Tag: Client Education

What is a Trust for Descendant?

A Trust for Descendant is a type of sub-trust that specifically benefits a child (or a more remote descendant), who is called the “primary beneficiary.”

More generally, a sub-trust is a type of trust that is “created under” another main document, which is usually a Revocable Trust or a Will. A sub-trust continues beyond the period of time that is required for estate or trust administration after your passing; the sub-trust ensures your wishes and objectives are met even long after you are gone.

How does a Trust for Descendant work?

This type of sub-trust allows you to pass assets to specific beneficiaries under conditions you stipulate, so that the beneficiary is protected and your wishes for how those assets are used cannot be altered.

For example, if you create an Individual Revocable Trust, you can direct that all assets passing to your minor child be held in a sub-trust trust — i.e., a Trust for Descendant — until the child reaches age 25.

Trusts for Descendant are set up for three primary reasons:

1. Control over assets.

2. Tax planning (keeping assets outside your beneficiary’s taxable estate at their death).

3. Asset protection (from the beneficiary’s creditors and divorce, for example).

Even if you trust your children to manage their own financial affairs, the last two reasons may still apply to your situation.

NOTE: You can name someone to help the primary beneficiary manage their inheritance until the primary beneficiary reaches a specific age or passes away, or the Trust is too small to make it worthwhile to keep.

Key Benefits

Customize Beneficiaries

You can choose which descendants will receive their inheritance from you in trust. The primary beneficiary’s own living descendants are also beneficiaries of the trust, but the trustee is directed to prioritize the primary beneficiary’s interests.

Power of Appointment

You can choose to provide the primary beneficiary with the ability to redistribute the trust assets. This power is often included if controlling how the primary beneficiary spends their inheritance is less important to you. This power allows the primary beneficiary to account for a large difference in financial resources among your descendants, to provide for a beloved spouse after their own death, or to reduce income or estate taxes.

Determine the Termination Event

You have the ability to decide when the trust should end. You are also able to grant the primary beneficiary an earlier withdrawal right; the beneficiary can demand from the trustee a fraction of the trust at an interim age before the trust ends.

Who is a Trust for Descendant for?

This type of sub-trust is useful for someone who worries that their child needs help managing their inheritance, is concerned about family assets being gifted away or taken away by individuals outside the family, or worries about estate and generation-skipping transfer taxes.

What happens when the Trust ends?

When the Trust ends, the trustee will distribute the remaining assets in accordance with the terms of the trust agreement, subject to any powers of appointment you have given to the primary beneficiary of the terminating Trust. If the Trust ended because the primary beneficiary attained the milestone birthday you chose, any assets remaining in the trust will be transferred to the primary beneficiary.

If the Trust ended because the primary beneficiary passed away, the trust assets will be distributed to the primary beneficiary’s own descendants, otherwise to your other descendants, following a default hierarchy that prioritizes individuals who are more closely related to the primary beneficiary in your family tree. These distributions can be made directly to these individuals, or in further trust following your wishes for when all Trusts for Descendants will end.

Can I change my mind and add or remove a Trust for Descendant at a later date?

If you decide to create a Trust for your descendant, that Trust will be drafted into your documents. As long as you have at least a child or grandchild, it is possible for you to have a descendant who is a minor at the time you pass away. For this reason, consider including a Trust for Descendant as a default. You should always plan using the most accurate information you have, both currently and in the future. If your family situation changes in the future, update your estate plan to match your current needs.

Save this Trust for Descendant Explainer in PDF form

*Disclaimer: wealth.com is not a law firm and is not practicing law. That said, our platform is maintained with care by attorneys who used to practice at the top trust & estate law firms in the U.S. so you can be sure each legal document created with Wealth.com is of the highest quality and is legally valid and optimized for its state, covering all 50 of the United States and Washington D.C.

What is a Marital Trust?

The common name for a trust that benefits the trust creator’s spouse. A sub-trust is a type of trust that is “created under” another Trust (or a “trust within a trust”).

Who Typically Uses a Marital Trust?

• Blended families.
• High net worth families (i.e., estate and generation-skipping transfer taxes).
• Families with assets to be kept within the family (e.g., family business).

A Marital Trust is useful for someone who has children from a previous relationship, worries about someone influencing their spouse to disinherit their beneficiaries, or is wealthy enough to worry about the estate and generation-skipping transfer taxes.

How Does a Marital Trust Work?

They receive a deceased spouse’s assets for the benefit of the surviving spouse. They generally protect assets from creditors while preserving the deceased spouse’s wishes for how their assets will be distributed and used, including at the surviving spouse’s death. When properly structured for tax planning purposes, they can preserve the deceased spouse’s generation-skipping transfer tax exemption amount without jeopardizing the unlimited marital deduction.

5 Key Features of the wealth.com Marital Trust

There are many ways to design a Marital Trust. If you want your spouse’s inheritance to qualify for a benefit called the “unlimited marital deduction” (i.e., passing an unlimited amount of property at your death to your spouse completely free of estate tax and without using your estate tax exemption), the Tax Code has stringent requirements for the design of this Trust. The Trust must qualify as a “qualified terminable interest property” (or QTIP) Trust. The wealth.com Marital Trust is this type of Trust.

1. Only your spouse can be the beneficiary of the Marital Trust.
2. The Trustee must distribute any “income” generated inside the Marital Trust (e.g., rent if the Marital Trust owns a rental unit) at least once a year, but can do so more frequently if desired.
3. The Trustee can make distributions for your spouse’s health, education, maintenance, or support. If the distribution is for any other reason, an independent trustee (who cannot be your spouse) should be appointed to provide checks and balances.
4. You can choose whether your spouse may serve as trustee. If you are concerned about your spouse serving as trustee (e.g., because your spouse will be unable to manage the inherited assets or you would like checks and balances on your spouse’s ability to spend the inheritance), you will be able to prohibit your spouse from serving as the trustee and appoint someone else as the trustee.
5. You can always change your mind about including the Marital Trust. This flexibility is built into the wealth.com platform for maximum personalization as your life circumstances change.

Download A Printable Version of this Marital Trust Guide

*Disclaimer: wealth.com is not a law firm and is not practicing law. That said, our platform is maintained with care by attorneys who used to practice at the top trust & estate law firms in the U.S. so you can be sure each legal document created with Wealth.com is of the highest quality and is legally valid and optimized for its state, covering all 50 of the United States and Washington D.C.

How This Crucial Aspect of Estate Planning Works

A good estate plan allows you to understand what happens to your assets when you pass away.

Generally speaking, there are three factors that can impact what happens to your assets at death:

1. How your asset is owned.
2. Your estate planning documents.
3. Whether or not you have designated beneficiaries.

It is not commonly understood that there are certain assets, such as a 401k, with beneficiary distribution rules that can override what is outlined in a Will or Trust.

This means that understanding the totality of various beneficiary designations is crucial to your estate plan functioning as you intend.

If that seems daunting, you’re not wrong. Trying to consolidate and manage everything that requires beneficiary designation manually can be tricky, especially as your life circumstances change over time. Fortunately, the wealth.com platform makes all of this easier to manage.

More on that in a bit — first we further explain how beneficiary designations function within optimized estate planning.

Beneficiary Designations

Many types of assets allow for a formal “beneficiary designation,” which directs where that asset will go upon your death regardless of the terms of a Will or Trust. Common examples of such assets include retirement accounts and life insurance policies. .

A closely related cousin of the beneficiary designation is a “pay on death” (POD) or “transfer on death” (TOD) designation. The same idea applies: if you pass away, your designation will bypass your Will or your Trust. Some states allow vehicles, personal objects, and real estate to pass through TOD, but the documentation must be carefully prepared to meet the legal requirements. Bank and brokerage accounts, closely-held stock and other securities may also pass by POD or TOD depending on the bank or custodian that maintains the account for you.

Typically, beneficiary designations are made through the institution where the asset is held (a custodian or administrator). Once a beneficiary designation has been made through the institution, it is important to keep track of who you designated as beneficiary for each asset so it aligns with and does not contradict how you want asset distribution to go in your estate planning documents.

Not all assets are eligible to have a designated, POD or TOD beneficiary. For example, there is currently no cryptocurrency exchange or investment platform that will allow you to designate a beneficiary for your crypto assets. It turns out a Will or Trust is one of the best ways to make sure your crypto will go where you want them to at your death.

Type of Ownership

Your assets can be owned in different ways. You can own them jointly with others and the titling carries implications for the designation upon death, or through an entity like a trust or corporation.

Certain ownership types, like “With Right of Survivorship,” “Joint Tenancy” or “Tenancy by the Entirety,” legally indicate that at one of the joint owner’s death, the other surviving joint owner(s) will automatically inherit the asset. In that case, the last survivor takes the entire asset and will be able to pass the asset to their beneficiaries through their Will or Trust. These forms of titling are especially common when you purchase real property with someone else.

The automatic transfer on death processes supersede any beneficiary designation or terms in your Will or Trust.

If you own an asset through an entity or arrangement governed by an agreement, the agreement may specify what your rights and restrictions are upon death. For example, you may own real property through an LLC.

The operating agreement for the LLC may contain provisions restricting your ability to transfer your LLC interests to your own beneficiaries upon your death, or give a right of first refusal to the other LLC members to purchase your interests.

If post-death rights are not spelled out, those LLC interests would likely default into your estate and pass to your beneficiaries through your Will or Trust.

Finally, many assets do not transfer to someone else automatically upon your death, as outlined in the two categories above.

These assets typically pass pursuant to your Will or Trust.

Conclusion

These three methods of asset distribution can work together as part of your overall estate plan to dictate where your assets will go upon your death.

However, understanding which assets have beneficiary designations and whether how you have titled the asset affects the default rights upon your death can be difficult because they are often disaggregated.

This is where the wealth.com platform comes in: our Asset Aggregation and Ownership Balance Sheet tools help record how you own your assets and what their various beneficiary designations are all in one place.

This information at the asset by asset level can be seamlessly paired with your estate planning documents to give you an understanding of how your assets will be distributed and with whom they will end up after your death.

Wealth.com helps you create and maintain a cohesive estate plan — providing the peace of mind that comes from knowing the friction your heirs will experience is minimized and your estate will be administered correctly when the time comes.

Note: Recording or updating beneficiary designations in the wealth.com platform does not alter your beneficiary designations; instead, we make recording all of your externally designated beneficiaries simple which helps maintain updated records and aids in the estate administration process.

Financial Power of Attorney Explained

So much of estate planning is thinking through how you want things handled after you die, before you start actually making a documented plan. The idea of a financial power of attorney (FPoA) flips that a bit, because it’s about appointing someone to handle your affairs in case you become incapacitated and can’t make your own decisions. The process seems complex, but we’ll simplify it so you can make sense of the basics you need to know to include this important element in your estate plan.

In a nutshell, a financial power of attorney is a document in which you appoint a trusted person to act on your behalf to make financial decisions. In establishing a FPoA, you hand over the legal reins to another person to conduct financial transactions, sign documents, or make other legal decisions as if they were you. This might happen for only a limited period of time (during a serious illness or after an accident, for example), or it can take effect immediately upon signing and last up to your end of life. Once your FPoA is completed, your trusted person, the agent, sometimes called an attorney-in-fact or fiduciary, can be responsible for managing your financial affairs. You will need to use a second document, called an Advance Health Care Directive (sometimes known as health care proxy or health care power of attorney), to designate who should handle all of your medical decisions. There are several types of FPoA, so consider the specific needs of your estate before selecting one.

Durable Power of Attorney

The type of FPoA most commonly used in estate planning is a durable power of attorney. “Durable” indicates that your agent has your permission to act on your behalf even though you are incapacitated or disabled. In other words, the FPoA is effective until you either revoke the document or have passed away.

You can spell out your agent’s powers, responsibilities and restrictions in the FPoA. The powers vary from state to state but usually include the ability to:

• Sell or manage property and real estate
• Sign legal documents and checks
• Manage personal and business-related financial accounts
• Pay medical bills (but not make healthcare decisions)
• File taxes and settle claims on your behalf

Hire professional assistance, such as a lawyer or advisor

Non-Durable Financial Power of Attorney

When an FPoA is not “durable,” your agent’s powers end when you become incapacitated or disabled. In other words, you want to supervise your agent’s use of the FPoA powers. This can be a good option for transactions that are not driven by estate planning needs. For example, you might grant your advisor a non-durable FPoA to conduct time-sensitive trades on your behalf.

In addition, you may be comfortable allowing your agent to change your estate plan or the rights of your beneficiaries; because these are such sensitive powers, in most states, you must affirmatively grant each estate planning power.

Why Include a Durable Power of Attorney in Your Estate Plan?

A complete estate plan should provide not only for death, but incapacity and unavailability. Putting a FPoA in place allows someone to continue managing your financial affairs if you cannot sign important documents yourself in case of emergency, a routine surgery, or even travel abroad.

Keep in mind that to complete your FPoA, it must be signed in accordance with your specific state’s requirements, which might mean signing before a notary public or witness(es).

The wealth.com platform makes it straightforward to get your Financial Power of Attorney drafted and securely stored in our Vault, and provides state-specific guidance on how to fill out and sign your FPoA.

Get this guide to Financial Power of Attorney as a printable PDF