FREQUENTLY ASKED QUESTIONS
ESTATE PLANNING | SELF-DIRECTED REAL ESTATE IRA
ESTATE PLANNING QUESTIONS
1. Can you do a trust by yourself?
Yes, it is legal for you to prepare your own Trust. Is it advisable? No! Preparing your own Trust documents can be disastrous. It is unlikely that you would know what provisions should be included in your specific Trust, unless you have knowledge and experience in the estate planning field. A common misconception about Living Trusts is that they are all essentially the same. Nothing could be further from the truth. A Living Trust should be drafted and tailored to fit the specific needs of your estate and family situation. It should contain the terms and provisions that are appropriate for and applicable to you. Frequently, the terms and provisions used in someone else's Trust would be inappropriate for inclusion in your Trust document. Preprinted, boilerplate or do-it-yourself Trust forms assume that all people's needs are basically the same. Your documents should be created to fit your specific needs.
2. Can you settle an estate by yourself?
If you are the executor of an estate, you can settle the estate without hiring an attorney according to law. If you are the surviving spouse, settling your deceased spouse's estate will not generally create large problems unless the estate is of significant size or assets are being distributed to beneficiaries other than the surviving spouse. However, if you are the executor of an estate for someone other than a spouse, the estate settlement process will get much more complex. Additionally, you will find resistance on the part of the courts to allow you to settle the estate without the involvement of an attorney. To settle an estate, you will be required to know the court procedures and forms that are going to be required in the administration and settlement process. Most people do not have the information readily available. Accordingly, most courts will insist on retaining an attorney for the estate settlement process.
3. How do you know who to trust in preparing your Trust documents?
Selecting an organization or person to prepare your Trust documents is not a difficult process. It is not always a black or white process. You should look for a firm or individual who is knowledgeable and experienced in the field of estate planning and preparing Trust documents. Typically this will come form years of experience and/or professional training. The attorney who actually prepares documents may work with an experienced estate planner who will do the actual design and requirements of the estate planning documents. This individual (or organization) is the most critical individual in the process. Your estate plan must be designed to include the terms and provisions applicable to you. It should also be designed in such a way that does not include unnecessary administrative requirements for the Trustees. Most good estate planning organizations bring together a combination of professionals to build an estate plan to get the maximum possible benefits for the client. These planning professionals may include: an attorney, a certified financial planner, a certified public accountant, and a knowledgeable experienced estate planner.
4. Does the creation of a Trust alleviate the need for a Will?
A Living Trust will do what your Will does now. It outlines when, where and how your estate is to be distributed and the beneficiaries who are to receive the estate. In this context the Trust replaces your existing Will. However, most good estate planners will also prepare what is called a "Pour-Over" Will. This type of Will serves two purposes. It will catch any assets that are outside the Trust at the time of death and place them into the Trust or "Pour-Over" those assets into the Trust. Secondly, it provides a document that can be filed with the local probate court that outlines the existence of a Trust and the fact that the estate is being distributed through the Trust. As a result of this abbreviated information that is provided to the probate court, none of the terms, information, or assets controlled by the Trust are disclosed in the probate process.
5. How long have Trusts been in existence?
The use of Living Trusts dates back to the 1500's in Europe. The first recorded use of a Trust in the United States dates back to 1762 and was drafted in Virginia by an attorney named Patrick Henry.
6. Is a Living Trust Recorded?
Not generally. One of the key objectives in creating a Living Trust is to maintain privacy. Any document recorded in a local courthouse is available for public inspection in the recorded records of the courthouse. Additionally, since a Living Trust is emendable, regardless of what the document that was recorded said, the Trustor would be able to amend or revise the document at some time after the recording occurred. If there is some requirement that would necessitate the recording of information about the existence of a Trust, the attorney who prepared the Trust document will generally prepare an Affidavit of the Facts or Memorandum of Trust. This document will disclose the name of the Trust, date of the Trust, Trustors and Trustees and certain specific tax and accounting information relative to the Trust. This information can be recorded without disclosing all of the specific details of the Trust, namely, the beneficiaries and assets contained within the Trust.
7. Can a Trust be overturned?
It is extremely difficult, if not impossible, to challenge or overturn a Trust. The only instances where a Trust is overturned usually stem from a situation where the Trust was not a valid Trust from inception or where the creator of the Trust did not possess the full mental capacity to create such a document. Creation of a Trust would require the creator be of legal age and sound mind at the time the Trust was created. This is the same legal requirement that would have to be met to create a valid Will.
8. What can cause a Trust to be invalid?
A Trust can be declared invalid if it is not funded, or it contains terms or provisions that violate law or are against public policy. A Trust can also be invalid because it does not contain required administrative or text provisions under the laws of the state in which the Trust was created or is being administered.
9. What are the disadvantages of a Trust?
If a Trust is the appropriate estate-planning vehicle for you, there are really very few disadvantages. Some people will say that the cost of setting up a Trust is higher than the cost of doing a Will. This is a true statement. However, if you consider that using a Will has also committed you to using probate for settling the estate, using a Living Trust instead of using a Will generally results in a far more cost effective outcome for most people. When you use a Trust, in some instances, creditors may not be cut off as quickly as they might otherwise be during the probate process. To cut off potential creditors, you must follow the procedures of probate and advertising an estate in the newspaper. For many people, this is part of the public disclosure process that they are trying to avoid. When you set up a Trust, there can be costs associated with transferring various assets into the Trust. Should you decide to revoke the Trust at a later date, the entire process of transferring assets into the Trust must then be reversed. Generally speaking, there are very few reasons not to do a Living Trust.
10. What if they outlaw Trusts?
It is virtually inconceivable that Trust would be outlawed or abolished. Trusts date back in history to the fifteen hundreds. They have been part of the estate planning and settlement process in this Country since the United States was founded. Large numbers of lawmakers and politicians utilize trust for their individual estate planning purposes. Should there ever be substantial changes in Trust law, it is most likely that existing Trusts would be grandfathered under the laws that were in existence at the time they were created.
11. Should you notify the members of your family of the existence of a Trust?
This is a question that each individual must answer for himself/herself. There are some cases where the family members are Trustees of the Trust and it would be extremely important for members of the family (because of their potential duties as Successor Trustees) to be aware of the fact that a Trust did exist. Whether you choose to furnish a copy of your Trust to the Successor Trustee is a matter of personal choice. In some other situations, where family members are not Trustees of the Trust, you may elect not to advise them of the existence of the Trust. Perhaps the most critical issue is to make sure that the Successor Trustee is aware of the existence of the Trust and the circumstances under which they would become Trustee. On the occurrence of such events, they should know when, where and how to gain access to the Trust document should they not have one in their possession.
12. What is the difference in a Testamentary Trust and a Living Trust?
A Testamentary Trust is a type of Trust that is created by your Will. Since your Will creates this type of Trust, this type of Trust does not exist until after your death. Also, the assets placed in a Testamentary Trust must first go through probate before becoming a part of the Trust. On the other hand, a Living Trust is a type of Trust that is created during your lifetime. It is a Trust while you are alive, and is funded and fully operational during your lifetime.
13. How many parties are required to enter into a Trust?
Three is the minimum number required. To create a valid Trust, you must name the Trustor (the creator of the Trust), the Trustee (the manager of the Trust), and the Beneficiary (the person that will receive the income or principal from the Trust). Generally, you will also name the Successor Trustee and a Contingent or Secondary Beneficiary.
14. Can a Living Trust continue after my death?
Yes. A Living Trust can continue long after you have passed away. You will decide when you create your Trust whether the Trust will terminate or continue after you pass away. When, where, and how you wish to have your estate distributed may have a great bearing on whether the Trust continues or terminates. There are many considerations that should be evaluated for each individual in making the final determination as to whether a Trust should continue or terminate.
ˆ top
SELF-DIRECTED REAL ESTATE IRA QUESTIONS
1. I am purchasing property with my IRA that will generate rental income. Where does the rental income go?
All income generated by a property owned by your IRA must return to your IRA Account, in order to retain the tax-deferred status of the investment.
2. I do not have enough money in my IRA to purchase the property. Can I purchase real estate via IRA using debt financing?
Yes. Financing with a lender through your IRA is allowed. There are specific rules that must be followed and it does create issues for some lenders.
3. May I have a company that I own fix up the property that I have in my IRA?
No. The IRA code and regulations on prohibited transactions prohibit such activity by an owner. You may not provide a service and receive a benefit from your plan or account.
4. Does the Required Minimum Distribution (RMD) apply to Self-Directed IRA's?
Yes. Minimum distributions are required of all retirement accounts each year. Required Minimum Distributions begins when the participant reaches age 70 ½.
5. Can I transfer/rollover funds from an existing IRA, 401(k), or 403(b) to a Self-Directed IRA for the purpose of investing in real estate?
Yes. You can choose to transfer/rollover all, or portions of, your existing retirement accounts to Southern Financial Services in order to self direct them into real estate investments.
6. Can my IRA purchase real estate that I now own?
No. That would be a prohibited transaction. You may not purchase a property or interest in a property, which is presently owned by a disqualified person (yourself and your family members of linear descent).
7. When I sell a property owned by my IRA, may I keep a portion and send the remaining portion to my plan administrator?
No. All income generated from the sale of a property owned by your IRA must be returned directly to your IRA.
|
