Ever since she was young, nothing soothed Theresa’s soul like the dulcet sounds of the accordion. That’s why she was delighted to turn her large home on the outskirts of New Orleans into a musical boarding school for budding accordionists. (We’re guessing her neighbors were less delighted.) Anyway, when Theresa was diagnosed with a rare and incurable disease, she decided it was time to find herself a usufructuary. A “usufruct” is a legal right to use and profit from someone else’s property for a limited time (but not destroy, damage, or sell it), and a usufructuary is the person with those legal rights.
Theresa wanted to find someone who would care for her home and the musical prodigies living there, and would continue to uphold the legacy of her beloved Accordion Palace until she succumbs to her rare and incurable disease. With a usufruct, she can be assured that her estate will be maintained until her death, and at that point, it will be dealt with accordion—er, according—to the terms of her will.
Usufructs aren’t available everywhere; Louisiana and Georgia are the only two states with usufruct laws on the books. Most states deal with usufruct-type issues with life estate and common laws. But lucky for Theresa—and her neighbors, we’re sure—she had the perfect location for the Accordion Palace right there in New Orleans, which allowed her to make her usufructuary dreams come true.
Related or Semi-related Video
Finance: What are Irrevocable v Revocabl...2 Views
and finance Allah shmoop What are irrevocable versus revoke A
ble trusts So first let's start with the trust What
is it Well it's just a legal entity or thing
that exists for pretty much of the sole purpose of
housing one's assets Owned a home owned some stocks own
some bonds own a Chevy Camaro with blood stains on
the door handle And don't ask why all of these
would likely go into a trust so that when you
die there's no ambiguity as to what your assets are
where they're headed and how your will is You know
disposing of them Think of assets like ah financial freezer
in this sense So then what's the difference between an
irrevocable and a revokable trust Well specifically the difference has
to do with taxes or the tax treatment of the
transfer of those assets Surprise Surprise Legally there's some basic
amount of dough that parents and grand parents are allowed
to transfer to their paste eating progeny each year without
tax Let's say that magic number is 18 grand a
kid and that means that for Johnny here get your
finger out of there His mama can grant him $18,000
in appreciated Coca Cola stock and his daddy Khun give
him $18,000 in poker chips from Caesars Palace That 36
grand is given to his trust Ear Revoke obl e
That is The money is now his It's Johnny's It
does not belong to his parents period It's done Done
deal Well the simplest difference between the two concepts is
that assets remain in the grand tours A state in
a revokable trust meaning they can revoke it or take
it back of the grand tour Is Mom and Dad
here The grantee is the kid but in an irrevocable
trust They move out of the estate of Mom and
Dad and they just belonged to Johnny Well the primary
reasoning behind the irrevocable trust is that there are many
good reasons for clients to want to move assets out
of their estate Namely you know for protection against litigation
for optimization the taxes like capital gains taxes and the
state taxes Well depending on how their trust is set
up they may or may not be able to restrict
what little Johnny there does with the money but they
no longer have control over it and as a result
that money is then transferred to Johnny Tax free If
they still had control over it well then there probably
apply attacks So what does this matter So much wealth
The wealthy in this country pay something like 50% tax
when they give money to their kids That is after
a certain point because yeah that 1st 11,000,000 of transfer
is free and that 11,000,000 might seem like a lot
But if you had a farm in your family that
you've had for 100 years in its market value is
20,000,000 Well most people have to sell the farm to
a large corporation because they can't afford The tax is
above that 11,000,000 bucks and it's likely that that 11,000,000
figure is probably going to come down in the future
So if you have even a crappy house in Palo
Alto middle of Silicon Valley and your grand parents want
to send it via its $5,000,000 for an acre and
well you'll have to sell that and you won't be
able to keep the house and all that So there
are all kinds of complexities because things cost so much
more in the big city than they do in rural
areas Yet there's one federal number that applies to everything
and you might think $5,000,000 a lot for a house
Well here's what that buys you in Palo Alto California
So they're also applies this thing called a generation skipping
tax It applies to a bunch of cases So you
can imagine that a grand parent with an IRA with
$1,000,000 in it then dies that IRA first has to
distribute money so that the grand parent is taxed at
50% ordinary income So that $1,000,000 to the grand parents
that becomes 500 grand on the day Grandpa dies But
Grandpa wanted to give that 500 grand to his grandson
Booger eater over there Yeah he can't just wheel the
money to him Instead that money gets tax first as
if it was given to Johnny's also awesome parents where
it would suffer than a 50% tax rate and it
becomes 250 grand and then upon it being distributed to
Johnny Booger Eater There that 250 grand would again be
tak and it becomes $125,000 So yes you heard that
right The $1,000,000 in Grandpa Pas ira became only 125,000
by the time the government was through Taxing the crap
out of it Yeah 875 grand in taxes And you
might think that's well it's a millionaire Who cares Well
what if your grandpa and you worked really hard Your
whole life with your orthodontic practice saved your money and
you were careful on vacations You had $1,000,000 saved in
that IRA and now it's only 12 and 1/2 cents
on the dollar How do you feel So yes it's
applies only to quote rich unquote people but the amount
of tax the government takes his massive So it should
be pretty understandable that lots and lots and lots of
money is spent on very fancy lawyers setting up all
kinds of flavors of trusts revokable in year So that
all those years Grandpa spent inventing and patenting industrial solvents
to really stick braces to your teeth they're didn't all
just goto pay for some congressman's mistresses Facials Why does
all this matter so much in the form of an
irrevocable trust Well because if the trust was revokable none
of the tax shelters would in fact apply So yeah
that's the big diff between revokable on here Revokable Trust
your irrevocable It's done And then you get the tax
kiss There A tax free pass Okay You can go
back to eating your pace now Johnny There maybe try
the pumpkin spice Good luck with that You'll need your 00:05:21.2 --> [endTime] money
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