The trust is for the benefit of her sons, Jake and Joe Smith. They will inherit the policy's death benefits when she dies.
Jake and Joe are the trust's primary beneficiaries. FBO designations can also help set up the transfer of funds in other cases where there could be legal or tax issues. These cases include k rollovers, electronic funds transfers, and charitable donations.
She makes all the proper arrangements and receives a check from the k plan administrator for her account balance. The funds have been directed to the new account. They're payable to the plan administrator, but they're for the benefit of Jane. Had the check been made out directly to Jane, it would have been counted as a k distribution. But with the FBO designation, the transfer is made without ever going through Jane's hands. Because of this, it's not taxed. So, an FBO designation will also sometimes appear on checks or other financial instruments directing funds to them.
This might also be the case if the beneficiary of the funds is mentally incapacitated or otherwise unable to handle her own affairs so someone else has been appointed to do so for her. Sometimes trusts are also designed to benefit a group of individuals instead of just one person. The phrase "FBO in trust" is central to the purpose of the trust itself. Some trusts exist to manage themselves and produce particular, usable returns or provide protection for assets.
These trusts do not always need specific FBO language, only a specific purpose. But other trusts that are designed to actually convey ownership and value need the FBO signification in order to operate legally. A trust with an FBO designation has a settlor, a trustee and a beneficiary. However, as the amounts being transferred by gift have increased and the concern over long term asset protection planning has grown, we have developed new planning techniques to reflect these developments.
Our most recent planning development has been creating Family Gift Trusts. This article explores the significant issues surrounding the use of these trusts.
We look forward to helping answer your questions. Should you have any questions after reviewing this article, please feel free to contact us, John Tullio or Lindsey Smith. The beneficiaries are usually family members of the Donor, but can be other persons if desired.
The terms of the trust are set forth in a document that describes how the trust property is to be invested and distributed. The gifts are primarily made to achieve the estate planning goals of the Donor. The Donor is the person who creates the trust and makes gifts to the trust. This type of trust is an irrevocable trust. The primary tax reason for making gifts is to reduce the taxable estate of the Donor.
Gifts are made to a Family Gift Trust FGT to obtain benefits not available if the property is given outright to a person. This is important for achieving goals such as asset protection planning, tax savings and equalization among family members.
These benefits are discussed in more detail later in this article. A trust can be very useful for accelerating annual exclusion gifts in order to quickly diminish a taxable estate. These gifts are called annual exclusion gifts and they are totally excluded from the gift tax system.
This is the total amount that can be given away without the payment of any gift or estate taxes, in addition to annual exclusion gifts discussed above. This, however, is only done in certain situations after careful discussion and analysis.
Gifts that are in excess of the available annual exclusions and lifetime applicable exclusion are subject to gift tax. There may even be instances where the payment of a gift tax is desired to take advantage of the different way that the gift tax and the estate tax is calculated on property owned by a Donor!
Again, this is undertaken only after counseled deliberation. Contact either John Tullio or Lindsey Smith for more details on this matter. However, there is no requirement that they are family members and the Donor can include as beneficiaries anyone he or she wants. Several things need to be kept in mind, however.
The gift to the trust must be from a separate account in the name of the Donor only. However, there are many types of trusts available, and it's important to contact an expert, such as an attorney or financial professional, to determine what type of trust is best for specific financial circumstances.
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Your Money. Personal Finance. Your Practice. Popular Courses. Table of Contents Expand. What Is a Testamentary Trust? Understanding a Testamentary Trust. Testamentary vs. Living Trust. Advantages and Disadvantages. Testamentary FAQs. The Bottom Line.
Key Takeaways A testamentary trust is a trust that is to contain a portion or all of a decedent's assets outlined within a person's last will and testament. A testamentary trust is not established until after the person passes away in which the executor settles the estate as outlined in the will. A testamentary trust can name minors as beneficiaries, in which the deceased's assets are paid out only when they reach a certain age. The trust can also be used to reduce estate tax liabilities and ensure professional management of the assets.
A disadvantage of a testamentary trust is that it does not avoid probate—the legal process of distributing assets through the court. Pros Assets can be distributed to minors after they reach a certain age.
Instructions can be changed while alive. This can be a low-cost option if money is tight while still living. Cons A testamentary trust does not avoid probate. With probate, the deceased's assets are public record. Risk exists that the trust may not be exactly as the deceased wanted. Compare Accounts.
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