Finance.

TRUSTS

A trust is a useful estate-planning tool for your family if your net worth is at least $100,000 and you meet any one of the criteria below.

A large percentage of your assets are in real estate holdings, a business or art collection.

You want to leave your estate to your family or heirs in a way that is not immediately or directly payable to them upon your death. Example; you stipulate that they will receive their inheritance as an annual dividend, or if certain conditions being met like graduating from college or buying a house.

You want your surviving spouse to be able to live as before your death and to be taken care of financially, but also want to ensure that the principal or remainder of your estate goes to your chosen heirs (example; children from a first marriage) after your spouses death.

You and your spouse want to maximize your estate-tax exemptions.

You have a disabled relative that you would like to help and provide for without disqualifying them from Medicaid or other government assistance.

The main advantages of trusts, is that they let you:

• Put conditions on how and when your assets are distributed after you die.
• Reduce your estate and gift taxes.
• Distribute assets to heirs efficiently without the punitive cost, delay and possibly, publicity of  having family disagreements aired in public probate court. Probate can be expensive costing between 5 percent to 7 percent of your estate.
• Protect your assets from creditors and lawsuits.
• Name a successor trustee, who not only manages your trust after you die, but is empowered to manage the trusts assets if you become unable to do so because of sickness or other reason.

Trusts are flexible, varied and complex. Each type has it own set of advantages and disadvantages, all of which will need to be discussed thoroughly with your attorney before setting the trust up.

The cost of setting up a trust will depending on the complexity of the trust you need. The fee should include the initial trust set-up, a will, a living will and a health-care proxy. When you make changes to a trust (if it's revocable) there will be an attorneys fee.  Fees must also be paid to administer the trust after you die.

One caveat: Assets you want in the trust must be re-titled in the name of the trust (the trust will own them). Any asset that is not titled in the name of the trust when you die will be considered as not being in the trust. These items will have to be probated and may well not go to the heir you intended but the one the probate court chooses for you. A revocable living trust in which you put the majority of your assets can have what's known as a "pour-over will"  (See: Wills) to cover any of your assets or holdings that may be outside the trust if you die unexpectedly. The pour-over will directs that any assets outside the trust at the time of your death should be put into the trust so they go to the heirs as you intended.

Qualified Personal Residence Trust (QPRT)
A "qualified personal residence trust" removes the value of your home or vacation home from your estate. The QPRT is particularly useful if your home is likely to appreciate in value. A QPRT lets you give your home as a gift ( most commonly to ones children) while allowing you to keep control of it for a period that you stipulate (up front) in the trust (example, 10 years). During this time you can continue to live in the home as you have always done maintaining full control of it during the time.

In valuing the house as a gift, the IRS assumes your home is worth less than its present value since your kids won't take possession of it for several years. (The longer the term of the trust, the less the value of the gift.)

Lets just say you put a $175,000 home in a 10-year QPRT. The value of that gift in 10 years will be assumed to be less - possibly, $100,000 - based on IRS calculations that take into account current interest rates, your life expectancy and other factors. Even though the house will have appreciated at the end of 10 years, your gift will still be valued at the $100,000 assessed value.

There is one large catch to the Qualified Personal Residence Trust  (OPRT). If you do not outlive the term or life of the trust, the property will be considered outside the trust. The full market value of the house at the time of your death will be counted in your estate as though the trust was never there. In order for the trust to be a legal, valid trust you must outlive it. Then you must either move out or pay the beneficiary a fair market rent to continue living in the house. While that may not seem like a great idea at first, the good news is that the rent you pay will reduce your estate further and the beneficiary can deduct the house and expenses as a rental.

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