1. A “trust” is the legally recognized arrangement under which a trustee owns and manages trust assets for designated beneficiaries. Sometimes, we also use the word “trust” to refer to the document that creates the trust arrangement, but usually we will refer to the document as the “trust instrument”, “trust document”, “trust agreement”, or “declaration of trust”. For the purpose of this memo, those terms include any pertinent trust amendments.
  2. The terms “settlor”, “grantor”, and “trustor” are used interchangeably to refer to the person or persons who originally established the trust. “Surviving settlor” refers to the last settlor living where there are two or more settlors who created the trust. “Deceased settlor” refers to the settlor or surviving settlor whose death makes the trust irrevocable.
  3. The “trust estate” consists of all assets belonging to the trust, whether they were originally owned by the trustee, received under a contractual beneficiary designation (such as under a life insurance policy or other contract providing death benefits), or received as a distribution from the settlor’s probate estate.
  4. You are not obliged to engage us for any legal work. If you choose to engage another attorney or firm to assist you, references to “we” and “us” should be read as references to the attorney or firm you engage to advise you.
  5. In some states, this is referred to as an “Affidavit of Successor Trustee”, but the function and purpose are the same.
  6. Dividing a Trust Into Subtrusts
  7. By providing this memo, we are not accepting any duty as your legal counsel. That is done only through a formal, written engagement agreement that is signed by us.
  8. NRS 164.705 to 164.775 contains Nevada’s “Uniform Prudent Investor Act”, which provides guidelines that all trustees must follow except to the extent the trust instrument specifically provides otherwise.
  9. In legal terminology, the words “property” and “assets” are used interchangeably.
  10. NRS 163.050 and 163.060 provide some exceptions to corporate trustees, but require court permission in all other circumstances.
  11. The “net value” is the gross value of the asset less the value of any known liens or encumbrances, including mortgages and other liabilities. The inventory should reflect the net value and how it was calculated.
  12. Such as banks, savings and loan associations, credit unions, thrift companies, etc.
  13. You can apply for the tax identification number (also referred to as an employer identification number) online on the IRS web site or you can have your accountant or us apply for it on your behalf.
  14. “Principal” refers to all assets, such as a bank account, stock, car, home, and the like. “Income” refers to revenues generated from the principal includes interest, dividends, rent, royalties, and the like. Income also includes compensation for the deceased settlor’s personal services, such as salary and bonuses. Some payments may include income and principal, such as a mortgage payment.
  15. See section 5 and footnote 19 of this memo.
  16. For example, IRS Publications 559 and 950. These publications explain the duties of an executor, but, whether or not you are appointed as the executor for the settlor’s estate, a trustee may be considered the executor for federal tax purposes.
  17. Internal Revenue Code § 2010(c) provides for an “applicable exclusion”, which is the cumulative amount that can pass free of gift and/or estate tax. The applicable exclusion is$5,430,000 for 2015, $5,450,000 in 2016, and $5,490,000 in 2017. For the applicable exclusion in prior years, see Tax-Related Estate Planning.
  18. During each calendar year, each taxpayer can exclude certain gifts from the imposition of the gift tax. There is an “annual exclusion” applicable to gifts made to each donee (recipient) during each calendar year. This amount is $14,000 for gifts in 2013 through 2016 and is subject to cost of living increases. Other exclusions that have no dollar limitation include: (1) tuition you pay directly to the educational institution for someone else; (2) medical expenses you pay directly to the health-care institution for someone else; (3) gifts to your spouse; and (4) gifts to a charitable organization for its use. The “applicable exclusion” that is available for taxable transfers during life and at death will not be affected except as to gifts that exceed these exclusions. Gifts that exceed the annual exclusions and the lifetime “applicable exclusion” will trigger a gift tax.
  19. The “estate” for federal estate tax purposes includes the probate estate, plus most assets passing from the decedent by operation of law or contract, such as joint tenancy assets and life insurance. We can help you determine what assets are to be considered and whether or not an estate tax return is required.
  20. The maximum rate imposed for federal estate tax purposes is currently 40%. For the rates in prior years, see Tax-Related Estate Planning.
  21. The federal generation-skipping transfer tax (“GST tax”) is imposed at the highest rate imposed for federal estate tax purposes, which is shown in note 20. For 2011 and beyond, the GST exemption has been the same as the applicable exclusion for estate tax. (See note 17.)
  22. NRS 165.134.
  23. NRS 165.137(e).
  24. A beneficiary who is not entitled to a trustee’s account under the trust instrument is entitled to designate an accountant or an attorney as a reviewer, who will report to the probate court as to whether the beneficiary’s interest has been properly accounted for. See NRS 165.141, 165.143, and 165.145 for the procedure that applies in this situation.
  25. See NRS 165.135(4).
  26. See NRS 165.147.
  27. It is common to divide a trust into separate trusts upon the death of one spouse so that the “applicable exclusion” of the first spouse to die can be preserved. That division is explained in a separate memo, which you should request if you have not already received it. For trusts that may continue for more than one generation, it is also important to divide trusts that become irrevocable into “exempt” and “non-exempt” trusts for federal generation-skipping transfer tax purposes. Whether or not these allocations are made and maintained can make a significant difference in the amount of estate and generation-skipping transfer taxes that are imposed.