Frequently Asked Questions About Estate Planning

Edward Jones Trust Company and Edward Jones, and their employees and/or financial advisors, are not estate planners and cannot provide tax or legal advice. You should consult your estate planning attorney or qualified tax advisor regarding your situation.

What makes up my estate?
Your estate consists of all assets that you possess at the time of your death. These assets include:

  • Securities
  • Real estate
  • Interest in a business
  • Personal property
  • Cash
  • Retirement plans and IRAs
  • Life insurance death benefits

Who needs estate planning?
You work hard and carefully plan to meet your long-term financial objectives, such as financing and education, providing for your children, and saving for retirement. However, many people put off estate planning or choose to ignore it altogether. Almost everyone needs some form of estate planning, especially those who:

  • Want their estate distributed after their death according to their wishes and not statutory guidelines
  • Have assets that will make them susceptible to high estate taxes
  • Want planned distributions for the benefit of descendants
  • Have heirs who may need responsible financial assistance after their passing

What makes up a well-designed estate plan?
A well-designed plan:

  • Preserves the value of your assets
  • Reduces unnecessary taxes and expenses
  • Ensures that your heirs receive what you intended them to receive
  • Manages your assets for you and your heirs in the event of disability or incapacitation
  • Protects your privacy

What is probate?
The probate process includes:

  • Validation of wills
  • Payment to creditors
  • Distribution of assets to heirs according to terms of the will
  • A third-party mediator to settle disputes

Is probate a concern only for those with large estates?
Although some states have adopted simplified procedures that reduce the costs and time delays for small estates, probate applies to all wills regardless of the size of the estate. In addition, probate is usually necessary when an individual dies without a will (intestate).

What is a trust?
A trust is an estate planning tool that specifies how you would like your assets to be managed and distributed to your beneficiaries. It is a legal document that names an individual or institution to manage the assets placed in the trust. When you die or become incapacitated, the trustee can immediately manage the trust to ensure that your spouse and dependents are cared for.

What is a Revocable Living Trust?
A living trust is a set of instructions outlining how you want your assets to be managed and distributed to you and your beneficiaries. When you establish a living trust, you register your assets to the trust, and the trust becomes the owner of the assets, but you retain complete control. When you pass away, the trust assets avoid probate. As its name indicates, this trust can be changed or revoked at any time during your life.

What is a Testamentary Trust?
A Testamentary Trust is created in a will and is only valid after the probate process is completed. This trust does not address your incapacitation.

What is an Irrevocable Life Insurance Trust?
Generally, an Irrevocable Life Insurance Trust is established to purchase and hold a life insurance policy. Typically, money is gifted to a trustee who is authorized to use those dollars to purchase a life insurance policy on your life. If structured correctly, the premium dollars paid into the trust qualify for the annual gift-tax exclusion. By taking advantage of the annual gift-tax exclusion, you avoid losing any of your estate tax exclusion. Significant estate tax benefits can be gained because the trust owns the insurance.

Why is it important for the trust to own the insurance?
Everything you own at the time of your death is included in your taxable estate. If you own a life insurance policy, the amount of the death benefit paid to your beneficiaries will be included in the total of your taxable estate. This can significantly increase the value of your estate, which may also increase the estate taxes due. A policy held by a properly created and administered irrevocable life insurance trust will be outside of your estate and not subject to estate taxes.

How does an Irrevocable Life Insurance Trust work?
Once the trust is created, you could gift sufficient funds to cover the annual life insurance premium. To qualify this gift for the annual gift exclusion, the trust beneficiaries must have the absolute right to withdraw the funds that have been gifted to the trust. The beneficiaries, however, will normally decline this right to withdraw and will leave the money in the trust. The trustee is then authorized to use those dollars to pay premiums on an insurance policy on your life.

Upon your death, the proceeds from the life insurance policy are paid to the trust. The trust document will include provisions for use of the proceeds. Provisions may include an option to loan money to the estate, to purchase assets from the estate, or to pay a lump sum (or possibly an income stream) to your beneficiaries.

Can I amend an Irrevocable Life Insurance Trust?
It’s important to remember this type of trust is irrevocable, which means it typically cannot be changed. The trustee can cancel the life insurance policy if you decide to discontinue gifting money to the trust to pay the premiums, but the accumulated cash value cannot be returned to you. For this reason, it is important to carefully consider the advantages and disadvantages of this type of trust prior to utilizing it in your estate plan.

Can an existing life insurance policy be transferred to an Irrevocable Life Insurance Trust?
Yes, you can gift an existing life insurance policy to the trustee to be held in the trust. Gifting a current policy can have additional gift and/or estate tax implications, so it is important to talk with your legal advisor about the ramifications of such a transfer.

Who should be the trustee of an Irrevocable Life Insurance Trust?
Selecting a trustee is another important consideration when setting up this type of trust. The trustee’s responsibilities include:

  • Setting up the trust account
  • Selecting the insurance company and policy
  • Receiving the gifts from you
  • Notifying trust beneficiaries of these gifts
  • Paying the life insurance premiums

This is not a job that should be taken lightly, as the documentation requirements are vital to ensure the trust achieves the desired estate tax benefits.

How do I start an Irrevocable Life Insurance Trust?
If you think an Irrevocable Life Insurance Trust might fit well in your estate plan, you should assemble a team of capable trust professionals to assist you. Your local Edward Jones financial advisor knows your personal situation, understands your long-term financial goals and can provide guidance in selecting a life insurance policy. An estate planning attorney can help you review your current plan and determine whether this type of trust is appropriate for your needs. A CPA or tax professional will assist you with tax planning. You may decide to select a professional trustee as either current or successor trustee. The Edward Jones Trust Company provides trustee services for irrevocable life insurance trusts and can work with your legal professional to implement your plan. To find out more about our services or to take advantage of our experience and expertise, please call your local Edward Jones financial advisor today.

What is a Charitable Remainder Trust?
A Charitable Remainder Trust is a tax-exempt, irrevocable trust that allows a donor to make a current gift of cash or appreciated assets to a trust while receiving an income stream from the trust for his or her life. At the donor’s death, the trust terminates, and the appointed trustee distributes the remaining assets to charities as directed by the donor. The trust may provide a current income tax deduction, freedom to sell assets without immediate capital gains realization, and potential for reduction or elimination of estate taxes.

How does a Charitable Remainder Trust work?
After an attorney has set up your trust, cash and/or appreciated assets can be transferred into the trust. The trust may name you and your spouse as income beneficiaries, which means you will receive income for the duration of your lives, or for a term of years. The trust will also name qualified charities, selected by you, to receive the trust proceeds as remainder beneficiaries.

What are the advantages of selling an appreciated asset in a Charitable Remainder Trust?
If you sold your appreciated asset outright, you would pay a tax on the capital gain you recognized from the sale. If the Charitable Remainder Trust sells an appreciated asset, no capital gains taxes are owed at that time. As a result, more money is available for reinvestment inside the trust than would be if the asset was sold outright.

What additional income tax benefits can be gained by using a Charitable Remainder Trust?
If the trust’s beneficiaries are IRS-qualified charities, you may receive an income tax deduction at the time you make the gift to the trust. The amount of the deduction will be a percentage of the value of the gift. This percentage is determined by a number of factors:

  • Payout rate selected in the trust
  • Life expectancy of the person(s) receiving income from the trust
  • Type and value of the asset that is gifted
  • Applicable Federal Rate (AFR), which fluctuates monthly

In most cases, the greater the income paid to the donor, the lower the deduction.

Who should be the trustee of a Charitable Remainder Trust?
Often, donors are advised to use the services of a corporate trustee, such as the Edward Jones Trust Company, to manage and administer a Charitable Remainder Trust. These trusts are complex and must be carefully administered to ensure maximum income and estate tax benefits. The Edward Jones Trust Company can handle the management of assets, as well as ongoing administration and reporting.

Can I serve as the trustee of a Charitable Remainder Trust?
If you decide to serve as your own trustee, you take sole responsibility for ongoing administration of the trust, which is a significant responsibility. If the trust is not handled properly, you may compromise tax benefits and incur possible penalties. For these reasons, many donors choose to rely on the expertise of a corporate trustee like the Edward Jones Trust Company.

How do I establish a Charitable Remainder Trust?
If you think a Charitable Remainder Trust might fit well in your estate plan, you should assemble a team of capable professionals to assist you. An estate planning attorney can help you review your current plan and determine whether this type of trust is appropriate for your needs. A CPA or tax professional will assist you with tax planning. Your local Edward Jones financial advisor knows your personal situation and understands your long-term financial goals.

The Edward Jones Trust Company can be an important part of your estate planning team as a trustee. The Edward Jones Trust Company provides trustee services for Charitable Remainder Trusts, and we would like the opportunity to work with you and your legal and tax professionals to implement your plan. To learn more about our services or to take advantage of our expertise, please call your local Edward Jones financial advisor today.

How can the Edward Jones Trust Company help?
The Edward Jones Trust Company offers a wide array of personal trust services. Please contact your local Edward Jones financial advisor to see how we can help with your financial and estate planning needs.

If I have a living trust, do I still need a will?
You may still need a will to capture any assets that may not have been transferred to the trust during your life. A “Pour-Over Will” will transfer assets to your trust. Once you establish a living trust, you must remember to transfer your assets into the trust. Assets that are not in your trust, that do not have beneficiary designations or are not jointly titled with another individual, may still be subject to probate. You should discuss the transfer of tax-deferred assets, such as IRAs, KEOGHs or pension plans, with your attorney or accountant.

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