Column: Changing laws and your estate plan

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Commentary By Joe Clark

Passing assets on to heirs is an integral part of the estate planning process. But it’s not always easy to determine the wisest path given multiple options and changing tax laws.

The revocable grantor trust was created to help people avoid sending assets through probate and many people set up such trusts. The document includes the grantor, the trustee in charge of the trust and generally the same person as the grantor, the income beneficiary also usually the grantor and finally the remainder beneficiary. Taxes from investments and income flow through the normal tax return. By putting the assets into the trust (funding the trust), individuals have control and use of the assets. Ownership is structured to avoid the probate process. It’s important for individuals to fund the trust with everything they can, with the notable exception of IRA’s and retirement accounts.

Under previous laws, we would spend considerable time deciding whose trust would be funded with what assets. There would typically be two trusts established for married couples so that upon the first spouse’s demise, the survivor would be able to use the unified credit. Prior to the recent law change that we refer to as “portability,” individuals had to use the unified credit or lose it. Thus spouses typically had two revocable trusts and when one spouse passed away, their trust became irrevocable. Usually, all income was paid out to the surviving spouse and assets were locked in the trust for other beneficiaries.

Under portability, individuals don’t have to use the unified credit or lose it upon the first spouse’s death. The law change is prompting many individuals to redo their trust and fund a single trust. Though this may sound simpler, there are disadvantages. Any changes to estate planning should be discussed with an attorney.

Recent changes to both Indiana and federal laws have made many documents outdated. Verbiage previously acceptable may now undermine what an individual would like to happen upon his or her passing. Understanding how assets are owned, who receives them and the tax break implications are critical decisions to address during estate planning.

Joseph “Big Joe” Clark is a Certified Financial PlannerTM and the Managing Partner of Financial Enhancement Group, LLC an SEC registered Investment Advisor. He is the host of “Consider This” found on WQME Saturday mornings at 9 a.m.and Shine 99 on Sunday’s at 10 a.m. Joe also is a former Adjunct Assistant Professor at Purdue University where he taught the capstone course for a degree in Financial Counseling and Planning. Securities offered through World Equity Group, Inc., member FINRA/SIPC, a broker dealer and SEC registered Investment Advisor. Advisory Services can be provided by Financial Enhancement Group (FEG) or World Equity Group. FEG and World Equity Group are separately owned and operated and are not affiliated. Tax advice provided by CPAs affiliated with Financial Enhancement Group, LLC. Big Joe can be reached at [email protected], or (765) 640-1524.


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