The Swier Law Firm Estate Planning and Probate Law FAQs

What Does Spendthrift Clause Mean In Estate Planning?

A clause added to a trust to protect assets in that trust from a beneficiary’s creditors.  This can include protection from a spouse in divorce.

Example Of Spendthrift Clause In Regards To Estate Planning

My dad put a spendthrift clause in his trust so even though I was supposed to get distributions already the trustee won’t give me any money because I’m in the middle of a nasty divorce and they don’t want it taken from me.

What Does Required Minimum Distribution Mean In Estate Planning?

The amount you are required to withdraw each year from a tax deferred retirement plan after you have reached the required beginning date (RBD).  This amount is determined across all of these accounts and is calculated by dividing the year-end value of all of these accounts by a life expectancy divisor provided by the IRS.  Although calculated across all of these accounts, you can take your total RMD from one account.

Example Of Required Minimum Distribution In Regards To Estate Planning

My grandma forgot to take her required minimum distribution last year and had to pay a penalty.

What Does Provision Mean In Estate Planning?

This just refers to a clause or section of a legal document.

Example Of Provision In Regards To Estate Planning

Provision 5.3 of my mom’s will says that I am named the Personal Representative of her estate.

 

What Does Trust Mean In Estate Planning?

An entity that holds assets for beneficiaries.  Beneficiaries can be the grantor, grantor’s spouse/children, charities, pets, or other named individuals.  Beneficiaries can be named without being currently living. 

Common Types Of Trusts

Revocable Trust 

A trust formed during someone’s lifetime which they have the right to “revoke” or end/cancel, change or amend during their lifetime.  This is commonly referenced as a way to avoid probate (trusts don’t die), but because the person has kept rights to the property it will not help avoid taxes.  These trusts need to be funded during life to gain their full benefit.

GRAT: (Grantor Retained Annuity Trust)

A trust used to transfer very large gifts without gift tax.  This is set up for a period or specific term with the Grantor receiving an annuity over that time.  At the end, what remains in the trust passes to the beneficiaries tax free.

Living Trust: (See Revocable Trust above)

Inter Vivos Trust: (See Revocable Trust above)

This is a Latin term meaning “between the living” but is the same as a revocable trust described above.

Pet Trust  

A trust set up specifically to help care for pet/s after death.  Generally able to be used by the person caring for the pet for pet-related costs, can pass to beneficiaries or charity upon death of pet.

QTIP Trust  

(Qualified Terminable Interest Property Trust): This trust will delay estate tax until a surviving spouse dies so that more income will be available to that surviving spouse during his or her lifetime.

QDOT Trust: (Qualified Domestic Trust)

This trust will allow a non-citizen spouse to qualify for a marital deduction at the death of his or her spouse.

QSST: (Qualified Subchapter S Trust)

A trust that meets the IRS standards to be allowed to own subchapter S stock.

Conduit Trust/Pass Through Trust 

A trust set up to be the beneficiary of an IRA which states that any distributions made to the trust must be paid out of the trust that same year, no accumulation is allowed.

Community Property Trust  

A trust that will cause the assets within to be treated as community property even when not in a community property state.  This is best for couples that have low-basis assets since it allows a double step-up in basis of assets at death resulting in reduction or elimination of capital gains tax upon sale.  South Dakota is one of only a few non-community property states to allows community property trusts.

Special Needs Trust/Supplemental Needs Trust 

A trust intended to supplement the life of a disabled individual without interfering with state or federal benefits they are or may become entitled to.  This can be set up by someone else, or by the disabled person themselves.  Different rules will apply depending on who sets up this trust.

Testamentary Trust  

A trust that is not formed during a person’s life, but is instead formed at the person’s death, generally through provisions in their will.  This does not avoid probate.

 

What Does Testate Mean In Estate Planning?

To die with a will (opposite of “Intestate”).

Example Of Testate In Regards To Estate Planning

When I went to the probate court’s office after my grandpa died the first thing the lady asked me was “Did he die testate or intestate?”.  I had no idea what she was asking me.  I guess he died testate because he did have a will.

What Does Reverse Mortgage Mean In Estate Planning?

A mortgage loan placed on unsecured property.  These are marketed to older individuals as allowing them to get cash for the equity in their home with no monthly mortgage payments.  These are sold to sound wonderful but there are very few circumstances in which I would say this is the right option for a client. Treat carefully here and consult a professional not selling you something (attorney, accountant, financial advisor) prior to entering into one of these.

Example Of Reverse Mortgage In Regards To Estate Planning

My dad thought that putting a reverse mortgage on his house was a great idea to help him in his old age, but now that he’s passed we are having a lot of issues and owe a lot of money on a house that had previously been paid off.

What Does Renunciation Mean In Estate Planning?

The formal giving up of a right to serve in a position – personal representative/trustee/executor etc.  This is generally done in writing and filed with the probate office/court or interested parties of a trust.  A renunciation does not generally have the power to name a successor, it is just giving up the right to serve.

Example Of Renunciation In Regards To Estate Planning

I was named as the trustee of my brother’s trust, but I’m currently living abroad and don’t have the time to serve.  My attorney is helping me file a renunciation so the person next in line can be appointed.

What Does Real Property Mean In Estate Planning?

Refers to land and any property that is attached to that land; i.e. buildings, homes, etc.

Example Of Real Property In Regards To Estate Planning

My dad’s probate estate was super small since most of his assets were retirement accounts, life insurance or assets he had placed into a trust before he died.

 

What Does Probate Estate Mean In Estate Planning?

Assets that will go through probate, either through a will or by state law.  This generally does not include property that was jointly owned, payable on death, life insurance, retirements accounts or other assets with beneficiary designations or otherwise already in trust.

Example Of Probate Estate In Regards To Estate Planning

My dad’s probate estate was super small since most of his assets were retirement accounts, life insurance or assets he had placed into a trust before he died.

 What Does Probate and Estate Administration Mean In Estate Planning?

A process involving a court/state oversight through which a decedent’s assets (estate) are distributed to the decedent’s heirs/devisees/issue/descendants.

Example Of Probate and Estate Administration In Regards To Estate Planning

Lots of people talk about how horrible probate is, but my mom’s was actually pretty easy and the clerk at the probate court was very helpful.