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TRUSTS, LIFE INSURANCE and RETIREMENT BENEFITS M. KEITH BRANYON Jackson Walker L.L.P. 301 Commerce Street, Suite 2400 Fort Worth

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TRUSTS, LIFE INSURANCE and RETIREMENT BENEFITS M. KEITH BRANYON Jackson Walker L.L.P. 301 Commerce Street, Suite 2400 Fort Worth TRUSTS, LIFE INSURANCE AND RETIREMENT BENEFITS M. KEITH BRANYON Jackson Walker L.L.P. 301 Commerce Street, Suite 2400 Fort Worth, Texas 76102 State Bar of Texas 29th ANNUAL ADVANCED ESTATE PLANNING AND PROBATE COURSE June 8-10, 2005 Fort Worth M. KEITH BRANYON Jackson Walker L.L.P. 301 Commerce Street, Suite 2400 Fort Worth, Texas 76102 Telephone: 817.334.7235 Telecopier: 817.870.5135 BIOGRAPHICAL INFORMATION EDUCATION B.B.A. in Accounting, Baylor University J.D., Baylor University School of Law PROFESSIONAL ACTIVITIES Partner, Jackson Walker L.L.P., Fort Worth, Texas Board Certified in Tax Law and in Estate Planning and Probate Law, Texas Board of Legal Specialization Chair, Advisory Commission for Estate Planning and Probate Law, Texas Board of Legal Specialization (2002-2005) Member, Advisory Commission for Estate Planning and Probate Law, Texas Board of Legal Specialization (2000-2005) Member, Advisory Commission for Tax Law, Texas Board of Legal Specialization (2005- ) Certified Public Accountant Fellow – American College of Trust & Estate Counsel LAW RELATED PUBLICATIONS Author/Speaker, National Business Institute, June 2-3, 1992 Planning Opportunities with Living Trusts in Texas Author/Speaker, National Business Institute, February 11, 1994 Texas Probate: Beyond the Basics Author/Speaker, State Bar of Texas, 20th Annual Advanced Estate Planning and Probate Course, 1996 The Slayer’s Rule Revisited Author/Speaker, National Business Institute, July 15-16, 1999 How to Draft Wills and Trusts in Texas Author/Speaker, State Bar of Texas, 24th Annual Advanced Estate Planning and Probate Course, 2000 Independent Administration from Start to Finish Author/Speaker, National Business Institute, March 13, 2001 How to Draft Wills and Trusts in Texas; Basic Tax Considerations – What You Need to Know in Order to Choose the Appropriate Plan Author/Speaker, Legal Assistants Division, State Bar of Texas, September 5-8, 2001 What Do You Do With Four-Legged Beneficiaries? Author/Speaker, National Business Institute, February 22, 2002 The Probate Process From Start to Finish in Texas Author/Speaker, 2002 Legal Update for the Texas & Southwestern Cattle Raisers Association, March 17, 2002 Wills and Estates Author/Speaker, Tarrant County Bar Association, Tax and Estate Planning Section May 30, 2002 Dealing with the Insolvent Estate Author/Speaker, State Bar of Texas, 26th Annual Advanced Estate Planning and Probate Course, 2002 Dealing with the Insolvent Estate -i- Author/Speaker, Tarrant County Probate Bar Association, December 4, 2003 Representing Beneficiaries in Independent Administrations Author/Speaker, National Business Institute, February 13, 2004 The Probate Process from Start to Finish Author, National Business Institute, February 3, 2005 Fundamental Probate Procedures and Practice in Texas Author/Speaker, Texas & Southwestern Cattle Raisers Association, March 18, 2005 Estate Planning for Farmers and Ranchers The author acknowledges and thanks Kevin P. Kennedy, whose paper, entitled “Trusts, Taxes, Insurance and Retirement Benefits” which was first presented at the 2002 Advanced Estate Planning & Probate Seminar, formed the basis of this article. -ii- TRUSTS, LIFE INSURANCE AND RETIREMENT BENEFITS TABLE OF CONTENTS I. TRUSTS ................................................................................................................................................................................................. 1 A. OVERVIEW OF TRUSTS AND THE TEXAS TRUST CODE. THE TYPE OF TRUSTS COVERED BY THIS SECTION ARE EXPRESS TRUSTS COVERED BY TEXAS TRUST CODE §111.003. ........................................................................................1 1. Creation of a Trust.................................................................................................................................................... 1 2. Powers of a Trustee...................................................................................................................................................3 3. Duties of a Trustee. ...................................................................................................................................................5 4. Practice Tips...............................................................................................................................................................6 B. TYPES OF TRUSTS.....................................................................................................................................................................6 1. Revocable Inter Vivos Trust....................................................................................................................................6 2. Trust for a Minor. ......................................................................................................................................................8 3. Crummey Trust........................................................................................................................................................10 4. Trusts that do not Qualify for the Annual Exclusion........................................................................................11 C. BASIC INCOME TAXATION OF TRUSTS AND BENEFICIARIES............................................................................................11 D. MODIFICATION AND TERMINATION OF TRUSTS.................................................................................................................12 1. Revocable Trusts.....................................................................................................................................................12 2. Irrevocable Trusts....................................................................................................................................................12 3. Procedure for Judicial Modification or Termination of an Irrevocable Trust...............................................13 II. LIFE INSURANCE ..........................................................................................................................................................................13 A. TYPES OF INSURANCE............................................................................................................................................................14 B. ESTATE AND GIFT TAXATION OF INSURANCE....................................................................................................................15 C. IRREVOCABLE LIFE INSURANCE TRUST ..............................................................................................................................16 D. PRACTICAL USES OF INSURANCE.........................................................................................................................................16 1. Providing for the decedent's family......................................................................................................................16 2. Funding buy-sell agreements.................................................................................................................................16 3. Liquidity to pay taxes.............................................................................................................................................16 4. Funding charitable gifts/providing wealth replacement. ..................................................................................16 III. RETIREMENT BENEFITS ...........................................................................................................................................................17 A. TYPES OF BENEFIT PLANS......................................................................................................................................................17 B. COMMUNITY PROPERTY CONSIDERATIONS. ......................................................................................................................18 C. TAXATION OF IRA AND PENSION PLAN BENEFITS. ..........................................................................................................18 Appendix A- Revocable Trust............................................................................................................................ 20 Appendix B-Pour-0ver Will............................................................................................................................... 36 Appendix C-§2503(c) Trust ............................................................................................................................... 43 Appendix D-Crummey Trust.............................................................................................................................. 59 Appendix E-Petition to Appoint Successor Trustee.............................................................................................. 70 -i- TRUSTS, LIFE INSURANCE AND RETIREMENT BENEFITS TRUSTS A. Overview of Trusts and the Texas Trust Code. The type of trusts covered by this section are express trusts covered by Texas Trust Code §111.003. 1. Creation of a Trust What is an “express trust?” Section 111.004(3) defines an express trust as “a fiduciary relationship with respect to property which arises as a manifestation by the settlor of an intention to create the relationship and which subjects the person holding title to the property to equitable duties to deal with the property for the benefit of another person.” For purposes of this article, an “express trust” under
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