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Best Practices in Estate Planning to Maximize Your Trust

Couple meeting with financial advisor

Trusts are a powerful estate planning tool. Unlike wills, they avoid probate and maintain privacy. They also protect assets from creditors and receive favorable tax treatment. Further, they allow you to dictate how assets will be spent. If you want to fund a grandchild’s tuition, for example, you can set up a trust that ensures your assets are handled responsibly.

Your estate planning should maximize the impact of your trust, legally minimizing taxes paid by the estate and your beneficiaries. Keep these five best practices in mind while working with your estate planning team.

1. Choose the Right Type of Trust(s)

Trusts are varied and complex. To meet your estate planning goals, you may need multiple trusts. For example, a qualified personal residence trust can remove the value of a home from your estate, which can be helpful if you expect your home value to appreciate significantly, such as a vacation house in a desirable area. Those who have been divorced and remarried may consider a qualified terminable interest property trust, which allows spouses to receive income from the trust until their passing, then transfers the remainder to beneficiaries.

A trust advisor can help you determine the right trust or trusts to maximize your assets while minimizing your estate taxes.

2. Fund Your Trust

Fund Your Trust
While funding your trust may seem like common sense, a surprising number of people don’t take this step after setting up their trusts. Once the trust documents are drawn up, your assets need to be transferred to the trust. Assets such as stocks and bonds, real estate and bank accounts not held in a retirement account need to be retitled. Personal effects should have ownership rights assigned to the trust. Accounts with beneficiaries, such as life insurance and retirement accounts, should have the beneficiary changed to the trust.

3. Draw Up a Pour-Over Will

A pour-over will is a critical part of a trust-based estate plan. Even with due diligence, some of your assets may not be named to your trust before your passing. A pour-over will states that any of your assets that have not been assigned to your trust should be transferred to your trust upon your death. While these assets will still go through probate, they will ultimately go to the people you intend, securing any assets you missed or accumulated after setting up your trust.

Without a pour-over will, your property could pass to your heirs according to state law, which may not align with your wishes.

4. Consider Gifting Assets Not in Your Trust

Consider Gifting Assets Not in Your Trust
Gifting money is an estate planning option that lowers the amount of money in your estate and releases you and the recipient from paying taxes on the gift. You can gift up to $15,000 per individual per year without paying a gift tax; however, gifts to spouses are typically not subject to gift tax, regardless of the amount.

5. Revisit Your Estate Plans Regularly

Ideally, you should revisit your estate plans at least once every few years to ensure that everything that should be in the trust is in the trust. Tax laws change frequently, and your family dynamics may change as well. Your will and other estate planning documents should reflect your wishes, and that can only happen if you regularly review your plans.

Your Partner in Estate Planning

Your Partner in Estate Planning
At Arthur State Bank, we offer a full range of trust banking services, including estate settlement and serving as trustees for trust accounts. As financial experts, we can act impartially and according to your wishes when it comes to your trust. Our trust staff has more than 30 years of experience in the trust and financial industries.

Whether you’re just beginning your estate planning, or you would like to revisit and update existing plans, we can assist you. Our team members will meet with you and any other trusted advisors, such as your accountant or estate planning attorney.

We believe in providing an extraordinary level of customer service, and we’re ready to help. Contact your local trust advisor today to learn more about our services and how we can help you transfer your wealth while minimizing tax consequences.

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AnnualCreditReport.com is the only source for free credit reports authorized by the federal government. Every 12 months, you can get a free copy of your credit report from each agency.

Your credit report has your credit history for all of your credit accounts as well as any credit inquiries and public record court information such as collections. In addition, the report provides personally identifiable information such as your name, address, and employment.

Be sure to carefully review all three reports to identify any problem areas that you may need to clean up prior to applying for a mortgage. If there is any incorrect information, follow the reporting agency’s rules to correct it or add a notation to the report to explain the situation.

Your FICO Score is a score combines data from several areas include payment history, the amount owed, length of credit history, new accounts. Many lenders use this score as a guide. This score is not provided as part of the free annual credit report.

Learn more about how your credit score impacts your ability to secure a loan.

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Primary considerations for setting your housing budget require an assessment of your income, debt and current savings for the down payment on the home. The following are generally recommended guidelines; however, you should meet with an Arthur State Bank lender to get personalized mortgage information.

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Couple meeting with lender

The pre-qualification/pre-approval letter is included with any offer you make on a house to inform the seller that you have met with a mortgage lender and you are prepared to make an offer. The letter states that based on certain assumptions, the bank is prepared to lend you up to a specified amount of money for a home mortgage.

When choosing a loan officer, we recommend going local to work with someone who understands your community’s real estate market. This blog on first-time home purchases includes questions to ask your lender that may be helpful when preparing for your meeting.

Helpful Resources:

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When a house is sold, the seller typically pays real estate commission to both the listing agent and the selling agent. It is extremely beneficial for the buyer to use their own real estate agent. Loan officers can often recommend selling agents in the area; ask your officer about realtor referrals when discussing your loan.

A good realtor will know the local market and can help you find an ideal home based on your budget, location and desired features. During your search, understand that you will most likely need to compromise on some items, so it’s important to identify your critical needs versus your wants.

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Couple searching online for a home

Additionally, when you start with the house search and work backwards, homes can often go off the market while you’re completing steps 1-4. While browsing homes immediately can be tempting, we recommend following these steps in order so that, once you find your dream home, you’ll be well-positioned to take action immediately.

When you find the home you want and you think you are ready to put an offer on it, you will want to make sure you have all the information you need to make a solid offer.

  • Evaluate the neighborhood.
  • Drive by the house at different times of the day.
  • Examine how other houses in the neighborhood are maintained.
  • Consider any potential traffic or other disruptive noise.
  • Is there ample parking for you and visitors?
  • Read the details in any Homeowner Association agreements (HOA fees and rules).

Make sure to do a preliminary check of house details:

  • Check the water:
  • Does it have good pressure?
  • How long does it take to get the water hot?
  • Is it well water or city water?
  • Turn light switches on and off.
  • Open and close doors and windows to make sure they work properly.
  • Review previous utility bill expenses.
  • Consider the property tax bill.

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Family meeting with realtor at new house

When writing an offer contract, be sure to pay attention to all of the details.

Offer Price:

Your agent should do a market analysis that pulls data on recently sold comparable houses. The best comparisons will come from the same neighborhood.

If you are asking for the seller to pay some of the closing costs, remember that this cost plus the sales commission determines the net amount you are offering the seller for the house.

Work with your agent on your negotiation strategy. There are many things to consider, such as how badly you want this particular house, whether it is a buyer’s or seller’s market and an assessment of the seller’s motivation to get the property sold.

There isn’t one best strategy.

Be sure to document in writing everything you want included with the house, such as appliances, etc. Your agent should guide you through the contract step-by-step.

Contingencies:

  • Home inspection.
  • Mortgage.
  • Final walk through (24 hours prior to closing).

Proposed closing date. Typically, this is 30-45 days from an accepted offer.

A good-faith deposit is required for the offer. This is typically between 1-10% of the purchase price of the house. The deposit is kept in escrow until closing and the money is applied to the purchase price of the house at closing. If the house does not close due to one of the contingency clauses, the buyer receives their money back. However, if the buyer decides not to close on the property, the seller may get the deposit money.

Attach your pre-approval letter to the offer.

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Two people in professional meeting

The clock starts ticking for everything documented in the contract, including mortgage application, inspections and closing date.

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Woman advising other woman on mortgage application

You will need to decide which mortgage to select prior to the application.

Plan for the following potential fees:

  • Application fee (many banks and mortgage companies charge an application fee; however, there is not an application fee at Arthur State Bank).
  • Credit check.
  • Appraisal (may be paid at closing).
  • Loan origination fee (paid at closing).

Once you have approval for your loan, make sure you don’t change anything that will impact the status of your mortgage. Banks do a final check on credit and jobs just prior to closing, so now is not the time to change jobs or make another purchase on credit such as a car or furniture.

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Home inspector going over findings with home owner

Depending on the size of the house, an inspection can cost on average between $300 to $1000.

Many real estate contracts specify how problems uncovered in the inspection will be resolved, up to a certain dollar amount. Should necessary repairs exceed that amount, the buyer has the option to cancel the contract without penalty and receive their deposit money back. Another option is for the buyer and seller to renegotiate who will pay for additional repairs.

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Woman happily holding keys to her new home
  • Homeowner’s insurance is required by the lender prior to closing on the loan.
  • Turn on utilities in your name, effective the closing date.
  • Change your address with the U.S. Postal Service.
    • Make moving arrangements.

Three days prior to closing:

  • You should receive your final Closing Disclosure from the closing agency. The final Closing Disclosure shows a column for the seller and a column for the buyer. All closing charges and credits for both the seller and the buyer are documented in the closing statement.
  • Review the closing statement for accuracy prior to coming to closing.
  • The final amount in the buyer’s column shows you the amount of money you need to pay at closing.

The closing office will provide specific payment instructions. Closing funds have become recent targets for cybercriminals. If you are asked to use a wire transfer, call the office and ask to speak to someone you have been working with to double-check the instructions.

Closing day:

In South Carolina, the closing will usually take place at the attorney’s office. Everyone signing for the mortgage must be present to sign the closing paperwork. Make sure you bring the following:

  • Cashier’s check or proof of payment for wire transfer.
  • Driver’s license.
  • Checkbook, just in case there are any additional items that were not on the closing statement.

Be sure to understand this information:

  • How and when you will pay:
  • Your mortgage.
  • Your property taxes.
  • Your homeowner’s insurance.
  • Any HOA dues.
  • Who to call with any questions.

The best practice is to go through the homebuyer’s roadmap in this sequence. However, if you jumped ahead early in your journey, just circle back to address the steps you missed.

Arthur State Bank’s loan officers are closely tapped into local real estate markets and experts at helping clients get what they need on terms that work for them. We also offer mortgage specials for first-time homebuyers.

To start planning your journey to your dream home, try out our mortgage calculator. If you’re ready to talk to a loan officer, contact Arthur State Bank to request personalized mortgage information today. Don’t forget to ask about our first-time homebuyer offer.

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