Top-rated Attorney John O. McManus recently spoke with Bankrate Reporter Judy Martel about how to ensure a trust is set up to meet your personal and financial needs. Published today and syndicated by Fox Business, Martel’s piece, “An Irrevocable Trust That Evolves with You,” covers the keys to choosing a trust that “meets your specific needs while building in the maximum amount of flexibility allowed so that, as your needs change and evolve, you retain some power over the trust.”
In the article, Martel shares counsel from McManus:
One of the first important considerations when setting up a trust is its location, says John McManus, founder of McManus & Associates in New Providence, N.J. Some states offer better creditor protection, allow for a trust to exist for a longer period of years before becoming taxable or do not impose state income tax on trust assets. A few states, he says — notably Alaska, Delaware, South Dakota and Nevada — provide additional power to the trust creator while still protecting assets from creditors and maintaining the trust’s tax-beneficial status. Although trusts can be set up in those states regardless of where you live, it is typically more expensive.
She also draws on knowledge shared by McManus, the founding principal of McManus & Associates, to help readers understand the structure of a trust:
At the top of the triangle is the trustee, the person who has legal title to the assets in the trust and the one responsible for managing the trust, making discretionary decisions and carrying out the terms of the trust agreement. The creator can be the trustee, but generally that’s not a good idea in most states because, depending on how the trust is written, the state laws and how much discretionary power the creator has, the trust can lose its tax-beneficial status or be subject to creditors, McManus says.
Beneficiaries, the second point of the triangle, are those who will receive the beneficial interest in the trust. They can be amended, added or dropped if the creator of the trust retains the right of appointment, McManus says. “Let’s say I have two layers of beneficiaries in my trust — first to my wife and sister and then to my children and my sister’s children,” McManus says. “After I create the trust, I want to cut out one of the beneficiaries, or one of them needs more money. I have the right to choose who will receive money and how much,” he says. Even better, he adds, “I don’t have to decide that right away. That allows people to put a lot of assets in that trust when they otherwise might not because who knows how my sister’s children will turn out or how my children will turn out?”
What standards help ensure that the beneficiary’s needs are met within reason and as defined by the trust agreement?
The amount of distribution is also up to the creator of the trust. It can be controlled by the use of ascertainable standards, which restrict the trustee to distributions for the benefit of health, education, maintenance and support, says McManus…They also protect the trust from being taxed if a child beneficiary is also named as trustee, McManus says.
To learn more about how to draft an irrevocable trust properly to save in estate taxes and give you “the comfort of knowing you’ve ensured a financial future for your beneficiaries,” read the whole story here.
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Freda’s December 27th story “IRS Shuts Down Online EIN Applications, Complicating Year-End Gift Transactions” cites John’s thoughts on the IRS’s “planned outage” of online applications for employer identification numbers, from December 27th through January 2nd. It was the publication’s most-read article of the day.
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