Deciding Between a Will and a Trust? The Distinctions You Need to Know

The Basics of Wills and Trusts  and What You Need to Know About Probate

We get a lot of questions about the differences between a will and a trust – but there are a few more distinctions we think you should know. Understanding how to protect your assets and your family requires knowledge of what protections your will, trust, or testamentary trust actually grant you and your beneficiaries.

What is a Will?

A will is a legal document that is used to direct the distribution of assets, and, when applicable, to appoint guardians for children. An attorney drafts your will, and you can work with them to update it as frequently as needed to ensure it’s still applicable to your current situation.

What happens when you don’t have a will?

When a person passes without a will, it’s called dying “intestate.” If this happens, the state distributes the deceased person’s assets according to the laws of the state.

The Basic Components of a Will?

A will is made up of several parts, including the people involved. Every will has a testator, an executor, and a beneficiary, here’s a brief explanation of these roles:

Testator: A testator creates a valid will to be executed upon death.

Executor: The person who carries out the wishes of the testator according to the will.

Beneficiary: A beneficiary is a person (or persons) who inherits the assets and/or estate left by the deceased in the will. A beneficiary can also be an entity (e.g., charity, business, trust) rather than a person.

A will, or testamentary will, is prepared by the testator and signed in the presence of witnesses. To ensure the will is comprehensive and makes legal sense, it’s best to prepare a will with professional assistance from an attorney.

There are other types of wills, but they are less likely to be carried out after the testator’s death. An example of a non-testamentary will is a holographic will. A person writes and signs a holographic will, but not in the presence of a witness. 

While a will covers many assets, there are several exceptions, such as life insurance payouts. Because life insurance policies name beneficiaries, the will cannot override that distribution. For more comprehensive asset protection, you may want to consider establishing a trust.

A will is subject to the probate court, which takes time and costs money, a will also becomes a part of public record, which could be a privacy issue for people.

What is Probate?

Probate is the legal process distributing a deceased person’s estate as designated in their will or by state law or both.

When a person passes without an established trust, the probate process typically proceeds as follows:

  1. The will or the probate court appoints a trust administrator or executor.
  2. The court determines if the will is valid, so it makes sense to draft your will with the help of an attorney. Your will must also have the appropriate witnesses according to your state’s laws.
  3. The court inventories all properties and assets. They cannot be sold nor distributed until the probate process completes.
  4. The court appraises all properties and uses the assets to pay all debts and taxes that may exist.
  5. Assets are distributed according to the will if a valid will exists and according to state law if a valid will does not exist.

 

Why Do You Want to Avoid Probate?

In addition to probate being a public process, it also allows for people to challenge the will, leaving the fate of the will in the hands of the court. Probate is not a quick process. On average, it takes six to nine months to complete. During the probate process, assets become “frozen,” meaning they can’t be sold nor utilized by beneficiaries.

Maintain Family Harmony

Moreover, often, the surprising drawback for families that go through a probate process is that it may disrupt family harmony during an emotional time. Family members may feel entitled to assets or may feel they have a more precise understanding of the intentions of the testator than other family members. Or, as mentioned above, family members may challenge a will forcing avoidable issues with other family members.

A properly established trust ensures that a grantor’s vision and intentions come to fruition.

What is a Trust?

A trust is a legal agreement that takes effect as soon as you create it, unlike a will that only takes effect when the testator passes. The trust distributes wealth at a point specified by the grantor.

Trusts are flexible (but do not have to be flexible) agreements that are easily customized to meet the needs of the grantor and the beneficiaries. Contrary to wills, trusts avoid probate court: they do not become public record, and the family maintains a deeper level of privacy.

The Basic Construction of a Trust

The roles of those involved with a trust are similar to those of a will but with slightly different terminology:

Grantor: The grantor establishes a trust.

Executor: The executor is the person or business entity responsible for the execution of the trust.

Beneficiary: The beneficiary receives distributions from the trust.

There are two basic types of trusts – inter vivos (living) and testamentary. 

Living Trust

A grantor establishes a living trust when they are still alive and is either revocable or irrevocable. Revocable trusts have more flexibility than irrevocable, but both types avoid probate and help retain privacy.

A trust allows the grantor to decide who receives trust distributions and when. The trust gives complete control to the grantor, avoids probate, and, when combined with a will, creates a comprehensive estate plan.

Testamentary Trust

Not all people establish trusts ahead of time, some trusts come into existence when the grantor dies, and their will directs the formation of a trust. This type of trust is called a testamentary trust.

When a person creates a will, they can specify the creation of a trust upon their death; this does not avoid probate. After assets named in the will go through the probate process, the court creates a trust. Because of this, the trust will always be under the control of the court. 

Sometimes people choose to do a testamentary trust over a revocable living trust because it seems “cheaper” upfront. However, the cost of probate court alone could render this untrue.

Conclusion

A properly established trust will maintain a grantor’s legacy while circumventing the time-consuming and often costly probate process. If you’re looking at the big picture, you can often save time, money, and mitigate family tension by establishing a trust.

Nevada carries the most advantageous trust laws in the U.S. when it comes to privacy, asset protection, and flexibility. Alliance Trust has many estate planning attorneys that may assist you in establishing or evaluating an estate plan that meets your needs now and for many generations. 

We are happy to assist you. We Are Nevada.

 

Selecting a Successor Trustee: Is a Family Member Really the Best Option For You?

Should You Choose a Corporate Trustee or Appoint Someone You Know?

When a family establishes a revocable trust, the grantor is, in many cases, the trustee as well. However, a revocable trust requires that the grantor appoint a successor trustee. The successor trustee is on standby until the acting trustee dies or becomes mentally incapacitated and is unable to manage the trust.

You may think you know whom you would choose as a successor trustee, but it’s not as simple as appointing a family member and calling it a day. The successor trustee has many essential functions that take up a lot of time and resources. If your family appoints this person, you must consider how other family members will view it and ensure there are no conflicts of interest.

The other option is to appoint a third-party corporate trustee as the successor trustee. Is one option better than the other? The answer is both yes and no, depending on your situation. Let’s dive into both options.

Appointing a Family Member as Successor Trustee

In many cases, families appoint a surviving spouse, child, trusted advisor, or friend as successor trustee. While this solution seems cost-effective and straightforward, there are considerations to be made and questions to ask:

  • Does the trustee have adequate time to devote to the trust?
  • Will the trustee be able to separate personal feelings and exercise sound judgment toward beneficiaries?
  • Will a surviving spouse be able to take on all trust management duties during the grieving process or while caring for an incapacitated spouse?
  • Can the trustee understand and analyze investments within the trust or possible investment opportunities?
  • Will there be tension or resentment among family members if this trustee is appointed?

Pros of Appointing a Family Member

  • Family members or close friends may not charge an administration fee for their role as successor trustee.
  • A family member understands the unique dynamics of the family, including long-standing feuds, substance abuse, etc.
  • A member of the family may view this duty as less of a burden and therefore put more effort into settling or managing the trust than a family friend.

Cons of Appointing a Family Member

  • It could create tension among siblings or other family members.
  • If a family member has no trust experience, they may accidentally abuse the trust and be liable for damages.
  • A family member may lack the time and knowledge necessary to execute the trust successfully.

Appointing a Corporate Trustee as Successor Trustee

A corporate trustee serving as successor trustee will undoubtedly charge a fee for their services; this alone can cause families to forgo that route. However, there are significant advantages to going the corporate trustee route that must be explored. Here are some questions to ask:

  • How complex is the trust, and how many assets will the successor trustee be responsible for?
  • Are there minor beneficiaries or other considerations that would cause the trust to continue after the death or incapacitation of the grantor?
  • Is there significant family tension that could necessitate a third-party trustee?

Pros of Appointing a Corporate Trustee

  • Avoid family tension that arises from choosing a family member as trustee.
  • A corporate trustee will handle any filings, investments, distributions, tax considerations, and more.
  • The corporate trustee handles all recordkeeping and preserves valuable assets to benefit future generations.

Cons of Appointing a Corporate Trustee

  • The trustee may not understand your individual family dynamics.
  • There are always fees associated with a corporate trustee.
  • A corporate trustee may be stricter in making distribution decisions than you’d like.

Can You Appoint Co-Trustees?

Yes, it is possible to appoint both a family member and a corporate entity as co-trustees. This is not the right option for every family as you will incur both trust administration fees and may need to pay the family member too. The family member will also still have a great deal of responsibility. However, if a family still wants personal involvement, but with the added benefit of an impartial third-party and trust management benefits, this could be a great option.

Putting it All Together

Ultimately, you can structure your trust and trustee selection the way you envision. Your family dynamic and trust assets will have a lot to do with the final choices you make. Whether you choose a family member, a corporate trustee, or take a blended approach, your choice of successor trustee should serve to benefit your family members.

Alliance Trust Company of Nevada has years of experience as a corporate trustee and can answer any questions you have regarding the management of your trust.

Kaestner v. North Carolina: the Most Significant Trust Case In Nearly a Century

SCOTUS Sides with Family Trust Over the State of North Carolina

The United States Supreme Court ruled on June 21st, 2019 that the taxation of The Kimberley Rice Kaestner 1992 Family Trust by the North Carolina Department of Revenue is unconstitutional.

The much-anticipated ruling stated that the presence of in-state beneficiaries alone does not empower a state to tax trust income. Beneficiaries experience more protection before a trust distribution and when the beneficiaries have no right to demand, nor are they sure to receive the income.

Click here to download SCOTUS Opinion on the North Carolina Dep’t of Rev. v. Kimberley Rice Kaestner 1992 Family Trust.

New Precedent. New Opportunities.

This ruling creates many planning opportunities for both states with high-income tax laws and states with no income tax.

For those with estate plans in high-income tax states, reviewing your estate and how it is structured is exceptionally prudent. Prudent because it may be advantageous to move assets to a trust jurisdiction with no income tax. And, prudent because many estates could be entitled to refunds.

For states like Nevada with no income and corporate taxes, there is an obvious opportunity to acquire new business from higher income tax states. The key is to structure the trusts properly so that they fall outside of “substantial” nexus — more on this below.

We encourage anyone potentially affected to consult with their advisors to discuss their particular situation.

The Facts

See pages 3 and 7 of the SCOTUS opinion for further details.

  • The Kaestner Trust was established in New York and subjected to New York Tax Law.
  • The Grantor of the Trust was a New York resident.
  • No Trustee lived in North Carolina.
  • The Trustee domiciled the Trust Documents and records in New York.
  • The Trust Asset Custodians resided in Massachusetts.
  • The Trust also carried no physical presence in North Carolina.
  • The Trust made no direct investments in the state of North Carolina.
  • The Trust held no property in the state of North Carolina.

The only connection between the State of North Carolina and the Kimberly Rice Kaestner 1992 Family Trust is that the beneficiary lives in the state of North Carolina – but this is not enough of a reason to tax the Trust.

Nexus Between a Trust and A State: “Minimum” v. “Substantial”

As anticipated by some SCOTUS followers, and hinted at during the oral arguments, the Court did not place any weight on the Wayfair case from 2018.

Last year (2018), SCOTUS analyzed the differences between the “minimum contacts” nexus (Due Process Clause) and the “substantial” nexus (Commerce Clause) in Quill Corp. v. North Dakota (91-0194), 504 U.S. 298 (1992) and South Dakota v. Wayfair, Inc., 585 U. S. ___ (2018). 

The Wayfair case overruled Quill regarding sales tax collections and physical presence giving states more authority in out-of-state taxation.

However, the Court relied on the original Quill, Brooke and Safe Deposit precedent for state taxation. The Court opines that the relevance of in-state contacts depends on “the extent of the in-state beneficiary’s right to control, possess, enjoy, or receive trust assets.”

More on Wayfair and Quill (Forbes) here

How the SCOTUS Decision Impacts Self-Settled Asset Protection Trusts

In a Self-Settled Asset Protection Trust, the Grantor and Beneficiary are the same person. State taxing authorities could argue that the Grantor/Beneficiary retains control over assets which could amount to a source of wealth for the Grantor/Beneficiary.

The Court Argued:

“Although the Court’s resident-beneficiary cases are most relevant here, a similar analysis also appears in the context of taxes premised on the in-state residency of settlors and trustees. In Curry, for instance, the Court upheld a Tennessee trust tax because the settlor was a Tennessee resident who retained “power to dispose of” the property, which amounted to “a potential source of wealth which was property in her hands.” 307 U. S., at 370. That practical control over the trust assets obliged the settlor “to contribute to the support of the government whose protection she enjoyed.” Id., at 371; see also Graves v. Elliott, 307 U. S. 383, 387.”

More SCOTUS Decision Highlights With Insights

Justice Sotomayor-

“The Due Process Clause provides that “[n]o state shall . . . deprive any person of life, liberty, or property, without due process of law.” Amdt. 14, §1. The Clause “centrally concerns the fundamental fairness of governmental activity.” Quill Corp. v. North Dakota, 504 U. S. 298, 312 (1992), overruled on other grounds, South Dakota v. Wayfair, Inc., 585 U. S. ___, ___ (2018) (slip op., at 10). In the context of state taxation, the Due Process Clause limits States to imposing only taxes that “bea[r] fiscal relation to protection, opportunities, and benefits given by the state.” Wisconsin v. J. C. Penney Co., 311 U. S. 435, 444 (1940). The power to tax is, of course, “essential to the very existence of government,” McCulloch v. Maryland, 4 Wheat. 316, 428 (1819), but the legitimacy of that power requires drawing a line between taxation and mere unjustified “confiscation.” Miller Brothers Co. v. Maryland, 347 U. S. 340, 342 (1954). That boundary turns on the “[t]he simple but controlling question . . . whether the state has given anything for which it can ask return.” Wisconsin, 311 U. S., at 444.”

According to Justice Alito

Justice Alito filed agreed with Justice Sotomayor, in which Chief Justice Roberts and Justice Gorsuch also joined, to clarify that existing precedents still stand. He concluded his opinion with:

“The Due Process Clause requires a sufficient connection between an asset and a State before the state can tax the asset. For intangible assets held in Trust, our precedents dictate that a resident beneficiary’s control, possession, and ability to use or enjoy the asset are the core of the inquiry. The opinion of the Court rightly concludes that the assets in this Trust and the Trust’s undistributed income cannot be taxed by North Carolina because the resident beneficiary lacks control, possession, or enjoyment of the trust assets. The Court’s discussion of the peculiarities of this Trust does not change the governing standard, nor does it alter the reasoning applied in our earlier cases. On that basis, I concur.”

Implications of SCOTUS Opinion on Universal Tax Law

SCOTUS did not universally rule that all beneficiaries no longer need to pay state income taxes. Instead, states should analyze the totality of connections.

Justice Sotomayor Stated:

“We hold that the presence of in-state beneficiaries alone does not empower a State to tax trust income that has not been distributed to the beneficiaries where the beneficiaries have no right to demand that income and are uncertain ever to receive it. In limiting our holding to the specific facts presented, we do not imply approval or disapproval of trust taxes that are premised on the residence of beneficiaries whose relationship to trust assets differs from that of the beneficiaries here.”

The Court declined to address discretion on distributions:

“We have no occasion to address, and thus reserve for another day, whether a different result would follow if the beneficiaries were certain to receive funds in the future.” It sounds like the Court is preparing to address this issue in the future, but it could be a long time until the Supreme Court accepts another trust taxation case.”

In footnote 11 on page 13 of the SCOTUS Opinion, the Court opines that the location of the Trustee does not universally create the nexus to tax the Trust which would have changed many of the state laws.

The Court says:

“Because the reasoning above resolves this case in the Trust’s favor, it is unnecessary to reach the Trust’s broader argument that the trustee’s contacts alone determine the State’s power over the Trust.”

In Footnotes 8 & 11, the Court Leaves the Door Open for States to Create Their Own Laws:

“Even if beneficiary contacts—such as residence—could be sufficient in some circumstances to support North Carolina’s power to impose this tax, the residence alone of the Kaestner Trust beneficiaries cannot do so for the reasons given above.” In footnote 8, the Court states: “As explained below, we hold that the Kaestner Trust beneficiaries do not have the requisite relationship with the Trust property to justify the state’s tax. We do not decide what degree of possession, control, or enjoyment would be sufficient to support taxation.”

The Impact of SCOTUS Opinion on Various State Law

What the Court Says:

“The state directs the Court’s attention to 10 other state trust taxation statutes that also look to trust beneficiaries’ in-state residency, see Brief for Petitioner 6, and n. 1, but five are unlike North Carolina’s because they consider beneficiary residence only in combination with other factors, see Ala. Code §40–18–1(33) (2011); Conn. Gen. Stat. §12– 701(a)(4) (2019 Cum. Supp.); Mo. Rev. Stat. §§143.331(2), (3) (2016); Ohio Rev. Code Ann. §5747.01(I)(3) (Lexis Supp. 2019); R. I. Gen. Laws §44–30–5(c) (2010). Of the remaining five statutes, it is not clear that the flexible tests employed in Montana and North Dakota permit reliance on beneficiary residence alone. See Mont. Admin. Rule 42.30.101(16) (2016); N. D. Admin. Code §81–03–02.1–04(2) (2018). Similarly, Georgia’s imposition of a tax on the sole basis of beneficiary residency is disputed. See Ga. Code Ann. §48–7–22(a)(1)(C) (2017); Brief for Respondent 52, n. 20. Tennessee will be phasing out its income tax entirely by 2021. H. B. 534, 110th Gen. Assem., Reg. Sess. (2017) (enacted); see Tenn. Code Ann. §67–2–110(a) (2013). That leaves California, which (unlike North Carolina) applies its tax on the basis of beneficiary residency only where the beneficiary is not contingent. Cal. Rev. & Tax. Code Ann. §17742(a); see also n. 10, supra. 13The Trust also raises no challenge to the practice known as throwback taxation, by which a State taxes accumulated income at the time it is actually distributed. See, e.g., Cal. Rev. & Tax. Code Ann. §17745(b).

Location of the Trustee Does Create “Substantial” Nexus

The Court holds that since trustees get the benefit of home state protections, states can tax based on the location of the trustee. Beneficiaries (or settlors) base taxation on the fact pattern of each trust or the totality of the connections.

  • The Trustee is “the owner of [a] legal interest in” the trust property, and in that capacity, he can incur obligations, become personally liable for contracts of the trust, or have specific performance ordered against him.”
  • At the same time, the trustee can turn to his home state for “benefit and protection through its law,” id., at 496, for instance, by resorting to the state’s courts to resolve issues related to trust administration or to enforce trust claims, id., at 495. A state, therefore, may tax a resident trustee on his interest in a share of trust assets. Id., at 498.

“In sum, when assessing a state tax premised on the in-state residency of a constituent of a trust—whether beneficiary, settlor, or Trustee—the Due Process Clause demands attention to the particular relationship between the resident and the trust assets that the state seeks to tax. Because each individual fulfills different functions in the creation and continuation of the Trust, the specific features of that relationship sufficient to sustain a tax may vary depending on whether the resident is a settlor, beneficiary, or Trustee. When a tax hinges on the in-state residence of a beneficiary, the Constitution requires that the resident have some degree of possession, control, or enjoyment of the trust property or a right to receive that property before the state can tax the asset. Cf. Safe Deposit, 280 U. S., at 91–92.8 “

“Property in Their Hands” is a Vital Component to Taxability

Distributed income is subject to tax. The key to the Court’s opinion is whether something seems like a source of wealth or property in their hands. For example, the certainty of receiving income or control of investments can trigger even undistributed net income to be taxed by a state.

“First, the beneficiaries did not receive any income from the Trust during the years in question. If they had, such income would have been taxable. See Maguire, 253 U. S., at 17; Guaranty Trust Co., 305 U. S., at 23.”

“Second, the beneficiaries had no right to demand trust income or otherwise control, possess, or enjoy the trust assets in the tax years at issue. The decision of when, whether, and to whom the Trustee would distribute the Trust’s assets falls to the Trustee’s “absolute discretion.” Art. I, §1.2(a), App. 46–47. The Trust agreement explicitly authorized the Trustee to distribute funds to one beneficiary to “the exclusion of other[s],” with the effect of cutting one or more beneficiaries out of the Trust. Art. I, §1.4, id., at 50. The agreement also authorized the Trustee, not the beneficiaries, to make investment decisions regarding Trust property. Art. V, §5.2, id., at 55–60. The Trust agreement prohibited the beneficiaries from assigning to another person any right they might have to the Trust property, Art. XII, id., at 70–71, thus making the beneficiaries’ interest less like “a potential source of wealth [that] was property in [their] hands.” Curry”

Trustee Discretion ≠ Beneficiary Distributions

The Court implied that the analysis on whether the “property will be in their hands” is the trustee’s discretion. Having a stated schedule of distribution could tip the taxation scale to the wrong side, but the Court thought that having some discretion in the trust document, even if written as “generous,” creates enough uncertainty and that the state cannot tax the trust.

“To be sure, the Kaestner Trust agreement also instructed the trustee to view the trust “as a family asset and to be liberal in the exercise of the discretion conferred,” suggesting that the Trustee was to make distributions generously with the goal of “meet[ing] the needs of the Beneficiaries” in various respects.

By reserving sole discretion to the Trustee, the Trust agreement still deprives Kaestner and her children of any entitlement to demand distributions or to direct the use of the Trust assets in their favor in the years in question.

Not only were Kaestner and her children unable to demand distributions in the tax years at issue, but they also could not count on necessarily receiving any specific amount of income from the Trust in the future.”

Update on the Fielding Case

The U.S. Supreme Court has not decided whether it will hear Minnesota’s Fielding case. The Court pushed the decision on the state taxation of trusts to the October 2019 term.

However, with a sweeping decision with Kaestner, another SCOTUS trust case seems less likely.

We will continue to closely monitor the implications of the Kaestner case and the developments of the Fielding case. More to come!

Why You Need to Establish a Trust Versus a Will: Protect Both Your Assets and Your Privacy

Have a will, but don’t think you need a trust? You may want to think again.

It’s a misconception that trusts are only for the ultra-wealthy. For many people, a trust should be an essential part of a sound and smart financial strategy. If you don’t think you need a trust, here are a few examples of why you might:

  • You want your money and assets equally distributed to your heirs.
  • You want your estate to go to your biological children and not your step-children.
  • Ensure higher education paid for before asset distribution.
  • Mitigate estate taxes for your family.
  • Protect your assets from your creditors or the creditors of your heirs.
  • More privacy surrounding your money and assets.

These are just a few examples. The list could go on and on.

Bottom line: if you have assets such as investments, a home, or other property such as a boat or vacation home and you want to avoid additional taxes and specify who inherits your assets, when they inherit, and how, you need a trust.

The Benefits of a Trust

Aside from detailing the fate of your assets, trusts have many specific benefits to both you and your beneficiaries.

Save Time and Money by Avoiding Probate

If you have a will but not a trust, your assets will go through the public process of probate. Upon your death, all of your assets will go into probate, and the court proves that your will is valid.

Typical Probate Process

  • The court inventories your property and assets;
  • The court then pays outstanding taxes and debts;
  • The court assesses your probate tax;
  • The court distributes the assets to the wishes of your will or by state law if you do not have a will in place or you did not correctly draft your will. Your estate plan should be reviewed regularly as estate laws evolve. Alliance can refer you to attorneys that will assist you.

The probate process can take up to a year, and in the meantime, your family will be without their inheritances. Sometimes the court allows some of your estate to be distributed during probate, but often your family is left waiting.

YOU Control Distribution

A trust allows you to detail exactly how, when, and to whom you’d like your assets distributed. You can choose to have your assets distributed over time or in one sum and even how you want the assets utilized. For example, you can specify that the money is only for the use of living expenses such as food and housing.

Controlling distribution can be highly effective in situations where you are unsure about how your beneficiaries will handle receiving a large sum of money. Often, grantors want to be certain bad decisions don’t squander their wealth.

A Trust is Difficult to Contest

While a will is easy to challenge, a trust is not. If you fear that someone will be unhappy with your decisions and wish to challenge the distribution of assets, a trust is a much safer option.

There are two ways to challenge a trust, both requiring significant proof:

  1. The grantor was not in the right mental state when setting up the trust.
  2. The grantor was under “undue influence” when drafting the trust and did so under someone else’s influence.

Even with these potential challenges, a trust is much more likely to withstand contest than a will.

Cover Educational Costs

Many grantors want to be sure that educational costs for their beneficiaries are covered first before the distribution of assets. You can specify whether each child should get the same amount after education costs, or whether distribution should be contingent on education costs.

An educational trust fund provides a lot of flexibility and control for a beneficiary to ensure their educational goals for their children are met even after their death.

Specify the Division of Property

Some assets are more difficult to divide than others, such as real estate or other personal property like boats or cars. A trust helps make these things easier to divide by allowing the grantor to specify precisely how to transfer the property upon their death.

A grantor can choose who gets what property, whether they can sell the property and if so, how they should sell the property and divide the proceeds. The trust can provide equal access to the property for each beneficiary or even allow them to buy each other out if they wish.

Avoid (or at Least Reduce) Estate Taxes

Assets placed into a trust are not subject to estate taxes. A trust gives grantors the ability to give tax-free gifts from the estate to their children up to the annual exclusion. The annual exclusion states that grantors can give gifts up to a certain dollar amount annually without incurring taxes.

Estate taxes only apply to estates worth $1 million or more, so they don’t apply to most. You do, however, need to be sure you understand the full value of your estate. Remember to factor in the value of your home and any other assets, not just your liquid assets and investments.

Enjoy More Privacy

As we mentioned earlier, if your estate is in a will and goes into probate, it is a public process. With a trust, your assets remain private. While a public record is sometimes necessary, it is not common. In many cases, you can find ways to work around disclosing records publically.

Keep Family Harmony Intact

After the death of a family member, there is grief and many emotions involved. A trust is an easy and straightforward way to ensure that emotional factors don’t play a part in the distribution of assets.

It can be easy for family feuds to arise during the division of an estate. A trust can be customized to precisely specify what each heir will inherit, leaving nothing to be argued over. A trust can even ensure that only the beneficiary has access to their inheritance and exclude spouses, step-children, or anyone else a grantor desires.

Who controls the trust? You do! Or a trusted family member, friend, or independent corporate trustee whom you appoint. Unlike a will, you control every aspect of a trust before and after your death to ensure your family is immediately protected.

Nevada carries the most advantageous privacy and asset protection laws in the U.S. You do not have to live in Nevada to take advantage of Nevada’s trust jurisdiction. Alliance Trust Company of Nevada has vast experience with both domestic and international complex estate planning and taxation strategies. Moreover, Alliance had a significant network of Nevada attorneys, advisors, and CPAs that we can refer you to. Do not hesitate to reach out to learn more about what Nevada can do for you!

Using NING Trusts to Significantly Reduce State Income Tax Liabilities

Why Wealthy Families are Choosing to Shift Their Wealth to the Tax Favored State of Nevada

The state of Nevada is considered a tax-favored environment, allowing maximum tax protection over trusts and estates. That’s just one of the reasons why more and more people are choosing Nevada as to establish their trusts.

The “NING” trust or Nevada Incomplete-gift Non-Grantor trust reduces state income tax liabilities and simultaneously provides asset protection benefits.

For people with substantial income, assets or large capital gains who could generate significant Federal and state income tax shifting a trust from its current state to a state with more favorable tax laws, such as Nevada, could create significant income tax savings.

While moving to Nevada would allow someone to take advantage of these benefits, relocating family is often not an option. However, by establishing a NING and transferring assets from the existing trust into the NING, the trust will only face Federal capital gains taxes.

Non-Grantor vs. Grantor Trusts

Trusts are set up as either grantor or non-grantor, and it’s important to understand the difference.

Grantor trusts expose the creator of the trust to the taxes incurred by the trust. Non-grantor trusts are set up as their own entities incurring all taxes at the trust level instead of passing them on to the owner of the trust.

Things get murky because every state has its own taxation rules and definitions about which trusts should be considered a resident.

For example, to take advantage of a NING or Nevada’s favorable tax laws in general, a non-grantor trust with a Nevada trustee should be established. By establishing a non-grantor trust in Nevada and appointing a Nevada trustee you can be sure that you’ll minimize or completely eliminate taxes from your state of residence.

A New Aggressive Strategy for Substantial Gains

If a substantial gain is on the horizon, wealthy families can take advantage of ING trusts to adopt a more aggressive tax strategy. ING’s help reduce state income tax at the trust level by establishing it one or more years before a large gain becomes available.

One word of caution, there are specific steps you should follow to ensure that your strategy is not viewed as tax evasion, it’s always best to employ professional guidance to understand how to establish your ING ethically.

Structuring a NING for Maximum Benefit

Since the purpose of establishing a NING trust is to avoid additional taxing, it’s important to properly structure the trust to avoid gift tax. Proper structuring also ensures that the trust really is taxed in Nevada instead of the settlor’s home state.

Remember that NING stands for Nevada Incomplete-Gift Non-Grantor Trust, so when assets are transferred to the trust, it must be in the form of an “incomplete gift.”

Transferring assets as an “incomplete gift” allows the owner of the trust to include your investments in your estate without needing to file a Form 709 gift tax return.

NING Trusts vs. DING Trusts

The DING Trust did come before the NING trust, so one may wonder which is the better situs for a trust, Nevada or Delaware?

While both states allow settlors to appoint a trustee for their trust and take advantage of favorable tax laws, several Delaware rulings have allowed divorcing spouses and creditors to gain access to an asset protection trust. Nevada has never allowed such access in rulings and therefore has more iron clad protection than any other state.

How the Other States Feel About ING Trusts

It’s no surprise that other states aren’t happy about non-grantor trusts and their tax-avoidance benefits, some have even gone as far as banning such trusts.

While both Delaware and Nevada have successfully deflected attempts by other states to tax grantors, that likely won’t stop states from attempting to gain access whenever they can.

However, several statutes in the state of Nevada prove that the state values and protects trusts and estates which are established there and is the safest bet when choosing where to create an ING trust.

To learn more about establishing a NING, please contact Alliance Trust Company.

The Government of Kazakhstan knows my retirement account balance?

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The New York Times “Room for Debate” opinion pages recently asked Gregory Crawford, The President of Alliance Trust Company in Reno to comment on the Panama Papers and the advantages of and lawful usages of shell companies.  In this piece, Greg notes that the vast majority of these companies are used legally, providing a layer of security and privacy for international families in an increasingly dangerous world.

The interest of non-US citizens using foreign grantor trusts in Nevada is increasing dramatically.  Many countries are now recklessly sharing highly-sensitive and otherwise confidential individual financial information with rogue governments around the world under the OCED’s “Common Reporting Standards.” This program, which thankfully the United States is not participating in, gathers and automatically exchanges individual  names, addresses, tax identification numbers, and financial account balances with the governments of Azerbaijan, Cameroon, China, Georgia, Indonesia, Kazakhstan, the Philippines, Russia, Senegal, Tunisia, and Uganda, to name a few.  Where the information might go from there, no one knows.   Many of these countries have Horrific human rights records and serious corruption issues.  Automatically sharing this data will undoubtedly expose law-abiding individuals to the risk of extortion, kidnapping or worse.  The United States should remain proudly “non-compliant” with the CRS and its efforts to violate personal privacy.

it is worth noting that the State of Nevada offers excellent privacy provisions when establishing business entities such as LLCs, and there are options for the US and non-US citizens to keep their financial affairs private in trust.  Please contact Alliance Trust for more information at 775-297-4000.

 

Alliance Presentations in San Diego – Recap of the Gathering

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Last month Alliance Trust presented at the Southern California Institute’s annual “Gathering” of elite advisors from around the country in San Diego.  The topics of the two-day seminar included a panel debating the best family trust jurisdictions, and various methods and strategies to minimize and reduce estate, state and federal income taxes.  Advisors discussed asset protection trusts and other Nevada trust options, with case studies on how they work in practice.  As a Nevada Trust Company, Alliance Trust added insight and expertise on these topics from the perspective of a trustee.  Nevada is considered to have the best trust laws in the country, providing families valuable asset protection, flexibility for planning options and tax minimization for generations.  for more information on Nevada Trusts, please call Greg Crawford at Alliance Trust in Reno at 775-297-4684.

Awareness of NING Trusts Growing Nationally

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Nevada Incomplete Non-Grantor Trusts (or, “NINGs”) are growing in popularity and usage across the country.  NINGs provide the grantor of the trust asset protection and the potential to minimize local and state income taxes on investable/intangible assets.  As this NASDAQ.com Article on NINGS, these types of trusts are not for everyone.

However, a family living in a high-income tax state with significant taxable income and appreciated investments (or investments expected to appreciate) can benefit from a NING. This is just one of many Nevada trust planning strategies that makes Nevada the Asset Protection Trust Rankings   If you are interested in learning more about NINGs, please read this Article by attorney Gordon Schaller and call Greg Crawford at Alliance Trust Company in Reno at 775-297-4684.

Why Sand Hill Road Uses Nevada Trust Strategies

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Alliance Trust Company of Nevada spends significant time in Silicon Valley.  Our clients range from early stage Angel investors, the founders of many fast-growing technology firms, and the partners of some of the most prestigious venture capital firms in the world.  Why are so many people connected with Sand Hill Road using Nevada Trust strategies?  In a word: Flexibility.

Nevada offers exclusive options within its trust and estate laws, and you don’t have to be a Nevada resident to establish and benefit from a Nevada Trust for generations to come.

Simply put, Nevada offers flexibility around common asset protection, tax-minimization, and dynasty provisions that have many around the country recommending Nevada as the best state in the country for trusts.  Even Business Week magazine recently took notice, putting Reno on the cover for its trust and estates activity.

Interested in learning more?  Call Greg Crawford, President of Alliance Trust in Reno at 775-297-4684.

Alliance Trust Proud to Participate in Prestigious UCLA Law Panel

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Gregory E. Crawford, TEP, President of Alliance Trust Company of Nevada recently participated in a 90-minute discussion panel covering the topics of asset protection planning and the impact of the Uniform Voidable Transfer Act (UVTA).  The panel was moderated by Professor Jerry Hesch (ACTEC Fellow), and included nationally-recognized attorneys Jeffery M. Verdon and John R. Garland, as well as Neal Rubin, Managing Director, International Custody & Asset Protection Solutions of City National Rochdale.  Nevada was highlighted by the panel as one of the best jurisdictions in the United States and world for estate planning.  The UCLA Law School STEP Conference is in its fifth year and attracts hundreds of trust and estate professionals from around the world to Newport Beach, CA each January.  For more information, please review the conference details or call Greg Crawford in Reno at 775-297-4684.

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