Many of our readers will already know that a blind trust is a vehicle which holds the wealth of a candidate (or a politician serving in office) in an effort to avoid any conflicts of interest. We thought this might be a good opportunity, however, to discuss trusts in general: Which trusts are out there, what are the differences between them, and what purposes do they serve?

Revocable Trust: A revocable trust is one of the most commonly used trusts because it is able to be revoked or changed so long as the grantor (the person who created the trust) is still living. There are many other trusts that fall under the category of “revocable trust”, including a pet trust (which addresses the physical and financial care of your pets), an education trust (which provides for your child’s educational expenses), and many more.

Irrevocable Trust: An irrevocable trust, logically, is one which cannot be revoked or changed after it has been signed. The irrevocability is what makes these trusts useful for tax planning and asset protection. Some types of trusts which fall under the category of “irrevocable trust” include life insurance trusts (which save the beneficiary on the policy from paying exorbitant estate taxes), spendthrift trusts (which reduce the beneficiaries’ estate taxes and protect trust assets from creditors’ claims), and more. It is important to note that any revocable trust becomes irrevocable upon the death of the grantor.

Charitable Trust: A charitable trust is one in which at least one of the beneficiaries is a charity or non-profit. These trusts allow the grantor to claim a portion of their contribution as a charitable deduction under income tax laws. A charitable trust can be either revocable or irrevocable to begin with, but if distributions will be made during the grantor’s lifetime the trust must be irrevocable.

Special Needs Trust: Sometimes also called a “Supplemental Needs Trust”, is a trust created for the benefit of a person receiving government benefits—this usually includes someone with a physical or mental handicap—and its purpose is to allow outside sources to provide the beneficiary with supplemental funds without endangering their right to receive government benefits. A special needs trust can be either revocable or irrevocable, but usually includes a clause instructing that the trust be dissolved if its existence disqualifies the beneficiary for government benefits.

We have only discussed some of the most commonly used trusts here, but there are many, many different kinds of trust which can be valuable for estate planning or asset protection. If you have any questions about trusts or estate planning, please contact our office.

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1. Prenups encourage couples to think and talk about the future. The process of writing a prenup includes talking about what each party brings with them to the marriage, and how each partner envisions that contribution fitting into the whole as they create their lives together.

2. Agreeing to a prenup is often the very thing that makes marriage possible for two people who come from complicated backgrounds or disapproving families. This is not only true of young people from families with “old money,” but also of elderly couples whose grown children may disapprove of a blending of finances so late in life.

3. Having a prenup means that a couple has studied their finances separately, dealt with any lingering trouble spots before the wedding, and can now move forward in their marriage together, with clear minds and bright futures.

4. A prenuptial agreement bestows security because it requires the agreement of both partners. This mutual agreement ensures that both partners feel they will be provided for as they desire and deserve, no matter what happens.

5. A prenup is the perfect lead-in to an estate plan. The information-gathering and decision-making process for creating a prenup is very similar to the process of creating an estate plan. Couples who execute a prenup before they marry have a head start on creating the estate plan they will want to protect their family after they’re married.

The bottom line is that prenuptial agreements will help protect you, your beloved, your family, and your future… and there’s nothing more romantic than that. Our firm can help you decide if a prenup is right for you and your partner—contact us today.

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This recent article in the Wall Street Journal explains that “under current rules, the first dollars out of an IRA count as the required withdrawal. So if an IRA owner makes a withdrawal before Congress extends the law, he or she can’t redeposit the funds and make a donation of IRA funds after lawmakers act.”

The expiration of this rule may not be a big deal for many of our readers who intend to make charitable donations as they always have, regardless of retirement-account donation benefits; but for some, not knowing what Congress may choose to do is making it hard to design a financial plan for the year, and causing increasing stress. “The problem arises for IRA owners [who are] over 70½ and must take an annual payout from the account. They want to withdraw as little as possible in order to let the assets expand but also want to donate some or all of the required payout directly to charity.”

Your best bet right now may be to consider your ultimate goal both for your IRA payout and for your charitable giving for the year, and then talk to a trusted advisor. One thing any estate or financial planner will tell you is that there is almost always more than one way to accomplish your goals. We cannot stress enough, however, how important it is to stay on top of any legal requirements or changes in the law when it comes to IRAs and retirement savings.

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This isn’t all you can do to wrap up your 2011 tax package. This article in the New York Times explains that the next two years of tax policy are likely to be a bit rocky, and that “beyond the usual recommendations… you should use this year to get your affairs in order for what promises to be an uncertain two years of tax policy.”

If you’re not sure which deductions might apply to you, our office (along with the article mentioned above) has come up with a list of tax breaks to consider:

1. Charitable gifts to most non-profit organizations are tax deductible; and while you can’t deduct any time you spend volunteering, you can deduct any out-of-pocket expenses incurred while volunteering.

2. You can give monetary gifts of up to $13,000 to as many individuals as you would like without incurring the gift tax.

3. The 30% energy tax credits of 2010 expired at the end of last year, but new (albeit lower) credits were passed for 2011. Check the energy star website for information if you made any energy-efficient improvements to your home this year.

4. If you are over 70½ you are currently allowed “to directly donate the required minimum withdrawal from [your] retirement account to charity.” (This is something that may disappear with new tax laws in 2012.)

5. Teachers are allowed to deduct up to $250 spent on classroom expenses.

6. A significant tax loophole set to end this year is one that “allows people whose marginal tax bracket is under 15 percent to pay no capital gains tax when selling securities held for more than a year.”

These are only a few of the tax strategies you may want to consider before the end of the year. For more tax-saving strategies please talk to your financial advisor.

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This article in Investment News discusses what Jobs’ trustees or heirs might choose to do with his valuable investments. According to the article Jobs had billions of dollars invested in Apple and Disney stock. Now, “under the U.S. Tax Code, his heirs may sell shares of Apple and Disney, and avoid $867 million in capital gains taxes. If Apple’s late co-founder left his estate to his wife, Laurene Powell Jobs, the family won’t be liable for the 35% estate tax until she dies or gives money to others, according to estate planners.”

An executor or trustee has a responsibility not only to follow the wishes of the grantor of the trust, but also to look out for the best interests of the beneficiaries; which in this case may include selling or diversifying investments Jobs had chosen to hold onto for sentimental reasons.

Additionally, any executor or trustee will have tax laws to consider–not only the laws in place right now, but any changes to the estate or capital gains tax laws being considered by Congress for 2013. “The capital gains tax is set to rise to 20% in 2013, from 15%, and high-income Americans also will be subject to a 3.8% levy on unearned gains.” This means that advisors and heirs won’t want to wait too long before making any decisions.

The estate of Steve Jobs may be larger than most, but the same issues and questions will face the executors, trustees, and heirs of estates of all sizes. Whether you are a grantor, executor, heir or trustee, our office can help you through any questions or concerns you may be facing. Don’t be afraid to contact us.

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Before you roll your eyes at the idea, consider this: An estate plan is something every person needs, whether it’s your single younger nephew, your older sister with her two young children, or your retired, aging parents. Furthermore, although everyone needs an estate plan, many people (wrongly) consider it a luxury, and put off creating one—often until it’s too late.

You may be thinking, No, an estate plan is too personal (too expensive, too morbid) to give as a gift. But we can safely say that not one of these excuses is true. If you feel an estate plan is too personal a gift, we recommend giving a gift certificate good for the cost of a basic plan, which the recipient can then design and add to according to his or her needs. If you feel an entire estate plan is too expensive a gift, you may want to consider paying for a portion of the plan, or for the first consultation with an attorney, just to get your loved one started. And if it’s morbidity that you’re worried about, perhaps giving a “Loving Family Legacy Plan” sounds more appealing.

This year, don’t give a gift that will impress for a moment but be forgotten within a week; instead, give the gift that will protect your loved one—and their loved ones!—and will last for years to come. Give the gift of an estate plan.

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According to the article, savers can look forward to 4 beneficial changes in the new year:

Higher income limits for contributions to your Roth IRA. “The income limits for making contributions to a Roth IRA will be between $110,000 and $125,000 for singles and heads of household in 2012, up $3,000 from 2011.” Married couples will reap the benefits as well, as their income limits will increase from $173,000 to $183,000 in 2012.

The ability to contribute more to your 401(k). “The contribution limit for 401(k), 403(b), and the federal government’s Thrift Savings Plan will increase to $17,000 in 2012, up from $16,500 in 2011.” This is great news for anyone who lost money when the economy crashed and is trying to slowly build up their savings again.

Tax breaks for more households who contribute to a traditional IRA. While IRA contribution limits will remain the same in 2012, and while there will be no change to the fact that “only workers who earn below certain income levels get a tax break for contributing to a traditional IRA.” The good news is that “those income limits will relax slightly next year.”

The tax-saver’s credit is expected to be expanded in 2012 as well, with “income limits [increased] by $1,000 to $57,500 for married couples filing jointly and by $750 to $43,125 for heads of households.”

While these may be baby steps as far as many savers and tax-payers are concerned, even small steps are good news for those trying to recoup their losses and get back on track for retirement. For more information about how these changes (or others) may benefit you or your loved ones please contact our office.

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Unfortunately, many seniors may not see a useful increase in their social security income thanks to a hike in Medicare premiums expected to be announced next month. “For the past two years when Social Security benefits stayed the same, many seniors were shielded from the increase in Medicare premiums because of a “hold harmless” provision that protects more than 70% of beneficiaries… However, high-income beneficiaries and new enrollees did see their benefits reduced because they are not covered under the provision.”

Even with the expected increase to Medicare premiums, most seniors are simply glad to see evidence that The-Powers-That-Be recognize the rising cost of living. While most recipients of Social Security do have an alternate form of income, with their SS benefits representing “about 41% of the elderly’s income”; there are some who “rely on the monthly checks for 90% of their income.”

For more complete information about the coming changes in Social Security please read the full article. For help understanding how this change may fit in with your other benefits, or may affect your estate planning, please contact our office.

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The sad announcement of his death has many people now wondering “what next?” How will this change the company he started? What will happen with his family? As this article from ABC News relates, “The ever-private Steve Jobs was famously secretive when it came to Apple’s new products. As with his personal life, the future of Steve Jobs’ wealth [and family] will also stay under the radar.”

The article mentioned above states that “Given Jobs’ vast wealth and penchant for privacy, he likely set up private trusts for his family and charitable purposes.” Private trusts would certainly have been the logical thing to do, under the circumstances. Trusts are a much more flexible, powerful, and private tool than a simple will when it comes to estate planning. Trusts are useful under any circumstances, but they provide a much greater amount of control and protection of assets, especially when dealing with very large estates.

If Steve Jobs did choose to create trusts to protect his estate then it is possible that we may never truly know how he chose to distribute his wealth. It is probably safe to assume, however, that in addition to providing for his family and loved ones, he may have left a considerable amount to charitable or visionary endeavors. His words and actions during life provide a clue about how he thought about wealth: “Being the richest man in the cemetery doesn’t matter to me…Going to bed at night saying we’ve done something wonderful…that’s what matters to me.”

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This extension gives executors of large estates more time to determine whether or not its in the best interests of the heirs to take advantage of the 2010 estate tax repeal. The decision facing executors of the 2010 estates is this:

* Choose not to pay estate taxes, but subject the assets of the estate to carryover basis rules (meaning heirs will pay capital gains taxes based on the price of an asset when it was initially acquired by the decedent); or

* Pay estate taxes under the 2011 rules, with a $5 million per-person exemption and a 35 percent top rate, but with a stepped-up income tax basis (meaning heirs will pay capital gains taxes on the price of an asset when it was inherited.)

For any executors who haven’t already made the decision, they can now take more time to weigh the pros and cons, and maybe even enlist the advice of an estate planner, tax planner, or probate attorney to help walk them through any possible unexpected consequences. If you are an executor or an heir faced with this particular and time-sensetive issue, please don’t hesitate to contact our office for assistance.

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