Newest Version of Cowles Trust Plus and Cowles TrusTerminator Released

The newest version of the Cowles Trust Plus and Cowles TrusTerminator has been released to customers. Cowles Trust Plus is checklist-based document assembly software used to create wills, revocable trusts, irrevocable trusts and special needs trusts. Cowles TrusTerminator generates correspondence and documents required to terminate a revocable trust at the time of the client's death.

Version 19.0 of Cowles Trust Plus includes:

A new module to create a qualified personal residence trust (QPRT)
Streamlined trust amendment, restatement, and will codicil creation
New trust protector provisions for the irrevocable trust modules
New appearance and enhancements to Client and Trust/Will information screens and reports
New categories of user-defined documents
Updates to state statutory forms and substantive legal help

Version 19.0 of Cowles TrusTerminator includes:

New user-defined transaction categories, to add greater detail to your trust accounting reports
A new UTC compliant certification of trust provision document
Updated IRS forms and substantive legal help.

Cowles subscribers can check out the newest enhancements in version 19.0 on Cowles Members Only by viewing the latest session in the Cowles Online Learning Program, or looking at the product announcement.

New Will Estate Organizer Binder Now Available from West

The newest addition to the Estate Organizer series in the Cowles Estates Practice System is the Will Estate Organizer Binder. This binder provides clients who utilize a will as their primary estate planning instrument a resource for understanding, organizing, storing their estate documents, as well as providing a tangible result of your estate planning work on their behalf.

The Will Estate Organizer Binder includes:

A professional, attractive, and sturdy binder
A tab set for organizing binder information
Content to help clients understand and implement their plans.

The Will Estate Organizer Binder can be ordered online or by calling 1-800-366-1730 (select option 5).

Keeping Options Open--Considerations When Drafting During a Period of Uncertainty

By Colleen Cowles

Estate planning for estates which could be subject to estate tax in the future is difficult under current circumstances. It's unlikely that Congress will allow estate tax to be repealed for one year in 2010, but it's impossible to predict what legislation will pass--in regard to 2010, and in regard to applicable exclusion amounts that will apply in 2010 and beyond. If a client's estate is well under the current $3,500,000 federal applicable exclusion amount, can we presume that their estate will be free of federal estate tax in the future? Even if a client's current estate is under the $1,000,000 amount, staying under the applicable exclusion amount to which the law will revert in 2011 under current law, if inflation increases significantly in the future, federal estate tax could become an issue. And state estate law must also be considered. So, what can be done to protect our clients, while keeping options open? Here are some options to consider:

1. Use disclaimers as part of the estate plan, to allow for levels of funding for a credit shelter to be determined upon the death of the first spouse, when asset values and current tax law can be determined. Be very wary of using mandatory funding, since it's impossible to predict the actual result of that drafting.

2. Utilize flexible drafting provisions where possible, such as trustee discretion as to whether income or principal is distributed back to the surviving spouse from the credit shelter trust. This allows flexibility at the time of funding, and minimizes issues which can arise if mandatory distributions could increase the value of surviving spouse's estates to problematic levels, or issues which could arise with trapping income in the credit shelter to be taxed at fiduciary tax rates if that is not necessary to minimize estate tax.

3. Fund an irrevocable life insurance trust to cover the cost of potential tax during this period of uncertainty, with more detailed decisions to be made when law becomes more certain. The ILIT can hold term insurance, with the policy simply allowed to lapse if it becomes clear that the estate will fall under applicable exclusion amounts after law stabilizes. Existing policies could also be transferred, and many clients don't mind if they relinquish control of life insurance. The added benefit is removing the death benefit from the taxable estate, while only the current value of the policy is used for gift tax purposes. For example, if the gift tax value of the insurance policy is $12,000 and the death benefit is $100,000, if the policy is transferred to an ILIT, the transfer uses the annual gift tax exclusion, yet removes $100,000 of death benefits from the insured's taxable estate.

Note: Determining the fair market value of an existing policy for gift tax purposes depends on the type of policy and when it was issued. Generally, for a gift of a single premium or paid up policy, the gift tax value is the cost of replacing the policy at the age of the insured on the date of the gift, adjusted for accrued dividends and outstanding indebtedness. If the policy is not paid up, the gift tax value is the interpolated terminal reserve on the date of the gift, adjusted for any premiums paid beyond this date, accrued dividends, and outstanding indebtedness. Due to the complexities of valuing existing life insurance policies for gift tax purposes, it is always best to request a Form 712, Life Insurance Statement, from the company holding the policy.

In funding the ILIT, it is essential that both the beneficiary AND ownership designation be changed to name the trustee of the ILIT. If the ownership is not changed, the donor has retained 'incidents of ownership', thereby causing inclusion of insurance benefits in the client (donor's) estate. Additionally, if ownership is not effectively transferred, greater issues occur than if the irrevocable trust had never been drafted, since the marital deduction is jeopardized. If life insurance is owned by the client-insured with the spouse as beneficiary, the marital deduction clearly applies, and delays potential estate tax until the surviving spouse's death. At a minimum, tax is delayed. More beneficially, tax may be eliminated or minimized by utilizing the surviving spouse's applicable credit amount or through a lifetime gifting program by the surviving spouse. However, the marital deduction is only available where the asset passes to the surviving spouse without restriction (with the exception of QTIP assets, which would not apply to life insurance proceeds paid to an irrevocable trust named as beneficiary). Therefore, in the case where the beneficiary of the insurance is changed to the trust but the ownership is not, the result is that proceeds are paid to the trust, are included in the decedent's estate, yet do not qualify for the marital deduction.

This issue can also arise if the decedent-insured does not survive the I.R.C. section 2035 three-year period and the policy is pulled back into the decedent's taxable estate. If policies which would be subject to the 2035 three year rule will be used to fund the trust, the ILIT may be drafted to provide for transfer back to the surviving spouse or to a marital trust if the three-year pullback occurred, thereby qualifying the proceeds for the marital deduction. Cowles Trust Plus provides a phrase option to cover this situation.

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