Special Will and Trust Provisions

May Help Reduce Taxation and Administrative Expenses

Special provisions are extremely effective in reducing taxation and administrative expenses. Even though they may not apply today, it would be well to discuss with your attorney the advisability of including them in new or amended documents.

It is generally advisable to direct that any life insurance policy owned by the decedent on the life of another be placed in the Non-Marital Trust in order to avoid the face amount being taxed at the spouse’s death. This would be accomplished by language directing “all policies owned by the decedent on the life of any family member will be placed in the Non-Marital Trust” as well as a paragraph “authorizing the trustee to continue the contracts and use trust income for premium payment.”

To prevent unnecessary income taxation of retirement plan death benefits, you may direct that “benefits from retirement plans be payable to the Non-Marital Trust” and authorize the Trustee “to receive benefits as a lump sum or elect installments or an annuity based on the life or lives of any beneficiary.”

Trust Agreements normally contain provisions in the Non-marital Trust for the education and special care of children. However, these funds have already been subject to taxation, and will pass to the beneficiaries without shrinkage at the spouse’s death. A clause may be inserted requiring the Trustee “to discuss with the spouse the tax savings potential of using funds from the Marital Trust or personal funds.” The effect on the spouse’s income would be identical, but ultimately taxes would be reduced.

Because retirement plan proceeds are subject to income tax and are also included in the estate, retirees may consider “spending down” these proceeds in order to avoid dual taxation.

Also discuss with your attorney the advisability of having family executors and trustees serve without bond requirements and the inclusion of a guardian financial relief clause if you have several minor children.