The law firm of Boodle Hatfield, with offices in central London and Oxford, is warning UK nationals living and working in the US that they are leaving themselves open to potential UK 20% tax liability by adopting a living trust in the United States.  They warn, also, that even US nationals may be subject to the UK tax regime in some circumstances.

Apparently, a 2006 Finance Act in the UK introduced an automatic 20 per cent charge on the creation of a lifetime trust, with periodic charges to UK inheritance tax every 10 years and exit charges when assets leave the trust.  According to the Broodle Hatfield article, there are few exceptions to the 20% tax.

We bring this to your attention because, in recent years, there has been a significant increase in the number of UK nationals residing and working in the US, and many of them may have gone so far as to create a living trust in the US as part of their overall estate planning.  Likewise, many US citizens may now be working in the UK and may unknowingly be subject to this new 20% tax even though they remain US citizens.

For those who may be subject to these new taxes in the UK, we urge you to read the article by Broodle Hatfield, which you can find here.  We also urge you to consult with legal counsel to determine the extent of your exposure to this new tax.

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A new type of trust now allows your IRA monies to be paid out to your children and other heirs over their lifetime while protecting it from spendthrifts, creditors and even divorce.

In a 2005 private letter ruling ("PLR"), the IRS approved this new type of trust, which is created solely to serve as the beneficiary of an IRA account (although it may apply also to a Roth-IRA, a 401(k), and a 403(b)).  As a result of this private letter ruling, anyone with substantial assets in an IRA can now insure that their beneficiaries will be able to "stretch-out" the payment of those monies over their lifetime, thereby allowing those monies to grow inside the account without being taxed.  A further - and no less significant - benefit of this type of trust is that the monies remaining in the account will be protected from creditors, divorce, and even the spendthrift ways of the beneficiaries.

It should be noted, too, that a private letter ruling can not be used as precedent by anyone other than the person who requested the ruling.  However, the quidelines provided by the IRS in the private letter ruling clearly state the IRS' position regarding this type of trust arrangement.

This new type of trust is called by several different names, including an IRA Inheritance Trust, an IRA Stretch Trust, an IRA Protection Trust, an IRA Stretch and Protection Trust, an IRA Trust, and an IRA Standalone Trust - to name just a few. 

To read more about the pros and cons of this new type of trust, I'd recommend doing a google search for now.  There is quite a bit of general information on the internet, but no real in depth analysis at this time.  We'll keep our eyes open and report back when we have more information on this new type of trust, including specimen forms.  In the meantime, if you think that an IRA Stetch and Protection Trust might be helpful in your estate planning or if you have some information that might be helpful to our readers, please leave a comment below.

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We have obtained a copy of Ted Kennedy's last will and testament, and you can view the entire document right here!

It is interesting to note that Kennedy's will gives "all my property, of whatever kind and wherever located, that I own at my death" to the trustees of his living trust; i.e., the "Edward M. Kennedy 2006 Trust established earlier this day by me, as Donor, with myself and Paul G. Kirk, Jr., of Marstons Mills, Massachusetts, as trustees (my "2006 Trust")."

In so doing, Kennedy's will reveals a classic estate plan in which a "pour-over" will is used in conjunction with a living trust to accomplish a number of objectives.  First, his will doesn't spell out who gets his property.  Instead, it simply gives any property passing under his will to his living trust, which contains all the details as to who gets what property and when.  Since his living trust is a private document, it's unlikely that we'll ever know what his trust says.  Remember, a last will and testament is a public document whereas a living trust is completely private.

Second, although we  can only speculate on this, it's highly likely that Kennedy actually transferred the bulk of his property to this living trust before he died.  Why?  Because any assets actually in the living trust prior to his death will avoid probate.  Avoiding probate means that the assets will be available to the beneficiaries without having to wait for probate to be completed, although distribution will be subject to the terms of the trust instrument.  It also means that certain costs and expenses of probate may be avoided.  But, it also means that the administration of Kennedy's estate will be mainly conducted in private by the trustee and not in public by the executor of his estate, although the executor of his estate will still have to file tax returns and complete certain other probate functions.

If we assume that Ted Kennedy transferred his assets to his living trust during his lifetime, then why would he bother to create a will?  The answer is twofold:  First, it's unlikely that he was able to transfer all of his property during his lifetime.  Most people forget a savings account or an investment asset of some kind; or they just don't get around to transferring certain assets.  A last will and testament picks up those assets and pours them over to the living trust.  That's why a will used in conjunction with a living trust is called a "pour-over" will.

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We are happy to announce that Glen "Chip" Dahlke has returned to the Living Trust Network as a Senior Contributor. 

As many of you know, Chip was actively involved in the Living Trust Network from its inception in 2006, contributing many insightful tips and commentaries on personal finances, including the investment of assets in living trusts and qualified retirement plans.  Many of his articles continue to be published on our web site to this day.

Now, after a brief hiatus attending to his 110-acre farm in Lyme, Connecticut, his wife's "Ashlawn Farm Coffee" business, and his own investment business known as "Dahlke Financial Group," Chip is back as our Senior Contributor.

Look for Chip's articles here at the Living Trust Network on a regular basis.  For those who wish to receive notice of Chip's new articles as they are published, an RSS feed will be available.  Chip's first new article, entitled "Investing For The Rest of Us: Charting a course for the future," is now featured on our homepage.  Please take a look!

And, that's not all.   In the past, Chip was a popular member of our forum discussions, and he's back in that capacity as well.  Chip's colorful and insightful discussions about the investment of trust assets is sure to be a highlight of future forum topics.  If you want to be notified of future forum topics, including those that Chip may be participating in, please leave a comment below.

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There was a time when the IRS insisted that the annual gift-tax exclusion (currently $13,000) would not apply to gifts made directly from a revocable living trust.  The theory was that the annual gift-tax exclusion was available only to individuals, and a trust was not an individual.

As a result, many professionals advised their clients to take the property back from their revocable living trust before gifting it to the intended beneficiary, thereby insuring that the annual gift-tax exclusion would apply to the gift.

Some people would question why it would make a difference one way or the other, since the unified credit would shelter the gift from gift taxes in any event.  For many people, that's true.  However, for those individuals with large estates, once the current unified credit against gift taxes has been exhausted (currently $1 million), the loss of each annual gift-tax exclusion represented a potential tax of roughly 45% of the value of the gift.

Even if the unified credit against gift taxes is not exhausted during the grantor's lifetime, if the gift was made within three years of the grantor's death, the IRS insisted that the value of the gift be brought back into the grantor's estate for estate tax purposes.  At that time, the value of the gift was included with all other assets of the grantor and taxed at the appropriate estate tax rate.

Fortunately, the Taxpayer Relief Act of 1997 changed all that.  It added Section 2035(e) of the Internal Revenue Code, which stated that transfers from a revocable living trust are deemed to be transfers made directly by the grantor.  Just to clarify, a grantor trust is a livng trust whereby the grantor retains the right to amend or revoke the trust; i.e., a revocable living trust.

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We've recognized for some time that our "Ask the Experts" forum needs some kind of a kick-start to get it going.  Everyone says that it's very difficult - and a lot of work - to create an active forum.  We're finding that to be very true.

We do know, however, that people have lots of questions about wills and trusts and probate - and we also know that people will chit chat away on a forum once they become accustomed to using it.  People actually enjoy reading posts and even making their own posts once they get started.  Besides being educational, forums are also quite entertaining.

So, we've been at work sprucing up the forums so that they're more user-friendly and more attractive visually.  You'll notice that we've added a number of features that do this - for example, we've added the ability to spotlight certain posts and to add avatars, smilies, and other images.  We've also added advertisements between some of the posts.  Believe it or not, the ads do add visual appeal to the forums because they break up the text.

Now, we're going to introduce a competition to get people to actually do some posting.  For the remainder of the year, we're going to offer prizes to 10 people who make the most posts during that period.  We don't know yet what the prize will be, one suggestion is Sarah Palin's book that will be released on the 17th of this month.  That's a possibility, but we may have a couple of different books that the winners can choose from.  So, if you've been holding back, this exciting offer should be enough to get you going.

Oh, by the way!  Every forum has a problem with spammers ruining everything with their pornographic and generally distasteful posts.  The only way to effectively eliminate that type of activitiy is to require that you register before you post.  Registering means simply giving your name and email address so that we know who you are.  You can register by using the Facebook Connect button if you have a facebook account, or you can register in the old fashioned way by clicking on the register button.  Either way, its free and easy.

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