Category Archives: Estate Planning

Use of Separate Writing for Disposition of Tangible Personal Property

In this article we explain crucial points to keep in mind as you prepare a separate writing to dispose of certain items of tangible personal property. By carefully preparing a crystal clear and unambiguous writing detailing your intentions will only help your representatives be better suited to carry them out at the appropriate time.


Most items of tangible personal property owned by you may be included in this writing. Tangible personal property includes, but is not limited to:

  • Household goods
  • Furniture
  • Furnishings
  • Clothing
  • Boats
  • Automobiles
  • Books
  • Objects of art
  • Club membership
  • Articles of personal or household use or adornment.


On the contrary, keep in mind this writing cannot be used for the following:

  • To dispose of real property
  • Property used in trade or business
  • Money or books, paper or documents whose chief value is as evidence of intangible property rights such as bank books, stock certificates, promissory notes, insurance policies, and like.

Also, of importance, we request that you do not use the separate writing to dispose of a coin collection, since the law regarding this has not been finalized.


The separate writing may be prepared either in your own handwriting or by typewriter or word-processor. For your convenience, we have included a copy of the Florida Statute explaining separate writings below.


732.515 Separate Writing Identifying Devises of Tangible Property. A Will may refer to a written statement or list to dispose of  items  of  tangible  personal  property  not  otherwise specifically disposed of by the Will, other than money and property used in trade or business. To be admissible under this section of intended disposition, the writing must be signed by the testator and must describe the items and the devisees with reasonable certainty. The writing may be referred to as one in the existence at the time of the testator’s death. It may be prepared before or after the execution of the Will. It may be altered by the testator after its preparation. It may be a writing that has no significance apart from its effect upon the disposition made by the Will.


We cannot stress the importance of being as specific as possible in describing the items of property and identifying its intended beneficiary. The more detailed the writing the more it will increase the chances this process with go smooth for the person you want to receive your personal property. This may go without saying, but we wouldn’t mention this if we didn’t see this time and time again. Remember to date and sign the writing.


You can make a change on the separate writing at any time. Just keep in mind that it’s important that each change is initialed by you. For example, if you would like for an item to go to another person if your first beneficiary is deceased, you should indicate this on the form by inserting the secondary beneficiary’s name. If you don’t want an item to go to a named person, you should insert this specific language after you have named the first beneficiary “if living and if not, disposed of as the balance of my tangible personal property in my Will”.

Below is an example of this: To my son, JOHN DOE, if living, and if not, then to his wife,JANE DOE; or, to JOHN DOE, if living and if not, to be disposed of as the balance of my tangible personal property as set forth in my Will.


There may be cases where you no longer have an item contained in your original writing.  For example, you may have sold an item or gave it away. Just be sure to indicate this on the separate writing in detail so the item will not be treated as missing later.


We encourage you to keep the separate writing safe as though it were your Will. As a matter of fact, it should be kept with the Will, since the assets enumerated in the separate writing will be administered as though they were actually set forth in the Will.


As always, it may be wise to consult with an Estate Planning attorney who can guide you through this process and assure your writing is not “paper thin” when reviewed by authorities.     The Nici Law Firm specializes in Estate Planning and has helped countless clients avoid issues with tangible property disputes by composing a separate writing for Disposition of Tangible Personal Property that is rock solid. If you have any question you can contact Nici Law Firm at (239) 449-6150.

Revocable Living Trusts Explained

Revocable “Living” Trusts (RLT)

 When planning for the management of your estate, an option that is very popular today is that of the Revocable “Living” Trust. Understanding its advantages and disadvantages is a must for anyone planning to use it as a method of estate management. To do that, we must understand the characteristics and definition of the Revocable “Living”  Trust.

What is a Revocable “Living” Trust?

In its simplest terms, a ‘trust’ is an agreement that is set up for the management and the disposition of property.  A trust agreement may, for example, exist between you and a bank, and may insist that your transferred stocks and bonds be managed and invested, with the stipulation that the dividends be forwarded to you at regular intervals. In an arrangement of this sort, you would be referred to as the ‘Grantor’ or sometimes the ‘Settler’, while the bank would be the ‘Trustee’.

The bank might be required, at the time of your passing, to distribute the assets of your trust, either to living relatives or to continue the terms of the trust for the benefit of those named as beneficiaries. It is possible for such a trust to act, in part, as a substitution for your will, and to be viewed as an agreement to the management of your investments.

By definition, the ‘Living’ Trust is one that you create and come into an arrangement with during your natural lifetime. Contrast this with the ‘Testamentary’ Trust which is established at the time of your passing by your Last Will and Testament, and which is neither revocable, nor changeable, after your death. Your Living Will is, in fact, both revocable and amenable, meaning that you can cancel at any time, and revert the management of your estate back to yourself.

It is legal in many states to act as the Sole Trustee for your estate if you do not require the additional services of investment and management while you are alive. You are also able in many parts of the country to act as the Co-Trustee along with your spouse, and you can additionally name a Trust Successor Trustee to take over should you be incapacitated or pass on. You also have the option of choosing to pass all your trust property on to your family in the event of your passing.

There are, however, many good reasons that a person may choose to continue the trust after they have passed. These reasons can include knowing that this can create enormous tax benefits while providing the valuable services of investment management, tax oversight, and accounting. Continuing the trust can also prove useful to protect your family against creditors and negative influences, while also serving as a safeguard to your children’s and grandchildren’s inheritances.

Charitable Remainder Trusts: Tax Traps & Difficult-to-Value Assets

Charitable Remainder Trusts (CRT): Tax Traps and Difficult-to-Value Assets

If you are considering establishing a Charitable Remainder Trust (CRT), or already have one established, you’ll need to understand the potential issues and situations that may arise.  A Charitable Remainder Trust is a type of trust that specifies distributions to one or more non-charitable beneficiaries for a predetermined period, with the ‘remainder’ value of the trust being paid to one or more charitable recipients.

Prearranged Sales

A prearranged sale is an informal agreement between the grantor and a potential buyer to sell property prior to the establishment of a CRT in which that property is named as an asset.  If the property is then sold to that buyer by the trust, the Internal Revenue Service may characterize the sale as being from the original grantor and not from the trust.  Therefore, the grantor will be responsible for paying the full capital gains tax out of their own pocket.

In terms of real estate, the solution for this is simple: The grantor should not commit to a binding obligation to sell the property before it is contributed to the CRT. Therefore, the practitioner should ensure that no sale contract or option has been signed prior to the contribution to the CRT.

If the stated property is stock in a corporation, the grantor’s estate and charitable planning advisors often aren’t consulted regarding personal tax and estate planning until after a deal to sell the business has been negotiated. Depending on the situation, a CRT will not be effective to shelter the gain on the subsequent sale of the business. The prearranged-sale issue should not be a problem if the stock is to be redeemed by the corporation rather than purchased by a third party, provided that the trustee of the CRT is under no binding obligation to offer the stock for redemption after the transfer to the trust.

Private-Foundation Prohibitions

CRTs are subject to excise tax rules against self-dealing, defined as any transaction between a disqualified person and a CRT, and taxable expenditures.  CRTs with a charitable beneficiary are subject to prohibitions on excess business holdings and jeopardizing investments.

A gift of residential real property to a CRT poses possible self-dealing problems. For example, if the grantor continues to reside ––even for one second–– in the residence after it is contributed to the CRT, the CRT is deemed to have conferred a direct benefit of the grantor, thereby subjecting the trust and the grantor to the excise tax. The self-dealing tax cannot be avoided by having the grantor lease the property from the trust after the property has been contributed to the CRT. Accordingly, the grantor must move out of the residence before it is contributed to the CRT.   Self-dealing carries a penalty of 5% at first offense, but jumps to 200% if steps are not taken to correct the problem.

The sale of C-corporation stock or assets by a CRT to a third party should not trigger the private foundation self-dealing excise tax, unless the third party is a disqualified person. A disqualified person would include the grantor to the CRT, a trustee of the CRT, or of a foundation that is the remainder beneficiary of the CRT, a member of the grantor’s family (defined as a spouse, ancestor, child, grandchild and great-grandchild of the grantor and the spouses of those individuals) and certain entities owned and/or managed by disqualified persons. Thus, a sale of the CRT’s stock or assets to the grantor’s child who expects to take over the family business from the grantor would be a prohibited act of self-dealing, because the child is a disqualified person. In contrast, a redemption of the CRT’s stock by the corporation, rather than a sale to a third party, would not result in a self-dealing tax if the offer to redeem is at fair market value and is made to all shareholders holding the same class of stock.  To qualify for this exception, it might be advisable to structure the gift to the CRT as a separate class of stock held only by the CRT. Then, the corporations can redeem only the CRT’s stock while still qualifying for the redemption exception to the self-dealing rules.

The self-dealing rules may make the day-to-day management of a partnership or LLC difficult when a CRT is a partner or member because any transaction between the LLC or partnership and the CRT must be scrutinized to determine whether it violates self-dealing rules.

Unrelated Business Taxable Income

Certain types of assets generate unrelated business taxable income (“UBTI”) when owned by a CRT. A CRT has UBTI in any year in which the trust has income from an active trade or business, or passive income that is debt-financed. This means that contributions of certain types of assets (for example, many partnership interests and most mortgaged real estate) result in UBTI to a CRT. In any year in which a CRT has UBTI, it is taxed at rate of 100% on the UBTI.

Mortgaged property can create a UBTI problem because of the debt-financed property rules, unless a narrow exception applies.  However, note that the UBTI problem is not limited to mortgaged real estate. UBTI can sometimes result if the real estate is subject to a lease. Generally, rent payments qualify for the passive- income exception to the unrelated business-income tax. However, if the lease payments look more like an active trade or business, and less like a passive collection of rent by the CRT, then the exception doesn’t apply. For example, this could be so if a commercial lease contains provisions in which the rental payments are tied in some way to the profits of the tenants.

Gifts of C-Corporation stock generally do not raise UBTI problems because the trade or business income of the corporation is taxed at the corporate level. However, if the CRT owns more than 50 percent of the voting power and more than 50 percent of the equity in the C-Corporation, any interest, annuity, royalty or rent (but not dividends) paid from the corporation to the CRT will constitute UBTI.

Hedge funds and other “alternative” investments are often structured as limited partnerships or LLCs. In their investment strategies, these entities frequently utilize debt or derivative products that may look more like debt than equity. Alternatively, if the fund is a venture-capital fund, it may invest directly in operation businesses that are not C-Corporations. As a result, the primary problem presented by gifts of partnership or LLC assets to a CRT is UBTI. If a CRT owns an interest in a partnership or an LLC that operates an active trade or business or has debt-financed property, the CRT will have UBTI because the tax attributes of a partnership or LLC flow through to its partners or members. This result often can be avoided by having the CRT’s investment in the partnership or LLC structured through a C-Corporation which blocks the UBTI from ever reaching the CRT. Many hedge funds and alternative investment funds have established such “blocker” corporations, either domestically or offshore, for the express purpose of attracting tax-exempt investors such as CRTs. Alternatively, it may be possible for the CRT to create its own blocker corporation through which to make such investments.

Mortgaged-Property Problem

The single biggest problem with gifts of real estate to a CRT is the mortgaged-property problem. A gift of mortgaged property treated as a “bargain sale” may cause the trust to have UBTI and may cause the CRT to be treated as a grantor trust, thus losing its tax-exempt status. If the grantor remains liable for the debt, the CRT is treated as a grantor trust for income tax purposes. That means it is not a tax-qualified CRT, and the grantor loses the income and gift tax charitable deductions (sometimes the estate-tax charitable deduction, too), plus, the trust loses its tax-exempt status. The grantor will be liable for any capital gains taxes generated when any appreciated trust asset is sold. Our advice to clients is simple: Get rid of the mortgage before funding the CRT.

When a CRT is funded with mortgaged property, the transaction is treated as a “bargain sale” for income tax purposes. This forces the grantor to recognize gain on some portion, or all, of the outstanding mortgage value. This rule applies regardless of whether the mortgage is recourse or non-recourse and regardless of whether the grantor continues to pay the mortgage. Mortgaged property can also create a UBTI problem, because of the debt-financed property rules, unless a narrow exception applies.

Tangible Personal Property

Tangible personal property–such as paintings, sculpture and jewelry–can sometimes be an appropriate asset with which to fund a CRT. While the general tax traps described above must all be considered in the case of a tangible personal-property gift, there are three additional tax problems specific to such gifts. First, the grantor’s income tax deduction is delayed until the property is sold by the trustee. Second the grantor should be informed that his or her income tax deduction for the remainder interest will be based on the lesser of the property’s fair- market value or its cost basis. Third, if the property has been subject to accelerated depreciation (for example, farm equipment), then the charitable deduction may be further reduced.

Drafting Trap

If the CRT trust instrument allows a private foundation to be named as one of the charitable-remainder organizations, the grantor’s income tax deduction will be subject to the more restricted adjusted gross- income limitations applied to gifts for private foundations, rather than the more generous limitations applied to gifts to public charities. In addition, the grantor’s income tax charitable deduction will be calculated by reference to the grantor’s basis in the contributed property rather than the property’s fair-market value. This basis limitation doesn’t apply if the grantor gives “qualified appreciated stock” to the CRT. Qualified appreciated stock generally means stock in a publicly traded company.

If the grantor has no intention of ever naming a private foundation as one of the remainder organizations and the trust is funded with difficult-to-value assets, the trust instrument should always include a provision limiting the charitable-remainder organizations to public charities. Under most circumstances, this will guarantee that the charitable deduction will be computed based on the contributed asset’s fair-market value rather than its basis. However, practitioners using the IRS-approved forms may unwittingly cause their clients to receive a lower charitable deduction.

The extent to which any of the tax traps discussed will arise in any given CRT depends, in part, on the type of asset involved.  While knowing is half the battle, we always advise seeking professional assistance in navigating any form of trust.

Charitable Remainder Unitrusts

A Charitable Remainder Unitrust is a great way to make your assets work for you.  In a Charitable Remainder Unitrust, you elect to donate your assets to a charitable organization – or organizations – of your choosing in exchange for income for the remainder of your days – or for the remainder of your beneficiary’s days.  You benefit by receiving life income from your charitable gift.  The charities benefit by receiving the trust fund at the end of your interest.

The federal government gives tax benefits to encourage you to support charitable organizations through a unitrust.  Creating a unitrust – keeping attractive income for life – can save estate taxes and probate costs, as well as substantial income taxes.


How is a unitrust created?

To create a unitrust, a donor irrevocably transfers money, securities, or both to a trustee (often a professional fiduciary), which pays the donor income for life.  The trust can also provide income for a survivor (e.g., a spouse) for life.  Then the trust assets become the sole property of the charitable organization named as the remainder organization.

A unitrust pays you an amount each year determined by multiplying a fixed percentage (that you select at the outset) times the fair market value of the trust assets each year.  You get an immediate income tax charitable deduction, and it is often possible for part of your payments to be taxed more favorably than income you are currently earning on your assets.

In addition, your unitrust can provide income for another–a spouse, parent, child,…etc.  You can also have the income paid to you for life, and then to a family member.  The charitable deduction is lower for a two-life unitrust, because payments are for a longer time than for a one-life plan.  A unitrust created by your will can provide life income for one or more survivors.  For a sizable estate, the tax savings generated by the estate tax charitable deduction can be significant.


How is yearly income determined?

The unitrust assets and receipts are managed and invested by the trustee as a single fund.  The income beneficiary receives payments based on a fixed percentage of the fair market value of the trust assets, valued each year.

For example, Paul’s unitrust provides that he is to receive 7% of the fair market value of the unitrust assets each year (payable quarterly).  Paul funds his trust with $100,000, so he receives $7,000 the first year.  One year later, the unitrust assets are worth $110,000.  Paul receives $7,700 for the upcoming year ($110,000 x 7%).  If the assets are worth $120,000 at the beginning of the succeeding year, Paul will receive $8,400 for that year ($120,000 x 7%).  And so on, each year.


What income tax benefits can you earn from a unitrust?

A donor who itemizes their tax return gets a sizable income tax charitable deduction in the year he or she1 creates the unitrust. The deduction is for the value of the charitable organization’s right to receive the unitrust principal (the remainder) after the donor’s life, as determined by official IRS tables.

Your charitable deduction depends on several factors: your age (and the age of any other beneficiary), the unitrust percentage to be paid to the beneficiary, and the amount of money or fair market value of long-term securities placed in trust.

1   Deductible up to 50% of your adjusted gross income when the unitrust is funded with money and the charitable beneficiary is a school, church, hospital or other public charity.  Any “excess” is deductible over the five following years – up to 50% of each year’s adjusted gross income.

What are the benefits of funding your unitrust with appreciated securities?

There is no tax when you transfer appreciated securities to fund a unitrust.  Furthermore, the charitable deduction for a gift funded with long-term securities is based on the securities’ full fair market value–not their lower cost basis.  Gains on sales of appreciated securities by a unitrust aren’t taxed to the trust, nor is ordinary income.  The payments made to the income beneficiary are taxed as described below.


How can the unitrust protect against inflation?

The annual amount you receive reflects any increase in the value of the trust’s assets.  It also assures you the stated percentage each year, even if the unitrust income is less than the stated percentage.  Capital gains or principal can make up any shortfall.  If trust income exceeds the stated percentage, the excess is added to the unitrust assets and reinvested for your benefit.

A variation calls for the trustee to pay only the trust’s income if its actual income is less than the stated percentage.  Deficiencies in distributions (i.e., where the unitrust income is less than the stated percentage) can be made up in later years if the trust income exceeds the stated percentage.

For unitrusts funded with long-term appreciated securities, the contribution is deductible up to 30% of the adjusted gross income – with a five-year carryover for any “excess.”  In some cases, the ceiling can be increased to 50% with a five-year carryover.


How is unitrust income taxed?

The amount paid to you, the income beneficiary, retains the character it had in the trust.  Each payment is treated as:

  • ordinary income to the extent of the trust’s ordinary income for the year (and any undistributed ordinary income from prior years)
  • capital gains to the extent of the trust’s capital gains for the year (and any undistributed capital gains from prior years)
  • tax-exempt income to the extent of the trust’s exempt income for the year (and any undistributed exempt income from prior years)
  • a tax-free return of principal

The trustee will tell you each year exactly how to report the unitrust payments on your tax return.


What are the income tax benefits?

Depending on investments, part of the income paid to the beneficiary can often be treated as capital gain; part may even be a tax-free return of principal.  Those benefits can be achieved by a growth- rather than an income-oriented investment policy.  The income beneficiary must receive the stated percentage each year; if the unitrust income is less than the stated percentage, capital gains or principal will be distributed.

The following examples show the different tax treatments for growth and income investment policies…

Example 1:  Bob funds his 7% unitrust with $100,000 and it earns $7,000 on dividends during the year.  The entire $7,000 he receives is taxed as ordinary income.  Assuming no increase or decrease in value of the unitrust assets, the assets are worth $100,000 at the beginning of the second year.  So Bob is entitled to $7,000 for the second year ($100,000 x 7%).

Example 2: Instead of investing for income, the trustee invests for growth.  During the year, Bob’s 7% unitrust appreciates to $107,000, but earns no income.  Bob is entitled to $7,000 for the year, so the trust sells $7,000 worth of stock.  If the stock sold for $7,000 has a $5,000 cost basis, Bob has $2,000 of capital gain income and a $5,000 tax-free return of principal.  Even though capital gain and principal have been distributed, the trust principal is still worth $100,000 at the beginning of the second year.  So Bob is entitled to $7,000 for the second year.

Had the unitrust appreciated to $111,000 during the year, the unitrust principal would be $104,000 at the beginning of the second year (after Bob receives his $7,000).  Bob would then get $7,280 for the second year ($104,000 x 7%).

Example 3:  This example is more detailed to give you a fuller idea of a unitrust’s workings.  The trustee advises the beneficiary each year of the amount of income and how to report it properly on his or her tax return.

On the first year, after multiplying the $100,000 fair market value of the unitrust by 7%, it is determined that the beneficiary is to receive $7,000 for Year One.  During the year, the trust:

  • Received: $2,000 in dividends.
  • Sold: a block of stock for $4,000 which had a $2,000 cost basis.
  • Received: $2,000 in interest from tax-free municipal bonds.
  • The $7,000 the beneficiary receives for Year One is taxed as follows:
  • $2,000 is ordinary income.
  • $2,000 is capital gain income.
  • $2,000 is tax-free interest.
  • $1,000 is nontaxable return of principal.

During the second year, after multiplying the $110,000 fair market value of the unitrust by 7%, it is determined that the beneficiary is to receive $7,700 for Year Two.  During the year, the trust:

  • Received: $8,000 in dividends.
  • Sold: a block of stock for $12,000 which had a $9,000 cost basis.
  • Received: $1,000 in tax-exempt interest.
  • The entire $7,700 received by the beneficiary is taxed as ordinary income.

And finally, in Year Three, after multiplying the $115,000 fair market value of the unitrust by 7%, it is determined that the beneficiary is to receive $8,050 for Year Three.  During the year, the trust:

  • Received: $3,000 in dividends.
  • Received: $750 interest from tax-free municipal bonds.
  • The $8,050 the beneficiary receives for the year is taxed as follows:
  • $3,300 is ordinary income ($3,000 in dividends received by the trust in Year Three plus $300 of dividends undistributed in Year Two).
  • $3,000 is capital gain income (undistributed in Year Two).
  • $1,750 is tax-free interest ($750 received by the trust in Year Three plus $1,000 undistributed in Year Two).

How does a unitrust eliminate, or reduce, estate taxes and probate costs?

The unitrust is not subject to Personal Representative’s fees or other probate costs in most states.  If your estate would otherwise be subject to federal estate tax, substantial tax savings can be achieved.  When the donor is the only beneficiary, the unitrust is not taxed to the donor’s estate.

When U.S. citizen spouses are the beneficiaries of a two-life unitrust, the trust assets are not taxed to either of their estates.  For a two-life unitrust in which the donor is the first beneficiary and the second beneficiary is not the donor’s spouse, the unitrust is not taxed to the donor’s estate if the second beneficiary doesn’t survive the donor.  If there is a survivor beneficiary (and the donor’s estate would otherwise be taxed), only the value of the survivor’s right to life payments (computed on the donor’s death) is subject to tax in the donor’s estate.  The charitable gift–the charitable institution’s right to the trust principal on the death of the survivor–is always completely free from estate tax.

Now that you understand how a unitrust is established and maintained, the toughest decision you’ll need to make now is what organization to donate to.

Private Family Foundations – Commonly Asked Questions Answered

Private Family Foundations – Naples Estate Planning

Private foundations are being established, with increasing frequency, by individuals and families to supplement charitable programs sponsored by the government and such multi-donor charitable organizations as the Red Cross, Americares and the United Way. But how much do you really know about private family foundations?  Let’s look at the most common questions about these private foundations.



A: There are no minimums under either state law or federal tax law. However, the costs of setting up a Foundation and the annual paperwork involved in reporting Foundation activities to the government suggest that there are better alternatives for charitable giving if the initial contribution amount is less than $500,000 (unless further annual giving, or gifts by others, is anticipated). A lesser amount may be considered if the family is willing to take on certain tax, accounting and investment responsibilities.



A: Generally, a Foundation can be established for any recognized charitable purpose. Federal law requires that a Foundation be organized and operated exclusively for religious, charitable, scientific, literary, or educational purposes, to prevent cruelty to children or animals, or to foster national or international amateur sports competition (but not to provide athletic facilities or equipment).

A Foundation’s charitable purposes and activities must be described in its application for recognition as a tax-exempt organization, and must satisfy the statutory test. If a Foundation’s only activity will be making grants to public charities, then often only a broad general statement of purposes, such as that set forth in the statute, is included in the organizational documents and exemption application.

A Foundation can also be established to provide services directly to a charitable class, or conduct a charitable activity. For example, a Foundation can operate a museum, arboretum, homeless shelter, Meals on Wheels program, scholarship awards program, etc. If a Foundation’s assets or income are devoted to the active conduct of charitable operations, it may be appropriate to apply for tax-exempt status as a Private Operating Foundation.



A: A Foundation can be created as a not-for-profit corporation, or as a charitable trust. Generally, it is easier to form and administer a trust than a corporation. Certain powers (termination, amendment) should be spelled out in the trust agreement, however, to make the trust as flexible as a corporation, and the trustees should be given the power to incorporate the Foundation if at some future time that becomes desirable.

The corporate form is normally chosen if a Foundation will actively conduct any charitable operations which expose the Foundation managers to a greater risk of liability, e.g., a museum, arboretum, homeless shelter, Meals on Wheels program, or any other services provided to or facilities held open to the public. The trust form is often used when a Foundation will carry out its tax-exempt purposes by making grants to other charitable organizations.



A: There are few restrictions on who can be the trustees or directors (the managers) of a Foundation, but all such managers are subject to the excise tax rules on self-dealing and other prohibited activities. (See subsequent question regarding restrictions on the way a Foundation is operated.)

If a Foundation is created as a Florida not-for-profit corporation, a minimum of three directors and two officers: a President and a Secretary/Treasurer will be required. The same person can be both an officer and a director.

If a Foundation is created as a charitable trust, the person establishing the Foundation can be the sole Trustee and have complete control over all functions of the Foundation, including distributions.

However, there may be advantages to naming several Trustees. Consider the following:

  • Would you like to have your children or other family members become involved in the process of philanthropy? This is an opportunity for you to involve them in the joys of participatory philanthropy while you are still alive and able to guide them.
  • Would the process of selecting charitable recipients of Foundation grants benefit from the involvement of persons with different backgrounds and areas of expertise?
  • Do your professional advisors share your interest in the Foundation? If so, would their professionalism coupled with their knowledge of your family’s goals and objectives be helpful in guiding the Foundation?
  • If you plan to focus the Foundation’s grants on one or two charities, would it be helpful to have members of their Boards serve as trustees of your Foundation?



A: Your income tax charitable deduction for any cash you contribute to a Foundation is based on the amount contributed. For gifts of property, other than certain marketable securities, the deduction is based on the lesser of your tax basis in, or the fair market value of, the property contributed. Gifts of appreciated unrestricted marketable securities held long-term are deductible at their full fair market value.

The income tax charitable deduction is an itemized deduction and may be subject to cutback, depending on your adjusted gross income and other deductions. The amount you can deduct in the year you make a contribution to a Foundation is limited to 30% of your contribution base for cash gifts, and 20% of your contribution base for capital gain property. Excess deductions can be carried forward for five years. The deduction rules for gifts to Public Charities and Private Operating Foundations are more favorable to donors than the rules for gifts to Private Foundations.

The rules in this area of tax law are complex and should be reviewed with your tax attorney or accountant before proceeding.



A: Each year a Foundation must file an annual return, Form 990-PF, with the federal government, setting forth its assets and liabilities, its taxable income, and information regarding the donations received and the grants and expenditures made during the year. Federal law requires a Foundation to file a copy of its annual return with the Attorney General’s office in the state in which it is organized and any other state in which it conducts activities.

Corporate-form foundations generally have some ongoing state reporting obligations and filing fees that must be paid to maintain their corporate status in the states in which they are incorporated and authorized to do business. In order to have their corporate form recognized for liability purposes, they must also observe the corporate formalities required under state law, including holding directors’ meetings and keeping written minutes of all meetings.



A: Yes. A Foundation’s annual net investment income (ordinary income and capital gains) is subject to a 2% tax. If a Foundation maintains a certain level of charitable distributions, the tax is reduced to 1%. If a Foundation has unrelated business taxable income, it must pay tax on that income at regular trust or corporate rates. Unrelated business taxable income includes income from an interest in a partnership that carries on a trade or business that is not related to the Foundation’s exempt purposes, income and gains attributable to S-Corporation stock, certain kinds of rental income, and income attributable to property that is subject to debt.

Other “excise taxes,” that are really penalty taxes, are assessed if a Foundation engages in certain prohibited transactions described below.



A: Federal law requires a Foundation to distribute an amount equal to roughly 5% of the average fair market value of its investment assets to other charitable organizations or to expend that amount directly for charitable purposes each year. This requirement is satisfied as long as the amount required to be distributed or expended for any year is distributed or expended by the end of the following tax year. With advance approval from the Internal Revenue Service, the distribution requirement can be satisfied by setting aside an amount for a future project for which immediate expenditure is not feasible (e.g., building a museum). There are substantial penalties for failure to make timely distributions.



A: Yes. A Foundation must be operated as the charitable organization that it is and not for private benefit. In addition, excise (penalty) taxes are imposed against a Foundation and certain “disqualified persons” for the following prohibited transactions:

Self-Dealing Certain transactions between a Foundation and a substantial donor, a Foundation manager (trustee or director), their family members, and certain trusts, partnerships and corporations in which they have an interest (“Disqualified Persons”) are prohibited. Prohibited transactions include any sale,exchange or leasing of property, any loan or extension of credit, and any furnishing of goods,services or facilities between a Foundation and a Disqualified Person, as well as the payment of compensation or reimbursement for expenses by a Foundation to a Disqualified Person and any transfer to or use by a Disqualified Person of a Foundation’s assets or income-whether or not the transaction is fair or beneficial to the Foundation. There are some narrow exceptions provided by For example, a Foundation may pay a Disqualified Person reasonable compensation for personal services to the Foundation that are necessary to carry out its exempt purposes. Also, a Disqualified Person may make an interest-free loan to a Foundation or provide a Foundation, at no charge, with goods, services or facilities to be used by the Foundation exclusively for its charitable purposes. Any transaction between a Foundation and a Disqualified Person should be reviewed carefully in advance.

Failure to Make Annual Qualifying Distributions See previous question.

Excess Business Holdings The interests a Foundation and its Disqualified Persons can hold in a business enterprise cannot, inthe aggregate, exceed 20% of the voting stock of a corporation or the profits interests in a This limit is increased to 35% if one or more persons who are not Disqualified Personshave effective control of the business. Interests in excess of these limitations are referred to as“excess business holdings.”A Foundation must dispose of excess business holdings it receives by gift or bequest within fiveyears. If excess business holdings are created because a Disqualified Person purchases additionalholdings, the Foundation has 90 days to dispose of its excess business holdings. A Foundation maynot invest its assets in any excess business holdings. A Foundation will not be treated as havingexcess business holdings if the interest it holds does not exceed 2%, or if the business is one whichgenerates at least 95% of its gross income from passive investments.

Investments Which Jeopardize Charitable Purpose A Foundation is also prohibited from investing its assets in a manner that jeopardizes its ability tocarry out its exempt functions. The statute does not prohibit any particular investment. Rather, itimposes a duty to use ordinary business care and prudence to provide for a Foundation’s long-termand short-term needs. Diversification is prudent; speculation must be avoided. The statute applies toinvestments, not to assets received by contribution.

Taxable Expenditures A Foundation is prohibited from lobbying or otherwise attempting to influence legislation, fromparticipating in or intervening in any political campaign on behalf of or in opposition to anycandidate for public office, from operating a voter registration drive (unless certain requirements aresatisfied), from making scholarship grants to individuals (unless certain requirements are satisfied),from making grants to an organization that is not a public charity (unless the Foundation exercisesexpenditure responsibility), and from making any expenditure that is not for one or more of itsexempt purposes.



A: Many Foundations are named for the individual or family that contributed the funds or in whose memory the Foundation is created (e.g., “The Jane Jones Family Foundation”). There are no special restrictions on the selection of an appropriate name, other than the requirement that a corporate-form Foundation include the word “Company,” “Corporation,” “Incorporated,” or an abbreviation thereof in its name.



A: You need not name or limit the charities to be benefited or limit the Foundation’s charitable purposes. It may even be inadvisable to do so since organizations and society’s needs change over time so that a particular purpose may become inappropriate as years pass. You may state a “general purpose” for your Foundation and, if you wish, add nonbinding guidance as to particular charities and purposes you would like the Foundation’s future managers to consider when making distributions. If you wish to place binding restrictions on the use of your contributions, you must do so at the time you make your contribution to the Foundation.

If you intend to benefit a particular Public Charity or Charities and are willing to involve those organizations in operating your Foundation, then you may want to consider creating a Supporting Organization instead of a Foundation. A Supporting Organization is itself a Public Charity. Therefore, contributions to a Supporting Organization are treated more favorably for purposes of the income tax charitable deduction, and a Supporting Organization is not subject to the excise tax rules that govern a Foundation. However, the organizational and operational requirements for a Supporting Organization can be as or more cumbersome to deal with than a Foundation’s excise tax rules. Further, although you may participate in the administration of your Supporting Organization, you and your family members may not control your Supporting Organization as you can your Foundation.



A: Under Florida law, a charitable trust can be perpetual, as can a not-for-profit corporation. Given the difficulty in foreseeing the future, it generally makes sense to give the Foundation managers the discretion to terminate a Foundation for any appropriate reason (e.g., it ceases to be economic to continue administering it as a separate charitable organization).



A: We have mentioned above some circumstances that indicate when a Private Operating Foundation or a Supporting Organization might be an appropriate alternative to a Foundation.

Another alternative is a Donor-Advised Fund with your local Community Foundation. With a

Donor-Advised Fund, you or persons named by you have the right to advise the Community Foundation on grants to be made from your Fund. Your Fund can be either unrestricted as to charitable purposes served or limited to certain types of programs (e.g., education, medical research, the arts) and/or a particular neighborhood, city or region within the geographic area served by the Community Foundation. Your recommendations regarding the grants the Community Foundation makes from your Donor-Advised Fund are not binding, but Community Foundations will generally give full and careful consideration to their donors’ wishes. Community Foundations can provide you with valuable information regarding community needs and the programs available to meet them, and can follow up on grants made from your Fund. Since the Community Foundation is the owner of your Fund’s assets, it handles all investment, administrative and reporting duties. Alternatively, you can create a Donor-Designated Fund to benefit specific organizations you name when you create your Fund with the Community Foundation.

Since Community Foundations are Public Charities, contributions to your Fund are treated more favorably for purposes of the income tax charitable deduction than contributions to a Foundation, and your Fund and the Community Foundation are not subject to the excise tax rules that govern a Foundation.

If you decide to create a Foundation, your local Community Foundation can be a source of important information to your Foundation regarding organizations and programs in your community that need your Foundation’s support. By working with your local Community Foundation, your Foundation can help ensure that its efforts and activities are coordinated with the philanthropic activities of other organizations and individuals to better serve your community.

Charitable Lead Trusts (CLT)

Charitable Leads Trust Naples, FLorida

What is a Charitable Lead Trust? – Naples Estate Planning

A Charitable Lead Trust allows you to produce tax savings that can be utilized by providing to a favorite charity and the family of the person that owns a Charitable Lead Trust. With a Charitable Lead Trust (CLT) at the end of the term, the balance that is left goes to the descendants of the owner, and is free from estate tax. The assets can also stay in a trust, but this depends on what the initial donor set up when they were making the objectives for the assets.

A CLT is a good estate planning method for those that would like to:

  • Move a nice sized portion of their estate to their children at some point in time in the future; this will lower the cost to transfer the funds when the need is desired
  • Give money to charitable organizations
  • Pass on a larger amount of their estates to their grandchildren or other descendants further down the line without the need to pay the generation-skipping transfer tax that can be required otherwise.

Charitable Leads Trust Naples, FLoridaThere are two types of CLTs that can be obtained. First, there is the Charitable Lead Annuity Trust (also known as CLAT) and Charitable Lead Unitrust (also known as CLUT). In a CLAT, the amount that has been paid out to a charity is based on a certain percentage of the original fair market value of the contribution that is made by the donor. The donor gets to select the percentage amount when they create the CLAT. With the CLUT, the person making the donation chooses a certain percentage the fair market value of the CLUT assets that the charitable beneficiaries are going to receive, but the payment amount is predetermined every year. This is based upon the fair market value of the CLUT. If CLUT grows by more than the specified unitrust percentage then the beneficiaries share in the growth; and it works the same way for a decrease in value of the CLUT assets as well. There are different tax consequences for the CLAT and the CLUT; the estate planning goals of the donor will generally decide the type of CLT which is most helpful.

Whether the person making the donation chooses a CLAT or a CLUT, there is always a taxable transfer being made. The donor receives a gift tax charitable deduction for the amount of the transfer that is attributable to the charitable beneficiaries. The gift tax return must be filed and a small gift tax may be payable depending on the amount the beneficiaries receive. The taxable gift is calculated by taking the present value of the payments being made to the charitable beneficiaries over the term of the CLT.

There are specific tax reasons for having a CLT.  Generally it’s not to get a charitable income tax deduction. Doing this would risk inclusion of a portion of the CLT assets in the estate of the donor upon their death.

For many, having a CLT gives them the opportunity to plan. If you want to benefit a charitable organization or more than one all the while making a tax-advantaged gift to your family, we urge you to learn more about Charitable Lead Trusts.

Qualified Personal Residence Trusts

Qualified Personal Residence Trusts (QPRT)


There are many ways to utilize trusts to reduce estate tax liabilities. The Qualified Personal Residence trust (commonly known by its acronym “QPRT” and pronounced “Q-Pert”) is a great way to pass real estate to one’s heirs while minimizing gift and estate taxes.  It is a simple concept: the owner of a personal residence transfers it into a trust, but retains the right to live in the residence for a specified number of years.  At the end of that period, the beneficiaries of the trust become the owners of the residence.

Let’s take a look at an example of how a QPRT works:

In 2002, the owner of a personal residence creates a QPRT, and transfers ownership of their residence into the QPRT. Because the beneficiaries of the trust cannot take ownership for a specified period of time, the value of the gift is discounted. This discount is based on several factors, including the age of the donor, the number of years the donor will retain the right to occupy the property, the appraised value of the property, and the current IRS actuarial tables. For example, if the donor in 2002 established a 20 year QPRT to hold a $1 million residence, the discounted value of the home (based on the interest rate in effect in January, 2002) would only be $192,270.

Trust Agreement Terms

A QPRT trust document may allow for the following:

  • The donor could be the sole Trustee of the QPRT, and make all management decisions.
  • The trust would continue for a specified number of years, after which the property could be transferred either outright to the remainder beneficiaries, or in further trust for their benefit. The number of years that the QPRT is designed to continue requires careful thought since the tax benefits are lost if the donor dies before the QPRT ends. A longer trust term increases the tax advantages, but also increases the risk that premature death will erase those advantages.
  • During the term of the QPRT, the donor would be entitled to all rights of occupancy, and would be responsible for all costs of maintenance.
  • If the residence is sold during the term of the QPRT, another home can be purchased to replace it in the trust. If a replacement home of equal value is not purchased, the unused cash proceeds must either be distributed back to the donor (thus forfeiting the tax benefit), or the cash must be invested and the donor will be paid an annuity for the balance of the QPRT term (thus reducing, though not necessarily eliminating, the tax benefit), after which the remaining trust assets will be distributed to the remainder beneficiaries.

Considerations When Forming a QPRT

The objective of the QPRT is to reduce inheritance taxes by removing the property from the donor’s estate. If the donor’s death occurs after the QPRT has ended, the donor’s taxable estate for federal estate tax purposes will include only the value of the remainder beneficiary’s future interest in the residence when the trust was created, and all appreciation in value after the date of the gift will have been removed from the donor’s estate.

On the down side, if the donor has survived the QPRT term, the residence will not receive a “step- up” in its income tax cost basis to estate tax value, because the residence will not have been taxed in the donor’s estate. For this reason, the QPRT is best suited for a home likely to stay in the family until the children’s deaths, when the residence will get the desired step-up in basis. However, even if the property is later sold by the children, the capital gains tax (at least under current tax law) will be far less than the estate tax that, otherwise, would have been due had the QPRT not been created.

During the QPRT term, the donor will be treated for income tax purposes as if he or she were still the owner of the property; i.e., the donor can deduct real estate taxes, take advantage of tax elections on the sale of the property, etc. If the property is sold by the QPRT, a capital gains tax will be due in the same amount as if the donor still owned the property. And, the donor must pay the capital gains tax out of the donor’s own funds, which often produces a good estate tax result because payment of the tax reduces the donor’s taxable estate.

If the donor dies before the completion of the term of years specified in the QPRT, the trust will end and the property will be disposed of by the donor’s Will or Revocable Trust. The tax advantages will be lost, but there will be no tax detriments—taxes will be calculated as though the QPRT had never been created.

If the Estate Tax Is Repealed, Will Estate Planning Still Matter?

Estate Planning - Tax Attorney Naples, FL

Nici Law FirmIf the Estate Tax Is Repealed, Will Estate Planning Still Matter?


For generations, families have used estate planning and trusts to transfer wealth and preserve their legacies. Unfortunately, estate planning and trusts continue to suffer from a common misconception that the sole purpose is to reduce estate taxes. This association is so strong that President Trump’s promise to repeal the federal estate tax has clients asking: If the estate tax goes away, will we still need estate planning and trusts?

The answer is yes. While irrevocable trusts help shelter assets from estate taxes, they also offer numerous non-tax-related benefits. Revocable trusts, also offer compelling benefits.

Below are 10 reasons estate planning and trusts still matter, regardless of what happens to the federal estate tax:

Estate Planning - Tax Attorney Naples, FL

1. Protection when you need it most

If you become seriously ill or incapacitated, a fully-funded revocable trust can provide for the efficient management of your finances without the cost and delay of guardianship proceeding. A revocable trust may also help avoid the complications that can arise when someone acts as your attorney-in-fact under a power of attorney: many financial institutions are reluctant to recognize power of attorney documents that are created by other firms. A revocable trust typically provides the successor trustee with discretion to pay living expenses, including in-home medical care. If you are married, the revocable trust agreement can allow for distributions to support your spouse.

2. Offering your beneficiaries immediate access to funds

Without a revocable trust, financial assets will be frozen until your will has been submitted to the court and a personal representative appointed. This may cause cash-flow problems for your spouse or beneficiaries if they need to access those accounts to pay funeral expenses, medical bills and other related costs. Unlike assets held in individual name, assets held in a revocable trust can be available immediately to pay taxes, administration expenses and debts without waiting for the court’s approval. Even if funds aren’t needed, knowing they are available can provide a good deal of comfort to family members at a difficult time.

3. Avoiding the hassle of probate

The process of having the court handle the administration of an estate is time-consuming and expensive (although its costs and inefficiencies are sometimes exaggerated). If you own real property in more than one state, it may be necessary to open probate in multiple jurisdictions. In contrast, assets held in a revocable trust are not subject to court supervision and probate is not required to transfer them to your beneficiaries. That’s not to say that no work is required—you must transfer assets to the revocable trust during your lifetime and there is a process that must be followed when administering a revocable trust after death. But administering a revocable trust is much less cumbersome than administering assets through a probate proceeding.

4. Protecting your family’s privacy

If privacy is a concern for you and your family, a revocable trust could be beneficial. While the terms of a will become public information during the probate process, the terms of a revocable trust remain private.

5. Precise control over the distribution of assets

Control has always been a primary reason for establishing any kind of trust. As the person who creates the trust, you determine how it is structured, the timing and purpose of distributions, and how the assets are managed. You can create a trust for a single beneficiary or several beneficiaries, including charities, individuals and multiple generations of family members. The trust might require the payment of all income to a particular beneficiary, limit the use of principal distributions to educational or medical purposes, or trigger distributions based on age. You decide exactly how your assets will be distributed rather than leaving the decision up to a beneficiary.

6. Recognizing the complexities of modern families

Divorces, multiple marriages and blended families present challenges for individuals who want to make sure their wealth truly stays within the family. By leaving an inheritance in trust, including trusts for your spouse, you can ensure that your wealth ultimately passes along to your children or whoever you include in your definition of family. Trusts become especially important in the event of divorce because assets held in an irrevocable trust for a beneficiary are generally shielded from creditors. Proper drafting is required to take advantage of this protection.

7. Protecting beneficiaries from the unexpected

In our increasingly litigious society, asset protection has become a pressing concern. Families with considerable wealth can be especially vulnerable because they are perceived as having the financial means and motivation to settle out of court, especially when faced with claims that are scurrilous and might be made public. Beneficiaries who work in certain high-liability professions (such as doctors and lawyers) also face the threat of malpractice lawsuits. Properly structured irrevocable trusts can protect your beneficiaries from the claims of future creditors. Proper drafting is required to take advantage of this protection.

8. Caring for beneficiaries with special needs

Approximately 15% of all children under the age of 18 in the US have special healthcare needs, according to the US Department of Health and Human Services. A well-crafted trust can include provisions for the long-term care of these beneficiaries, even if their medical needs have not yet been identified. For example, your trust could be written with enough flexibility to provide special accommodations for an adult child who becomes disabled, or a grandchild (or a future grandchild) diagnosed with a serious, long-term disability.

9. Keeping your treasured property in the family

Transferring ownership of real estate or other unique assets to a trust can ensure that the property is maintained properly over the long term. A trust can also be useful when you want to divide beneficial ownership of a vacation home or some other piece of property that you want to keep in the family.

10. Benefitting from professional management

Last but not least, a professional trustee can help ease the many burdens that otherwise fall on the shoulders of family members or other trusted individuals. While you are living, professional management may help prevent you from becoming a victim of elder abuse. A professional trustee can also be responsible for communicating with your beneficiaries, handling conversations that might be difficult for you personally or for your family. Professionally managed trusts can offer the convenience of professional record-keeping and administrative services as well as the skills of professional investment managers. When you work with a trusted partner all of these services can continue without interruption, generation after generation.

Note: This memo focuses on the potential benefits of trusts, but please keep in mind that estate planning can be a complicated endeavor. The pros and cons of creating a revocable or irrevocable trust are influenced by a wide variety of factors, including the specific type of trust you are considering, the costs of establishing and maintaining the trust, and your family’s unique financial profile. If you have any questions about the federal estate tax or your family’s estate plan, please don’t hesitate to contact Nici Law Firm by phone at (239) 449-6150 or on the web at

This document is intended to convey to you the principal characteristics associated with estate planning using trusts, including ways to protect a beneficiary’s inheritance from creditors. For this reason we have deliberately simplified technical aspects of the law in the interest of clear communication. Under no circumstances should you or your other advisors rely solely on the contents of this document for technical advice nor should you reach any decisions with respect to this topic without further discussion and consultation with an attorney. Revised February 2017.

Charitable Remainder Annuity Trusts (CRAT) Part 3

How Your Annuity Payments Are Taxed:

Annuity payments paid to the beneficiary retain the same character they had in the trust. For example, each payment will be treated as ordinary income, capital gain, tax-exempt income, or a tax-free return of principal. The annuity trustee will advise you on how to report the annuity payments on your taxes.

Favorable Tax Treatment For Your Payments:

Depending on how the annuity is invested, payments to the beneficiary may be considered capital gain or a tax-free return of principal. This can be achieved by opting for a growth instead of an income-centered investment strategy. Principal or capital gains will be distributed if the trust income is less than the stated percentage to be distributed to the beneficiary. The following examples illustrate the tax consequences of growth and investment strategies.

Example 1:

Bob has a 7 percent annuity trust funded with $100,000 in cash. The annuity earns $7,000 in dividends for the year, and the full amount is paid to Bob. The payments are taxed as ordinary income.

Example 2:

The trustee follows a growth instead of an investment policy. Bob’s trust appreciates to $107,000 but does not earn income. In order to make the required $7,000 payment to Bob, the trustee sells $7,000 in stocks. If the stocks had a cost basis of $5,000, Bob receives a $5,000 return of principal and another $2,000 in capital gains.

The following example illustrates how a trustee would advise a trust beneficiary to report trust income on their income tax return.

Year One:

The beneficiary is to receive $7,000 on their 7 percent annuity funded with $100,000. During the first year, the trust earns $2,000 in dividends, receives $2,000 in interest from tax-free municipal bonds, and sells stocks with a $2,000 cost basis for $4,000. The $7,000 annuity payment would be taxed as

  • $2,000 tax-free interest income,
  • $2,000 ordinary income,
  • $2,000 capital gain income, and
  • $1,000 non-taxable return of principal.

Year Two:

The trust earns $8,000 in dividends and receives $1,000 in tax-exempt interest. The trustee also sells $12,000 in stocks having a cost basis of $9,000. The entire $7,000 annuity payment is considered ordinary income.

Year Three:

The trust receives $750 in tax-free interest and $1,000 in dividends. The $7,000 payment to the beneficiary would be taxed as

  • $3,000 capital gain income undistributed in the second year,
  • $2,000 of ordinary income, comprised of $1,000 in dividends undistributed in year two and $1,000 in dividends from year three,
  • $1,750 in tax-free interest, comprised of $750 from year three and $1,000 undistributed during year two, and
  • $250 as a tax-free return of principal.


Charitable Remainder Annuity Trusts (CRAT) Part 2

Charitable Remainder Trusts

Charitable Remainder Annuity Trusts (CRAT) Part 2

Charitable Remainder TrustsBenefits of Appreciated Securities

Another way to reduce tax obligations is by funding the annuity trust with appreciated securities. Neither gains on sales of appreciated securities nor ordinary income from them when they are part of an annuity trust are taxed to the trust although the beneficiary will be taxed on any payments received. The full fair market value of long-term securities is the basis for the charitable deduction when funded by long-term securities rather than using the securities’ lower cost basis.

Annuities for Loved Ones

An annuity may be paid to a family member after your death. You may also use your annuity trust to fund an annuity for a parent, spouse, child or another relation or loved one. Keep in mind that payments last longer when the annuity goes on to pay others after your death, and this does lower the charitable deduction.

Protection from Inflation

Inflation does not affect the annuity trust because the amount received annually is calculated on the trust’s initial value. If the income of the trust falls below the stated percentage you are to receive, you will still receive the percentage. Principal, capital gains and years in which trust income is greater than the stated percentage balance this, and in the latter situation, the excess is reinvested.

Effects on Estate Tax and Probate

If the only beneficiary for the annuity trust is the donor, the donor’s estate will not be taxable for the trust. It is also unlikely to have personal representative or probate fees levied. Savings on federal estate tax are also available.

If both spouses are U.S. citizens and two-life annuity trust beneficiaries, their estates will not be taxed. If the creator of the trust is the first beneficiary, the second beneficiary is not a spouse, and the second beneficiary dies before the creator, the donor’s estate is not taxed for the trust. If the donor’s estate would normally be taxed and there is a beneficiary who is alive, the only portion that the donor’s estate will be taxed for is the beneficiary’s right to life payments as valued at the time the donor died. Charitable gifts, defined as the trust principal that the charity receives when surviving beneficiaries are deceased, are not subject to estate tax.

The Role of Wills

A will can create an annuity trust for one or multiple beneficiaries. If the estate is large, this may result in considerable tax savings.

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