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Determine how the asset is titled:
*It is a good practice to wait several months before removing the deceased owner’s name from the primary checking account in case there are payments made to the deceased owner after death. **If the will governs, the asset is subject to probate; however, the asset might qualify for the use of a small estate affidavit instead of the usual probate procedure. Always check whether a small estate affidavit will work before proceeding to apply for appointment as personal representative (aka probate). Determine how asset will be distributed:
*If the beneficiary trust already exists (which is unusual), then use the name, date, and tax ID number for the trust when retitling the asset. If the trust must be established, then you will need to give the new trust its name, date, and tax ID number before moving an asset into the trust. Usually, this process is formalized with a trust certification document.
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Attention business owners: If you're the owner of a business, you will need to file the new Beneficiary Ownership Information form (BOI). There are exceptions, but you probably won't qualify for any of them. The purpose of the BOI is to help the federal government combat money laundering and other illegal activities. You can find the form online at www.fincen.gov/boi and it's relatively easy to complete. It took me about 10 minutes the first time I used it for myself. The only tricky part is needing to upload a photo image of your driver license or passport. I already had a saved image of my passport on my computer, so I had no trouble with that step. There is no fee and there is no annual filing requirement. But you will need to resubmit the BOI form if you move or there is a change in business ownership.
Note: A "beneficial owner" is an individual that directly or indirectly exercises substantial control over the reporting company or an individual who owns or controls 25% or more of the reporting company's ownership interests. A beneficial owner does not include an employee who only acts as an employee.
1. What is an Inheritance Protection Trust?
An Inheritance Protection Trust is an irrevocable trust established through a deceased person’s estate plan typically for benefit of a surviving child. Although the term “Inheritance Protection Trust” could generally describe many types of beneficiary trusts, it usually refers to a trust established for a responsible adult beneficiary who is willing and able to manage an inheritance. This type of trust is usually drafted to continue for the lifetime of the beneficiary (or until all assets have been spent), rather than end at a predetermined time or age of the beneficiary. The beneficiary is usually named as sole trustee of the trust and is given the right to name an independent trustee, if desired; thus, an Inheritance Protection Trust is commonly described as a “beneficiary-controlled trust.” An Inheritance Protection Trust is used as an alternative to outright distribution when the amount of inheritance is expected to be substantial (generally more than $100,000 per non-spouse beneficiary). Its protective features are promoted as benefits to the beneficiary, not the trustor, because the trust is usually established after the trustor's death. But it is possible to establish and fund an Inheritance Protection Trust during the trustor's lifetime by having the trustor make irrevocable lifetime gifts into the trust. This is relatively uncommon because the usual incentive for gifting is to reduce estate taxes and very few people are wealthy enough to be concerned about it. 2. What are the benefits of an Inheritance Protection Trust? By receiving inheritance in a trust, rather than receiving inheritance outright, the beneficiary can protect assets from various threats:
3. How is the Inheritance Protection Trust established? The trustor's personal representative or successor trustee, depending on whether the trust provisions are drafted into a Will or living trust, establishes an inheritance trust by giving the separate trust a name and applying for its Taxpayer ID number. The provisions in the Will or living trust document govern the new trust, although it may be permissible for the trustee to restate the terms of the separate trust with a new document. This process is called trust decanting in Arizona. 4. Who should serve as Trustee? In most cases the beneficiary will serve as the initial trustee. However, if creditor protection is a paramount concern, the beneficiary should not serve as trustee. Rather an independent trustee – such as a bank, trust company, or accountant – should be appointed. This enhances the level of creditor protection by eliminating the conflict of interest held by a beneficiary who also serves as trustee. If an independent trustee is appointed, the beneficiary may be given a right to remove and replace the independent trustee. A common drafting option is to name the beneficiary as initial trustee and grant the beneficiary a power to resign and appoint an independent trustee. This gives the beneficiary the discretion to choose the level of creditor protection desired. 5. How much does an Inheritance Protection Trust cost? Typically the addition of one or more Inheritance Protection Trusts to a Will or living trust will substantially raise the fee for preparation of the estate plan. When compared to outright distribution of inheritance, the benefits of the Inheritance Protection Trust offer a clear and present value to both the trustor and beneficiary. The Arizona homestead exemption amount increased from $250,000 to $400,000 in 2023. The homestead exemption, which is automatic in Arizona, is intended to protect an Arizona resident's primary residence ("homestead") from creditors. But the new law includes several intricacies that make it more complex than it initially appears. For example, the new law requires any existing judgment liens (recorded in the same county) to be paid when the homeowner either sells or refinances the residence. The prior law stated that a homeowner with less equity than the exempt amount could still refinance a home loan without having to first pay off any existing judgment liens. The new law does the opposite - effectively preventing the homeowner from exercising a cash-out refinance.
The homestead exemption is also complicated by federal bankruptcy laws. If the home was acquired within 1,215 days (3 years, 4 months) of filing the bankruptcy case, the exemption amount is currently limited to $189,050. If this rule applies to you, be sure to investigate further with a bankruptcy attorney because there are exceptions that may help you out. |
AuthorTom Bouman, Attorney Archives
April 2025
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