h to set up a living trust. Some marketers charge several thousand dollars, which is excessive, particularly if you do not own hundreds of thousands of dollars’ worth of assets. You can establish a living trust either by consulting self-help books or software or through a qualified estate lawyer. The living trust names the beneficiary of the trust and appoints both you and s mbt shoes omeone else as trustees. Or, if you prefer, the document can name mbt shoes you as the only trustee and designate some other trustworthy person as the successor trustee to take over when you die or no longer can serve. Like a will, the living trust stipulates who gets what property when you die. Once you h mbt shoes review ave set up a living trust, it is crucial that you transfer title of your assets to the trust. Otherwise, the trust remains an empty shell that does not serve its intended purpose. So, for instance, instead of keeping mbt stockists your assets in the name of Mary Pinkett, you should change ownership to the Mary Pinkett Trust. This PART TWO: Financing Your Present and Future Needs applies to your home, your stocks, bonds, mutual funds, and bank accounts, and all your other major assets. Quite often, people establish living trusts, then forget to fund them. Support trusts. If you have a spouse and children who depend on your income, you might want to set up a support trust. Trustees of such vehicles are instructed to provide enough money to support beneficiaries in a comfortable lifestyle. If possible, the trust should generate enough income to accomplish this goal. If the income from bond interest and stock dividends is insufficient, the trustee might spend some principal to continue to support. Usually, he or she is reluctant to invade principal, however, because depleting it makes it more difficult to maintain a high level of income in the future. Discretionary trusts. A discretionary trust is similar to a support trust, except that it gives the trustee even more latitude in deciding how much income and principal must be spent to support the beneficiaries’ lifestyle. The trustee must use his or her discretion in de mbt walking shoes ciding what is fiscally prudent, even if the beneficiaries desire higher payouts. Spendthrift trusts. If you have a child or spouse who appears to be irresponsible about spending money, a spendthrift trust may be right for you. In such a trust, you instruct the trustee to set strict limits on how much money can be doled out at any time and not to accede to demands for more. Such a trust may also be appropriate if the b mbt sale eneficiary is mentally or physically incompetent. A spendthrift trust can protect your assets against the claims of creditors if your beneficiaries get in trouble with the law or pile up debts. Standby or convertible trusts. A standby trust stands ready to receive your assets at a particular time in your life. The trust remains empty, awaiting the moment when it needs to be converted into an active trust. To establish such a trust, have your lawyer draw up a durable power of attorney, which gives permission to move assets into the t UK MBT rust at the established time, then manage them for your benefit. For example, assets may be moved into the trust if you become incapacitated. Bypass trusts. When a couple’s assets exceed the $675,000 (rising to $1 million in 2006) unified credit limit, a bypass, or credit shelter, trust may help provide for the surviving spouse and pass principal on to the children free of estate taxes. For example, ass mbt shop uk ume that in 2006 that a couple owns $2 million in assets— $1 million in the husband’s name and $1 million in the wife’s nam cheap shoes mbt e. If the husband leaves all of his assets to his wife, her $2 million estate would be hit with huge estate taxes when she dies. Instead, the husband sets up a bypass trust, which stipulates that his $1 million goes into the trust when he dies. Upon his death, his widow receives income generated by that $1 million for the rest of her life, plus the option of receiving principal if she needs it. Because she has only limited access to the capital in the bypass trust, that money is not counted as part of the marital deduction. When the wife dies, the $1 million in the bypass trust, along with her $1 million estate, pass to their heirs free of estate taxes. Bypass trusts CHAPTER 15: Estate Planning—Keeping Your Assets in the Family therefore accomplish two goals: They provide assets on which the surviving spouse can live, and they minimize estate taxes by reducing the surviving spouse’s taxable estate. Q-TIP trusts. The idea behind qualified terminable interest property (Q-TIP) trusts mbt shoes is to make the most of your unlimited marital deduction and still control who inherits your assets after your spouse dies. For example, as a husband, you can set up a Q-TIP trust so your assets will transfer into the trust when you die. Someone other than your wife must be appointed trustee. Upon your death, your wife receives income generated by those assets for as long as she lives. She is the only person allowed to receive income from the trust. Neither she nor anyone else can give away the money because the IRS fears that the funds will be shifted to someone in a lower tax bracket. This way, the IRS ensures that estate taxes will be paid on the assets in the trust when your wife dies if her assets total more than $675,000 (rising to $1 million in 2006). While many uses for Q-TIP trusts exist, they are often used by wealthy people who have remarried and want to pass their assets on to the children of their first marriage while providing income for life to the current spouse. Insurance trusts. Life insurance trusts, which are irrevocable, ensure that the death benefit from your life insurance policy does not transfer into your estate, which could push the estate’s value beyond the lifetime estate tax exemption threshold and trigger estate taxes. The trust receives the insurance proceeds when you die, thereby circumventing both estate taxes and probate proceedings. You can stipulate how and when the insurance money will be dispensed to beneficiaries. For example, you might want only the income paid to them for a few years, after which they receive the principal. Or you may want them to receive the principal immediately in a lump sum. You might also allow the trustee to use the life insurance proceeds to pay your estate mbt shoes online taxes. This is called a wealth replacement trust. When establishing a life insurance trust, buy a new policy in the trust’s name; you may have gift-tax problems with an existing policy. Make sure that the new policy names you as the insured and the trust as the owner and beneficiary. Have your estate attorney carefully prepare and review this trust to make sure that it accomplishes what you want. Charitable trusts. To pass on assets to your favorite charitable institution, you may want to consider a charitable remainder trust. You can make such an arrangement with your alma mater, a hospit mbt shoes australia al that once cared for you, or your church or synagogue. If you deposit assets such as stocks or bonds in the trust, you receive an immediate income tax deduction for your contribution. During your lifetime, you also receive an annuity generated by the trust assets. When you die, the assets are retained by the charity. You can usually give an unlimited amount of assets to a qualified charity with no gift or estate-tax limitations. Income tax charitable deduction limitations do apply, however. It makes sense to give assets that have appreciated sharply in value so you benefit from a tax deduction for the fully appreciated price but do not have PART TWO: Financing Your Present and Future Needs to pay income or estate tax on any capital gains. A charitable trust coupled with an irrevocable insurance or a wealth replacement trust can be a fantastic vehicle for saving income, gift, and estate taxes while you satisfy your charitable inclinations. Consult your tax advisor, your favorite charity, and your estate lawyer for help with these complex t mbt shoes australia rusts. Estate tax trusts. Estate taxes can be burdensome. The federal estate tax (formally called the estate transfer tax) starts at a rate of 37 percent and graduates up to about 55 percent—much higher than the top income tax rate of 39.6 percent. In addition, some states levy a 5 percent tax on your estate even if it is worth less than $675,000 (rising to $1 million in 2006). All estate taxes reduce the amount that your beneficiaries receive. Federal estate-tax law allows every individual to pass on to heirs $675,000 worth of assets free of estate taxes. This amount is scheduled to rise gradually until it reaches a cap of $1 million in 2006. This is known as the unified credit exemption. While you may think that your estate is worth nowhere near $675,000, you might be miscalculating. Refer back to the net worth calculation you performed in Chapter 1, and update it where necessary. For instance, you might add the current cash value of your life insurance policies, the updated worth of all your employee benefits, and the appreciated value of your home. With the inflation