Spendthrift trusts are rapidly becoming a key estate planning tool for families with one member who’s been de-railed by the drug or alcohol culture. Look out your window, look down the street or think of the many persons in your card and contact files. How many families show at least one member who’s been impacted by drug or alcohol addiction? Answer? Almost every family has that X-factor.

Primary Purpose And Benefit Of A Spendthrift Trust.

When a family includes a member who has lost some degree of free will and volition due to drug or alcohol addiction, or debilitating disease and accidents, and would not be considered “rational”, then a spendthrift trust creates the perfect sort of “control”. A disabled or mentally unfit “beneficiary” is known as the “spendthrift” and will be unable to access the family estate or assets, unless approved by the Trustee to the spendthrift trust. It is the Trustee, on behalf of the “spendthrift” who legally “controls the purse strings”.

Appointed Trustee Sets “Giving” Rules.

Unless the spendthrift trust charter document specifically sets forth a time table condition on the Trustee, then the Trustee will act is a custodial capacity indefinitely on behalf of the dysfunctional beneficiary. Limits on money and access to the inherited estate are determined in part through the language of the trust charter, along with the judgment skill of the Trustee as fiduciary. For example, where the spendthrift trust specifically sets out a payment such as $10,000 per year to the beneficiary, however where payments can be broken into weekly or monthly allocations, depending upon circumstance, or until the “spendthrift” demonstrates competency.

Result?

In the case where an estate or insurance beneficiary is brain-diseased, with a drug or alcohol or gambling addiction, the Trustee knows that any significant cash distribution will be instantly “converted” into more drugs or impulsive act, so the Trustee “puts the lid” on all but the most necessary expenses, such as rent, food and minor personal expenditures.

Creditor Protection Via Your Spendthrift Trust.

Real or commercial creditors, including banks stores and any other seller of services and products, dislike spendthrift trusts. Reason? A properly constructed spendthrift clause bars the creditor from any access to the trust’s assets. No liens, no court ordered liquidations, no attachments or reductions in the trust’s assets (corpus) and absolutely no payments of any creditor obligation can be imposed on the spendthrift trust unless and until the Trustee approves.

Creditor Costs And Time Limits.

Costs of litigation along with statute of limitations laws in each State further complicate the creditor pool, and they may never receive payments particularly if “the clock runs out”. Result? A creditor can sue, but even winning the court case as a judgment creditors he cannot gain access to the trust’s cash or property for payment relief. Creditors can only attach any “received payment” that the spendthrift gets.

Key Qualifying Language - Spendthrift Clause.

In order for the trust to be valid, in its objective of legally restricting a beneficiary’s access to the trust’s assets, the trust charter or deed of trust document must clearly and unambiguously show the trust creator’s intention to restrict inheritance unless and until specific qualifying conditions are met by the beneficiary.

Simple Standard Form And Low Cost.

Unless your family estate exceeds the Federal thresholds, which may rise to over $3 million under current legislation, you can settle an irrevocable trust, operating with spendthrift clause conditions, using local qualified small practice attorneys. Costs are modest, since the form of trust is “boilerplate” modified only by your family’s particular facts and figures.

Selecting Trustees And Back-Ups.

You’ll need a responsible person to act as Trustee…one who understands the legal and practical implications of her responsibility. You’ll also need a back-up or fall back Trustee to step into the responsibility in the event that your primary Trustee dies or becomes incapacitated. Your Trustee will operate under a legally binding power of attorney authority over the spendthrift trust’s assets.

Bottom Line.

A spendthrift trust provides long term financial protection for your loved ones, despite their current limitations. Once they improve and “normalize” their lives, they receive the balance of the family estate, according to the family’s intentions.

Learn More About Spendthrift Trusts And Family Estate Planning.
Please go to the following links for additional details on spendthrift trusts for your special needs family estate planning.

Wills and Estate Planning: http://www.wise4living.com/lwill/

Do It Yourself Wills: http://www.wise4living.com/lwill/do-it-yourself-will.html

Author Robin Derry is publisher for http://www.wise4living.com/ a specialty knowledge site that gives insights and solutions into spendthrift trusts and family law legal needs, home and gardening projects such as deer fencing, technology trends, unique gift designs, HDTV and home entertainment systems, technology gifts, tips for families committed to youth summer camps, body health, household, sport, travel, footwear, education, and much more.

Today I am going to talk a little about the problems I see with beneficiary selections on both IRAs and Life Insurance. First let’s review exactly what a beneficiary is and the goal of our beneficiaries.

The beneficiary provision is supposed to allow for the naming of a primary and contingent beneficiary. The primary beneficiary is the person designated to receive the death benefits if the insured dies. The contingent is the person designated to receive the death benefits if both the insured and the primary die at the same time. Beneficiaries can be a person, a business, or a trust in most cases. An irrevocable beneficiary is a beneficiary who can be changed by the policy holder only with the permission of that beneficiary.

Life Insurance Beneficiary Problems
Many individuals designate their spouse as the primary beneficiary and their children as contingent beneficiaries. There are two problems here. First, the spouse is the primary beneficiary and second the children are the contingent beneficiaries. The thought is, if the husband or wife were to die the money will be passed onto the spouse. If the husband and wife die simultaneously, the benefits will be passed on to the children.

The first problem here is what if the you and your spouse were in some kind of accident where you died first and shortly after your spouse died, may be weeks, days, or hours. Since your spouse did survive you, your contingent beneficiaries are not eligible to receive your benefit. This means the insurance company will pay the proceeds of your policy to their probate estate. Let’s say in this accident both the insurance and primary beneficiary both die at the same time. You would think that the benefit would go to the contingent beneficiaries. This is where the second problem starts.

The second problem with this scenario is that children were the contingent beneficiaries. Young children cannot be paid life insurance proceeds, with the age varying state by state. This means that if there was no will in place the state would choose who the guardians will be for your surviving children. They may be or not be who you would have chosen had you done your will. As such, death proceeds will be paid to the new guardians of your kids, which means your kids may or may not get the benefit.

Here is your solution. Set up a Uniform Gift to Minors Account (UGMA), a Uniform Transfer to Minors Account (UTMA), or a Trust in the children’s name. Both the UGMA and the UTMA are free. With either a UGMA or a UTMA the insurance company will pay the death proceeds into the account. When your children reach age of majority they will then have access to the money. However, most parents would not want their 18 year old child to have access to 500 thousand or 1 million dollars. So, the next best thing is to set up a trust as the primary and contingent beneficiary. This way you as the insured can chose at what age and what amounts money will be distributed to both the primary and contingent beneficiaries. This does cost a little but is the best alternative.

What if you are the only person to die in an accident. Your spouse still may not get the benefit even if they were the primary beneficiary. Here is an example why. Let’s say your primary beneficiary received a death benefit of 500,000 dollars. For some reason they latter got remarried. The new spouse after years of begging talks them into buying that dream house on the mountain. Everything is fine at first but for some reason they end up getting a divorce. During the settlements of the divorce the house is given to your surviving beneficiary’s ex-spouse. In this example because you put your spouse as the beneficiary, you end up paying your benefit to some stranger you don’t know who

marries your spouse after your death. How do you feel about that? Solution set up a trust as the primary beneficiary. This way you control the money from the grave.

We did not even talk about other issues such as step parents or kids, special needs beneficiaries, whether to designate beneficiaries as per stirpes or per capita. Every insurance policy should specify one or it is automatically deemed per capita. If you have any questions determining which one you should have call my office. I don’t have enough room to explain them here today, I still need to touch on IRA beneficiaries.

IRA beneficiary Problems.
You may be thinking that if a trust is the best selection for your life insurance that it must be good for your IRA’s as well. Where there is reason you may want to put your trust as the beneficiary this will in most cases cause more problems. Generally speaking you should never name a trust as the beneficiary of your IRA, even if your attorney tells you to do it. Trusts as IRA beneficiaries create unique problems and tax complications even when executed perfectly. Basically speaking, if the trust fails to qualify as a designated beneficiary, then there is no designated beneficiary, and the trust beneficiary will not be able to stretch post death required distributions even over the surviving spouse’s life expectancy. In that case, the IRA will be paid our either under the five-year rule or over the remaining life expectancy of the deceased IRA owner.

I am out of room for today’s topic so let me just say there are many more issues to discuss with both life insurance, IRA, or 401(k) beneficiaries. Hopefully this got you thinking and reviewing what you have. If you have any questions or feel you need a review of your current beneficiary selections or need some ideas what to change please feel free to call my office.

If you or someone you know needs some help managing retirement assets, setting up a retirment savings plan, or have life insurance needs, just give me a call at 801-545-0696. You can also visit our website at www.stonecreekwealthadvisors.com

Mark K. Lund, CRFA, has spent almost a decade as a Wealth Manager, serving the retirement planning needs for clients in Salt Lake City, Utah. Mark is one of a very small number of retirement planners across the country trained in retirement tax strategies. Most financial professionals typically take only one aspect of your personal finances and attempt to make it grow in a very linear, single-dimensional fashion. That’s why they don’t bother to correlate other items or tax issues in your total financial picture! Mark looks at all four phases of wealth accumulation to plan the most effective way to manage your wealth. To learn more about Mark, please visit http://www.stonecreekwealthadvisors.com

An Offshore Annuity works very similar to a deferred variable annuity. The owner pays into the annuity during the accumulation phase using either a lump sum or paying scheduled amounts over a period of time. The money in the annuity will gain interest at a rate determined by the investment portfolios in which it was placed, and either the owner or annuitant will be taxed once the withdrawal period begins.

You should remember that the owner and annuitant do not need to be the same, and for an Offshore Annuity the owner is usually an offshore trust. If the two annuities are so similar, then what is the benefit of having an Offshore Annuity versus a U.S-based deferred variable annuity?

BENEFITS AND ADVANTAGES OF AN OFFSHORE ANNUITY

There are several advantages to having an Offshore Annuity, but they can be easily narrowed down into three main benefits:

1. flexibility

2. protection

3. tax advantages

FLEXIBILITY OF AN OFFSHORE ANNUITY VS DEFERRED VARIABLE ANNUITY

When you choose to purchase a deferred variable annuity you are usually opting to place your money into mutual funds, equity funds, bond funds, etc. The investment portfolio chosen for your money is done by the insurance company you purchase the annuity from, and is limited to venders they have contracts with.

An Offshore Annuity offers more investment options since the overseas advisor can choose to place the money in any of the previously mentioned portfolios, or, for example, they can invest your money in gold. The overseas advisor is not limited by contracts and can invest your money into a number of diversified accounts. Your rate of return is not guaranteed, and is determined by the success of your advisor’s chosen investments.

ASSET PROTECTION AND SECURITY OF AN OFFSHORE ANNUITY

Offshore Annuities offer much more than just increased investment options; they offer a secure way to hide your existing assets from the U.S Government. This feature of an Offshore Annuity is also known as Wealth Preservation. If the offshore issuer of your annuity has no U.S-based affiliations, U.S Courts have no jurisdiction over them or your annuity. This means that anyone wishing to effect a garnishment of your assets must receive permission from the host country where your Offshore Annuity originates.

This is not as easy as it seems since Offshore Annuities are not subject to U.S foreign account reporting requirements. This feature of an Offshore Annuity makes it extremely difficult to link you to any funds other than what you report on your income taxes. It is important to note that while you can be both the owner and annuitant for your annuity, this situation only applies if the owner of the annuity is an offshore trust. (Please note Estate Street Partners and its partners do not ever condone on misreporting on your income.)

FRAUDULENT TRANSFER LAWS ON ANNUITY

If you are both the owner and annuitant, you may be ordered by a U.S. Court to use your annuity to pay a creditor. There are only a few states which exclude annuities from creditors, but you will be subject to fraudulent transfer laws if you obtained the annuity for the sole purpose of hindering or delaying a creditor’s claim.

Having an offshore trust take ownership of your annuity avoids this situation altogether, although it is important to investigate the fraudulent transfer laws of the offshore trust and choose only those which appear investor friendly.

OFFSHORE TRUST OF ANNUITY: WITHHOLD DIRECT ANNUITY PAYMENTS TO BENEFICIARY

Having an offshore trust for your annuity offers you, as trustee, the option of withholding direct annuity payments to a beneficiary. If the beneficiary is affected by a drug or alcohol addiction, or is battling legal issues, you may choose to allocate annuity payments indirectly for their benefit. This is very different from a deferred variable annuity which only offers a direct payment to the annuitant or beneficiary in the form of lump sum or scheduled payments.

TAX ADVANTAGES OF OFFSHORE ANNUITY AND OFFSHORE TRUST

Your Offshore Annuity will grow tax-deferred until you begin withdrawing money, and the U.S Government only requires a one percent excise tax on the premium you paid to implement your Offshore Annuity. Another difference between a deferred variable annuity and an Offshore Annuity owned by a trust, is your beneficiaries do not need to receive payments immediately following your death. Therefore they can delay paying taxes on your annuity until the trust begins distribution of the annuity.

HOW TO PURCHASE AN OFFSHORE ANNUITY? WHO IS IT FOR?

An Offshore Annuity is not for everyone. Most issuers require more than one million dollars to implement your annuity. As previously mentioned, it is wise to have an offshore trust own your annuity. In this case, the offshore trust completes the annuity application and sends it to the issuer. Upon approval you will wire funds to the bank account of your trust, who will then wire the premium to the issuer to complete the transaction.

author bio - Rocco Beatrice, CPA, MST, MBA
award-winning estate planning & trust expert
MS - Taxation, Master of Science Taxation
MBA - Management / Taxation
BSBA - Management / Accounting
CPA - Certified Public Accountant
—–
Asset Protection Irrevocable Trust, Estate Planning
Annuity Types
71 Commercial Street #150, Boston, MA 02109
tel: +1.508.429.0011 fax: +1.508.429.3034

The history of real estate tax and property tax can be traced back to Colonial America. Land was taxed on a per-acre basis until the nineteenth century when uniformity clauses were adopted to help protect settlers. The uniformity clauses now require that property be taxed according to its value.

Illinois was the first state to adopt this clause, and some states such as Tennessee adopted additional provisions that exempted products produced from the soil and up to one thousand dollars of personal property. Elected officials would assess the market value of the property, collect taxes due, and turn the money over to the proper government (school districts, special districts for fire prevention, irrigation, etc.).

It wasn’t until 1907 that the National Tax Association was founded, and declared that trained professionals perform all assessments of real estate for tax purposes. This regulation curtailed favoritism and promoted equality.

PROPERTY ASSESSOR AND REAL ESTATE TAX MAPS

In the twenty-first century, state governments depend more on income and sales taxes than on property taxes for funding. Local governments still rely on a small percentage of property taxes to generate revenue. The tax assessment is based on the value of the building and the value of the land it occupies. The assessor maintains accurate “tax maps” which identify individual properties to ensure they are not taxed more than once.

Any improvements made to the structure or land will be noted on these maps. Methods used to calculate value of property have changed since colonial times. Assessors may now choose between the income approach, market value, or replacement cost. All values determined by the assessor are subject to a “second opinion” via administrative or judicial review. Once the value of the property is agreed upon, the assessor will multiply this value by the established tax rate to calculate how much you owe in taxes.

HOMESTEAD REAL ESTATE TAX EXEMPTION

Some states have passed laws to provide homestead exemptions to put limitations on how high property taxes may be raised. This exemption is only available to residents of these states in which the property in question is the primary residence. You cannot use a rental property or second home in a different state as your “primary residence” to receive this tax break. Once the property is sold, the exemption is removed and property taxes may rise for the new owner based on the purchase price of the home.

DELINQUENT REAL ESTATE TAX PENALTIES (APRIL 1ST)

Failure to pay your taxes by April 1st each year will result in a delinquent real estate tax. Penalties for delinquent taxes may vary by state. In some states you will be charged a ten percent penalty on all unpaid taxes and will be charged an additional administrative processing fee.

If after the beginning of June you still have not paid your delinquent real estate taxes, your property will become tax defaulted. At this time you will begin to accrue additional penalties for each month that your taxes remain unpaid. If you continue to refuse paying delinquent taxes, the Tax Collector may appeal to the Court to seize and sell your property.

LIEN ON PROPERTY AND TAX CERTIFICATES

A lien may be placed on the house through the purchase of a tax certificate, and the owner can only remove the lien by paying the required taxes due. After a period of two years, the holder of the tax certificate may request a tax deed application. This application allows the certificate holder to sell your property at a public auction. The only way to prevent losing your property is to pay all delinquent taxes and applicable fees that have accumulated.

ESTATE TAX LIEN AND AFFIDAVIT TO REMOVE TAX

Some states such as Massachusetts will put an estate tax lien on property after the death of the owner, or anyone else who may have had a legal interest in the property (i.e. spouse). This usually occurs in the absence of probate and when the gross estate value does not exceed $1.5 million. Estates worth more than this limit will be subjected to federal estate tax filing.

Barring the above exceptions, an estate tax lien may be removed by filing an Affidavit. The Affidavit may be filed by an Executor or anyone in possession of the deceased’s property (i.e. spouse). An Affidavit must contain key information such as:

1. Full name and date of death for the deceased

2. Documentation that the estate does not require federal estate state filing

3. The identity and title of the person signing the Affidavit and the form must be notarized

4. The death certificate

5. Any applicable recording fees for the Affidavit and death certificate

Author bio - Rocco Beatrice, CPA, MST, MBA
Award-winning estate planning & trust expert
MS - Taxation, Master of Science Taxation
MBA - Management / Taxation
BSBA - Management / Accounting
CPA - Certified Public Accountant
—–
Asset Protection Irrevocable Trust, Estate Planning
Estate Planning and Trusts
71 Commercial Street #150, Boston, MA 02109
tel: +1.508.429.0011 fax: +1.508.429.3034

Trust an entity created for the purpose of protecting and conserving assets for the benefit of a third party, the beneficiary- A contract affecting three parties, the settler, the trustee and the beneficiary.

Trustee is a person totally independent of the settler who has a fiduciary responsibility to the beneficiaries to manage the assets of the trust at the best of his or her ability. The trustee reporting requirements shall be defined at the outset in a fiduciary or Treuhaender contract and should include how often, to whom, how to respond to instructions or inquiries, investment strategies, fees (flat and/or percentage of the valuation of the trust estate) anticipated future increases in fees, hourly rates for consulting services, etc.

Trust Protector is a person appointed by the settler to oversee the trust on behalf of the beneficiaries. In many jurisdictions, local trust laws define the concept of the trust protector. The protector usually has veto power over the trustee with respect to discretionary matters but no say with respect to issues unequivocally covered in the trust deed. Trust decisions are the trustee’s alone. In some cases the protector has the power to remove a trustee and appoint another trustees.

Independent trustee ia a trustee who is independent of the settler. Independence is generally defined as not being related to the settler by blood, through marriage, by adoption or in an employer/employee relationship.

Inshore,a Trust a legal way around you not owing your assets,yet still having access and use of them by use of the Trust laws of the country your Trust is registered.

See http://www.swissprivatebank.com

If you’d hit her in the passenger door, you probably would have killed her,” the officer told me as I looked over the crumpled front of my mini-van. I was a bit shaken, but relieved. It could have been so much worse, especially for ‘Marge’.

That February day began like any other day for ‘Marge’, an elderly lady who was just driving a few blocks from her home to the local mall. She probably had her mind on the things she wanted to purchase and didn’t realize she had turned across traffic in front of me without looking. I had just enough time to swerve slightly. Thankfully, I crashed into her front quarter-panel, instead of T-boning into passenger side door.

Fortunately ‘Marge’ only received only a fractured sternum from the collision, but in her fragile state it would take weeks for her to heal. Even though the accident was her fault, and I had only suffered a few sore muscles and inconvenience as a result, it still left me shaken.

The whole incident had taken only seconds to occur. One moment I was running a lunch-time errand, the next moment my air bag was exploding and tires were screeching. What if ‘Marge’ had been traveling faster or I hadn’t swerved? What if she had hit me head-on? The results could have been devastating for both us and for our families.

I’m the husband of a wonderful woman and proud father of four young children. My mind flashed to what life would be like for them should something happen to me. I was comforted knowing that even though such an event would be very difficult for them, it wouldn’t have to be financially devastating. We’d already put an estate plan in place, including life insurance to adequately provide for my family in my absence. That February day was a personal and stark reminder of the extreme importance of such planning.

As a Certified Financial Planner, I’ve seen the effects that failing to plan has had on those left behind. I’ve seen a wife and her children, after 30 years of marriage, be forced to move in with her parents and rely on them financially because her husband died unexpectedly in his sleep. They always thought they had plenty of time to plan.

I’ve talked with children who have had their careers and family life put on hold while they had to settle the estate of a parent who put off taking care of business. I’ve seen families torn apart, fighting over the inheritance, because their parents never made sure their wishes were known and would be carried out.

There have been family farms and businesses unnecessarily lost because of onerous estate taxes. Thousands and thousands of dollars that Dad thought would go to the kids went to Uncle Sam instead. And why? Because Dad didn’t want to spend the one or two thousand dollars it would take to put the right estate plan in place. He was penny-wise and pound-foolish.

Did you know that 70% of Americans fail to do any estate planning? Are you one of them? If so, why? Unless you have discovered the Fountain of Youth, there is simply no excuse for not planning for the settlement of your estate. Do you want to leave your loved ones in a mess? Do you want your wife to struggle through a complicated and emotional probate process? Do you want your kids fighting tooth and nail over what you leave behind?

Getting your affairs in order doesn’t have to be difficult. And you don’t have to ‘get everything together’ in order to do it. Certified Financial Planners like myself can walk you through the process and come up with a plan that will be simple, cost-effective and ensure that your wishes are carried out. An attorney can then draft the necessary documents.

The point is, there is simply no excuse for not putting your affairs in order. Even if you have documents in place, make sure they are current. Don’t put if off any longer. Like ‘Marge’ found out, you never know when your future will take an unexpected turn.

If you have questions about this or any other financial topic, I want to hear from you. You can reach me online at http://www.guardingyourwealth.com or toll-free at 1-877-827-1463.

Mr. Voudrie is a Certified Financial Planner and President of Legacy Planning Group, Inc., a Private Wealth Management Firm in Johnson City, TN.

Nationally-syndicated financial columnist and Certified Financial Planner® Jeffrey Voudrie provides personal, in-depth money management services and advice to select private clients throughout the USA. He’ll answer your financial question – FREE at http://www.guardingyourwealth.com

Irrevocable Life Insurance Trusts (ILITs) are planning tools used to keep life insurance proceeds outside of the taxable estate.

For example, if a married couple has an estate of 6 million, they can pass 4 million to the next generation with no tax if they set up the proper trust arrangement to take advantage of the maximum lifetime unified credits. That leaves 2 million still subject to tax under the current law.

The logical thing to do is to purchase a survivorship life insurance policy for the projected tax. However, a policy purchased in the manner most people are familiar with, the problem is not solved; it is compounded.

If the couple has any “incidences of ownership” in the policy, it will be included in the estate. The purchase of a one million dollar policy increases the estate to 7 million. Four million passes tax-free, but now the taxable estate is 3 million. This increases the tax by some $225,000.

Enter the Irrevocable Life Insurance Trust

Attorneys draft Irrevocable Life Insurance Trusts. The trust will apply for its own Federal Tax ID number. The trust will then apply for the survivorship life insurance policy. It will be the applicant, owner and beneficiary of the policy. Typical wording is “The John and Mary Smith Irrevocable Life Insurance Trust dated April 5, 2007, JPMorgan Chase Bank, trustee.”

In this example, since neither John nor Mary has any “incidence of ownership” in the policy, it will not be part of their taxable estate.

The Owner and Beneficiary

As opposed to using an ILIT, I have worked with a few cases where the only child or children are the owner and beneficiary. This may work. However, each year the parents gift the money to pay the premium, there is no assurance that the money will be used to pay the premium. Furthermore, the children, as owners, have access to the cash values. An ILIT has much more assurance.

I have seen the trustee be a child, the couple’s attorney, accountant or a long-time family friend. All of these will work, but an un-biased third party, such as a bank, is much better. If an individual is the trustee, name a bank as the successor trustee. Banks don’t die.

The Crummey Letter

Typically, the life insurance premiums are paid by the parents in the form of annual gifts to the Irrevocable Life Insurance Trust. Currently (2007) a person can give up to $12,000 each year to as many people as they want without paying gift tax or having the amount subtracted from their lifetime exclusion. However, these gifts must be “present interest” gifts, which mean the recipient must have immediate rights to the gift.

Gifts to an ILIT, for paying premiums on a life insurance policy owned by the ILIT, are not “present interest” gifts. A “Crummey” letter qualifies the gift as a “present interest” gift. The letter is not crummy or poorly written; the letter takes its name from a court case initiated in 1968 by Clifford Crummey, who was trying to do this very same thing: make annual gifts present interest gifts. Ultimately, the outcome of the case required the use of a letter, now known as the “Crummey” letter.

A letter is sent every year to each of the beneficiaries of the ILIT. It simply states that a gift has been made to the ILIT and they can withdraw it if they want within a certain timeframe, usually 30 or 60 days. If they don’t exercise this right, the gift becomes a present interest gift.

Obviously, there is an “understanding” between the parents and children to ignore these letters, as it is a part of the overall estate plan. The annual gifts and the ensuing yearly Crummey letters do not have to go to children with a legal capacity, such as age 18. I have seen letters written to 4-month-old babies. In this case, even though the baby was not able to read the letter or understand the estate planning rationale behind it, it did not exercise its right to the gift. Phew, another legal bullet dodged.

As you can see, it is very important to arrange for the annual drafting of these Crummey letters. Some banks’ trust departments used to provide this service if they were the trustee of the trust. This was just a courtesy as they never would see or manage any of the life insurance proceeds.

The best bet is to have your attorney do the letters. I have one client whose law firm (under a written set of instructions) has the premium notice from the life insurance company sent to their firm, prepare and send the Crummey letters and then pay the premium. All the client has to do is open a letter each year from the law firm indicating a premium is due and send them a check. Other than that, they don’t have to lift a finger. A nice service.

If you have an estate that will be subject to estate taxes and your advisors suggest a life insurance policy to pay the tax at a discount, make sure you evaluate the use of an Irrevocable Life Insurance Trust.

Robert D. Cavanaugh, CLU is a 36-year financial and estate planning veteran and author of the free newsletter, “The Estate Preservation Advisor”. For cutting-edge, easy-to-understand financial planning resources and techniques to increase your income, reduce taxes and preserve your estate, go to http://theestatepreservationadvisor.com/rd/subscribe.htm

A Trust is a relationship created by a “settler” whereby during his lifetime he transfers assets to a “trustee” for the benefit of another person or class of persons called “beneficiaries”.

The Trust Deed is a written instrument or contractual agreement which sets out in detail the duties of the trustee, the names of the beneficiaries and the assets which are the subject of the trust. It enables the settler to make confidential provisions for himself or his family in a tax efficient manner during his lifetime or upon death, by divesting himself of income and assets to a trustee who will hold and administer them in a tax free jurisdiction such as Switzerland, Liechtenstein,Cayman Islands, British Virgin Island, Antigua and Barbuda.

With the ever growing threat of predatory lawsuits, punitive and retroactive government regulation, and the generally uncertain climate, asset protection trusts have become an important financial planning tool for doctors, entrepreneurs, developers, professionals, businessmen and anyone who has assets they do not want to lose.

The main purpose of an offshore trust is to protect the assets of the settler against financial disaster which may be caused by excessive death duties, a spendthrift family member, marital or family breakdown, mismanagement of business ventures, contingent creditors and political risk.

The underlying principle of a trust is the clear separation of the legal ownership of the asset - which lies with the trustee - from the beneficial ownership of the asset, which lies with the beneficiaries. The trustee gives the settler an assurance that he will take responsibility for the asset and distribute or deal with it in accordance with the settler’s wishes.

see http://www.taxhavenco.com

Recently I shared the heart-wrenching story of a young soldier who had to deal with the unexpected death of his mother. She didn’t have her affairs in order and now her son has the extremely difficult task of recreating her financial details from scratch. Here are some simple steps you can take to ensure that your loved ones aren’t left in a lurch.

First thing you need to do is create a ‘survivor file’ which will contain all of your important financial and personal information. Secondly, you need to tell someone you trust where to find it should the need arise. Maybe you’ve put your will or living trust in a safety deposit box. Perhaps you have a filing cabinet containing your pertinent financial information. Your computer might hold the bulk of your money details.

No matter where or how you have this information, it is vital that your spouse and one other person you trust know about your ‘survivor file’, its location and how to access it. It doesn’t help if your spouse is the only one who knows about it if you are both killed or injured in a car accident!

Your ‘survivor file’ needs to encompass several key areas. Your will or living trust is the most important. Of course, this assumes you have these documents. 70% of Americans die without even a will. Fewer still have a Medical Power of Attorney, Durable Power of Attorney or a Living Will, which will all come into play should you become incapacitated. I can’t emphasize enough how important it is to have these properly executed and updated estate documents in place.

Along with your estate documents, your ‘survivor file’ needs to include a list of financial institutions where you have accounts. Included should be banks, brokerage firms, insurance companies, credit cards, pension plan providers and the like. A simple way to do this is to place either an original or photocopy of a statement from each institution in your ‘survivor file’. It should list the account number, how it’s registered and the institution’s name.

Don’t forget to include the locations of any safety deposit boxes (and the keys) you have. If this is where you keep your ‘survivor file”, be sure your trusted person knows where it is and has the ability to access it. Be sure to list all passwords for your computer and on-line accounts.

Your ‘survivor file’ should also list professionals you regularly consult, such as your attorney, accountant or CPA, insurance agent, financial planner, broker and the like. State your wishes for your funeral arrangements. If you have pre-planned your funeral or have a final burial insurance policy, be sure to list this information as well.

How your personal possessions are divided can create all sorts of tension among your heirs. Listing who gets what in writing, with pictures or on video will put an end to any arguments. Often this information is included in your will or living trust. If it is, be sure to keep it updated. Your trusted person needs the ability to secure these assets at your death so your wishes can be carried out, instead of your loved ones carrying out your treasures at their own whim.

If you have pets, be sure to include them in your estate plan. Who do you want to care for them after you’re gone? Make sure this person is willing to assume this task beforehand and include in your ‘survivor file’ any pertinent information such as your pet’s vet and any medical conditions.

Lastly, if you’re one of those people who have hidden money under the mattress or put guns up in the attic, make sure you note their location in your ‘survivor file’. Otherwise, they might never be found!

Don’t leave your loved ones hanging. Create your ‘survivor file’ today and make sure it is clear who is in charge when you’re out of the picture. That way, you can help avoid confusion and misunderstandings during what will already be a difficult time for those you love.

Nationally-syndicated financial columnist and Certified Financial Planner® Jeffrey Voudrie provides personal, in-depth money management services and advice to select private clients throughout the USA. He’ll answer your financial question – FREE at http://www.guardingyourwealth.com

Mr. Voudrie is a Certified Financial Planner, nationally syndicated newspaper columnist and President of Legacy Planning Group, Inc., a Private Wealth Management Firm in Johnson City, TN. He can be reached at www.guardingyourwealth.com

Few situations have a greater potential for problems as when dealing with money and relatives. If you’ve ever had a child ask you for a loan or a distant relative request money to start a business, then you know just how touchy these situations can be. Here are some real-life situations, along with some simple steps to help you safely navigate the tricky waters that result from mixing family and finances.

John and Sue were approached several years ago by their son, a recent medical school graduate. He wanted to purchase some land on which he and his family would eventually build a home. When it came down to working out the details, he discovered that he needed help. Scrambling to make the deal work, he pressed Mom and Dad.

They agreed by signing for the loan and titling the property in their name. Their son made the monthly payments directly to the bank. But John and Sue didn’t realize the risk they were taking.

John and Sue are medical professionals and have protected their assets from lawsuits using malpractice insurance, special trusts and partnerships. From a liability standpoint, they have protected the ‘front door threats’ but ended up leaving the back door wide open.

John and Sue just discovered that their son is in the final phase of moving a house onto the property. Suddenly John and Sue realized that they were the ones that would be liable if one of the workers was injured or killed.

It was different for Frank and Jane. They thought it would make a good investment to buy a home near their daughter’s college. She could live there while she was in school, and they could sell the house after that. The home was in their name and the loan was in both the parents’ and child’s name. It seemed like such a good idea at time.

Now their daughter has finished school and recently married. Guess where she and her husband are living? And guess who has yet to pay a penny in rent? Worse yet, Mom and Dad are left holding the bag. It is way past time for their chick to sprout wings and fly on her own, but there’s little motivation to leave that comfortable nest.

For Sam, a successful surgeon, it’s not just the kids that want a piece of his wealth. It seems like a week doesn’t go by that he doesn’t hear about some hot business idea from a distant relative or casual acquaintance.

There are several steps you can take to avoid these uncomfortable situations. First of all, don’t let emotions force you into making bad business decisions. As much as you want to help your child, don’t let short-term situations push you into long-term commitments you’ll regret later.

Assuming you’re comfortable offering financial help, the number one rule is to eliminate any possible confusion or uncertainty by having everything in writing. There are several inexpensive software packages available that have a myriad of legal documents that can be modified for your unique situation.

Second, consider using a go-between, such as a lawyer, CPA, or financial advisor. This person will work for your best interest and keep the emotional aspect to a minimum. And in the event that your child or relative doesn’t keep their end of the bargain, the go-between can do the dirty work on your behalf.

This brings us to our third point, which is to enforce any agreements you have. It doesn’t do much good to have a contract you don’t actually enforce. Otherwise they won’t be motivated to fulfill their obligations.

And if you’re like Sam and tired of being pestered by relatives for money, a financial go-between could be the perfect solution. After a while, the word will get out that you’re no push-over and your go-between can still determine any ideas that actually do have merit.

By keeping details in writing, using a go-between, and enforcing agreements, you’ll help your kids learn to be responsible adults and stand up on their own. And hey, maybe someday when they’ve become successful, you can hit them up for a little payback of your own. “Son, have I got an opportunity for you!”

Nationally-syndicated financial columnist and Certified Financial Planner® Jeffrey Voudrie provides personal, in-depth money management services and advice to select private clients throughout the USA. He’ll answer your financial question – FREE at http://www.guardingyourwealth.com

Mr. Voudrie is a Certified Financial Planner, nationally syndicated newspaper columnist and President of Legacy Planning Group, Inc., a Private Wealth Management Firm in Johnson City, TN. He can be reached at jeff@guardingyourwealth.com