Common Questions About Estate and Business Planning


In our work administering estates of lost loved ones and drafting documents to support estate plans, we recognize that, in addition to preparing documents to support the estate plan, we must investigate the types of assets that make up the taxable estate, review relevant documents governing those assets, coordinate beneficiary designations, and sometimes recommend changes in the style of ownership on assets. Challenging issues are often presented when meeting with clients whose retirement plans represent the bulk of their estate. The questions that follow are some we see often in our my practice.


Q: How can I make sure that the exemption equivalent of $5,340,000 million available to my estate is fully utilized and that my wife receives the full benefit of the assets in my estate?


A: Tax planning through a will or revocable trust could eliminate estate taxes from being due in your situation. Tax planning involves placing the assets being administered after the first spouse’s death into a bypass or credit shelter trust. This trust usually benefits the surviving spouse for his/her lifetime. After the surviving spouse’s death, the assets in the bypass or credit shelter trust pass to the beneficiaries (often the children of the couple) without being subject to estate or death tax.


Q: If most of my taxable estate is comprised of qualified plans like 401(k) plans and IRAs, how can I use such retirement assets to fund a bypass or credit shelter trust without causing a lump sum distribution to the bypass or credit shelter trust when I die?


A: In the not too distant past, retirement plans, like 401(k) and IRA plans, could not be placed into a trust without causing a lump sum distribution of the plan proceeds, thereby resulting in the acceleration of income tax. Consequently, many executives with taxable estates could not take complete advantage of estate tax planning using bypass or credit shelter trusts because most of their taxable estate was comprised of qualified plans. Now, the IRS allows qualified plans like 401(k) and IRA plans to be distributed to qualified trusts without causing a lump sum distribution. When such plans pass to qualified trusts, the minimum required distributions from the plan are calculated over the life expectancy of the eldest beneficiary of such qualified trust.


Q: If I plan to use retirement assets to fund a bypass or credit shelter trust, what steps should I take now?


A: Your retirement plan may be used to fund a bypass or credit shelter trust upon your death, but it is important that the language of such bypass or credit shelter trust allow it to be recognized by the IRS as a qualified trust. It is also important that the beneficiary designation of such plan dovetail with your estate plan by naming such bypass trust or credit shelter trust as the primary or alternate beneficiary of the retirement plan. Finally, in the case of 401(k) plans, it is necessary to ask an attorney to review the terms of such plan to insure that distributing the plan to a qualified trust will not result in a lump sum distribution, as each 401(k) plan is unique.


Q: All of this sounds complicated. Is this something I can do myself?


A: Usually not. There are some form books and software available for purchase, but you may do more harm to your estate rather than good. The best option for you is to hire a lawyer. After all, if you have an estate large enough to protect, it is worth a few dollars to keep it.


Q: How much would an attorney cost me for these types of services?


A: It is difficult to say because it depends on the nature of the assets and the difficulty of the plan your lawyer chooses for you. On the other hand, most lawyers will meet with you for a free consultation and explain your options. Oftentimes, legal services are like anything else. You can pay for only what you absolutely need and save some of the extra services until you can better afford them.


Q: How do I find an estate or business planning attorney?


A: Contact our firm today. We can attempt to help you with your problem and/or we will give you some names of attorneys who work in that field. Also, there are multiple referral services you can contact. One is operated by the State Bar of Texas and can be contacted through the website.

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