yet that’s exactly what people do with their estate plans.  They invest hard-earned money to set up their plans.  Then they put their plans in a drawer or safe deposit box where they gather dust for 2 years, 5 years, even 10 years — often without updating the plan even once!

And then, when these people have an emergency, do you know what happens?  They dig out their paper-work only to learn that their plan no longer works.  You see, it was custom designed to fit their specific needs 5 years ago.  But now their needs, and often the law, have changed — and no one updated the plan.  What a tragedy!

Your estate plan must be fully operational, ready to handle any emergency at a moment’s notice.  If your spouse has a heart attack and cannot make medical decisions, you don’t want the nurse at the hospital to explain that the legislature changed the law and now your Powers of Attorney are no longer valid.  Or, if your spouse dies, you don’t want the judge to tell you that your estate must go through probate because your Revocable Living Trust has not been properly maintained and updated.

An out-of-date estate plan isn’t worth the paper it’s written on.  But a current estate plan that works precisely the way it should — protecting your family and safeguarding your assets — is the greatest gift of love you can give to your family, your spouse, and yourself.  Your custom designed estate plan, created specifically for you — combined with yearly maintenance meetings to keep your estate plan in tip-top shape — are the best investment you’ll ever make. 

Anthony J. Medico, Esq., has practiced law for over 15 years.  To ask a question for this column, or to receive Medico’s free Estate Planning Survival Guide, visit his website at www.ajmedico.com, send an e-mail to Anthony@ajmedico.com or call (203) 661-8151.

The Law Offices of Anthony J. Medico

7 Benedict Place v Greenwich, Connecticut 06830

Telephone (203) 661-8151 v Facsimile (203) 625-9612

Anthony@ajmedico.com v www.ajmedico.com

Despite the premium costs that no one ever enjoys paying, life insurance has become a necessity.  So many of my clients initially say that they could care less about what happens when they’re gone, until I describe to them the benefits that a life insurance policy can provide to family survivors.

In the realm of estate planning, life insurance certainly plays a significant role, for reasons most people are simply not aware of.  First and foremost; life insurance proceeds paid upon death can (depending on the policy amount) provide a significant amount of assets passing to the surviving family members, usually the spouse or children.  By having a life insurance policy, the estate will have the liquidity it needs to pay taxes and probate costs, thereby avoiding the forced sale of other assets.

Whether or not a life insurance policy is included as an asset of the estate depends upon ownership at the time of death.  If a life insurance policy is owned by the decedent at the time of death, then the proceeds will be included on the estate for tax purposes, despite the fact that the proceeds (death benefits) may go to the beneficiary named on the policy tax free.  Remember, probate taxes and costs always follow ownership and control. 

Another reason for life insurance is the relatively quick access to the insurance proceeds, rather than the typical delay in estate assets tied up in Probate Court. Hence, the creation of the Irrevocable Life Insurance Trust. (ILIT)

When properly prepared, a ILIT can effectuate the transfer of the insurance proceeds to a Trust for the benefit of the survivors without exposure to estate taxation for either spouse.

There are two ways to establish the Trust; either transfer an existing policy to a newly created Trust, or create a new ILIT and have a new life insurance policy purchased by the Trust.  Regarding the former, note that any transfer of an existing policy must be done at least three years prior to death in order to avoid the taxation.

Here’s how it works: 

Scenario one- Chris (the insured) establishes an ILIT.  He then transfers an existing life insurance policy into the ILIT, which will become both the owner and beneficiary of the life insurance policy.  Chris will also designate in the Trust documents who he wishes to be the beneficiaries of the Trust.  Upon his death, the Trust is paid the insurance proceeds which are then distributed in accordance with the Trust provisions.

Scenario two- Chris creates an ILIT.  Then the ILIT purchases a new life insurance policy through the Trustee, who signs the policy. The rest of the first scenario stays the same.

An ILIT also serves as an additional Bypass Trust which benefits the surviving spouse because there will be no estate tax liability on the remaining proceeds of the policy.  Also, the ILIT pays no income tax on the insurance proceeds.

What should you be concerned about?  ILIT’s should not be created or funded without the assistance of legal counsel.  Cash values of existing policies as well as the method used to make insurance premium payments will effect gift tax calculations. Also, as is the case with the creation of any type of Trust, the wording of the Trust provisions and the powers provided under the terms of the trust are extremely important.  A poorly written trust can result in devastating, and often unsuspected, tax consequences.

The benefits of an ILIT are boundless in estate planning and are another cornerstone of a quality estate plan.  They are uncomplicated and cost efficient.  Considering the benefits and financial savings to the surviving family, I highly recommend the use of the ILIT.

Anthony J. Medico, Esq., has practiced law for over 15 years.  To ask a question for this column, or to receive Medico’s free Estate Planning Survival Guide, visit his website at www.ajmedico.com, send an e-mail to Anthony@ajmedico.com or call (203) 661-8151.

The Law Offices of Anthony J. Medico

7 Benedict Place v Greenwich, Connecticut 06830

Telephone (203) 661-8151 v Facsimile (203) 625-9612

Anthony@ajmedico.com v www.ajmedico.com

In the world of Trusts & Estates, there is a litany of Trust types all in variance according to the needs of either the Grantor (the Creator of the Trust) or the beneficiary (the person or entity who benefits from the Trust). Insurance Trusts, Special Needs Trusts, Spendthrift Trusts, & Trusts for Minors are only a few that seem to play a repetitious role in estate planning.

None however, are used more than the Bypass Trust. Also known as a Q-Tip Trust, the Bypass Trust is simple in nature, but provides long lasting benefits. The Bypass Trust deals with the issue of estate taxation; more specifically, the use of the estate tax exemption. As you know, The Federal estate tax exemption was increased to $3.5 million in 2009. This means that an estate valued at $3.5 million or less suffers no estate taxes. Any amount over $3.5 million is taxed at a rate of 45%!  This exemption is scheduled to be unlimited in 2010 and then reduced back down to $1 million in 2011, but there is already talk in Washington regarding changes in both the schedule and a reduction of the exclusion amount due to the economy.

Up to and including 2008, Connecticut matched the Federal exemption amount.  But when the federal exemption increased from $2 million to $3.5 million, Connecticut remained at $2 million, which complicates the bypass process and changes the Trust value on a state level. (Other states vary as well.)

A Bypass Trust uses the art of Trust language to work the exemption to its greatest potential.  Here’s how it works. Normally, when a person dies, leaving a surviving spouse, everything in the dying spouse’s estate is allowed to pass to the surviving spouse tax free. Nice, Huh?  Here’s the issue. When both spouses were alive, they each owned half of the estate. Now, the surviving spouse owns the entire estate, which is now double in size and has a greater chance of being exposed to taxation above the exemption allowance.

A bypass Trust, which can be either an Inter Vivos Trust (made and executed while living) or a Testamentary Trust (a trust created in the decedent’s Will).  The language of the Trust says instead of passing all of my estate to my spouse, put an amount equal to or less than the prevailing exemption amount in Trust for my spouse.  

Ok, everyone likes examples.  Tony & Connie are married and have a $6.5 million estate.  Each is currently entitled to a $3.5 million tax exemption. Tony passes away (I’ll never outlive her).  Without the Trust Tony’s estate passes to Connie tax free.  Great, no tax (for now).  But now Connie has a $7 million estate.  When she dies, she gets her $3.5 million tax exemption, but… you guessed it; she now has another $3 million over her exemption which is subject to Federal taxes at a rate of 45%.  Basically, the federal government takes half. (And don’t forget the state taxes!)

Same scenario, except, Tony has a Bypass Trust set up.  Now when he dies, $3.5 million of his estate goes into the Trust (for Connie’s benefit) and the excess goes to Connie.  A few months later Connie dies (because she finally figured out that she can’t live without me.) Now, Connie’s estate is only valued at the $3 million rather than the $6.5 million.  So her estate now passes tax free as well because she is entitled to use her own $3.5 million exemption.  And the kids are even happier because they inherit more of the estate (either as residual Trust beneficiaries or estate beneficiaries) and give less to the government.

Do you need a bypass trust?  I put one in most of my clients Wills.  It’s good to have regardless of the size of your estate because the amount of the exemption changes annually.  When the exemption amount sets back to $1 million in 2011, the Bypass Trust will apply to most couples.

One caveat with all of this.  The government is looking into Bypass Trusts and the current exemptions on a regular basis.  If you intend to prepare such documents, seek legal counsel.  In estate planning, the laws change often and legal counsel is necessary to ensure that such trusts are prepared and worded properly. 

Anthony J. Medico, Esq., has practiced law for over 15 years.  To ask a question for this column, or to receive Medico’s free Estate Planning Survival Guide, visit his website at www.ajmedico.com, send an e-mail to Anthony@ajmedico.com or call (203) 661-8151.

The Law Offices of Anthony J. Medico

7 Benedict Place v Greenwich, Connecticut 06830

Telephone (203) 661-8151 v Facsimile (203) 625-9612

Anthony@ajmedico.com v www.ajmedico.com

Many people mistake the acronym “LLC” as meaning a Limited Liability Corporation, when an LLC doesn’t create a corporation at all. “LLC” is the acronym for a Limited Liability Company. LLC’s are used quite commonly in business, especially small business, primarily as an asset protection tool.

The primary benefit of owning and operating a business under an LLC is the protection of your personal assets from creditors and lien holders. Here’s how it works.  Say Connie wants to open her own fitness business. Instead of operating the business as an individual, Connie sets up an LLC. First, she gives it a name, “Connie’s Fitness Gym, LLC”. (After contacting the Secretary of State first to confirm that the chosen business name isn’t already taken). 

After that, she files the necessary paperwork required by the State, including the formation documents and Articles of Organization. Once she has been approved by the Secretary of State (which can be expedited and approved within days for a higher filing fee) she must acquire an Employer Identification Number (EIN) from the IRS. (This can be done within an hour, online) Once she has the filing approved, and her EIN, Connie must open up a business checking account under the name of the LLC. And Voila, Connie now has her own business!

So why did Connie do this in the first place? Well, in the asset protection world, she is limiting the exposure of her personal assets whenever she conducts business through the LLC, rather than herself, personally. Creditors and lien holders of the gym may be limited to seizing the assets of the business rather than Connie’s personal assets, like her house, car and other possessions. I said “may be limited” for a reason. This is because these protections are not guaranteed, depending on the type; especially if Connie provides a personal guarantee when signing contracts for the business, or causes harm to one of her fitness gym members due to her gross negligence.   

There are two basic types of LLC’s; single member or multiple members. A single member LLC occurs when you alone own and run the business. A multiple member LLC is when you have partners and for all intents and purposes, is a partnership. There is no better type of LLC. The only real difference is the paperwork and business documents.

So why set up an LLC rather than a corporation? Simple; cost and ease.  With a corporation you have so many various issues of stock, annual filings, and different taxation structures. With an LLC, you get the same protections as a corporation, but the business earnings are simply added as a schedule to your personal tax return. Additionally, an LLC is far less expensive to set up. 

Corporate formations are time consuming and can be expensive, but they may be necessary depending on the type of business you intend to own. To that end, a word of caution: Despite the relative ease of setting up an LLC, I highly discourage anyone from doing it themselves without at least some legal advice. There are a variety of considerations to be made when determining if an LLC is the right choice for you. Also, lawyers who set up businesses know how to prepare the documents correctly and expeditiously, which can be a blessing when starting a new venture.

LLC business formations are yet another aspect of estate planning and asset protection.  I have seen them in action protecting my clients and I recommend forming an LLC whenever you intend to own a business or real estate.  They are inexpensive but invaluable business tools.

Anthony J. Medico, Esq., has practiced law for over 15 years.  To ask a question for this column, or to receive Medico’s free Estate Planning Survival Guide, visit his website at www.ajmedico.com, send an e-mail to Anthony@ajmedico.com or call (203) 661-8151.

The Law Offices of Anthony J. Medico

7 Benedict Place v Greenwich, Connecticut 06830

Telephone (203) 661-8151 v Facsimile (203) 625-9612

Anthony@ajmedico.com v www.ajmedico.com

A Power of Attorney (POA) is an estate planning document which allows another person to make certain decisions for you. It can be an all encompassing document or limited. A POA differs from a Living Will in that it doesn’t pertain to health care decisions. Some of the items covered in a POA include the power to collect and manage personal property, buy and sell real estate, borrow money, perform financial transactions, conduct and participate in business decisions, and the ability to prepare, file & sign tax returns.

The key elements in a POA are a) that the power is given by a person who is of sound mind, (as opposed to a Conservatorship discussed below) b) is revocable at any time, and c) the powers are in addition to your own powers, i.e., a POA doesn’t remove your own capability to perform any of those functions.  They are simply in addition to your own powers. For example, real estate attorneys often use POA’s to close the purchase of a home when one of the spouses is out of town and cannot attend the closing.  Instead, the missing spouse signs a limited POA granting the attending spouse the power to sign his or her name to the closing documents, because they couldn’t be there. Once the closing is over, the power can be revoked.

A Conservatorship is an entirely different animal, but pertains to the same issues. In a Conservatorship, the Probate Court appoints someone to act on your behalf because you’re no longer deemed to be of the sound mind for which to make such decisions yourself. With a Conservatorship, you completely give up your own powers as opposed to a POA wherein the assigned powers are in addition to your own.  That is an extremely important distinction. With a POA, you’re still in the game alongside the person you appoint as your POA.  With a Conservatorship, you’re sitting on the bench, with absolutely no control over the game.

There are two types of Conservators: a) Conservator of the estate and b) Conservator of the person.  The Conservator of the Estate is responsible for the financial decisions of the “Conserved Person” and the Conservator of the Person is responsible for making all health care decisions (usually in accordance with the directives of a Living Will, if available.)  

One of the key elements of a Conservatorship is that the Court makes the appointment, not you. This is because one is deemed to not be capable of making even that decision.  (The living wills that I prepare also have a selection of Conservator.)

Another aspect of Conservatorship, believe it or not is that it can be voluntary or involuntary. That’s right, you can voluntarily apply to the Probate Court to be “Conserved”, and request that someone else make all of your typical every day decisions, as well as be in charge of your healthcare.

Most involuntary conservatorships are usually the result of medical facilities getting involved. Typically a person will end up at a medical facility for one reason or another and the medical personnel will deduce that the person cannot make their own decisions regarding their own welfare.  At that point the State is advised and the process begins.  

A POA is a very necessary tool in estate planning simply by virtue of its all encompassing power.  Most people don’t realize how difficult it can be to help manage the affairs of a loved one when they become ill.  A POA is accepted by business and health care institutions as well as the State & Federal government.  Therefore, it is the perfect instrument to assist one in managing the affairs of another. We use the POA as an efficient instrument in estate planning because it compliments many of the other estate planning instruments as well.  If you are in a situation where a friend or loved one may need your assistance in their lives, I highly recommend inquiring into the need for a POA.  It can simply make a difficult situation very easy. 

Anthony J. Medico, Esq., has practiced law for over 15 years.  To ask a question for this column, or to receive Medico’s free Estate Planning Survival Guide, visit his website at www.ajmedico.com, send an e-mail to Anthony@ajmedico.com or call (203) 661-8151.

The Law Offices of Anthony J. Medico

7 Benedict Place v Greenwich, Connecticut 06830

Telephone (203) 661-8151 v Facsimile (203) 625-9612

Anthony@ajmedico.com v www.ajmedico.com

Q:  My mother recently passed away and my sister was appointed her Executor under her will. My father passed away several years ago. I am a beneficiary under my mother’s will. My sister and I have fallen out of sorts over the years and I fear that she will not treat me properly and will do things behind my back regarding my rights under my mother’s Will. Is there anything I can do to prevent this?

A: This is a good question, and one that I hear often. First, let me say that your situation occurs more often than not. It seems that simmering family issues find no better means of uprooting than in the probate process after the death of a family member.

There are several things you should be aware of which may ease your concerns.  First, what is an Executor and what does that person do? An Executor, in its simplest definition, is an arm of the Probate Court responsible for various tasks. She must locate and determine the assets and debts of the estate; locate insurance policies and confirm payouts; locate beneficiaries, prepare and file the required probate forms, and tax forms and returns. The Executor will make the distributions proposed under the Will and authorized by the court and finalize the estate in accordance with the directives of the court.

As you can see, the Executor has a significant amount of accountability to the estate and assumes a big responsibility when they accept the appointment.  To that end, because there is so much involved, the Executor has quite a bit of contact with the Court.  As an arm of the Court, so to speak, the Executor has a fiduciary responsibility to both the Court and the beneficiaries (and others).  A fiduciary responsibility means that they are held to a high standard of trust and honesty. 

Due to the fiduciary responsibility, your sister simply cannot act improper to you, because everything she does as an Executor is watched by the court.  The Executor must file numerous documents with the Court as well as accountings which clearly show all of the assets and how they are proposed to be distributed.

Of most importance to your question, is the fact that you, as an heir and proposed beneficiary have the right to question everything the Executor does regarding the estate and if you see something that seems improper, you can make a request for clarity or seek a hearing with the court.

Many of the situations encountered under this scenario are typical of sibling disputes. Accusations of entitlement often fly across the room, such as loans made by mom and dad to a sister or brother to buy a house while the younger (or older) brother still rents; or the loan for college tuition that was never paid back.  Another classic is the care given to a decedent for which a sibling feels a greater entitlement to the estate assets for the time spent caring for the needs of the decedent that no one else gave. 

Another often encountered scenario is the person suspected of removing assets of the decedent during their lifetime, such as funds held in a joint bank account or credit card accounts opened and maxed out (and not paid) for the benefit of a that suspected person.  Sometimes this occurs even by a person who has been given power of attorney or has been appointed Conservator.

These scenarios, although not typical, are of no shock to the court or the probate system.  Hence, the laws surrounding this very issue.  The Executor must provide very detailed information to the court and must be able to answer the questions of the beneficiaries and heirs.  As a result, there is no room for personal vendettas and the Executor cannot make those types of decisions unilaterally.  When you are an arm of the Court, you must answer to the Court, and there is no room for dishonesty or sibling rivalry in that report.

Anthony J. Medico, Esq., has practiced law for over 15 years.  To ask a question for this column, or to receive Medico’s free Estate Planning Survival Guide, visit his website at www.ajmedico.com, send an e-mail to Anthony@ajmedico.com or call (203) 661-8151.

The Law Offices of Anthony J. Medico

7 Benedict Place v Greenwich, Connecticut 06830

Telephone (203) 661-8151 v Facsimile (203) 625-9612

Anthony@ajmedico.com v www.ajmedico.com

As opposed to a Last Will and Testament, which dictates things to be done after death, a Living Will dictates things to be done during one’s lifetime. To be specific, a Living Will sets forth your wishes and instructions regarding how you want to be treated, medically, when you lose your capacity to make those decisions yourself.

A Living Will only pertains to issues involving medical treatment and decisions when you succumb to a medical state which is deemed terminal (an incurable or irreversible medical condition which, without the administration of life support systems would result in death), or, if you are determined to be permanently unconscious (a permanent coma or persistent vegetative state).

In the ordinary course of events, the Living Will is provided to the treating physician who is to accept and follow the health care instructions contained therein. These include the withholding or withdrawal of life support systems, the appointment of a health care representative, the designation of a future conservator, and any decisions regarding anatomical gifts (donation of organs).

The Living Will sets forth a variety of instructions including the use or non-use of artificial respiration, CPR, and any other means of providing artificial nutrition and hydration. It sets forth the amount and extent of pain medication, as well as your desires regarding the shortening of an unreasonably, artificially, prolonged period of life.

In the Living Will instrument you appoint someone to make the decisions regarding the items set forth above.  Usually it’s a spouse or other relative. That person is charged with the responsibility of following the instructions set forth in the instrument.  Alternate individuals are also appointed in case the first choice designee refuses to accept the appointment, is incapable of making such decisions due to their own medical incapacity(which may not have existed at the time you drafted your Living Will), or pre-deceases you.

A Living Will can also include an appointment of a Conservator.  A Conservator is someone who is appointed by the Probate Court to handle all of the decisions you would normally make had you not fallen into a terminal state.  I’ll save the discussion of Conservators for a future column, but in its simplest definition, a Conservator is appointed to make either your medical decisions (Conservator of the person) or your financial decisions (Conservator of the estate), or both.

As you can imagine, the decisions surrounding the continuation or termination of medical care are extremely strenuous. More often than not, family members challenged with this situation have a very difficult time making these decisions. By having a Living Will, your family and friends can be relieved from making such decisions because you clearly and specifically set forth your desires in a legally binding written instrument.

A word of caution when creating a Living Will; each State has its own specific set of requirements which must be contained in a Living Will. Due to HIPPA privacy concerns and its resulting legal ramifications, along with the State specific requirements, attempting to create this document on your own with a generic form found on the internet or at your local office supply store can result in the entire instrument being determined invalid and void. A medical provider does not have the right to determine the validity of such an instrument. They are doctors, not Judges. And the last thing you want or need during such a crisis is litigation over the validity of a legal instrument.

Also, Connecticut, like many other states, has strict regulations regarding Living Wills and the appointment of Health Care Representatives. To that end, the requirements change from time to time depending on new legislation.  In this case, as it relates to the release of medical information. Therefore, if you have already prepared a Living Will beyond three years ago, you should have it reviewed to confirm that it complies with the State’s requirements.

A living Will is as important as a Last Will and Testament. It is a standard document that compliments any estate plan and is inexpensive to create.  Unfortunately, most people never consider creating a Living Will.  Instead, they are focused on instruments that are effective after death.  Perhaps most people aren’t aware or simply don’t consider the fact that as medical science continues to advance, considerations of artificial support become far more complicated.  A Living Will can and will address those issues.

Anthony J. Medico, Esq., has practiced law for over 15 years.  To ask a question for this column, or to receive Medico’s free Family Asset Protection Survival Guide, visit his website at www.ajmedico.com, send an e-mail to Anthony@ajmedico.com or call (203) 661-8151.

The Law Offices of Anthony J. Medico

7 Benedict Place v Greenwich, Connecticut 06830

Telephone (203) 661-8151 v Facsimile (203) 625-9612

Anthony@ajmedico.com v www.ajmedico.com

A Revocable Living Trust is an estate planning tool which, when funded properly, transfers the ownership of an asset from your name into a “Trust”. It’s called a Living Trust because you create it during your lifetime rather than in your Last Will and Testament. The basic concept of a Revocable Living Trust is that you give up ownership of an asset, but retain complete control over it at the same time.

Every trust has three players. 1) the Grantor- The person or entity that creates the Trust and funds it, 2) the Trustee-The person or entity that manages the Trust assets and follows the directives of the Trust agreement, and 3) the Beneficiary- the person or entity that derives the benefit of the Trust assets. Often Trusts have multiple individuals, or entities in each of the three categories.

There are many different types of Trusts, each with a different purpose. Examples are: Insurance Trusts, Spendthrift Trusts, Inter Vivos Trusts, Family Residence Trusts, etc. The Trust agreement sets forth the terms of the Trust and how the assets are to be treated (invested, sold, etc.). A Trust can be funded with a variety of assets including real estate, stocks, bonds, cash, the Grantor’s ownership interest in businesses, or even expectations of future income. The Trust dictates who will receive the income generated by the investment of the Trust assets and designates when that will occur. Finally, the terms of the Trust dictate when the assets will be removed (usually via sale or transfer), and when the Trust will be dissolved.

A Revocable Living Trust is designed so that the Grantor is also the first named Trustee, and the primary beneficiary. This goes back to what I said earlier about giving up ownership, but retaining complete control over the asset. In this case, the grantor has transferred ownership of the asset to the Trust, but has complete control over the asset and gets the income! 

An example of a Revocable Living Trust would be the Smith family creating the Smith Family Trust. Once the Trust is created, they prepare a deed transferring the house from Tom & Jackie Smith to the Smith Family Trust. Once the deed is recorded with the Town Clerk, the Trust owns the house. 

However, Tom & Jackie who are the named Trustees can still mortgage the house, rent it, sell it, etc., and even add additional assets to the Trust as time goes on. Also, under the terms they created in the Trust agreement, Tom & Jackie, as primary beneficiaries, receive the income from the Trust during their lives, and upon their death, the assets and income pass to their children, outside of probate, significantly lowering the estate costs, taxes, and fees. Additionally, as an added bonus, Tom & Jackie can designate future Trustees, beneficiaries and other terms in the Trust agreement which essentially permits them to control the assets for a given period of time after their death.  This adds a whole new meaning to the phrase “after I’m gone…”

Generally, Living Trusts are designed to guarantee the support of spouses and children, but can also be designed for a variety of estate planning purposes and benefits. First, the asset is removed from the Grantor’s ownership, and therefore, is not part of the estate at the time of death, thus saving the estate much of the fees and costs of probate. Further, and perhaps more importantly, each of these Trusts are used in the asset protection aspect of estate planning because depending on the type of trust created, the asset transferred to the trust may no longer be susceptible to the hands of creditors, lien holders, or judgment holders.  

Curiously, people often think a Living Trust is an estate planning tool only for wealthy people with large estates. You may be surprised to learn that Living Trusts can also benefit persons with modest estates. There are a variety of ways you can benefit from having a living trust. It is a fantastic estate planning tool that is not very complicated to create, and can save your estate and family considerable costs and taxes upon your death.

Anthony J. Medico, Esq., has practiced law for over 15 years.  To ask a question for this column, or to receive Medico’s free Family Asset Protection Survival Guide, visit his website at www.ajmedico.com, send an e-mail to Anthony@ajmedico.com or call (203) 661-8151.

The Law Offices of Anthony J. Medico

7 Benedict Place v Greenwich, Connecticut 06830

Telephone (203) 661-8151 v Facsimile (203) 625-9612

Anthony@ajmedico.com v www.ajmedico.com