The essential nature of a trust is that of an instrument created to hold, manage, and ultimately distribute assets that separates the legal ownership of property from the enjoyment or benefit of property. A trust is an artificial entity, something like a corporation, created by a document or instrument.

http://store.msuextension.org/publications/FamilyFinancialManagement/MT199511HR.pdf. A revocable living trust is created by the settlor during their lifetime and the settlor retains the power to destroy (revoke) the trust at any time during their life. This numberthe equivalent of a social security number for entitiesis presented to the bank for set up of a new account, in the name of the trust and trustee, with trustee as signatory on the account. Additionally, the settlor does retain the power to transfer the property once inside the trust without the act of the trustee. Trust beneficiaries can also be non-family members or institutions (like a farm advocacy nonprofit or a land trust).

Two main types of trust are living or inter-vivos trusts and testamentary trusts. For very large estates, it may be valuable to make the election so that property appreciates in the trust instead of in the estate. http://www.elderlawanswers.com/what-is-a-miller-trust-14945, https://www.estateplanning.com/Understanding-Charitable-Remainder-Trusts, https://www.extension.iastate.edu/agdm/wholefarm/html/c4-59.html, https://www.estateplanning.com/which-type-of-trust-protect-against-creditors/, Can provide an income stream and donation to charity (Charitable Remainder Trust), Provides assets to beneficiaries immediately, Assets in an ILT are gone for good and cannot be reclaimed, Farmers can no longer control how assets in an ILT are used, Farmers will get no income from assets in ILT, in general (unless the ILT is also a Charitable Remainder Trust), May require the preparation of additional tax returns, such as a gift tax return and an annual trust income tax return.

RLTs can provide a vehicle to allow a farming heir who does not have sufficient capital to purchase a farm business outright to gradually buy into the family farm business, as purchase agreements and buyout provisions can be written into the RLT and payments can be spread out over time. The trustee is known as a fiduciary, meaning they are is bound to follow the directives of the trust, and otherwise manage trust assets in the best interest of the beneficiaries identified in the trust instrument or ascertainable by its language (ie. relevant changes to UTA and UFA) and provides the forms for modification based on client preference. The trust instrument is the written document creating and detailing the terms of the trust, how property therein is to be managed, how its income is distributed, and the directions and conditions for distribution of assets.

Trusts as an Estate Planning Tool, Iowa State University Extension and Outreach (2014), https://www.extension.iastate.edu/agdm/wholefarm/html/c4-59.html . Definition of a Trust, Internal Revenue Service (2016), available at https://www.irs.gov/Charities-&-Non-Profits/Definition-of-a-Trust.

A trust can be funded by a settlor/grantor during the settlors life or at his or her death via a will.

Farmers who use RLTs place their property into the trust bucket by formally transferring title of their property into the RLT.

For example, with an irrevocable trustas noted abovea key motivation for using such a trust may include creditor protection, exclusion from federal taxable estate. Failure to maintain requirements causes removal from the program, and most such programs require some repayment of the avoided or deferred tax that would otherwise have been due.

Charitable remainder trusts allow the settlor to contribute their property to charity and receive the income from the property over their lifetime.

See Uniform Trust Code, Section 411, Modification or Termination of Noncharitable Irrevocable Trust By Consent, http://www.uniformlaws.org/shared/docs/trust_code/utc_final_rev2010.pdf. As with all elements of estate planning and trusts, Irrevocable Living Trusts and Charitable Remainder Trusts must be set up correctly in order to be effective. Guide to Wills and Estates, Fourth Edition: Everything You need to Know about Wills, Estates, Trusts, and Taxes, American Bar Association (2013), http://www.americanbar.org/content/dam/aba/migrated/publiced/practical/books/wills/chapter_5.authcheckdam.pdf ; see Christopher R. Dang, et.

Keeping control means giving up any tax benefits, as the assets are included as part of the estate at the time of death. Other situations where a trust is needed include families where there is a spendthrift heir, concerns about litigious in-laws or a second marriage with children from prior marriages. The trustee is a fiduciary, meaning they must place the interest of the trust above their own personal interest. Gary A. Hachfeld, et. Trusts can be used as the primary tool in a farm transfer process, and one or more types of trusts can be used simultaneously by the same farmer.

When the trust is irrevocable, it cannot be altered, amended, or terminated by the trustmaker. A farmer might prefer the use of a testamentary trust to be able to control the distribution and management of assets even after he or she has passed away. The settlor (trust-creator) must intend to create a trust. A trust is a way to hold, manage, and distribute property. As their names suggest, the difference between these trusts is that one type is revocable, meaning it can be changed, and the other type is irrevocable, meaning it can not be changed. A farmer might prefer the use of a testamentary trust to be able to control the distribution and management of assets even after he or she has passed away. 24. Indians. The person who creates the trust is called the trustmaker, grantor, settlor, or trustor. Estate planning can be a simple or complex process depending upon the size and composition of your estate, your family situation, and your business situation.

A trust requires four basic elements: a trustee, a trust document, trust property and beneficiaries. The beneficiaries of a trust can be a farmers spouse, children, grandchildren, or the farmer herself.

Only at the death of the settlor does the trust become permanent (irrevocable). The trustee named by the trust creator can be individuals such as family or trusted friends. After a funding decision (which will really be a series of funding decisions over time), the settlor is faced with two key decisions: 1) who will receive income generated by the assets held in the trust (and under what circumstances should they not receive income) and 2) who (and under circumstances) will eventually receive ownership of the assets free of the trust down the road. Trusts can be used as the primary element of an estate planning strategy, and have four basic elements: Trusts can hold any type of property, but that property must be formally transferred to the trust. al., Trusts: Definitions, Types & Taxation, University of Minnesota Extension Estate Planning Series (2016), http://www.extension.umn.edu/agriculture/business/farm-transfer-estate-planning/docs/estate-planning-series4-trusts-definitons-types-and-taxation.pdf. See Uniform Trust Code, Section 405, Charitable Purposes; Enforcement, http://www.uniformlaws.org/shared/docs/trust_code/utc_final_rev2010.pdf.

In the case of creating a trust for a farm, some unique considerations may need addressed such as transferring any entity ownership interests to the trust; obtaining written consent from any lienholders; assigning a landlords or tenants interest in a lease; addressing wind lease, water and mineral rights; and transferring livestock brands. Only the trustee can convey title to the property from the trust.

If the formalities are not done correctly, the trust is nothing more than a pile of paper..

commitment to diversity.

The property will not be included in the value of the settlors taxable estate only if the settlor has permanently forfeited the property. If you would like to learn more about legacy planning, please visit our previous posts. Estate planning involves setting farm transfer goals and using legal tools and strategic planning to meet those goals.

15. Estate planning attorneys can create trusts, draft wills, help keep farmland in the family, help find tax advantages, and determine the best combination of tools to meet farm transfer goals.

10.

This type of will is often called a pour-over will.10.

22. Hiring an attorney to help assist in drafting a trust document is important to ensuring that the trust is valid and that it manages and distributes a farmers property according to the farmers wishes. al., Distribution of Estate Assets, University of Minnesota Extension Estate Planning Series (2016), https://www.extension.umn.edu/agriculture/business/farm-transfer-estate-planning/docs/estate-planning-series3-establishing-a-will.pdf. The beneficiary can be the Settlor, or any person(s) or entity(ies) the Settlor designates as beneficiary. The trustee may be a person or a non-human entity. It is not meant to substitute, and should not be relied upon, for legal advice. A&T State University, in all 100 counties and with the Eastern Band of Cherokee Spendthrift trusts protect assets which may be recklessly spent by beneficiaries, by limiting the rights of the beneficiary to sell or spend the trust corpus or principal. For farmers, Irrevocable Living Trusts (ILTs) are generally used to reduce the size of the farm estate in order to reduce taxes and/or to establish a trust for beneficiaries (either family beneficiaries or charitable beneficiaries). No two families have precisely the same set of circumstances. The essential nature of a trust is that of an arrangement whereby one legally holds title to property bound by an instrument to manage the property to the use and benefit of another. 2019 Tri-Cities Area Journal of Business All Rights Reserved. Said Trust is evidenced by a Certificate of Trust recorded at Book 123 Page 456 of the Orange County Registry, North Carolina. A trust can help protect and keep that legacy close to heart. A multi-generational farm is not only represented by the land that is tilled, the crops that are grown or the equipment used to harvest, it represents the hard work and determination of your familys legacy past, present and future. The purpose of a trust is to provide sound management of assets in favor of selected beneficiaries.

In previous years, ILTs were sometimes used by farmers to protect assets from Medicaid spend-down requirements. B.J., October 2014, at 4,10.

Two Types of Trusts: Which Protect Against Creditors?, EstatePlanning.com (2013), https://www.estateplanning.com/which-type-of-trust-protect-against-creditors/. A grantor/trustee may use Grantors social security number in setting up the bank account on a revocable trust.

When funding a trust with real property, it is important to know the impact of the transfer on differential property tax qualification.

A testamentary trust is a trust created by provisions within a will (or under an RLT or ILT).

Placing assets into an ILT is final; farmers no longer own the assets, and farmers retain no decision-making power over the assets.15Additionally, creating an ILT may require the preparation and filing of additional tax returns upon the creation of the ILT and throughout the administration of the ILT. As for unregistered personal property, such assets are funded to the trust as an internal matter, with a document listing such items and attached as appendix to the trust.

These trusts are often used to own life insurance policies, as insurance proceeds are normally part of ones federal taxable estate when owned outright.11.

Once the assets are distributed to the beneficiaries, both transfer tax and creditor protection are lost. Gary A. Hachfeld, et. https://www.irs.gov/Charities-&-Non-Profits/Definition-of-a-Trust, http://www.uniformlaws.org/shared/docs/trust_code/utc_final_rev2010.pdf. If an asset has a title (like land or equipment,) the title must be formally amended to reflect ownership by the trust. 11.

Living trusts can also be useful in providing management and/or transfer of control through a trustee for elderly, ill, or disabled family members.8.

However, at this time in most states, ILTs do not protect assets from Medicaid spend-down unless the 60 month (5-year) lookback period has expired. Any management of trust assets, including collecting income, conducting accounting or tax reporting, investments, etc., must be done in accordance with the instructions in the trust. If title of an asset is not properly transferred to the trust, the trust will not hold (or own) the property and therefore, the terms of the trust do not control/govern the management, administration, and/or distribution of that asset. 1 As the famous American jurist New York Chief Judge Benjamin Cardozo observed, As to this there has developed a tradition that is unbending and inveterate. See Meinhard v. Salmon, 164 N.E.

The decisions that the settlor makes are many, and the purpose(s) for which he or she has settled a trust may vary.

Effective estate planning for farmers requires the help of an estate planning attorney, preferably one that has experience working with farmers. Farm families, however, tend to have more complex estates and goals. Because land owned outright by a decedentthough not a probate assetis nonetheless listed in probate as a possible asset to satisfy creditors if the probate estate has insufficient assets.

Depending on the goals of and family variables faced by the parent or other person who created the trust, beneficiaries might receive their land title outright following the death of the trust creator, or receipt of title to the land may be delayed and they receive a beneficial income interest from the land. See Uniform Trust Code, Article 8, Duties and Powers of A Trustee, http://www.uniformlaws.org/shared/docs/trust_code/utc_final_rev2010.pdf.

Because RLT assets are still part of the farmers estate, this significantly lowers estate taxes for heirs by allowing the heirs to receive a stepped up tax basis upon the farmers death. The trust instrument grants the trustee the power and authority to follow the terms of the trust in management, income and asset distribution. A living trust (also known as an inter vivos trust) is a trust which can go into effect during the farmers (settlors or grantors) life to manage and/or distribute assets, but can also be used to distribute a farmers assets at death. For farm families, gifting an asset like farmland while retaining lifetime use can be done through a retained life estate, but a trust can be used as well. Property, farm business ownership, and the transition or distribution of such assets should be examined and tailored to your farm transfer goals.

Since a will directs the court how to dispose of your assets at death, this provision will act as a catch-all and direct property still titled under your name to pour into the trust, normally to take advantage of an estate tax exemption of the first spouse to die.

Common objectives for trusts are to reduce estate tax liability; avoid probate; create privacy; and provide control of assets after the owner (trust grantor) passes away. Creating an effective farm transfer plan that actually does what you want it to do will almost always require the help of an estate planning attorney.

9. T. Michael Tallman is a certified financial planner and advisor at HFG Trust in Kennewick.

The beneficiary named by the grantor derives the benefits from the trust, typically in the form of income or future ownership of trust assets.

Trusts can also be used to distribute property in installments, rather than all at once, and can impose other requirements for the beneficiaries. Historically with an irrevocable trust, assets funded to the trust cannot be removed by the Grantor, nor may the Grantor make modifications to the trust without petition to the appropriate court (which nonetheless must apply legal principles that avoid frustrating the purpose of the trust or its beneficiaries). qualified income trust (also known as a Miller Trust). While the assets are within the RLT, they can be managed and transferred by the farmer (or by a successor trustee appointed to manage the trust upon the farmers disability, incapacity, or death). Cooperative Extension prohibits discrimination and harassment regardless of age, color, disability, family and marital status, gender identity, national origin, political beliefs, race, religion, sex (including pregnancy), sexual orientation and veteran status. It is not authorized to accept deposits or trust accounts, and is not licensed or regulated by any state or federal banking authority. The powers enumerated by the Fiduciaries Act are extensive, and confer power over property held in trust, its disposition and its protection.3 A will, trust or written instrument may simply refer to the statute to confer broad powers on a trustee,4 or may choose to limit those powers by language of limitation without reference to the statute.5, The Fiduciaries Act provides that a trusteethough generally prohibited from self-dealingmay receive compensation, the amount of which considered reasonable depending on a number of factors such as skill of management, time devoted to management, and amount and nature of property in the trust.6.

Living trusts are often set up to avoid probate costs at death, since living trust assets do not need to go through the court-administered probate process. commitment to diversity. For example: Yuri Zvgo owns a famous painting by the Russian artist Ivan Shishkin (1832-1898). This means a farmer could place property in trust for her grandchildren, both born and unborn.

Its best to consult with an estate planning attorney who has experience working with farmers and setting up different types of trusts to create a strategic estate plan that meets farm transfer goals. 23.

Just likewills, trusts can be used to distribute property. Regarding ownership, strict attention should be paid to any requirements for continuing enrollment of real property in such a program upon transfer of that property to a trust (revocable or irrevocable). Within the category of living trusts, there are two main types of trusts that are particularly relevant to farm transfer. 2. Your trust(s) and/or will should be tailored to meet your farm transfer goals. Reasons for establishing trusts include: avoiding or minimizing probate costs, guard against will contests, protect privacy in property transfers, protecting assets from risks associated with beneficiaries, allow for someone else to manage property when its owner no longer wishes to or is no longer able to, allow someone else to manage property for minors, and in some cases to minimize estate tax. ", Information in our blogs is very general in nature and should not be acted upon without first consulting with an attorney.

http://www.extension.umn.edu/agriculture/business/farm-transfer-estate-planning/docs/estate-planning-series4-trusts-definitons-types-and-taxation.pdf. Outlined below are several of the more common types of trusts. 14.

An irrevocable intervivos trust is created during grantors life and cannot be terminated solely by the grantor once created. For other personal propertysuch as investment accounts, stocks, etc.such property is retitled to reflect the trust (revocable or irrevocable) as the new owner. Testamentary trusts created under a will, however, do not avoid.

There are two main types of living trusts: revocable and irrevocable. Gary A. Hachfeld, et. Second, state programs may require steps to continue a real property tracts enrollment after the property is transferred to the trust (revocable or irrevocable).

Help decide how to strategically use a trust or a combination of different types of trusts as part of an overall estate planning strategy.

12. RLTs have an advantage over a will as a primary farm transfer tool because while a will automatically triggers the probate process, an RLT bypasses the probate process. Because transfers to an irrevocable trust are considered gifts, carry-over basis rules apply and the property does not get a step-up in basis at the settlors death (see Gifting Real and Personal Property).

At death, the Settlors last will and testament often devises or bequeaths his or her property to the trust for management and distribution by the trustee under the terms of the trust. Read more about Sunbow Farm, Property (cash, land, equipment, or other property) must be transferred into a trust either during the settlors (trust-creators) life or by a will upon his death. in the case of land, by deed executed with the trust as the grantee); this is called funding the trust. Sign-up for our e-newsletter filled with featured stories and latest news.

al., Trusts: Definitions, Types & Taxation, University of Minnesota Extension Estate Planning Series (2016), http://www.extension.umn.edu/agriculture/business/farm-transfer-estate-planning/docs/estate-planning-series4-trusts-definitons-types-and-taxation.pdf. 545, 546 (N.Y.1928). Understanding Charitable Remainder Trusts, EstatePlanning.com, https://www.estateplanning.com/Understanding-Charitable-Remainder-Trusts/. al., Revocable Living Trusts, University of Minnesota Extension Estate Planning Series (2016), http://www.extension.umn.edu/agriculture/business/farm-transfer-estate-planning/docs/estate-planning-series5-revocable-living-trusts.pdf.

7. Help us improve this website by taking a quick two-minute survey. This has the benefit of getting it over with, and not simply neglecting the act until such time as the benefits of using the trust are reduced.

A&T State University. The grantor of a dynasty trust usually has three objectives: to have control for the longest time allowable by law; to protect the assets from federal transfer taxes for the longest possible period while making the assets available for future generations; and to protect the trust assets from potential claims brought by a beneficiarys creditors.

Often, spouses choose to use a joint trust, with both serving as Trustee and the survivor serving as Trustee until death or resignation.

2) Compliance with the trusts terms are illegal, impossible, or would go against the settlors intent, or; 3) To achieve the settlors tax objectives.

To fund a Trust, the grantor transfers the title of his or her assets into the name of the trust, which are then legally owned by the trustee who is bound by the terms of the instrument the grantor created. First, the landowner must make sure that a trust qualifies as an owner for purposes of enrollment. If the formalities are not done correctly, the trust is nothing more than a pile of paper.6 An estate planning attorney can help with the formalities so that your family can rely on a trust to function properly during your life and after death. Special Needs Trusts can protect a disabled or elderly individuals qualification for supplemental security income or medicaid.

This is referred to as funding a trust.5 Funding a trust must be done with the appropriate formal paperwork. The process of estate planning includes an evaluation of whether a trust is useful, given each familys unique circumstances. Trusts are often used together with a will as part of an estate planning strategy, and can be used to provide for an uninterrupted transition of the farmland and farm business. An estate planning attorney can help with the formalities so that your family can rely on a trust to function properly during your life and after death.

Learn how to use a will as part of a successful farm transfer plan. In order to transact business where the land is concerned, vendors such as banks and timber companies will likely require evidence of the trust (which is a private document) recorded in the chain of title. I can still remember the days of working with my dad and grandpa on the farm. Such services offer all documents associated with the trust suite, including pour-over will, trust instrument, certificate of trust, deeds to trust, powers of attorney, etc.

Help select and create effective trusts that meet farm transfer goals.

Although state law varies, there are three basic legal requirements for creating an effective trust.4. The trust is a creation of a person who owns property, called a settlor or grantor. Otherwise, any transfer of personal property to a trust should be accompanied by a document expressing unambiguous intent to do so. 4. A trust could be described as a custom-designed bucket that holds and takes care of your assets during life and distributes them after death.