Whether you got a pay raise or a retiree cost of living adjustment, the value of your estate is about to increase. Inflation willing!
Most people who make it to federal retirement age have acquired/earned a great benefit package. Plus an annuity for life, along with a good if not Wall Street type record of lifetime earnings. But because of the nature of the job, many civil servants don’t think in terms of an “estate” even if they own a house, and have a for-life-plus inflation-indexed monthly retirement/survivor benefit. And a Thrift Savings Plan account. But think again.
The numbers don’t lie. The largest concentration of federal employees nationwide is in Grade 12. With the 2022 pay raise, the pay range of GS-12 employees in the Washington, D.C. metro area (301,906 people) will range from$89,834 for beginners to $113,000-plus for those at the top of the grade. And that figure would be higher except for the pay cap on civil service salaries. The most populous civil service grade, by a lot, is GS-12. In the metro Washington-Baltimore area and many other cities the pay is higher. An employee starting at or just promoted to GS-12 step 1 in Los Angeles-Long Beach will start at $91,254 next week.
With good pay, maybe a house, insurance, a retirement plan and a Thrift Savings Plan, many feds are better off than they thought. And they may need to readjust their thinking about things like do I have an estate? And if so, what’s the plan? Download a will off the internet and forget about it? Or do nothing and let the courts — eventually — decide? Meantime, your surviving spouse and children may be at each other’s throats because they know what you really intended!
So we asked D.C. area attorney Tom O’Rourke to join us today on Your Turn. That’s 10 a.m. EDT streaming here or on the radio at 1500 AM in the D.C. area. If you miss the show, it will be archived on our home page. And if you have a question for Tom, an estate/tax specialist and former IRS employee, send them to me before show time at firstname.lastname@example.org.
To bring you up to speed on what today’s show is about, and what an “estate” means, Tom has written this introduction. Check it out and listen if you can. And tell a fellow estate holder to listen too.
A revocable trust is a tool used in many estate plans. It is sometimes referred to as a living trust or a revocable living trust. All of these terms refer to a trust that becomes effective during the life of the person establishing it, and that can be revoked or changed at any time while the trust creator is alive and competent.
Trusts are often thought of as tools for the rich, but are frequently used by individuals with more modest assets. All trusts are vehicles for managing and distributing property or assets. A trust can be used to accomplish any legally permissible goal.
All trusts have three parties:
The grantor (also sometimes referred to as the settlor or trustor) is the person who establishes the trust and specifies how assets in the trust are to be held, managed, and distributed.
The trustee is the person or entity who manages assets held in the trust.
The beneficiary (ies) is/are the person/persons for whom trust property is managed.
As typically used, an individual establishes a trust while he/she is alive. This individual is the grantor, the trustee, and the beneficiary while he/she is alive. Following the death of the grantor, a successor trustee is named and given instructions as to how to manage and distribute trust property. Frequently, a trustee is instructed to distribute property among beneficiaries. The trust may, however, continue in existence and be managed for the benefit of one or more beneficiaries.
A revocable trust has two advantages over a will. It can be used as a vehicle for managing the assets of the grantor if the grantor becomes incapacitated. It also can avoid probate following the death of the grantor. These goals can only be accomplished if the trust is funded. Assets must be titled in the name of the trust. Establishing a trust, but not funding it, is a waste of time and money.
While establishing a revocable trust can be a most useful tool, there are certain goals it cannot accomplish:
It does not reduce either your income or estate tax liability. A revocable trust is generally not a separate taxable entity. The trust uses the grantor’s social security number as its tax I.D. number while the grantor is alive. Following the death of the grantor, a revocable trust become irrevocable and must then obtain its own tax I.D. number. Any assets held in the trust are included in the grantor’s taxable estate.
A revocable trust does not protect assets from any creditors of the grantor.
Assets held in a revocable trust are treated as belonging to the grantor in determining the grantor’s Medicaid eligibility.
A revocable trust only controls those assets titled in the name of the trust.
A revocable trust does not have any impact on assets held in joint names or that are governed by a beneficiary designation.