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Grantor Trusts Versus Non-grantor Trusts

Arrow-2085195_640When we are educating on trusts and the use of trusts in estate planning, people often get a concept confused. There is a difference between a grantor trust and a non-grantor trust. Simply stated, a grantor trust still remains in the grantor’s Social Security number, and a non-grantor trust will obtain a separate tax ID number and file separate trust tax returns. 

We will typically use grantor trusts for asset protection trusts and revocable living trusts.  

However, we often use a non-grantor trust for VA purposes as well as for estates that have a federal estate tax problem. Currently, a person has a federal estate tax problem when their estate is greater than $11.4 million and for a married couple $22.8 million. It is very rare in our practice to use non-grantor trusts, which require separate tax ID numbers and pay at higher trust tax rates, because not a lot of veterans are doing planning where they have to or want to give up complete control of their assets, and not a lot of estates are big enough to need federal estate tax planning. 

In those situations where we use grantor trusts, we intentionally put language in the trust so that is included in the person’s estate, as well as for income tax purposes. We include this language because we want to get a step-up in basis at the death of the decedent, and we also want the parent or client to pay the income taxes, because generally retired clients have a lower income tax than the children who are still working. 

There are a lot of other factors that go into what type of trust should be used and under what circumstances, but this provides a basic understanding of the difference between grantor and non-grantor trusts. If you would like to learn more about these and other trust concepts, I invite come to one of our free in-house workshops to learn. We would be more than happy to assist. Just call our office or go to our website to enroll in a workshop at a date and time which is convenient for you.

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Family Caregivers – Thank You! 🙏

Calligraphy-2658504_640Being a family caregiver is one of the most rewarding, amazing experiences that children can provide to their loved ones. I have heard time and time again from children who are able to provide caregiving how rewarding it is, particularly in cases when it keeps their loved ones out of a nursing home. 

For a number of reasons, children who provide caregiving should enter into a written caregiver agreement with their parents.

First, it is the best way to ensure that there are not mis-expectations and hurt feelings later.

Second, if done properly, it will actually provide for both VA purposes Medicaid purposes, a legitimate spend-down of resources which would otherwise go to the government, and the monies paid will not be considered a gift. Therefore, no penalty will be assessed for the money paid to the child.

The one thing to remember is for the child caregiver monies that are received will be income taxable to the child; it is very important that the child claim those monies as income on their tax return so that it clearly shows that it was not intended to be a gift later.

However, family caregiving is certainly not without its downsides to caregivers. In most cases the caregivers could make more money if they stayed in the workforce and did not leave to provide care. In a situation where they are trying to continue to work and provide care, the increased stress added to the caregivers can be detrimental their physical and/or emotional health.

There are often cases that the caregiver impacts the family, either because one child is doing the caregiving and that child feels like they’re being taken advantage of, or others feel as though that child is taken advantage of Mom and Dad because they are getting paid.

Either way, a lot of times it provides an additional stress to family members that they weren’t expecting. There are often times where a caregiver will be out-of-pocket as well for certain costs, and getting reimbursed may surely be an allowable thing under the law, but having other children understand why money is being distributed to one child versus the others is often not an easy conversation. 

There is no doubt that for those people who are able to provide care to their loved ones, care in the home it is a wonderful gift.

However, I highly recommend that everything be put in writing for all of the reasons stated above, but mostly so that there are no missed expectations among the people receiving the care, the people providing the care, and the other family members.

To those who have been able to keep their family members home, thank you for everything, all that you do is appreciated.