14. Reference: Ag Decision Maker (Dec. 2020) Trust as an Estate Planning Tool, *All other areas (877) 545-8828*By Appointment Only, 1601 Rio Grande, Suite 550Austin, Texas 78701Phone: (512) 480-8828Email: email@example.com. Property (cash, land, equipment, or other property) must be transferred into a trust either during the settlors (trust-creators) life or by a will upon his death. For very large estates, it may be valuable to make the election so that property appreciates in the trust instead of in the estate. A trustee is an individual who has a fiduciary duty to oversee, manage, administer, and protect the assets held in a trust for the benefit of the beneficiaries of the trust. 23. Trusts can also be used to distribute property in installments, rather than all at once, and can impose other requirements for the beneficiaries. Living trusts can also be useful in providing management and/or transfer of control through a trustee for elderly, ill, or disabled family members.8.
Trusts are often used together with a will as part of an estate planning strategy, and can be used to provide for an uninterrupted transition of the farmland and farm business. commitment to diversity. 2019 Tri-Cities Area Journal of Business All Rights Reserved. Harry MacCormack has owned 15 acres of farmland on the edge of Corvallis, Oregon, since 1972. See Uniform Trust Code, Section 416, Modification to Achieve Settlors Tax Objectives, http://www.uniformlaws.org/shared/docs/trust_code/utc_final_rev2010.pdf. Irrevocable Living Trust (ILT): Can be used during life; cannot be changed; assets cannot be reclaimed; includes Charitable Remainder Trusts; does not protect assets from Medicaid spend down unless the 60 month lookback period is over; the value of assets in ILT are no longer included within the value of the farmers estate for estate tax purposes. Your trust(s) and/or will should be tailored to meet your farm transfer goals. Trust Property. At death, the farmers assets then transfer to a charity of choice.17 The value of the donation is deductible from the farmers income tax the year the Charitable Remainder Trust is set up and the gift is made.18 19To assist with the creation of a charitable trust, the Internal Revenue Service provides suggested language on its website. Farmers who use RLTs place their property into the trust bucket by formally transferring title of their property into the RLT. Testamentary trusts created under a will, however, do not avoid. al., Revocable Living Trusts, University of Minnesota Extension Estate Planning Series (2016), http://www.extension.umn.edu/agriculture/business/farm-transfer-estate-planning/docs/estate-planning-series5-revocable-living-trusts.pdf. Since a will directs the court how to dispose of your assets at death, this provision will act as a catch-all and direct property still titled under your name to pour into the trust, normally to take advantage of an estate tax exemption of the first spouse to die. The revocable trust transfers assets into a trust, but the grantor maintains control over the assets. N.C. Learn how to use a will as part of a successful farm transfer plan. Farm families, however, tend to have more complex estates and goals. RLTs can provide a vehicle to allow a farming heir who does not have sufficient capital to purchase a farm business outright to gradually buy into the family farm business, as purchase agreements and buyout provisions can be written into the RLT and payments can be spread out over time. However, the transfer will reduce the unified credit and increase the amount of your estate that will be subject to estate tax. RLTs have an advantage over a will as a primary farm transfer tool because while a will automatically triggers the probate process, an RLT bypasses the probate process. Investing in strategic estate planning up front is often far less costly and disruptive to a farm family than handling these issues after a disability or death. Revocable living trusts should be used in conjunction with a pour over will. 22. The trustees fiduciary dutyan obligation of loyalty one owes anotherhas long been established by common law.1 North Carolinaby way of the North Carolina Uniform Fiduciaries Act2has clarified the conduct of financial and property transactions with trustees, as well as the extent of powers available to a trustee when not otherwise limited by an agreement. If title of an asset is not properly transferred to the trust, the trust will not hold (or own) the property and therefore, the terms of the trust do not control/govern the management, administration, and/or distribution of that asset. This means a farmer could place property in trust for her grandchildren, both born and unborn. The essential nature of a trust is that of an instrument created to hold, manage, and ultimately distribute assets that separates the legal ownership of property from the enjoyment or benefit of property. Placing assets into an ILT is final; farmers no longer own the assets, and farmers retain no decision-making power over the assets.15Additionally, creating an ILT may require the preparation and filing of additional tax returns upon the creation of the ILT and throughout the administration of the ILT. Transferring property into an irrevocable trust is essentially a gift to the beneficiaries and transfers may be subject to gift tax.13 Annual amounts over the current annual gift exemption transferred into the trust will be subject to gift tax (though the lifetime exemption applies). Historically with an irrevocable trust, assets funded to the trust cannot be removed by the Grantor, nor may the Grantor make modifications to the trust without petition to the appropriate court (which nonetheless must apply legal principles that avoid frustrating the purpose of the trust or its beneficiaries). 12. Beneficiaries of the trust are also named in the trust document, and may include the trustmaker, spouse, relatives, friends and charitable organizations. Cooperative Extension prohibits discrimination and harassment regardless of age, color, disability, family and marital status, gender identity, national origin, political beliefs, race, religion, sex (including pregnancy), sexual orientation and veteran status. The grantor normally names a trustee line of succession in the event a trustee cannot or will not serve. Under federal tax law ( A delay in recording (funding) increases the risk that such benefits of the trust will not be realized. Receive Email Notifications for New Publications. Such services offer all documents associated with the trust suite, including pour-over will, trust instrument, certificate of trust, deeds to trust, powers of attorney, etc. As for unregistered personal property, such assets are funded to the trust as an internal matter, with a document listing such items and attached as appendix to the trust. (As a matter of convenience, an appendix to the trust titled with instructions on titling is helpful, as is a list of unregistered items with which Grantor wishes to fund the trust.) 9. See Uniform Trust Code, Section 402, Requirements for Creation, http://www.uniformlaws.org/shared/docs/trust_code/utc_final_rev2010.pdf. If the formalities are not done correctly, the trust is nothing more than a pile of paper.6 An estate planning attorney can help with the formalities so that your family can rely on a trust to function properly during your life and after death. Although state law varies, there are three basic legal requirements for creating an effective trust.4. Depending on the type of trust, a trustee can also be the owner of the trust property, meaning farmers can place their own property in a trust and then name themselves as the trustee. A farmer might prefer the use of a testamentary trust to be able to control the distribution and management of assets even after he or she has passed away. Instead, attorneys can provide information about pros and cons of different options, advice about what is common versus unusual, fair versus unfair, etc. However, at this time in most states, ILTs do not protect assets from Medicaid spend-down unless the 60 month (5-year) lookback period has expired. An ILT removes property from a farmers estate forever, and the farmer cannot get it back. al., Establishing A Will, University of Minnesota Extension Estate Planning Series (2016), https://www.extension.umn.edu/agriculture/business/farm-transfer-estate-planning/docs/estate-planning-series3-establishing-a-will.pdf.