Trusts Session 5 DePaul University CFP ® Program.

Trusts

Session 5 DePaul University CFP ® Program

Trust Basics

A trust is an agreement under which money or other property is held and managed by one person for the current or ultimate benefit of another. Different types of trusts may be created to

accomplish specific goals. Each kind may vary as to its degree of

flexibility and control by the transferor, trustee, or both.

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The Purpose of a Trust

Trusts may be set up for a number of reasons, for example:

to control and protect family assets both before and after death

to manage the financial affairs of a minor to mange the affairs of an incapacitated or

incompetent individual to achieve gift and estate tax savings


Elements of a Trust

Traditionally, three elements are necessary for a valid trust: The intent to create a trust

It then follows that there is a trust creator (also called “trustor," "donor" or "settlor“) who has this intent

The subject matter, or property (also called “principal,” “corpus,” or “res”) that is subject to the trust The object(s) or beneficiary(ies) of the trust. Practically speaking, there must also be a trustee but the common law rules did not require a trustee to be named for a trust to exist.


Elements of a Trust (continued) Recall that the trustee holds legal title to the trust property and

is responsible for managing the trust principal. The trustor can serve as trustee but watch for tax traps. Two or more trustees may serve together, The trustee may be an individual, an organization, or both

acting as co-trustees. Recall that the beneficiary holds the equitable/beneficial interest

in the trust. any person or entity may be a beneficiary, including

individuals, corporations, associations or units of government.

Benefits may include principal and/or income Beneficiary need not be competent

Trustor must be competent to create trust Trustee must always be competent


Question 5-1

Which of the following parties to a trust need be competent only at the trust’s inception?

A.The trustee

B.The grantor

C.The beneficiary

D.The executor


Trustee Responsibilities

Carry out the express terms of the trust instrument Prudently invest trust assets Be impartial among beneficiaries Administer in the best interest of the beneficiaries Account for actions and keep beneficiaries informed Be loyal Defend the trust Generally, a trustee must not delegate, profit, self-

deal with trust property, or otherwise be in a conflict of interest position


What Happens If A Beneficiary Dies?

When a beneficiary dies, residuary transfers from wills and trusts can be structured in various ways:

Per stirpes Per capita With per capita, look for the class:

“my children” “my descendants” “by generation”


Per Stirpes Distribution

Per stirpes means taking “by representation” or “by class.” If beneficiaries are to share in a distribution per stirpes, then the living members in the class of beneficiaries closest in relationship to the transferor will each receive an equal share. If a member of that same class is deceased and survived by any descendants, then their descendants will take their share “by representation.”


Per Stirpes Example

Sam has 4 children, A, B, C and D. A predeceased Sam leaving no children B predeceased Sam leaving 2 children, B1 and B2 C is living and has 8 children D is living and has no children.

A testamentary gift by Sam stipulating a per stirpes distribution yields this division:

A = 0.00% B2 = 16.67%

B = 0.00% C = 33.33%

B1 = 16.67% D = 33.33%


Per Capita Distribution

“Per capita,” means taking “by the head” or “by total number of individuals.” If the beneficiaries are to share in a distribution “per capita,” then all of the living members of the identified class receive an equal share.No share is created for a deceased class member.Shares of surviving class members increase proportionately


Per Capita Example

Sam has 4 children, A, B, C and D. A predeceased Sam leaving no children B predeceased Sam leaving 2 children, B1 and B2 C is living and has 8 children D is living and has no children.

A testamentary gift by Sam stipulating a “per capita to my children” distribution yields this division:

A = 0.00% B2 = 0.00%

B = 0.00% C = 50.00%

B1 = 0.00% D = 50.00%


Per Capita Example

Sam has 4 children, A, B, C and D. A predeceased Sam leaving no children B predeceased Sam leaving 2 children, B1 and B2 C is living and has 8 children D is living and has no children.A testamentary gift by Sam stipulating a “per capita to my descendants” distribution yields this division:

1/12 each to: B1, B2, C, all 8 of C’s children & D


Question 5-2

Mr. Black arranged that his two sons, Jack and Mack inherit his $4 million estate in trust. Jack has two children, Mindy and Cindy. Under Mr. Black’s per capita arrangement , if Jack dies before his father, how much would Cindy receive?

A.$-0-

B.$1 million

C.$2 million

D.$4 million


Per Capita At Each Generation

Under the per capita at each generation distribution the estate or trust property is divided just as in per stirpes, but each share passing to the next generation is divided equally among all members of that generation (not just the lineal descendants of deceased).

“Equally near, equally dear”


Per Capita at Each Generation Example

Sam has 4 children, A, B, C and D. A predeceased Sam leaving no children B predeceased Sam leaving 2 children, B1 and B2 C is living and has 8 children D is living and has no children.A testamentary gift by Sam stipulating a “per capita at each generation” distribution yields this division:

C & D each receive 1/3B1, B2 and C’s 8 children each receive 1/30


Trust Property

Trust property may consist of real or personal property

Trust property may also include a future interest such as the right to receive proceeds under a life-insurance policy

Property is made subject to the trust by transfer to the trustee, commonly called a "gift in trust."


The Trust Agreement

The trust agreement, also called a “declaration of trust,” is a legal document describing the terms and conditions of the trust property will be managed, as well as how and when the beneficiaries will enjoy their interest.Legally speaking, it is not a contract, and separate laws apply.Most states have statutory provisions governing trust administration – some may be superseded by the trust agreement, others may not.


Inter Vivos Trusts

Inter vivos trusts are created during the trustor’s lifetime. Proper drafting can shift the income tax liability from the grantor to a beneficiary

Income earned by a trust established for a dependent beneficiary may be taxed at the parent's tax rate by the kiddie tax.

Transfer an irrevocable inter vivos trust may also trigger gift tax consequences.


Revocable vs. Irrevocable Inter Vivos Trusts

Inter vivos trusts can be "revocable" or "irrevocable." If revocable, the trustor may change the terms or

cancel the trust, resuming outright ownership of the trust property.

If irrevocable, the trust terms become virtually permanent. The trust instrument should be explicit regarding

revocability or irrevocability. The presumption of irrevocability varies by state. In Illinois, the presumption is “irrevocable.”


Irrevocable Inter Vivos Trusts

An irrevocable inter vivos trust may not be altered or terminated by the trustor. There are two distinct advantages of irrevocable trusts: Income from trust property may be not taxable to the trustor; and The trust property and any post gift appreciation may escape inclusion in the trustor's gross estate. However, these benefits will be lost if the trustor is entitled to:

receive any income use the trust assets otherwise control the administration of the trust


The Revocable Inter Vivos Trust

The Revocable Living Trust or, simply, a “Living Trust,” is a legal entity created by a trustor to hold and own that grantor’s assets.The Living Trust is an estate planning vehicle that provides:

Privacy Probate Avoidance Continuity of financial management

Trustee is often but not necessarily the trustor


Question 5-3

The initial trustee of a living revocable trust is most often:

A.The trustor

B.A bank

C.A relative

D.An attorney


Revocable Living Trusts

In general, a living trust provides the trustor with complete control while competent. With a living trust, the grantor may: Add to or withdraw assets from the trust during lifetime; Change the terms of the trust Retain the right to make the trust irrevocable

The assets titled in the name of the living trust will generally be includable in the trustor's gross estate, but will generally avoid probate.


Revocable Living Trusts While the Grantor is Living

While the grantor is alive and well, the trust allows the grantor to manage, invest, and spend the trust assets for his or her own benefit. If the grantor is serving as trustee, the grantor uses his/her own SSN as the TIN for the trust and reports income, deductions and credit on Form 1040. A third party trustee must obtain a TIN for the trust and file Form 1041.


Revocable Living Trusts When the Grantor Becomes Incapacitated The trust agreement typically specifies: The criteria for determining grantor incapacity One or more procedures to be followed if the grantor becomes mentally incapacitated.

If the grantor is determined to be incapacitated and can no longer serve as Trustee, the successor trustee named in the trust agreement assumes the management and investment of the trust property for the grantor’s benefit.

No transfer of title is necessary.


When the Revocable Living Trust Grantor Dies

When the grantor/trustee dies, the successor trustee assumes control. Pays grantor's final bills, debts, and taxes. Distributes the trust property as directed in the trust agreement. If there is no probate (and thus no executor) the successor trustee will be responsible for filing the Form 706 if required and making any appropriate tax elections.


Question 5-4

After Alex dies, his revocable living trust:

A. Would automatically be subject to probate.

B. May continue as an irrevocable trust

C. Pours over onto his will

D. Is required to end immediately.


Living Trusts Avoid Probate

Although ignored for tax purposes, the living trust is a valid entity under state law. Therefore, even though the grantor dies, the trust “lives” on. Assets titled in the name of the grantor are subject to probate. Assets titled in the name of the trust avoid probate.


Testamentary Trusts

A trust created at death under a Will is called a "testamentary trust.“ The term is also used for trusts created under a living trust at the grantor’s death.

A testamentary trust only arises after the testator's death, when the Will becomes effective.

A trust so created will not be valid until the Will is admitted to probate.


Funding Testamentary Trusts

The Will directs the distribution of part or all of the decedent's estate to a trustee who: is named under the Will is charged with administering and distributing the trust property according to the provisions of the trust created under the Will.


Probate and the Testamentary Trust

Before the trust property is used to fund the testamentary trust, it normally passes through the decedent's estate, subject to probate.

The trust itself does not go through probate. Assets used to fund a testamentary trust are

potentially subject to estate and generation-skipping transfer tax (GSTT).


Question 5-5

Which of the following is least likely to go through the probate process?

A.Harry’s car owned fee simple.B.Barry’s testamentary trust.C.Larry’s portion of a fishing cabin owned TIC with his brother.D.Garry’s one half of Washington community property.


Testamentary Trust Flexibility

A will, and any testamentary trust created thereunder, may be revoked or amended at any time prior to death.Revisions can be made by:

Executing a new will Executing a codicil (same requirements for

valid execution as a Will) Upon death the Will, and thus the testamentary trust, becomes irrevocable


Pour-over Will

Good practice requires a grantor to execute a "pour-over" will simultaneously with creation of a living trust. It operates as a safety net for any asset not titled in the name of the trust

Avoids intestate administration Guarantees all assets are subject to the same plan.

Trust should be established before any Will directs transfers to it.


Simple versus Complex Trusts

Federal income tax law distinguishes between complex and simple trusts.In a simple trust, the trustee:

Is required to distribute all income currently, and Is not authorized to make charitable gifts, and Does not distribute principal

A complex trust generally may: Accumulate income, and Make charitable gifts Distribute principal to beneficiary(s)


Fiduciary Income Taxation

Like individuals, partnerships, and corporations, estates and trusts may earn income that is subject to income tax. Fiduciary entities required to file Form 1041, U.S. Income Tax Return for Estates and Trusts.

an estate with more than $600 of income a simple trust having more than $300 in income a complex trust having more than $100 in income


Who Pays the Tax on Trust Income?

Tax on trust income may be the obligation of: The grantor The beneficiary The trust itself

Given compressed trust rates, the trust is generally the least desirable taxpayer.


Character of the Distributable Income

The distributable net income (“DNI”) retains its character as it is distributed to the beneficiary. Each beneficiary takes a pro-rata share of that “flavor” of income.Example: In 2012, a trust receives $20,000 tax-exempt municipal bond interest and $10,000 of dividends. Any distribution will be received by a beneficiary as 2/3 muni-bond interest and 1/3 dividend.


Taxation of Simple Trusts

For tax purposes, a simple trust is a conduit – the beneficiary(s) pay tax on the income. Rule applies whether or not income is actually distributed Trust pays tax on principal transactions (i.e., capital gains) Watch for possible kiddie tax impact where beneficiary is a dependent.


Question 5-6

Tony set up a simple trust under which all trust income is paid to his daughter, Ruth. Tony’s brother, Chris is trustee of the trust. To whom, if anyone, would the trust income be taxed?

A.Tony

B.The trust

C.Ruth

D.Trust income is generally not taxable


Taxation of Complex Trusts

A complex trust tax pays tax on all undistributed income (at severely compressed rates) A deduction is available for distributions to beneficiaries. All distributions carry out DNI (no double tax) Trustee may “throw back” distributions made in first 65 days of calendar year, to previous year


When Is a Trust a Tax-Paying Entity?

The trust is irrevocable and not otherwise subject to the grantor trust rules

Income is accumulated per trust terms or trustee’s discretion, or

Capital gain is incurred


2012 Estate/Trust Income Tax Rates

Estates and TrustsIf Taxable Income Is: The Tax Is:

Not over $2,400 15% of the taxable income

Over $2,400 but not over $5,600

$360 plus 25% of the excess over $2,400


$1,160 plus 28% of the excess over $5,600


$1,972 plus 33% of the excess over $8,500

Over $11,650 $3,011.50 plus 35% of the excess over $11,650


Grantor Trust Taxation

Trust income will be taxed to the grantor personally if that grantor retains benefits from, or power over, the trust. Since personal tax rates are less compressed than trust tax rates, this may desirable.


What Makes Trust Income Taxable to the Grantor?

When will trust income be taxable to its grantor? When the trust is revocable When the grantor/spouse does/may receive its

income. When trust income does/may pay premiums on life

insurance policies where grantor/spouse are named insured(s)

i.e a funded life insurance trust When trust income is used to discharge the

grantor’s legal or support obligation


What Makes Trust Income Taxable to the Grantor?

Grantor taxed (continued) When the grantor controls the beneficial

enjoyment of the trust Distribution timing and amounts

When the grantor holds >5% reversionary interest in the trust

When grantor controls certain investment powers including power to vote the stock held by the trust

Note, the power to dismiss or change the trustee does not taint the trust for income tax purposes.


Trusts Where the Grantor Retains “Income”

A grantor may retained an interest in trust income under one of several common arrangements: Grantor retained annuity trust (GRAT) Grantor retained unit trust (GRUT) Grantor retained income trust (GRIT)

Where a charitable intent exists the grantor could create a charitable remainder annuity or unitrust (CRAT or CRUT)


Grantor Retained Annuity Trust (GRAT)

A GRAT is an irrevocable trust which guarantees the grantor a fixed amount annually for a certain term. The annuity must be paid regardless of trust income earned. Creating an irrevocable trust will trigger gift tax consequences to grantor.

Cannot make gift to self Gift is NPV of remainder interest


Question 5-7

Liza established a $1 million 5% GRAT. However, due to the recession, the trust principal only earned 3% in the current year. How much will Liza receive this year?

A.$100,000

B.$50,000

C.$30,000

D.Nothing until the trust earns its specified percentage


Determining the GRAT Term

A GRAT can be created for any term desired. The longer the trust term the smaller the gift

of the remainder because the grantor’s interest is greater.

When choosing a term consider that death of the grantor during the GRAT term results in gross estate inclusion of the FMV of the trust at date of death.


Short Term GRATs

Short term GRATs are used to lessen the probability that the grantor will die during the GRAT term. A short term, coupled with a high annuity payout can yield a remainder interest with little or no value.Result: reduction or elimination of the taxable gift.


Zeroed Out GRAT Example

Ed transfers property worth $1 million to a GRAT that will pay him $129,500 per year for a term of 10 years at the end of which the GRAT will terminate and the property will be distributed to Ed’s children. Assuming the applicable federal rate (“AFR”) was 5.0% at the time the GRAT was created, the value of Ed’s retained annuity will be roughly $1 million (i.e., the GRAT is "zeroed out".) In this case, the creation of the GRAT does not involve a taxable gift.


GRAT: Dying During the Term Example

Assume Libby transfers assets worth $1,000,000 to a GRAT retaining the right to receive an annuity of $100,000 per year for the lesser of 10 years or her remaining lifetime. In the third month of the ninth year of the GRAT, Libby dies, while the trust corpus has a value of $2,000,000 and the section 7520 rate is 10%. $1,000,000 would be included in Libby’s gross estate because it is the amount of corpus required to be invested at 10% to generate income equal to the $100,000 annuity.


Grantor Retained Unitrusts

The grantor receives an annual payment equal to a fixed percentage multiplied by the FMV of the GRUT.

GRUT revalued annually to determine current year payout

When asset values increase, so does payout


Question 5-8

Why would transferring rental real estate to a GRUT be a disadvantage to transferring rental real estate to a GRUT?

A.Inflation protection would never be available.

B.The grantor would give up the income.

C.Annual revaluation of the trust property could be costly.

D.The retained interest must be valued at zero.


Qualified Personal Residence Trust (QPRT)

A qualified personal residence trust (QPRT) owns the grantor’s a personal residence for a term of years. Like a GRAT, the donor must outlive the trust's term to avoid estate tax inclusion. Length of grantor’s use term determines gift value of transfer (longer term = smaller gift).


QPRT Example

Claude, age 60, transfers his personal residence with a value of $1,000,000 into a QPRT on October 1, 20XX (when the section 7520 rate for purposes of valuing the interest retained by the grantor was 7.2%), retaining a term of 10 years and a contingent reversion. The value of Claude’s retained interest and contingent reversion is $583,770 and the value of the remainder interest is $416,230. If Claude survives the 10-year term, the residence is out of his estate.Result: $1 million transferred (not including appreciation) at a federal gift tax value of $416,230.Transfer tax savings of using the QPRT over transferring the residence at death could exceed $500,000.


QPRTS vs GRATs

QPRT permits use of residence during term. Unlike a GRAT the QPRT makes no distributions. If donor survives the term and desires to continue living in the residence, the donor must pay fair market rent to the trust. A QPRT permits future appreciation to escape taxation in the donor's estate. QPRT property located in another state will also avoid ancillary probate.


The Problem With Grantor Retained Income Trusts

(GRITs)Using a family GRIT, a grantor would transfer assets to a trust, retaining the income a term with the remainder going to a beneficiary.Pre-1990, the NPV of the remainder interest gift was reduced by the retained income interest. Post-1990, the Chapter 14 zero valuation rules fix the value of the retained interest at zero, thus the gift is the FMV of the transferred asset. The current gift tax impact makes this vehicle relatively unattractive.


Crummey Trusts/Provisions

Crummey trusts (or Crummey provisions found within trusts) make otherwise future interest gifts eligible for the annual gift tax exclusion by creating a limited present interest in such additions.The beneficiary is given the temporary right to withdraw an amount equal to the lesser of:

The amount of the annual gift tax exclusion, or The amount of the annual addition

Pro rata, if multiple beneficiariesA Crummey provision is most commonly found in irrevocable life insurance trusts (ILITs)


Crummey Trust Example

The Parkers set up an irrevocable trust for their three children. Each year they each give $13,000 per child to the trust, or $78,000 per year. After each gift the trustee send written notice to each child informing him of his right, for 30 days, to notify the trustee and withdraw the addition.

If the right is not exercised within 30 days, then it expires. The trustee can use assets of the trust for each child's benefit.Assets left in the trust go to the child at age 35.Over a 10 year period the parents can give $78,000 per year, or a total of $780,000 to the trust. The total transfer tax savings may be as high as $273,000 (per top 35% transfer tax bracket).


Spendthrift Trust

Spendthrift trusts typically contain a provision prohibiting the beneficiary’s creditors from seizing trust assets to satisfy the beneficiary's debts. Almost every trust contains such a provision Spendthrift trusts are legal in most statesUseful when the grantor considers a beneficiary to be irresponsible about money.The trustee controls the trust income, distributing money to the beneficiary as needed

Trustee may pay beneficiary’s creditors directly; bypassing the beneficiary completely.


Bypass Trust /”B” Trust

The bypass trust (also known as the “B” trust and credit shelter trust) is usually established at death to hold property equal to the exemption equivalent of the estate tax credit ($5,120,000 in 2012).Family trust (rather than marital trust) to keep property out of the surviving spouse’s estate

The “bypass” is of the survivor’s estate Although survivor spouse may have B trust income (with or without other beneficiary(s), and/or serve as trustee, survivor spouse is not the estate tax owner.


Question 5-9

The purpose of the typical “B” trust is to:

A.Maximize the use of the marital deduction.

B.Shelter income for Medicaid recipients

C.Split gifts in trust.

D.Shelter the exemption equivalent of the unified credit.


Marital Trust/”A” Trust

The marital trust is established to hold property passing to the surviving spouse and qualify for the marital deduction. Spouse typically entitled to all income.Surviving spouse’s interest is not terminable.Spouse given a general power of appointment

Alternatively, an estate trust which distributes to the surviving spouse’s estate will qualify for the marital deduction

Trust A property is included in the survivor’s gross estate


Qualified Terminable Interest Property Trust /”C” Trust

The QTIP trust (also known as a “C” trust, or current income trust) is a marital trust providing the survivor spouse with income for life but with no control over the ultimate disposition of the trust principal (terminable interest).

Property transferred to the trust qualifies for marital deduction

Statutory exception to terminable interest rule


QTIP Trust Requirements

QTIP election must be made by executor on Form 706

Surviving spouse must have the right to receive mandatory payment of trust income, at least annually, for life.

Trust must prohibit the assignment or distribution of either principal or interest to anyone other than the surviving spouse Spouse may have rights to principal for health,

education, maintenance and support


QTIP Trust Example

Dad, who has grown children from his marriage to Mom, marries Trixie. His objectives are 1.) provide a comfortable lifestyle to Trixie as long as she lives, 2.) obtain an estate tax marital deduction, and 3.) leave the principal to his children when Trixie dies.Dad’s executor establishes QTIP trust per Dad’s will instruction and makes the electionTrixie gets all income for life

No distributions to anyone other than TrixieUpon Trixie’s death:

QTIP property is included in Trixie’s gross estate Trust principal passes to Dad’s children.


Question 5-10

What is the typical income distribution arrangement associated with a QTIP trust?

A. Income is distributed to the grantor’s widow/er.

B. Income is distributed to the grantor’s children.

C. Income is shared among the grantor’s widow/er and children.

D. Income is accumulated in the trust.


Trusts for Children: 2503(c) Trust

Statutory exception to the present interest rule The first $13,000 transfer each year to a 2503(c)

trust is eligible for the annual gift tax exclusion Minor generally receives no distribution from the

trust but must have the right to withdraw all trust assets at age 21

Income may be accumulated in the trust or expended to benefit the minor

Accumulated income (typical) taxed at trust rates If beneficiary dies before age 21, assets pass to

child’s estate


2503(c) Trust Example

Lowell sets up a 2503(c) trust naming his 9-year old daughter, Louella as beneficiary. Lowell names himself as trustee.If Lowell dies before distribution of trust assets to Louella, the FMV of the trust assets is included in Lowell’s gross estate.Solution: Lowell should name an adult other than himself (the grantor) as custodian


Section 2503(b) Trust

The Section 2503(b) trust is generally used to benefit adult children so that a trustee can control when the child receives distributions of principal. Mandatory income distribution is required. Gifts to trust have two parts – income and remainderValue of income determined under §7520 TablesThe first $13,000 of income portion of gift qualifies for the annual gift exclusion. Unlike 2503(c), no required termination date


Question 5-10

Which of the following trusts must operate as a simple trust?

A. A special needs trust

B. A 2503(c) trust

C. A living revocable trust

D. A 2503(b) trust


Special Needs Trusts

A Special (Supplemental) Needs Trust enables a physically or mentally disabled individual, or an individual with a chronic or acquired illness, to have, held in Trust for his or her benefit, an unlimited amount of assets.

In a properly-drafted Supplemental Needs Trust, those assets are not considered countable assets for purposes of qualification for certain governmental benefits.


Special Needs Trusts(continued)

Such benefits may include Supplemental Security Income (SSI), Medicaid, vocational rehabilitation, subsidized housing, and other benefits based upon need. For purposes of a Supplemental Needs Trust, an individual is generally considered impoverished if his or her personal assets are less than $2,000.00.

A Supplemental Needs Trust provides for supplemental and extra care over and above that which the government provides.


Uniform Gifts to Minors Act

In most states, minors do not have the right to contract. The UGMA offers a simple way for a minor to own financial assets including certain securities.

UGMA is the law in only two states: Vermont and South Carolina

The more modern UTMA has been adopted by the balance of the states.


Uniform Transfer to Minors Act

UTMA accounts enjoy greater investment flexibility than do UGMA accounts.UTMA accounts may hold real propertyMay hold intangible assets such as copyrights and patentsUTMA accounts may be created at death through a willIn most states, the custodian is required to transfer UTMA assets when the beneficiary attains age 21.


Registering the Minor’s Account

In most states, minors accounts are as: [ Name of Custodian ] as custodian for [ Name of

Minor ] under the Uniform Transfers to Minors Act - [ Name of State of Minor's residence ] Example: Abe Lincoln, custodian for Tad Lincoln,

under the Illinois Uniform Transfers to Minors Act The minor's SSN is the taxpayer ID for this account.

The custodian certifies the W-9 form. Because the income is attributable to the minor,

kiddie tax rules apply


Question 5-12

Which is a potential advantage to an UTMA account?

A.The kiddie tax

B.Distribution at a specified age

C.Investment control

D.Assured removal of transferred assets from donor’s estate.


Death of Custodian and Minor

If a donor also serving as custodian dies before UGMA/UTMA assets are distributed to the beneficiary, such assets must be included in the custodian’s estate (right to determine beneficial enjoyment).

If custodian not the donor, assets included in the beneficiary’s estate if the minor dies before the property is distributed (at majority)


Totten Trusts

A Totten trust is today more commonly known as a POD (pay on death) designation for bank accounts.Called TOD (transfer on death) for brokerage accountsNot a true trust; more akin to a revocable survivorshipDoes avoid probate


Miller Trusts

A "Miller" Trust (also called Income Only Trust) has only one purpose: to qualify a Medicaid applicant with income in excess of the eligibility limit for long-term care assistance from Medicaid.The income in excess of the eligibility criteria is placed in the trust with a third party trustee.

Generally, the applicant will be allowed to retain $35 per month of the income

May be possible to divert some of the income to the spouse and pay a fixed amount towards his patient's responsibility for nursing home care.


Trusts Session 5 DePaul University CFP ® Program.

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Transcript of Trusts Session 5 DePaul University CFP ® Program.