Presenting a live 90-minute webinar with interactive Q&A Divorce and Trust Assets: Support and Property Settlement Considerations Identifying and Discovering Trusts, Classifying Trust Assets as Marital Property, and Valuing the Beneficiary's Interest TUESDAY, JUNE 19, 2012 1pm Eastern | 12pm Central | 11am Mountain | 10am Pacific Today’s faculty features: Richard S. Chisholm, Attorney, Robert E. Ward and Associates , Bethesda, Md. Justin L. Kelsey, Partner, Kelsey & Trask , Framingham, Mass. Camellia S. Saunders, Attorney, Law Office of Camellia S. Saunders , Knoxville, Tenn. The audio portion of the conference may be accessed via the telephone or by using your computer's speakers. Please refer to the instructions emailed to registrants for additional information. If you have any questions, please contact Customer Service at 1-800-926-7926 ext. 10 .
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D IVORCE AND T RUST A SSETS : S UPPORT AND P ROPERTY S ETTLEMENT C ONSIDERATIONS 5
W HAT W E W ILL C OVER : 6 Introduction to Trusts and Types of Trusts Discovery Trust Assets Classifying the Trust Interest as Marital Property Valuation of Trusts Practice Tips: Ways to Reach Trust Assets or Protect Beneficiary’s Assets Question & Answer Session
I NTRODUCTION TO T RUSTS AND T YPES OF T RUSTS 7
INTRODUCTION TO TRUSTS: 8 W HAT IS A T RUST ? A legal contract formed by two parties for the benefit of a third party. A Trust is a legal arrangement where one person (the “trustee”) holds assets for the benefit of another (the “beneficiary”) . The person creating this arrangement is called the “grantor . ” The grantor and the trustee enter into a contract referred to as a “trust agreement,” which describes the duties of the trustee, identifies the beneficiaries of the trust, and instructs the trustee how to use the trust assets for the benefit of the beneficiaries.
INTRODUCTION TO TRUSTS: 9 K EY C HARACTERISTICS OF T RUSTS Trusts may be “revocable” or “ irrevocable Trusts may be established during the grantor’s lifetime (“inter vivos ”) or at the grantor’s death (“testamentary”) Income earned by a trust may be taxed to the grantor (a “grantor trust”) or be a separate taxpaying entity (which will actually be a pass- through entity if distributions are made to beneficiaries)
INTRODUCTION TO TRUSTS: 10 T HREE K EY P ARTICIPANTS Grantor Typically, although not always, controls the drafting of the trust agreement Contributes assets to the trust – although there can be multiple grantors contributing property to a trust, either at the same or different times Trustee Enters into the written contract with the Grantor (the “Trust Agreement”) and is identified therein Is the legal titleholder to the trust’s assets and therefore has the authority to invest and otherwise manage those assets, including making (or deciding not to make) distributions to the beneficiaries. There may be multiple trustees serving at the same time (i.e. “co - trustees ”) Co-Trustees may be required to act unanimously or by a majority on all trust matters Alternatively some Co-Trustees may have authority for certain tasks (such as making discretionary decisions) whereas other Co-Trustees are authorized to make investment decisions only
INTRODUCTION TO TRUSTS: 11 T HREE K EY P ARTICIPANTS Beneficiary(ies) Persons identified in the Trust Agreement as being eligible to receive distributions of income and/or principal under stated circumstances/conditions. Although beneficiaries are usually persons who are close to the grantor by blood, marriage, or other relationships, it also possible to create trusts which have charitable beneficiaries or for other purposes. Beneficial interests may be classified in different ways, depending upon the trust’s structure. One way to do so is to determine whether a beneficiary is entitled to trust income or principal. Another is to determine whether the beneficiary has a life estate or a remainder interest. Further, some trusts provide for the outright distribution of assets to beneficiaries upon the occurrence of a particular event or at a particular time, while others hold their assets in trust for a beneficiaries lifetime, or even through the several generations.
BASIC CHARACTERISTICS OF 12 DIFFERENT TYPES OF TRUSTS Revocable v. Irrevocable Trusts Revocable trusts are ones in which the grantor retains the right to revoke the trust or modify it in any manner Revocable trusts are commonly used in many states for estate planning purposes. In those cases the grantor is also usually both a trustee and a beneficiary. Revocable trusts are mere alter-egos of the grantors, provide no protection from creditors, and all of the income is taxed to the grantor. Married couples sometimes form “joint revocable trusts” where each is a grantor and a beneficiary during their joint lives. These trusts also provide no creditor protection. Irrevocable Trusts are ones in which the grantor has relinquished the ability to alter or amend the trust agreement. Treated as separate entities from the grantor and provide some level of creditor protection to the beneficiaries (including the grantor depending upon the state in which the trust is created) May be either inter vivos or testamentary
BRIEF OVERVIEW OF VARIOUS TYPES OF TRUSTS 13 FAMILY LAW PRACTITIONERS MAY CONFRONT Common Estate Planning Trusts Bypass (Credit Shelter) Trusts - an irrevocable trust that is usually established by a married decedent’s testamentary document (i.e. will or revocable trust) upon the first spouse’s death. Purpose is to shelter assets from estate taxation at the surviving spouse’s death, thereby making use of the first spouse to die’s estate tax exemption. Surviving spouse is usually the beneficiary along with any minor children, however, some wealthy couples allow children and/or other descendants to be the sole beneficiaries. Beneficial interests may be structured in a variety of ways, but the use of an ascertainable standard (i.e. distributions for “health, support, education and maintenance”) is quite common.
BRIEF OVERVIEW OF VARIOUS TYPES OF TRUSTS 14 FAMILY LAW PRACTITIONERS MAY CONFRONT Common Estate Planning Trusts (cont’d ) Marital Trusts – an irrevocable trust that is usually established, along with the Bypass Trust, by a married decedent’s testamentary document, also upon the first spouse’s death. Purpose is to establish a trust for the surviving spouse that will not cause assets contributed to the marital trust to be subjected to estate taxes at the first spouse’s death. In order to avoid estate taxation at the first spouse’s death, the marital trust must satisfy certain requirements: Surviving spouse must be a U.S. citizen, All of the income generated by the marital trust’s assets each year must be distributed to the surviving spouse, The surviving spouse must have the right to convert income producing property to non-income producing property, and No other person may be a beneficiary of the marital trust during the surviving spouse’s lifetime. Qualified Domestic Trusts (“QDOTs”) – a subset of marital trusts which may be established for spouse’s who are not U.S. citizens
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