• GRATs and GRUTs: Shifting assets within the family
• Safekeeping of Your Will or Trust
• What is your Investment Risk Tolerance?
• Myths About Trusts
• Consider a Private (family) Foundation
• Trusts for Children
• Family Fairness: Ensuring a Legacy of Harmony
• Pets: Considering an Estate Plan
• Creating and Preserving Wealth
• Tax Saving Charitable Trusts
• Special Needs Planning

Let us imagine that among your assets you have $3 million in securities that you plan to leave to your children—securities that are likely to shoot up in value during the next decade. It is better to give the assets to the kids now, because all further growth in value avoids potential estate and gift taxes. Two problems present themselves. First, there's a very real gift tax cost for a $3 million gift—at least several hundred thousand dollars, and more if you've already used up a portion of your estate and gift tax credit. Second, you may not be ready to part with the assets; you may want the income, or at least some of it.

The solution: Naming Idaho Trust National Bank as Trustee and setting up a Grantor Retained Annuity Trust (GRAT) or a Grantor Retained Unitrust (GRUT).

How the trusts work

In a nutshell, you transfer the $3 million to an irrevocable trust to last for a specific time period, say ten years. You receive an annual income from the trust, and after ten years the assets pass to your beneficiaries.

There are two ways to define your retained income interest. In most cases the income is set at a fixed dollar amount, or a fixed percentage of the initial value of the trust. This is an annuity, putting the "A" in GRAT. Alternatively, the income interest may be a fixed percentage of the value of the trust, recomputed each year. This is called a "unitrust" income interest, and it puts the "U" in GRUT.

A unitrust income interest can grow over time as the value of the trust grows. However, this fights against the primary objective of the trust: transferring the largest amount to beneficiaries at the lowest possible tax cost. That is why GRATs usually are preferred to GRUTs.

Because the trust is irrevocable, at the moment that it is created, a taxable gift has been made to the beneficiaries. However, the taxable value of the gift is reduced to reflect the value of the income interest retained by the grantor. The longer the trust lasts, and the higher the retained income interest, the lower will be the taxable value of the gift.

Downsides

GRATs and GRUTs are not for everybody, nor are they suitable for every type of asset. A few of the negatives to keep in mind:

• The grantor loses control over trust assets, including control over buy and sell decisions.
• Because these trusts are grantor trusts for income tax purposes, all the trust income will be taxable to the grantor, whether or not it is distributed. For this reason such trusts are normally invested for capital appreciation rather than income, to reduce current taxation.
• Should the donor die before the expiration of the term of the trust, the full value of the assets will be included in his or her taxable estate. Therefore, this type of plan is more likely to succeed for younger donors with a longer life expectancy.
• GRATs and GRUTs are not good tools for dealing with the generation-skipping transfer tax. Gifts to grandchildren probably should be taken care of separately.

Looking longer term

When the grantor's income interest ends, the trust assets may be distributed to the designated family members. Alternatively, the assets may be held in further trusts for their benefit. Careful trust drafting is needed to ensure that the successor trusts will not be included in the grantor's estate.

The GRAT and the GRUT are good tax-saving tools. They can be used to help shape an overall estate plan, putting part of the plan into effect during life, and keeping down the total transfer taxes imposed on the family. Idaho Trust would like to serve as Trustee of your GRAT or GRUT. Feel free to call us at 208-373-6500 or toll free 800-549-3333. There is never a fee to speak with us or to meet with us and discuss a possible case.

At Idaho Trust we recommend you make a complete inventory of what you own and decide how to divide your assets among your loved ones once you pass away.

Idaho Trust can then assist you in coordinating a meeting with your advisers—attorney, accountant, trust officer and insurance agent to formalize your plans.

You should review your estate plan regularly, keeping up with changes in family circumstances, personal finances and the tax laws. You will need to revise your plan from time to time. When revising your estate plan, be sure to take the time to cover all issues and areas carefully since things can easily be overlooked.

Despite your clear intentions and careful planning, your family could still wind up spending a great deal of time and money trying to see that your wishes are carried out—unless you take two simple, but very important, steps.

The first step is to provide for the safekeeping of your will or trust.

At Idaho Trust, we recommend you keep your original will or trust in a safe deposit box. Use a document locator (we will discuss this later in this article) to indicate where the safe deposit box is located, the location of the key to the box and all eligible signers.

When Idaho Trust is named as executor or trustee, we encourage clients to include a copy of the document locator in their file along with a copy of their will or trust. Having this information on file is extremely helpful and has proven to be a huge time saver.

The second step is creating a document locator

Create a document locator. A document locator is a detailed list that gives your family access to all the information necessary to see that your estate plan is carried out. The locator should include the names, addresses and phone numbers of all the important financial players in your life. You also want to include information about your debts, credit card issuers, card numbers, mortgage information, auto and other loans.

Be sure to specify the location of your will and other important documents (tax returns, Social Security information, business agreements . . . estate deeds). Note where your safe deposit box is and who has access to it. Provide an inventory of its contents.

Give directions to where you keep your investment records, with names and addresses of all the financial institutions with which you have savings, checking or investment accounts.

This kind of information should be particularly detailed. You should spell out the type of investments that you hold, the account numbers, the names on the account, and the dates on which the accounts were opened. It is particularly important to specify where you keep the account statements, passbooks and securities certificates.

The document locator is also the place to indicate who has spare keys to the house or car. Be sure to include a reminder to your survivors to call your employer so that the benefits department can get the proper paperwork started.

You also may want to attach a letter to the document locator specifying your wishes as to funeral and burial arrangements.

Be sure that you have made multiple copies of your document locator. A copy should be given to your executor, hopefully Idaho Trust, and appropriate family members. You may want to keep one in your safe deposit box as well.

Finally, remember to update the document locator once a year or on an as needed basis to ensure its accuracy.

If you are already an Idaho Trust client, we encourage you to set up an appointment to update your records and add a document locator to your Idaho Trust file. You can reach us at 800-549-3333 or 373-6500.

Mention the word "risk" in the context of a discussion about investing, and what springs to most people's minds? A huge loss when the stock market takes a dive? Or when the price of bonds tumbles?

Most likely. Such possibilities lead some people to cling to the "safety" of passbook accounts or certificates of deposit, failing to recognize that risks are inherent in this kind of savings, too.

Inflation risk

We all think we know what inflation is. It's going to the store and buying the same loaf of bread that you did a few weeks ago, and finding that it costs more. It's discovering that your kids' college education will cost ten times what yours did. It's realizing that what you have to spend buys less than you think it will.

A sneaky thing about inflation is that you're usually comparing these "inflated" purchases in short time periods—weeks or months. It's when you look at years of inflation that you begin to understand fully how damaging it can be to what you've earned and saved over the years.

A return on your investments that doesn't at least match inflation means that you're not saving, you're losing. Only if your investment return surpasses inflation can you expect to be truly gaining ground.

Market risks

The history of the financial markets suggests that investments in stocks are most likely to beat inflation over time. That's one reason that so much new investment has been pouring into equity mutual funds in recent years.

Yet, if there is one thing that the market reverses of the recent past have taught us, it is this: Investors can't take stocks for granted.

Interest-rate risks

Bonds, especially longer-term bonds, generally offer investors a yield that is superior to short-term investments such as savings accounts. The return from a bond portfolio or bond mutual fund is generally more predictable than stock returns. However, if interest rates should rise, the value of the bonds will fall, which can lead to a loss of principal.

Managing risk

Just because an investment bears risk doesn't mean that you need to spend sleepless nights worrying about your financial future. Rather, you need to manage risk in a manner that brings you peace of mind.

The first step in that process is determining how much risk you can live with—and stick with. Then look at what you can do to reduce your risk. Consider these factors:

Age. The younger you are, the more risk you should be willing to take. Time is your ally. Because, over the long term, stocks have consistently outperformed any other kind of investment, younger investors can afford more exposure to stocks. They have more time to make up for short-term setbacks.

Other investments. Look at your current mix before deciding what to do next. Having too much money in any one kind of investment can be dangerous. Diversifying your investments—creating a mix of stocks, bonds and cash investments—reduces risk. At Idaho Trust we employ a three-tier diversification strategy to control risk and enhance returns. This time tested approach is at the heart of all of our investment relationships.

Knowledge. Do you follow the markets? Do you read The Wall Street Journal regularly? Or do you find the subject of investing confusing or boring? Obviously, the more that you understand, the more confident you are going to feel about investing. With confidence comes a higher comfort level for taking risks. It also increases the likelihood that you'll make the right choices. Idaho Trust can add to your knowledge and confidence as we partner with you to develop and implement your investment plan.

Attitude. Some people might say that they are satisfied if their investments just keep pace with inflation. Others would gladly accept significant risk for the chance to reap big returns. Where do you fall within the spectrum?

Once you understand your tolerance for risk and the ways to reduce risk, you'll want to evaluate your investment choices. You should do so by carefully balancing each investment's potential risk and reward.

At Idaho Trust we have you complete an Investment Questionnaire. This is an effective tool to determine your attitudes, goals, objectives and tolerance for risk. Once completed, our investment experts will analyze your responses then provide you with a complimentary analysis.

Remember the tortoise and the hare

The general rule about extremes applies to investing: Avoid taking too aggressive or too conservative an approach.

For most people a slow-but-steady pace with regard to investing is best, both in terms of a sense of security and potential financial reward.

Take action

Call us toll free 800-549-3333 or 208-373-6500 to receive a free Investment Questionnaire. After filling out the Investment Questionnaire, Idaho Trust can identify the types of investments and proper allocation for them to meet your risk tolerance while still achieving your goals and objectives. This free questionnaire is a great tool and it is offered at no cost or obligation. We look forward to hearing from you.

Trusts are a dependable way to arrange for the management of family funds. Yet even financially sophisticated people settle for less satisfactory alternatives. Lack of knowledge isn't the problem. It's the assorted myths about trusts handed down over the years.

Myth #1. Only the very rich use trusts.

Because what the superrich do is by definition "news," media reports inadvertently encourage the misconception that trusts are only for the very rich. The fact is, the great majority of people who set up trusts are affluent, not superwealthy. Typically, they are people who seek sound financial management for money received from the sale of property or a business, for invested funds built up over their lifetimes, for inheritances or life insurance proceeds, or for payouts from pension plans.

Myth #2. Trusts are arrangements made for heirs, not for yourself.

Although some trusts continue to be created by will, today many men and women create living trusts. A living trust is simply a trust that a person sets up during his or her lifetime, and typically the creator of the trust is also the primary beneficiary. (Look at it this way: Eager though you may be to provide financial support for your family, shouldn't you start by providing it for yourself?)

Agewise, a person who sets up a living trust usually turns out to be somewhere between 45 and 65.

Myth #3. When you put funds in trust, it's like locking up your money and throwing away the key.

Fact: A trust fund can be as accessible or as "locked up" as you care to make it. If you're setting up a trust primarily for your own benefit, you'll want everything accessible. You may also want to give your spouse or child access to trust assets.

Sometimes, though, it's desirable to impose certain controls. For instance, when widows or widowers with children remarry, and set up trusts for themselves and their new spouse, often they "lock things up" just enough to ensure that the trust assets ultimately pass to their own children, not their spouse's.

Myth #4. Trusts are too complicated.

Again, the provisions of a trust can be as simple or as complicated as you want them to be. The basic terms of a living trust are usually simple. A widow, for instance, directs the trustee to invest her assets, pay her the income for the rest of her life (plus any amounts that she wishes to withdraw from time to time), and then wind up the trust by dividing what's left among her children.

But a little extra planning can be well worth the resulting "complexity." The woman just mentioned might want to expand the terms of her trust to allow the trustee to act for her in financial matters if she becomes incapacitated. The trustee can pay her medical expenses, taxes, household bills and other recurring expenses from the trust if she is no longer able to handle these chores herself.

Myth #5. Trust services are expensive.

Fees will depend upon the duties that you ask your trustee to perform and the size of your trust fund. Generally, these charges are competitive with what you would pay elsewhere for top-quality investment management. In some cases they even may be lower.

Myth #6. Trusts don't provide good investment performance.

You may have heard that trust funds are invested conservatively, resulting in subpar rates of return. But in actuality banks and trust companies have an enviable record of providing consistently productive investment performance.

Myth #7. Trust services are impersonal.

Admittedly, the personal touch is much less in evidence in today's world of automated, computerized "financial services." Personal trust service is a dramatic exception to the trend.

To be sure, high-tech computers help keep records, compare possible investments and analyze personal planning options. But such operations are "behind the scenes." When you place your assets in trust, you deal directly with a trust officer who will take the time to get to know you.

Once people get past the myths, they usually become fascinated by the remarkably practical ways in which they can use trusts to build financial security. A phone call to Idaho Trust National Bank will allow you to explore the many ways that you can benefit from a trust. Our toll free number is 800-549-3333.

Idaho Trust National Bank is committed to long-term outstanding personal service to our clients and their beneficiaries. The Bank utilizes a superior group of independent asset managers and mutual funds, together with a sound asset allocation philosophy that reduces investment risk. Each trust has its own Trust Officer backed by investment and other trust professionals. We recognize that a diverse group of skills may be required to handle client financial, personal and estate matters, and we will help you develop the best team to meet your needs.

At Idaho Trust, we recognize the Human Needs™ of our clients and help meet their personal and family goals through our Wealth Counseling™, Inheritance Planning and personalized investment management services. We make our distribution and investment decisions through a group of experienced professionals. Because of this, we are able to consider your wishes and the needs of your beneficiaries in a timely, fair and impartial manner. We have significant experience with business issues, succession planning, mergers and acquisitions.

Idaho Trust uses sophisticated transactions and trust accounting systems to provide detailed but understandable reports and deliver on-line account services. Call on us to assist you with dispelling the myths surrounding trusts and to help you utilize this effective asset management tool. We can be reached at 800-549-3333.

A private foundation is a unique way to satisfy your philanthropic goals. Although often thought of as a financial or estate planning tool for the very wealthy, a foundation (either in the form of a corporation or a trust) should be considered by anyone making a sizable gift to a charitable or not-for-profit organization. Idaho Trust National Bank is an experienced foundation advisor. We can provide assistance in the creation and operation of the foundation.

The rewards of philanthropy

Setting up a private foundation during your lifetime lets you play an active role in choosing the object of your philanthropy as well as observe the results of your generosity. A foundation lets you make gifts privately and anonymously and can act as a shelter from a constant barrage of solicitations.

Beyond the joy of philanthropy itself, a private foundation offers financial and emotional rewards for yourself and your family. For instance, members of your family may be appointed to the foundation's board of directors. A foundation funded with a major donation may be large enough to provide compensation for family members who carry out administrative functions or serve on the board of directors.

Then, too, consider the pleasure—and sense of family unity—when parents, children, brothers and sisters work together in their charitable endeavors. What's more, future generations can learn by example important lessons about generosity.

Finally, if you are approaching retirement (or are already there), a private foundation offers an opportunity to stay active. By taking responsibility for reviewing grants and performing other foundation duties, you can play an important role in the welfare of the community and the world at large. At the same time you can increase your knowledge and skills, using your creativity and energy in new ways.

Some tax issues

Contributions to a private foundation, for the most part, qualify for income, estate and gift tax deductions in much the same way that other charitable contributions do.

To obtain tax-exempt status for your private foundation, you and your financial advisers will have to wade through complex tax code rules and restrictions. Three of them are worth mentioning here:

• First, the maximum income tax deduction available for contributions to a private foundation in any year is 30% of a donor's "contribution base," a modified form of adjusted gross income (AGI). For long-term capital gain property, the limitation is 20%. The comparable figures for most other kinds of charitable contributions are 50% and 30% respectively.
• Second, a private foundation must distribute annually at least 5% of the value of its assets. As an example, a foundation with assets of $5 million must give away at least $250,000 to charity this year.
• Third, an excise tax is imposed on a private foundation's annual net investment income. Generally speaking, the tax is 2%, but in some instances it may be reduced to 1% of net investment income.

To find out more

A private foundation is an excellent way to enjoy the fruits of your philanthropy. In addition, there are many other ways to make substantial contributions to organizations that offer you significant benefits as well.

If you would like to learn more about making a significant gift to charity, contact Idaho Trust toll free at 800-549-3333. We will be glad to discuss how to integrate your philanthropy with your financial and estate planning goals.

There is a new message that the very wealthy are delivering to their children, a message heard more and more often. And it is a message that could just as well be delivered to the children of parents with somewhat more humble accumulations of assets.

At Idaho Trust we see parents giving this message: Don't automatically assume, kids, that we are going to leave it all to you. Or: Though you may get it, it may be later rather than sooner—and with a few strings attached.

What are the concerns that have led many parents to reconsider their children's legacies? None are that unusual. One oft-expressed concern is that a child's inability to handle money or a freewheeling approach to spending is likely to mean that he or she will squander an inheritance. Another is that the child will use an inheritance to support a life-style that his or her parents find unacceptable. When an inheritance is substantial, sometimes parents feel that handing over a large sum will sap the child's ambition.

The most radical approach for the very rich is to leave their offspring with only a small percentage of the family wealth; the rest usually goes to charity. (The perfect amount to leave children, said Warren Buffett, is "enough money so that they would feel they could do anything, but not so much that they could do nothing.") But for the less wealthy, the concern is not how much the children will get but when they will get it.

The simplest solution is for parents to structure a child's inheritance by using a trust. By setting up a trust, and making specific provisions in the trust agreement, parents may be able to make the kind of arrangements that will put them at ease about the financial future of their children.

For example, the age at which the child receives his or her inheritance may be set forth in the agreement. While a bequest in a will becomes operative upon death, a trust agreement can specify that a child receive only income from the assets in the trust until the child is a certain age—25, 30 or older. Or, the agreement may specify that payments from the trust fund, along with trust income, be spread out over a number of years. Your attorney can contact Idaho Trust for our naming language when drafting such a trust if you would like our institution to serve as your trustee.

Language may be included in the trust agreement to allow a child to use trust funds for approved purposes; typically for "health, maintenance, welfare and education." On the opposite end of the spectrum, parents may want the funds to be untouched; some states allow the insertion in the trust agreement of what is known as a "spendthrift" clause, prohibiting the child from borrowing from the trust fund.

Sometimes parents establish "incentive trusts," which may match or double the income a child receives from his or her salary. The trust agreement also may provide that trust funds will be paid to a child only if he or she achieves a particular objective, such as obtaining a college or professional degree or holding a job for a certain number of years. Idaho Trust is currently serving as trustee of such trusts. Our human needs approach to administering these trusts makes us an excellent choice for "incentive trusts."

A word about trustees

At Idaho Trust we are responsible both for the investment of trust funds and for carrying out the provisions in the trust agreement. Naming a professional trustee, such as Idaho Trust, ensures not only professional management of trust funds but also can avoid putting a family member or friend in the uncomfortable position of dealing with a child who is frustrated by his or her parents' decision about an inheritance. An appointment or conference call with one of our trust officers will allow you to explore the many possibilities for the distribution of family assets with the help of a professional trustee. If you would like to discuss this further, call us toll free at 800-549-3333. We would be happy to discuss the possibilities available to assist you in the planning process.

To order a free "Choosing a Corporate Trustee" brochure with a Trustee Checklist to help you make your decision on which trustee and why that trustee, email Lanie Compton at LKC@idahotrust.com or call the toll free number above.

In a perfect world everyone's behavior and attitudes would be quite predictable. In the real world, unfortunately, people—even those close to us—may not necessarily think and act the way that we expect.

By some estimates, as much as 70% of family wealth does not make a successful transition from one generation to the next. "The issues of communications, lack of trust and betrayal are again and again the reason for the high failure rate of families around the world," according to Roy Williams, coauthor with Vic Preisser of Preparing Heirs: Five Steps to a Successful Transition of Family Wealth and Values.

Goal: equality

Parents often recognize that although siblings may love and respect each other, when it comes to issues of inheritances and dividing money, the picture may change.

A typical solution is to treat all children equally. Yet circumstances may make achieving that goal extremely difficult. If, for instance, lifetime gifts or "inheritance advances" have been made to one child, taking steps to "equalize" a bequest to another child is possible. Making such provision is probably best done during one's lifetime rather than by will or trust, so that misconceptions or miscommunications are avoided.

There can be a multitude of family circumstances that call for a more formal plan of action. For instance, what happens when a child has poor money management capabilities? Or finds himself or herself in a difficult marriage? Or has special medical needs?

In these situations, and many others, a carefully crafted trust may offer a potential solution. Language in a trust document can call for a child's inheritance to be conditioned upon gainful employment or protected from a divorcing spouse to ensure that the assets pass to future generations. A special needs trust can be established for a disabled child to preserve eligibility for government assistance.

Goal: impartiality

Naming a child to serve as a trustee or executor may cause tensions. Those positions carry with them authority and control—and may be perceived as favoring one child over another. Appointing an independent trustee and executor relieves those tensions and assures children that judgments will be rendered impartially.

As succinctly stated in Beyond the Grave: The Right Way and the Wrong Way of Leaving Money to Your Children (and Others) by Gerald M. Condon and Jeffrey L. Condon, two highly experienced estate planning attorneys, "In my thirty-five years of practice, I have found that the overwhelming majority of bank Trustees perform Trust services reasonably, responsibly, and efficiently."

Idaho Trust National Bank is experienced in acting as an independent, impartial trustee or executor to distribute your assets after death. Naming Idaho Trust can avoid family disputes that unnecessarily can cause long-standing family problems.

Distributing personal assets

To baby-boomers the most valuable possessions may not necessarily be antiquities but, rather, more contemporary collectibles, such as trading cards and Barbie dolls.

"It doesn't matter if it's a lot or a little money," says Dr. Henry F. Smith, a psychoanalyst affiliated with Harvard Medical School. "Money is a way to quantify love. And both anticipating and receiving [an] inheritance intensifies both the loving and hating aspects of relationships between child and parent, and sibling and sibling."

What can be done to avoid a conflict over family heirlooms and collectibles? One solution may be time consuming but surefire: Identify a beneficiary now for everything that carries sentimental as well as real value to family members. Another idea is to make gifts of those collectibles that are likely to cause problems later. A family meeting can be convened to find out how each child feels about treasured objects, and plans can be made or adjusted, taking into account what has been gleaned from the discussions.

Making gifts of collectibles and family heirlooms during one's lifetime also makes sense from a tax perspective. By taking advantage of the federal gift tax annual exclusion, assets that are potentially subject to estate tax at death can escape tax altogether. The gift tax exclusion is currently $11,000 per year per individual (and is indexed to inflation). In addition, any future appreciation of the gifted property escapes taxation in the donor's estate.

Finally, with a major collection, consideration should be given to a sale of the collection to another interested collector. The proceeds from the sale then can be divided accordingly. If the collection is to remain intact, detailed instructions should be left that will permit the experts to determine the value of the collectibles and how best to dispose of them.

Call upon us

Idaho Trust would be glad to provide you with more details about how living trusts and testamentary trusts can assist you in developing an equitable estate plan. Please feel free to call us at 800-549-3333 or email us at info@idahotrust.com for assistance.

For many of us, pets are an important part of our daily lives, more like members of the family than just "animals." For people living on their own, especially, they can take on even greater significance, serving as a constant source of companionship and unconditional love.

According to Professor Gerry W. Beyer, Professor of Law at St. Mary's University School of Law in San Antonio, Texas, and a well-respected authority on estate planning for pets, the number of individuals who own pets is staggering. As many as 33.9 million households in the U.S. own dogs, and 28.3 million own cats. What's more, studies show that between 12% and 27% of pet owners include their pets in their wills.

Idaho Trust is prepared to administer estate plans that make provisions for pets.

No legal protection?

Interestingly, courts of old in England looked favorably on pet owners who sought ways to provide care for their pets after their death. Historically, that concept has not been the case in the U.S. Attempts to make bequests or gifts aimed specifically at providing for the future care of pets have not been considered legally enforceable by most courts. And, currently, no state permits pet owners to leave any part of their estates directly to an animal.

Traditionally, pet owners have been limited to some rather less-than-satisfactory choices. The most common approach is to give money outright to an individual, extracting a promise that the pet will be provided with shelter, food and care in the same manner that the pet enjoyed with its owner. Although this is a simple solution, it provides hardly any protection. There is no legal way to enforce that promise in court.

Another approach has been to establish what is known as an "honorary trust." The pet owner names Idaho Trust as trustee to receive funds for the care of the animal. Idaho Trust then either may honor the terms of the trust by using the funds for the animal's care or relinquish the funds to the beneficiaries of the pet owner's estate who would have received the funds if the pet had predeceased the owner. Here, the problem is that the human beneficiaries are the only ones entitled to enforce the honorary trust. Thus, if Idaho Trust does turn the funds over to the pet owner's beneficiaries, they cannot be required to use the funds for the pet's care.

The new "pet trust"

Beginning in the 1990s, under guidelines established by the National Conference of Commissioners on Uniform State Laws, legislatures and courts have been addressing the concerns of pet owners wishing to establish an estate plan for their animals in the same manner as people plan for their spouses and children. Currently, at least 24 states and the District of Columbia have adopted legislation that permits the creation of trusts for designated pets and their offspring.

Generally speaking, a pet trust is set up by the animal's owner either by way of a living trust or a trust in the owner's will. In the former case, the trust is already in operation when the pet owner dies—ensuring that there are funds immediately available for the animal's care during the time between the owner's death and the probating of the will and subsequent funding of the trust. On the other hand, a trust established in the pet owner's will, springing to life only after the pet owner's death is usually a less expensive approach in terms of start-up costs and administration expense. Nor does the pet owner have to fund the trust immediately with this approach.

In either case, if the pet owner has not delivered the animal to the beneficiary/caretaker already, the owner formally will bequeath the pet to the trust, leaving the appropriate instructions to the trustee concerning delivery to the beneficiary/caretaker.

Idaho Trust is named in many pet trusts that will require administration in the future.

Planning considerations and questions

A pet owner will have several other important choices to make in addition to determining when to establish the trust.

For instance, he or she must choose the caretaker who will serve as the actual beneficiary of the trust. The caretaker will have the legal right to enforce the trust if the trustee fails to carry out the pet owner's directions. As a result, a caretaker/beneficiary needs to have some knowledge of how the trust works, in addition to showing a willingness to take on the responsibilities of a pet owner.

Similarly, the trustee should be chosen with care. The pet owner should make certain that the trustee is willing to serve in that capacity and understands the responsibilities that the job requires. The trustee, whether individual or corporate, must be willing to administer and manage the trust and make the time and effort to carry out the paperwork and technical details. Idaho Trust is ready, willing and able to act as trustee of a pet trust.

The pet owner will be faced with a number of important questions to answer: How much should be transferred to the trust for the care of the pet? What should be provided in additional funds to pay to the caretaker or trustee, if necessary? What language should be used to describe the type of care that the pet should receive and the expenses for which the caretaker should be reimbursed? How should funds in the trust be dispersed—for example, should there be a fixed amount paid per month (or on some other regular schedule), or should the caretaker be reimbursed only when he or she submits receipts that can be reviewed by the trustee? How long should the trust last? Finally, who should receive the funds in the trust after the death of the pet? Idaho Trust can work with you and your attorney to answer these questions and help create the solution that meets your goals.

For further information

There are many other steps, beyond the scope of this discussion, that pet owners may want to take in order to craft a plan that will ensure that their animals will be well provided for when they cannot take care of them anymore.

Fortunately, there is a wealth of information available to provide guidance. For pet owners seeking quick access to information online, a visit to www.estateplanningforpets.org is recommended or call us at Idaho Trust 800-549-3333 to discuss the goals and objectives for your pet estate plan.

Henry J. Deutschendorf, Jr., died in 1997 without a comprehensive estate plan. Without trusts of any kind. Without, in fact, a will. These facts were revealed recently in Bloomberg News and elsewhere because Deutschendorf's estate had only just been settled-six years after his death.

Why was this news? Was the reason because his heirs had to wait six years before they received their inheritances? Because his estate was valued at $19 million? Those facts are certainly part of the explanation. But here's the chief reason: You are very likely to have known a bit about Henry. He was a famous singer who went by the name of John Denver.

Excuses and mistakes

Although it's hard to believe that someone with that kind of wealth did absolutely no planning, John Denver's failure is by no means out of the ordinary. After all, according to Consumers Union, approximately 70% of adult Americans don't have even a simple will.

The standard explanation that many people give for not planning is procrastination. It's easy to understand-coming face to face with one's mortality isn't a pleasant subject. Sometimes, too, people feel that a simple will drafted at the outset of their marriage, or when they bought their first home, still serves them in good stead today.

Recent changes in the federal estate tax rules have reduced rates and even "abolished" the tax itself as of a future date. True enough. But it's a mistake to be lulled into a false sense of security. As of early 2004, the estate tax is repealed only for one year (2010), with rates thereafter returning to where they were prior to the passage of the 2001 tax law-as high as 55%. (The estate and gift tax exemption will stand at $1 million.)

To put it simply, there is absolutely no good reason to put off developing and implementing an estate and trust plan that will offer your heirs the most protection at the least tax cost. Idaho Trust National Bank wants to assist you in this planning and implementing process.

A tax-saving trust technique

Let's talk a bit about taxes. As you probably are aware, a "marital deduction" can eliminate any tax on transfers between spouses. But a surviving spouse doesn't have a marital deduction to fall back on, only the estate and gift tax exemption.

In other words, the marital deduction may turn out only to delay tax, not eliminate it. That's why, if your estate is substantial, you will want to consider harnessing the combined power of the marital deduction and exemption with a marital and "bypass" trust plan in your will. Consider this strategy:

You create a bypass trust that will receive an amount that does not exceed the exemption available at your death. Idaho Trust often acts as trustee of such trusts. You instruct that the income from the trust be paid to your spouse for life. Then, when he or she dies, the trust's assets pass to the beneficiaries that you name in the trust agreement. (This strategy works especially well if you want to provide for both your current spouse and any children from a prior marriage.) At the same time, you establish a marital trust that will receive the assets not transferred to the bypass trust. Idaho Trust can also act as trustee of this trust.

With this plan in place and Idaho Trust as trustee, there is no tax at all on your estate. As for your spouse's estate? The assets in the bypass trust are not includable as part of his or her estate and so won't be taxed. The balance of his or her estate may be taxed, but the exemption may shelter all or a good portion of these assets from taxation. Here are some examples:

Assumption: First spouse dying in 2006-the second in 2008 when the tax rate on estates will be 45%-and no separate assets or appreciation of assets in the survivor's estate. Note: Are you married to someone who is not a U.S. citizen? If so, special restrictions on the marital deduction may apply. We recommend that you seek professional guidance now. You may be able to craft a plan that will keep your marital deduction options open.

Start your planning now

The need to arrange for the orderly and tax-efficient transfer of your family's assets should loom large on your planning horizon. We offer the same advice even if you have a plan in place but haven't reviewed it recently.

Idaho Trust can inform you of the many wealth preservation strategies and techniques that are available to you and your family. If you would like more information on this topic, call us toll free at 1-800-549-3333.

Idaho Trust wants you to know that when you structure a charitable gift properly, you can be generous to yourself as well: with a charitable remainder trust, you can receive regular income from your donation for as long as you live. At the same time you can realize significant tax savings. And your deferred gift to charity may actually increase your income for years to come.

When you place assets in a charitable remainder trust, you may retain the right to receive an income from the assets for life, or choose a period of not more than 20 years. When you die, or when the trust comes to an end, the trust "remainder" is distributed to the charity that you have named.

It's also your choice whom to name to receive income from the trust. You may name your spouse and yourself as income beneficiary, or you may name one or more other people to receive the income from your gift. But understand that a charitable remainder trust is irrevocable. You may not revise or cancel your gift once you have set up the trust, and you cannot touch the assets once they're in the trust, even in an emergency.

The tax savings

You can take an immediate income tax deduction in the year that you set up the trust, even though the charity won't receive the gift for years to come. The amount that you can deduct generally ranges from 20% to 50% of the assets placed in the trust. A number of factors must be taken into account to determine the deduction. IRS provides the necessary tables and Idaho Trust can lead you through this process.

When a charitable trust is funded with assets, such as securities, that have grown in value over the years, there is a potential for avoiding capital gains tax when you place these assets in trust.

By donating such assets, you avoid the capital gains tax that you would have paid had you sold them and reinvested the proceeds yourself. Because you have designated a charity as remainder beneficiary, the trustee can sell the assets and reinvest without paying tax. Result: The immediate charitable deduction and elimination of capital gains tax often greatly improves your income. Special tax rules apply when you make gifts of appreciated property. Idaho Trust can work with you and your tax adviser on this issue.

Unitrust or annuity trust?

Charitable remainder trusts come in two formats.

An annuity trust is a good choice if you are looking for a reliable income stream. Your income is calculated as a fixed-dollar amount, equal to 5% or more of the initial assets placed in the trust.

The great advantage of an annuity trust is the certainty of receiving the same income every year. Once the amount is set, however, it cannot be changed. The potential drawback is that inflation can erode the real value of your income payments.

With a unitrust you gain the potential for income growth that can help keep pace with inflation. You receive a fixed percentage (again, at least 5%) of the unitrust's market value each year. Unlike an annuity trust, a unitrust need not be funded all at once. You can make additions every year if you wish.

The downside of a unitrust is that the trust's value can dip from time to time, reducing the amount of income that you receive. Also, your charitable deduction will be lower than for an annuity trust.

Then, too, there are estate and gift tax savings that accompany charitable remainder trusts. Like direct bequests by a will, a deferred charitable gift is deductible for federal estate tax purposes at the donor's death.

Savings in federal gift tax are possible when you name someone else, say, a brother or sister, to receive the income from the trust. Your taxable gift is limited to the value of the trust's income interest. There is no gift tax on the charity's remainder interest.

If you would like to explore the many possibilities of giving with charitable remainder trusts, please contact Idaho Trust toll free at 800-549-3333.

An overriding concern for the parents of a disabled child is likely to be the child's care once they are no longer available to offer financial and emotional support. "Care" encompasses a broad spectrum: where the child will live, who will manage his or her financial and personal affairs, as well as who will see to special medical and treatment needs.

Selecting a guardian

Parents are the natural guardians of their children only until they reach majority (generally age 18). The fact that a child is disabled and all decisions regarding the child rest with the parents will not change the fact that upon reaching majority, he or she is presumed to be competent.

Agreements among family members will not give anyone formal authority to act on behalf of a disabled child. Thus, if a child is not self-sufficient, it may be necessary to institute formal guardianship (conservatorship) proceedings.

Parents, of course, are the natural choice to serve as legal guardians. But what about the future? In whose care should the child be left? Sensitivity and the willingness to care for the disabled child should be prime characteristics. But other factors should be considered: the ability of the person chosen to handle financial and legal matters; availability to continue as guardian for the long term; and whether or not the chosen individual can devote the time necessary to care for the child.

There are two kinds of guardians, usually referred to as guardian of the person and guardian of the estate. The former makes decisions as to where the disabled child lives and sees to medical treatment, education, vocational training and other personal matters. The latter is charged with preserving the disabled child's assets and managing his or her financial matters. Although it is perfectly acceptable to choose one person to act in both capacities, one person may not fit the bill. Idaho Trust National Bank can act in the role as guardian of the estate (conservator) or provide investment management assistance to the person designated for the role.

Choices: bequests to a disabled child

When drafting their wills, parents have several options in deciding how to provide for the disabled child's financial future.

Of course, they can choose to make a direct bequest to their child. However, this choice will most likely disqualify the disabled child from receiving government aid. This choice is, for most people, the least desirable-unless they have the wealth available to make certain that there will always be sufficient funds to care for the child without the need to resort to government assistance.

Another choice is to leave the disabled child's portion to a sibling or other close relative with directions that the portion be used for the child's care. This approach is viable when there are family members who are close to the disabled child and are capable and willing to use the funds that they receive for the child's benefit. However, it must be kept in mind that such a bequest in no way obligates the family member to actually use the funds for the child. This kind of bequest establishes, at most, a moral rather than a legal obligation. Such bequests also subject the assets to creditor and marital claims. This is not a recommended option.

Another choice: the special needs trust

As a result of legislation enacted in 1993, many parents have been able to establish what is commonly referred to as a special needs trust. When properly drafted, a special needs trust may enable parents to establish a trust that can hold an unlimited amount of assets, without these assets being considered for qualification for government programs that are based upon need.

These government programs include Supplemental Security Income (SSI) and Medicaid (sometimes called by other names in certain states). Other government-based benefits include payments for vocational rehabilitation and the provision of subsidized housing. Special needs trusts are intended to supplement, but not to replace, the basic support of the child given by government aid, which is intended to provide, generally, food, shelter and clothing.

Idaho Trust frequently acts as trustee of special needs trusts. As trustee, we work closely with the guardian for the trust beneficiary and other interested persons.

Defining "special needs"

A special needs trust can cover a broad array of expenses, most often those that will enhance the child's life, health and welfare. Here are just a few examples for which distributions may be made from the trust (if not otherwise covered): dental, medical and pharmaceutical expenses; therapy or rehabilitation services; wheelchairs and other special equipment; and psychological services expenses.

The expenses may be made for the disabled child's pleasure, as well. For instance, the trust may be able to provide funds for travel (including the cost of a companion to accompany the child), summer camp, beach trips, movies and social events, a computer and sports equipment.

Good drafting and a trustee who understands the complex rules surrounding special needs trusts are two essential ingredients to creating a successful special needs plan.

Keep these points in mind:

• A disabled child must be "impoverished," a term of art under federal law. A disabled individual with as little as $2,000 in assets may be disqualified from receiving Medicaid.
• The special needs trust should be established by someone other than the disabled child and managed by a person other than the person with the disability. An experienced corporate trustee is your best choice.
• A decision will need to be made whether to establish the trust during the parents' lifetimes or create it by the parents' wills, to go into effect after their deaths. A major advantage of the former approach is that it allows other family members (who might not otherwise see the wisdom in making outright gifts or bequests to the disabled child) to make them to the trust. It also allows parents to evaluate their choice of trustee.
• Another decision will be whether to make the trust revocable or irrevocable. A revocable trust provides flexibility, allowing parents to add or subtract assets. However, assets in the trust are taxable in the parents' estates and may be exposed to creditor claims. On the other hand, an irrevocable trust makes it impossible to make changes to any of the provisions in the trust.

A few practical suggestions

Seeking the guidance of professionals with experience in estate planning for the disabled is especially important when considering a special needs trust. Matters often can become very complicated because both federal and state law will come into play. Idaho Trust has the experience and expertise you will need.

In addition, it is often recommended that parents write a letter of intent, providing instructions concerning the care of the disabled child. The document should be as detailed as possible. Not only major concerns should be addressed, but also anything that the parents might know and others may not-even such relatively minor things such as the child's favorite friends, foods and forms of entertainment.

Finally, a corporate fiduciary should be considered as trustee of a special needs trust. Such a fiduciary can provide professional management of the assets in the trust, establishing a strategy that is best suited to the child's needs both for the present and the long term.

Please contact Idaho Trust National Bank to discuss how it may be of assistance in implementing a special needs plan.