The Ripple Effect of US v. Windsor on Planning

     Today marks a milestone for Plainly Legal. This is our 100th post, and we would like to thank everyone who has supported this venture and visited our Blog. That said, let's move on to today's topic, as recent weeks have produced significant news that affects our practice and those of our associated professionals.

     As we discussed in July, the Supreme Court's decision in the case of US v. Windsor, holding Section 3 of the Defense of Marriage Act (DOMA) unconstitutional, impacts planning for married same-sex clients. Since that decision, other departments of the Federal government have announced responses to this holding.

     On August 29th the US Department of Treasury and the Internal Revenue Service ruled that same-sex couples, legally married in states that recognize their marriages, would be treated as married for federal tax purposes. This ruling applies to all married same-sex couples regardless of whether their state of residence recognizes same-sex marriage. This ruling applies to all forms of federal taxation including income, gift, and estate tax. Because of this ruling, legally married same-sex couples may file their 2013 federal income tax return using either the married filing jointly or married filing separately filing status. These couples may, but are not required to, file amended returns for the tax years 2010, 2011, and 2012, choosing to be treated as married for those years. However, Michigan has yet to weigh in on whether legally married same-sex couples may file joint returns. 

     While the IRS has readily complied with the Supreme Court's decision, other departments of the Federal government are not as quick to change their policies. The Department of Veterans Affairs Secretary Eric Shinseki announced that the Supreme Court ruling did not specifically strike down a federal regulation defining a spouse as someone of the opposite sex, and therefore the Department of Veterans Affairs would continue to limit VA benefits to opposite sex spouses. This decision was almost immediately challenged, and on August 30th US District Judge Consuelo Marshall of Los Angeles ruled that based on the Supreme Court's decision in US v. Windsor, the regulation in question was unconstitutional and approved an injunction permanently barring the VA from applying that regulation.

     In contrast to the Department of Veterans Affairs, the Pentagon has announced that as of September 3rd same-sex spouses of military members will now be eligible for the same health care, housing, and other benefits enjoyed by opposite sex spouses. This decision has been met with some resistance, especially from the State of Texas, where the Texas National Guard currently refuses to process requests from same-sex couples.

As events unfold and the scope of the Supreme Court's decision becomes clearer, we at Plainly Legal will continue to provide you with commentary that may assist you in new planning for clients covered by the decision. 

     Again, thanks to all of our readers for their regular visits to the site, and we look forward to continuing to provide you with useful and insightful information regarding estate, tax, and business planning.

Matt Ferrara

Veteran's Aid & Attendance Pensions

     Over the past few months, I have heard from a number of financial professionals whose clients are asking questions regarding eligibility for the Veterans Administration's Aid & Attendance Pension. The Aid & Attendance Pension is a benefit available to veterans with 90 days of active duty service during wartime. Due to the World War II, the Korean War, and the Vietnam War, the vast majority of military veterans potentially eligible for the Aid & Attendance pension served during a qualifying wartime. In addition to the wartime service requirement, veterans seeking the Aid & Attendance Pension must qualify medically and financially.

     The Aid & Attendance Pension provides additional funds to veterans or their surviving spouses to pay for assistance in performing daily tasks. A significant goal of the Aid & Attendance Pension is to provide veterans with the care they need to live a full life without the veteran needing to rely on Medicaid for long-term medical care.

Clients who desire to meet the financial qualifications for the Aid & Attendance pension generally consider one of two actions. Either the client wishes to purchase annuities in order to convert assets into an income stream, or the client wants to give away assets to children or other loved ones. Both of these actions, while potentially allowing the client to meet those financial limits, have potential negative consequences.

     Two issues arise for clients wanting to convert their assets into income. First, it is important to note that the Aid & Attendance Pension has both an income and asset limit, so it is possible that converting assets to an income stream will not achieve the goal the client intends. The second issue, involves the financial advisors desire to maximize their clients return on investment. In many cases, especially with elderly clients, an annuity is not the vehicle that will provide the best return on investment. Alternately, clients seeking to give away assets do not consider the choices that continued access to and control of those assets can provide the client.

     Unlike Medicaid, the Aid & Attendance Pension has no divestment penalty, allowing individuals to give away assets in order to meet the financial qualifications. However, it is important for clients to consider what they are giving up by giving away those assets. When considering long-term care, more assets equals more choices. Also, while clients believe that children will retain assets given to them in case the parent ever needs those assets, even in situations where children have the best of intentions, unexpected expenses, lawsuits, and investment mistakes occur, creating a situation where assets are no longer available to pay for care in the future.

     A significant drawback with the Aid & Attendance Pension is the existing backlog of claims for veteran’s benefits. In many cases, it may take over a year to process a claim for the Aid & Attendance Pension, and while the claim may eventually be approved and pay out retroactively, there is a time during which the client must subsist on their artificially lowered assets.

     The Aid & Attendance Pension has the potential to improve significantly the client’s quality of life. However, qualifying for this benefit is not always in the best interest of the client, especially when the client has significant assets with which to pay for their care. Before taking any action designed to assist in qualifying for a government benefit, clients should speak with an attorney experienced in veteran’s benefits to ensure that such actions will achieve the client's goals.

Matt Ferrara

Other IRA Issues with Estate Planning

On Tuesday, I discussed funding retirement benefits to a Living Trust and some of the issues that may come about because of the funding. In response to that post I received a few comments and questions on related issues and thought it a good idea to expand on the topic in today's post.

The first comment talked about the opportunity of using a direct IRA beneficiary trust as well, to mandate a "stretch-out" of distributions and protect non-spouse beneficiaries from creditor claims. We discussed the IRA Trust in our post on November 20, 2012, but it is worthwhile discussing it again.  

The “IRA Trust”, is a stand-alone trust, separate from a Living Trust that acts as the beneficiary of IRAs or retirement other benefits. The provisions of an IRA Trust satisfy all of the regulations related to the distribution of IRAs and retirement benefits, allowing the beneficiaries to take advantage of their inherited benefits over their lifetime. Using the IRA Trust allows the client to design a special trust specifically for the IRA assets and perhaps even for different beneficiaries then for the majority of the estate under the client's Living Trust. Except for the required minimum distributions (RMDs), the IRA assets can continue to grow tax-deferred and protect beneficiaries against their own bad habits of this spending in mismanagement of money. Additionally, if an IRA trust provides for more than one beneficiary, if the IRA beneficiary designation form specifies the percentage of the account that will go to a specific sub trust for each of the beneficiaries, each beneficiary can then use their own life expectancy in calculating the RMDs for a particular year.
     A second comment asked how one meets the "see-through" trust requirements when one of the trust beneficiaries is a charity or other non-individual beneficiary. When a client names non-individual trust beneficiaries, those beneficiaries can be "removed" as a beneficiary for the purposes of determining the “see through” status of the trust. To “remove” the non-individual beneficiary the trustee must either make a distribution of the amount allocated to that beneficiary or arrange for the beneficiary to disclaim their interest. The deadline for this “removal” is September 30 of the calendar year following the calendar year of the account owner's death (the "Beneficiary Finalization Date"). If this is accomplished, the regulations exempt the non-individual trust beneficiaries for purposes of determining individual beneficiaries.
One might ask why anyone would disclaim his or her interest in a Living Trust. In some cases an older beneficiary will disclaim their interest in the IRA assets of the trust, because it will allow the younger beneficiaries (perhaps grandchildren in their 20s) to extend the IRA distributions over the lifetime of the oldest life expectancy of that group. This is important because unless you eliminate the elder beneficiary, all of the beneficiaries must use the oldest beneficiary's life expectancy in calculating the RMDs. Alternatively, a charitable beneficiary may disclaim an interest in IRA assets in exchange for a larger immediate gift that it can invest or put to use immediately.

On a final note, if there are sufficient assets in addition to the IRA to protect loved ones, and the client is charitably inclined, client may want to consider designating one or more charities as the beneficiary of the IRA. This will satisfy their charitable inclinations will save significant income taxes because the IRA will not be subject to income tax when paid to the charity. This can save a large amount of tax, especially where the estate is taxable for estate tax purposes and then the IRA is taxed for income tax purposes as it is distributed to individual beneficiaries. Naming a charity as the IRA beneficiary excludes it from taxation for federal estate tax purposes and income tax purposes.

Again, it is important that a client discusses their desires with experience counsel prior to designating beneficiaries in order to protection of beneficiaries and minimize taxation of the account.

Funding Retirement Benefits to a Living Trust

As part of the trust funding process, I normally suggest that clients change the beneficiary designation of their IRAs and retirement benefits. Most of the time, I suggest that their spouse be the primary beneficiary and the Living Trust be the secondary or contingent beneficiary, because spouses receive better distribution rights under federal law with respect to retirement benefits. If the spouse predeceases the account owner, or if it makes sense for other reasons for the spouse to disclaim the retirement benefits, the benefits then fall to the Living Trust where, in all probability, the spouse remains the primary beneficiary and if the spouse has already died, the beneficiaries of the Living Trust become beneficiaries of the retirement benefit.

After contacting their financial professional, clients will often call me concerned because their financial professional warned them against designating the Living Trust as beneficiary of the retirement benefits because their children will not be able to "stretch out" the IRA over their lifetime, and the entire benefit will be taxable immediately. While this advice may be well meaning, it is often incorrect.

The Internal Revenue Code (the "Code") and Regulations provide that a "designated beneficiary" can use the provisions which allow a beneficiary to take minimum required distributions (MRD's) over their life expectancy. Normally, only an individual can be a "designated beneficiary", therefore a Living Trust ordinarily is not a "designated beneficiary" because it is not an individual. There is an exception to that rule and, if the trust document meets certain requirements, then the Living Trust is considered a "see-through" trust and the regulations treat the beneficiaries of the Living Trust as designated beneficiaries of the decedent's retirement account. To achieve “see through” status, the Living Trust must meet the following requirements:

1. The trust is a valid trust under state law, or would be but for the fact that there is no corpus.
2. The trust is irrevocable or will, by its terms, become irrevocable upon the death of the account owner.
3. The beneficiaries of the trust with respect to the trust's interest in the employee's benefit are identifiable from the trust instrument
4. Required documentation has been given to the Plan Administrator. The Plan Administrator must receive a copy of the trust instrument and a list of all beneficiaries of the trust with a description of the conditions on their entitlement.

If the trust meets all the requirements then the Living Trust beneficiaries are deemed “designated beneficiaries", entitled to receive their MRDs over their life expectancy.

The next issue when a Living Trust is the beneficiary of IRA benefits usually arises at the account owner's death. At that point, clients want to know whether the beneficiaries can split the “inherited IRA” into separate IRAs and make their own decisions about how distributions are made. Generally, "inherited IRAs" received by beneficiaries other than a surviving spouse, cannot be rolled over to their own IRA, but the account can be split into separate IRAs for the trust beneficiaries using the designation "John Doe IRA for the benefit of Beneficiary A", etc. Beneficiaries can then decide the manner in which they want their IRA distributed. One beneficiary may take a lump sum distribution, pay the tax and invest or spend the rest. Alternatively, a beneficiary can decide to take MRD's over their designated life expectancy, deferring income tax until future distributions are made.

Along with the question of splitting an “inherited IRA”, is the question of whether the MRD's are based on each beneficiary's own life expectancy or on the life expectancy of the oldest beneficiary.

Regulations §1.401(a) (9)-8, A-2 provides the general rule that if the account owner's benefit is divided into separate accounts no later than the last day of the year following the calendar year of death, distributions subsequent to the division are treated as separate accounts and each beneficiary of each separate account can use his/her own life expectancy in determining minimum required distributions each year. However, this rule does not apply to beneficiaries receiving a "separate share" through a trust that was the beneficiary of an IRA. Therefore, even if beneficiaries split the IRA into separate accounts for each beneficiary, all the beneficiaries must use the life expectancy of the oldest beneficiary of the Living Trust in determining their MRD's.

The law and regulations governing “inherited IRAs” is both vast and complex, before designating beneficiaries of retirement benefits, you should consult with a professional expert in that area. At the death of the account owner, it is important to seek additional advice as to the best way to retitle the accounts or distribute the assets. These experts should take the time to understand your unique situation and provide you with an understanding of the consequences of decisions, not just provide you with the forms needed to make changes.

Dying with Debt

Up to this point, Plainly Legal has focused on topics dealing with the transfer of wealth, either through lifetime gifts or at death. Today's blog takes a detour to discuss the question of what happens with a person's debt when they die. Recently, a friend contacted me with a question about information she received from someone at her bank when she attempted to designate beneficiaries for her bank accounts. This bank employee (I did not ask which bank or the job title of the employee) told her that she should not designate a beneficiary because, if she were to die with debt that debt would then pass to her loved ones. Before continuing with today’s blog, it is important to emphasize:

THAT STATEMENT IS SIMPLY NOT TRUE.

The good news is that personal debt is non-inheritable. If a person incurs debt during their lifetime, the beneficiaries of the person’s estate, no matter if they are beneficiaries through a Will, Trust, or the Intestacy Statutes, are not personally liable for any debt left behind. This does not however mean that debt disappears at death.

When a person with personal debt dies, that person's debt becomes the liability of the person's estate. Creditors are then free to try to collect on that debt from the estate. It is the responsibility of the Personal Representative (and Trustee) to pay the enforceable debts of the deceased prior to making distributions to the beneficiaries. To ensure that creditors receive payment prior to making distributions beneficiaries, the Michigan Probate Code mandates that the personal representative of the estate is required to publish a death notice (to inform unknown creditors) and provide notice to known creditors. Those creditors then have four months to present their claims to the Personal Representative. After the four-month window, with some exceptions, the probate statute bars creditors’ claims against the estate.

When a creditor makes a claim against an estate it is the responsibility of the personal representative to determine if the claim is valid and, if so, to provide payment to the creditor. While the personal representative is responsible for making these decisions, they do so in a fiduciary capacity and upon determining that a claim is valid, pay the claim with the estate's assets. Absent extraordinary circumstances, the personal representative is never personally liable to pay the debts of the estate they represent. The practical result of this situation is that a personal representative may determine that a creditor’s claim is valid, but the estate lacks the assets to pay the debt. In that situation, neither the personal representative nor any beneficiaries of the estate become personally liable for the unpaid debt.

At this point, it is important to address a number of minor exceptions to these rules, the largest of which being that the four-month claim window becomes a three-year window if the Personal Representative fails to properly publish notice of the death or fails to inform a known creditor of the death (a "known creditor" is a creditor that's existence is known or reasonably discoverable by the personal representative). A second common exception is that the four-month claim window does not apply to any form of secured debt, such as a lien or mortgage. In almost every circumstance, the holder of a secured debt has the right to enforce their security agreement and take possession of the property in which they have a security interest. For example, a bank may repossess a house that is subject to a mortgage owned by the bank if the estate is unable to make payments on the bank’s loan.

Since probate law requires that creditors receive payment prior to distributions to almost all beneficiaries (there are exceptions for a limited number of distributions to a surviving spouse and minor children), it is possible that the estate assets can be exhausted before a beneficiary receives anything from the estate. In the event that the debts of an estate exceed the estate assets the beneficiaries receive nothing, however those beneficiaries do not incur liability for unpaid debt because of their status as beneficiaries.

While it is the responsibility of the estate to pay the deceased's debts prior to making distributions there are certain assets that are never accessible to the creditors of the estate, including retirement benefits and life insurance proceeds. While creditors cannot attach the assets of a person’s IRA in order to recover debt, once a person receives a distribution from the IRA, creditors can attempt to recover those funds if the person deposits them in a bank or other financial institution. When the owner of an IRA dies with debt the distributions to the beneficiaries of an inherited IRA are protected from the original owner’s creditors. This is true even if the IRA beneficiary is a Trust or the estate.

 We now reach the situation my friend encountered on her trip to the bank. Unlike IRA accounts, beneficiary designations on bank or investment accounts do not enjoy the same protection from the original owner’s creditors. While a beneficiary designation causes those accounts to pass directly to the individual named in the designation, such designations do not limit the rights of creditors of the previous owner. This does not mean that someone named as the beneficiary of a bank account becomes liable for the original owner’s debts. In practical terms this means that a creditor can recover assets in a bank or investment account transferred via beneficiary designation, but that creditor still may not recover in excess of the assets transferred from the deceased individual.

Substantial debt is an understandable concern for many people these days. It is important to remember that when you or your loved ones die, personal debt generally becomes the responsibility of the deceased person’s estate, for the Personal Representative to pay before making distributions to other beneficiaries. Payment of these debts can consume the assets of an estate, but in that circumstance the beneficiaries are not liable for debt in excess of the estate’s assets.

 It is just as important to consult reputable source when dealing with debt as it is when making decisions regarding other planning. While employees of financial institutions may seem like knowledgeable sources of information, you should be aware that not every employee receives the same training. If you have doubts as to the accuracy of information you receive, ask to speak with a manager, contact your attorney for a second opinion, or send us a message and we will attempt to address your issue, directly or in an upcoming blog. 

The Benefits of an IRA Trust

As we have discussed in previous posts, there are many forms of trusts used in the estate planning process. A special type of trust, known as an “IRA Trust,” is a stand-alone trust, separate from a Living Trust that acts as the beneficiary of IRAs or retirement benefits. The provisions of an IRA Trust satisfy all of the regulations related to the distribution of IRAs and retirement benefits, allowing the beneficiaries to take advantage of their inherited benefits over their lifetime.

While there is nothing barring a Living Trust from being the beneficiary of an IRA, due to the regulations that govern the distribution of retirement benefits it may be difficult if not impossible to take advantage of the most beneficial distribution rules or provide for a lifetime distribution of benefits using only a standard Living Trust. For example, if the Living Trust beneficiaries include charities the Living Trust will not qualify as an "individual beneficiary" and thus the non-charitable beneficiaries will not benefit from the ability to “stretch out” the IRA benefits. In addition, if the Living Trust benefits elderly relatives, the shorter life expectancy of those relatives limits the ability to stretch out distributions and delay or defer income taxation for younger beneficiaries because the regulations base MRD on the life expectancy of the oldest beneficiary. The provisions of an IRA Trust avoid these problems and ensure that the IRA Trust’s beneficiaries enjoy the greatest benefit from their inherited asset.

The beneficiaries of the IRA Trust can be the same as those of the client's Living Trust. However, the distribution terms of an IRA Trust terms are often different from the Living Trust and frequently more restrictive in order to ensure that no matter what happens to the Living Trust assets, the IRA Trust assets will be available to help support children, grandchildren and other beneficiaries. Alternately, an IRA Trust can divide assets between different groups of beneficiaries. For example, the Living Trust may benefit a second spouse while the IRA Trust has children and grandchildren as beneficiaries. Finally, an IRA Trust can help beneficiaries in more difficult or complex situations, such as beneficiaries who are:

1. Spendthrifts and unable to handle money
2. Children with addictions
3. Children with creditor issues
4. Children with bad marriages
5. Special care needs children, including those who qualify for government benefits
6. A surviving spouse who is  unable to say no when children ask for money

In these situations, the IRA Trust Trustee can provide professional management of Trust assets, allowing the IRA assets to grow tax deferred, except for required distributions, and ensure that the beneficiaries do not waste those distributions.

If there are multiple beneficiaries, IRA Trusts are drafted and coordinated with the beneficiary designation of the IRA to allow each of the beneficiaries to use their own life expectancy in determining the minimum required distributions. For example, the beneficiary designation after the death of the client should read as follows: “50% to the sub trust for the benefit of Jane Doe under the John Doe IRA Trust.” With proper drafting, an IRA trust can provide not only for children, but grandchildren and beyond, allowing multiple generations to take advantage of the IRA benefits. In those circumstances, the IRA Trust is often known as a "Dynasty Trust" because it can provide for multiple generations.

Just like a Living Trust, the distribution provisions of an IRA Trust dictate how the beneficiaries receive distributions. One design option for an IRA Trust is the "conduit trust", under which the trustee has no power to accumulate plan distributions in the trust and must allocate any distribution received from the IRA or retirement plan to the beneficiaries. The conduit trust lessens the trustee’s ability to control the income but still allows control over principal distributions as necessary.

Alternatively, when it is desirable or necessary to impose greater control upon the dispersal of the RMD, an "accumulation trust" allows the trustee to hold the RMD in trust for the beneficiary’s benefit. For example, if the beneficiary of the IRA Trust is special needs child, it is important to limit income distributions in order to avoid adversely affecting the beneficiary's right to receive state or federal benefits. It is important to remember however when using an accumulation trust that the federal government taxes income received from the IRA but not distributed to beneficiaries according to the potentially higher trust income tax rates.

Whether a client wants to provide for multiple generations, ensure a lifetime of income for a beneficiary in a difficult personal or financial situation, or simply ensure that different groups of beneficiaries receive the asset that provides them the greatest value, an IRA trust is an extremely useful tool for a wide variety of situations. Due to the complexities surrounding IRA and retirement plan distributions, it is important to work with experienced estate planning attorney familiar with those regulations in order for an IRA Trust to achieve a client's goals.

2012 Tax Planning - Splitting Inherited IRAs

For individuals who inherited a share of an IRA from an IRA owner who died in 2011, December 31, 2012 is an important deadline. This is because the regulations that govern distributions from inherited IRAs require that beneficiaries make decisions regarding the division of inherited IRAs on or before December 31 of the year following the death of the IRA owner. When there are multiple beneficiaries for an inherited IRA, splitting the IRA account into separate accounts for each of the beneficiaries has the potential to yield important tax and investment benefits.

Death beneficiaries of an IRA must take distributions from the IRA either (1) fully within five years or (2) in annual distributions over their life expectancy. The regulations that govern IRA distributions require that, whether the IRA owner died before or after his required beginning date (generally age 70 1/2), if the IRA owner was older than the beneficiaries, the remaining IRA balance is paid out over the remaining life expectancy of the beneficiary. Generally, when there are multiple beneficiaries of a single IRA, those beneficiaries must use the life expectancy of the oldest amongst them (i.e. the shortest life expectancy) when calculating the Required Minimum Distributions (RMDs). This requirement places younger beneficiaries at a disadvantage because the inherited IRA makes larger annual distributions over a shorter time, triggering potentially greater income tax liability.

For example, John designated his children, Bill and Mary, as equal beneficiaries of his IRA. John dies in 2011 at the age of 75 when Bill is age 55 and Mary is age 40. Under the default scenario, Bill's life expectancy dictates the RMDs for both Bill and Mary. Presuming they each are entitled to $500,000 from the account, in the first year the RMD using Bill's life expectancy is almost $17,000. If Mary could calculate the distribution using her life expectancy, her initial distribution would be only about $11,500. The size of the distributions will only accelerate as Bill gets older.

Fortunately for those younger beneficiaries, if they take advantage of the distribution regulations in a timely manner, they can split the IRA into separate accounts and the RMD rules will apply separately to each account. Following the split, each beneficiary will use their own life expectancy in determining the RMDs. Thus, Mary’s required distributions will be smaller than if she were required to use Bill's life expectancy. In addition, Mary would also have more freedom to invest her portion of the IRA, as her investment philosophy is likely to be more aggressive than Bill’s due to the difference in their ages.

In order to take advantage of this opportunity, recent IRA beneficiaries must direct the IRA trustee to split the inherited IRA into separate and equal IRAs no later than December 31, 2012, making each individual the sole beneficiary of their share of the IRA. Additionally, the trustee must allocate all post-death investment gains and losses for the period before the establishment of the separate accounts to each account on a pro rata basis in a reasonable and consistent manner. After establishing separate IRA accounts, each account owner can provide for separate and distinct investments depending upon the needs of the beneficiary's with gains and losses from the investment of the account allocated only to that account.

Time is running out for the beneficiaries of IRAs inherited in 2011 to make this decision. It is important that beneficiaries and their financial advisors communicate regularly to ensure the ability to take advantage of opportunities such as this. The law governing IRA distributions is both long and complex. This article addresses only the potential to split inherited IRAs into separate accounts for each beneficiary, if you have additional questions or concerns regarding IRA distributions please feel free to leave us a comment, send us an e-mail or call us.

How a Living Trust Protects your Loved Ones

               There are many types of trusts and each of them is beneficial in the right circumstances. Today I want to talk about the commonest form of trust, the “Revocable Trust”, also sometimes called the “Living Trust”. 

The first benefit of the Living Trust is that it is revocable—you can change it as many times as you like for any reason, or no reason, as long as you are alive and competent. 

               As your financial situation or family situation changes, your Living Trust can change with it to provide your loved ones with the protection you desire. Living Trusts are particularly useful for the following three reasons:

1. AVOIDING PROBATE: In Michigan, any asset titled in your name alone, must pass through the probate process at your death. The probate process can be expensive, time consuming and very public. If you transfer assets to your Living Trust, you control them because you are the initial Trustee and only beneficiary during your lifetime, and your successor Trustee administers the assets for your loved ones following your death, without any probate required. 
2. REDUCING OR ELIMINATING FEDERAL ESTATE TAXES: If your estate exceeds the current exemption from estate taxation (currently $5,000,000 per person but scheduled to be reduced to $1,000,000 in 2013), the Living Trust can be drafted to insure both spouses’ exemptions are used and estate taxes are eliminated or at least delayed until after the death of the second spouse to die. 
3. PROTECTING YOUR SPOUSE AND OTHER FAMILY MEMBERS: Perhaps the most valuable benefit of a Living Trust is the ability to protect your family by stating in advance how your loved ones receive your assets after your death. Some examples are: 

• Provide funds to maintain the spouse’s accustomed standard of living, but limit access by creditors or impatient children. 
• Place limits on distributions in the event the surviving spouse remarries, to insure children of the first marriage will have their inheritance protected. 
• Place limits on how distributions can be used or when distributions occur for gifts to children and grandchildren. Restrictions can be placed on the use of income and/or principal, such as: 
• Spreading out distributions over time or at specific ages, such as 1/3 distributions at ages 25, 30 and 35 
• Distributing specific amounts after reaching certain educational milestones 
• Allowing distributions only to pay for education expenses, or only partial payment of expenses if child pays the other portion. 
• Providing for any educational need, purchase of a home, or starting a business, if the independent trustee approves. 
• Restrictions to insure creditors or divorcing spouses are unable to reach trust assets until actually distributed to children. 
• Restrictions to protect immature children from spending funds unwisely 
• Restrictions for children with dependencies to protect them from a worse condition 
• Provide "special needs beneficiaries” who are entitled to benefits through state and federal programs with funds to provide for additional assistance while protecting them from losing eligibility for government funds because of a sudden influx of assets or income. 
• Protect elderly relatives relying on you for support by providing a fund for their use if needed. 
• Allow you to fulfill any charitable inclinations you may have with donations at your death. 

               You have built a legacy of which you can be proud. Let a properly drafted Living Trust allow you to use and distribute it as you see fit.