Use A Dynasty Trust to Protect Your Wealth – Annapolis and Towson Estate Planning

Using an irrevocable trust ensures a far smoother transition of assets than a will and also offers significant tax savings and far more privacy, control and asset protection, begins the article “Dynasty Trusts: Best Way to Protect Family Wealth” from NewsMax.

Just as their name implies, a dynasty trust is king of all trust types. It gives the family the most benefits in all of these areas. Still not convinced? Here are a few reasons why the dynasty trust is the best estate planning strategy for families who want to preserve an estate across many generations.

Most trusts provide for the transfer of assets from one benefactor to the next generation, at most two or three generations. A dynasty trust can last for hundreds of years. This offers tax advantages that are far superior than others.

Under the new tax laws, an individual can gift or bequeath up to $11.4 million during their lifetime, tax free. After that limit, any further transfer of assets are subject to gift and estate taxes. That same transfer limit applies whether assets are left directly via a will or indirectly through a trust. However, in a direct transfer or trust, these assets may be subject to estate taxes multiple times.

If a grantor transfers assets into a dynasty trust, those assets become the property of the trust, not of the grantor or the grantor’s heirs. Because the trust is designed to last many generations, the estate tax is only assessed once, even if the trust grows to be worth many times more than the lifetime exclusion.

Not all states permit the use of dynasty trusts. However, five states do allow them, while six others allow trusts with lifespans of 360 years or more. An experienced estate planning attorney will know if your state permits dynasty trusts and will help you set one up in a state that does allow them if yours does not. Nevada, Ohio and South Dakota provide especially strong asset protection for dynasty trusts.

Because dynasty trusts are passed down from generation to generation, trust assets are not subject to the generation-skipping transfer tax. This tax is notorious for complicating bequeathals to grandchildren and others who are not immediate heirs.

When the dynasty trust is created, the grantor designates a trustee who will manage trust funds. Usually the trustee is a banker or wealth manager, not a trust beneficiary. The grantor can exert as much control as desired over the future of the trust by giving specific instructions for distributions. The trustee may only give distributions for major life events, or each heir may have a lifetime limit on distributions.

With these kinds of safeguards in place, a benefactor can ensure that the family’s wealth extends to many generations. Speak with an estate planning attorney to learn about the laws concerning dynasty trusts in your state and see if your family can obtain the benefits it offers.

Reference: NewsMax (September 16, 2019) “Dynasty Trusts: Best Way to Protect Family Wealth”

Sims & Campbell, LLC – Annapolis and Towson Estate Planning Attorneys

What Is a Bypass Trust? – Annapolis and Towson Estate Planning

Creating an estate plan is an essential part of managing wealth. This is especially true if you’re married and want to leave assets to your spouse. Understanding how a bypass trust works will help your planning, says KAKE.com’s recent article, “How a Bypass Trust Works in an Estate Plan.”

A bypass trust, or AB trust, is a legal vehicle that permits married couples to avoid estate tax on certain assets when one spouse dies. When that happens, the estate’s assets are split into two separate trusts. The first part is the marital trust, or “A” trust, and the other is a bypass, family, or “B” trust. The marital trust is a revocable trust that belongs to the surviving spouse. A revocable trust has terms that can be changed by the individual who created it. The family or “B” trust is irrevocable, meaning its terms can’t be changed.

When the first spouse dies, his or her share of the estate goes into the family or B trust. The surviving spouse doesn’t own those assets but can access the trust during their lifetime and receive income from it. The part of the estate that doesn’t go into the B trust, is placed into the A or marital trust. The surviving spouse has total control over this part of the trust. In addition, the surviving spouse can be the trustee of a bypass trust or designate another person as the trustee. It is the trustee’s task to make sure that assets from the couple’s estate are divided appropriately into each part of the trust. The trustee also coordinates asset management as instructed by the trust.

This type of trust can minimize estate taxes for married couples who have significant wealth. For the family or B part of the trust, assets up to an annual exemption limit aren’t subject to federal estate tax. In 2019, the limit is $11.4 million or $22.8 million for married couples. If assets in the B trust don’t exceed that amount, they wouldn’t be subject to federal estate tax.

Holding assets in a bypass trust lets the surviving spouse avoid probate. Any assets held in a bypass or other type of trust aren’t subject to probate.

Work with an estate planning attorney to create a bypass trust. A bypass trust for your estate plan will depend on the value of your estate as well as the amount of estate tax you want your spouse or heirs to pay when you die.

Reference: KAKE.com (August 13, 2019) “How a Bypass Trust Works in an Estate Plan”

Sims & Campbell, LLC – Annapolis and Towson Estate Planning Attorneys

What are Some Lifetime Gift Strategies that I Can Consider? – Annapolis and Towson Estate Planning

There are a number of strategies that can help preserve your assets, promote the transfer of wealth, and lessen the tax burden on you and your estate. Forbes’s published an article “5 Lifetime Gift Strategies For You And Your Family To Consider” that discusses five frequently-used lifetime gifting strategies to consider, if you have significant wealth to transfer to future generations.

A grantor retained annuity trust (GRAT) is an irrevocable trust that can be a good choice if you want to transfer hard-to-value assets. A GRAT also lets you keep your income stream, divide property interests and make discounted gifts to future generations. With a GRAT, the grantor transfers assets to a trust but maintains a right to an annual income stream, or annuity payment, for a specific period of time. The income stream’s value is deducted from the value of the transferred assets when determining the gift’s full taxable value. Anything left in the GRAT after the annuity period expires, is given to the trust’s beneficiaries without any more gift or estate taxes. However, if the grantor dies before the end of the trust term, the whole value of the trust will be included in the taxable estate (like the trust had never been created). Therefore, you can see how important it can be to carefully choose the term of the trust, so the grantor is likely to live beyond its termination.

A defective grantor trust strategy is one way to benefit from the differences in income and transfer-tax treatments of irrevocable trusts. This can let you transfer the anticipated appreciation of your assets at a reduced gift-tax cost. Here, the grantor transfers property to a trust in exchange for a note that carries a market rate of interest and a balloon payment at the end of the note’s term. In most cases, the grantor and trust are treated as the same entity for income tax purposes, but they are considered separate for transfer tax purposes. This discrepancy allows the grantor to affect a sale to the trust without any capital gain.

Family limited liability entities are complex strategies that can provide many benefits to high net worth families with personal, business and investment assets. They’re flexible, so it makes them particularly attractive, because their governing documents can be changed as family dynamics and family business structures evolve. These entities are frequently used to help families consolidate investments, share income with family members in lower tax brackets, shield assets from lawsuits and create a long-term estate plan. Speak with an estate planning attorney to see if this strategy makes sense for your situation.

A lifetime credit shelter trust can be a wise vehicle if you want to leverage the increased lifetime gift-tax exemption amount but aren’t yet ready to transfer significant assets. With this trust, the grantor makes a gift to the trust for the benefit of his or her spouse and other family members. Because of the spouse’s rights to the assets in the trust as a beneficiary, the grantor also maintains his or her access indirectly. You can allocate your lifetime exemption while the gifted assets, including any appreciation, stay outside your estate for estate tax purposes. You and your spouse can create lifetime credit shelter trusts, but they can’t be identical.

Another strategy is making an intra-family loan. The tax code lets you make loans to family members at lower rates than commercial lenders, without the loan being considered a gift. You can help your family members financially without incurring more gift tax. The IRS requires that a bona fide creditor relationship with a minimum interest rate be created. This can be a good way to transfer wealth, if the borrowed assets are invested and earn a stronger rate of return than the interest rate on the loan.  The interest must also be paid within the family.

Reference: Forbes (August 5, 2019) “5 Lifetime Gift Strategies For You And Your Family To Consider”

Sims & Campbell, LLC – Annapolis and Towson Estate Planning Attorneys

Protecting Your Family’s Inheritance – Annapolis and Towson Estate Planning

The name sounds like you might be trying to keep children and grandchildren from being irresponsible with the assets you’ve amassed through a lifetime’s work, but irrevocable trusts offer a flexible solution. They are also helpful in cases of divorce, substance abuse and other situations, reports The Chattanoogan in an article titled “Keeping Your Family from Losing Its Inheritance.”

If we are lucky, we are able to leave a generous inheritance for our children. However, that doesn’t necessarily mean we should give them easy access to all or some of the assets. Some people, particularly younger adults who haven’t yet developed money management skills, or others with problems like a troubled marriage or a special needs family member, aren’t ready or able to handle an inheritance.

In some cases, like when there is a substance abuse problem, handing over a large sum of money at once could have disastrous results.

Many people are not educated or experienced enough to handle a large sum of money. Consider the stories about lottery winners who end up filing for bankruptcy. Without experience, knowledge or good advisors, a large inheritance can disappear quickly.

An irrevocable trust provides protection. A trustee is given the authority to control how funds are used, when they are given to beneficiaries and when they are not. Depending on how the trust is created, the trustee can have as much control over distributions as is necessary.

An irrevocable trust also protects assets from creditors. This is because the assets are owned by the trust and not by the beneficiary. An irrevocable trust can also protect the funds from divorces, lawsuits and bankruptcies, as well as manipulative family members and friends.

Once the money leaves the trust and is disbursed to the beneficiary, that money becomes available to creditors, just as any other asset owned by the person. However, there is a remedy for that, if things go bad.  Instead of distributing funds directly to the beneficiary, the trustee can pay bills directly. That can include payments to a school, a mortgage company, medical bills or any other costs.

The trustee and not the beneficiary, is in control of the assets and their distributions.

The person establishing the trust (the “grantor”) determines how much power to give to the trustee. The grantor determines whether the trustee is to distribute funds on a regular basis, or whether the trustee is to use their discretion, as to when and how much to give to the beneficiary.

Here’s an example. If you’ve given full control of the trust to the trustee, and the trustee decides that some of the money should go to pay a child’s college tuition, the trustee can send a check every semester directly to the college. The trustee, if the trust is written this way, can also put conditions on the college tuition payments, mandating that a certain grade level be maintained or that the student must graduate by a certain date.

Appointing the trustee is a critical piece of the success of any trust. If no family members are suitable, then a corporate trustee can be hired to manage the trust. Speak with a qualified estate planning attorney, to learn if an irrevocable trust is a good idea for your situation and also to determine whether or not a family member should be named the trustee.

Reference: The Chattanoogan (July 5, 23019) “Keeping Your Family from Losing Its Inheritance.”

Sims & Campbell, LLC – Annapolis and Towson Estate Planning Attorneys

Is My Irrevocable Trust Revocable? – Annapolis and Towson Estate Planning

Irrevocable trusts aren’t as irrevocable as their name implies, according to Barron’s recent article, “Are Irrevocable Trusts True to Their Name?” The article says that for both new and existing trusts, there are ways to build in flexibility to make changes to a grantor’s wishes if terms are no longer appropriate or desirable for beneficiaries.

However, there are strict rules that apply. These rules vary between states. One of the main reasons for an irrevocable trust is to remove assets from an estate for estate tax purposes. If the rules aren’t followed carefully, a trust can be rendered unlawful. If that happens, the assets may be returned to the grantor’s estate and estate taxes may apply.

If you want to be certain that beneficiaries have some discretion in the future if circumstances change, grantors should build flexibility into the trust when it’s established. This can be accomplished by giving a power of appointment to beneficiaries. However, if the beneficiaries are looking to change the terms or the structure of an existing trust, the trust must be modified according to state law.

Most states allow trusts to be decanted. When you decant a trust, you pour its terms into a new trust and leave out the parts that are no longer wanted. Just like decanting a bottle of wine, it’s like the sediment left in the wine bottle.

In a state that doesn’t permit decanting, a trustee can ask a judge to allow it. You should be careful with decanting because you don’t want to do anything that would adversely affect the original tax attributes of the trust.

The power of appointment in a trust or the ability to decant can’t be given to the person who set up the trust. Thus, grantors can’t have a “re-do” or rescind the terms. It’s only trustees and the beneficiaries that can do that.

If you and your attorney create a trust with a lot of flexibility for the trustee, you may want to appoint an institutional trustee from a bank, trust, or other financial services company.

They can be either the sole trustee or serve as co-trustees with a personal, non-institutional trustee, like a family member. This can help to eliminate future conflicts.

Reference: Barron’s (June 18, 2019) “Are Irrevocable Trusts True to Their Name?”

Sims & Campbell, LLC – Annapolis and Towson Estate Planning Attorneys

What You Need to Know about Trusts for Estate Planning – Annapolis and Towson Estate Planning

There are many different kinds of trusts used to accomplish a wide variety of purposes in creating an estate plan. Some are created by the operation of a will, and they are known as testamentary trusts—meaning that they came to be via the last will and testament. That’s just the start of a thorough look at trusts offered in the article “ON THE MONEY: A look at different types of trusts” from the Aiken Standard.

Another way to view trusts is in two categories: revocable or irrevocable. As the names imply, the revocable trust can be changed, and the irrevocable trust usually cannot be changed.

A testamentary trust is a revocable trust, since it may be changed during the life of the grantor. However, upon the death of the grantor, it becomes irrevocable.

In most instances, a revocable trust is managed for the benefit of the grantor, although the grantor also retains important rights over the trust during her or his lifetime. The rights of the grantor include the ability to instruct the trustee to distribute any of the assets in the trust to someone, the right to make changes to the trust and the right to terminate the trust at any time.

If the grantor becomes incapacitated, however, and cannot manage her or his finances, then the provisions in the trust document usually give the trustee the power to make discretionary distributions of income and principal to the grantor and, depending upon how the trust is created, to the grantor’s family.

Note that distributions from a living trust to a beneficiary other than the grantor, may be subject to gift taxes. Those are paid by the grantor. In 2019, the annual gift tax exclusion is $15,000. Therefore, if the distribution is under that level, no gift taxes need to be filed or paid.

When the grantor dies, the trust property is distributed to beneficiaries, as directed by the trust agreement.

Irrevocable trusts are established by a grantor and cannot be amended without the approval of the trustee and the beneficiaries of the trust. The major reason for creating such a trust in the past was to create estate and income tax advantages. However, the increase in the federal estate tax exemption means that a single individual’s estate won’t have to pay taxes, if the value of their assets is less than $11.4 million ($22.8 million for a married couple).

Once an irrevocable trust is established and assets are placed in it, those assets are not part of the grantor’s taxable estate, and trust earnings are not reported as income to the grantor.

The downside of an irrevocable trust is that the transfer of assets into the trust may be subject to gift taxes, if the amount that is transferred is greater than $15,000 multiplied by the number of trust beneficiaries. However, depending upon the size of the grantor’s estate, larger amounts may be transferred into an irrevocable trust without any gift tax liability to the grantor, if the synchronization between gift taxes and estate taxes is properly done. This is a complex strategy that requires an experienced trust and estate attorney.

Trusts are also used to address charitable giving and generating current income. These trusts are known as Charitable Remainder Trusts and are irrevocable in nature. There is a current beneficiary who is either the donor or another named individual and a remainder beneficiary, which is a qualified charitable organization. The trust document provides that the named beneficiary receives an income stream from the income produced by the trust assets, and when the grantor dies, the remaining assets of the trust pass to the charity.

Speak with your estate planning attorney about how trusts might be a valuable part of your estate plan. If your estate plan has not been reviewed since the new tax law was passed, there may be certain opportunities that you are missing.

Reference: Aiken Standard (May 17, 2019) “ON THE MONEY: A look at different types of trusts”

Sims & Campbell, LLC – Annapolis and Towson Estate Planning Attorneys 

For Immediate Release

Contact: Jane Frankel Sims

410-828-7775

Contact: Frank Campbell

410-263-1667

Sims & Campbell Estates and Trusts

Frankel Sims Law and Holden & Campbell
Merge to Form Sims & Campbell

Firm will offer comprehensive Trusts & Estates services through offices in Towson and Annapolis

TOWSON, Md. (April 26,2019)  Frankel Sims Law and Holden & Campbell have jointly announced the merger of their firms to create a boutique Trusts & Estates law firm providing comprehensive services in the fields of Estate Planning, Estate Administration, Trust Administration and Charitable Giving. The combined firm will be named Sims & Campbell and have offices in Towson, Md. and Annapolis, Md.  Jane Frankel Sims and Frank Campbell will lead and hold equal ownership stakes in the firm.

Sims & Campbell will have 9 attorneys and 15 legal professionals that handle every facet of estate and wealth transfer planning, including wills, revocable living trusts, irrevocable trusts, estate and gift tax advice, and charitable giving strategies.  The firm will focus solely on Trusts & Estates but will serve a wide range of clients, from young families with modest resources to ultra-high net worth individuals.  This allows clients to remain with the firm as their level of wealth and the complexity of related estate and tax implications change over time. 

“By joining forces, we have expanded our footprint to conveniently serve clients in Maryland, D.C. and Virginia” said Jane Frankel Sims.  We are seeing some of the greatest wealth transfer in our country’s history, and we want to continue to be on the leading edge of helping our clients maintain and enhance their family’s wealth.  In addition, we aim to serve our clients for years to come, and the new firm structure will allow Sims & Campbell to thrive even after Frank and I have retired.”    

“Jane and I have always admired each other’s firms and recognized the need to provide even greater depth and breadth of focused expertise to help families amass and protect their wealth from generation to generation,” said Frank Campbell.  “Now we have even greater capabilities to make a real difference for our clients.” 

The Sims & Campbell Towson office is located at 500 York Road, on the corner of York Road and Pennsylvania Avenue in the heart of Towson.  The Annapolis office is currently located at 716 Melvin Avenue, and is moving to 181 Truman Parkway in August, 2019.  For more information, visit www.simscampbell.law.