Upstate Estate Law, P.C. Blog

I get this question pretty frequently. The terms above refer to two very general categories of trusts.

An inter vivos trust is a trust that was created during the lifetime of its creator (the Grantor or Trustor).

A testamentary trust is set up upon the death of its creator, usually in the creator’s Last Will and Testament.

Some distinctions are that an inter vivos trust may be freely revocable and modifiable by its creator during his/her lifetime, whereas the testamentary trust is typically irrevocable, except under certain circumstances. The inter vivos trust may be set up to accomplish asset management, incapacity planning, or Medicaid planning for its creator. A testamentary trust is useful to protect the creator’s eventual beneficiaries from dissipating their inheritance through immaturity, creditors’ claims, divorce, and the like.

These two trust types probably represent the most general distinction that can be made among trusts. Make no mistake though, there are a lot of different types of trusts that can be created. In future posts, I will write more about these different types of trusts.

One night while out on the town with some friends, a friend of a friend asked me what estate planning was. I thought about the question for a moment, quickly raced through what my answer should be, and realized that there are many different ways to answer that question. Since the goals to be accomplished by estate planning can be varied, how you might define estate planning can differ.

My answer was three fold. First, estate planning arranges for the orderly transfer of assets to your heirs after your lifetime. Second, estate planning allows you to protect your heirs from the potentially detrimental effects that an inheritance can have. Third, estate planning can be utilized to protect assets from creditors and illness.

The estate planning task can also vary based on the stage of life you find yourself at. If you are at a younger stage of your life, estate planning can address issues such as guardianship for your young children, and management of your children’s finances if something were to happen to the natural parents. If you are at a later stage of life, estate planning can address transmission of retirement assets and protection of assets from medical expenses and, if the estate is large enough, from estate taxes. While we also might focus on the transmission of assets to the next generation, we also have to be concerned with the management of assets in the current generation in the case of disability or mental incapacity.

The typical estate plan is made up of several basic documents. They are the Last Will and Testament, the Durable Power of Attorney for Property, the Durable Power of Attorney for Health Care, a Living Will, and possibly a testamentary or inter vivos trust. We also must not forget that beneficiary designation forms play a large role in the estate plan, and oftentimes these important documents receive scant attention. The documents to be used in a particular estate plan depends on the individual situation.

I am often asked how much estate planning costs. My standard reply is that is a lot like walking into a car repair shop and asking how much to fix a car. The answer is it depends on what you need. You can expect a truly bare bones simple estate plan to run several hundred dollars, whereas an estate plan using one or more trusts can be several thousand dollars. Bottom line is it depends. It can seem like a significant investment, but some attorneys will give you a free consultation to discuss your situation.

I need to add a disclaimer here: unfortunately, it is impossible to offer comprehensive legal advice over the internet, no matter how well researched or written. And remember, reviewing this website and my blogs does not make you a client of my Firm: before relying on any information given on this site, please contact a legal professional to discuss your particular situation

Next up in South Carolina Estate Lawyer A to Z, is the marital estate tax deduction. This is a deduction against the estate tax, and it results in significant tax savings when utilized correctly.

The marital deduction was first introduced in 1948 with the passage of a fifty percent marital deduction applicable to non-community property. In 1977, the marital deduction was changed to be the greater of $250,000.00 or fifty percent of the decedent’s estate, still applicable only to non-community property. In the Economic Recovery Tax Act (there seems to be a lot of these Recovery Acts doesn’t there?) of 1981, the marital deduction became unlimited and it was applied equally to separate and community property. This is where we stand at present with the marital deduction.

There are seven major requirements in order for a transfer to a spouse to qualify for the marital deduction. They are set forth in IRC Section 2056 and are:

• 1. The decedent must have been legally married at the time of death.
• 2. The person to whom the decedent was legal married must survive the decedent.
• 3. The surviving spouse must be a US citizen (or the property is held in a QDOT trust).
• 4. The interest passing to the surviving spouse is includible in the decedent’s gross estate
• 5. The interest must pass to the surviving spouse.
• 6. The interest received by the surviving spouse must be a deductible interest.
• 7. The value of the interest passing to the surviving spouse must be at its net value.

The fifth requirement is one of the more interesting, as it leads to the question of what qualifies as an interest that passes to the surviving spouse. Certainly, property acquired by will, intestacy, elective share, power of appointment, or beneficiary designation qualifies as passing to the surviving spouse. But what about transfers in trust where the surviving spouse only has an interest for life? Do these qualify for the marital deduction as property passing to a surviving spouse?

The rule has existed that terminable interests in property do not qualify for the marital deduction. The reasoning behind this is that while the government is willing to defer the estate taxes owed when the first spouse passes away, the government wants some assurance that it will eventually be paid when the surviving spouse passes away (the marital deduction can be seen more as a delay in the payment of estate taxes rather than a full avoidance of the tax). Property given to the spouse that is a terminable interest would circumvent this principle. Some examples of terminable interests are run-of-the-mill life estates and interests in trusts that fail to meet certain requirements.

What are the certain requirements that could result in a marital deduction being available for a terminable trust interest? Well that would be the QTIP trust (Qualified Terminable Interest Trust), and I will talk about that some more when I get to the letter Q.

The life estate, or, an estate per autre vie, is at common law and from statute the ownership of land for the duration of a person’s life. In legal terms it is an estate in real property that ends at death, at which time there is either a “reversion” to the original owner, or an automatic conveyance to a remainderperson. The owner of a life estate is called a “life tenant”.

A life estate has its uses in estate planning. It can be used to allow the life tenant to continue to reside in a residence for the remainder of their lifetime, without easily allowing for the sale of the property by the life tenant. It is difficult to sell a life tenancy because the life tenant can only sell that which they actually own, which is the right to own a property for life. Most persons would not want to purchase such an interest in land.

A life tenancy can also potentially be utilized in medicaid planning, where a person who anticipates having expensive long term care needs in the future could simply own a life estate in their property, which is considered an exempt interest for the purposes of medicaid.

As with all estate planning techniques, the use of a life estate should occur under the supervision of an attorney. Mistakes can be costly, and while life estates have their benefits, they also have their consequences, such as a loss of control over a property, and potential disputes over the responsibility to repair, maintain, and improve a property.

I need to add a disclaimer here: unfortunately, it is impossible to offer comprehensive legal advice over the internet, no matter how well researched or written. And remember, reviewing this website and my blogs doesn’t make you a client of my Firm. The rules regarding retirement accounts do change, are highly fact specific, and errors can be extremely costly. Before relying on any information given on this site, please contact a legal professional to discuss your particular situation.

Installment H of Estate Lawyer A to Z is HEIRS. What is an heir? Most people think that an heir is somebody that will inherit your property after your lifetime. This is sometimes true, but sometimes it is not true. The term HEIR is defined by South Carolina Code Section 62-1-201(17) as being “those persons, including the surviving spouse, who are entitled under the statute of intestate succession to the property of the decedent.” The SC Code drafters were not being very original inasmuch as Blacks Law Dictionary, Seventh Edition, defines an heir as “[a] person who, under the laws of intestacy, is entitled to receive an intestate decedent’s property.”

So it seems that in order to know what an heir is we need to know what intestacy and an intestate decedent is. Intestacy is simply the default inheritance scheme that takes effect when a person dies without a Last Will and Testament. An intestate decedent is a person who dies without leaving a Last Will.

So what is an HEIR? An heir is a person who is entitled, by default, to a decedent’s property when the decedent leaves no Last Will. So which of our family members are our heirs? I will discuss this in my next post where I will discuss INTESTACY in more detail.

There are actually different types of heirs depending on the circumstances. One type is the forced heir … a person who you are forced to leave an inheirtance to, such as your surviving spouse. Another type is the after born heir … a person who is entitled to receive an inheritance despite having been born after the death of the decedent. Another type is referred to as the laughing heir … a person who is distant enough on the family tree from the decedent to feel no grief when the decedent passes away leaving a windfall to the heir.

So, in what situation does an heir not inherit a decedent’s property? This occurs of course when the decedent leaves behind a Last Will that directs that a person other than an heir is to receive the inheritance.

I need to add a disclaimer here: unfortunately, it is impossible to offer comprehensive legal advice over the internet, no matter how well researched or written. And remember, reviewing this website and my blogs doesn’t make you a client of my Firm: before relying on any information given on this site, please contact a legal professional to discuss your particular situation.