Trust Connection - A Monthly Report on Trust News and Information
July 2020
How Estate Planning Can Help Advisors Survive in the Comprehensive Wealth Management Space
The financial services industry was developed around delivering products and services to clients. The products are fairly easy to define, but the services run the spectrum from investment management only to full-family office services. The definition of comprehensive wealth management certainly includes more than one service, such as investment management; however, advisors do not necessarily have to directly provide the full suite of family office services in order to provide comprehensive wealth management.
Trust Connection - A Monthly Report on Trust News and Information
june 2020
Aligning Tax-Deferred Retirement Accounts with Estate Planning
During the past 30 years, the traditional pension plans that were historically important to the American workforce post-WWII have largely gone away and been replaced by the individual retirement account. Today, a substantial portion of the wealth possessed by Americans consists of tax-deferred retirement accounts such as traditional IRAs, 401(k)s and 403(b)s, profit-sharing plans, stock bonus plans and Employee Stock Ownership Plans (ESOPs). The responsibility for understanding how to plan and prepare for retirement rests on the shoulders of each American, and it can be difficult to navigate through a complex subject that changes frequently. With that in mind, it’s extremely important to annually review and document changes that have occurred in one’s life alongside tax law changes to ensure they work in concert together. Here’s a review of some of the primary components for coordinating retirement accounts with your client’s estate planning efforts.
Trust Connection - A Monthly Report on Trust News and Information
may 2020
Estate Planning When Estate Tax is not an Issue: Planning for Estates Under $10 Million
The primary focus of estate planning is often on tax-saving strategies; however, as federal estate tax laws continue to increase the federal, estate, gift and generation skipping transfer tax exemptions year after year, it is important to point out that there are many other valuable reasons why estate planning should be a priority. Below is a summary of several non-tax examples for effective estate planning.
Trust Connection - A Monthly Report on Trust News and Information
april 2020
Trust Planning Techniques When Interest Rates are Low
Given world events during the past few weeks and the unprecedented actions by the Federal Reserve to drastically lower interest rates to near zero in an attempt to stimulate a shaken global economy, now is the time to discuss the trust planning opportunities that exist for families when interest rates are low. Here’s why…interest rates influence how wealth transfers are valued for tax reporting purposes. There are several estate planning strategies that can be especially beneficial in a low interest rate environment, including GRATs (Grantor Retained Annuity Trusts), IDGTs (Intentionally Defective Grantor Trusts), CLATs (Charitable Lead Annuity Trusts), Intrafamily Loans, and FLPs (Family Limited Partnerships). This article will focus on GRATs and CLATs, two of the more popular options for clients who want to take advantage of today’s low interest rates in the future.
Trust Connection - A Monthly Report on Trust News and Information
March 2020
How to Effectively Position Life Insurance
Most who work in the financial arena are aware that as a result of the Tax Cuts and Jobs Act passed in 2017, the estate tax exemption more than doubled from $5.49 million per individual in 2017 to $11.58 million in 2020. For many people, the primary reason to establish an irrevocable life insurance trust (ILIT) was to make sure the proceeds of their life insurance policies would not be subjected to estate tax. Upon the grantor’s death, his or her loved ones would receive the insurance proceeds, undiminished by estate taxes. Alternatively, the proceeds could be used to take care of liquidity needs of their estates. With the dramatic increase in the estate tax exemption, many people may assume that they no longer need to maintain their ILIT, as their estate will not be subject to estate tax. In fact, in 2018, the first year of the increased exemption, only about 1,900 estate tax returns were filed for taxable estates, affecting less than 0.1% of the people who died that year.
Trust Connection - A Monthly Report on Trust News and Information
february 2020
Prudent Investor Considerations
What is the Prudent Investor Rule?
The Prudent Investor Rule calls on the fiduciary to make investment decisions as if they were his or her own. This means that the fiduciary should refrain from making overly risky investments. The needs of the trust’s beneficiaries should always be considered, and these needs can include lack of investment knowledge, trust assets and income.
Trust Connection - A Monthly Report on Trust News and Information
january 2020
Fiduciary Income Tax Basics
Income tax plays a critical role in day-today investing, yet for many the concepts can get disorganized. What are the key issues that drive fiduciary income taxation, and how can we best represent and communicate those concepts to the client for optimal results? First, we need to go back to some of the basics.
Trust Connection - A Monthly Report on Trust News and Information
december 2019
Charitably Inclined: Donor-Advised Funds
Since 1931, donor-advised funds (DAFs) have been offered by local community foundations and more recently have become available through numerous broker-sponsored charitable gift funds. They are something akin to a marriage between a private foundation and a mutual fund.
Trust Connection - A Monthly Report on Trust News and Information
november 2019
How You Can Benefit from Deferred Compensation Plans
Sheltering your income can prove a beneficial task. Many employers offer creative, cutting-edge benefit programs to attract potential employees. It’s important to know what the different plans are and how a trusted advisor’s guidance can help you determine what works best for your financial situation.
MCF Private Trust White Paper
october 2019
Don’t Get Robbed - Custody of Your Assets Matters
The headlines tell it all. Lawyers misappropriate money from trust accounts, investment advisors create Ponzi schemes, and wellmeaning, but inexperienced trustees, get sued.
Trust Connection - A Monthly Report on Trust News and Information
october 2019
Powers of Attorney
A power of attorney is an incredibly powerful instrument that all people, regardless of wealth or status, need to consider. Powers of attorney generally fall into two types: healthcare and financial. A power of attorney for healthcare, also called a living will in some instances, directs what medical treatment and life-sustaining measures are to be taken in the event of incapacity of the principal. Advisors rarely deal with healthcare in their professions, but financial powers of attorney are commonly used to substitute another individual to handle financial affairs. However, these documents may present challenges to the advisor dealing with them.
MCF Private Trust White Paper
september 2019
Directed Trusts: Why Use One?
A trust can be an important step toward fulfilling your family’s financial goals. There are specific advantages to having a trust: continuity of asset management, privacy, tax savings, and more. With the repeal of the rule prohibiting perpetual trusts, often the terms of the trust live on long after the death of the grantor. It’s impossible to control changes in a family’s life or in the tax law, but a trust grantor can choose a trustee that responds to these changes.
Trust Connection - A Monthly Report on Trust News and Information
SEPTEMBER 2019
Do You Still Need An Irrevocable Life Insurance Trust?
You may have established an irrevocable life insurance trust (ILIT) as an integral part of your estate plan. An ILIT is a trust that is constructed to primarily hold a life insurance policy (or policies) on the grantor during the grantor’s lifetime. As the name indicates, an ILIT generally cannot be revoked, amended, or modified after it has been drafted and executed. Once the grantor contributes property or life insurance death benefits to the trust, he or she cannot change the terms of the trust or reclaim any of the properties held within without proper consideration.
MCF Private Trust White Paper
august 2019
Dynasty Trusts: Exempt for Generations
In the 1900s, a handful of industrialists and entrepreneurs had amassed tremendous fortunes. John D. Rockefeller had made his name in oil, Henry Ford in automobiles, Andrew Carnegie in steel. Their estates, in today's dollars, would rival those of Bill Gates and Warren Buffett.
Trust Connection - A Monthly Report on Trust News and Information
august 2019
The Importance of Post-Mortem Planning
What is it?
Post-mortem planning is a concept derived from the inability of estate planners to predict the future. Given how quickly tax laws and circumstances can change, it is unlikely that a planner will be able to anticipate every variable that an executor or trustee will face after your death. Post-mortem planning is the idea that if an estate plan is flexible enough, executors and trustees will be able to utilize tax elections and techniques in a way that will ensure your goals are met, despite changes in law and circumstance. Post-mortem planning allows the estate planner to create a comprehensive estate plan that encompasses the future, without being able to predict it.
MCF Private Trust White Paper
july 2019
Compelling Behavior: Do Incentive Trusts Work?
In 1999 John Scroggin, a Georgia attorney, and Robert S. Littell, an Atlanta life insurance agent, published a book titled, The Family Incentive Trust Program, and began promoting the idea of provisions in trusts to influence beneficiary behaviors. In choosing whether and how to implement incentive trusts, there are at least five primary issues that need to be addressed.
Trust Connection - A Monthly Report on Trust News and Information
july 2019
Installment Sales to Intentionally Defective Grantor Trusts
Estate planning with intentionally defective grantor trusts (IDGTs) is a well established “asset freeze” technique that has numerous advantages, as described below. In this article, we will discuss the features of this technique and how it can be used for your benefit.
MCF Private Trust White Paper
june 2019
How to Waste Money By "Saving Money"
Little is more wasteful than doing it wrong. The tremendous cost of saving money to do what you should hire a professional to do is a great example. What are the right ways to involve family and hire professionals to get the job done right, in less time, for less money than the average individual can do?
Trust Connection - A Monthly Report on Trust News and Information
june 2019
A Guide to Institutional Trust and Custody Services
In contrast to a personal trust, where the grantor or creator of the trust is an individual or perhaps a family unit, an institutional trust is established by a corporation, partnership, or other commercial enterprise. Nonprofit, tax-exempt organizations and governmental entities often establish trusts as well. As with personal trusts, the relationship between the entity establishing the institutional trust and the trustee is a fiduciary one where the trustee has an obligation to act in the best interests of another. Many individuals who serve in a fiduciary capacity with such an organization are not aware of the liabilities associated with the position.
MCF Private Trust White Paper
may 2019
Get F.I.T.! Fundamentals of Fiduciary Income Taxation
Fiduciary Income Taxation is a logistical necessity in the world of estates and trusts and yet not clearly understood by many beyond the tax professions. We will shed light on a few key issues and create awareness of several more issues to promote a keen understanding of the role each team member plays in planning, administration, investment, drafting, and tax preparation, related to Fiduciary Income Taxation.
Trust Connection - A Monthly Report on Trust News and Information
may 2019
The Charitable Remainder Trust: A Versatile Tool for the Tax-Savvy Philanthropist
The charitable remainder trust, or CRT, is the last bastion of a bygone era of charitable tax incentives. Some might say the CRT is the final, true charitable tax incentive available to those with the means to utilize it.
The CRT remains one of the most effective ways for a philanthropic-minded grantor to provide an income stream for a beneficiary, while simultaneously providing an income tax break and mitigating the capital-gains impact of appreciated assets. No matter how this type of trust is implemented in an estate plan, it is an enormously important tool.
MCF Private Trust White Paper
march 2019
Dysfunction Junction: The Real Issue In Estate Planning
For years too much emphasis was placed on taxation in estate planning. Not that tax savings is not important, but it became the issue, rather than keeping the focus on the REAL issue which is family dynamics. Even clients will get this wrong. When we ask a client, “what is your primary goal,” they will sometimes respond “to pay as little tax as possible”, to which we respond, “no problem, I can eliminate your tax burden completely. We will just leave everything to charity.” After a brief silence followed by the client laughing, we see the truth: who we want to leave it to and how is the primary issue, and THEN doing what we want to do in a tax efficient manner becomes second.
Trust Connection - A Monthly Report on Trust News and Information
march 2019
Estate Planning and Individual Retirement Accounts
While the concept of an individual retirement account (IRA) seems fairly straightforward, the rules that apply to distributions can be quite complicated. They are even more complex following a person’s death, and the Internal Revenue Service has devoted some of the most complicated rules in the book for inherited IRA distributions. A thoughtful estate plan can avoid the additional burden on your clients’ heirs of having to negotiate this complexity.
MCF Private Trust White Paper
February 2019
What's Age Got To Do With It?
What’s the “right” age to begin estate planning? Twenty-five? Fifty? Eighty? If you think about it, age isn’t really the most important consideration. Estate planning has more to do with life stages than with age. So, whether you’re 30 or 90, your individual wealth and the loved ones who depend on you are the factors that should drive your planning efforts.
Trust Connection - A Monthly Report on Trust News and Information
February 2019
Avoiding Probate
Probate is the court-supervised process of the administration of a deceased’s estate in the county in which the deceased was a resident. A person may die either testate, in which the person has a last will and testament, or intestate, in which a person’s estate is administered under that state’s
laws of intestate succession because there is no will.
MCF Private Trust White Paper
january 2019
Basis and Income Tax Planning for the Estate Plan
Since 2011 we have been in a world of record high estate tax exemptions. As a result, less than two tenths of one percent of the population is subject to estate tax. Naturally, as tax law changes, so do strategies. The bad news is the right strategy depends very much upon the individual situation.
Background; Estate Planning: The old paradigm was with success came an estate tax of over half one’s wealth. Limitations of $600,000 estate tax free and rates cresting at 55% created a mindset of gifting non-essential assets, particularly those expected to rise in value over one’s life expectancy, out of one’s estate. After all, the top estate tax rate was almost three times the capital gains tax rate. Contrast that with today’s environment. The estate tax rate about double the capital gains rate and the dollar amount exemptible is significantly higher than what it was just 20 years ago. Naturally estate plans should adjust to the changing environment.
Trust Connection - A Monthly Report on Trust News and Information
January 2019
What’s in a Trustee Name?
One of the most consequential decisions in your estate planning is who to name as trustee. The trustee’s level of knowledge, commitment, ability and skill will have an enormous impact on the intended purpose of your trust. Despite the importance of this decision, it is often given less consideration than the structure of your plan or choice of attorney. Even the most well-drafted estate plan will fail to achieve its purpose if the trustee you select fails to carry out his or her role properly.
What Does a Trustee Do?
MCF Private Trust White Paper
DECEMBER 2018
How to Choose a Trustee
As you plan for your own and your family’s financial future, you may be considering the creation of a trust. If you decide a trust is needed, either during your lifetime or in your will, you will have to choose a trustee to administer it.
A trust is a legal arrangement that transfers property to a trustee, who manages it for the benefit of the individuals you name. The law sets high standards that every trustee must meet. You can choose almost anyone to serve as your trustee - a family member, a friend, an accountant or attorney - but the best option is often a corporate fiduciary, such as National Advisors Trust Company (NATC). Naming a corporate fiduciary - alone or jointly with a family member - has several advantages for your beneficiaries, namely continuity and stability.
Trust Connection - A Monthly Report on Trust News and Information
december 2018
‘Tis the Season for Charitable Gift Giving
January 2018 ushered in the most comprehensive tax law change in more than 30 years. While there has been a bit of negative buzz about changes in charitable deductions – most notably, a higher standard deduction that translates to fewer itemizers – some of the biggest tax advantages for gifting were left untouched.
Donors that are unable to itemize deductions, including charitable contributions, still have attractive giving options and techniques to consider. As year-end planning begins, below are some philanthropic strategies to consider.
MCF Private Trust White Paper
NOVEMBER 2018
Asset Protection: The Path to South Dakota
One of the most innovative new estate planning strategies for protecting the assets of wealthy clients involves the use of self settled trusts with trust administration in South Dakota. This growing trend for South Dakota asset protection strategies helps high net worth individuals mitigate the risk to their wealth without going offshore.
Asset protection is a set of legal techniques and a body of statutory and common laws aimed to protect the assets of individuals. The goal of asset protection planning is to insulate assets from claims of creditors without concealment or tax evasion.
Trust Connection - A Monthly Report on Trust News and Information
november 2018
Getting Advice During a Life-Changing Illness
The aging of America, combined with advances in medicine, is having the anomalous result of people who are living longer with chronic and sometimes terminal illnesses. People are living longer, but with diseases that might have killed them 40 years ago.
While health situations may change suddenly and dramatically, the counsel you or your loved ones receive during these times should be steadfast and mindful. Financial advisors can aid in at least two ways: First, provide guidance with respect to the financial needs that are the inevitable result of the transition from good health to chronic illness; and second, provide emotional support for physical, mental, and emotional changes that may occur.
MCF Private Trust White Paper
october 2018
Show Me The Money: Investing for Different Types of Trusts
Here we will examine fiduciary investing, its common law rules, expansion or limitation by the document, and changes under state law to glean insights into issues affecting the investment decisions, documentation, and areas of liability. Using the Uniform Prudent Investor Act as a guide, we will examine the thought process, considerations, documentation and ongoing review of challenging investment decisions, including, Concentrations, Initial assets, Delegation, and Factors to consider.
Investing is central to the role of a fiduciary. Regulation 9 defines fiduciary roles largely using the investment discretion as the central tenet. Without a fiduciary relationship, investments fall to the transactional, caveat emptor, brokerage model. Neither is better nor worse, but they are decidedly different, and that is the point.
Trust Connection - A Monthly Report on Trust News and Information
october 2018
Silence May be Golden
While trusts play an integral part in transferring assets to future generations, they may present a potential problem with confidentiality.
Consider the case of a father who created a $22 million irrevocable trust for the benefit of his 17-year-old twin daughters. The grantor happened to reside in Oregon, which is a state that has adopted the Uniform Trust Code (UTC), a comprehensive set of laws governing the creation and administration of trusts that has been adopted by more than 30 states. Each state may adopt it as written or with modifications. The UTC requires that the trustee of an irrevocable trust notify qualified beneficiaries of the existence of the trust, furnish them with a copy of the trust document and provide a statement — at least annually – of the trust assets and transactions. Even if the grantor has language in the trust document detailing when the beneficiaries should receive notice and accountings of the trust, that desire is overridden by the UTC.
MCF Private Trust White Paper
September 2018
Charitable Giving Strategies and Opportunities
People have a number of different reasons for charitable giving. Some give to support their personal values, such as specific interests, others due to concerns about a legacy, and some with a view to philanthropic intent combined with estate planning opportunities. Regardless of the intent, though, charitable giving is a highly personal decision, and your clients should discuss their plans not only with their families and loved ones, but also with their financial, tax, and legal advisors. In this newsletter, we discuss how the recently passed Tax Cuts and Jobs Act (the “Act”) dramatically alters the income tax landscape for your clients’ philanthropic practices, and review two of the last remaining true tax shelters available.
Trust Connection - A Monthly Report on Trust News and Information
september 2018
Settling Estates with Trusts – An Overview
There are a myriad of reasons a trust is a practical estate planning tool. For many clients, a resounding reason is avoiding probate in the process of distributing assets after the grantor’s death. While probate could be considered a useful alternative in unique cases or in certain jurisdictions, a trust commonly offers a high degree of privacy with quicker execution at lower costs. In addition, rather than having only an Attorney-In-Fact under a Power of Attorney possess the authority to immediately deal with financial issues when the grantor becomes incapacitated, which can often be problematic, a trustee has the full authority, at the instant of incapacity, to manage the assets in a trust.
Trust Connection - A Monthly Report on Trust News and Information
August 2018
The Real (and Often Overlooked) Estate Planning Issues
What is your primary goal with estate planning? When asked, you may answer with this: “To pay as little tax as possible.” After the Tax Cuts and Jobs Act of 2017, less than 1 in 10,000 decedents’ estates, or 0.0001%, will owe federal estate taxes. Unless everything is left to charity, taxation should still be addressed, but the emphasis should always be on who your estate plan will benefit and how will it be executed.
While it can be a difficult conversation, your estate planner can help you determine how family dynamics could impact assets left to heirs. When it comes to addressing family dynamics in estate planning, there are three key issues: 1.) The grantor’s desired use of the funds by the heirs; 2.)
The heirs’ ability to comply with those desires; and 3.) Protection from outside threats such as lawsuits, creditors, or divorce.
MCF Private Trust White Paper
August 2018
Creating and Reviewing ILITs
The irrevocable life insurance trust (ILIT) has been a useful estate planning tool for several generations. However, given the constantly changing tax environment and the developments in both estate planning techniques and insurance products, it is important to periodically review your client’s ILIT to confirm that the rationale for creating the trust is still valid, that the trust as written still meets the needs and expectations of the client, and that the underlying insurance policy is performing in the manner contemplated at purchase. New clients may also have a need for an ILIT that needs to be discussed fully prior to the drafting of the instrument and purchase of the life insurance product. Here are some thoughts to consider in conducting such a review.
Trust Connection - A Monthly Report on Trust News and Information
JUly 2018
The Number One Mistake People Make in Estate Plans
Estate planning is complex, but the most common mistake is quite simple – coordinating the title of assets with the plan. And estate planners agree this is a consistent theme. It can be disturbing how often the assets do not coordinate with the plan, sometimes to unsettling results.
This is perhaps also a contributing reason that many estate planning attorneys spend as much or more time handling family settlements after death than actually planning. With all the complexities of property law, tax law combined with the fiduciary responsibilities and choice of executor, trustee, and investment management, having the root of the plan disconnected by a gap in titling is unfortunate.
MCF Private Trust White Paper
July 2018
What do you DO anyway? - Role of a Trustee
Whether individual family member or professional corporate trustee, the roles and responsibilities of a trustee are the same and each option comes with its own risks. Not everyone is aware of the extent, importance and liability of the job. Understanding the responsibilities are important in order to help clients decide whether to take on the extensive responsibilities and liabilities of an individual trustee, or to use a corporate trustee and let the experts administer the trust.
Trust Connection - A Monthly Report on Trust News and Information
JUNE 2018
What You Need to Know about the Tax Cuts and Jobs Act
On December 22, 2017, President Trump signed into law the Tax Cuts and Jobs Act, a $1.5 trillion package that will significantly reform both individual and corporate income taxation. According to the Tax Foundation, the act will spur an additional $1 trillion in federal revenues from economic growth, increase Gross Domestic Product (GDP) by an average of 0.29 percent over the next decade, and lead to a 1.1 percent increase in after-tax income of all taxpayers.