Common questions about estate planning
Find answers on a range of topics – from probate and types of trust to how to select a trustee.
General estate questions
What makes up my estate?
Your estate consists of all the assets you possess at the time of your death. These assets could 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 an 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 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
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 individual retirement accounts (IRAs), Keoghs or pension plans, with your attorney or accountant.
Probate questions
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).
Types of Trusts
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 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 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 reducing or eliminating estate taxes.
Charitable Remainder Trusts
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 reducing or eliminating 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 the Edward Jones Trust Company can 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.
Important Information:
Edward Jones, its employees and 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.
Edward Jones Trust Company commences service as trustee only upon formal acceptance of its appointment. Before accepting such appointment, Edward Jones Trust Company must review the documents and the assets of the trust. Such review is performed at the time Edward Jones Trust Company is called on to serve (e.g., death or resignation of prior trustee). Edward Jones Trust Company assumes no fiduciary responsibility for assets added to any trust unless it has received and formally accepted such assets.
Trust and related services are provided by Edward Jones Trust Company, an affiliate of Edward D. Jones & Co., L.P. (Edward Jones), a registered broker-dealer. Edward Jones Trust Company and Edward Jones are subsidiaries of the Jones Financial Companies, L.L.L.P. Edward Jones Trust Company may use Edward Jones or other affiliates to act as a broker-dealer for transactions or for other services. Payments of such services may be charged as an expense to the trust and will not reduce the amount of fees payable to Edward Jones Trust Company.