Welcome to the fun world of trust drafting! We want to set up a trust for Mary Client. Mary wants her brother, Jim, to hold her money for the benefit of her children. What can we do for her? [[nothing]] [[recommend a trust]][[really??|recommend a trust]]Yeah, let's recommend a trust. Jim can be the... [[grantor]] [[trustee]] [[beneficiary]]No! Who will be the grantor? [[Mary]] [[the children]] [[I don't know]]Good. Mary is the Grantor Jim is the trustee The children are the beneficiaries. [[continue|trustee_Jim]]No! Who will be the beneficiary? [[Mary will]] [[the children will]] [[I don't have a clue]]Yes! [[continue|trustee]]No, silly. Mary is the grantor. [[continue|trustee]]Mary is the grantor [[continue|trustee]]No. She's the Grantor. [[continue|trustee]]Yes! [[continue|trustee]]The children are the beneficiaries. [[continue|trustee]]As trustee, Jim has what type of ownership of the trust assets? [[legal]] [[equitable]] [[both]] [[neither]]Excellent! [[continue|next]][[try again|trustee_Jim]][[try again|trustee_Jim]][[try again|trustee_Jim]]Jim has legal title and the children, as beneficiaries, have equitable title to the trust assets. Which is true of the trust that we're going to create for Mary? [[It must be funded with a lot of money.]] [[It will be an implied trust.]] [[It should be irrevocable]] [[It should be in writing.]] It has to be funded with something, but not necessarily a lot of money at first. [[try again|next]]We'd rather make it an express trust to start with. [[try again|next]]Perhaps, but we don't know that yet. [[try again|next]]Yes. Trusts should be in writing. In many jurisdiction, they must be in writing. Mary, at first, says she wants to be able to control the trust assets. [[Okay, let's make a revocable trust.]] [[Mary, let's make an irrevocable trust and we'll try to give you some control.]]Which is a problem with a revocable trust? [[lack of flexibility]] [[it will be vulnerable to Mary's creditors]] [[Mary still won't have easy access to the money, so why bother with a trust?]]Okay, we're doing an irrevocable trust. This means that the trust assets are... [[Definitely outside of Mary's estate]] [[Definitely not vulnerable to MAry's creditors]] [[Definitely not an available resource for Medicaid purposes]] [[None of the above]] No. A revocable trust is very flexible. [[try again|Okay, let's make a revocable trust.]]Yes! So why bother with a revocable trust? [[disability planning]] [[Medicaid planning]] [[probate avoidance]]Mary can retain complete control if it's revocable. [[try again|Okay, let's make a revocable trust.]]Very good. A revocable trust allows the trustee to step in when the grantor is disabled. But is that any better than a regular power of attorney? [[yes]] [[no]]Nah. It doesn't really help with Medicaid planning since the money is still Mary's if it's in a revocable trust. It can be good for: [[disability planning]] [[probate avoidance]]Doesn't a Will also avoid probate? [[no, it does not]] [[yes, it does]]I disagree. Banks are usually more accepting of a trustee's power than of that of a POA holder. [[continue|join]]I agree. Banks are usually more accepting of a trustee's power than of that of a POA holder. [[continue|join]]Mary asks whether she can create the trust in her will to be effective only once she dies. [[Sure]] [[Impossible, I say. Impossible!!]]Correct! [[continue|join]]Wrong. A will does not avoid probate. In fact, a will requires probate to be relevant after death. [[continue|join]][[Incorrect|None of the above]][[Incorrect|None of the above]][[Incorrect|None of the above]]An irrevocable trust is NOT a silver bullet. Even an irrevocable trust needs work to make sure it retains various trust benefits. [[Continue|Next2]]What is one disadvantage of an irrevocable trust as opposed to a revocable one? [[Mary retains less flexibility and control over the trust assets]] [[It is worse for estate tax purposes]] [[It is worse for Medicaid purposes]] Nope. [[Try again|Next2]]Nope. [[Try again|Next2]]Correct. [[Continue|join]]It's called a Testamentary Trust. [[Continue|s]][[Uh, yeah it is|Sure]]Mary has some S corp shares she wants to put into the trust. [[Sorry, a trust can't hold S corp stock]] [[Some trusts can hold S corp stock]] [[All trusts can hold S corp stock]][[In some cases it can|Some trusts can hold S corp stock]]Various types of trusts can hold S corp shares. [[Grantor Trust]] [[Qualified Subchapter S Trust|QSST]] [[Electing Small Business Trust|ESBT]][[Wrong. Only some can.|Some trusts can hold S corp stock]]Yes! A Grantor trust is one that is treated by the Internal Revenue Code as being completely owned by the grantor. Since the Grantor is an individual, the trust is considered an individual for tax purposes and can hold S Corp stock. [[Learn about the other types|Some trusts can hold S corp stock]] [[OR, have you already seen them?|finish]]Which is NOT required of a QSST? [[All income must be distributed annually]] [[A single beneficiary]] [[The corporation treat itself as a C corp.]] The biggest downside of an ESBT as opposed to a QSST relates to... [[flexibility]] [[taxation]] [[validity under the Internal Revenue Code]]Beautiful job! See you in class 2! THE END code word for interaction credit: stethoscope That is required of a QSST. [[try again|QSST]]That's a requirement of a QSST. [[try again|QSST]]Yes. That would defeat the purpose of a QSST. [[Learn about the other types|Some trusts can hold S corp stock]] [[OR, have you already seen them?|finish]]The ESBT is actually more flexible than the QSST. [[try again|ESBT]]Correct! The ESBT is taxed at the highest marginal tax rate, which makes it inadvisable in most cases. [[Learn about the other types|Some trusts can hold S corp stock]] [[OR, have you already seen them?|finish]]No. They're both valid. [[try again|ESBT]]