1. To Take Care of Your Assets for Your Children- If you have minor children they will need someone to manage your assets for them. Even if you only have a house and a few investments, if both you & your spouse die in a car accident, say, your children will probably have to go live with someone else. In that case your house will have to be sold and the money will have to be reinvested in stocks, bonds, cd’s, etc.
Who will do that for them? You will need someone to deal with a real estate agent, sign a listing agreement, decide on a listing price, negotiate with buyers, sign the sales contract, perform all the tasks that a seller must do to complete a sale. So even if you have children who are no longer minors, would they be able to do all that? Probably not- many adults can’t do it. So if you haven’t appointed a trustee (by writing it in your trust document) the court will appoint a stranger to do it for your family.
After the house is sold the trustee will have to manage the investments of the trust to get the highest rate of return (income) possible while keeping the assets safe. That’s the main job of a trustee, to safeguard the assets for the beneficiaries of the trust (usually, the kids) and make distributions according to the trust document.
2. To Provide Flexibility in Making Decisions- If your children are young the trust will have to be managed for many years. Oftentimes parents will set up the trust to give discretion to the trustee regarding how much to distribute to each child each year, that is, the trustee decides. If children are young that would mean giving living expenses or a monthly allowance to the guardians of the children, the people who are taking care of them. If kids are going to college, they might need money to buy a car, for example. That would be an extra distribution that the trustee would have to decide on. Most trustees may give $ 12,000 to buy a used Honda but would not give $ 100,000 for a Lamborghini.
Even if your children are in their twenties, oftentimes, clients set up a time schedule for distributions of principal, that is, all of the assets that went from you or your estate to your trust. Usually if there are no problems with, say, drug or alcohol abuse, parents will write in their trust that the trustee should distribute one third of the principal when a child reaches age 25, one half when they reach age 30 and the balance when they reach age 35. This helps to give out the assets when the children become a little more mature. You must have a trust to do this.
3. To Give the Trustor (You) More Flexibility in Describing How To Distribute the Assets- You can also describe in your trust other reasons you would want your children to receive distributions, such as, for education. Your trust document can include a definition of education. You may not want to pay for basket weaving school but you may have a child or grandchild who you know will never go to college. However, if they were interested in a trade school, you would probably want the trustee to pay for that as well.
You can describe other things you would want your trust to pay for, such as, giving a child money to start or buy a business, or for the down payment on a house.
If you have a child who has a drug or alcohol abuse problem, you can provide that they must be clean and sober for one year subject to testing before they receive any distributions.
These are only three reasons to have a trust. There are many more. Stayed tuned for future blog postings! Or subscribe to our RSS feed. You can get more trust and tax tips from our monthly newsletter. Just subscribe below! Or you can always call us at the Law Offices of Patricia Rowe 925-256-1000. Or you can visit my website at www.PatriciaRowe.com
Tuesday, October 20, 2009
Friday, October 16, 2009
You Can Cancel Your RMD for 2009
The required minimum distributions (RMD’s) for IRA’s and certain retirement plans have been waived for 2009 according to the Worker, Retiree, and Employer Recovery Act of 2008. Generally, a required minimum distribution is the minimum annual amount that must be withdrawn from an IRA or an employer's pension plan beginning with the year the account owner reaches age 70 ½.
The 2008 law waives required minimum distributions for 2009 for IRA's and defined contribution plans (such as 401(k)s). If you have already taken distributions in 2009 these required minimum distributions can be rolled over into an IRA or another retirement plan.
IRS Notice 2009-82 provides relief for people who have already received a 2009 required minimum distribution this year. Individuals generally have until the later of Nov. 30, 2009, or 60 days after the date the distribution was received, to roll over the distribution.
Call us if you need help- Law Offices of Patricia Rowe 925-256-1000
The required minimum distributions (RMD’s) for IRA’s and certain retirement plans have been waived for 2009 according to the Worker, Retiree, and Employer Recovery Act of 2008. Generally, a required minimum distribution is the minimum annual amount that must be withdrawn from an IRA or an employer's pension plan beginning with the year the account owner reaches age 70 ½.
The 2008 law waives required minimum distributions for 2009 for IRA's and defined contribution plans (such as 401(k)s). If you have already taken distributions in 2009 these required minimum distributions can be rolled over into an IRA or another retirement plan.
IRS Notice 2009-82 provides relief for people who have already received a 2009 required minimum distribution this year. Individuals generally have until the later of Nov. 30, 2009, or 60 days after the date the distribution was received, to roll over the distribution.
Call us if you need help- Law Offices of Patricia Rowe 925-256-1000
Thursday, October 8, 2009
7 Things To Do Before Year End To Reduce Taxes
Purchase equipment for your business- You can take a deduction of 50% of the cost of furniture, fixtures & equipment purchased & placed in service in your business before 12/31/09. Items of personal property that have a useful life of more than one year are supposed to be depreciated, that is, the deduction for the cost of the item is spread out over several years. Instead of depreciating it over 5 to 7 years which allows you a small deduction each year, you can deduct 50 % in 2009. Don't forget the item must be used in your business. This provision may disappear next year!
Cancel or Rollover Your RMD for 2009- You do not have to take the Required Minimum Distribution for 2009. If you have already taken it you can roll it over to an IRA by November 30, 2009. See tomorrow's post for details.
Start a Business- If you don’t have a business- start one! Even if you have a W-2 job, you can have a business on the side. It must be a valid business that you spend time on. Then you can deduct expenses related to that activity to offset wage income. See article next week for more information.
Charitable Donations- Yes, the age old idea of cleaning out your closets and donating to Goodwill before the end of the year. But now you must be able to prove the items were in “good” condition. Take pictures, keep detailed lists and get receipts.
Incorporate Your Business- If you are going to receive a lot of income before the end of the year think of incorporating and transferring the income to either a C corporation or an S corporation. Both have ways to save you taxes. Call us for help.
Pay Both Installments of Your Property Taxes In December- Remember the only way this will help is if your income is going to be lower next year than this year. If you have high income this year due to bonuses or commissions, pay all of the property tax and take the deduction on 2009. If your income will be the same or higher next year you will need the deduction next year.
Sell Property on an Installment Sale- If you are selling property that will close by the end of this year and if by chance you have a gain on it, think of using an installment sale. It can be under any terms you and the buyer agree upon. Just have the buyer pay you part of the funds next year, say, in January. Then it's considered an installment sale by the IRS and you report part of the gain next year. It's complicated though. Watch next week's postings for more information.
Purchase equipment for your business- You can take a deduction of 50% of the cost of furniture, fixtures & equipment purchased & placed in service in your business before 12/31/09. Items of personal property that have a useful life of more than one year are supposed to be depreciated, that is, the deduction for the cost of the item is spread out over several years. Instead of depreciating it over 5 to 7 years which allows you a small deduction each year, you can deduct 50 % in 2009. Don't forget the item must be used in your business. This provision may disappear next year!
Cancel or Rollover Your RMD for 2009- You do not have to take the Required Minimum Distribution for 2009. If you have already taken it you can roll it over to an IRA by November 30, 2009. See tomorrow's post for details.
Start a Business- If you don’t have a business- start one! Even if you have a W-2 job, you can have a business on the side. It must be a valid business that you spend time on. Then you can deduct expenses related to that activity to offset wage income. See article next week for more information.
Charitable Donations- Yes, the age old idea of cleaning out your closets and donating to Goodwill before the end of the year. But now you must be able to prove the items were in “good” condition. Take pictures, keep detailed lists and get receipts.
Incorporate Your Business- If you are going to receive a lot of income before the end of the year think of incorporating and transferring the income to either a C corporation or an S corporation. Both have ways to save you taxes. Call us for help.
Pay Both Installments of Your Property Taxes In December- Remember the only way this will help is if your income is going to be lower next year than this year. If you have high income this year due to bonuses or commissions, pay all of the property tax and take the deduction on 2009. If your income will be the same or higher next year you will need the deduction next year.
Sell Property on an Installment Sale- If you are selling property that will close by the end of this year and if by chance you have a gain on it, think of using an installment sale. It can be under any terms you and the buyer agree upon. Just have the buyer pay you part of the funds next year, say, in January. Then it's considered an installment sale by the IRS and you report part of the gain next year. It's complicated though. Watch next week's postings for more information.
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