A new milestone, at the Quarter Ended March 31, 2018, we exceeded $200 million of assets under administration. I attribute this growth to our incredible team of professionals.
The language of estates and trusts are filled with words and phrases that we oftentimes take for granted that the average layperson understands. With the help of my friends at The Merrill Anderson Company, I would like to share some words and phrases that are associated with Wills.

The individual who establishes a will is known as the testator . After the testator’s death he or she is sometimes referred to as the decedent . An executor , or personal representative , is the institution or individual named in a will who is required to carry out the will’s provisions, manage and protect property during the estate settlement process, and distribute the estate’s assets to beneficiaries ( heirs ). The distributions that the heirs receive are often referred to as bequests .

When people fail to create a will, they are considered to have died intestate , and state laws (the intestacy laws ) will determine how assets are distributed. The court will appoint an administrator to handle an intestate estate.

A will often requires approval by a probate court. Probate is the legal process by which a will is proved or established to be valid. The assets that pass by means of a will are often referred to as probate property . Then there are assets for which a beneficiary has been designated in a separate document and that are not subject to the process of probate— non-probate property . Together, for tax purposes, these two elements form the gross estate for tax purposes. (Just because property passes outside of a will doesn’t mean that it necessarily escapes taxation.) Non-probate property includes property that has been taken in joint name and that passes automatically to the other individual joint owner (the family home, bank accounts, etc.). Other common non-probate property: life insurance policies and retirement plan accounts.

A pour-over provision in a will refers to the transfer of property from one estate or trust to another when a specified event occurs.

Finally, because life brings change, so changes to your will may be necessary. A whole new will may be drafted, or a codicil may be added to the will. A codicil is simply an addition or amendment to a will, made with all the formalities of the will itself.

Over the course of the year I will share with you the language of Trusts. Hopefully for those of us living in the Northeast; maybe, just maybe, by the time you are reading this warmer weather will be upon us.

Sincerely,
 
Ira J. Brower, Founder
ESTATE PLAN ESSENTIALS
A surprising number of people have not yet attended to their estate planning. Perhaps this is because estate planning has become so much more complicated in recent years, even though the burden of taxes at death has been in decline. Estate planning now usually covers medical and financial decisions before the end of life, as well as after death.

Here are the documents that will be drafted for many estate plans today.

(April 2018)
© 2018 M.A. Co. All rights reserved.
MANY HATS IN TRUST ADMINISTRATION
Historically, the traditional trust had a trustee and beneficiaries. The modern trust may have four, five, or more fiduciary and non-fiduciary positions that might include: administrative trustee, distributions trustee, trust protector, investment advisor, loan director, charitable designator, person holding a power to add beneficiaries, persons holding powers of appointment, person holding the power to swap or substitute assets, and more. Many of these positions, because they are relatively new, are known by different names. Different state laws might use different terminology, and there are wide variations in how different attorneys draft the provisions governing these positions. Thus, trustees, beneficiaries, and anyone involved with a trust should review the specific terms of each instrument governing each position and not presume that a particular title has a specific meaning without verifying.

Administrative and general trustee . An institutional administrative and general trustee may be designated, typically a bank trust department or trust company. This position will hold all trustee powers in the governing instrument that have not been allocated to other fiduciaries. For example, if the trust names a trust protector and investment trustee, the general and administrative trustee will have all trust authority not given to those other two positions.

Distribution trustee. The trust could name a person, or group of persons acting as a committee, to be responsible for trust distributions. Caution should be exercised as the power to distribute is a tax sensitive power that could cause trust assets to be included in the power holder’s estate if not properly handled. The settlor may be safer in terms of accomplishing trust goals by leaving this function under the auspices of an independent institutional general trustee.

Insurance trustee. A person could be designated to be responsible for life insurance decisions of the trust. This person should not be the insured. By providing for a separate person to be responsible for insurance decisions, and including prohibitions against the settlor/insured being involved in these decisions, the trust can hold both life insurance and other assets. Some of the advantages of this include the ability to use a single trust to hold business interests and life insurance, instead of multiple trusts, and the ability to use income generated by trust investments to pay for life insurance premiums.

Trust Protector. This is a person appointed to hold important powers over the trust and, perhaps, to perform certain other defined roles. The protector may be given the power to remove and replace existing trustees, correct scrivener’s errors, modify administrative provisions, change trust situs and governing law, and other powers depending on the circumstances and goals.

Substitutor. This person, who may be the settlor or another person, can be given the power to exchange or “swap” assets of the trust for assets of equivalent value. The common application of this technique is to swap highly appreciated trust assets back into the grantor’s estate so that on death they will qualify for a step-up in income tax basis. Provisions should be added to the client’s durable power of attorney to address this power in the event of disability. It also is prudent to arrange lines of credit to facilitate acting on this swap power in an emergency situation.

Charitable designator. One of the means of creating grantor trust status is to empower a person to add to the class of beneficiaries, such as a charity. With the new restrictions on income tax benefits of itemized deductions, perhaps it is advisable to include a mechanism to add charitable beneficiaries in more trusts to provide flexibility for settlors to make contributions out of irrevocable trusts if that proves advantageous in the future.

Modern trust drafting, tax uncertainty, longevity, and a range of other factors are transforming how trusts are planned, drafted, and administered. The wide array of positions, fiduciary and non-fiduciary, that may be included in a trust instrument are among the most affected areas. Creative and careful selection of these positions, and the persons named to serve in them, can infuse substantial flexibility into trust planning.

(April 2018)
© 2018 M.A. Co. All rights reserved.
THREE QUESTIONS TO ASK YOURSELF BEFORE YOU RETIRE
As you near the end of the final lap of your working years, and begin scanning the retirement horizon, you are likely to be seeking the information that you need to ensure a secure financial future. Here, we touch on three of the most important questions that you should be asking yourself as you transition to retirement.

1. Do I understand all of my Social Security benefits options?

When do you want to begin receiving Social Security benefits? Apply at least three months ahead of the time that you wish to begin. You can receive a reduced benefit once you reach age 62. The full benefit shown on the Social Security estimate statement that you receive each year can be yours when you reach "normal retirement age" (no longer automatically age 65, but dependent upon your date of birth). Or do you want to wait until later, to increase the amount of your benefit? You may want to run the numbers. If you plan a "working retirement," find out if your benefits will be reduced, and by how much..

Benefits aren’t automatic. You can apply for benefits by: filling out an application online ( www.socialsecurity.gov ); calling 1-800-772-1213; or visiting your local Social Security office.

2. Do I have all my health insurance coverage in place?

There are three avenues to explore here:

First, Medicare . If you’re already receiving Social Security benefits at age 65, your Medicare (Part A) starts automatically.

If you’re not receiving Social Security, you should sign up for Medicare close to your 65th birthday, even if you have not reached your full retirement age, or you aren’t yet ready to retire. Part A is called hospital insurance and covers most hospital stay costs, as well as some follow-up costs. Part B, for which you must enroll, pays some doctor and outpatient medical care costs. The rules for prescription drug coverage are complicated, so you will want to familiarize yourself with them before you need to make any decisions. Plan providers, AARP and the Medicare Web site ( www.medicare.gov ) can offer guidance.

Second, Medigap (and other) policies. About two-thirds of all Medicare recipients aged 65 or over buy this kind of supplemental private health insurance, designed to deal with some of the holes in Medicare coverage. Before buying Medigap, HMO or other managed care insurance, you’ll need to do a thorough review of the kinds of policies available and their costs.

Third, retiree health insurance. Find out if you can obtain retiree health insurance from your or your spouse's company or union. You may find that the cost is less than that for a Medigap policy and provides more benefits. Make sure that you read the policy's fine print. Especially important: Will premiums rise with inflation? If you are a veteran, find out if you are entitled to medical or prescription drug coverage from the government.

3. Do I know how I want to manage my company retirement plan payout?

Your 401(k) or other qualified retirement plan may offer several kinds of distribution choices. One option may be to receive your benefits as periodic payments (an annuity). For pension plans there are choices within choices: Your payments might be fixed or variable, paid out over your lifetime or that of you and your spouse.

Or you may be entitled to receive a lump sum payout of your account balance. In that case you will need to make a decision as to whether you should: (1) take the money in hand, pay tax on it and invest what's left; or (2) arrange to roll over all or part of your payout into an IRA, avoiding all tax as long as the money remains there. At age 70 1/2 you are required to begin making withdrawals.

If you are planning an IRA rollover, tread carefully, for there may be tax traps. For example, arrange for a direct rollover of your account from the company plan to a Rollover IRA. If you don’t, your employer is required by law to withhold 20% for income taxes.

© 2018 M.A. Co. All rights reserved.
Any developments occurring after January 1, 2018, are not reflected in this article.
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