The Premier Plan II
Life Estate Trust

OVERVIEW

This Plan is aimed at the majority of middle class America families that have small to medium sized estates. It is an ideal program for families whose estate we expect to be under the $600,000/1,200,000 estate and gift tax exemption amounts, or for families where estate tax planning will be taken care of down the road. This program is a direct competitor of and a plug-in replacement for living trusts, though it is greatly superior to a living trust.

ADVANTAGES OVER LIVING TRUSTS

The Premier Plan II, Life Estate Trust is an irrevocable trust that delivers everything a living trust does. Generally, living trusts offer:

• Probate avoidance
• Prevention of outsider spouses from taking over estate property after the death of the first spouse
• Management and caretaking of the estate should the grantors become incapacitated
• Preservation of both $600,000 estate tax exemptions of a grantor married couple (A-B provision in a living trust).

The Premier Plan II, Life Estate Trust does all that, plus it provides the following:

• Asset protection from lawsuits, liens, judgments and claims of future spouses.
• Financial privacy.
• An opportunity to build a new credit history, inside the trust.
• Simple upgradeability for estates that may, later on, need estate and gift tax planning.
• Better control and planning of the distribution of the estate to the heirs of the grantors (including divorce planning).

STRUCTURE/CONTENTS

The Premier Plan II Life Estate Trust functions exactly like the B portion of a living trust, which is the portion created upon the death of the first spouse. However, the Premier II Life Estate Trust is much more protective of your property than the B portion of the living trust. The Premier Plan II, Life Estate Trust actually consists of three trusts, a Primary and two Holding Trusts (see the illustration above). One of the Holding Trusts is intended to hold the family home, and the other is intended to own all family vehicles. The Primary Trust is used to hold financial assets such as bank, savings, and investment accounts. In addition, the Primary Trust is the controlling entity of the Holding Trusts. These three classes of assets - home, vehicles, and financial property - comprise the total estate of a large number of middle class Americans. Therefore, these three trusts will take care of the assets of most families. If the family has more property, or owns a business, other Holding Trusts and/or a business entity can be added.

The grantors retain a life estate in all property, and are therefore the primary beneficiaries. They name their heirs as secondary beneficiaries, who take over the property after the grantors are deceased.

TRUSTEE ARRANGEMENTS

Each trust must have a different trustee, and the trustees must be independent of and not closely related to the grantors. (The grantors may appoint a close relative, friend or advisor to the role of co-trustee. When a co-trustee is used, all major trust transactions require the signatures of both the independent trustee and the co-trustee.) Since many grantors won't know three qualified, independent trustees, the simplest arrangement is to use three NAFEP corporate trustees, possibly with one co-trustee serving alongside in all three trusts. The annual fee for usage of three of the corporate trustees is only $50.00.

Clients can pick any combination of their children (over age 21) to serve as trustees if the children are beneficiaries. If children are used as trustees there should still be a different one, or different group of them, over each trust. Use of children as trustees will compromise privacy, though, and that is always an extremely important aspect of overall asset protection planning. Furthermore, when the trustee is a family member, they can be subjected to a lot of family hassles and outright liability. So the best choice usually is for corporate trustees.

The trustee(s) can be fired by the grantors for a wide variety of reasons. Asset protection will remain in place as long as the grantors replace the trustee(s) with another independent trustee.

ASSET PROTECTION

Since all three trusts are a type of irrevocable trust, and all three have independent trustees, each one is treated as an independent entity by the American legal system. Each trust is much like a corporation in its independent, legal status. This makes each one a separate owner, and the assets in each trust are owned by a different entity than the ownership of the assets in the other trusts. In other words, family automobiles have a different owner than the family home does. If something causes one trust to be sued, such as an auto accident in the automobile Holding Trust, the plaintiff has no cause of action or case against the other two trusts. The other two are independent of, and unrelated to the automobile trust. In this example, the plaintiffs could only get the automobile, and any related insurance settlement. They could not reach the house or the financial assets.

If someone sues the grantor directly, any resulting judgment cannot be applied to trust assets. The asset ownership is independent of the grantor. Going after the trusts, in this case, would be the equivalent of going after the grantor's neighbors because of a judgment against the grantor. Legally speaking, the grantor's heirs own the property in the trusts (though the Grantor has lifetime rights of usage). That is why the courts will not allow a claimant against the grantor to attach trust assets.

Another major factor in asset protection is the privacy involved. Once the property is placed in the trusts, it is titled in the trusts' name. Routine snooping by outsiders will not reveal any property ownership by the grantors. In addition, it will be very expensive for outsiders to ever find out what the grantors do own (which is nothing!). The sheer cost and complexity of finding this out will discourage a large number of legal attacks from getting off the ground.

LIFE ESTATE PROVISION

The Premier II Life Estate Trust is created with a hybrid, or enhanced, life estate provision. The grantors retain a life estate in all property placed in any of the three trusts. But, the life estate concept is substantially improved over the non-trust life estate. The non-trust life estate allows the grantors to have the use of their property, or to have the income that any of the property produces.

The Life Estate Trust adds these extra provisions:

1. Greatly increased asset protection (over life estates outside the Plan) through the use of special trust provisions called "discretionary " and "spendthrift" clauses.
2. The grantors right to require any piece of property to be sold, and to direct the re-investment of the proceeds. For example, the grantors could require the sale of the family home, and the purchase of any other home, which may be smaller, larger, older, newer, etc.
3. The right to change beneficiaries in any way (one time only) while both grantors are alive.
4. Automatic inclusion as an equal beneficiary of any future children that come into the family.
5. Automatic inclusion as a beneficiary for any future children of the surviving spouse for that spouse's share of the property interests.
6. Optional provisions to divide trust property into half, placing each half in a new and separate trust plan, in the eventuality of a divorce between the grantors.
7. Prevention of a future spouse, after the death of the first spouse, from claiming an interest in the life estate.
8. An A-B trust provision that functions to preserve both $600,000.00 estate tax exemptions when the grantors are a married couple.

Irrevocability is a permanent protection for the grantors and their family. It is only a problem for outsiders, not the family. The Premier II Life Estate Trust can be revoked if the secondary beneficiaries (usually the children of the grantors) and the grantors provide a simple, written request or approval of it to the trustee. However, since the Grantors have the complete use and benefit of the property at all times, there really isn't any reason to ever dissolve the trust. The heirs will get whatever property distribution and usage that the Grantors decided on, just as with a living trust. In fact, a life estate, irrevocable trust is exactly what a surviving spouse ends up with in the "B" trust of an A-B living trust. Tens of thousands of A-B living trusts are created by estate planning attorneys every year, so the life estate "B" trust must be a good device. Except, why wait until one spouse dies to get asset protection, privacy, etc? Why not start with a life estate trust to begin with?

All tax activities remain essentially the same for the grantors. Any trust income will be reported on the grantors' tax return. Any capital gains will accrue to the grantors, to be reported on their return. The Life Estate Trust does not need a Federal Tax ID number unless income is earned by it. If income is earned in the trust, the trust must get an ID number and file a "zeroed" tax return each year. The trust pays no taxes since all income and gains are taxed on the grantors' return. The Federal Tax ID number does allow financial accounts to be setup under the trust's ID number instead of the grantor's social security number. This increases financial privacy for the grantors.

The grantors retain their once per lifetime capital gains exemption of $125,000 on the sale of their primary residence (after age 55). They retain their two year capital gains roll over privilege on any sale of their primary residence. And, they can continue to deduct the mortgage interest they pay on their homes.

All of the gift and estate tax issues work exactly the same as they do in an A-B living trust. The Life Estate Trust is functionally the same device as a living trust, for purposes of estate tax planning. There are no gift taxes due as a result of transferring property to the trust. When the first grantor dies, his or her property interests are transferred to a "B" trust, if necessary, to preserve the decedent's $600,000 gift and estate tax exemption.

The surviving spouse still gets to use this "B" share of the assets because his or her life estate interest is still in effect on all the property.

Grantors automatically are in complete control of the property's usage due to their life estate. Trustee signatures are required when property is sold, but the trustee has no option in executing the sale. The independent trustee role is mostly a figurehead position during the grantors' lives. Grantors may release any part of their life estate interest at any time in the future, in a very simple procedure. This allows future estate tax planning in estates that become too large for estate tax purposes (which cannot be done with a living trust). There is minimal paperwork upon trust setup and during trust operation. Overall, trust setup and administration are very similar to that of a living trust.

In a non-NAFEP life estate program, the grantors cannot consume the principal in the estate. They can only consume the interest or income, though they do have the use of the property. With the Premier II Life Estate Trust, the grantors can consume principal, too. They may consume principal either by permission from the trustee, who can distribute principal to them at his discretion, or by getting a simple written request or approval from the secondary beneficiaries (usually their children).

Also included with the Premier II Life Estate Trust are the following, standard estate planning instruments: Pour Over Will, Durable Power Of Attorney, Medical Power Of Attorney, Advanced Medical Directive (formerly known as a living will), and Guardianship Appointments For Minor Children.

The total cost to the client for the system is as little as $1,995.00, which includes pre and post consulting needs of the client, and includes all attorney's fees. The program is furnished to the client in a deluxe, leather like binder and includes a comprehensive setup and owner's guide.

FURTHER INTEREST?
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