As with all things, there is a time for filing taxes, and it's approaching quickly. As soon as January 31st, you'll begin receiving crucial tax documents. Whether you're submitting as an individual or managing an estate or trust, it's time to begin preparations for the April 18th, 2023 tax deadline.
Form 1040 is the one used by individuals and married couples to file their yearly income taxes. Keep an eye out for forms indicating your overall income for 2022 in your mail and online, as soon as this January. Here are some of the forms you may need to finish your Form 1040:
It's crucial to keep records of items that can lower your taxable income, such as IRA and health savings account contributions, as well as documents that support tax deductions or credits, such as charitable contributions and mortgage interest. These records will assist you in taking advantage of all the possible tax benefits for which you are eligible.
"As an executor of an estate or trustee of a trust, you are responsible for reporting any income over $600 earned by the estate or trust on Form 1041. Even if the income earned is less than $600, if a beneficiary is a nonresident alien, the form must still be filed. However, the beneficiaries, not the estate or trust, are responsible for paying the income tax on the income received. Examples of assets that may generate income for an estate or trust include mutual funds, rental property, savings accounts, stocks, or bonds."
The due date for filing a return for an estate or trust depends on whether it follows a calendar or fiscal year. For those that follow a calendar year, the return must be filed by April 18, 2023. However, for those that follow a fiscal year, the return must be filed by the 15th day of the fourth month after the end of the tax year. The executor or trustee can choose which framework to use. Many opt for a fiscal year, which starts on the date of the grantor’s death and finalizes on the last day of the month prior to the death anniversary. This schedule provides more time for tax planning. If a calendar year is chosen, the tax year starts on the date of death and ends on December 31st of the same year.
Both trustees and executors must report all income distributions given to beneficiaries on the Schedule K-1. You also have to provide a copy of the Schedule K-1 to each respective beneficiary who received an income distribution, and the beneficiaries must report the distribution amount when they file their personal income taxes. The deadlines to submit Schedule K-1 follow the same guidelines as Form 1041 and depend on whether it’s subject to a calendar or fiscal year framework. Since the beneficiaries must report this income on their personal tax returns, it is essential to send them the Schedule K-1 as soon as possible so they have ample time to report the income.
As the trustee or executor, it is important to gather and keep track of your own fees, fees paid to professionals like accountants or lawyers, any administrative expenses, and distributions given to beneficiaries. This way, you can report them on Form 1041, which supports the tax deductions claimed for the trust or estate.
It is important to take into account the impact of income taxes when it comes to estate planning and administration. This is true whether you are an individual creating / updating your own estate plan, or administering a trust or estate on behalf of a loved one. If you have any questions on how income taxes should factor into your planning or administration decisions, please contact the estate planning professionals at Anderson, Dorn & Rader.
One of the most crucial decisions within your life plan is determining who will manage the estate when you aren’t around anymore, or are no longer fit to do so. This individual is called the successor trustee.
A large amount of responsibility comes with being nominated as a successor trustee. Because of the complicated procedures, time they’ll need to dedicate, and risks that the trustee will assume, many people consider hiring a professional fiduciary (like an estate planner) to be their trustee.
When hiring a professional to carry out the duties of trustee, you’ll first need to ensure that a terms of engagement document is signed by both parties to lay out the relationship between parties. This should be a separate document from the one that identified their duties as your estate planner. You’ll also want to look for the following qualifications (and potential red flags) when deciding whether to carry out the relationship.
Even if a professional fiduciary is able to draft a thorough terms of engagement document, that doesn’t necessarily mean that they have all the resources to properly administer your trust. Don’t be afraid to ask questions. You need to make sure that the professional fiduciary takes the trustee role seriously, and that they are well-equipped to take on the job. The below functions should be well within the wheelhouse of a satisfactory candidate for a professional trustee:
Even seasoned estate planners who take on the responsibility of trustee can find it difficult to fit your estate management into their schedule. The professional that you hire should be responsive and accessible. This is especially the case when the trust requires critical decisions related to distributions, beneficiary health, maintenance, education, and support. After you are gone, your beneficiaries will also be in constant contact with your hired fiduciary, and even more so when distributions are made on a reoccurring basis.
For instance, one of your beneficiaries may request an early distribution to cover the expenses of a medical procedure. Or perhaps the period to take advantage of government benefits is drawing to a close on a distribution amount. Will your professional trustee pick up the phone or quickly respond to an email in these instances? Proper communication is paramount to deal with the intricacies of your family’s lives, and your hired trustee must be passionate about providing them service when needed.
No one can work forever, and even your hired trustee must retire at some point. Do they have a plan in place to transfer their responsibilities to another individual or firm? The terms in your trust should outline who will become your successor trustee, but in the case that your trust puts the power of designating the successor in the hands of the trustee, you’ll want to ask your professional fiduciary who will fill their place if something happens to them.
Some instances will require your professional trustee to communicate with the caregivers of your beneficiaries. This could be due to the beneficiaries being minors, or perhaps because they are disabled.
In the case that a beneficiary is not able to manage the assets they’re gifted in the trust, it’s vital that your professional trustee can communicate with caregivers to understand their needs and translate them into actionable estate management duties.
After applying these suggestions when considering a third party trustee, notify them of your decision to nominate them. Even though they won’t assume trustee duties until you are unfit or no longer around, being proactive benefits the planning of your affairs.
Your nominated professional trustee does not necessarily have to accept the position. But by finding out if they’d like to take on the responsibilities sooner than later, you’ll have ample time to make an educated decision if you need to select another individual.
If you have any questions about selecting a professional estate planner to be your trustee, the knowledgeable attorneys at Anderson, Dorn & Rader can help. We offer Trustee Services to help guide you in the process of choosing an adequate trustee to carry out your wishes and preserve your family’s wealth.
Schedule a FREE consultation to discover the benefits of choosing Anderson, Dorn & Rader as your professional corporate trustee. We look forward to serving your needs with a high level of professionalism, experience, and dignity to match the values of your family.
Trust laws exist not only to safeguard the trust and trustor, but to also set guidelines for trustees to abide by. A trustee has a duty under the law to communicate with beneficiaries and inform them of progress or changes in the trust administration. Some duties of the trustee include giving beneficiaries a copy of trust documents, providing information and timelines of the trust administration, and preparing an annual accounting synopsis of the trust’s income and expenses.
It’s not uncommon for trustees to leave beneficiaries in the dark regarding new trust information. Some trustees are unaware of their duties under the law and believe they can do what they please with the trust. However, this is typically not the case, and if your trustee is unresponsive to your requests for information, you have every right to seek further action. Below are some things for you to consider when wondering how to handle an unresponsive trustee.
How do you try to contact your trustee? Is it through email? Do you try to call? Have you sent a letter through the mail? It could be very possible that your trustee simply isn’t checking in on all of their inboxes all the time. A trustee who simply doesn’t check their email regularly may respond quicker to a phone call or text message. If you’re not getting response through phone or texts, you could try sending them a formal letter.
You should also consider the relationship you and the trustee have with each other. If communication typically escalates into hostility between you two, it’s possible that the trustee may be avoiding you on purpose, even though this goes against their duties to keep all beneficiaries informed. If you cannot speak civilly in person or over the phone, it’s important that you keep all communication in writing. Just be sure to ask your questions very clearly and request information without accusations. If this still doesn’t work and your trustee remains unresponsive, it may be time to seek legal assistance.
An attorney may be involved in trust communication between beneficiaries and trustees in one of two ways. Most trustees have attorneys who represent them. If you’re having a hard time getting a hold of the trustee, try contacting their lawyer instead. If a trustee is oblivious to their duties under law, an attorney can ensure they are made aware of their responsibilities and encourage the trustee to comply. Some trustees may not want to directly communicate with beneficiaries of the trust, in which case their attorney may be the direct point of contact. To get information via a trustee’s attorney, be sure to follow up your initial call or text with the requests you wish to receive and any attempts you have made to contact the trustee.
If you feel a lack of proper representation in a situation like this, you may also seek out your own attorney. They’ll be able to clearly identify your rights as a beneficiary, and will give you the backup you need to enforce them. It’s always a good idea to have an objective intermediary that can assist in getting you the information you are rightfully entitled to.
If you and your attorney are still being met with no response, then your last option is to file a petition with your local court. Before you do this though, you should confirm that your attorney is familiar with trust laws and administration. This can make or break your petition’s success. If the trustee fails to respond to the petition, the court can then remove the trustee from the trust. This might also make the trustee liable for any losses or damages the beneficiaries experienced as a result of their lack of communication and ability to perform their duties. A court petition gives additional resources like subpoenas, depositions, and requests for documents to help you get the information you’re seeking. This should be used as the last method for handling an unresponsive trustee, as it can be costly and emotionally messy.
Trustees can conjure various reasons for being unresponsive, but they are legally obligated to communicate with and provide beneficiaries with certain information regarding the trust. Before you go filing a petition right away, try another method of contacting the trustee. If a phone call isn’t working, try an email or maybe send a letter instead. If this still doesn’t garner any results, involve an attorney. They will help get the ball rolling and will likely encourage the trustee to come forward with their information. Only as a last result should a petition be filed with your local court.
If you have any questions regarding how to contact an unresponsive trustee, be sure to reach out to the reliable and experienced trust attorneys at Anderson, Dorn & Rader. We’re happy to help you get the information from the trust administration that you are entitled to, and are dedicated to providing the highest quality estate planning resources available.
When a loved one suffers from a mental illness, one small comfort can be knowing that your trust can take care of them through thick and thin. There are some ways this can happen, ranging from the funding of various types of treatment to providing structure and support during his or her times of greatest need.
Let’s explore a few ways you can help take care of a loved one struggling with mental illness with the help of your estate planning attorney:
Trusts can be disbursed in many ways. If your loved one is involved in an inpatient care facility or an ongoing outpatient program, you can structure your trust so that its disbursements cover the costs of that treatment as time goes on. This also helps your loved one because it relieves them of the responsibility of managing large sums of money on their own. They can rest easier knowing that their care is covered without having to set up a complicated payment plan on their own.
In some cases, the person suffering from mental illness doesn’t have the capacity to enroll themselves in the right type of care. If an intervention of care is needed, your trust can also help encourage involuntary treatment that ultimately serves your loved one’s best interests in the long run.
Selecting a trustee isn’t always an easy feat. That’s one of many decision-making areas where we’re more than happy to step in and walk you through the process. When you have a loved one battling mental illness, your choice of a trustee becomes even more of a nuanced decision.
We’ll help you deduce the perfect person to not only manage the wealth contained within the trust but also keep a compassionate watchful eye on your loved one benefitting from the trust. An astute trustee can look for early warning signs surrounding your loved one’s mental health issue and make sure to get them connected to the care and services they need in no time.
Most people don’t think of large inheritances as a burden. But this can be the case when an individual is dealing with depression, anxiety, hoarding, or diseases like schizophrenia. Lifetime trusts are an excellent way to take care of your loved one without saddling them with a challenge on top of what they are already experiencing.
A discretionary lifetime trust can be drafted in such a way that its funds can only be used to go toward certain goods and services — such as outpatient mental health care, housing, or other “necessaries” of life. Likewise, it can also prohibit spending in areas that would cause more harm than good — gambling or compulsive shopping, for example. The discretionary nature of these types of trusts makes it so your loved one doesn’t have to worry about their own potential missteps when it comes to using the wealth contained within the trust.
Do you have a family member or other loved one who could use the financial flexibility and structural support of a trust? Give us a call today, and together we’ll figure out the best ways to enhance your loved one’s life by finding the right estate planning tools to offer the most help.
When you find out all the facts about last wills, you will probably be interested in alternatives. What’s wrong with a will as an asset transfer vehicle? The short answer is that that a will must be admitted to probate, which is a costly, time-consuming legal process. You can also add in a number of other drawbacks that we will cover in a future post.
A revocable living trust would be a better choice for most people. If you are concerned about losing control of assets that you convey into a trust, you can set them aside. You can act as the trustee and the beneficiary while you are living if you create this type of trust, so you call the shots.
In a very real sense, the situation is the same as it would be if you still had all the assets in your own name. Yes, you sign them over to the trust, but you are the trustee with unlimited latitude to do whatever you want to do with the resources. You also have the power to revoke the trust at any time.
For these reasons, a living trust would not be the right choice for people that want to separate themselves from personal possession of the assets for one reason or another. This is done through the utilization of irrevocable trusts of different kinds.
The ultimate point of the trust is to serve as an estate planning device, so you have to account for the events that will take place after you are gone. To this end, you name a successor trustee, and you name your heirs as the successor beneficiaries. Postmortem asset transfers would not be subject to probate, so the drawbacks that we touched upon would be avoided.
Many people would say this is the major benefit, but there are a number of others. When assets have been conveyed into a living trust, the estate administration process is simplified, because the resources are conveniently consolidated.
To elaborate on the consolidation factor, even if you intend to convey assets that will be part of your estate into the trust, you may still have property in your direct possession at the time of your passing. You can account for this through the inclusion of a pour over will. This type of will allows the trust to absorb these assets; they are “poured over” into the living trust.
You can empower a disability trustee to assume the role if you ever become incapacitated, and this is a key feature, because incapacity strikes a very significant percentage of elders. Another benefit is the ability to add a spendthrift clause to protect a beneficiary that may be prone to irresponsible spending.
Like everything else within the realm of estate planning, there is no single answer to questions that people typically ask, because it all depends on the circumstances. When it comes to choosing a living trust trustee, the details make a difference. However, we will provide generalities here.
Legally speaking, the trustee can be any adult that is of sound mind that is willing to assume the role. However, administering a trust is going to require a significant level of financial acumen.
The trustee must have the time that it takes to do the job, and the commitment can be considerable in some cases. You also have to be concerned about conflicts of interest and anticipated longevity. There are certain rules that must be followed under the laws of the state of Nevada, and this is another consideration.
If you don’t know a willing, suitable candidate, or if the administration of your trust is going to be an ongoing, complex task, there is a solution. You could use a corporate trustee like a trust company or the trust section of a bank. When you go this route, a licensed financial professional will be at the helm to manage the trust effectively, and there will be inherent oversight.
We are here to help if you would like to discuss your estate planning goals with a licensed attorney. You can send us a message to request a consultation appointment, and we can be reached by phone at 775-823-9455.
Often, clients want to continue to control their beneficiaries after death, just as they’ve done during their lifetime. They want to etch in stone the exact circumstances under which distributions should be made to the beneficiaries. Sometimes they think the beneficiary will have to go to the tombstone like a confessional or ATM.
The problem is the client doesn’t know what may happen in the intervening years. Here are just a few of the several things that regularly change after a plan has been drafted:
Rather than trying to precisely anticipate every possible future scenario, which is a fool’s errand, it’s better to put that in the hands of the trustee. The trustee can be given discretion to withhold distributions based on pre-set factors such as:
That’s not to say you shouldn’t set forth your general wishes. But, most of the specifics should be left for the trustee to decide.
For example, a client in San Francisco in 1990 might have decided to provide for a beneficiary’s rent and set forth a specific dollar amount of $1,000 to cover it, expecting that would be ample. It would be much better to give the trustee discretion to pay for the beneficiary’s support, in the trustee’s discretion. Imagine how the average rents have changed over two decades in San Francisco, where the rent of even a studio apartment is now over $2400. If a specific dollar amount were used, even inflation-adjusted, it would not allow the flexibility to respond to the changing world. Giving the trustee discretion achieves the desired result: to pay for the beneficiary’s rent.
The trustee selected by the client is in a much better position to judge when a distribution should be made, for rent in the prior example. The first five letters say exactly what you should do with them: t-r-u-s-t them. Trust that the trustee will make the right decision. If you don’t trust that person, put someone in that role whom you do trust.
The client can only gaze into a crystal ball and wonder what might happen in the world and in the beneficiary’s life. Trustees have the benefit of 20/20 hindsight. They know what has happened since the client drafted their estate plan and died. They know the beneficiary’s circumstances and they know the current state of the world. They are in a far better position to make a decision.
If you would like to learn more about wills and trusts or other estate planning matters, attend one of our upcoming Webinars. They are free to attend, and you can get all the details if you visit our Webinar information page. Or you can call us to arrange a free consultation to discuss living trusts, or other estate planning matters, at (775) 823-9455.
When you establish a revocable living trust, you are also generally the initial Trustee of the trust, administering the trust assets for your own benefit as a beneficiary of the trust. If you are married, your spouse can be a trustee with you. This way, if either of you become incapacitated or die, the other can continue to handle your financial affairs without interruption. What happens if you and your spouse are unable to serve as trustees due to incapacity or death? Generally, your revocable living trust will provide for a Successor Trustee to manage your trust assets for your benefit. The Trustee should be prepared to manage your financial affairs by collecting income, paying bills/taxes, selecting health-care professionals if needed, providing for your well-being, providing for dependents if any, and keeping accurate records.
Some people choose an adult son or daughter, a trusted friend or another relative. Some like having the experience and investment skills of a professional or corporate trustee (e.g., a bank trust department, trust company, or law firm). Naming someone else as trustee or co-trustee with you does not mean you lose control. The trustee you name must follow the instructions in your trust and report to you. You can even replace your trustee in your revocable living trust should you change your mind.
At death your assets can be left outright or continuing sub-trust for asset protection of your heirs/beneficiaries. Sub-trusts provide asset protection to your beneficiaries from their own creditors, or potential x-spouses. If you leave your assets in sub-trust for asset protection of your beneficiaries, consider if each heir should be their own trustee or if a professional trustee, or another person would be a better choice. For special needs beneficiaries, or a spendthrift beneficiary, often a professional trustee is helpful.
You may be elderly, widowed, or in declining health and have no children or other trusted relatives living nearby. Or your candidates may not have the time or ability to manage your trust. You may simply not have the time, desire or experience to manage your investments by yourself. Also, certain irrevocable trusts will not allow you to be trustee due to restrictions in the tax laws. In these situations, a professional or corporate trustee may be exactly what you need: they have the experience, time and resources to manage your trust and help you meet your investment goals.
Professional or corporate trustees will charge a fee to manage your trust, but generally the fee is quite reasonable, especially when you consider their experience, the services provided, and the investment returns that a professional trustee can deliver.
We can help you select, educate, and advise your successor trustees so they will have support and know what to do next to carry out your wishes. Give us a call today at (775) 823-9455 to schedule a consultation.
Once the world began to get over the shock of the death of music legend and golden girl Whitney Houston, reports began to surface that there was trouble brewing with regard to her estate. Houston was found dead in her Beverly Hills hotel room at the age of 48 and left behind only one heir -- 18 year old Bobbi Kristina. While fans rushed to buy anything related to Houston, Houston’s family was already poised for a fight over her estate with Houston’s ex-husband Bobby Brown. With the news this week that Houston left behind a trust, everyone in Houston’s camp can breath a sigh of relief.
Despite unprecedented success in her professional career throughout the 90s, Houston was plagued with personal problems as a result of a battle with drug and alcohol addiction as well as a stormy relationship with Bobbi Kristina’s father, singer Bobby Brown. After finally divorcing Brown in 2007, Houston appeared to be on the road to a comeback when she was found dead last month.
While Houston’s daughter is of age to inherit directly, she allegedly battles her own issues with drugs and alcohol, making her susceptible to a claim that she is unable to handle her own finances and in need of a conservator. Houston’s family was reportedly worried that Brown would petition a court to become her conservator, effectively gaining control of Houston’s fortune. Houston, however, apparently thought ahead and created a trust for Bobbi Kristina. By creating a trust, Houston put a stop to any attempts to gain control of the money and put control of the money in the hands of someone she hand picked as trustee.
When you create a trust, one of the most important decisions you must make is who to appoint to succeed you as your trustee. Although each trust is unique, there are some basic considerations that you may wish to take into account before making a decision regarding the appointment of a trustee.