 Personal finance PowerPoint presentation. Disclaimer trust. Prepare to get financially fit by practicing personal finance. Support accounting instruction by clicking the link below giving you a free month membership to all of the content on our website broken out by category further broken out by course. Each course then organized in a logical reasonable fashion making it much more easy to find what you need than can be done on a YouTube page. We also include added resources such as Excel practice problems PDF files and more like QuickBooks backup files when applicable. So once again click the link below for a free month membership to our website and all the content on it. Most of this information comes from investopedia disclaimer trust which you can find online. Take a look at the references resources continue your research from there this by Julia Kagan updated March 28, 2021 and prior presentations. We've been looking at a state planning then tools or particular components of a state planning which may or may not be applicable depending on your current situation. This time looking at the disclaimer trust first question being what is a disclaimer trust? A disclaimer trust is a type of trust that contains embedded provisions usually included in a will allowing a surviving spouse to put specific assets under the trust by disclaiming ownership of a portion of the estate. Disclaimed property interests are then transferred to the trust without being taxed. So remember the general idea that we've outlined in prior presentations in terms of the timeline for a state planning. Quick recap before we die. We have some goals that we would like to have our assets. We would like to have them allocated in accordance with our wishes. We would like to make things as easy as possible on our loved ones at the point of death, including managing that process of the allocation of the assets. And of course, we would like to pay as little taxes as possible if subject to estate taxes in particular, which is carrying back to item number one, allocating assets in accordance with our wishes. Those being not going to taxes if we can choose not to do so. Now note that if you are subject to estate taxes generally for more wealthy individuals, then you're going to try to take on strategies possibly to lower the estate taxes. That's a death tax in essence. So when you die, they're going to value the estate and try to tax the value of the estate if it's over a certain threshold. Obviously your knee jerk reaction if someone's going to tax you when you die is going to be that you're going to try to give everything away on your death bed. And clearly the reaction from the government when you try to do that is to say we don't want you to do that because then you won't have any money for us to tax when you die. So we're going to try to link together gifts with the estate tax. So now there's rules of gifting and estate taxes that are kind of tied together. Another tool that you could use is try to gift something to a trust. So a trust then being a separate legal entity similar to a corporation that has properties given to it that usually are given to individuals such as the capacity to own property and they also could live beyond say the life of a certain of any particular individual. So theoretically then if we were able to quote gift and quote money you know give money into the trust. The trust then owns the money when we die and therefore you would think that since we don't own it when we die it shouldn't be part of the estate and they can pass on at that point of time. That's the general idea of it. But obviously when you put money into the trust then the question from the government side of things was like well do you still have control over the trust? If you do then they're going to argue well do you still basically have control over the assets? They're still basically yours. They should still be subject to the estate taxes. If you don't have control over it then possibly that would be a better argument for it not to be included in the estate for the estate taxes. So all this walking the line with the trusts in terms of how much control you have over the trust and so on and the lines between the gift taxes maximizing the amount of the exemption for the estate taxes and using the gift tax rules as we have these separate legal entities. The trust is where it gets a little bit complex with the estate planning. Okay how disclaimer trusts work? If an individual passes away and leaves their estate to a spouse the spouse may disclaim some interest in the estate which then passed directly to the trust as though it were the original beneficiary. So they disclaim it going into now the trust. So now you're thinking the trust is the one that is basically you know owning the property at that point in time. Provisions can be written into the trust that provide for regular payouts from the trust to support survivors. For example a trust can provide for surviving minor children as long as their surviving spouse elects to disclaim inherited assets passing them on to the trust. So the concept being then that there's no ownership by the individual the spouse I mean the trust has the ownership of it but you could still get access to it to some degree hopefully by the terms of the trust possibly the income being used for example for support in some way depending on the terms of the trust. Disclaimer trusts require that the survivor act according to the wishes of the deceased and disclaim ownership of some of the assets that the deceased has bequeathed so given them. So in the above example if their surviving spouse does not disclaim ownership of any portion of the estate then the deceased wish to transfer assets to the surviving minor children goes unfulfilled. A surviving spouse or the specified inheritors of the estate have a legal time period generally up to nine months from the date of death to establish a trust for the disclaimed assets if they fail to do so then all the assets contained in a will are taxed. So disclaimer trust versus see-through trust another example of a trust that enables assets to move through an additional beneficiaries is a see-through trust. So a see-through trust or pass-through trust permits individuals to pass retirement assets from their individual retirement accounts those being the IRS via a trust to their elected beneficiaries. See-through trusts use the life expectancies of the beneficiaries to determine the required minimum distribution RMDs that will occur after the death of the retirement account holder. IRA owners are able to choose their beneficiary and federal laws prohibit accounts from continuing on indefinitely. So in other words if you have money in like an IRA or a 401k plan you can think of them kind of like usually as a mutual fund that are under the umbrella of say some kind of retirement plan like an IRA or 401k plan the reason you put money into an IRA or 401k plan in the first place is usually because you got a tax benefit when you put the money in and the growth of the money like dividends and interest for example also not subject to tax generally until you take the money out. So ideally you'd like to say well I'll just not take the money out I'll just leave it in there but the government doesn't like that it's a deferral they want you to take the money out at some point so when you get older they're going to require you to take the money out because they want to tax you on it when you take the money out. So when you start to take the money out they usually say how much do you have to take out well it will be dependent on actuarial tables to try to predict you know how old you will be but if you've got money in an IRA or 401k plan and you die and you leave it to somebody else well then the question is what's going to be the tax implications of it are you could you possibly defer it out longer possibly have it based on the age of the beneficiary or something like that because what you would like to be able to do is just keep on deferring that money let it keep on growing tax-free basically indefinitely obviously the government doesn't want you to do that they want you to take it out at some point in time but that's kind of like the issue or the idea that you would basically be considering with these kind of tax sheltered kind of items. So disclaimer trust and inheritance disclaimer trust along with other trusts can bring up challenges with regard to inheritance these are usually set out clearly in a grantor's will however if a will is not finalized at the time of death determining rightful errors proves much more complicated in most countries inheritance are taxed so note you want to be thinking about where you are at in terms of what are the tax implications at the point of death and in some cases it kind of makes more more sense for the inherent the person that gets the money to be taxed rather than the estate so again it depends what country you're in and what states you're in if you're in the United States in terms of are they going to apply like an estate tax because notice as as in the United States their tax the primary tax is an income tax right so as we make money you would think that you're going to be you're going to be taxed when you earn it in some countries the primary tax is going to be a sales tax meaning your tax when you buy stuff at that point in time but when you die if you have an estate tax then now you're taxing kind of like the balance sheet you're taxing what that what that individual has accumulated at basically the point of death so that seems like a little bit not lining up exactly with like an income tax if the country has an income tax but another way that you can think about it is well what if the person that received the money that would be kind of like income to them right if you got money then from from that that would be a different type of right now you got the money because you received it which would be kind of like an income or inheritance tax so you want to be aware of what are going to be the tax implications depending on where you are at because of course that will have implications on your tax planning so an inheritance tax is generally distinct from an estate tax an inheritance tax would aim to tax the heir who has received the inheritance well and a state tax would apply to the assets of the deceased estate