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The Pros and Cons of Qualified Personal Residence Trust

The Pros and Cons of Qualified Personal Residence Trust

The Pros and Cons of Qualified Personal Residence Trust. A qualified personal residence trust (QPRT) is a special type of irrevocable trust that’s designed to remove the value of your primary residence or a second home from your taxable estate. Creating a QPRT and transferring ownership of your residence into that trust is a complex maneuver that can’t easily be undone. QPRTs come with both pros and cons.

The owner of a residence can transfer their ownership of the property into a QPRT for estate-planning purposes. They would receive a qualified term interest, sometimes called a retained income period, in exchange. This interest allows them to continue living in the home. They would begin paying fair market rent to your heirs at the end of this period if they continued using the residence. The residence isn’t included in the owner’s taxable estate should they die during the retained income period, but it passes to the trust’s beneficiaries at the end of the period if the owner is still living at that time.

A QPRT creates a legacy for your family. It will let you pass the residence on to your heirs in a manner that will encourage them to hold on to it for the long haul if you want your home to remain in the family for generations to come. A QRPT allows for continued use of the residence. The homeowner can continue living there rent-free and can take all applicable income tax deductions during the retained income period of the QPRT. The retained income period is the time during which the owner continues to live in residence before it transfers to a beneficiary. These types of trusts offer a few other significant financial perks as well.

A Hedge Against Appreciation

A QPRT removes the value of your primary or secondary residence, and all future appreciation, from your taxable estate at cents on the dollar. A homeowner could use as little as $100,000 of their lifetime gift tax exemption to remove a $500,000 asset from their taxable estate, assuming the home is worth $500,000, and depending on interest rates, the homeowner’s age, and the retained income period chosen for the QPRT. This can be particularly beneficial if the value of the house increases significantly by the time the homeowner dies.

 Potential Decreases in Exemptions

A QRPT also hedges against possible decreases in the shared lifetime gift tax and estate tax exemption, sometimes referred to as the unified credit. The lifetime exemption of $11.58 million in 2020 will let you establish a QPRT without having to pay any gift taxes if the value of your home is significant. This is important because transferring your home to the trust is akin to gifting it to the trust, so gift taxes could potentially come due. The federal gift tax and the federal estate tax share the $11.58 million unified credit. You would have $6.58 million remaining to apply to your estate if you devoted $5 million of the credit to gifts made during your lifetime.3 You’ll lock in the value of your residence for gift and estate tax purposes if this shared exemption should be reduced significantly in the future. You won’t have to worry about how much the house will appreciate in value or what the estate tax exemption will ultimately be at the time of your death.4

Further Reduce Your Taxable Estate

Paying rent at the end of the retained income period will help to further reduce your taxable estate when it ends and you must begin paying fair market rent to your heirs in order to continue using the residence. While this might initially seem like a downside, it allows you to give more to your heirs without using annual exclusion gifts or more of your lifetime gift tax exemption.

Risks Associated With QPRTs

The QPRT transaction will be completely undone if you die before the retained income period ends. The value of the residence will be included in your taxable estate at its full fair market value as of the date of your death. Some other potential drawbacks should be considered as well.

You’ll Have to Pay Rent

Ownership of the residence passes to your heirs when the retained income period ends, and this eliminates your right to live in the residence rent-free. You must instead pay your heirs fair market rent if you wish to continue occupying the residence for an extended period of time.

You Could Lose Property Tax Benefits

You could also lose property tax benefits when the retained income period ends. The home will be reassessed at its current fair market value for real estate tax purposes, and you would lose any property tax benefits associated with owning and occupying the property as your primary residence. The home could lose its homestead status for both creditor protection and property tax purposes in states like Florida unless one or more of the heirs make the home their primary residence.

Selling the Home Could Be Difficult

You could run into some significant obstacles if circumstances change and you want to sell the residence after it’s owned by the QPRT. You must either invest the sale proceeds into a new home or, if you don’t want to purchase a new home, you must take payments of the sale proceeds in the form of an annuity.

Heirs Will Inherit Your Tax Basis

Heirs will inherit the residence with your income tax basis at the time the gift is made into the QPRT. An heir who sells the home after the retained income period ends will owe capital gains taxes based on the difference between its value at the time the gift was made into the QPRT and the price of the sale. This is why a QPRT is ideal for a residence that heirs plan to keep in the family for many generations. The capital gains impact might be significantly less than the estate tax impact because the estate tax rate is 40% while the top capital gains rate is 20%.

Read more related articles at:

The ABCs of QPRTs

How a QPRT Can Protect Your Residence

Also read one of our previous Blogs at:

What’s the Estate Tax Exemption for 2021?

Click here to check out our On Demand Video about Estate Planning.

springing power of attorney

Springing Power of Attorney, Can an Agent Acts Under it Before the Principal is Incapacitated?

The Case of an Agent that Acts Under a Springing Power of Attorney Before the Principal is Incapacitated

The Case of an Agent that Acts Under a Springing Power of Attorney Before the Principal is Incapacitated.   As a part of many estate and elder law plans, an elder law attorney will draft a Financial Power of Attorney for a client. The client, as the Principal, names another person, an Agent, to act on their behalf. The Power of Attorney can be effective immediately, meaning the Agent can act even if the Principal has capacity. Or, the Power of Attorney can be springing, meaning the Agent can only act if the Principal becomes incapacitated and unable to manage his or her own financial affairs. But what happens if an Agent begins to act under the document before the springing provision has been satisfied? Are the Agent’s acts legally binding?

In a recent case out of the Superior Court of Pennsylvania, this issue was litigated. Here, Mercedes had six children. In 2013, she named child Joseph as her Agent on a Power of Attorney form that Joseph had downloaded off the Internet. Therein was a clause that stated Mercedes must be incapacitated or disabled and there must be a physician’s statement to that effect before the Power of Attorney became effective and Joseph would be able to act. However, Joseph began acting as Mercedes’ Agent immediately after signing the document, in routine financial affairs. Mercedes had not been declared incompetent and had not obtain a written physician’s statement.

In 2017, Mercedes moved into a nursing home. Joseph, acting as Agent, listed Mercedes’ home for sale. William, another child of Mercedes, also lived in the home. The Santos family toured the property and they were interested in purchasing it. Joseph and William were both present during the tour; William showed the Santos’ the family room where he was living. The Santos’ submitted a formal purchase offer and Joseph accepted it, acting as Agent under the Power of Attorney.

The settlement date for the property was March 5, 2018. The date was pushed back 10 days because William was still living in the home. However, Mercedes conveyed a deed to William on February 27, 2018. The Santos’ filed suit. William argued that he was the owner of the property because Mercedes deeded the property to him before contracting with the Santos’. In fact, William had approval from Medicaid (obtained after the trial but before the appeal hearing) that he was allowed to take title to the home via the child caretaker exemption. William also argued that the contract with the Santos’ was not valid because Joseph could not act as Agent until Mercedes was declared incompetent and had a physician’s statement to that effect. The Santos’, of course, wanted their contract upheld.

A central issue in this case was whether Joseph was acting under a valid Power of Attorney when he executed the purchase contract for the home. The document required that Mercedes was incompetent before the powers were effective. However, the trial court stated: “Joseph’s actions for years established a pattern and practice that would be considered reasonable for a third party to rely upon. Further, there was no evidence that Mercedes restricted his agency in any way. This intent was further proven by testimony that after learning there was a condition precedent in the 2013 power of attorney, Mercedes and Joseph executed a general power of attorney without any conditions precedent so that Joseph could continue to act as an agent.” The trial court ruled in favor of the Santos’ and William filed an appeal.

In determining whether Joseph had agency, the Superior Court summarized the law, stating that agency can be express, implied, or apparent. Agency cannot be inferred simply from a family relationship. Rather, a court should look to the facts and determine whether the Principal intended to create an agency-type relationship. In this particular case, the court said that just because Joseph believed he was Mercedes’ Agent is irrelevant. Instead, the court looked to Mercedes’ actions. She was in Joseph’s care and Joseph carried out her financial affairs. Mercedes did not object to these actions. The court also looked to the fact that a second Power of Attorney was executed, one that did not have the springing restrictions. In the end, the Superior Court agreed with the trial court and ruled in favor of the Santos’.

A lesson from this case is that legal documents can be complex and they have consequences. It is always important to completely understand the legal documents that one executes, to ensure their intent is carried out and adverse consequences are at bay. In this case, Joseph may have saved a few hundred bucks by downloading a form from the Internet, but likely spent thousands in the subsequent litigation.

Working with an elder law attorney could have saved this family money in litigation fees.

Read more related articles at:

Springing vs. Non-springing Powers of Attorney

Durable vs. Springing Power of Attorney: What’s the Difference?

Also, read one of our previous Blogs at:

What are the Different Kinds of Powers of Attorney?

Click here to check out our On Demand Video about Estate Planning.

Digital Assets

Estate Planning for the Digital Era

Estate Planning for the Digital Era

As owning digital property becomes the norm, estate plans need to employ new strategies.

Key takeaways

  • Many people own digital assets: everything from domain names and electronically stored photos and videos to email and social media accounts. It’s important to understand the terms of use regarding access and control of this data.
  • Make a list of your digital assets and passwords so other people you trust will know where to find them. Back up data stored in the cloud to a local computer or storage device.
  • To help protect your digital or online assets, work with an attorney to provide consent in legal documents.

You may have planned for your loved ones to eventually inherit your house, the Steinway grand piano, your dad’s 88-year-old Swiss watch, or other family heirlooms, but with life increasingly being lived online, you may be overlooking an increasingly important kind of property: digital assets.

If your estate plan doesn’t account for digital assets properly, your heirs may not be able to gain access to them. Family photos and videos could be lost forever, social media accounts could stay online long after you’ve passed, and your heirs may not receive all the money that you’d like to leave them.

Nick Beis, vice president of advanced planning at Fidelity, notes the increasing importance of digital assets in estate planning: “With more people living more of their lives online, a new kind of asset—a digital asset—needs to be understood and accounted for in the preparation and execution of estate plans.”

It has become the norm to store financial records in smartphones, computers, or the cloud, and to conduct financial transactions electronically. In addition to email and social media accounts, most people also own a trove of digital assets, which can include:

  • Bitcoin or other cryptocurrencies
  • Domain names for websites
  • Digital photos and videos
  • Digital rights to literary, musical composition, motion picture, or theatrical works
  • Digital accounts in an online betting account
  • Blog content
  • Online video channels where the content is monetized and producing an advertising revenue stream for its owner
  • Online gaming avatars that offer online goods or services that may be worth real-world money

The upshot: Accounting for digital property in your estate plan has become essential. Fortunately, it’s relatively simple to do.

Obstacles to digital access

From a legal point of view, digital property is like other kinds of property because it can be passed on to designated parties through estate plans. Yet the laws regarding digital property are still evolving, as are the practices of social media sites and online search engines. For these and other reasons, gaining access to digital assets, and to digitally encoded financial information, can present challenges for anyone other than the original owner. In general, there are 4 main obstacles faced by family members of someone who has recently died when trying to access the decedent’s digital assets and vital personal information:

  1. Passwords. If family members don’t know your passwords, they may not be able to access information or property stored in your smartphone, computer, online accounts, or the cloud. Some passwords, such as the one you enter to log in to your laptop or tablet, may be easy for experts to bypass; others are more difficult to bypass—and some are practically impossible.
  2. Data encryption. Digitally stored data may be encrypted, adding another layer of protection on top of your passwords. Encryption can scramble data in a particular location—in a single file, on a device, or in the cloud—so thoroughly that it is practically impossible for anyone without the proper passcode to unscramble it. Take cell phones, for example. “New technology in cell phones can be extremely difficult to decrypt,” says Beis. “Your content, memories, or personal data may exist on your phone or even in the cloud somewhere. But if you have not transferred them elsewhere, family members may not be able to access them unless they know your passcode.”
  3. Criminal laws. Laws on both state and federal levels prohibit unauthorized access to computer systems and private personal data. These laws serve to protect consumers against fraud and identity theft, but they also may create virtually insurmountable obstacles for family members trying to gain access to the digital assets and information of a deceased loved one. The law is evolving to keep up with the rapidly changing online world, but much in this area is still unclear. For that reason, it’s essential to ensure that your estate plan gives your fiduciaries the authorization they need to access any necessary digital data.
  4. Data privacy laws. Generally, federal data privacy laws prohibit online account service providers from turning over the contents of your electronic communications to anyone other than the owner without the owner’s lawful consent. That means social media sites or other companies may lock up your content unless you give express permission for others to access it. That might leave your heirs unable to gain access to photos, email messages, or other information stored in the cloud. Fighting for that access in court probably would be cost prohibitive, says Beis: “Attempting to gain access to a deceased person’s digital accounts without lawful consent may involve a court battle with an online account service provider, which has the potential to cost a lot of money.”

Make your estate plan digital-savvy

Fortunately, you can avoid these obstacles relatively easily by addressing digital property and information in your estate plan. By planning ahead, you can arrange for full access to your digital property, keep administration costs down, and ensure that no valuable or significant digital property is overlooked. Consider taking the following 4 steps:

  1. Make a list. Start by listing your digital assets so your loved ones know what you have and where they can find it. Include all your important passwords, online accounts (including email and social media accounts) and digital property (including domain names, virtual currency, and money transfer apps). Store your list in a secure location and make sure your family members know how to access it.Tip: Inexpensive password management apps such as 1PasswordOpens in a new window and LastPassOpens in a new window can help simplify this effort.
  2. Understand what you really own. There are instances where you may have thought you purchased a digital asset, but in fact you purchased a nontransferable license to use the asset. There may also be limitations restricting the number of times you can burn the music to a CD.Tip: Check the terms of agreement for vendors of music or other digital assets to see whether they sell the asset itself or simply a license to it.
  3. Back up data stored in the cloud. For starters, one layer of protection in the cloud to consider is FidSafe®Opens in a new window, a free, secure online safe deposit box, to save digital backups of electronically scanned essential documents such as bank and investment account statements, birth certificates, insurance policies, passwords, tax records, wills, and more.If you store any digital assets in the cloud, back them up to a local computer or storage device on a regular basis so that family members and fiduciaries can access them with fewer obstacles. “Some companies provide easy access,” says Beis. “Facebook, for example, has a One-Click Download option to download all your data to a computer.”Tip: Don’t just rely on the cloud for backup. Also back up your data to a local computer or personal storage device.
  4. Provide consent in legal documents. Work with an estate planning attorney to update your wills, powers of attorney, and any revocable living trusts. They should include language giving lawful consent for providers to divulge the contents of your electronic communications to the appropriate people. You also might consider exactly which information you want to make available, according to Beis. “A blanket authorization may not be appropriate,” he says. “You might not be comfortable making all digital assets accessible to your fiduciaries.”Tip: In your estate planning documents, specifically allow your fiduciaries to bypass, reset, or recover your passwords.

Since digital assets are still a relatively new phenomenon, the laws that deal with them are changing rapidly. Talk with your attorney about the steps you can take now, and check in regularly to update your estate plan to accommodate any changes in the law or in your digital property. Lastly, if you have significant digital assets, consider appointing a special executor who has business and legal experience just to deal with your digital assets (in addition to the executor of your general estate).

Read more related articles at:

Protect Digital Assets After Your Death

Protecting your digital assets after death.

Also, read one of our previous Blogs at:

Digital Assets Need to Be Protected In Estate Plans

Click here to check out our On Demand Video about Estate Planning.

Estate Planning

Trusts, Wills, and Estate Planning: Facts You Should Know

Trusts, Wills, and Estate Planning: Facts You Should Know

Estate planning conjures images of conniving lawyers and bankers discussing million-dollar trusts for many people, and considering which conditions to place on a bequest to a ne’er-do-well relative. But that’s not usually the case. Even people of modest means can spare their loved ones serious headaches by creating an estate plan and will to dictate what happens to their property at the time of their deaths.

Your “estate” is everything you own—all your property and property rights, even assets with loans against them. They don’t die when you do. They have to move into the ownership of a living beneficiary, because a decedent can’t own property. How your property is managed and distributed after your death depends on whether you die “testate” with a valid will, or “intestate” without a will.

The Statistics on Who Has a Will

The number of people who have wills has been steadily declining in the millennium, according to a 2020 survey by Caring.com. Almost 25% fewer American adults had wills in 2020 compared to 2017. Even older adults are less likely to have wills. Their number dropped by 20% in 2019, and 25% fewer middle-aged adults had wills in that time frame.

Leaving a will ensures that your wishes are carried out if at all possible and your property is distributed in the way you choose. It can also make probate of your estate much easier. Probate is the legal process by which ownership of your property is transferred to living beneficiaries. The court also uses the probate process to establish the validity of a will when the deceased left one. You would designate an executor in your will, someone to manage your estate through the probate process and see to it that your wishes are carried out.

A Will vs. No Will

Dying intestate—without a will—doesn’t mean that your loved ones will avoid a court proceeding. Intestate estates still require probate, but state law gets involved to determine who gets your property because you didn’t outline your wishes in a will. Each state has its own legislative code for intestate succession: who gets to inherit first and in what percentages, and who won’t inherit unless everyone in line ahead of them is also deceased. The hierarchy in most states places surviving spouses first in line, followed by the decedent’s children, then parents, siblings and finally more distant relatives. Individuals who aren’t related to the decedent are left out entirely.

Every state has a scheme that will dictate the steps of intestate administration, but the typical process goes something like this:

  • Someone initiates a case in probate court.
  • The court determines that there is no will and appoints an administrator rather than an executor, usually a family member or heir.
  • The administrator gathers the deceased’s assets, identifies the heirs, and notifies the deceased’s creditors.
  • The administrator liquidates estate assets to the extent necessary to pay the deceased’s debts, taxes, and the costs of estate administration, such as attorney’s and accountant’s fees.
  • The administrator distributes the remaining proceeds and assets according to the intestate succession schedule set out in state statutes.
  • Intestate administration is often a lengthy, inefficient, and expensive proceeding because the administrator is usually required to seek permission from the court for each of these actions. The administrator will spend much time requesting court orders and attending hearings. An intestate administration often takes two years or longer.

Untitled Assets

Some assets can pass directly to an heir if there’s no need to officially pass title to the property. Personal property like furniture and jewelry usually won’t have documentation to establish ownership. There may be no need to go to court if your estate is comprised entirely of untitled assets unless your heirs can’t agree among themselves on how to distribute this property.

Assets That Pass Outside Probate

Some assets will pass directly to your heirs outside the probate process even if you do leave a will.

  • Your spouse will take sole ownership of at least their share of community property if you’re married and live in one of the community property states: Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Wisconsin, and Washington.
  • Some assets transfer automatically because they’re contractual in nature—you designated a beneficiary who will take ownership when you die. They include life insurance proceeds, annuities with death benefits, and many retirement accounts.
  • Bank accounts often have “payable-on-death” provisions that allow you to designate a successor.

In each case, there’s no need for the intervention of a probate court because the account already has a legal means by which to transfer to your beneficiary or successor.

The Role of Trusts in Estate Planning

A trust is an entity or an agreement that allows you, as the grantor or donor, to transfer property to someone known as the trustee for the benefit of a third party, called the beneficiary. Trusts are often used in estate planning to take advantage of favorable tax treatment, to place conditions on the use or distribution of assets, or to allow the heirs to take possession of assets without a probate proceeding. The trustee holds the assets in a fiduciary capacity. They have a high responsibility to see that the assets are preserved for the beneficiaries. A living trust is created during your lifetime, and it provides a way for you to preserve and retain control over your assets even if you should become incapacitated. It can alleviate the need for a guardianship or conservatorship if you’re unable to make decisions on your own. A testamentary trust is one that’s formed according to terms contained in your will. It doesn’t exist until you die. Your executor would then create the trust, transferring some or all of your property into it.

Revocable vs. Irrevocable Living Trusts

Living trusts are either revocable and irrevocable. You can name yourself as the trustee of a revocable trust, retaining control over the assets you transfer into it during your lifetime. This type of trust can provide a lot of flexibility during your lifetime, including the ability to revoke or dissolve the trust as your needs change. You can provide for a successor trustee to take over upon your incapacity or death. Irrevocable trusts can’t be changed once assets have been transferred into them. They can’t be revoked or undone—the transfer of assets is permanent. But irrevocable trusts generally allow for the best estate tax consequences. A revocable trust will become irrevocable upon your death because you’re no longer available to amend or revoke it.

Trusts for Specific Purposes

There are many different types of trusts, and state law will determine which of them are recognized in your state. Trusts are also subject to some federal laws, particularly with regard to how they’re treated for estate tax purposes. Federal estate taxes can be assessed if the property exceeds a certain minimum value.

  • A spendthrift trust can be used to preserve your assets, allotting bequests incrementally and under certain terms, for beneficiaries who are less than responsible with money.
  • A special needs trust ensures that an heir with special needs will have sufficient assets to provide for those needs without jeopardizing their government benefits.
  • A life insurance trust collects insurance on the grantor’s life and administers it to beneficiaries. It’s irrevocable and can be used to avoid estate taxes.
  • A QTIP trust provides income for a spouse, then passes the remainder of the assets to other heirs.

Be Prepared

Wills and trusts can be used to accomplish many goals, and they can be as flexible as your needs and wishes require. Ensuring that those needs and wishes are carried out requires careful planning in choosing the best trusts or the best provisions for your will.

Read more related articles at:

What You Should Know about Wills and Trusts

Estate planning 101: Your guide to wills, trusts and all your end-of-life documents

Also, read one of our previous Blogs at:

Spring has Sprung. When Should I Start my Estate Plan? Now!

Click here to check out our On Demand Video about Estate Planning.

Avoid Probate

Why You Might Want to Avoid Probate and How to Do It

Why You Might Want to Avoid Probate and How to Do It

Why You Might Want to Avoid Probate and How to Do It. You’ve probably heard that probate is a long, expensive nightmare that should be avoided at all costs, or you might have heard that it really isn’t that bad after all. In fact, both scenarios can be accurate. It often comes down to how complicated and extensive an estate is. Some estates are so small they don’t even require probate. Others are quite large, requiring deliberate and meticulous legal planning to avoid a probate snarl. In either case, you might want to arrange your estate to avoid probate for a few common reasons ranging from a cash crunch for your heirs to a total lack of privacy about your personal affairs.


Your Family Might Have No Immediate Access to Cash

It can take weeks or even months to access a deceased person’s cash. Your heirs can be stuck footing the bill for everything from the funeral to your household utilities during that time if your estate must be probated. Your family probably won’t be able to access the cash in your bank accounts during this time period, either. They’ll have to maintain property insurance and pay taxes and possibly storage fees until probate is officially opened, and that can’t happen without a court order. Your property and insurance policies must be maintained until the estate can take over. If you have a spouse who doesn’t work and doesn’t have access to her own funds, she can be left scrambling to pay for even the most basic living expenses, like groceries.

Court approval is often required for every little step during the probate process, including running or selling the deceased person’s business, repairing or selling real estate, or abandoning worthless assets, such as timeshares with high annual maintenance fees. Numerous rules must be met, forms filed, and appraisals completed and submitted. You can avoid all this if your estate manages to bypass probate. Your family won’t have to deal with a probate judge interfering in family financial matters.

Probate Can Cost a Lot of Money

Courts all over the country are prone to financial crises, and they often hunt for revenue when money gets tight. One way to raise funding is to increase court filing fees, including probate fees. If your estate requires the assistance of an attorney, this individual must be paid, too. Many states base attorneys’ fees on a percentage of the estate. Even a modest estate comprised of a home, a vehicle, and some bank or investment accounts can result in legal fees in the tens of thousands of dollars.  All these fees are payable out of your estate, sometimes from the sale of assets you intended to leave to your heirs. Probate can mean less money for them.

Probate Records Are Public Records

Probate is a state court proceeding, so all information about a deceased person’s assets, liabilities, beneficiaries, and personal representatives are a matter of public record. Anyone at all can access your probate court file and find out just about anything he wants to know. All he has to do is ask for the entire file and it’s unlikely that anyone at the clerk’s office will care or ask why. Worse, entire probate files are available for viewing online in some states. People don’t even have to go to the courthouse to request a file. Avoiding probate keeps your family matters and your financial information private.

How to Avoid Probate

A deceased person can’t legally own property, so probate becomes necessary when ownership of an asset has no other legal means by which to pass to a living beneficiary. Speak to an estate planning attorney about how to title your property so probate isn’t required to move ownership. You might name your spouse or another family member on a bank account, or designate an account beneficiary on a payable-on-death account. You can place your assets in a revocable living trust and include terms for what you want to happen with them in your trust formation documents. You can hold title to real estate with rights of survivorship. All these options bypass probate, but it’s important to speak with an attorney because the exact rules can vary by state.

Read ,more related articles at:

What Is Probate and How Can You Avoid It?


Also, read one of our previous Blogs at:

Avoiding Probate with a Trust

Click here to check out our On Demand Video about Estate Planning.

Unfunded Trust

An Unfunded Trust is a Useless Trust.

An Unfunded Trust is a Useless Trust.

An Unfunded Trust is a Useless Trust. For many, a Revocable Living Trust is created as part of an estate plan to determine who will inherit assets and property, rather than relying on a will or owning assets jointly with either a spouse or heirs. It is a type of trust that is established during the trust maker’s lifetime and can be amended as long as the trust maker is alive and well. Assets within the trust can be managed, invested, and spent for the trust maker’s benefit during his/her lifetime. At death, a trustee steps in to manage and distribute the property within the trust as outlined in the trust agreement created by the trust maker.

Often, a Revocable Living Trust is established to avoid probate at death or conservatorship if an individual is incapacitated for any period of time, but also to maintain some control over the assets after death through a trustee. Creating the trust document with an estate planning attorney is the first step, but the trust will not function properly if it is not funded. In order to fund the trust, the trust maker must transfer assets titled in his/her individual name and retitle them into the name of the trust or designate the Revocable Living Trust as the primary or secondary beneficiary, when applicable.

If a trust remains unfunded at death, assets and property will not be distributed following the guidelines of the trust agreement. It is likely that the assets will be subject to probate, which defeats a main benefit in establishing the trust. Secondly, any assets held outside the trust cannot be managed by your designated trustee and therefore may not be passed to your intended beneficiaries since they do not fall under the control of the trust. You may work with your attorney to establish what assets should be titled in the name of the trust and how to best transfer them, but ultimately it is your responsibility to fund the trust to ensure your wishes are carried out. At Legacy Planning Law Group, we have a designated Asset Alignment Coordinator who helps facilitate the funding of your trust and helps align your assets into you trust. Not all attorney’s offer this service, much less have a designated person who is dedicated to that task. When we create a trust for you, we make sure that your trust is properly funded, and your assets are properly aligned to ensure you have an iron clad trust. This will ensure less problems when the trust is ready to be settled.

Read more related articles at:

Creating a trust is the first step, but what if the trust isn’t funded?

What Is Funding a Trust?

Also, read one of our previous Blogs at:

The Biggest Mistake in Trusts: Funding

Click here to check out our On Demand Video about Estate Planning.

Talking to Parents about Estate Planning

How to Talk to Your Parents About Estate Planning

How to Talk to Your Parents About Estate Planning

It’s a hard conversation to have but a necessary one

Discussing estate planning with your parents is a conversation that can be difficult to have. You might not want to think about the day that they are no longer here, or even consider that they might experience a decline in health that severely limits their ability to think clearly or communicate with you. However, if you don’t have this conversation when your parents are able to share information and instructions, their passing or incapacitation will be even more painful as you grapple with their estate. Results from the December 2020 Wells Fargo/Gallup Investor and Retirement Optimism Index showed that 43% of investors between the ages of 50 and 64, and 17% of those 65 or older, have neither a written will nor written estate plans. Furthermore, nearly 40% of investors either don’t ever talk to their parents about estate planning, dread the talk, or avoid it. Though an estate planning conversation can be intimidating, there are several steps you can take to make the dialogue happen in an effective and inclusive way.

If you have brothers and/or sisters, you should include them in the conversation with your parents. For one, you’ll want to maintain the appearance of fairness, Eido Walny, founder of Milwaukee-based Walny Legal Group, told The Balance in an email. “Fair is in the eye of the beholder, and what is fair to one person may not be fair to another,” Walny said. “The best way to overcome this obstacle is to have a frank, open conversation that includes all the stakeholders. This prevents fighting later over what you think your parents ‘would have wanted.’” Including siblings can also tamp down any sort of distrust among family members. “All too often, there are contentions in estate administrations that mom or dad would not have done something but for the meddling of one of the kids,” Walny said, pointing out the legal term for this is “undue influence.” Another factor here is that parents worry their children will fight over their estate after they pass—but, by not having a family meeting to talk about estate planning, they’re actually increasing the chances of this happening, Brian Simmons, co-founder of Las Vegas-based trust-services firm IconTrust, told The Balance by email. “This can lead to litigation, and the only people who win in litigation are the attorneys,” Simmons said. “We have seen estates litigated over the silliest of things; usually personal property, like trinkets, equipment, furniture, artwork, etc.”  If your parents don’t have a plan, ask them to create one where their expectations are upfront to avoid problems in the future.

Find the Right Time to Talk About Money

As with most thorny topics, deciding when to talk to your parents about estate planning may cause apprehension about the discussion, too. However, it’s not a matter of whether the conversation should take place after dinner on Tuesday, or before Saturday brunch; time is of the essence. Some people advise waiting until there’s a life changing event, like a new birth, or changes to the tax law, but this is a risky approach, according to David Bross, a senior estate planner at Cincinnati-based Truepoint Wealth Counsel.“The right time to talk to your parents about estate planning is now, because, unfortunately, nothing in life is certain,” he told The Balance via email. Estate planning not only involves planning for assets at death but also includes planning for situations like health care and day-to-day financial decisions.  “Health care powers of attorney and financial powers of attorney provide direction as to who will handle health care/financial decision making for a parent should that parent be unable to act for himself or herself during his or her life,” Bross said.

The unpredictability of 2020 hammered home the frailty of life and how quickly someone can succumb to an ailment. But besides the possibility of your parents getting sick, there are other reasons to have this conversation now. In short, it’s not always about an inheritance or power of attorney, according to Zachary Morris, co-founder of Atlanta-based Paces Ferry Wealth Advisors.  “Many adult children may be planning for their own retirement, and the cost of caring for an ailing parent can derail even the best-laid retirement plans,” Morris told The Balance by email. “Knowing that your parents have done well financially, and maybe even have long-term care insurance, can go a long way in preparing for your own retirement.” Plus, you need to know if you have a role in their estate plan. For example, if you are named the executor of the estate, do you know where all the necessary estate documents are?  “Making sure your parents have a proper estate plan in place can help avoid unintended consequences regarding how the estate settlement is handled—potentially by a court-appointed executor if someone hasn’t already been named in the will,” Morris said.

Learn What Estate Planning They Have Done—And If Anything Has Changed

If your parents have already done some estate planning, it’s important to have a conversation to see if anything needs to be updated. “If they haven’t done anything, you may have to start from scratch,” Lisa Anne Haidermota, estate planning attorney and principal owner at Tampa-based Lisa Anne Haidermota, PA, told The Balance by email. “They also could have named executors when the children were minors and those executors have passed away.”

Child-Specific Trust Rules May Be Outdated

If your parents established a trust when you and your siblings were minors and you are now adults, changes may need to be made. “The safeguards that they set up in the trust may no longer be relevant,” Haidermota said. “Their concerns for their minor children may have changed as they reached adulthood, and now they want their adult children to serve as their executor, trustee, power of attorney, or health care surrogate.”

Multiple Marriages May Have Complicated Things

Jonathan Breeden, founder of North Carolina-based Breeden Law Office, pointed to another reason why you need to know what planning your parents have done. “There should be specific instructions about what goes to the husband/wife versus what goes to the children,” Breeden said in an email to The Balance. “This can be especially helpful for someone who got married a second (or third) time.” The problem for some people is getting their parents to agree to share this information, some of which can be sensitive. “Some parents see this as an issue of privacy and are hesitant to share such details,” Walny said. “[However], understanding your parents’ financial footing is important because it may open or close options with regard to nursing-home or long-term care planning.”

Helps Kids Know Their Roles and Avoid Surprises

Walny has also seen situations in which a substantial inheritance caused severe shock for the children who received it. Conversely, if the children aren’t receiving as much as they thought, this may affect their life decisions as well. Hearing parents explain why they made certain decisions about who gets which asset and what role you and your siblings play can clear up uncertainty. “If all children understand their roles and their possible inheritance, there are little to no questions once the estate plan is needed,” Bross said. “Each child has had an opportunity to hear from [their] parent as to why [the parent(s)] chose a certain plan or a certain person to manage their affairs.”

Cover Key Estate Planning Topics

It’s unlikely that you’ll cover everything in one conversation. Some of the issues may require your parents to pause and think about their decisions. But when the series of discussions is over, you should have covered the following key estate planning topics.

Estate Plan

“During this conversation, we review the estate plan with all of our client’s children to ensure each child has an understanding of what the documents say and how they will be administered,” Bross said. Since everyone is present (in theory), the parents can discuss why the plan was put into place and ask questions to ensure that everyone is on the same page.

Net-Worth Statement

A net-worth statement helps children get an overall understanding of their parent’s wealth. “While this helps the family understand the potential inheritance, it can also give children peace of mind that their parents have the wealth to cover expenses later in life, such as health expenses,” Bross said.

Family Business  

If there is a family business, Bross recommended discussing a succession plan for the business. When the parents pass, who will take over the business and in what capacity?

Power of Attorney

“An estate plan should also include a power of attorney to grant authority to handle financial matters,” Seta Keshishian, a financial advisor at JSF Financial in Los Angeles, told The Balance by email. Any competent adult (age 18 or older) can receive power of attorney The Florida Bar recommends choosing someone who is trustworthy and reliable.

Power of Attorney for Health Care

It’s possible that your parents may become incapacitated, and when that happens, your parents should have someone chosen who can make medical decisions on their behalf. Keshishian advised adult children to initiate conversations with their parents to talk through their wishes for medical care, long-term care, and life-sustaining treatment. “Often, emotions can run high in an emergency situation, so it’s helpful to have clear instructions from the parent in advance,” she said.

Power of Attorney for Digital Assets 

“This person would ensure that online accounts, computers, and phones can be accessed,” Keshishian said. “It is important to confirm that all trust assets are properly titled, including the primary residence and brokerage accounts.”


According to Natalie Elisha Goldberg, founder of Goldberg LLP in Evergreen, Colorado, trusts have actually entered the mainstream for the middle class. Trusts may help families avoid the probate process, and even probate court. If a trust is set up in advance, it could help cover the cost of expensive nursing-home or long-term care in the future.

Set Long-Term Goals Together

Setting long-term goals together can prevent unpleasant surprises, but it will take open and honest communication. “It’s incredible that the values of parents and kids are often very different, and we often see parents struggle to treat their kids ‘equally’ and ‘fairly’ without understanding what those terms mean to the kids,” Walny said. For example, while parents may focus on financial equality, Walny said the kids may be more concerned about items that have sentimental value. Sometimes, these conversations may not be pleasant. That’s why Goldberg recommended having a team of financial professionals present, such as an attorney or tax advisor. In fact, her law firm also calls in a financial advisor and CPA for family meetings—and they allow grievances to be aired so all of the family members can be seen and heard. Remember, another key to success is understanding that setting long-term goals isn’t a one-time event, according to Gino Pascucci, a fellow co-founder with Simmons at IconTrust.“You don’t ‘set it and forget it,’” Pasucci said in an email to The Balance. “We have found the most successful families have periodic meetings—i.e., yearly or on some set schedule—with the parents’ attorney or financial professional present, as this helps everyone stay on task and set long-term goals together as a team.”

Read more related articles at:

How to talk with your parents about their estate plan, even if they don’t want to

How to talk to your parents about their estate without seeming like a greedy jerk

Also, read one of our previous Blogs at:

Millennials, It’s Time to Talk Estate Planning With Your Parents

Click here to check out our On Demand Video about Estate Planning.

What is Elder Law?

What Is Elder Law?

What Is Elder Law?

Legal issues affecting seniors are governed by complex regulations and laws that vary by state. They’re also multifaceted, often requiring a unique understanding of the personal impacts of aging, which can make a person more physically, financially, and socially vulnerable. Elder law addresses the various life decisions and circumstances that arise during this time of life as well as how estate plans will be executed after your death. Elder law attorneys who focus their legal practice on these issues take a holistic approach when working with seniors and their family members, helping them navigate legal matters in conjunction with a network of professionals including health and social workers and psychologists. Many people erroneously assume that elder law is only a concern for those with complex life situations, such as a disability or special needs, a second marriage, a high-value estate, or financially reckless adult children. Although the field is of particular importance to seniors in such circumstances, it’s vital for all seniors to familiarize themselves with elder law and enlist an attorney when needed in order to protect themselves and their assets from what may befall them in their golden years and beyond. For example, let’s say that your health is waning or you expect it to as you approach your senior years. You can work with an elder law attorney who specializes in disability planning to complete an advanced medical directive with a durable power of attorney for health care, a document that allows you to name a health care proxy to make medical decisions on your behalf when you can no longer do so. Doing so can avoid the need for health care providers to later administer treatments or make other decisions about your health that you may not agree with.


Types of Elder Law

Most elder law attorneys are not versed in all areas of the law, making it important to seek out the right type of elder law attorney when you or your family members need legal assistance. Major areas of elder law include:

  • Disability and special needs planning
  • Long-term care planning
  • Estate planning and settlement
  • Guardianship or conservatorship
  • Elder abuse

Disability and Special Needs Planning

This area of elder law focuses on the support systems that the aging put in place to protect themselves in the event that they become physically or mentally incapacitated. There are some key legal documents that you may want to prepare in advance of such a scenario; these include a durable power of attorney, which allows you to appoint someone else as a legal agent to make certain financial decisions for you when you can’t, and an advance medical directive including a durable power of attorney for health care and a living will that sets out which treatments you do and don’t want. Without these documents, the court may leave these decisions up to a guardian (discussed below) who may not be of your choosing. In many cases, individuals with disabilities or special needs and their family members will be eligible to receive government benefits (Social Security disability benefits, for example). But you’ll still need to do planning to ensure that the individual qualifies for and will receive adequate assistance for their needs.

Long-Term Care Planning

This type of elder law focuses on the services that seniors often use to live safely when they cannot take care of themselves. These include nursing homes or assisted-living facilities and long-term health insurance, along with the means by which they get these benefits (Medicaid or the Department of Veterans Affairs, for example). Medicaid planning involves repositioning and transferring assets to qualify for Medicaid nursing-home benefits. Veterans benefits concerning elder law encompass providing for the long-term health care needs of veterans of the U.S. military.

Estate Planning and Settlement

Estate planning is the systematic approach to deciding who will receive your property after you die and who will be in charge of making sure your final wishes are carried out. It includes disability planning, as discussed above, as well as planning to avoid probate, minimize estate taxes, and ensure that your beneficiaries are protected from bad decisions and outside influences. A comprehensive estate plan might include the last will, durable power of attorney, an advance medical directive, and if needed, a revocable living trust. Also known as a living trust, a revocable living trust allows you to appoint someone else to make decisions about assets held in a trust. Probate is the court-supervised process for settling a deceased persons estate, and it may or may not be necessary depending on how your assets are titled at the time of your death. If you have a revocable living trust, the estate may be settled without the supervision of a probate court.

Guardianship or Conservatorship

If a person becomes incapacitated and did not put in place durable power of attorney or advance medical directive, a family member, friend, or, in some cases, a stranger, will have to go to court and petition for a guardian or conservator to be appointed on behalf of the incapacitated person. Guardianship, also referred to as conservatorship in some states, is sometimes referred to as “living probate” as it is the court-supervised process of administering an incapacitated person’s estate. In contrast, if the person took the time to create a disability plan with the help of an estate lawyer versed in guardianship, then he or she would have the right legal documents in place to dictate who will make financial and health care decisions on their behalf.

Elder Abuse

As people age, they, unfortunately, become more prone to personal or financial abuse. This mistreatment can range from Social Security fraud (for example, a non-spouse family member continues to receive benefits after the person has died) to the outright theft of assets. Financial elder abuse can also occur through the use of a durable power of attorney or by undue influence, such as wrongfully coercing an older adult to give away their assets or change their will or revocable living trust. Such abuse has led to this specialized area of litigation aimed at preserving, and, if needed, recovering, an older person’s assets. Watch out for elder abuse scams that dupe seniors out of their money through fake IRS calls or “gramma scams” involving desperate pleas for money from people pretending to be grandchildren.


How to Get a Lawyer Specializing In Elder Law

The best place to find a lawyer is through the National Academy of Elder Law Attorneys, a non-profit association founded in 1987 whose lawyers are trained and experienced in the nuances of elder law and adhere to a set of what it calls “aspirational standards” that hold them to a high bar of professional conduct. The “Find a Lawyer” page on their website allows you to search for an attorney by name, location, area of practice, or other criteria.

Key Takeaways

  • Elder law is a field of law that specializes in legal issues that affect older individuals.
  • Major areas of elder law include disability and special needs planning, long-term care planning, estate planning and settlement, guardianship or conservatorship, and elder abuse.
  • Elder law attorneys help clients facing the above issues, and can be found through the NAELA.

Read more related articles at:

6 Things an Elder Law Attorney Can Do to Help Family Caregivers

What is Elder Law and How Can an Elder Law Attorney Help Me?

Also, read one of our previous Blogs at:

How Do I Find a Great Elder Law Attorney?

Click here to check out our On Demand Video about Estate Planning.

Settling an estate

Settling an Estate: Knowing What to Do and When to Do It

Settling an Estate: Knowing What to Do and When to Do It

When a parent or other loved one dies, you might be facing the responsibility of handling their affairs. Things to take care of range from personal tasks such as notifying family and making funeral arrangements, to legal matters including gathering records and reporting the information to beneficiaries, to handling financial affairs such as distributing assets and paying taxes.

Knowing what to do and when to do it both personally and financially can help prevent you from feeling overwhelmed during such a difficult time.

Professional Guidance Can Help

The executor of an estate may be an individual such as the decedent’s spouse, child, advisor or other person, or it may be a financial institution such as a trust company or bank. If you are the executor, you can also name a financial institution to serve as co-executor, providing valuable guidance and resources along the way. It’s important to have a clear understanding of the process and remain actively involved.

Key Steps and Time Line for Settling an Estate

Estate settlement requires a broad range of skills and carries a long list of responsibilities, from preparing and filing taxes to resolving conflicts among beneficiaries. It also carries significant legal liabilities and requires a commitment of time and energy—it can take as much as two years to settle even the most straightforward estates.

Months One through Three

Review the will and gather documents. Carefully review the will and all trust documents to make sure you have a full understanding of all instructions, terms and conditions. Pay funeral expenses and other debts that require immediate attention and collect documents such as the death certificate, life insurance policies, birth certificates, military discharge papers, marriage certificates and real estate titles. Gather financial records such as bank, brokerage and retirement account statements for the past three years and handle claims submitted by creditors.

File the Will and Probate Petition
Most states require the executor to file the will in probate court, even if the estate is held in trust and is not required to go through the formal probate process. If necessary, the court schedules a hearing within approximately 30 days to determine the validity of the will and officially appoint an executor. All interested parties must be notified that the hearing has been scheduled.

Secure Personal Property
All property such as homes, boats, furniture, antiques, artwork, clothing, photographs and jewelry as well as personal documents such as journals, diaries and correspondence must be secured and protected. It is important to preserve all items, including items that were promised to a child or relative, until the estate is properly settled.

Appraise and Insure Valuable Assets
After all of the estate’s holdings have been identified and located, consult with appraisers and insurance specialists to make sure assets are properly valued and insured (vacant homes require special attention because traditional policies terminate when a home is not occupied).

Cancel Personal Accounts
When appropriate, cancel personal accounts, subscriptions and memberships.

Months Three through Six

Gather financial assets. Collect assets in IRA/401(k) accounts, brokerage and savings accounts, as well as financial interests in partnerships or other businesses, and transfer them into the estate account.

Determine Cash Needs
Review estate holdings and decide what to sell, if necessary, to raise cash for estate taxes and other expenses.

Months Six through Nine

Distribute tangible items to beneficiaries. Distribute personal property as directed by the will or trust document. This is an area that requires the diplomacy of an experienced executor, since surviving family members often have strong emotional attachments to items of sentimental value.

Remove Estate Tax Lien
Before any property or assets can be sold, obtain a release of the federal estate tax lien that the IRS attaches to all real assets. When the IRS discharges the lien, the buyer can take title to the property. By the sixth month, all claims from creditors should be resolved.

Determine Location of Assets and Secure “Date of Death Values”
One of the most challenging responsibilities of the executor’s job is taking an inventory of the entire estate and determining the value of all assets, including investment accounts, business interests, insurance policies, bank deposit boxes and intellectual property (patents, licenses and copyrights). Taking possession of property located outside the United States can be particularly challenging.

Submit Probate Inventory
Submit a detailed inventory of all real estate, personal property, bank accounts and debts to probate court.

Months Nine through 12

File taxes and other IRS forms and make partial distributions.

File the estate tax return and make a partial distribution of financial assets to beneficiaries according to the directives of the will. This may mean an outright distribution (transfer of title), or property may be distributed to a trust and distributed over time. Maintain reserves, usually at least 20% of the total value of the estate, to pay the estate’s expenses until it is closed.

Federal Estate Tax (Form 706)
Within nine months, prepare and file a federal estate tax return. It usually takes the IRS another six to nine months to process the return.

State-Level Estate Taxes
Today, many states including Connecticut, Delaware, Massachusetts, Maine and New York, plus the District of Columbia, levy their own estate or inheritance taxes. Rates can be as high as 20%.

Information about Beneficiaries (Form 8971)
Thirty days after filing the federal estate tax return, provide the IRS with information about all beneficiaries and the property they inherited.

Gift and Generation-Skipping Transfer Tax (Form 709)
If necessary, file a generation-skipping transfer (GST) tax return and/or gift tax return. It is often recommended that family members use their GST tax exemption to establish Delaware dynasty trusts that can last in perpetuity, ensuring that distributions to grandchildren and other remote descendants are not subject to any transfer taxes in the future.

Estate and Income Tax (Form 1041)
Estates and irrevocable trusts generally are separate taxpayers. That requires obtaining separate tax ID numbers and filing fiduciary income tax returns. These are specialized returns that require a CPA familiar with the filings.

Final Individual Income Taxes (Form 1040)
The estate or trust have tax returns to file. The executor or successor trustee is also responsible for ensuring the decedent’s final individual returns are filed, and addressing any issues with past filings.

Months 18 through 36

Make final contributions.

  • Secure closing letters from the IRS
  • Pay any remaining expenses
  • Distribute any reserves that were held pending resolution of contingencies
  • Prepare and file the final accounting
  • Make final distributions
  • File petition for discharge of executor responsibilities

We Are Here to Help

Fiduciary Trust draws on 85 year of experience in wealth management and estate planning to take the burden of estate settlement off the shoulders of family members, friends and beneficiaries.

Each estate is supported by a dedicated team of experienced estate administrators, trust officers, portfolio managers and tax specialists who are accessible and dedicated to personalized service. Many of the relationships we build with the families we serve continue for generations.

Read more related articles at:

What to Do When a Family Member Dies – Estate Settlement & Probate Process

Estate Settlement Checklist

Also, read one of our previous blogs at”

Now You Are Executor of your Spouse’s Estate, What Happens Next?

Click here to check out our On Demand Video about Estate Planning.

Gun Trusts

Own a Gun? Careful: You Might Need a Gun Trust

Own a Gun? Careful: You Might Need a Gun Trust

Make a mistake when inheriting an IRA and you might face tax consequences. Make a mistake when inheriting a gun collection, and there’s a chance you could face felony charges. So, anyone who owns a gun may want to consider adding a gun trust to their estate plan.

If you’re not a gun collector, you likely haven’t heard the term “gun trust.” Even if you are, you may not understand what a gun trust is, how it works or how it can be of use in an estate plan.

A gun trust is the generic name for a revocable or irrevocable management trust that is created to take title to firearms. Revocable trusts are more common, as they can be amended and changed during the lifetime of the grantor. Although any legally owned weapon can be placed into a gun trust (and we’ll get into why that could be a good idea later), these trusts are specifically used for weapons that are classified under the National Firearms Act (NFA) Title II of the Gun Control Act of 1968. Examples of Title II weapons include a fully automatic machine gun, a short-barreled shotgun or a suppressor, sometimes called a “silencer.” The latter is a common piece of equipment that is purchased and owned by a gun trust. The trust is actually the owner of the firearm or suppressor. Gun Trusts Provide Legal Protections to You and Your Heirs So why might a gun trust become a necessary part of an estate plan when the grantor owns NFA designated Title II weapons? One obvious reason is that the transport and transfer of ownership of firearms that are so heavily regulated can easily become a felony without the owner even knowing they are breaking the law.

A gun trust allows for an orderly transfer of the weapon upon the death of the grantor to a family member or other heir. However, the transferee must go through the background check and identification process before taking possession of the firearm. That means the grantor should name as the final beneficiary a person or entity they know will be able to accept the weapon if the initial designated heir cannot, due to failure of the background check.

There are other reasons a gun trust can make sense. For instance, an NFA Title II weapon, such as a suppressor, can only be used by the person to whom it is registered and no one else. Violation of this law is a felony. Simply letting a friend or family member fire a few rounds with a Title II weapon at the local range or at the deer lease is a felony! A gun trust can be used to allow for the use of the Title II weapon by multiple parties. Each party who will have access to and use of the weapon must be a co-trustee of the gun trust and must go through the same required background check and identification requirements.

It is worth noting that the vast majority of firearms purchased and owned by U.S. citizens are Title I weapons, such as ordinary rifles, pistols and revolvers, and not Title II. However, it is fair to assume that as gun sales increase, the purchase of Title II firearms will also increase, and the gun trust will be a valuable tool for those willing to go through the rigorous and lengthy process to legally obtain a Title II weapon. The process includes:

  1. The filing of the Bureau of Alcohol, Tobacco, Firearms and Explosives’ NFA Responsible Person Questionnaire,
  2. Submitting photographs and fingerprints when a trust or legal entity is listed as the transferee on an application to transfer an NFA firearm, and
  3. Paying the required ATF registration fee, currently $200.

A Gun Trust Isn’t Just for Title II Weapons

For an owner of a large collection of firearms, it may make sense to transfer ownership of these weapons to a gun trust, even if the individual doesn’t own any Title II weapons. There are several benefits to doing this:

Protecting your privacy.

First, most states require an executor to file an inventory of the probate estate. Probate inventories are public documents filed with the court and are available for anyone to see. All firearms included in an estate would be listed on the inventory, along with the market value of each item. A public document on file in the courthouse with a list of all firearms owned, as well as the value of each, may not be the best outcome for the heirs. If the firearms are owned by a trust, the firearms are not included in the probate estate and will not be listed on the inventory.

Allowing for the disposition of your collection.

Second, if the collection has significant value and will be liquidated at the death of the grantor, a gun trust can also provide for the orderly disposition of the firearms by the successor trustee or remaining co-trustees. Depending on the language included in the trust, the proceeds from the sale of the firearms can be invested to provide an income stream to heirs or to charity.

Covering the possibility of incapacitation.

Third, an incapacitated person cannot own a firearm, so if the owner of a substantial firearm collection becomes incapacitated and has no spouse or significant other who can legally possess the firearm, the person taking possession of the firearm could be in danger of breaking the law. If the firearms are placed into a trust, the successor trustee would take possession of the firearms upon the incapacitation of the grantor and can hold or distribute the firearms based on the grantor’s intentions and wishes, as outlined in the trust document.

Smoothing the way for your heirs.

Lastly, the cost to create and administer a gun trust is relatively small compared with the potential negative consequences of running afoul of the complex laws surrounding the use and ownership of firearms, especially Title II firearms. Leaving a large collection of Title I weapons — or even a single Title II weapon — in an estate to be dealt with by an executor or trustee can be disastrous and avoidable with the use of a gun trust.

Contact a local attorney who has experience and understands the federal and state laws regarding the ownership and transfer requirements of all firearms if a gun trust sounds like a vehicle that could be of benefit.

Read more related articles here:

Gun Trusts—What’s All the Fuss?


Also, read one of our previous Blogs here:

Should I Put My Firearms in a “Gun Trust”?

Click here to check out our On Demand Video about Estate Planning.

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