One of the reasons why it is wise to discuss your estate planning objectives with an attorney is because there are many different legal devices that can be used. As a layperson, there is no reason why you would be aware of all of them.
There are solutions to ideally suit just about any circumstance, and we will look at three of them in this post.
Pet Planning
The idea of leaving money to your pet may seem silly when you are relatively young. However, if you stop and think about it, pet ownership can be very beneficial to lonely seniors. For these folks, longevity can definitely be a source of concern.
Animals are not allowed to directly inherit funds, but pet trusts are legal in all 50 states. If the grantor of the trust predeceases the pet, the trustee would follow instructions that are left by the decedent. The assets in the trust would be used to ensure the well-being of the pet.
A successor beneficiary would be named in the trust agreement by the grantor of the trust. This individual or entity would inherit assets that remain in the trust after the death of the pet.
Qualified Domestic Trust
We have a federal estate tax in the United States that packs a wallop with a 40 percent maximum rate. Fortunately, most families are not exposed to it, because it is only applied on the portion of an estate that exceeds $11.58 million.
There is a federal estate tax marital deduction that allows for unlimited transfers between spouses that are American citizens. If the estate tax will impact your estate, and you are married to a citizen of another country, you can gain tax efficiency through the utilization of a qualified domestic trust.
If you use this strategy and you predecease your spouse, the estate tax would not be immediately applicable. The surviving spouse would be able to receive income that is generated by assets that are contained in the trust, and the estate tax would not be applicable.
After the death of the initial beneficiary, a secondary beneficiary that is named in the trust declaration would assume ownership of the remainder. The estate tax would be applicable at that time.
Qualified Terminable Interest Property Trust
The last under-the-radar trust that we will look at here is the qualified terminable interest property (QTIP) trust. There is a similarity between this type of trust and the qualified domestic trust, but it does not necessarily have to be used for estate tax efficiency purposes.
This type of trust is utilized by parents that are getting remarried. To explain through the use a simple example, let’s say that you are marrying someone quite a bit younger than you, and you have two adult children. You want to protect their inheritances, and you also want to provide for your new spouse appropriately.
If you fund a qualified terminable interest property trust and you die before your spouse passes away, your surviving spouse would be able to receive income from the trust’s earnings throughout their life. You would have the ability to give the trustee the latitude to distribute portions of the principal under certain circumstances if this is your choice.
Your spouse would be well provided for, but they would not be able to change the terms of the trust in any way. After their death, your children would become the beneficiaries of the trust.
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