Articles Posted in Trusts

Trusts are increasingly utilized in Colorado and throughout the nation. Trusts offer several benefits in estate planning and asset distribution. Trusts allow for great specificity regarding how, when, and to whom assets are distributed. Additionally, there is a wide variety of special-use trusts dedicated to particular estate planning coals, such as charitable giving or tax reduction.

However, a trust not only designates who may benefit from the funds or resources in the trust, but addresses situations of incapacity, such as strokes, dementia, or Alzheimer’s. Those at risk of such circumstances may want to consider utilizing trusts to ensure that their resources and funds are preserved, managed, and spent in a manner that conforms to their wishes while in the care of loved ones or healthcare professionals.

Contesting a Trust

Trusts are increasingly utilized in Colorado and throughout the nation. Trusts offer several benefits in estate planning and asset distribution. Trusts allow for great specificity regarding how, when, and to whom assets are distributed. Additionally, there is a wide variety of special-use trusts dedicated to particular estate planning coals, such as charitable giving or tax reduction.

However, a trust not only designates who may benefit from the funds or resources in the trust but addresses situations of incapacity, such as strokes, dementia, or Alzheimer’s. Those at risk of such circumstances may want to consider utilizing trusts to ensure that their resources and funds are preserved, managed, and spent in a manner that conforms to their wishes while in the care of loved ones or healthcare professionals.

Contesting a Trust

Similarly to a will, trusts can be contested for a number of reasons, including but not limited to a lack of testamentary capacity, undue influence, or a lack of requisite formalities. Additionally, beneficiaries may challenge a trustee’s actions for violating the terms or purpose of a trust. Many, if not all, settlors will utilize mechanisms to limit challenges, such as inserting no-contest clauses in the trust that sever a beneficiary’s interest if they unsuccessfully challenge the trust.

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Estate planning strategies and the creation of trusts are often used to protect a family’s assets from high tax burdens or other preventable attacks on an estate. The most common way for anyone seeking to control the division of their estate is by drafting a will, which mandates how the estate assets are divided. Some people instead choose to place their money into a trust that may offer additional protection for the assets in an estate. Traditionally, parents planning a bequest to their children or grandchildren might set up a trust themselves for the heirs’ benefit; however, there are alternatives to a benefactor-initiated trust that may work better for your family.

An “inheritor’s trust” is a trust that is set up by the heirs to an estate before the death of a benefactor. Using an inheritor’s trust can further help protect the assets of an estate from creditors, divorcing spouses, and high tax burdens. Unlike traditional trust instruments, which are designed from the top down, an inheritor’s trust is designed to be initiated from the bottom up. This change represents a growing movement for beneficiaries and heirs to an estate to take a more active role in managing the estate while the benefactor is still alive.

Although inheritors need not know the exact amount of their inheritance to create an inheritor’s trust, the trust still must be created with the consent of the benefactor. This could create uncomfortable conversations, as the benefactor must be alive at the time of its creation for the trust to function properly. If properly created, an inheritor trust can protect a family’s assets for generations as the trust continues to function, even as the generations pass. Anyone seeking to leave a legacy for their children or other heirs should research and ask questions about the possibility of an inheritor’s trust to manage and protect their assets most effectively.

As of 2022, Colorado features a 4.40% state income tax rate. According to the Tax Foundation, state income tax rates throughout the nation can run as high as 13.30% in California, or as low as 0% in Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, and Wyoming. Some states are known for promoting favorable asset protection laws designed to attract wealthy families and individuals from across the country and the world.

Nevada is one such state looking for innovative ways to help families and individuals protect and save their wealth. One such method and tool that Nevada has introduced is the Nevada Incomplete Non-Grantor Trust (NING). NINGs are not a one size fits all solution to addressing state income tax issues but can be highly advantageous in certain circumstances.

What is a NING?

A NING is a trust in which income is placed to be paid out to beneficiaries living in a state with no income tax or an income tax with lower rates. In order to avoid state income tax, the trust must not be categorized as a “grantor trust” under the income tax laws of the state in which the settlor resides. Further, to avoid any federal gift tax issues, trust contributions must not be treated as gifts for federal gift tax purposes. Transfers that are not gifts are often referred to as “incomplete gifts.”

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