Charlotte Estate Planning Blog

Good trust advice

North Carolina residents who want to incorporate trusts into their estate plans should be wary of whose advice they use. Some professionals may provide advice that is not complex enough to address the goals of a particular estate plan, or the advice provided may be rooted in obsolete strategies. In order for professionals to provide pertinent estate planning advice, they will have to determine how the goals of their clients may have evolved due to the tax-related changes in 2017.

They should not advise clients to make gifts to heirs outright because that method of giving provides them with no access. To ensure that the heir is protected and that the client has access, the client should be advised to place the gift in to the appropriate type of trust.

The benefits of a spendthrift trust

North Carolina residents who are concerned about keeping their money safe for future generations may benefit from creating a spendthrift trust. Such a trust could help prevent creditors from making claims against that money. It can also prevent a beneficiary from spending money unless a trustee makes a distribution. This is ideal in the event that a parent believes a child or grandchild has poor money management skills.

To create a spendthrift trust, an individual will create a typical trust with a spendthrift provision included in it. The wording of this provision will depend largely on requirements created by state law. It is generally a good idea to have an asset management company oversee how the money inside of the trust is invested. While anyone can serve as a trustee, a corporate entity may be ideal for those who have large sums of money to invest or otherwise manage.

How interest rates can affect trust decisions

Trusts can be an important part of financial and estate planning for many people in North Carolina, and the decision about what type of trust to create can be influenced by changing interest rates. Interest rates are on the rise after 10 years of low rates, which means that some types of trusts could be useful now in different ways than in the recent past. For people choosing other types of trusts, they may want to act quickly to make a decision, given that rising interest rates could lead to a less advantageous tax situation for the future.

Two popular types of trusts are grantor retained annuity trusts, or GRATs, and charitable lead annuity trusts, known as CLATs. Both of these types of trusts function in similar ways. Each trust pays out an annuity for a fixed period of years; after that time, the value of the trust passes to the beneficiaries named by the trust creator. The beneficiaries are taxed according to a formula based on the interest rate at the time of the creation of the trust, despite the impact of actual rates over time. Therefore, creating these types of trusts during a lower interest-rate period can be beneficial.

An estate plan can protect your growing family

When you welcome a new baby into your family, it changes your life in many ways. There are those temporary adjustments, like late nights, diaper changes and high chairs. However, there are monumental changes, such as the new responsibilities of being a parent.

Your child depends on you in ways even he or she does not understand. Beyond shelter, food and clothing, your child relies on you for security and protection. While you are certain to buckle your child safely into a car seat and follow your pediatrician's recommendations for good health, you may also wish to consider the difficult questions of what will happen to your child if you are suddenly not there.

Creating an estate plan that family members will understand

Some people in North Carolina may have a will, but in some situations, a will may not be enough. There may be other elements to the estate plan as well such as powers of attorney and trusts. However, what the estate plan may not include is information that lets heirs know why certain decisions about the estate plan were made. Clarifying this may mean heirs are less likely to argue over or challenge the plan.

To create a plan that will help loved ones understand a person's intentions, the first step is to make a list of assets and debts along with the value and beneficiary. Even assets of little financial value should be included since heirs may fight over sentimental items. Next, a person should write a letter that explains why assets were distributed in a certain way. This may help forestall arguments between family members who may try to insist that an estate plan did not reflect a person's actual wishes.

Using estate planners

North Carolina residents may find it beneficial to consult a professional estate planner when making arrangements for how their estate is to be handled after their death. Consulting a team of professionals when developing an estate plan can help ensure that there is an easier transition of the ownership of assets when a person dies. The team can consist of an estate planning attorney, a financial advisor and a CPA or accountant.

The first step in estate planning is often a consultation with an attorney who specializes in estate planning. The attorney may review a person's assets and goal and advise whether an estate planner is necessary.

Responsibilities of trustees

A person in North Carolina who is the fiduciary for a trust has an obligation to manage that trust responsibly. If the person lacks financial experience, a professional can be contacted to assist in managing the assets.

There is a difference in principal and income in a trust. The two may be distributed to the same person or to different people; there is no standard way of handling this. However, a trust that is created for a surviving spouse often pays income to the spouse but not principal. The principal may be available to the spouse in case of an emergency. If the principal has not been used by the time the spouse dies, it might go to charity, to the children or to other beneficiaries.

Using pour-over wills

A North Carolina resident can use a pour-over will as a backup mechanism to ensure that assets are passed to a trust after death. With a pour-over will, an estate owner is essentially designating their trust as the main beneficiary of any assets that are not already under the ownership of the trust or being passed directly to living beneficiaries in other ways.

Living trusts are ideal for individuals who want to avoid having their assets undergo the probate process. However, any assets that are funded into the trust before the grantor dies will have to go through probate, even if there is a pour-over will stating that the trust is to receive the assets.

Why estate planning can be an important step

People in North Carolina often want to enjoy a greater level of control and management of their assets and their future, even when facing declining health. This means that estate planning can be particularly critical not only to setting one's affairs in order but to securing peace of mind for oneself and one's family. Making an estate plan can be important for people with businesses and other sizable assets; however, it can also be a critical step for people with smaller estates who want to protect their loved ones.

The estate planning process is designed to put key documents in place, like wills, trusts and powers of attorney, to handle a person's assets during life and after death. While many people recognize that making such a plan can be important, 55 percent of Americans do not have a will, the most basic estate document. When people pass away without a will, their belongings are subject to probate and are distributed according to standard state law, regardless of what their preferences may have been during life.

Can a charitable trust help meet your goals?

If you are among the few in North Carolina who have taken the time to plan your estate, you should be proud of yourself. Your efforts have the potential to provide your family with a strong and secure future. You may also have created a plan that will relieve your loved ones of the stress of disputes over their inheritance or the burden of trying to determine your wishes if you should become incapacitated and unable to express your desires for medical care.

However, there may be something missing from your estate plan. Like many, you may have a special cause for which you would like to provide after you have passed away. You may believe you do not have enough wealth to make a difference, but with a charitable trust, you may be able to accomplish several of your estate planning goals at once.

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