FAQ | The Trust Guys

Frequently Asked Questions F.A.Q. For Trusts Wills and Estates

Questions to ask the Grantor

When you find out you’ll be the beneficiary of a trust, it’s in your best interest to ask questions so you can understand the process and your specific responsibilities.

Here are some questions to discuss with the grantor of the trust:

What were your intentions in creating this trust?

Ask why this trust was set up.

What are the grantor’s hopes for how this money will be used?

How do you think this trust will impact me?

Determine the role this trust will play in your financial future, based on its intended use.

*Find out if speaking with the trustee or the trustee’s representative (usually called the trust officer or the trust administrator) may also be useful to map out a future that’s not solely dependent on the assets within it.

Who else has access to the trust?

Are there other beneficiaries that will have access to this trust?

If you have siblings, ask how they’ll benefit from the trust and what their role will be in the trust process.

What is your relationship with the trustee and/or trust administrator?

Find out if there are different parties managing and administering the trust.

For example, the trustee may be one or more individuals; a corporate fiduciary; or some combination thereof. Find out who will play each role.

How will I work with the trustee and/or trust administrator?

See if you can meet with the grantor and the trustee(s) who will be responsible for the trust upon the grantor’s incapacity or passing.

Having a good relationship with the future trustee(s) will help for years to come.

Questions to ask the Trustee and/or Trust Administrator

You’ll want to know if the trustee will perform all functions associated with trust administration, including investment management, or if there will be other service providers involved (such as investment managers and tax return preparers).

You can review this with the trustee or the trust administrator.

It’s important to remember that they are there to help you understand the terms of the trust.

Here are some questions you can ask:

What is your role as a trustee?

If you’re new to the trust process, ask for some background information on how trustees or trust administrators’ function.

What will their responsibilities include?

What will your relationship look like?

When can I access what’s in the trust?

Find out what you’re entitled to within the trust.

Distribution of trust assets to beneficiaries aren’t the same as taking money out of a bank account; there are usually provisions and rules around the distribution.

For example: are there age provisions?

This would mean that you receive assets only at specific ages.

If I request assets, is it mandatory that you distribute them to me?

Ask the trustee if there are mandatory distribution provisions, or if distribution is solely at their discretion.

What laws or other factors are considered when distributing assets within the trust?

When distribution is left to the discretion of the trustee, what factors do they consider before making their decision?

What sort of information do you need from me—along with my distribution request—to make a decision to distribute funds to me?

Find out what background information the trustee will need if and when you make a distribution request.

Am I expected to pay taxes on the trust?

The trustee will have to file a tax return for an (Form 1041).

Many times, the trust will either pay its own taxes or—if distributions of income are made to you as the beneficiary—that income is passed out and you pay the income tax on it.

You may be responsible for some of the capital gains incurred during the year, depending on if you received any principal distributions. Some trusts are also subject to , or GST, while others are exempt.

What information do you share about me with other beneficiaries?

What details can I receive about the other beneficiaries from you?

Ask the trustee how they plan on sharing information about your relationship to the trust. You may also want to know what information you are entitled to about other beneficiaries of the trust.

Frequently Asked Questions for Trusts, Wills, and Estates

What is a Revocable Living Trust?

A Revocable Living Trust is a popular alternative to wills and other estate planning tools. A Revocable Living Trust helps you maintain control of your assets while you are living and will determine who gets your property upon your death. A Revocable Living Trust is favorable to a will in that it doesn’t require probate and you can revoke or amend your trust anytime while you are still living.

Are there other names for a Revocable Living Trust?

A Revocable Living Trust is also known as a revocable trust, an inter-vivos trust, a living trust, a grantor’s trust, and a loving trust. Though there are many names a Revocable Living Trust goes by, the function of all of these trusts is essentially the same.

How are a Will and a Trust different?

A Will mandates probate, which means that your Will must be admitted into court and approved by a judge before your assets can be transferred. A Will is not kept private after your death, unlike a revocable trust. Both a will and a trust can be revised during your life if your priorities have changed. However, a trust will allow you to skip probate and will also allow you to name young children as beneficiaries of the property. To learn more about the probate process, read on here.

What is an Irrevocable trust?

An irrevocable trust is a type of trust that you cannot amend or revoke during your lifetime. This means that an irrevocable trust is permanent and cannot be changed.

Why does a revocable living trust help me to avoid probate?

During the process of creating a living trust, you will most likely transfer a significant portion of your assets into the trust and your trust will become the owner of those assets. When you die, your trust will distribute your assets to the beneficiaries you have listed in your trust.

Is a living trust a good option for a single person?

Yes! A living trust is always a good estate planning option if you are seeking to avoid probate and provide a quick transfer of your assets to your beneficiaries upon your death.

Does anyone need to read my living trust?

No, your living trust is a private document and you are not obligated to share it with anyone, even after your death. However, you may want to show your living trust to your beneficiaries and consult with them on the terms of the trust. By consulting with and explaining to your beneficiaries the terms of your trust, you are minimizing disputes and misunderstandings from happening after your death.

Where should I store my living trust?

Your living trust is a very important document and you should keep it in a safe place that will be easily accessible after your death. A fire box or safety deposit box would be good places to store your document; however, access to a safety deposit box can be limited after your death, so please plan for this if you store your living trust in a safety deposit box. Your attorney will keep a copy of your trust and may store your original copy for you upon request. Lastly, it is important to let your successor trustee know where your trust can be found!

What parties are in the living trust?

There are three different parties in a living trust. The settlor(s) are the creator(s) of trust. The trustee(s) are the people who will manage the trust after your death. The beneficiaries are the parties who benefit from the trust’s income and assets.

Can changes be made to my living trust after death?

Once the settlor(s) of the trust has passed away, the trust becomes irrevocable. This means that any successor trustees of the living trust may not make changes to the trust.

Does a bank or trust company have to be involved in my living trust?

A bank or trust company will only have to be involved if you choose them to be. Many people will choose to designate individual trustees; however, you can name a bank or trust company to be a trustee and manage your financial affairs.

What is a trustee?

A trustee is a person who will manage the Trust assets. The first trustee may be the creator of the living trust. Any following trustees will be named in the living trust and will be able to handle your affairs if you become disabled or die.

What is a Pour Over Will?

Sometimes assets are not transferred to your trust or it is simply not feasible to transfer all of your assets into your trust before your death. A Pour-Over Will is different from a normal Will because it directs the executor of the will to “pour over” any assets not included in your trust at the time of your death to your trust after death. However, any assets that are included in the Pour Over Will will have to be probated, so it is imperative that your major assets are transferred to your trust before your death. A Pour-Over Will is simply a safeguard for any of your assets that were not transferred into your trust before your death.

If I place my home into my living trust, will it affect my mortgage?

No, transferring your home into your trust will have no effect on your mortgage and the mortgage company cannot “call” your mortgage early due to the transfer.

If I place my home into my living trust, will I still be able to deduct my mortgage interest from my taxes?

Yes, you will still be able to deduct your mortgage interest from your taxes because your living trust will have no effect on your income tax.

How does a living trust affect my income taxes?

A living trust will not affect your income taxes while you are living. You will continue to file your income tax as you normally do. However, after your death, your trust will have to pay taxes if it generates income. It is best to consult an attorney to find out how this applies to you and your living trust.

Can I avoid probate by using Joint Tenancy with Rights of Survivorship?

Yes! Joint Tenancy with Rights of Survivorship can be used to avoid probate upon the death of a spouse. Joint Tenancy with Rights of Survivorship will automatically transfer the decedent’s property to the living spouse upon the decedent’s death. However, when the living spouse dies the property will have to go through probate unless the living spouse puts the property into a living trust or designates a Transfer on Death Beneficiary. Joint Tenancy with Rights of Survivorship should not be confused with Joint Tenancy in Common, as Joint Tenancy in Common does not transfer the remainder interest of the property to the living spouse and the property will have to go through probate.

Does my living trust need to be updated?

Your living trust should be reviewed every 2 to 3 years to see if any changes need to be made to the document. Life circumstances can change and it is important that your living will reflect the changes that have been made in your life.

Does a living trust protect me from a lawsuit?

Your living trust will not protect you from lawsuits.

Will my living trust protect me against creditors?

No, a living trust will not protect you from your creditors because it is fully revocable during your lifetime. If you are looking for creditor protection, consult with your attorney about a Legacy Trust or an Irrevocable Trust and which option is best for you.

Where do I file my living trust?

Living documents, unlike Wills, are private documents (even after death) and will never require registration or filing. If real property is sold in the name of the trust, the property’s deed will require a signature from the trustee and the deed will need to be recorded to show that the trustee had the power to sell the property.

Can I revoke or cancel my living trust?

Yes, a living trust is revocable at any time before your death. After your death, the living trust becomes irrevocable.

How does the distribution of a living trust differ from the distribution of a will?

In a living trust, your assets are distributed by the successor trustee according to the instructions in your living trust. This means your assets can be distributed immediately and/or distributed at a later date. The distribution of a will is reliant upon the probate process and the probate process will immediately distribute your assets as stated in your will.

Can the assets in my living trust pay for my medical expenses or nursing home care?

Yes, the assets in your living trust are available to pay for your nursing home care and other medical expenses. However, if you intend to apply for medical assistance, the assets in the living trust will not be protected. If you are planning on applying for Medicaid then it is best to explore other Medicaid Planning techniques with an attorney. Medical assistance rules are very complex and it is important to consult with your attorney to determine what estate planning tool is best for your circumstances.

Can the assets contained in my living trust be sold?

Yes, the assets of your living trust can be sold. While you are living, you still have control of your assets in the living trust if you are the trustee, including buying, selling, or transferring the assets.

Frequently Asked Questions for Business LLC's, LLP's, S-Corps, C-Corps

What is a Revocable Living Trust?
A Revocable Living Trust is a popular alternative to wills and other estate planning tools. A Revocable Living Trust helps you maintain control of your assets while you are living and will determine who gets your property upon your death. A Revocable Living Trust is favorable to a will in that it doesn’t require probate and you can revoke or amend your trust anytime while you are still living.

Are there other names for a Revocable Living Trust?

How are a Will and a Trust different?

What is an Irrevocable trust?

An irrevocable trust is a type of trust that you cannot amend or revoke during your lifetime. This means that an irrevocable trust is permanent and cannot be changed.

Why does a revocable living trust help me to avoid probate?

Frequently Asked Questions for Nonprofit Charities and Foundations,

What is a not-for-profit corporation?

Nonprofit Corporation is a corporation formed to carry out a charitable, educational, religious, literary or scientific purpose. A nonprofit corporation can raise funds by receiving public and private grant money and donations from individuals and companies. Certain federal, state, and local income, property and sales tax exemptions are available to nonprofit corporations. The federal and state governments do not generally tax nonprofit corporations on money they make that is related to their nonprofit purpose, because of the benefits they contribute to society.

Is a nonprofit corporation exempt from taxes?

The mere fact that a corporation is organized under a not-for-profit corporation law does NOT mean that contributions to it are necessarily tax deductible. For donations to be “tax deductible” the organization must file an “Application for Recognition of Exemption” with the Internal Revenue Service and be approved pursuant to Internal Revenue Code.

How does a nonprofit organization, including a nonprofit corporation, become tax-exempt?

The IRS requires you to submit a copy of your filed articles with your application. To apply for your exemption, you must complete IRS Form 8718, User Fee for Exempt Organization Determination Letter Request, and IRS Package 1023, Application for Recognition of Exemption. For instructions on filling out these forms, read IRS Publication 557, Tax-Exempt Status for Your Organization. After the IRS reviews your application, it will send you a letter indicating that it has approved your nonprofit status, or it might ask you for more information about your organization. The IRS can also deny your application outright. A few states require you to complete a separate application to get a state tax exemption. In other states, as long as you file nonprofit articles of incorporation and obtain your federal 501(c)(3) tax-exempt status, your state tax exemption will be automatically granted. In still others, to get your state exemption you must send in a copy of the IRS determination letter that granted your federal exemption.

How do I form a “501(c)(3)” corporation?

Forming a nonprofit corporation is much like creating a regular corporation, except that nonprofits have to take the extra steps of applying for tax-exempt status with the IRS and their state tax division. The basic steps to follow include: Obtain nonprofit materials from your state’s corporate filing office. This packet should include sample or fill-in-the blank articles of incorporation and your state’s nonprofit corporation laws. It should also contain a filing fee schedule, as well as forms and instructions for checking the availability of your proposed business name. The articles of incorporation will contain the name of your corporation, the corporation’s address, a “registered agent” (a person who agrees to receive legal papers on behalf of the corporation), and sometimes the names of the corporation’s directors. Choose an available business name that meets the requirements of state law. State requirements vary, but generally, the name of your nonprofit cannot be the same as the name of another corporation on file with the corporations division, the name must end with a corporate designator, such as “Corporation,” “Incorporated,” “Limited,” or “Corp.,” “Inc.” or “Ltd.”, and the name cannot contain certain words prohibited by the state, such as Bank, Cooperative, Federal, National, United States or Reserve. Also, you must make sure your name won’t violate a trademark owned by another company (in your state or out of state). To do this, you’ll need to conduct a trademark search. You aren’t usually required to file or reserve the name with your state. Once you file your articles of incorporation, your nonprofit’s name will be automatically registered. File formal paperwork, usually called “articles of incorporation,” and pay a small filing fee (typically $30 or $40). Apply for your federal and state tax exemptions. Create corporate “bylaws,” which set out the operating rules for your nonprofit corporation, including procedures for holding meetings, making major business decisions, voting rights and other important guidelines. Appoint the initial directors. Directors, who meet and make decisions collectively as the board of directors, have the authority (and responsibility) to manage and run the nonprofit corporation. Many states allow nonprofits to have just one director, but other states require at least three. Some states require the directors to be chosen before filing the articles of incorporation because you must list their names in the document. Hold the first meeting of the board of directors. Before you start doing business, you must elect a board of directors and hold an initial meeting of the board. Typically, the bylaws are adopted by the corporation’s directors at their first board meeting. The directors also will elect officers — state law usually requires a president, secretary and treasurer, and sometimes a vice president as well. Then, the directors should authorize the newly elected officers to take actions necessary to start the business of the nonprofit, such as setting up bank accounts and admitting members. Minutes of the meeting should be created and filed in the corporate records book. Obtain licenses and permits that may be required for your corporation. A local business license (sometimes called your “tax registration certificate”) may be required for your activities, and if you sell anything to consumers, you’ll need a sales tax permit Who can form a nonprofit organization? There are no restrictions as to who can form a nonprofit organization. There are no age, residency or other legal requirements. Do I need an attorney to form a nonprofit organization? No, an attorney is not a legal requirement to form a nonprofit organization. You can prepare and file the articles of incorporation yourself; however, you should understand the requirements of the state in which the corporation will be formed. What should I name my nonprofit organization? Legally, the name you select must not be “deceptively similar” to any existing corporation or must be “distinguishable on the record” of your state. For example, if a corporation named Acme Company exists in your state, you probably would not be allowed to name your organization Acme, Inc. Additionally, the name you choose must show your business is incorporated. Many states require that the nonprofit name be followed by “Corporation,” “Incorporated,” “Company” or an abbreviation of those terms, such as “Corp.” or “Inc.” What are the (Internal Revenue Service) IRS classifications of nonprofits? The most common federal tax exemption for nonprofits comes from Section 501(c)(3) of the Internal Revenue Code, which is why nonprofits are sometimes called 501(c)(3) corporations. The following is a list of other types of tax-exempt organizations recognized by the IRS: § 501(c)(1) Corporations Organized Under Act of Congress (including Federal Credit Unions); § 501(c)(2) Title Holding Corporations for Exempt Organization; § 501(c)(11) Teachers’ Retirement Fund Associations; § 501(c)(12 Benevolent Life Insurance Associations, Mutual Ditch or Irrigation Companies, Mutual or Cooperative Telephone Companies, or Like Organizations (if 85 percent or more of the organization’s income consists of amounts collected from members for the sole purpose of meeting losses and expenses); § 501(c)(13) Cemetery Companies (owned and operated exclusively for the benefit of their members or which are not operated for profit): § 501(c)(14) State Chartered Credit Unions, Mutual Reserve Funds; § 501(c)(15) Mutual Insurance Companies or Associations; § 501(c)(16) Cooperative Organizations to Finance Crop Operations; § 501(c)(18) Employee Funded Pension Trusts (created before June 25, 1959): § 501(c)(21) Black Lung Benefit Trusts: § 501(c)(22) Withdrawal Liability Payment Funds; § 501(c)(25) Title Holding Corporations or Trusts with Multiple Parents; § 501(c)(26) State-Sponsored High-Risk Health Coverage Organizations; § 501(c)(27) State-Sponsored Worker’s Compensation Reinsurance Organizations; § 501(d) Religious and Apostolic Associations; § 501(e) Cooperative Hospital Service Organizations; § 501(f) Cooperative Service Organizations of Operating Educational Organizations; § 501(k) Child Care Organizations; and § 521(a) Farmers’ Cooperative Associations’ How many directors is a nonprofit corporation required to have? Most states require nonprofit corporations to have a minimum of three directors; however, some only require one director. Q. Where should I form a nonprofit corporation? It is not required to form the organization in the state where it will be physically located. It can be incorporated in any state or Washington D.C. Two factors are often considered when deciding where to form a nonprofit. The first factor is the cost of forming in the home state versus the cost of forming in another state. The second factor pertains to taxation and nonprofit laws governing the states under consideration. What is a registered agent and do I need one? Virtually all states require corporations, limited liability companies, nonprofits, limited partnerships and limited liability partnerships formed or foreign qualified there to have a registered agent in the state. The registered agent must have a physical presence and address (not a post office box), and must be available during normal business hours. The registered agent is responsible for receiving important legal and tax documents on behalf of the business. Service of Process (which is the document that informs the defendant of the lawsuit and when the complaint or petition must be answered), is served on the registered agent. Additionally, the registered agent often receives mail and tax documents from the state on behalf of business. What is the difference between non-profit and tax-exempt status? Non-profit status is a state law concept. Non-profit status may make an organization eligible for certain benefits, such as state sales, property, and income tax exemptions. Although most federal tax-exempt organizations are non-profit organizations, organizing as a non-profit organization at the state level does not automatically grant the organization exemption from federal income tax. To qualify as exempt from federal income taxes, an organization must meet requirements set forth in the Internal Revenue Code. Do I need a tax-exempt number for my organization? Some states issue numbers to organizations to indicate that these organizations are exempt from state sales taxes. The IRS does not issue numbers specifically for exempt organizations. While the Internal Revenue Service does issue Employer Identification Numbers (EINs), these are merely a unique identifier, similar to a Social Security number for an individual. Applying for and receiving an EIN says nothing about the organization’s tax status; however, your organization needs an EIN to apply for tax exemption. How do I get an Employer Identification Number (EIN) for my organization? You can apply for an EIN on-line, over the telephone, via fax or through the mail. To get an EIN over the IRS’s toll-free telephone number, call (800) 829-4933. To request an EIN via fax, dial the fax number at the location accepting applications from your state. The instructions on the Form SS-4 indicate which location will accept your faxed request. To receive an EIN through the mail, complete Form SS-4 . The instructions on the form provide the correct address. How long does it take to process an application for exemption? Applications are processed as soon as possible. The process can be delayed, however, for reasons ranging from simple errors on the application to issues concerning the qualification of the organization for exemption. How an I get my application expedited? In general, applications are processed in the order received by the IRS. Sometimes, however, the IRS will work a case outside the regular order. For expedited processing to be granted, however, there must be a compelling reason to process the case ahead of others. What if purposes or programs change after the application is submitted? If the organization’s organizing documents, purposes, or programs change while the IRS is considering an application, you should report the change in writing to the IRS office processing your application. Must an organization whose corporate charter is reinstated after being administratively revoked or suspended by the state submit a new exemption application? No, if a corporation is reinstated by the state after an administrative suspension or dissolution of its corporate charter, its exempt status will be reinstated without the need for the corporation to reapply. The organization must generally submit evidence from the state that its charter has been reinstated, indicating the effective date of reinstatement. In addition, the organization should provide evidence that it has complied with any filing requirement for annual returns during the period during which its corporate status was administratively suspended or dissolved. Are there limitations on the activities in which a tax-exempt organization may engage? Depending upon the nature of its exemption, a tax-exempt organization may jeopardize its tax-exempt status if it engages in certain activities. For example, under IRS rules, nonprofit corporations must abide by the following restrictions to retain their tax-exempt status: Nonprofit corporations with a 501(c)(3) tax exemption cannot participate in or contribute money to political campaigns. If they do, the IRS can revoke their nonprofit status, and can assess a special excise tax against the organization and its managers. Nonprofit corporations can engage in only limited lobbying activities. Tax-exempt 501(c)(3) nonprofits that influence legislation to any “substantial degree” face the loss of their nonprofit status. However, for tax-exempt nonprofits that want to participate in lobbying, the IRS simply sets a limit on the money they can spend on political activities. What is the difference between a private foundation and a public charity? Every section 501(c)(3) organization is classified as either a private foundation or a public charity. Private foundations and public charities are distinguished primarily by the level of public involvement in their activities. Public charities generally receive a greater portion of their financial support from the general public or governmental units, and have greater interaction with the public. A private foundation, on the other hand, is typically controlled by members of a family or by a small group of individuals, and derives much of its support from a small number of sources and from investment income. Because they are less open to public scrutiny, private foundations are subject to various operating restrictions and to excise taxes for failure to comply with those restrictions. Must an exempt organization notify the IRS if it changes its purposes or activities? Once the IRS recognizes an organization’s tax-exempt status, it must notify the IRS if it amends its organizing documents or by-laws, or materially changes its activities from those described in its exemption application. Can a nonprofit corporation pay a salary to its officers, directors and/or employees? Yes, any corporation may pay reasonable compensation for services rendered to the corporation. Who has authority to investigate the activities of a nonprofit corporation? The state’s attorney general will probably have statutory authority to (1) investigate charities that operate as nonprofit corporations, and (2) inspect the books and records of all corporations, including nonprofit corporations. In some states, such investigations are the duty of the state’s secretary of state. The IRS can revoke a nonprofit corporation’s tax exemption for violations of federal tax laws.