Estate Planning: Beyond the Basics Video from Savant Wealth Management

Download our complimentary guidebooks, checklists, and other useful financial resources at savantwealth.com/guides. Thank you so much for joining us. My name is Alaina Davalos and I am a wealth transfer advisor here in our Atlanta office. Today we will be discussing estate planning beyond the basics. We have previously done an estate planning 101 webinar before today and we wanted to take that lesson to the next level with today’s presentation. If you did miss that estate planning 101, it’s okay. We’ll do a quick recap just to get you up to speed, but you can also find the entire video on our YouTube page. Then joining me today as well is Dominick Parillo. Welcome, Dom. Hi, Alaina. Thanks for having me. Glad to be here. As Alaina mentioned, my name is Dominick Parillo, director of wealth transfer, and I’m joining you from our Manasses, Virginia office.

Thanks, Dom. We’re excited to have you here to talk about this exciting topic. What we’re going to be looking at is, like I mentioned, before we dive into any new topics, we will do that brief recap of estate planning 101 just to familiarize or refamiliarize y’all with the basic concepts of estate planning. Then, because a lot of what we’re going to cover today has to do with trust, we’ll do a deeper dive into trust fundamentals. Fundamentals. Make sure yall have that lingo down. You know, the different terms, all of that. Then we’ll talk about the different goals of advanced estate planning, both from a tax planning and asset protection standpoint before we look into lifetime gifting and finish out with trust maintenance. After that, we’ll take some of your questions. So, let’s begin.

Perfect. Thanks for setting us up, Alaina. Let’s take that recap. Some of the key highlights from our estate planning 101 webinar. And when Alaina and I were putting together this program, we got a lot of really good feedback on  the 101 presentation, it was a general overview of the key things you need to know when you’re creating your own estate plan or things to keep in mind when making updates. So, we’re going to cover a couple of those key concepts but remember today’s focus is estate planning beyond the basics. So, Alaina and I are going to go into a lot more depth when it comes to distribution planning. So, let’s start out just by just refreshing everybody’s memory on what estate planning is and why it’s important. So, when you think about estate planning, it’s really just designating how you want your estate assets to be distributed, right, for your loved ones and family members. And who’s going to be in charge of actually administering your estate when you pass away or who’s going to be in charge of making decisions if you’re incapacitated and you can’t make important decisions for, you know, financial or healthcare purposes yourself? And I think a common goal with most people is that they want their assets to be distributed efficiently, right? They want to minimize legal fees, expenses, taxes, making sure things get passed the way they want to, the way they envision. And then also sometimes there’s a lot of concern about asset protection for loved ones, right? The structure of how those assets are actually going to pass. So, we’re going to definitely take a little bit of a deeper dive there, share some ideas and thoughts with you. , what documents on our next slide do people need? , powers of attorney for property and healthcare are important documents that allow you to designate a person who’s going to make decisions for property and health care if you’re incapacitated. , to accompany that, the healthcare power of attorney, living will or advanced directive documents, right? how you want your end of life decisions to be handled. Those are core. Those documents apply during your lifetime. And then post death for how your assets are distributed.  That’s where either you know your last will and testament or sometimes a revocable living trust will come into play.  you know, we think that at minimum everyone should have a will.  in your will, you can create what’s called a testamentary trust or several trusts that can protect assets for your spouse, children, other loved ones.  but as Alaina will go through, there are some benefits to creating revocable living trusts during lifetime. So, so a lot of overlap between those two concepts.  in our last presentation, we covered some key terms.  So, this next slide just has a little bit of refresher on  really the people or key fiduciaries that are going to have a role to play in your overall estate plan.  today of course you know we’re really going to be going into a lot of detail on trust design. So the trustee term is going to come up a lot. The  a trustee is a person that you’re going to designate in your estate planning documents either your will that creates a testamentary trust or your revocable living trust that’s actually going to be in charge of administering the trust assets  during your lifetime or you know for your loved ones after you pass away and they have a fiduciary duty. You know they have to act in the best interests of your children. But again you know we agent that’s the person you designate under your power of attorney documents who’s going to make decisions. the power of attorney document. It lays out that agent’s responsibilities, powers, duties.  the executive, that’s a term we might reference again. The executive is the fiduciary, your personal representative that you name in your will that will oversee the probate of your probate assets. And then guardian and conservator, those are other terms that apply typically when you don’t have powers of attorney documents in place. They’re court appointed individuals that will make either health care or financial decisions for you. Of course, important to nominate a guardian for minor children in your wills if you have minor children. And then next slide. I mean this is a good recap.  you mentioned power of attorney documents.  These are documents again that allow you to nominate an agent who can act on your behalf if you’re unable to do so. , a couple quick tips up on the screen there. Again, we went into a lot of depth in our 101 program, but when you have a well-designed estate plan,  power of attorney documents are a must have.  We encourage clients to  talk to their attorney about using statutory forms.  Every state has power of attorney statutes that authorize the creation of these documents. And sometimes there’s prescribed language that banks or healthcare institutions are familiar with and comfortable with. And then you know that one in bold there power attorney for property.  Digital asset authority digital asset planning is  a very important and contemporary topic because everybody has an online presence.  you know big or small email address, social media accounts, you know Amazon accounts, those sorts of things. So, it can be important to give your fiduciaries powers to manage those assets. And then, of course, the healthcare power of attorney, that agent’s going to be making health care decisions. once you get your documents updated or at least reviewed, you important to share that healthcare power of attorney, with your, physicians or healthcare provider is a big tip. Sometimes people forget that basic step. , on the next slide, right? And again, these documents apply during your lifetime.  when you pass away, your agent’s authority extinguishes and then your estate is administered by either your executive or trustee. So here, just an overview of last wills and testaments.  everybody has at least heard that term before, my last will. That’s the document that again you appoint your  executive or personal representative.  that person is in charge of administering your probate estate.  probate is the court supervised process of proving your will, providing notices to your creditors, beneficiaries that you’ve passed  passed on to and  it  can either be coordinated with a revocable living trust via a pour over provision or can even create what’s called testamentary trusts. And Alaina on the next set of slides is going to get into some fundamentals on trust concepts and designs. So hopefully that gives everybody a little bit of a recap of what we did cover. And Alaina, if you could introduce everybody to trust fundamentals. Yeah, for sure. Thanks Tom. That was a great recap. You know, if again anyone is interested in viewing that original webinar and didn’t receive it before, please leave a comment in the Q&A and we can get a link to you, get a link over to you. So now, trust fundamentals.

So to begin, what is a trust? The American Bar Association defines a trust as a fiduciary relationship where one party called the grantor transfers ownership of property or assets to another party called the trustee for the benefit of a third party called the beneficiary. The trustee then has a legal duty to manage the assets according to the grantor’s instructions for the benefit of the beneficiary. So that is a mouthful. Pretty much what this means is that the trustee is holding the grantor’s property for the benefit of the beneficiary. The trustee has the legal ownership over the property. You know, it’s the trustee that opens the trust bank account. The trustee applies for the trust EIN, which is like the trust social security number. You know, the trustee decides which assets to invest in or which real estate to own. The trustee decides when to sell. The trustee, however, does not benefit from the property. The trustee makes distributions to the beneficiary and the trust agreement itself will say when, where, how, what those distributions are. You know, it could say something like when the beneficiary reaches age 30, they receive 50% of the trust assets. When the beneficiary then reaches age 35, they get the full trust balance outright. During those interim years, the trustee can make distributions to the beneficiary for any reason. The terms of the trust will stipulate when and how much of the trust can be distributed.

So, these are the big terms that I want you to remember today and that Dom and I are going to refer to throughout today’s presentation. The grantor is the person who creates the trust. There’s usually only one, maybe two grantors if it’s a married couple, but usually you’ll only see one. If you do have two grantors, that’s typically called a joint trust. The trustee, as we just discussed, and that person can be an individual or a corporate trustee. There are professional companies out there who will for a fee and under certain terms agree to act as trustee of a trust. And generally the trustee is responsible for trust management including how assets are invested, purchased, sold, things like that. Making distributions to the beneficiary, filing trust tax returns, and generally adhering to the terms of the trust. There may be one trustee, then a successor named. That’s pretty common. There may also be co-trustees, meaning two or more people are playing in this role. The trust usually will also say if there are two or more trustees whether those people can act independently of each other or whether they’re required to act jointly. Now you’ve also got the beneficiary. There are two types of beneficiaries. The first is the current beneficiary. This can be one person or a group of people, but it’s who is entitled to receive the benefit of the trust fund. For example, the trust could say, “Trustee, you could make distributions to any of my children for their education, including college and postgrad. My children are the current beneficiaries.” There is another classification though of beneficiary and that’s the contingent beneficiary. The contingent beneficiary kicks in if the current beneficiary or beneficiaries die. Just because a beneficiary dies does not mean a trust dies. Let me repeat that. Just because a beneficiary dies does not mean a trust dies. The same applies to a trustee. Just because something happens to the trustee does not mean that the trust automatically goes away. Trusts are typically structured with a series of if this happens then X or if that happens then why. So the contingent beneficiary is who kicks in if the current beneficiary is no longer with us. For example, my trust may say, “Trustee, you can make distributions to my son or his education.” If my son is no longer living, then you can make distributions to my grandchildren. My grandchildren are then the contingent beneficiaries. If my son is no longer around, then my grandchildren become the beneficiaries. The distribution to further beneficiaries is usually either made per stirpes or per capita. Per stirpes comes from Latin and means by branch. So let’s say that you have three children. One of them predeceases you leaving two grandchildren. With a per stirpes distribution, one third would go to child one, one third would go to child two, and one/3 would be split between the two grandchildren of the child that predeceased you. Per capita on the other hand means by head. So in that same scenario with a per capita distribution, child one would receive 1/4th, child two would receive 1/4 and each grandchild would receive 1/4th because there’s four heads and they all split equally. So that’s another important decision. and you make that decision throughout your will, throughout a trust, throughout beneficiary designations. It’s something to sort of understand as best you can. I will say though that most people choose a per stirpes distribution. That’s definitely the most common. The other important topic is the distribution standard. So this is the what and when. What can my trustee distribute out of the trust to the beneficiary and when can they distribute it? Trusts will usually bifurcate between what the trustee can do with the trust principle which is what the grantor originally put into the trust and trust income which is what the trust has earned from that principle since it was contributed. Sometimes there’s no difference. The trustee will say, “Okay, trustee, you can make distributions of principal and income.” Other times, it’ll say, “Okay, trustee, keep the principle in the trust, but distribute out all of the income to my beneficiary, at least annually.” That’s just an example. Distributions of principal are usually limited to the distribution standard. The most common standard which comes from the IRS is for the beneficiaries health, education, maintenance and support. That’s the hem standard. I have made many a joke around the office that I have said that much have said that so much health, education, maintenance and support that it is going to be written on my own gravestone. That is how often I talk about the hem standard. Why? because this is what’s written into the tax code. So, a lot of attorneys will use it in their documents. However, that distribution standard could also be unlimited. The trust could say, “Hey, trustee, you can make distributions of the income and principal to my beneficiaries for any reason using your best judgment.” That’s also common depending on who the trustee is. The last term that you may hear us use is the power of appointment. As I mentioned, the trust will dictate what happens at a current beneficiary’s death. Sometimes though, the grantor will give that beneficiary a power of appointment to redirect the trust fund at their own death. That power of appointment could be narrow say to only descendants of the grantors or it could be as broad as to anyone that the beneficiary desires including charity. The beneficiary usually has to exercise this power of appointment by notifying the trustee either in writing or during their lifetime or in their own estate planning documents. This can be a really big power. So, make sure if you include this power of appointment in your own trust, you know, make sure you really understand the ramifications of what you’re doing.

So, speaking of your own trusts, choosing the beneficiary and the trustee are usually going to be the biggest decisions you’ll make for your trust. So, make sure you spend some time thinking about those people before you sign any documents or make any transfers. Sometimes you as the grantor of the trust can change these people. That’s possible if the trust is revocable. Sometimes though, you can’t change these people or any of the trust terms. And that’s what’s applicable if the trust is irrevocable.

So, a revocable trust is a tool that we see in many clients estate plans because it’s a tool most often used to transfer assets at death, but also to avoid probate. So, Dom mentioned this earlier that you may have a revocable trust as part of your basic estate plan. And we talked pretty extensively about revocable trusts in estate planning 101. So for greater detail I’m going to refer you back to that webinar. But for a general recap the grantor which again the person that creates a trust can amend a revocable trust at any point that they are living and that they have testamentary capacity which pretty much which pretty much means that they understand what they’re signing what they’re doing. These trusts typically do not provide any asset protection nor do they provide any tax planning benefits to the grantor while the grantor is living. However, at the grantor’s death, they typically become irrevocable and that’s when tax and asset protection goals can kick in. One thing I want to note, the living part of a revocable living trust means that it was created while the grantor was alive. A living trust can be revocable or irrevocable. A testamentary trust, meaning a trust created under a last will and testament, get it, is usually only irrevocable because the grantor created it under their will. And for their will to come into effect, the grantor has to be dead. So once you’re dead, you can’t really change your trust. And that is how a testamentary trust works.

Irrevocable trusts whether they’re created under that last will in testament or whether they are living created by the grantor during lifetime cannot be changed by the grantor. I’m going to repeat that irrevocable trusts cannot be changed by the grantor. They are irrevocable, unmendable, unchangeable. Because the grantor cannot change them, they do offer significant asset protection and tax planning opportunities. Why? Because when assets are put into an irrevocable trust that the grantor cannot change and the grantor puts those assets into that trust, they transfer ownership to the trustee. Then the grantor has made a gift. If I give you $100, that’s yours. You can spend it however you want. I don’t have control over that $100 anymore. However, if I give $100 to the trustee of an irrevocable trust with trust terms that I cannot change, I still no longer have any control over how that trustee spends the $100 so long as it complies with the trust terms. transfers to irrevocable trusts are subject to gift tax laws. Pretty much anytime you transfer assets to someone other than your spouse, and that includes with trust, you are subject to gift tax laws. There’s an exemption amount that DAM is going to go over in a few minutes, but generally if you create an irrevocable trust during your lifetime and you transfer assets into that trust that are valued at more than $19,000 per beneficiary of the trust, you have to file a 709 gift tax return notifying the IRS that you’ve used some of your lifetime exemption amount. So, an example, if I transfer $100,000 to an irrevocable trust for my two children, I can give $ 38,000, $19,000* 2 without using any lifetime exemption, but I would have to let the IRS know that I’ve used 62,000 of my lifetime exemption to make the balance of that gift. These gift tax laws typically do not apply to transfers to revocable trusts because you as the grantor still maintain control over how those assets are managed. So this idea of gifting is something that we are going to hit hard on in this webinar to help you all understand it.

If you are thinking about including trusts in your estate plan and Dom is going to tell you one reason why you would want to do that, it is going to be a balancing act. You know, when you’re thinking about your goals and the types of trusts that are available to you, you’ll need to consider how much control you want to retain over those trust assets. You’ll also need to consider who you’re naming as trustee because remember this may not be an appointment that you can change depending on the type of trust that you have. Also, especially with irrevocable trusts, you have to weigh the income tax advantages and disadvantages. With some irrevocable trusts, the grantor will continue to pay the income taxes. With other types of irrevocable trust, the trust itself will pay income taxes and those trust tax rates are typically higher than most individuals. And sometimes the beneficiary will pay the income taxes if the income is distributed out to the beneficiary. Also, typically with gifts to anyone, whether it’s in trust or not, that asset retains the grantor’s basis and does not get a step up in basis for income tax planning purposes at the grantor’s death. Meaning that if the beneficiary goes to sell the asset, they will pay income taxes on the growth between when the grantor originally purchased the asset and the time of the sale or transfer. That can be a huge income tax consideration for both the grantor and beneficiary. So, a lot of balancing has to be considered. This all seems like a lot of work. Dom, can you tell us some reasons why we would consider using a trust? Absolutely. And thanks again for that overview on the difference between revocable and irrevocable trust. Alaina, hopefully that makes sense to all of our viewers and participants today. Here’s one reason why many families choose to create trusts, whether they be created again under the terms of your last will, a testamentary trust, or a trust created during your lifetime revocable living trust.  I mean when we speak about taxes for purposes of this segment we’re going to focus on estate taxes which is essentially a tax on the transfer of the value of your wealth to your family and other loved ones and people that are important to you. So on the next slide we have a good overview of a little bit of the historical  trend when it comes to what the federal estate tax exemptions are. and Alaina used that term earlier in her segment. So when you actually read a trust document, a lot of the language that you see with regards to the distribution provisions is really a creature of the tax code because up until the early 2000s, the estate tax exemption was $600,000 per person. And a lot of the focus on trust design at least at that point in time was estate tax minimization for the family overall. So there was a lot of focus on creating what we refer to as credit shelter or family trusts. We’re going to show you some examples in a moment of what those look like, but essentially a trust can be created and if it has that standard that Alaina referenced, hems, it’s considered an ascertainable standard and those assets are not included at in the estate of the beneficiary at the beneficiaries passing.  now fast forward to today in 2025, we have a $13.99 million estate tax exemption at the federal level. Okay, we’re talking about a federal estate tax right now per person. So that means a married couple can transfer $28 million roughly to their family and loved ones without paying any federal estate tax. Next year starting in 2026, the estate tax exemption is going to be $15 million per person for a total of 30 million for a married couple. Again, these are federal numbers. And that was a change enacted under the One Big Beautiful Bill Act.  you may recall that  the tax cuts and jobs act was originally set to expire at the end of this year 2025. So now you know we have historically high exemption. Sounds like that exemption is going to stay in place for quite some time because the One Big Beautiful Bill Act made the $15 million per person exemption starting next year permanent. And when we say permanent, we mean it’s permanent until our friends in Congress change it. So, we’ll keep an eye and keep everyone informed if there are changes. And what that means for most everybody  is that, you know, federal estate tax probably not a large concern. But don’t go anywhere if you do have a federal estate tax problem because Alaina is going to talk to you about lifetime gifting strategies to help mitigate and minimize  future potential federal estate taxes and also how the assets are held that structure of those trusts for your spouse, for your children, for their family members, right? That’s going to be an important consideration even if federal estate tax is not. , so maybe you don’t have a federal estate tax problem. Don’t forget there’s some states that have a separate state-based estate tax or inheritance tax system. So, it’s important to, especially if you live in one of these states, to review your plan and determine whether you have the right structures in place to minimize those estate taxes. Right now, there’s 12 states in the US, plus the District of Columbia, that have a state-based estate tax, and the estate tax exemptions are often much, much lower than the federal estate tax exemption. Again, 13.99 million in 2025. , there’s a handful of states, I think five, that have an inheritance tax. A quick note there, the estate tax is a transfer, I’m sorry, a tax on the transfer of wealth. The inheritance tax is a tax on receiving wealth. Okay, so it’s similar concept, little bit different application. , and then our Maryland is pretty unique. It has both a state-based estate and inheritance tax. , and we’re seeing a trend to that states are getting away from inheritance tax. Now, in the next example, just to illustrate the importance of why estate tax planning could benefit you if you live in one of those high tax jurisdictions. We’ll visit a hypothetical family in the great state of Illinois where I’m actually born and Savant was actually founded and headquartered in Illinois. So, this is a great example. So, here we got a married couple, business owners, great savers, and they’ve accumulated $18.8 million of assets. Again, just like we reviewed, no federal estate tax problem because they’re under that  $28 million combined federal estate tax exemption. , and one thing that I’ll add is that under the federal system, we have a concept called portability. That’s going to come up a little bit later. which means that if you don’t fully use your estate tax exemption at the first death, the surviving spouse can file an estate tax return, a form 706, and elect to use the unused  exemption of the first to die at their own death. So basically, they add that unused number to their number of deaths, and they don’t lose the benefit of having the married double exemption.  some states don’t have that feature. Illinois is one of those states. So, it’s a use it or lose it type of a window of opportunity. So, back to our example, no federal estate tax, right? They’re flying under that federal estate tax radar, but Illinois has a $4 million per person estate tax exemption. No portability of the exemption. So, if the proper planning is not done to take advantage of that $4 million exemption at the first death, again, $18.8 million estate example, $2.1 million of Illinois estate tax, that’s real money, as we say, as estate planners. Now,  if that same couple would have  in their estate planning documents, again, their will or their trusts done some  fairly straightforward, at least I think you might think it’s complicated when you see these examples, credit shelter or family trust planning, that Illinois estate tax exposure or number goes from 2.1 million to about $1.58 million for $552,000 of estate tax savings just by utilizing the proper estate planning design  with trusts essentially. So on the next couple slides we’ll walk through some examples to visually represent this. All right. So in our first example, we have a joint trust. Very common, very easy.  again, Alaina mentioned that you can create a joint trust with somebody else, have co-granters, co-trustees. And a lot of times in the most basic or simple designs, that trust just continues for the surviving grantor, typically the spouse after the first death. And the spouse retains the ability to amend and revoke change that trust during their lifetime. And then at the second death then the assets would be distributed to the beneficiaries typically children right if there is  a child or children  you know otherwise maybe charity you know other loved ones but  under this basic estate plan design all of the assets at the second death that the spouse has are included in his or her estate for estate tax purposes. Nothing was sheltered at the first death. Again, that’s a problem in our example for our Illinois couple because that $4 million estate tax exemption is not portable. Okay. So, how do you fix that potentially? On our next slide, Alaina, we introduce credit shelter or family trust planning. So instead of the trust just essentially continuing for the surviving spouse’s benefit in a fully revocable or amendable manner, you can in your trust document or your will specify that an irrevocable trust can be established. Alaina talked about that concept. It can’t be changed and that irrevocable trust can receive a portion of your estate assets. So, in this example, the family trust in yellow would get funded up to $4 million and that $4 million funding amount would not be included in the surviving spouse’s estate for estate tax purposes which then reduces the overall estate tax exposure for the family. And again, that’s just something that that could be put in your estate plan as a design feature. , a lot of families, you know, that create estate plans, they sign them at the attorney’s office, right, MAlaina? And they don’t look at them, right? They collect. I think that’s the biggest issue that we run into here in our jobs, dumb, is that we have underfunded or just completely unfunded revocable trusts. Yep. That’s another problem, right? Unfunded trusts. But yeah, maybe the trust design at the time made perfect sense, right, for your assets, your family situation, but now 15 20 years has passed and now you may have some estate tax exposure, you know, whether it be state or state, I’m sorry, state or federal based. So big takeaway here is that you really need to review the terms of your estate plan, especially if you have significant wealth, and just understand what your estate plan says. Do you optimize the structure from a estate or transfer tax planning standpoint? And then the next  important focus Alaina is going to go through is really distribution planning and asset protection. That’s something that should certainly be reviewed as well. Indeed, it should. Thank you, Dom, for talking about taxes. While I wish all of our clients an estate tax problem, it can certainly add a lot of complication to an estate plan. But let’s switch gears and talk about my favorite topic, asset protection. So I will be solely discussing domestic asset protection strategies. This discussion does not have anything to do with, you know, no offshore, no Cayman Islands, no New Calonia, nothing like that. These are basic strategies that most anyone can take advantage of with a low degree of risk. And so when we start looking at trusts for asset protection, the first thing that you’ll need to ask yourself and your advisers is who are you looking to protect assets from? And the most common creditor that I do hear about from clients is the IRS. And Dom just gave you such a good recap about tax planning that I’m going to skip over that one because the tools that Dom discussed, you know, that is how you create significant asset protection from any estate tax exposure. The next creditor that clients worry about is an exspouse. So whether current or future, remember when we’re looking at asset protection, you’re not just thinking about your own creditors, but you’re also thinking about your descendants as well. And there are generally two types of creditors. You’ve got the known and the unknown. So known creditors you can keep at bay today with those irrevocable trusts as well as at your death for your children when you create testamentary trust for their benefit. Unknown creditors are just that unknown. Who knows what the future holds? Anyone can be sued for anything at any time. How well prepared you are will determine how quickly a lawsuit can be thrown out. So keep in mind, you know, with these strategies that we’re talking about, with these tools that we’re looking at, this is really the goal or this could be your goal is to create this significant asset protection for yourself and your descendants.

So, if you’re not doing tax planning like Dom discussed with irrevocable trust because you’re not facing substantial federal estate tax exposure, you know, you may still want to include testamentary irrevocable trusts for your descendants in your estate plan. So, I want to focus on those big orange circles down there, the trust for your kids. One’s orange, one’s blue. These are testamentary trusts. So they’re either created under your last will and testament or under your revocable living trust. The sample that I have here today is a revocable living trust and they are created at your death. Typically each of your children would have their own trust, but you may also see something called a pot trust or your attorney might suggest it. And that’s where all of your kids are beneficiaries of one big pot of money. You may also have what I call distribution trusts. These are usually for younger children who have yet to reach the legal age of adulthood. And your goal is to get them to an age where they can handle a large sum of money, where they are financially mature enough to manage their inheritance. Distribution trusts are usually structured with the principle being distributed to the child in certain percentages at certain ages.  let’s say 25% at age 25, 50% at age 30 and the balance at age 35. At age 35, all of the trust assets are distributed to your child outright and the trust terminates. During the interim years, you know, between actually any time before age 35, the trustee, who is usually not the child in this case, can make distributions in the beneficiary’s best interest or they could be limited to the hem’s standard, health, education, maintenance, and support. For this example, though that you see on the screen, we’re going to have separate trusts. And these trusts are going to be lifetime descendants trusts. These trusts are going to cascade from one generation to the next. So at the death of you and your spouse, 50% goes into child one’s trust and 50% goes to child 2’s trust. Their trusts have nothing to do with each other. So you don’t need to worry about fighting or conflicting ideas about management, nothing like that. In this example, the trustee who may be that child depending on the child’s age and financial maturity can make distributions of the principal and income to the child for their health, education, maintenance, and support. That hem standard that we keep on talking about. This is why it’s going to be on my own gravestone because I talk about it so much. So, this trust in this example may protect the child’s inheritance from divorce, creditors, and future estate taxes. In this example, those walls of the trust that you’ve put up around your children’s inheritance, they would be protecting their inheritance of about $3.5 million. And with good drafting of your estate planning documents, you can provide your child with substantial flexibility to manage this trust benefit themselves and their families for generations to come. This is how you create generational wealth by giving your inheritance by giving your kids inheritance these protective walls. Then at your child’s death, whatever assets are left at that time will go to their kids, your grandkids, and so on for as many years as your states allow. Some state laws allow these trusts to go for about 120 years. Some are 360, some are a thousand. Some are unlimited. You know, there’s no rule as to when trusts have to terminate outside of state law. So, if you are expecting to leave your children with any sort of significant inheritance, I would recommend talking to your attorney about the pros and cons of doing a descendants trust like this.

So, what else do you need to think about when creating these trusts for your descendants? How much flexibility do you want to give them versus how much control should the trustee retain? You know your children best at this stage of your lives in their stage of life. And the good thing about these trusts is because they’re typically created under a will or revocable trust, you can change them at any point. This may make for a good plan today, but 10 years from now, for one reason or another, it’s not a good plan. And so, you change it. Now, like Dom said, you want to make sure that your estate plan is constantly being reviewed. So, one of the things that you could decide is to give your descendant that power of appointment that I discussed earlier. You write down in your will that the trust passes to your grandchildren at your child’s death, but they have a power of appointment they can exercise in their own estate planning documents that allows them to deviate from that structure. You can make this power as broad or as narrow as you’d like, meaning who the groups of people can be that your child can leave their trust fund to. Some examples include descendants, spouses, charities, or anyone. You know, that’s the absolute broadest you can get. Also, remember when I said that your trustee that your child may be trustee of their trust? That’s possible with the HEM standard, health, education, maintenance, and support. So long as they’re limited to that ascertainable standard, a child generally can be trustee of their own trust. An independent trustee, meaning someone who has nothing to gain from the trust and isn’t a beneficiary, can generally be given an even broader distribution standard. They can sometimes make distributions for any reason or for the beneficiary’s best interest. Why? Because they don’t have anything to gain or lose from making those decisions. So presumably they’re making a smart decision because the trustee is a fiduciary. They are held to a higher standard of care in managing trust assets. Which is why picking the trustee is a very important decision. A lot of times what trust agreements will include though is the beneficiary’s ability to appoint a future trustee. So that’s something else that you can give to your child to add flexibility. It’s so that they at their death they can name the future trustee for their own children. And that is a very powerful power.

So all of this trust talk may have got you thinking about gifting and whether you want to gift with warm or cold hands. meaning gift during life or gift at death. A lot of people prefer to see their gifts distributed to loved ones and to watch them enjoy themselves while they are still around. Remember that gifts at any point are subject to gift tax or estate laws and that you can always make these lifetime gifts outright. You know, go ahead, write someone a check for $5,000, pay for your grandkid school, make that outright gift. But what if you do want your lifetime gift to include the asset protection of a trust or if you want to use trust for tax planning? This is a whole topic in and of itself. So, I’m just going to do a quick overview of the big ideas behind lifetime gifting to trusts.

So, as we’ve discussed, only transfers to irrevocable trusts include tax planning opportunities and asset protection. So, I’m only going to be talking about transfers to irrevocable trusts. Once you’ve decided that you want to establish an irrevocable trust, you’ll need to decide who you want to have as a trust beneficiary. And while you can create a trust for anyone, most clients do typically create trust for the benefit of their spouse, their kids, themselves, or charity. A trust set up by you for your spouse is typically called a spousal lifetime access trust or a SLAT.  the benefits of a SLAT are that you can use your exemption and that estate tax exemption that Dom talked about earlier. You can use it during your lifetime and you can freeze the value of any gift you made to the trust for estate tax planning purposes. But your household via your spouse, who could also be the trustee, can still access the trust assets and the income from those assets even after you’ve moved those assets into the trust. The downside of a SLAT is that you are limited to your own personal exemption amount for gifting purposes or in other words, you can’t split gifts with your spouse. That means that you can only gift up to this year $13.99 million to a SLAD. So why don’t my spouse and I each do a slide for each other? You’re thinking. Well, you can. However, they cannot be reciprocal trust agreements. The IRS may be underfunded, but they are certainly not dumb. and they realize that when two spouses create reciprocal trust for each other, no actual gift has been made. To avoid that reciprocal trust doctrine, drafting attorneys will put subtle differences into the trust agreements such as beneficiaries ages of access or remote contingent beneficiaries or fund them with different assets at different times. Two slats is typically one of the riskier trust setups. So, be sure to go through all of the details with your attorney. You know, you may also be thinking at this point, can I put these assets in trust for my own benefit? Can I get protection from my own creditors as well as future estate taxes? The answer is yes, with some butts. So trusts you create for yourself are called self-settled trusts and they are only permissible in some states. All of trust law is state based even though a lot of federal law comes into play because of the tax ramifications of trusts. So some states have decided to be trust friendly and you’ll see a list here. However, even if you or your assets are not physically located in these states, you can still set up a trust in that jurisdiction so long as you have a trustee based in that state. There are substantially higher costs to set up these sorts of trusts, but a lot of time you can benefit from that state’s lack of income tax to make up for those expenses of administration. Trusts for charity are just that. A lot of times charitable trusts that are created during lifetime are used for income tax planning purposes, but they can have estate tax benefits as well. The last decision that you’ll need to make when setting up irrevocable trusts is what assets you’ll be placing in them. And the best gifting assets are hard to value. So, small businesses, real estate, artwork, things that don’t just come with a price tag. Also, assets with a higher basis, remember that income tax basis are usually best because the asset does not get a step up in basis for income tax planning at your death. So, I’m going to summarize the steps of gifting in a minute, but you need to provide adequate disclosure of the value of the asset that you’re gifting. So, what a third party would pay for it. Most assets you’ll need to provide a third-party valuation for. So, a realtor’s opinion of the value of land or a professional business appraisal of a small company. Getting these valuations and opinions can get expensive, so you need to be ready to take on this project financially. However, the creditor and estate tax protection can be invaluable to both you and your family. Some other gifts are much easier. You may have heard of a life insurance trust or an eyelet. The death benefit of a life insurance policy is included in your taxable estate when you die, which most people don’t realize. To avoid this, you can put the life insurance policy into a life insurance trust by changing the owner and beneficiary of the policy to the eyelet. With that relatively easy transaction, you can avoid adding possibly millions of dollars to your taxable estate. Liquid assets can also be gifted to a trust, but they’re not ideal because they have a calculable value as of the day of the gift. Cash is worth what it’s worth, and anyone can look up the value of a stock to see the value of it the day that it was gifted to a trust. So, while you can put liquid assets into a trust, it’s always a good idea to look at what other options you have available to you first. One thing to note, not all assets can be put into trust. Retirement accounts such as IAS and 401ks can never be gifted away without losing their tax status. So keep that in mind. Other assets such as company stock, deferred comp plan benefits, or keyman benefits, they may have restrictions on them that prevent them from being transferred into a trust as well. Typically, when you’re talking to your attorney and CPA about gifting, there’s a lot of analysis that goes into which assets are best to be put into trust.

So, this slide I have here, this just shows you what two of those plats look like. That’s spousal gift. There are different beneficiaries and different trust terms. We have a different pattern of trustees. What I wanted you guys to see here was that when you’re creating these trusts, as long as you’re not unethical, the world is your oyster when it comes to picking trust terms, you have a lot of power over choosing beneficiaries, trustees, ages of distribution, everything like that. And you can see here that what these trusts have done is to remove assets from the taxable estate. An important thing to remember, it’s not just the asset itself that’s removed, it’s also the future growth. So, if that client’s $6.6 million trust account grows to $15 million by the time of their death, and if everything went well and was done appropriately, that additional $8.4 million will not be subject to estate taxes. That sounds like a good plan, right?

So last, what does it mean if everything went well and was done appropriately? So if you think that it would be worthwhile to your estate to do some lifetime gifting for estate tax planning purposes, I want to go over the steps of gifting with you just very briefly, as well as to reiterate the benefits and risks. So I mentioned this earlier, but what you need to do is to file a 709 gift tax return with the IRS. That 709 will include all of the trusts that you signed that you had prepared. It includes all the documents that transferred the assets into the trust and it will include valuations. The gift tax return is due on April 15th, tax day of the year after the gift is made along with your personal income tax return. However, you can file an extension if you file an extension on your personal return as well to October 15. So, the best advice I will give you today is if you are planning on proceeding with this process, do not wait until September of that following year to try to get valuations and appraisals done. A timely filed 709 starts the three-year statute of limitations for the IRS to contest the values of the gift that you’ve made. Of course, if there is any sort of IRS contest, if there is any sort of audit, it can be expensive to fight for or to compare against that audit. You know, the IRS can always come back and challenge the values that you’ve used, challenge your trust, things, anything like that. And then your legal and accounting expenses can add up. So with great reward you do have some risk. Now last but not least Dom can you tell us a little bit about trust maintenance? Sure. Thanks again Alaina. The work never ends right when you are thinking about your estate plan. So, just a couple reminders and some of this is a little bit of a review on prior topics that we spoke to, but  if you create a revocable trust, don’t forget to fund that trust.  on our next slide, got a couple points. So, I said if you create a revoke revocable living trust, don’t forget to fund that trust. That might involve retitling your real estate with new real property deeds. Your attorney will assist you and then you have to work of course with your financial adviser to retitle investment accounts.  Alaina mentioned this earlier, but from a tax return filing standpoint, if you have a revocable living trust, there’s no separate tax return that you need to file for that trust because it’s registered under your social security number as the grantor. But when you pass away and that trust becomes irrevocable at that time, tax return filings are typically required.  and that that’s a form 1041. It’s an income tax return for a trust.  if you’re u serving as trustee of the trust, we spoke about how important it is to find the right person.  you have a fiduciary duty to the beneficiaries of the trust, those that can receive money. So, you might have to check in with the beneficiaries from time to time to make sure that they’re receiving adequate benefits from the trust under the trust terms. , you’re going to be in charge of  approving or disapproving distributions if there’s requests from the beneficiaries. Again, you’re in charge of filing those tax returns your capacity as trustee. And then many states  require  minimum standards for information that have to be  given and made available to the beneficiaries. Those are accountings.  so just a couple of points thereafter you actually create your trust and  you know what happens when you when you pass away and the trust becomes irrevocable or if you create one of those lifetime irrevocable gift trusts. , and then the last slide before we get to questions is really just a look at the forms themselves. , Alaina, you know, how do we remember how do you remember the difference between a 706 and 709? The 706. Go ahead. A 706 Let me do a 709 is like your above ground. Yeah. And then a 706 is like you’re underground. Six feet under. That’s right the 706 is the estate tax return that gets filed after death.  that’s also the return that you would file as the surviving spouse for portability even if there’s no estate tax due. And then of course we spoke about the annual  tax filings  as well. The 709 is the gift tax return and you make those gifts in excess of $19,000 currently.

So thank you all so much for joining us today. We are going to go over a few questions. We won’t have time for everyone’s question, but you can click the link in the chat box to schedule an introductory complimentary 15-minute call to see how we can help you with your unique circumstances. And then I am going to stop my share here so y’all can see us. And Dom, I’ve got a couple of questions for us. Perfect. We got a bunch of great questions. Thanks again for submitting those. What do we have? Let’s see. So, my husband just passed away. Do I need to file an estate tax return? That’s a great question and we touched on this topic a few times in our  talk today, but  you know, it depends, right, is always the answer.  what was the value of that deceased spouse’s estate? Remember, if you pass away and you own more than the federal estate tax exemption, you have to file the 706. , and that might not mean that estate tax is due because maybe there’s assets transferring to the spouse that qualify for the mar deduction. , but I would say, , you know, most of the time, , f surviving spouses are filing the 706, the estate tax return for portability. That’s that concept we mentioned earlier where you can add the first to dies federal estate tax exemption 13.99 to your own. You have to file the 706 to benefit from that portability election. And the due dates are a little bit different for that. Alaina said that ordinarily there’s a  nine month due date for  estate tax filings plus extensions with the portability election, there’s actually a five-year window if no estate tax return was otherwise required to file because of the size of the estate. But Melina, you had great advice, right? Do not wait until year five. Just get it done. Information is more accessible. That’s our tip. Yep. And I think just generally anytime a loved one passes away, especially if they had any sort of significant wealth, it is always important to consult your advisors to determine if there are any necessary tax returns outside of your traditional income tax return. So, make sure you’re getting good advice there. Another question that we have, if I gift assets away, can I ever get them back? So, that is a tricky question. If you gift assets away to an irrevocable trust for someone else’s benefit, you know, let’s say your children’s benefit, typically the trustee cannot make distributions to you. The beneficiary could, you know, if they were up for it, turn around and gift you assets using their own exemption, but typically you can’t demand those assets back. So if you do go down that path of irrevocable trust gifting, you know, do make sure that you are ready to lose full control over those assets. Once it’s over the wall, it’s gone. Right. Like it’s gone.  if you ever gave me trust funds, they’re gone. You’re not getting them back. All right. Good to know. So one last question. I’m going to toss this one over to you, Dom. I’m the beneficiary of a trust. Can I change it? All right, that is another good question. I’m assuming we’re talking about an irrevocable trust in this with this question. Thanks for that, whoever asked that question. But as Alaina mentioned earlier when she was going through the trust fundamentals discussion, irrevocable trusts typically can’t be changed, right? Once you pass away, the terms are locked in stone.  there are some procedures with state law that can allow modifications of otherwise irrevocable trust. So it’s something you’d have to speak to your attorney about. And often times the types of changes and the magnitude of the change is going to be limited. Okay.  and again that’s based on state law. The devil is always in the details.  So you know sometimes it’s changing trustee succession, right? administrative law   you know trust termination type provisions those sorts of things. So if you are interested in modifying and otherwise your revocable trust get in touch with your attorney. I think that is great advice and we are going to finish our webinar with that good word of wisdom. Thank you all so much for joining today. We hope it was educational and we look forward to working with y’all one day. Thanks everyone. Thanks. If you enjoyed this webinar, visit savantwealth.com/guides and download our complimentary guidebooks, checklists, and other useful financial resources.