Planning for Your Family

By: Laurie Valentine

Planning for how to provide for your family at your death should be a key objective of estate planning and it is good stewardship. The costs of probating and distributing your estate and the amount of death taxes due may be greater if you have not planned well, which means less to pass to your beneficiaries.

For those with children under age 18, thought needs to be given to whom you want appointed as guardian for your children if both parents died before all are 18 or older. The court-appointed guardian will make all the decisions you as a parent would be making for your children until each reaches age 18. You can include a provision in your Will designating who you want appointed as guardian.

A decision also needs to be made as to whether the share you want to leave to a family member will be given to them outright or whether their share should be managed by someone else, either until they get to an older age or perhaps for the rest of their life if they are incapacitated or just not good money managers.

Including a trust provision in your Will allows you to empower another person to manage the share of a family member beneficiary. Usually the trustee is permitted to use the trust income for the beneficiary and may also be authorized to use trust principal for the beneficiary’s health, education and other needs.

Heed Paul’s admonition in 1 Timothy 5:8 and “….provide for [your] relatives, and especially for the members of [your] household…” 

Laurie Valentine is COO and Trust Counsel for the Kentucky Baptist Foundation, PO Box 436389, Louisville, KY 40253; (502) 489-3533 or 1-866-489-3533 (Toll-free, Kentucky Only); KYBaptistFoundation.org

The information in this article is provided as general information and is not intended as legal or tax advice. For advice and assistance in specific cases, you should seek the advice of an attorney or other professional adviser.

Choosing a Trustee

By: Laurie Valentine

A trust can be a helpful estate planning tool.

Whether you are using a revocable living trust as part of your plan for management of assets in the event of incapacity or an irrevocable trust for tax planning, one of the most important decisions is your choice for trustee.

Under Kentucky law, the trustee may be an individual or a bank, trust company or other entity that has trust powers. An individual serving as trustee does not have to be resident of Kentucky nor do they have to be related to you.

Think about the types of assets that are, or may be, in the trust. You will want to name a trustee that understands the management of those types of assets, knows about taxes, investments and financial matters.

The trustee should be someone who is a self-starter. There is little supervision of the management of a trust. Your choice should be someone that will not neglect their responsibilities due to lack of time, interest or knowledge.

Don’t just assume the person or entity you wish to name as trustee is willing to serve. Ask them before you complete your planning and, if possible, allow them to review the trust agreement before it is signed.

Finally, make sure that you have selected a trustee who can be objective. Trustees must make decisions that affect the interests of both the income beneficiaries and the remainder beneficiaries. While family members may be appropriate choices, in some cases you may need to consider a professional, corporate or institutional trustee. Corporate trustees are accountable not only to the beneficiaries of the trust, but also to their own management, directors, auditors and other examiners.

Laurie Valentine is COO and Trust Counsel for the Kentucky Baptist Foundation, PO Box 436389, Louisville, KY 40253; (502) 489-3533 or 1-866-489-3533 (Toll-free, Kentucky Only); KYBaptistFoundation.org

The information in this article is provided as general information and is not intended as legal or tax advice. For advice and assistance in specific cases, you should seek the advice of an attorney or other professional adviser.

Who Should be Trustee?

By: Laurie Valentine- COO & Trust Counsel

Both revocable and irrevocable trusts can be helpful estate planning tools.

Whether you are using a revocable living trust as part of your plan for management of assets in the event of incapacity or an irrevocable trust for tax planning, one of the most important decisions as you plan the trust is your choice for trustee.

Under Kentucky law, the trustee may be an individual or a bank, trust company or other entity that has trust powers. An individual serving as trustee does not have to be resident of Kentucky nor do they have to be related to you.

As you select a trustee or successor trustee think about the types of assets that are, or may be, in the trust. You will want to name a trustee that understands the management of those types of assets, knows about taxes, investments and financial matters.

The trustee should be someone who is a self-starter. There is little supervision of the management of a trust. Your choice should be someone that will not neglect their responsibilities due to lack of time, interest or knowledge.

Don’t just assume the person or entity you wish to name as trustee is willing to serve. Ask them before you complete your planning. If possible, allow them to review the trust agreement before it is signed to better assure that all necessary powers are granted and that they are clear on any special or unusual provisions.

Finally, make sure that you have selected a trustee who can be objective. Trustees must make decisions that affect the interests of both the income beneficiaries and the remainder beneficiaries. While family members may be appropriate choices, in some cases you may need to consider a professional, corporate or institutional trustee. Corporate trustees are accountable not only to the beneficiaries of the trust, but also to their own management, directors, auditors and other examiners.

The choice of trustee is a crucial decision in the establishment of a successful trust arrangement. Making the best choice requires thoughtful and careful consideration of many factors.

For more information, please call us at (502) 489-3533 or toll free in KY at 1-(866) 489-3533

The information in this article is provided as general information and is not intended as legal or tax advice. For advice and assistance in specific cases, you should seek the advice of an attorney or other professional adviser.

Advancing the Kingdom Through the Kentucky Baptist Foundation

By: Laurie Valentine-COO & Trust Counsel 

Using the Kentucky Baptist Foundation to accomplish your legacy giving objectives can benefit both you and the Baptist causes you wish to support.

The Kentucky Baptist Foundation receives and administers legacy gifts for the support of all Kentucky Baptist and Southern Baptist causes. As a “member of the family”, the Foundation has a special appreciation and affection for the mission and ministry of the causes that will be supported through your gifts. This connection assures you, as the giver, the Foundation has each cause’s best interests in mind as it manages the gifts made for that cause’s benefit.

Many donors want to provide support to more than one cause and realize that dividing their gift may result in lower total support. A single trust or endowment fund can be set up with the Kentucky Baptist Foundation to provide support to multiple Baptist causes. This can result in more consistent levels of support for all----each cause will have the benefit of the same level of competent investment management oversight services and the economies of centralized fund management.

Designating the Kentucky Baptist Foundation as the manager of your gift assures the causes you want to support are left to do what they were called to do---missions, Christian education, child care, evangelism, disaster relief, etc. You relieve their board and staff of the responsibility for investment research, analysis, decision-making, transacting and reporting, and place those responsibilities with the organization whose mission is to provide competent, prudent financial management for the causes selected by its donors.

For more information, please call us at (502) 489-3533 or toll free in KY at 1-(866) 489-3533

The information in this article is provided as general information and is not intended as legal or tax advice. For advice and assistance in specific cases, you should seek the advice of an attorney or other professional adviser.

“Special Needs” Trusts

By: Laurie Valentine-COO & Trust Counsel 
Creating a plan to benefit a disabled child after your death, without causing the loss of vital government benefits, requires care.

Leaving a share of your estate outright to a disabled child could result in the child losing government benefits he or she is currently receiving from Medicaid or other sources. The inheritance becomes an “available resource” that must be spent down before the child will become eligible to re-apply for the government benefits.

Likewise, setting up a standard testamentary trust under which the trustee is directed to use income and/or principal for the disabled child’s health, support and maintenance will also endanger governmental benefits. The trust may also be subject to cost of care claims, Medicaid liens and Medicaid estate recovery at the child’s death.

The better alternative is a “special needs” or “supplemental needs” trust. Under this type of trust the trustee has total discretion on whether to expend any of the trust funds for the disabled child’s benefit. And, expenditures are limited to non-necessities and supplemental services such as dental, medical and drug expenses not provided through governmental benefits; physical, speech and occupational therapy; special equipment not provided by other sources; vacation and travel activities; social, recreational and entertainment opportunities; and/or training and education activities.

The total discretion granted to the trustee means the beneficiary has no legal right to demand distributions. As a result, the trust assets and income are not “available resources” and, therefore, don’t effect the beneficiary’s eligibility for governmental benefits.

Restricting the use of trust funds to items that will improve the quality of the disabled child’s life (non-necessities) protects the distributions from being deemed “in-kind” income that could reduce some government benefits.

An alternative to a separately managed special needs trust is the “pooled special needs trust”. These are established and managed by a nonprofit association, which maintains a separate sub-account for each beneficiary while pooling the assets for investment purposes. At the disabled beneficiary’s death, the remainder can either remain in the pooled trust to be used for other disabled beneficiaries of the trust, or be set up to distribute to the state an amount equal to the benefits provided by the state during the beneficiary’s lifetime, with the balance, if any, distributed to other family members. 

(502) 489-3533 or toll free in KY at 1-(866) 489-3533

The information in this article is provided as general information and is not intended as legal or tax advice. For advice and assistance in specific cases, you should seek the advice of an attorney or other professional adviser. 

Give An Income Stream

By: Laurie Valentine-COO & Trust Counsel

Is your church in a building program? Would you like to fund your annual giving for missions, childcare ministries or other charitable causes for the next few years in a new and creative way?

If you answered “yes” to either of those questions and you would like to coordinate your charitable giving with a tax-saving way to transfer assets to your family, a charitable lead annuity trust is a giving vehicle to consider.

A charitable lead annuity trust (“CLAT”) is a giving plan that provides a fixed income stream to one or more charitable causes for a designated period of years. At the end of the trust term the trust remainder can either be returned to you (this is a “grantor lead trust”) or be distributed to your children and/or other family members (a “non-grantor lead trust”).

While a lifetime gift to a “non-grantor” CLAT does not entitle you to a charitable income tax deduction, it does provide a way to pass assets to your children or others at reduced gift and estate tax cost. Gift tax savings come from the fact the tax value of the future gift to your family is the present value of the remainder interest in the trust, not the full value of your gift to the trust. With careful coordination of the fixed amount being paid to the charitable beneficiaries and the trust term you can reduce the present value of the remainder gift significantly. Estate tax savings result from the removal of the asset, any subsequent appreciation and the future income it generates from your estate.

Example: John and Martha Brown set up a 7-year 6% CLAT funded with $100,000 of stock. The $6,000 per year income stream (6% x $100,000 gifted to the trust) will be divided equally between the building program at the Browns’ church, their Baptist college alma mater and international missions. Over the 7-year term the charities will receive a total of $42,000 ($14,000 to each). Assuming the trust assets earn an average annual return of 6.5%, there will be approximately $104,000 left to pass to their children at the end of the 7 years and, if the gift tax value of the future gift to their children is only $60,000, $44,000 of that value passes tax-free to the children.

Testamentary Trusts-Good Estate Stewardship

By: Laurie Valentine-COO and Trust Counsel

Leaving an inheritance outright to a young or incapacitated beneficiary is not good estate stewardship.

An outright bequest (or life insurance or other beneficiary designation) to an under age 18 beneficiary will require a guardian to be appointed to manage the young beneficiary’s share of your estate until he/she reaches age 18 (even if there is a surviving natural parent). At 18, the young beneficiary will receive full ownership and control of the inheritance, no matter its size.

A “testamentary trust” may be a better alternative.

A “testamentary trust” is a provision in your Will under which you designate a third party to serve as the trustee/manager of a beneficiary’s share of your estate. A testamentary trust usually includes a direction for the trustee to distribute the trust’s income to or for the benefit of the beneficiary. The trustee can also be authorized to use principal for the beneficiary’s education, health and other needs, if the income from the trust and other resources are not sufficient.

A testamentary trust for a young beneficiary does not have to end at age 18. You designate in the testamentary trust provisions the age when the trust will terminate and the beneficiary will receive full ownership of his/her share. The full trust amount may be distributed at a single age; or you may want to use a “tiered” distribution----one-half at one age and the rest at a later age; or one-third each at three different ages.

Testamentary trusts may also be used to provide for an elderly or incapacitated beneficiary. The trust provision can direct an income stream (and possibly also principal) to or for the beneficiary for the rest of his/her life; with the remainder of the trust then distributed to other beneficiaries you name at the death of the income beneficiary.

Ease young beneficiaries into the management of inherited wealth and eliminate the burdens asset management might place on an elderly beneficiary by including testamentary trust provisions in your estate plan.