How Parents Reduce The College Tuition & Income Gap Using Kiss Trust

Posted by Tyler Phelps, Vice President of Eastern Point Trust Company on Jun 14, 2016

school2.jpgTuition costs have risen at a yearly rate that is far greater than the growth of the median household income, and they show no signs of slowing down anytime soon. This is not good news for parents, and even worse news for their students. Families must find a way to plan for their high school graduate’s tuition expenses before it is too late. While that sounds like a dooming cliché, it’s true. More high school graduates are attending college than ever before, making it difficult for students to receive sufficient financial aid. Financial aid is awarded based heavily on student need. Without proper planning, parents can hurt their student’s chance of receiving grants, scholarship, and even student loans, which can be detrimental to their child’s college plans. If this seems exaggerated, just take a look at the statistics and visualizations below:

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Analysis

Between the years of 2004 and 2013 (a 10-year period), tuition costs increased by $809 per year, on average. Between the years of 2004 and 2013 (a 10-year period), the median annual income increased by $1027.89 per year, on average. Seeing that the average median annual income (over the same time period) is $32,712.30 greater than the average yearly tuition cost, the difference in the average increase in the average median annual income and the annual tuition cost (which is only $218.89), seems insignificant. That’s because it is.  In fact, over the 10-year period between 2003-2014, the average annual percentage change of tuition (5.08%) is 236% higher than the average annual percentage change of median income (2.15%)Tweet: The average annual percentage change of tuition is 236% higher than the average annual percentage change of media income #KissTrust. If all of these numbers confuse you, you’re probably not alone. There’s just one thing you should take away from this. It is becoming more imperative to plan for your student’s college career. 

 

How to Reduce This Gap

If you are like most, you have no clue where to start. Planning for your child’s expenses seems daunting and insurmountable. The good news? Just by being here, you are already taking a step in the right direction, and college planning may be easier than you might think. There are several education accounts that parents can utilize, but they are not all same. Each type of account comes with a unique set advantages and disadvantages. While each account is different, and whether or not you have started saving for college expenses or just looking for a better alternative to college savings accounts, there is an option for you. Click here to view several types of college savings tools available to parents. 

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Tags: Irrevocable Trust, College Savings, Education Trust

Your Children May Be Endangered... By The Very UTMA Account Intended To Help Them (But, A Trust Can Help)

Posted by Ned Armand, President of Eastern Point Trust Company on Feb 24, 2016

Trust Funds with HEMS provision can deter or guide beneficiaries with substance abuse problems

You don't know it yet, but unfettered access to assets in a UGMA/UTMA custodial account for minor who could develop substance abuse issues can destroy a lifetime of savings.

Key Takeaways
  • A dependency issue can threaten to deplete assets in a custodial account.   
  • Parents and custodians of UTMA UGMA accounts can transfer funds to a supplemental needs trust or Health education maintenance and support trust if it is in the best interest of the beneficiary.                                    
  • Assets of supplemental needs trusts or (HEMS) health education maintenance and support trusts can use the funds in the account for rehabilitation programs for the beneficiary.


Substance Abuse Threatens UTMA Assets

A UTMA/UGMA custodial account is opened when children are still very young to transfer ownership and/or build wealth for later years, and well before any display of irresponsible behavior or substance abuse issues arise. When children become the legal age of 18, or in some states as old as 18, they gain unfettered access to potentially large sums of money. Parents who have witnessed irresponsible behavior are often deeply concerned about the assets in the custodial account being spent foolishly.

You Can Still Preserve The Funds

While parents can't go back in time to select better savings plans for their child, there are still some options available to them to help preserve the wealth in the account. Before adolescents turn (the age of majority) 18 or 21, parents have the ability to remove custodial assets so long as the intended use will benefit the beneficiary. If parents are concerned about the funds being spent recklessly, they can open a trust fund keeping the minor as the beneficiary. A trust fund would then allow the parents to set certain restrictions on how and when the assets are distributed. This is permissible since it is in the best interest of the beneficiary and the assets remain for the sole benefit of the youth.

Treatment Expenses Can Be 

If the beneficiary encounters drug or alcohol abuse issues before turning the age of majority for UTMA/UGMA’s, parents have the right to transfer the funds to a Supplemental Needs or Health Education Maintenance and Support Trust (HEMS). A trust with these provisions will allow the use of funds to help the adolescent with rehabilitation programs or other drug and alcohol control resources.

 
Know Your Options

The use of comprehensive trust and trustee services allow for parents to withhold assets for children until they demonstrate financial maturity or help in the treatment of substance abuse expenses if they encounter issues with drug and alcohol abuse during their formative years.  These services are now available easily and affordable with online trustees such as Kiss Trust.

Tips On How To Maximize The Effectiveness  Of Your Bad Behavior Penalty Elections

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Tags: Irrevocable Trust, UGMA, UTMA

How Kiss Trust Bad Behavior Penalty Options Keeps Heirs On Track

Posted by Ned Armand, President of Eastern Point Trust Company on Jan 27, 2016

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Better control how your trust's assets will be used. Kiss Trust's Bad Behavior Penalty options gives you the power to set outcomes in the event that your beneficiary acts out, giving you the peace of mind that your trust will be used for good.

Key Takeaways

  • Grantors can use a trust fund as an incentive for positive behavior.
  • In the event of irresponsible behavior, or noncompliance, the grantor can suspend the trust for a penalty period.
  • All-in-one trust solutions offer options to give the grantor complete control, no matter future circumstances.

 

The Bad Behavior Penalty

Inheritance comes a level of responsibility, but not all heirs are well equipped to handle the responsibilities that come with an inheritance. With the ease and access of all-in-one trust tools, grantors have the ability with the simple click of the mouse to easily set penalties on distributions for poor behavior, including the failure to complete high school or higher education. It is a comfort for trust grantors to know that today’s online self-help trust services have the flexibility to set strict criteria on distributions that require beneficiaries to stay on the straight and narrow path through childhood, adolescence, and into early adulthood. While this doesn’t guarantee future success, it certainly increases the likelihood.

Create Incentives

While all-in-one trust tools offer specific trust language to distribute bonuses for successful academic achievement, they can also suspend allocations for failure to meet certain life goals. For example, if the beneficiary leaves high school and does not receive a diploma or GED, the grantor can suspend that distribution of the trust until the diploma or GED requirement is met, or until the penalty period is complete. Similar penalties can be applied with regard to higher education, including setting time limits on acquiring an associate’s or bachelor’s degree. However, in the event of medical emergencies or accidents, the penalty can be waived.

Bad Behavior

Another common distribution election used with DIY trust services is the “Bad Behavior” penalty. With this option selected, should the beneficiary exhibit poor judgment such as drug or alcohol abuse or other criminal activity, the distributions will be suspended upon notification by the family contact or grantor. The grantor can indicate the amount of penalty time the trust fund is suspended for a first and second offense. 

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Control In Your Own Hands

Today’s self-help trust technology by Kiss Trust puts the ability to create trusts and set specific distribution options right at your fingertips. With a click of the mouse, you can set specific criteria that give the you, the Grantor, some reassurance that their loved one is behaving responsibly and meeting their expectations. Using an online self-help trust service, grantors can set up trust funds for as little as a one-time $49 software and postage fee.

 

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Tags: Irrevocable Trust

Compliment Your Final Will with an Irrevocable Trust

Posted by Ned Armand, President of Eastern Point Trust Company on Nov 5, 2015

Final wills and testaments are a good tool to plan for your family's future, but might not cover all of your financial needs that an irrevocable trust can.

Key Takeaways

  • Final wills are not enough when planning your estate.
  • Irrevocable trusts protect against what final wills do not.
  • You can start a Kiss Trust for only $20.00 with a discount code.

You may have already thought about creating a final will and testament – but have you thought about pairing your will with an irrevocable trust? There are countless benefits in pairing your final will with an irrevocable trust. Final wills are a great resource for determining how your intangible assets, such as guardianship of children, and non-property items will be distributed. Wills can help name an executor, the person responsible for dispersing the estate. Despite the benefits of final wills, they simply fall short in the ability to address all issues. Luckily, an irrevocable trust can do much of what a will cannot.

How it Works

Irrevocable Trusts can be established and paired with your Will at the time of your estate planning or will drafting. They can sit in a state of hiatus with only moderate funding as the bulk of your estate remains in your control and for your use and enjoyment. Upon your death, your Will can direct assets to the irrevocable trust(s).

Benefits

Prudent Use of Assets

The beneficiaries of your estate may be overwhelmed by a very large influx of liquid assets and may not have the experience to manage those funds in a way that will last. An Irrevocable Trust and Trustee can easily ensure the proper ongoing investment of the assets and spread the disbursement of your estate out over their lifetime per your direction outlined within the irrevocable trust.

Protection from Creditors

A viable use of an irrevocable trust is to gain asset protection from creditors. Assets in an Irrevocable Trust reduce the risk and liability for your beneficiaries in the event of future lawsuits or settlements.

Divorce Protection

Your estate can be shielded from the claim of your children or grandchildren’s future ex-spouses when your beneficiaries are protected with a properly constructed Irrevocable Trust.

Trustee Services

While you may trust the family member of friend that will serve as your executor, it can be a challenge to have complete faith and confidence in reliance on any one unregulated person to manage distributions to your heirs in an ongoing unbiased way after your death. One of the best amenities of irrevocable trusts is the ability to choose a Professional Trustee that is bound by a Fiduciary Standard and regulated by State or Federal oversite

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Tags: Irrevocable Trust

What You Don't Know About Irrevocable Trusts

Posted by Ned Armand, President of Eastern Point Trust Company on Oct 12, 2015

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Irrevocable Trusts have numerous benefits to the grantor, the beneficiary, and the estate if established and managed properly. 

Key Takeaways

  • Irrevocable Trusts are a good resource for those seeking to plan for their estate due to the numerous benefits that they contribute.
  • You can be tax-efficient by properly gifting property into an irrevocable trust.
  • Professional third-party trustees are the best option when determining who your trustee will be.

 

Irrevocable Trusts vs. Revocable Trusts

A trust is a legal written agreement that places property within the possessions of the trust, which is overseen by a trustee. An Irrevocable Trust is a type of trust fund that prohibits the grantor from removing property and unilaterally changing the terms of the trust once it has been established. This differs from a revocable living trust (RLT) in that an RLT enables the grantor to change the terms of the trust at any time, or remove property from the trust once it has been established.

The Grantor, the Trustee, the Beneficiary, and How They Are Chosen

Note that these terms describe the parties in a trust agreement. The Grantor is the person who is establishing the trust. The Grantor can be the party who writes the trust agreement, but often will seek the help of an attorney or service such as Kiss Trust or Legal Zoom.

The Trustee is the party who oversees and manages the trust. It will be clearly stated who the trustee will be in the written trust document. The trustee can be a related party to the Grantor, while third-party trustees (such as Eastern Point Trust Company) are disinterested parties, which maximizes the accuracy of following the terms of the trust.

The Beneficiary is the receiver of the property within a trust, and more than one beneficiary can be named in a trust. They are chosen by the Grantor, and clearly stated within the terms of the trust. A trust can have multiple tiers of beneficiaries, such as the primary beneficiary, contingent beneficiary, and excluded beneficiaries. Different types of beneficiaries are named in order to ensure that the Grantor can dictate to whom, how and where the property will be distributed, despite circumstances and events that may cause the original terms of the trust to be invalid – such as an unexpected death of the primary beneficiary.

Choosing the Right Trustee and Trustee Duties

The Trustee’s main duty is to follow the trust agreement. With this being said, it is imperative to choose the trustee wisely to ensure that your trust is being managed properly. Anybody can be named as the trustee of your trust, for as long as it is stated clearly within the trust agreement. Electing your first cousin to be the trustee of your trust may be easy, but could pose several problems. First, appointing a family member is risky because they have conflicting emotions and motives when performing duties for the family. It may be hard for them to strictly enforce distribution penalties for fear of losing their good relationship with the beneficiaries. Also, they likely lack the necessary legal, tax and financial education resources to be a prudent fiduciary in the relationship formed by the trust agreement.

A trustee has many duties, such as being a fiduciary to the grantor. A fiduciary relationship is the strictest relationship in the eyes of the judicial system, so a breach of the contract formed by the trust could impose severe punishment (Read The Fiduciary Series). The two main roles of trustees are to (1) invest the assets and manage the property in the trust (2) make distributions within the guidelines of the trust; also, the trustee must act in the best interest of the grantor.

Disinterested parties tend to have no conflicts when acting as the grantor’s fiduciary, therefore making them more dependable trustees. There’s a saying: “They can’t hear the bedroom door slam” – meaning third-party fiduciaries can act more clearly and prudently when dealing with distributions and direction of the trust property without having conflicting personal matters clouding their decisions.

Tax Benefits of Irrevocable Trusts

Irrevocable Trusts also have tax benefits, as well as some less noticeable benefits, such as:

  • Reducing the amount of your taxable estate by gifting assets to the trust.
  • Set the times and reasons for distributions, which may determine the type of tax paid on gains (Short-Term/Long-Term Gains/Losses).
  • Protection from creditors and lawsuits – once the property is under the protection of the trust, it is not vulnerable to creditors – as the assets are property of the trustee acting for the grantor, not the grantor.
  • Under the Crummey Withdrawal Right, the grantor can avoid paying gift tax by notifying the beneficiaries of their right to withdraw the funds that are being gifted.
  • Avoid paying taxes on appreciation of property (i.e. real estate) by placing the property within the trust.
  • Up to $5,000,000 can be gifted tax-free into the trust, which is why some transfer real estate into the trust for future beneficiaries.

Can Future Additions Be Made Once The Trust Is Created?

Irrevocable Trusts are irrevocable since the grantor may not revoke the gifts made into the trust. There is no limit to the value of assets within a trust, and gifts can be made at any point of a trust’s lifespan (and if the beneficiaries are notified, then it may be gifted without a gift tax under the Crummey Withdrawal Right). It is recommended that the grantor make several gifts to the trust, and utilize the Crummey Withdrawal Right since it is a valuable advantage when making additions.

Starting an Irrevocable Trust

Becoming fluent with estate planning terminology is the hard part, but creating a trust doesn’t have to be. It used to be a lengthy and expensive process to create a trust, but with Kiss Trust, creating a trust can take as little as a half an hour for as little as $49.

Click to receive your discount code and start your Kiss Trust today!

 

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Tags: Irrevocable Trust

Revocable Living Trusts are Companion Trusts

Posted by Ned Armand, President of Eastern Point Trust Company on Jun 3, 2015

Revocable Living Trusts are a good tool to begin to plan for your estate, but they are not the end-all be-all solution to estate planning.

Key Takeaways

  • Revocable trusts compliment irrevocable trusts since they cannot do all that an irrevocable trust can do.
  • Revocable trusts can have changes made during the life of the grantor, but cannot ensure a safe inheritance after the grantor's death.
  • Revocable trusts are often used for probate, but can be rolled into an irrevocable trust prior to death with Kiss Trust.

 

What is a Revocable (or Living) Trust?

Revocable Living Trust (RLTs) are used in many ways as a start to estate planning, but along with a will, may only be the first component to a comprehensive estate inheritance plan. While RLT stands for a Revocable Living Trust, these trusts can also have other names such as revocable trusts, living trusts, or even family trusts. They are more durable than a will but offer less security than an irrevocable living trust. Some people couple an RLT along with their last will and testament due to the flexibility of such a structure. Wills can dictate how non-property items will be handled, such as the guardianship of children or how debts should be paid, while the RLT can avoid probate, ensure privacy or avoid ambiguities.

How It Works

A Revocable Living Trust can be created while the trust maker (grantor) is living and the trust can be changed during the lifetime of the trust maker. The trust maker will change the title of the property to herein become the property of the trust, such as real estate or automobiles. The trust maker can change the terms of the trust, but only while they are living.

What It Accomplishes

An RLT is widely used to avoid probate, the headache-laden process of court-supervised division of property after an estate owner’s death. Sometimes, the trust maker is also the trustee, but that proves to be a challenge in many cases. It can also be used to clearly explain the division of property in an inheritance and increase inheritance privacy upon death.

What It Does Not Accomplish

A Revocable Trust is not a one-stop solution to your trust needs or estate planning needs. A trust managing your assets after your death should be detailed and precise, instead of open-ended and revocable. This is why many trust makers elect to have the assets held with the RLT pour over into an irrevocable trust upon death to control by who, when and how the final estate may be used.  A quick and easy solution for an irrevocable trust can be found at Kiss Trust.

 

Get a 'Starting an RLT' Guide for FREE 

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Tags: Irrevocable Trust, revocable trust, Inter Vivos Trust

A Sleeping Trust Solution

Posted by Ned Armand, President of Eastern Point Trust Company on May 14, 2015

Sleeping trusts are a valuable asset to parents who are beginning to plan for their family's future.

Key Takeaways 

  • Sleeping Trusts do not need to be funded immediately with cash.
  • Sleeping Trusts can increase the value of your existing life insurance policy.
  • Sleeping Trusts ensure that your assets are being used well.

 

Sleeping Trusts FAQs

What Is A Sleeping Trust?

Sleeping trusts, often used by young families, are trusts that have been established with all of the terms, conditions and distribution elections established; however the bulk of the funding commonly comes at a later date – usually from the estate and life insurance. You can establish a sleeping trust with Kiss Trust.
 

Why Not Have The Trust Created After You Pass Away?

The trust creation process can be complicated. In fact, the process can take months. If you wait until you have passed, your final wishes may be lost to interpretation – or worse, it could leave the door open for fraud or abuse. You will want to take your time creating the trust guidelines, and will want to carefully review the terms of the trust, personally.
 

How Can Sleeping Trusts Improve My Life Insurance?

Every year, nearly 1% of all Americans will die of unnatural causes. Only 62% of Americans have life insurance, though it is said that about 85% need it. This means that nearly a half a million Americans will die this year with insufficient funds left for their family. For the over 1.9 million who will die with some life insurance, the question becomes how prudently will the life insurance being left to your family be used and invested? Life insurance distributions are typically made as a lump sum, and if the beneficiary is under 18, the assets may lay dormant in an account that the insurance company holds. The assets aren’t invested and lose value due to the cost of inflation. All in all, it’s a bad strategy that can solely be rectified with a little preplanning. 

 

What are some of the benefits of sleeping trusts?

  • Sleeping trusts, above all, give the grantor peace of mind.
  • There is direct control over assets, even after your death.
  • A trust document in place prior to your death ensures the greatest value of your assets.
  • Terms of the trust are predetermined, instead of being up for interpretation.
  • The trustee you selected guides your trust before, and after, your death.

 

Sleeping Trusts are the Solution   

A “sleeping trust” is a simple way to ensure that the assets you leave for your family’s needs are being invested sensibly and being spent prudently. Creating such a trust can take as little time as a half an hour, and is as affordable as a dinner out with the family. Simply, you elect to fund the trust with a small initial contribution and then tie your life insurance policy, 401k and other assets to fund the trust after your death. Rest assured, the assets will only be used for the purposes you intended and by whom you intended. No ex-spouse or other party will have access to those funds for their own desires. Personally plan and prepare your family.  You know their needs better than anyone else, so why let someone else oversee the creation of a trust for your family?
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Tags: Estate Planning, Irrevocable Trust, Trustee, Sleeping Trust, life insurance

Maximize Student Financial Aid With an Irrevocable Trust In 3 Steps

Posted by Ned Armand, President of Eastern Point Trust Company on Nov 26, 2014

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Did you know that financial aid officers reduce the amount of financial aid if there are assets in the student’s name?


 

A Sea of Misinformation

Most individuals begin the process of applying for student financial aid at a great disadvantage. Did you know that the Federal Student Aid Handbook given to financial aid officers is over 950 pages long and provides for discretionary deviations by the officers? The information found in those weighty pages far exceeds the abbreviated and confusing instructions given to students when they apply. This system has been criticized as seemingly designed to withhold the facts and prevent deserving students from obtaining financial aid.

 

There Is Always A Way

There are ways to maximize financial aid without having to rely on the good intentions of a financial aid officer.  Financial aid instructions provide: “Trust funds in the name of a student, spouse, or parent should be reported as that person’s asset on the application.” This, by definition, would be a “Grantor Trust.” There are, however, other options: non-grantor irrevocable 3rd party trusts. By creating a non-grantor irrevocable 3rd party trust, assets can be held within the trust and then omitted from a student’s financial aid application. In an irrevocable 3rd party trust, the trust’s assets and income are owned by the trust and not the beneficiary’s. Thus, with the student having fewer or no assets to report, their Federal Student Financial Aid would increase!

 

1) Have A Strategy

If the student or parent(s) are worried about not reporting the trust on the financial aid form they can obtain a “Certified Statement of Valuation” provided by the Trustee which documents that:

  1. The Student Applicant (and their parents) are not the owners of the trust,

  2. The Trust is not in their name, and

  3. They have a zero ($0.00) current Net Present Value of vested beneficary rights under the plan. (Thus there are no trust assets to report.)

 

2) Increase By Reducing

Using the irrevocable trust to make loans is another creative strategy to maximize financial aid. If the trust makes scheduled distributions during the beneficiary’s tenure as a student, that student must report the distribution as income on their next year’s FAFSA form. That “deemed income” would most likely harm the student’s available financial aid for that next year.

However, if the trust had made a loan as mentioned above, the beneficiary would have no reportable income as loans are not income. Having the trust make loans to the beneficiary actually increases the beneficiary’s liability, in turn reducing the beneficiary’s reportable assets and net worth. With no or lower reported income, higher liabilities, and lower net worth, the financial aid is likely to improve when implementing this tactic.

 

3) Assess Your Situation

Individuals regardless of their income bracket, have successfully used and continue to use irrevocable 3rd party trusts to maximize financial aid under numerous circumstances. To assess your eligibility for a student financial aid increase, download our free student financial aid checklist below!

Download a Free FAFSA Checklist

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Tags: Irrevocable Trust, Student Financial Aid

What Is Irrevocable About an Irrevocable Trust?

Posted by Ned Armand, President of Eastern Point Trust Company on Nov 7, 2014

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Confusion often surrounds irrevocable trusts because their purpose and definition and are frequently misunderstood and misrepresented.


 

All About the Assets

Let’s begin by defining the truly irrevocable part about an irrevocable trust: the assets. The assets, once placed inside the trust, are held inside the trust until a distribution event occurs. (An example of a distribution event would be college tuition or first-time home purchase). Once assets are placed within the trust by the Grantor, or any other party, those assets are irrevocably owned by the trust (cannot be revoked or removed) by any party and can only be distributed under the terms of the trust.

Right to Appeal

So now we know that once we place assets in an irrevocable trust they cannot be taken away, but what if the trust’s Grantor changes their mind? Or, what if certain life circumstances take hold and now there is a trust distributing assets to an undeserving Beneficiary? A common misunderstanding of an irrevocable trust is that the trust document’s terms and distribution schedules are also irrevocable, which is not the case. While it holds true that the assets may not be revoked, the Grantor may appeal to the Trustee or Trust Protector to amend the trust document schedules and its distributions. This may arise, for example, when the Beneficiary becomes unable to handle their affairs, or develops a substance abuse problem. Thus, suspending or changing the terms of the trust to deal with these issues would be a prudent decision in the best interest of the Beneficiary.

The Importance of a Trustee

It is truly important to understand that while assets will always remain in the trust and may only be used for the purposes intended, having an independent third party professional Trustee is essential to an irrevocable trust’s integrity.

Many states require the Trustee be independent in order to have the power to amend the trust. While the Grantor may submit an amendment request, the Trustee does not have to oblige if the amendment would erode a “material purpose” of the trust, or if it would intentionally erode the Beneficiary’s vested rights.

In addition, an irrevocable trust allows the Grantor to establish automatic or self-correcting amendments. For example, this option allows for design options such as a “Bad Boy Clause” where the benefits can either be turned off for a period of time or permanently suspended if the Beneficiary has become involved in criminal or drug activity. Also, “decanting” provisions (which are different by state) allow the Trustee to take the assets from the first trust and create a new trust with new or updated terms and conditions, but the new trust must generally retain the material purposes of the first trust.

Now You Know

An irrevocable trust managed by a professional Trustee provides both protection and a basis to address unknown future events. It ensures money will be used for its intended purposes. Having irrevocable assets protects the trust from creditors and prevents manipulation by family members. Allowing for amendments and decanting by the Trustee provides for more flexibility than is commonly believed possible.
 
Download Your FREE Irrevocable Trust Self Assessment Checklist!

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Tags: Irrevocable Trust, Trustee

Advisor Series #2: Revocable and Irrevocable Trusts! Why Not Both?

Posted by Ned Armand, President of Eastern Point Trust Company on Nov 3, 2014

There is much misinformation and misconception surrounding revocable living trusts and irrevocable trusts.

Advisor, Irrevocable Trust, Blended Family Trust, Revocable Trust, Kiss Trust

Picking the Right Tool

At first glance, one could seemingly identify the main purpose of these trusts merely by observing their names. Revocable living trusts (RLT) are just that, revocable, and can be revoked and amended at any time by their grantor(s). Irrevocable trusts are irrevocable and cannot be revoked or amended by their grantor(s) (however, they may be amended by the trustee if provided for in the document).

10 Gallons of Water in a 5 Gallon Bucket

Often, revocable living trusts are used for tasks that they were never meant to achieve, such as managing the grantor’s assets after their death. Revocable living trusts are wonderful tools to manage assets of the grantor(s), avoid probate, and provide maximum flexibility during the grantor’s life. However, upon the first grantor’s death, the power left to the surviving spouse to revoke or amend the trust is a risk that can be abused.

Bring in the Ringer

Irrevocable trusts are a perfect second act to a client’s estate planning; the better design is for the RLT to “pour over” into the irrevocable trust after the first spouse (one of the RLT grantors) has died. Having an irrevocable spousal support trust established in advance to manage the assets after the death of the first spouse, will allow for the surviving spouse to be provided an income stream and assets to meet their needs. Additionally, the irrevocable trust protects the integrity of the deceased spouse’s intentions, and distributes the assets according to the language of the trust upon the death of the surviving spouse.

Let’s recap what we have learned;

  • RLTs are great tools for your clients, and should only be used for avoiding probate and providing flexible asset management during the lifetime of the grantors, but RLTs are often misused, and doing so introduces new risks.

  • The RLT should be designed to “pour over” its assets into the pre-established irrevocable spousal support trust. With this plan in place, the surviving spouse is provided for and both spouses’ intentions are protected from being altered by the surviving spouse (or their attorney).

  • Irrevocable trusts can be created as “sleeping trusts” which sleep awaiting the passing of the first spouse.

  • Finally, the use of an RLT as the sole trust in a blended family opens the door for even greater risk
Help your client's evaluate all of their trust planning risk factors by downloading our Final Estate Planning Checklist below.


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Tags: Blended Family Trust, Irrevocable Trust, Inheritance Trust, revocable trust, Financial Advisor

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