Frequently Asked
Questions
I have a will.
Do I need anything else?
In addition to a
will, most experts recommend that you
have a durable power of attorney, which
allows another person to act on your
behalf should you become incapacitated.
Also, a living will is helpful to your
heirs in that it directs at which point
you do not want your life artificially
supported.
Can bequests
be handled in a living trust?
Certainly. You may
wish to consider a living trust as an
estate planning tool. More
information is available. Living
trusts may be either revocable or irrevocable
and there are advantages and disadvantages
to consider in both.
What
happens to my personal possessions?
Personal possessions
are best distributed through a tangible
personal property memo in which you
list the personal items you wish to
give to specific people. Your will must
mention the existence of this memo and
you should keep a copy of it with your
will.
If a trust
agreement is established as irrevocable,
it means that it can't be revoked (broken)
except under unusual circumstances.
Why would anyone want an irrevocable
trust?
There are always
specific reasons for making an irrevocable
trust agreement. Perhaps it involves
a family business where some of the
family members are getting on in years
and the family wants to make certain
that management continues to run smoothly
even if hindrances, such as senility,
enter the picture.
Many times the
reasons for an irrevocable trust involve
estate and/or income tax avoidance.
In order to be successful in such avoidance,
the trustor must not have any direct
or indirect power or control over the
trust property or income. The regulations
on this subject, set out in the Internal
Revenue Code, must be carefully followed.
What is the
difference between a charitable remainder
unitrust and a charitable remainder
annuity trust?
The major difference
is in the valuation of the assets of
the trust, which establishes part of
the calculation for the determination
of the amount of income received by
the income beneficiary(-ies). The annuity
assets are valued at the time the assets
are placed in the trust and are never
revalued. Annual payments remain the
same, whether the assets appreciate
(increase in value) or decline (lose
value).
The assets in
the unitrust are revalued annually.
If the trust assets appreciate, the
payment to the income beneficiary(-ies)
will increase. If the trust assets depreciate,
the payment will decrease.
What happens
to my assets in a trust for a charity
if the charity goes out of business
before the expiration of the trust?
Your trustee
is authorized to name a substitute,
if that is the sole charity.
Should I name
a charity as trustee of my charitable
remainder trust?
This is often
done if the organization is qualified
to so act under local law. The organization's
representatives can satisfy you in that
regard. Often they will serve without
fee, which is an additional incentive.
How often
should I update my will or trust?
These documents
should be updated any time your financial
or your family circumstances change.
As laws vary from state to state, if
you move you should have an attorney
licensed in and familiar with the new
state's laws review your will or trust
agreement. It is always wise, even if
there are not any significant changes
in your circumstances, to periodically
review these important documents. A
good rule of thumb is to review your
will every three years.
Can
I use my insurance to benefit charitable
organizations?
Yes. This is
an area overlooked by many. You can
name one or more charities as alternate
or as primary beneficiary. Furthermore,
if you no longer need the policy proceeds
in your estate for use now, you can
transfer ownership of the policy to
the charity or charities. If the policy
has cash loan value, the charity can
draw this out and use it. In this case,
you not only receive a charitable gift
deduction, but any additional premiums
you pay are tax deductible for you now.
And, on your death, the charity receives
the balance of the policy proceeds and
none of it is included in your estate
for tax purposes.
How can I
fund a charitable gift annuity and how
is my income calculated?
The usual funding
sources for a charitable gift annuity
are cash and marketable securities.
There can be tax benefits associated
with the gift of appreciated securities
(the current market value exceeds the
cost or basis value). As a gift annuity
is considered partially a gift and partially
an annuity, part of the gift avoids
capital gains tax entirely. Real estate
and other marketable assets may also
be used. Generally, the charity will
convert the assets to cash to fund the
annuity.
The income provided
you by the annuity is determined by
your age and the age of any additional
beneficiary and is calculated using
tables established and filed with regulatory
agencies under which the charity operates
its annuity program.
Can I set
up a charitable gift annuity and delay
the start of the income until I will
more likely need it, such as at my retirement,
when my income is lower?
Yes, there is
flexibility in the establishing of charitable
gift annuities that make them a popular
and effective retirement planning vehicle.
Using a deferred gift annuity, the annuity
earnings accumulate on a tax-deferred
basis. Thus the deferred payment annuity
accomplishes several things. First,
the donor receives a tax deduction in the year the annuity is established,
which is usually when the donor
is in a higher tax bracket. Secondly,
the gift to the charity becomes larger
as the deferred earnings increase the
annuity's principal. Finally, since
the deferred payment annuity grows in
size while income is deferred, the ultimate
income will be more per year.
