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Are You Trust Worthy?

By Peter C. Armbruster
Senior Vice President and Senior Trust Officer

To achieve their personal goals in building an estate, individuals, first, consider their family and financial situation. Once their goal has been defined, the development of long-term investment objectives will provide a foundation for the structure of their estate plan, and one that is best suited to achieve their desired results.   
 
Expressed in one manner or another, most individuals will usually focus their current and future goals around three specific points:
 
  • Increase their portfolio value to enhance a current standard of living
  • Create a sustainable resource that will be accessed during retirement
  • Accumulate an estate for designated beneficiaries to inherit
 
Most definitely, they do not want a large percentage of their estate to be consumed through either probate expenses or estate taxes.
 

Enter the “Living Trust” 

 
Living trusts are not new. They allow an individual to control the management of their estate for their benefit during their lifetime and the disposition of their assets after their death.
 
While a will is the most widely used document when it comes to planning an estate, a will does not (1) avoid probate, (2) provide confidentiality – a will is a matter of public record, (3) prevent court control of your assets if you become mentally incapacitated, or (4) permit an expeditious settlement of your estate.
 
The advantages of a Living Trust are many:
 
  • Is easy to establish and may be amended or terminated at any time
  • Gives you maximum control while you are living and after you die
  • Prevents court control of your assets if you become mentally incapacitated
  • Assures you and your family of maximum privacy. Only you, your attorney and your trustee know the terms and provisions of the document.
  • Permits you to appoint a professional trustee who will manage and invest the trust in compliance with your instructions
  • Allows for the more efficient management of your estate
  • Your beneficiaries avoid the time delay and expense of probate
 
A probate-avoidance living trust is a document easily drafted by an attorney who practices probate law, and is probably an example of the most common type of Living Trust. To be of maximum efficiency, most of an individual’s property is transferred to the living trust during their lifetime, and a trustee is responsible for the management of the property both during their life and after their death. After death, the trustee is responsible for the transfer of the property held in trust to the beneficiaries and, once completed, the trust is dissolved avoiding probate.
 
To be clear, a simple probate-avoidance living trust has no effect on, and will not reduce estate taxes. An individual must have accumulated a substantial amount of property, which exceeds a certain exemption minimum, before Federal estate taxes are due. The “American Taxpayer Relief Act of 2012”, enacted into law on January 2, 2013, established the exemption at $5 million (annually indexed for inflation from 2010). In 2013, the exemption is $5,250,000.
 
The exemption on Massachusetts estate tax is $1 million and does not provide for adjustments due to inflation.
 

Planning Considerations

 
However, if you (or you and your spouse) expect that your estate may owe the tax, consider creating a Living Trust that will both:
 
  • Avoid Probate, and
  •  Minimize Federal and MA estate taxes
 
A marital deduction trust, also referred to as an “ABC Trust”, is an arrangement of trusts for the benefit of surviving spouses that takes into consideration the difference between Federal and MA tax exemptions.
 
The assets in the “B Trust” equal the exact amount exempted by MA ($1,000,000); the remainder of the assets, up to the Federal exemption level, are entered into the “C Trust”; any balance of assets that exceed the Federal exemption level comprise the “A Trust”.
 

In Closing……

 
At First Financial Trust, we work with individuals and their counsel in customizing a unique plan for the management of their estate. We help you address the responsibilities and unexpected questions posed by your success by combining a personal plan with a defined financial strategy.
 
We offer you our financial expertise, expert advice and a personal relationship designed especially for the challenges and opportunities you face.
 
Among clients who may appear alike, success can take on many different meanings. During a period of economic uncertainty such as we are seeing, our understanding of our clients’ goals and objectives becomes the foundation for a long lasting relationship built on trust.

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