DURABLE POWER OF ATTORNEY

A document which allows you to name an individual (Your Attorney in Fact) to Act for you if you become incapacitated to transact any affair or to do any act or thing which you may legally do yourself.

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HEALTH CARE POWER OF ATTORNEY

A document used to appoint someone to be your health care agent and to make health care (Medical) decisions for you when you become incapacitated and incompetent to do so yourself.   The Health Care Power of Attorney will usually include a "Right to Die" clause and directive to physicians to withhold or withdraw life support systems under conditions you specify .

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LIVING TRUST (INTERVIVOS TRUST)

What is a Living Trust?
A Living trust is a legal document in which the trustors or grantors hold all three positions--trustor or grantor, trustee and beneficiary.   A living trust looks a lot like a will.   In fact, it does what most people think a will does and much more.   Because there is no probate with a living trust, all expensive court proceedings and delays are eliminated, your privacy is preserved, and emotional stress is minimized.   It can reduce or eliminate estate taxes by allowing the use of two tax exemptions.   You may design a revocable living trust that allows you to change your beneficiaries and who manages your assets up until the time of your death.   A living trust is created while you are alive and then becomes irrevocable after your death.   It is a legal document that contains your instructions for what you want to happen to your assets if you were to become incapacitated or die.

Who should have a living trust?
Married or single, old or young -just about everyone can benefit from a living trust.   If you have children (even more so if you are a single parent) or own any titled property, a living trust can help you.   If you want to be sure your loved ones will be spared from probate if something happens to you, you should have a living trust.   Do you have specific desires or goals for the management and disbursements of your assets?   Do you have a child with special needs?   Do you have children from a previous relationship?   Do you own property in two or more states?   Do you have assets that are increasing in value?   If you answered yes to any of these questions a trust would be a wise decision.   Small estates can benefit from a living trust just as much as large estate.

What is Probate?
Probate is the legal process through which the court makes sure that, when you die, your debts are paid and your property is distributed according to your will.   If you do not have a will, the state in which you live has written one for you.   The probate court can also take control of your estate if you become physically or mentally incapacitated.

Why do we want to avoid probate?
It is expensive.   Legal fees and other costs can consume 6 to 20% of an estate.   The National Average in 2004 was 11.01%.   It takes time.   Often 1-2 years or longer.   During part of this time, the assets are usually frozen.   Nothing can be distributed or sold without the court's approval.   If your family needs money to live on, they must request a living allowance from the court.   Your family has no privacy.   Probate files are open to the public, so anyone (including a business competitor) can see what you owned and what debts were owed.   This also invites disgruntled heirs to contest your will and exposes your family to unscrupulous solicitors.   Your family has no control.   The probate process has control.   Having someone outside the family telling them who gets what and when and having to pay for outside supervision can be very frustrating for the family.

How does a living trust avoid probate?
A trust is recognized as a separate legal entity.   When you set up a living trust, you transfer all of your property from individual name to the name of your trust, which you control -such as from "John and Mary Smith, husband and wife" to "The John and Mary Smith Living Trust."   Legally you no longer own anything (everything now belongs to your trust), so there is nothing to probate when you die or if you become disabled.   The concept is very simple, but this is what keeps you and your family out of probate.

Is it hard to transfer property into a living trust?
No, your attorney, bankers, trust officers, financial advisors, investment brokers, etc can help you.   Make sure to change title to all real estate (local and out- of-state) and other property with formal titles (checking and savings accounts, stocks, CD's mutual funds, etc).

Do I lose control of the property in my trust?
Absolutely not!   You keep full control over your property.   As trustee of your trust, you can do everything you could do before such as-buy and sell property, make changes, even cancel your trust at anytime (remember it is revocable).   Nothing changes but the names on the titles.

Who will manage my Trust?
You can manage your own trust.   You and your spouse can be co-trustees, so either can act or have instant control if one becomes incapacitated or dies.   If something happens to both of you, or if you are the only trustee, your handpicked successor trustee will step in and carry out your wishes as prescribed in your trust documents.

What does a successor trustee do?
At physical or mental incapacity, your successor trustee looks after your care and manages your financial affairs for as long as necessary, using your own assets to pay the expenses.   When you recover, you automatically resume control.   At your death, your successor trustee pays your debts, and distributes your property according to your instructions.   If you desire your trust to continue, your successor trustee will manage your trust for the beneficiaries continuing to follow your instructions.

Who can be a successor trustee?
Successor trustees can be individuals (adult children, other relatives, or trusted friends) and/or a corporate trustee.   If you choose an individual, you should name more than one in case your first choice is unable to serve.   By using family members as successor trustees, you can avoid the cost of management fees charged by corporate trustees.

How does a living trust save on estate taxes?
If the net value of your estate when your die is more than the exemption amount for the year in which your die, your estate will owe federal estate tax.   These taxes will start at tax rate of 46% in 2006. If you are married, an A-B Living Trust will allow you and your spouse to pass an amount equal to two times the Federal Estate Tax exemption amount tax-free to your beneficiaries.   The tax savings would be $920,000 on a 4 million dollar estate in 2006.   The only way to take full advantage of the Federal Estate Tax Credit for both spouses is through the use of a trust, either a Living Trust or a Testamentary Trust.   Only the Living Trust will avoid probate.

Is a Living Trust expensive?
No!   A living trust is extremely cost effective.   When compared to the cost of probate and potential tax savings, a trust can save you and your estate many thousands of dollars.

How long does it take to get a Living Trust?
It should only take two to four weeks to prepare the legal documents after you make decisions about plans for your estate.

Should I have an attorney do my trust?
Absolutely!   Deal with people who specialize in living trusts.   An experienced estate planner can provide valuable guidance and assistance for your situation and assure the legal documents are prepared properly.   Avoid generic "do-it-yourself" kits and form books.   They cannot address every family's unique needs and the end result could be dangerous.

Benefits of a Living Trust

• Eliminates probate and the related costs.
• Can reduce or eliminate estate taxes.
• Allows quick and efficient distribution of assets to beneficiaries.
• Preserves privacy completely confidential.
• Allows for optional professional asset management with a corporate trustee.
• Lets you keep control, even at physical or mental incapacity and after your death.
• Prevents a conservatorship/guardianship at physical or mental incapacity.
• Minimizes emotional stress on your family.
• Avoids problems of joint ownership.
• Inexpensive, easy to set up and maintain.
• Can be changed or cancelled at any time.
• Protects minor children from court-imposed guardianships.
• Can protect dependents with special needs.
• Provides effective prenuptial protection for people with prior marriages.
• Very hard to contest.

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INSURANCE TRUST

What is an Insurance Trust?
An Insurance Trust is an estate-planning device where the ownership of one or more insurance policies is transferred to an independent Trustee in an Irrevocable Trust. Since the independent Trustee holds title to the insurance policy, the value of the death benefit will not be included in the insured's Gross Estate for Federal Estate Tax purposes when he or she dies. The independent Trustee will distribute (or hold and administer) the proceeds from the policy in accordance with instructions contained in the trust.

What are the benefits of placing insurance policies in an Insurance Trust?
There are several important benefits that can be realized by transferring insurance policies to an Irrevocable Insurance Trust:

• Insurance proceeds in the Trust are excluded from the Estate for Federal Estate Tax purposes.
  
• For larger estates, insurance proceeds may be used to replace the money lost to Estate Taxes.   The proceeds of an insurance policy placed in an Insurance Trust are not included in the insured's estate.   The heirs may elect to use the money received from the insurance contract to pay estate tax.   It is usually much cheaper to pay estate taxes with insurance dollars than to use assets from the estate to pay estate taxes.   The use of insurance proceeds will also avoid forced-sale situations.
  
• An Insurance Trust will allow professional management of insurance policy proceeds. With the death benefits of many policies totaling in the hundreds of thousands of dollars, it is often advisable to delay or stagger the distribution of insurance policy proceeds.   The Insurance Trust can contain instructions whereby the policy proceeds are distributed to the beneficiaries over a period of time, instead of in a lump sum.   During the distribution period, the independent Trustee can invest the policy proceeds in safe, tax-deferred investments.
  
• Insurance Trusts avoid probate.   Assets contained in an Insurance Trust will not be probated.   The proceeds of the insurance policies contained in the Insurance Trust will be distributed according to your instructions contained in your Trust.

How are insurance premiums paid for policies in an Insurance Trust?
Insurance premiums can be paid in any number of ways: directly to the insurance company, to the Trustee, from the accounts established in the Trust, etc.

Who may serve as a Trustee?
You may select any independent third party to serve as Trustee.   Normally, the former policy owner should not serve as Trustee.   Trustee fees in any case should be nominal.

Are insurance proceeds paid to an Insurance Trust protected from the creditors' claims?
Yes.   Insurance policy proceeds paid to an irrevocable Insurance Trust are not subject to the claims of the creditors of the deceased, including Medicare claims, expenses of the last illness, etc.

Are Insurance Trusts a matter of Public Record?
No.   The existence and the terms of the Insurance Trust remain a private and confidential matter between the insured and the Trustee.

Who should have an Insurance Trust?
If you are single and your estate - including your life insurance - is approaching the Federal Estate Tax Exemption, or if you are married and your total estate - including your life insurance - is approaching two times the Federal Estate Tax Exemption, an irrevocable Insurance Trust is something you should definitely consider.

How do I set up an Insurance Trust?
Simply apply for new coverage through Southern Financial Services, or provide your SFS Representative with copies of your existing Insurance policies and with the additional information concerning the distribution of the policy proceeds.   Please allow three to four weeks for completion of the Trust.

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CHILDREN'S TRUST

A type of trust used to gift assets to one's children for future education and general benefits.   The objective is management and control of assets in the trust, where outright gifts to the children would not be advisable.   The trust is also used to eliminate or reduce estate taxes.   Assets placed in this trust are generally removed from the parent's estate.

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SPECIAL NEEDS TRUST

What is a special needs trust?
A trust that is created for the sole purpose of providing for a disabled beneficiary those services and materials/equipment that are not provided by Medicaid or government entitlement programs.

Purpose of special needs trust
The purpose of a special needs trust is to establish a source of money to provide these extra or supplemental needs without undoing the beneficiary's eligibility for Medicaid or other government entitlement programs.

Two Types of special needs trust

Third Party Special Needs Trust - created by a parent, grandparent or legal guardian of the disabled beneficiary.   This trust is ideal for a child who is born with or develops a serious disability under non-tort circumstances.   The trust specifies what happens to the trust fund balance upon the death of beneficiary.   The remaining assets in trust do not have to repay Medicaid for services provided to the now deceased beneficiary.

Self-Settled Special Needs Trust - Created by a legal guardian (who could be parent or by the court in a court approved settlement) where the money or assets used to fund trust belong to the disabled person.   The trust fund balance must first be applied to re-pay Medicaid or other government entitlement programs for their expenditure on behalf of the beneficiary.

• Telephone bills for calls between beneficiary and family
• Dental care
• Motorized wheel chair
• Magazine subscriptions
• Vacation for beneficiary
• Medical payments for services not covered by Medicaid
• Travel expenses to visit family members
• Therapy and rehabilitation
• Life-insurance premiums
• Services for caretakers to accompany beneficiary on outings
• Extra cost for private room in medical facility
• Televisions
• Computer
• Customized furniture
• Hobby supplies
• Movies and books
• Pre-need burial

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CHARITABLE REMAINDER TRUST

Why do people decide to make charitable gifts?

• They have compassion for those in need of assistance.
• There is a religious and spiritual commitment.
• They want to help organizations that continue their beliefs, values and ideals.
• They desire to support the Arts, Sciences and Education.
• A desire to share one's good fortune.
• The tax laws of our country are designed to encourage charitable gifts.

What are the different types of Charitable Gifts?
A Charitable gift may be outright gifts of cash or other valuable assets to favorite charitable organizations.   Individuals often decide to wait until they die to transfer assets to a charitable organization through a will or a trust.   Special methods of gifting which allow a donor to make a gift in the present, while still retaining an income stream from the gift for life, (Charitable Remainder annuity Trust and Charitable Remainder Unitrust).

What are some financial benefits of Charitable Gifts?

• The gift can provide an income tax deduction.
• It may increase personal, after-tax cash flow.
• In many instances the gift can avoid or delay payment of capital gains taxes.
• The gift may increase the amount of estate that passes to one's heirs.

What does a Charitable Remainder Trust Do?
The Charitable Remainder Trust allows the creator to convert appreciated assets (Stocks, Real Estate and etc.) into a lifetime income.   It reduces your income taxes now and estate taxes when you die and you pay no capital gains tax when the asset is sold.   It lets you name a Charity or School that has special meaning to your or your family.

How does a Charitable Remainder Trust Work?
The creators of the trust transfer appreciated assets into an irrevocable trust.   This removes the assets from the estate.   The trustee of the Charitable Remainder Trust then sells the assets at full market value, paying no capital gains tax and reinvests the proceeds in income-producing assets.   For the rest of the trustor's life, the trust pays an income to the trustors.   Upon the death of the trustors, the remaining trust assets are distributed to the charity or organization named in the trust.   Thus the name is Charitable Remainder Trust.

Why not sell the assets and re-invest the proceeds yourself?
By selling the assets yourself you would have to pay more in taxes and there would be less income from the assets.   There would be no Charitable Tax Deduction available and Capital Gains Tax would have to be paid on the appreciated assets.

What are the Income Choices in a Charitable Remainder Trust?
The trustors can receive a fixed percentage of the trust assets.   With this option the amount of your annual income will fluctuate, depending on investment performances and the annual value of the trust.   This would be called a Charitable Remainder Unitrust.

Other options would be to elect to receive a fixed income.   This means that regardless of the trust's performance the income will not change.   This would be called a Charitable Remainder Annuity Trust.   In either a Charitable Remainder Unitrust or Annuity Trust the Internal Revenue Service requires that the payout rate stated in trust cannot be less than 5% or more than 50% of the initial fair market value of the trust assets.

Who can receive Income from the Charitable Remainder Trust?
Trust income can be paid to the trustors for their lifetime.   The income can be paid to children for their lifetime or to any person or entity providing the trust meets certain requirements.   Instead of providing income for a lifetime, the trust can be designed to provide income for a set number of years.

Do I have to take income when I create the trust?
No!   The trust can be set-up, and the income tax deduction taken without starting the withdrawal of income.   The withdrawal of income can be postponed until a later time.   With good management, the trust assets will have appreciated in value, resulting in a larger income being available at the time the trustors wants to start taking income.

Do I still have control?
As long as the trustor is alive, the trustee selected controls the assets of the trust.   Not the Charity.   The named trustee must follow the instructions put into the trust document by the Trustor.   The trustor can retain the right to change a trustee if they become dissatisfied.   The trustor can change the Charity to another Qualified Charity without losing the tax advantage.

What are the Benefits of a Charitable Remainder Trust?

• Convert appreciated assets into lifetime income.
• Reduces current income tax with the charitable tax deduction.
• Pay no capital gains tax when appreciated assets are sold.
• Reduce or eliminate federal estate tax.
• Benefit your own favorite charities, church or university.
• Receive a larger amount of income over the lifetime than if you had sold the assets yourself.

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QUALIFIED PERSONAL RESIDENCE TRUST

What is a Qualified Personal Residence Trust?
A Qualified Personal Residence Trust is an irrevocable trust to which an individual (The grantor-usually a senior family member) transfers a personal residence, reserving the right to occupy and use the residence for a specified number of years.   At the end of the term, the trustee of the trust distributes the residence to the designated beneficiaries (usually the grantor's children) or retains the residence in trust for a later distribution to the beneficiaries.   If the trust continues, the trustee can lease the residence back to the grantor at market rent rates without causing the residence to be included in the grantor's estate.

What is the definition of a personal residence in eyes of the IRS?
A personal residence is the principal residence of the grantor and one other residence such as a second home which must be used for personal use by the grantor the greater of 14 days or 10% of the time property is rented or an undivided fractional interest in either.   The present law allows each individual to transfer one personal residence to a Qualified Personal Residence Trust.

Are there tax benefits associated with a Qualified Personal Residence Trust?
There are several benefits associated with a QPRT.   If the grantor survives the term of the trust, none of the residence value is included in calculating the estate value for federal estate tax purpose.   The transfer of a residence to a QPRT is treated as taxable gift.   The value is based on the present value of the beneficiary's right to receive the property at the end of the Qualified Personal Residence Trust term.   Another tax benefit is that all of the future appreciation of the residence will be transferred to the children's estate and be free of gift tax.   The QPRT is a powerful estate-freezing tool.

Is a Gift Tax Return required when a residence is gifted to a Qualified Personal Residence Trust?
Yes!   A federal gift tax return, form 709 must be filed in the year in which the gift (residence) is gifted to the QPRT by the grantor.

What happens if the grantor dies before the term of the QPRT Expires?
If the grantor dies during the term of the QPRT, the residence is included in the grantors estate at the full market value as of his day of death.   The benefit of creating a Qualified Personal Residence Trust is no longer available.

What if the grantor outlives the term of the QPRT and desires to continue living in the Residence?
If the grantor survives the term of the QPRT, the residence passes to the named beneficiaries. They become the owners of the property.   The grantor can lease the property back from the beneficiaries at a fair market value rent and continue to live in the residence.   The rent is paid to the beneficiaries and may be viewed as an opportunity to transfer additional assets to their children via the rent payment.

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