Talking the talk, most people work in industries that have a language of their own. The law is certainly one of those industries, endless acronyms, especially when it comes to Trusts.
A recent New York Times Article by one of their best writers Paul Sullivan: The Argot of Trusts, as Told in Acronyms (Argot means secret language, yes I had to google the word) had a lot of fun with acronyms found in the world of Trusts.
It’s easy for even a seasoned estate planning attorney to start speaking seeming gibberish to his clients. For example, he or she might say that even with an AB trust, an ILIT might be a viable option despite the QPRT for that one property even after all the charity coverage with the CRUT. Huh?
Oh well, most of us really won’t face an estate tax problem – at least with the exclusion so high at the moment. But smart money is prepared. Smart money avoids taxes with proper tax planning. Smart money hires lawyers who can help them not waste money unnecessarily. And it can’t hurt to have fun with the lingo, at least we can impress our own lawyer, even though we are paying them – yep – most of these terms are rarely used. Used, but rarely. I will stick with my AB trust thank you! AB must be simple, like the ABCs.
AB Trust. The most common kind of tax-avoidance trust. Generally for those couples with over $10 million or so in assets, a great way to control distribution, avoid taxes, and on and on. But, if you put one of these babies in place, you must realize that your first stop when you lose a spouse will be your attorney and your tax team. Complex solutions have their price. Sometimes taking it out of the plan makes sense too.
ILIT. Irrevocable Life Insurance Trusts are trusts to help high net worth individuals with their estate tax issue by moving a large policy out of the tax picture of their estate tax computation. Some attorneys are pushing their clients away from these when possible.
QPRT. Qualified Personal Residence Trust. Leaves the house to the heirs in trust. Frought with peril as far as family happiness goes if there is a chance it is drafted without clear terms understood by all family members.
Incentive trust. Not really technically a form of trust, but a philosophy. An incentive trust allows you to set goals or milestones for your children to achieve before distributions are made. Parents that want to make sure the kids have a work ethic, can put restraints on distribution to get them off their butts.
Wealth creation trust. I personally like to call this philosophy the Grandparents trust. They can show their love in a more permanent way – instead of giving plastic toys to a child or grandchild – it’s given through cash such as to commemorate a birth or a milestone birthday or event, and then directing monetary gifts to the trust over time.
Probate! Trusts can be used to bypass the need to take your family through probate. Probate in Texas is relatively painless, except for the time it takes, which can take many months to complete. Make sure you talk to a real attorney before attempting to do it yourself. As you can see, doing it right takes consultation, not a fill in the blank form off the web.
By Jac Schuster, an Estate Planning attorney in McKinney. Learn more at jacschuster.com.