Spendthrift provisions preserve and protect assets

A spendthrift provision can preserve assets in your trust and protect assets from creditors of your beneficiaries. A spendthrift provision A spendthrift provision is a fundamental part of a trust in a great estate plan.

Let’s talk about something called a “spendthrift provision.” It’s a big thing that distinguishes a trust from a will.

We’ll start with a scary story — true story. I’m administering probate of a pretty good size estate. The beneficiaries have a fairly decent idea of what their distribution will be at the end of the probate proceedings, and the estate receives a garnishment. A couple of the beneficiaries have an old judgement. The Executor [I mistakenly called this the Trustee on the video] and the attorney for the estate receive a garnishment on this judgement. It says, essentially “Dear Executor, here’s a lawful judgment against these two beneficiaries, so to the extent that the estate is going to pay out to them, first this creditor gets their money.” There’s not a happy ending to that story, unless you’re the Creditor. The beneficiaries had a large chunk of the distribution pulled from the estate lawfully by the Creditor. If Mom and Dad had a trust, on the other hand, that trust very likely would have included a spendthrift provision.

First of all, because the trust doesn’t go through probate, the Creditor doesn’t know there’s a distribution out there. [Probate of a Will is a public proceeding, so creditors are notified by newspaper and/or mail that Estate proceedings have commenced.] There is not a mechanism to chase down those funds. But even if they tried, a trust should have contained a spendthrift provision which would provide the trustee a way to safeguard those distributions, and provide the trustee with discretion to not pay out those funds to the Creditor. Instead the Trustee would pay those to the beneficiaries, who then decide when and how they pay that creditor.

A spendthrift provision is a fundamental part of a great estate plan (primarily a Trust). I hope I can be of more help to you in this area. You can always reach me at Estate Plan Kansas.


You can use your Trust during your life.

People ask me: Can I use my trust during my life? I get surprised by the question, but for sure!

You might think of your Trust like your big backup savings account. Once you convey assets into your trust, here’s a very common story: a couple sets up their trust. They fund major assets into their trust, then during the life of the two of them they can they can change their trust at any time. They can pull funds out of their trust, spend trust funds, trade, they can sell away something that’s in their trust. All this is generally without restriction during their lifetime.

So it is fair to think of it like just a big savings account they have. After one of those spouses passes away that trust is still there and then typically (this is something we can craft in your particular trust) when one spouse has passed away the entire trust is still available for the health, education, maintenance and general welfare of the surviving spouse. In other words, for their life. The surviving spouse still has all the trust assets available for them.

What is typically locked in (the trust becomes irrevocable) is after the death of one of them, the decisions they made to make distributions to beneficiaries. Typically the Trust might say after the death of both of them there’s going to be distributions to children, to grandchildren, maybe to charities. So those things are locked in after the death of the first but for that surviving spouse, all those assets are still available and whatever is left — unless it’s set aside, preserved in some other way — whatever is left after the death of the surviving spouse, that’s going to go to the beneficiaries. So, hopefully that clears up a common misconception. Because that question throws me when I get it once in awhile.

I trust this information is useful to you. and as you know you can always find me at Estate Plan Kansas. Read more here.

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What is probate? and why avoid it?

What is probate? And why avoid it? Avoid probate because it can be slow and expensive.

When a loved one dies with a Will in Kansas you locate the will — hopefully in a safe deposit box or a safe somewhere because the original is going to be filed with the court — you file that will, and petition for probate of the Will and seek appointment of an Executor. Then you publish the proceedings. You are going to publish, at the same time, notice to creditors that they can exhibit claims, file claims against the estate. Most creditors — well, those you don’t know identification and address for — are going to have four months from the time you first publish to file a claim. Anyone to whom you give direct notice by mail, they only have 30 days.

Then the court, through a hearing in the short-term, is going to appoint an Executor: someone to administer and oversee the estate and deal with the Court. That executor, within 30 days of appointment, is to file an inventory of the estate, a list of at least the major assets of the estate. After the inventory, there could be a — if there’s not a lot else to do — there could be a waiting game for claims and sometimes other administration of the estate, sometimes to answer questions of family, deal with maybe tricky assets, tenancies, something that needs liquidated, cattle that need care for. Sometimes as that wraps up and you start dealing with all the creditor claims, you are going to publish again that the estate is going to close. Then close and distribute the estate, with court oversight of the estate. So, this is when you are finally going to get to do what the Will asked be done with the decedent’s assets, and hand those things out. And this was generally at least about a six-month process or more. It could go well over that but for a fairly routine probate proceeding 6 months is a somewhat average, short time I would estimate.

Now let’s contrast that with a Trust.

So with a trust: on the death of a loved one, the Trustee (who was simply named in the Trust document) follows the instructions in the trust, they make distributions if the trust so provides, so they start handing out, paying out, writing checks, conveying things or in some cases it may just be that trust is available those assets to care for the surviving spouse during his or her life. Again this is a simple process: someone dies, the Trustee takes starts making those distributions or using the funds to care for the surviving spouse, there is no publicity, no court oversight. no delay. You can see the obvious advantage of a Trust over a Will. I trust this information may be of use to you. I am Dan Covington. You can find me at EstatePlanKansas.com.

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Trusts are not just for wealthy people.

Trusts are not just for wealthy people. Trusts are important in good estate planning and help avoid probate, pass assets privately without court supervision, pay for college, and may even reduce taxes with a step-up in basis for your family. And of course, you can use your Trust during your life.

Read more here.

Love your family; save them taxes

estate plans can save taxes

Want your family to really love you? One term: stepped-up basis. You are going to love Internal Revenue Code § 1014(a) because it could save you or your loved ones taxes.

Let’s say the family farm your parents give you the family farm. You know if you sell it, the IRS will tax you, essentially, upon the difference between what was paid (cost basis) for the farm (perhaps a low price many, many years ago) and the price for which you sell it today.

You can pass along assets in a better way through your estate plan. Then, your loved ones may not pay tax on the difference between their sale price and your cost basis. Instead, they can have the asset appraised as of your death, and use that recent appraisal figure as their stepped-up basis. With that, they pay only the difference between the sale price they receive and that new stepped-up basis.

It is simple to imagine the tax difference can be astounding, especially where an asset may have been held 30-40 years.

Love your family. Give them more by helping them save on taxes.

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