Manage your estate from the grave

Each person cares about how their wealth will affect their loved ones and the causes they care about. You may know that you can control how your wealth is spent while alive, but did you know that you can still exercise some measure of control over your wealth and even your heirs after your death?

A recent Wall Street Journal article details the ways that people make sure their wealth has the positive effect they want on loved ones and causes through gifts and trusts.

This year, many wealthy taxpayers are giving gifts and creating trusts to take advantage of current estate tax rules. Currently, an individual taxpayer can gift $5.2 million, and a couple can gift $10.4 million, to others tax-free. On amounts above that, the tax rate is 35%. This rule is set to expire in January of 2013, with the new rule putting the exemption cap at $1 million per person and setting a tax rate of 55%.

However, giving gifts means giving up control of money and assets today, while still alive. Generally, creating trusts involves making decisions about who gets the money and how it will be spent for years to come.

Fortunately, you still have some control over these assets through the rules you put into place in the trust. The law usually favors the right of people to give their assets as they wish (up to a point). Exemptions of this include trust provisions that are “contrary to public policy” (such as provisions that require criminal acts to receive the money or racially discriminate). Trust provisions that dissuade the heir from marrying are also frowned upon. Provisions that are illegal, impossible to fulfill, or vague are also problematic.

Acceptable provisions vary by state, but you can consider many options when setting up a trust, including:

Who is included in the trust and how much will they get?

  • You can choose who the heir of the trust will be. A child? His or her spouse? Their children- and by children, will you include step-children or adopted children?
  • How will the trust be divided? Will you give everyone an equal share, or will you include other ways to divide up the assets?

“Incentive provisions”

  • This type of provision really up the ante in controlling your estate and heirs. You can have written in provisions that will give out money and assets based on the behavior of the inheritors of the trust. You could set up provisions that match your heirs’ income based on the profession they choose (Private sector? Public sector?), give them seed money to start a business, or support stay-at-home parents. Some have set up a trust to give out loans to relatives.

“No contest” provisions

  • Some states allow the creators of a trust to include “no contest” provisions that bar inheritors from receiving the trust if they go to court and challenge it. However, sometimes the court voids these provisions if the heir wins the challenge in court.

“Heirloom asset” and pet trusts:

  • Other trusts deal with specific assets, such as a vacation home or pet. These trusts might set up and pay out money to heirs to maintain and visit the vacation home or take care of a beloved family pet.

Trusts are one way to provide the right kind of inheritance to your loved ones, leaving your wealth to affect what and whom you care about after you’re gone—with no regrets. For more information about the regrets that wealth creates and how to avoid them, download our Special Report today.

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