A proper estate plan consists of a Will, and perhaps a Trust, designed to ensure (in layman’s terms) who gets what, when they get it, how they get it, and who gives it to them. Simple, right? Well (as a lawyer might answer), that depends!
Last Will and Testament:
Your Will sets forth the desired distribution of your estate and the appointment of an executor. But, it can be so much more. You can include a testamentary trust to support loved ones who are minors or spendthrifts, a special needs trust for disabled persons, and a credit shelter trust or QTIP trust to reduce estate taxes. You also can name a guardian for minor children. Be careful: internet forms may be valid, but that doesn’t mean they do what you need. Each new court case ruling, and each legislative session, potentially changes the required language for Connecticut Wills.
Avoid Probate with a Revocable Living Trust:
You can avoid probate by establishing a Revocable Living Trust. It also provides continuity of management during incapacity, because it gives more guidance than a Durable Power of Attorney. You can include all the terms you would put in your Will. It’s totally flexible and revocable. You can invest and spend your funds same as before. Upon death, your successor trustee distributes your estate more quickly and at less overall cost.
Asset Protection Trusts:
If you transfer assets to your children to qualify for Medicaid or VA Aid & Attendance, those assets are exposed to your children’s whims, creditors, and qualifications for college financial aid. (If holding your assets disqualifies your grandchild from receiving college financial aid, what will your child do with your money?) Transfers also give your children your cost basis on appreciated assets (house, stocks), so they pay capital gains tax upon sale. An irrevocable Asset Protection Grantor Trust can protect those assets from your children’s whims and creditors, and provide a stepped-up cost basis at death, eliminating capital gains tax on your lifetime gain.
Estate Tax Planning:
You can reduce estate taxes through an Irrevocable Trust to remove property from your estate if not needed during lifetime. Transfers to the trust are taxable gifts (the tax, if any, usually gets paid at death), but subsequent asset growth accrues to your beneficiaries free from gift and estate taxes. Irrevocable Life Insurance Trusts (ILITs) keep proceeds out of your or your spouse’s estate, provide liquidity to the estate, and control disposition of the proceeds. (Payment of policy premiums qualifies for annual gift tax exclusion.) Credit Shelter (“Bypass”) Trusts, protect both spouses’ tax exclusions, passing double that amount tax-free.