http://www.ocf.org/features/PlannedGiving.html (PC Press Internet CD, 03/1996)
Dan E. Nicholas, LUTCF
Shaping The Future
1414 Soquel Ave. , Suite 210
Santa Cruz, CA 95062
(408) 426-9995
(408) 426-6530 fax
e-mail: nichdan@ix.netcom.com
The information in this article is not a substitute for interested donors and all of our ocf.org Web site visitors from seeking local, legal council. Nor do the concepts and remarks listed herein constitute the intended practice of law. The Planned Giving Council of OCF will do all we can to connect you and other interested Orthodox faithful with a team of legal, tax and estate planning professionals of your own choosing ... professionals who, working together with a team of other professionals functioning in their specialty disciplines, can help you and your family reach your own estate, inheritance, family wealth transfer, gifting, and retirement goals.
Have you remembered the OCF or your local Orthodox parish in your Will or Living Trust? We can help.
Why isn't a Will all I need? Having a Will is certainly better than dying without a Will. Part of our vision at the Orthodox Christian Foundation is to help young people especially set up a Will. For many, a Will is the way to go ... because it is relatively simple. Yet a Will has at least one major drawback: Probate. Even with a Will, your assets must eventually go through probate.
What is Probate? Probate is a court proceeding open to the public which passes your earthly goods to those named in your Will...and those to whom your estate may owe money. Either your Will or the one the State has drawn up for you, if you have none, will dictate probate. (Dying without a Will is called dying Intestate.) Until your probate has run its course your heirs do not possess rights of ownership in your property.
Why should I avoid Probate? First, probate is often expensive. Probate fees, which are attorney fees and often executor fees which are set by law as a percentage of the total value of your gross estate. For example, if the value of your estate (home, bank account, IRA, mutual funds, jewelry) is $100,000 probate would cost between $6,000 to $8,000. The larger your estate, the greater the probate fee. And, remember, gifted assets left to the Orthodox Church in your Will (stock, land, real estate) must ALSO be probated. Not so for assets gifted in a Living Trust...called a living trust bequest. If there is not enough cash in your estate, then property has to be sold, often at a loss, to pay the fees required in probate. A California court recently found that a $23 million attorney bill was not an excessive probate fee on a $1.4 billion estate. Probate also is no speedy event. The average probate in California, for example, lasts 14 months. Many go longer. (A friend of mine lived in a home which was in probate for seven years.)
Also, probate is an emotionally traumatic experience for many. It is difficult enough having a family member die, but then to be thrust into court hearings, paper work, real estate sales, and other legal matters for months and years on end is a burden on the whole family.
Doesn't Joint Tenancy avoid Probate? Yes. But serious drawbacks accompany holding title to a home, for example, in Joint Tenancy. For instance, if you put you child's name on you house as a joint tenant, you actually have made a gift of a portion of the house to your child. Hello gift tax! If your child has financial or marital problems or is uninsured and gets into a car wreck...to the extent that liens for debt obligations are placed on his or her property, then the property you hold jointly with your child may be attached to satisfy your child's debts! Serious tax related drawbacks to joint tenancy for couples can also lead to payment of thousands of dollars in avoidable capital gains taxes...as high as 35% on half of the equity growth in your home. ($35,000 on a 1960's era Calif. home bought for $25,000 and sold after dad died for $225,000...so mom could move closer to the kids.) Joint tenancy can be a quick and expensive fix.
How is a Living Trust Created? First, the trust is drafted by legal consul. No do it yourself creativity is ever recommended here. The trust is signed and given a date. Your property is placed into the trust by simply changing how you hold title to your assets...as trustee of your family trust. You retain all rights of ownership that you had before the trust was created.
How does a Living Trust pass my property to my heirs or my church? The trust names a successor trustee. The successor (kids/friend/priest) takes over after your death and is given the same powers to distribute your property as a probate court would give...but outside of a probate proceeding! (You die but your trust does not.) As soon as that person (successor trustee) carries out the instructions you have placed in your trust regarding distribution of your property, the trust ends. Who can be your successor trustee? A child over 18 years...or anybody you feel is mature and responsible. Because distribution takes place outside of a probate court's jurisdiction, the disbursal of your estate can be entirely private. And quick...taking a matter of weeks instead of months or years. And probate fees are avoided.
Can I take property out of my Trust? Yes. You can revoke or amend the trust at anytime. This means that you have the same freedom to deal with your property as you had before the trust was created. You can buy, sell, manage, take loans out, give gifts...without limitation. After the first spouse dies things are not quite as simple...but for good reasons. The wishes of each spouse are preserved.
Does a Trust need to be changed often? No. A trust need only be changed if you decide to leave your property differently than you had originally decided. For some people, this may be every few years. For some, never.
Do you have to be wealthy to need a trust? Absolutely not. Even if you own only your house and its contents, there is no point in forcing your home through probate when a simple trust could keep your property intact. In fact, often small estates are hit the hardest by probate. In these cases property must often be sold to raise cash for the probate and attorney fees. Simply put, a living trust helps small estates avoid probate. Married couples with larger estates need a bypass trust (also called an AB Trust or a Credit Sheltered Trust...living trusts with a slight twist here and there. (This is why you need an attorney who's a specialist!) Larger estates get to cash in on probate avoidance AND federal estate tax and gift taxes avoidance.
Are Living Trusts expensive? No. Ask for our no obligation Probate Cost/Living Trust Cost comparison worksheet. Some of the attorneys we connect you with at the Orthodox Christian Foundation will do your living trust for as little as one tenth of what probate would be. And, if the Orthodox Christian Foundation is named as a beneficiary on a negotiated portion of your estate along with your parish or your chosen Orthodox charity (multiple downstream Orthodox ministries can benefit), OCF will pay the entire set up costs for your trust. If your estate is less than $600,000 in value, setting up a trust could cost $800 to $1,200... less for a single person. For estates larger than $600,000, trusts can cost $1,000 or more. Trusts cost more than Wills because they are more complex and difficult to prepare... often spanning 30 to 50 pages! But they can save as much as ten times their cost in probate fees on small estates. The trust set up fee is one time only. Maintenance charges or ongoing expenses beyond the initial fee are rare.
Do I need a Will if I have a Trust? Yes. But it is a very simply Pour Over Will, which says that you leave everything to your trust. This is usually provided by the attorney at no additional fee.
Does anything else come along with a Trust? Yes. When a professional estate planning attorney prepares a living trust, he or she will also offer to prepare a Durable Power of Attorney for Health Care. This document gives someone you choose the power to make health care decisions for you in the event you can no longer do so yourself. These powers of attorney give this person the authority to instruct your doctor to terminate life support systems in the event you are being kept alive by a machine against your will.
Does it make a difference whether I'm married or single? As to probate, no. Either a married couple or a single person can do a living trust. A married couple with a small estate needs only one trust for both spouses. A married couple with an estate which will grow to over $600,000 in their lifetimes will need a bypass trust. With such a trust a couple with a $1.2 million estate can (1) conserve as good stewards almost a full quarter of family assets; (2) bypass probate; and (3) pay no federal estate taxes. Nice. More left over for heirs and for gifts/bequests from the trust to the Church and Orthodox charities.
Why didn't my attorney tell me about trusts? Estate planning is a specialty. Although almost any attorney can do a Will, trusts are usually prepared by attorneys who specialize in estate planning and family wealth transfer planning. If your attorney does not emphasize estate planning (he or she may be an expert in real estate law, corporate law, personal injury, or environmental law) he or she probably would not feel comfortable or competent in doing your trust. It's a tough call. These professionals often don't want to loose you as a client by referring you to a specialist...and they will loose the probate fee for all Wills in their files if they mount a philanthropic campaign to refer out all their clients, singing the benefits of trusts over Wills whenever they can.
Won't my CPA tell me if I need a Trust? Remember, a CPA's function is to account for the estate AFTER death...too late to do much tax planning, (Especially for couples.) If your estate is under $600,000, your CPA may say you don't need a trust. She is speaking of a bypass trust...and not addressing the issues of probate avoidance or loss of stepped up cost basis and capital gains taxes. Or the rule of 72. That old rule that says if your estate grows at 7.2% a year for ten years, it will double in value...at 6% growth it will double in 12 years... pushing you, perhaps, from a zero estate tax bracket to 37% or even top you out at 55%. of your property going for death taxes...and you thought income taxes were bad. As to waiting for your accountant to prod you...many good CPA's never has an occasion to ask about a client's net worth. Remember, this is often not even a CPA issue until the kids have to file the 706 death tax return to pay YOUR death tax...after you're gone.
Is setting up a trust complex? No. It usually requires no more than two meetings with an attorney. The first meeting to gather basic information needed for the trust. The second to review and sign the document. The entire process need take no more than a month or six weeks tops. Many are done at the bedside in hospital in one visit.
Do trusts have any other advantages besides avoiding probate? Yes. Besides saving for your heirs almost $153,000 on a $1.2 estate, a living trust for the average person avoids conservatorships, which are legal proceedings required if you become legally incompetent. Siblings fighting over the estate is not a pretty sight. Have you seen siblings fighting over whether dad is competent or not? While dad is in the room? At Thanksgiving Dinner? With no estate plan in place, trouble can begin all too early. Trusts can also be used to manage your assets for your children after your death if you feel they might lack the maturity or judgment to prudently do so on their own. Trusts can have powerful uses in pre-nuptial planning for late-in-life marriages, too. A Charitable Remainder Trust (CRT) when added to a living trust plan is unique and powerful for some people Say you have a highly appreciated asset producing poor income. A CRT can:
Taxwise Giving...Can Cost Pennies To Gift Dollars Gift and income planning can be powerful using a CRT alternative to the tough choice of not selling an appreciated family asset (and living with poor income) or leaving the land, for example, in the estate for the kids to inherit.
Are Living Trusts new? No. They have been around even longer that Wills, dating back to Roman law. Trusts have simply become more popular because many real estate and stock values have gone through the roof. As a result, probate fees and estate taxes are set to take a much bigger bite than before... thus the tax saving potential is indeed powerful. Also in recent years trust fees and set up cost have decreased. Estate shrinkage does not have to happen like it has in the past. (See our "What Some Famous People Have Paid") Probate, estate taxes, gift taxes can become an optional tax. A tax you can opt not to pay. Or instead of paying, re-route the tax in the shape of a gift to the Church instead, leaving just as much as you have always planned for the kids.
If these trusts are so good why doesn't everyone do one? Many have, in fact. However most people still spend more time planning their family vacations than they do planning their family estates. (Less than a third of the US adult population has a Will.) And most families spend more time pouring over their income taxes (lowest bracket: 15%) in one year then they ever will over probate costs and delays, capital gains taxes, gift taxes and federal estate taxes(lowest FET bracket: 37%). While all this lack of planning may indeed mean a mess for someone else to deal with when we are gone. Unless as Orthodox Christians and good stewards we have a vision to plan....
Why we wait. When people want to avoid thinking about their own death, they often adopt a philosophy that "only old people die." Such a "I'll do it tomorrow" plan can be a costly and needlessly painful way for loved ones to learn later that things could have been arranged in a much more intelligent, rational, and less costly manner.
What should my first step be? E-mail us in the box below if it is your intention to leave to your Orthodox Church or Orthodox charity at least %5 of your estate, Will, or Living Trust (or, if a potential heir, %5 of an upcoming inheritance as well). We will send you information about where to get help to make your plan happen. Or we at the OCF can help you design a plan with your heirs in mind as well as your local Orthodox parish. We at the OCF have two attorneys, two CPA's and two estate planners on our OCF Gift Planning Council. We exist as a resource for your parish and for the Orthodox Church in North America.
Do you live far from our team professionals in the West? Through the grace of God and the power of the Internet we have contacts throughout the United States with whom we can connect you. Drop us e-mail today. Most people feel relieved after they have completed their estate plan. Resist the natural temptation to avoid thinking about our estate...or updating what you set in place all too long ago.
Wouldn't It Be Wonderful?
Wouldn't it be wonderful to rest assured that you have done all you can to protect your family and to honor God by benefiting His One Holy Catholic and Apostolic Church in your estate plan? God save the Orthodox Church and preserve Her for our children!
Your servant,
Dan Nicholas