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What is a Qualified Domestic Trust?

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You may be starting to prepare for what happens to your family after you are gone. There are many different ways to set up a trust for your family and it all may get overwhelming at times. You may have heard of Qualified Domestic Trust (QDOT) and Qualified Terminable Interest Property Trust (QTIP) and are unsure which is best for you and your family.

If you are married to a spouse who isn’t a U.S. citizen, you may be considering a Qualified Domestic Trust. A Qualified Domestic Trust, often referred to as QDOT, is similar to a QTIP because they both allow anyone who is a taxpayer and that survives their spouse to take a marital deduction on estate taxes. However, a significant difference is that a QDOT allows a spouse to get a marital deduction, even if you aren’t a U.S. Citizen. Deciding which one is right for you can be complex to sort through on your own if you are hesitant about what each trust entails.

What is a Qualified Domestic Trust (QDOT)?

As stated, a qualified domestic trust is a trust that allows your surviving spouse, even if they aren’t a U.S. citizen, to take a marital deduction on your estate taxes. This makes QDOT a special trust that allows these deductions if assets are included in it. This makes a QDOT an equalizer, allowing non-citizens’ spouses the same rights as a U.S. citizen spouse to a tax deduction. This saves the non-citizen spouse from paying a hefty tax on the assets that are in the QDOT.

Without a QDOT, your spouse wouldn’t be able to own the asset, and an estate tax will be applied to the partner’s unused exemption amount. A QDOT is a good option so that your property and assets are placed in a trust for safekeeping, and when you pass, your spouse will get the distributions paid out to them.

Why Use a QDOT?

As previously mentioned, if you are married to someone who is not a U.S. citizen, in most cases, they will not be able to utilize any of the marital estate tax deductions that you set aside from them when you pass. The main reason you should use a QDOT is so your spouse can get your assets transferred to them in a legal and safe manner.

However, it is vital that you know and comply with all the requirements and regulations of a QDOT trust. Otherwise, if you don’t, you will make the trust invalid upon your death.

How do Qualified Domestic Trusts Work?

Under Section 2056A, from the IRS, your surviving spouse is qualified to have 100% marital deduction for any estate taxes that are owed on the asset. Meaning that, the spouse will not have to pay taxes on assets with no limits. Marital tax is not allowable if the spouse is not a U.S. Citizen. Additionally, there will be an estate tax exemption amount that your non-citizen partner will not be able to claim. 

By creating a Qualified Domestic Trust, you are putting all your assets that will allow for the 100% marital deduction. While the spouse will not actually own any of the assets, they will still be able to benefit from the interest, financial accounts, and assets. To recap, once the assets are in the QDOT trust, the trust will own the assets instead of the surviving partner.

This allows for when your surviving spouse passes, then all the remaining assets in the trust will go to your children, friends, and charity. It will be important to note, then when this happens the assets will be transferred and there will be an estate tax that applies.

Limitations of a QDOT

It’s great that a QDOT allows your non-citizen spouse to be eligible for marital tax deductions from any assets that are inside the trust. However, it doesn’t exempt the trust from having to pay the taxes on the estate. A QDOT will only defer the tax until the death of your non-citizen spouse. 

Once your non-citizen spouse passes, the state will then be liable for Section 2056A taxes on any of your assets that are in the trust even if there is or isn’t any surviving trustee. The downside to this is that it could reduce the value of the assets in the QDOT.

Requirements for a QDOT

If a QDOT is right for you and your family, here are the requirements you will have to meet in order to get one:

  • The grantor must elect on the estate tax return to be able to treat the trust like a QDOT.
  • The QDOT must meet Treasury regulations in regards to the collection of any tax.
  • At least one trustee must be a U.S. citizen.
  • Except for income, no distributions can be made to the trust.

Let the Experts Help

Whether it’s a straightforward trust for an individual or family that owns a single home, or a complex, high-net worth, estate plan involving multi-faceted structuring, lifetime gifting, valuations, and irrevocable trust strategies, Brackin & Johnson will provide you with the estate planning and trust solutions you need to protect your family legacy.

Contact Brackin & Johnson today to assist with all of your estate planning needs. 

What You Need to Know About Living Wills

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If something happened to you today that made it impossible for you to make medical decisions for yourself, would there be anyone who knows exactly what your wishes would be? 

A living will, also known as an advance healthcare directive, does just that. It outlines your wishes so that your family knows what to do if something happens to you.

A living will is different from a last will and testament. A last will and testament is used after a person’s death and lays out how the deceased wants their assets and property distributed to their family and friends. On the other hand, a living will is a type of an advance directive that states how one wants their medical care handled if they are rendered unable to communicate those wishes in the future.

Having a living will in place makes things easier for your family and loved ones in case of an emergency. They won’t have to guess what you might want or feel guilty about decisions they make for you. Today, we will take a closer look at the things you should know about creating a living will, so that you can be better informed when the time comes to prepare yours.

Rules for Living Wills Vary by State

Depending on where you live, a living will may have a different name. Some states refer to it as a directive or—specifically— a healthcare directive. States may also have different procedures and different requirements for creating and executing living wills.

If you regularly spend extended time in multiple states, you will want to ensure that your living will is valid in those other state(s). Most of the time, living wills are honored in other states, regardless of the state they are created in, but to be completely sure, check the rules for each state in which you spend extended time.

A Living Will Is a Legal, Binding Document    

When you create a living will, it becomes a legal, binding document. You cannot verbally convey your wishes or simply write it down and call it a living will. Your living will has to cover what you want to happen if you become permanently incapacitated, terminally ill, or unable to convey your wishes by some other means.

When Your Living Will Goes Into Effect

Your living will does not go into effect if you are conscious and can make your own decisions. Also, you cannot be declared unable to make decisions or unconscious by just anyone. A physician needs to make the determination, and a second physician must agree and confirm the diagnosis. It’s important to make sure that your physician is aware of your living will to ensure that they will follow your wishes and be willing to comply with the decisions you have made.

You Can Change Your Living Will

No one else can change your living will for you without your permission. After you create your living will, if you wish to make changes, there are specific steps you must take. You cannot simply destroy the old living will. You have to either revoke the original will, or cancel the existing living will and create a new one. 

Should You Still Name a Power Of Attorney?

A healthcare power of attorney (POA) is a particular form of power of attorney. When a person is named a healthcare POA, they can exclusively make medical decisions for you if you are unable to do so for yourself. A healthcare POA is different from a living will, but it is an option available to you. 

You Should Have a Living Will Regardless of Your Age

Although you may think a living will is something for the elderly, any adult can benefit from creating a living will. Even healthy young adults run the risk of accidents or unexpected illnesses that could leave them unable to make their own healthcare decisions. Having a living will in place can help alleviate the burden presented to parents and spouses if something should happen to you.

Will Your Living Will Be Followed?

Your doctors will ultimately make treatment decisions for you, and they are not required to follow your living will, however they typically do. To make sure your doctor will respect your wishes, speak with them in advance to make sure they know your choices.

Not only will this conversation convey your wishes, but it will also allow the doctor to ask questions and clarify details, and they may be able to address something that you might have missed. If your doctor expresses that they will not comply with your will, you should discuss their reasoning and consider their input. However, if this is the case, it may be best to choose another physician that will honor your wishes.

Let Our Experienced Attorneys Help You Create a Living Will

An experienced estate planning lawyer can help you address legal matters that can affect your quality of life and health. You’ll need an expert to interpret complex Alabama laws and you’ll want the very best to help you plan for your loved ones. 

At Brackin & Johnson, our experienced Estate Planning attorneys can assist you or your loved ones with planning for long term care and ensuring medical needs are met should the time come when you or your family member can no longer care for oneself. 

Medical and Financial Planning are our specialty, and we will work with you to ensure that your future is laid out in writing. If you’re searching for a skilled attorney specializing in estate planning, living wills, and power of attorney, get in touch with us today to schedule your free initial consultation

Theft Laws in Alabama – An Overview

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Under Alabama law, theft occurs when somebody takes another’s property or services without permission or authorization. A person can do this by physically taking property, or it can be done by taking lost or unaccompanied property without taking proper measures to find the owner. 

As with any crime, there are a multitude of different penalties that can follow. What sorts of penalties follow conviction of theft in Alabama can vary depending on multiple factors. In Alabama, theft charges are categorized into multiple different classifications. Depending on what classification a charge is, the penalty will change. 

Class B felonies are the most severe theft cases in Alabama and are punishable by up to 20 years in prison. 

Offense Classifications

Each offense falls under a different classification depending on the property value and the circumstances of the case. Any case of theft will be classified as a range between a class A misdemeanor or a class B felony. 

Is Theft a Felony or Misdemeanor in Alabama? 

The two main classifications of Alabama Theft of Property cases are felonies and misdemeanors. Theft of Property in the 1st, 2nd, and 3rd degree are considered felony charges. A case is deemed a misdemeanor if it is considered Theft of Property of the 4th degree. 

Special Cases

For situations where the theft involves trademarks, trade secrets, cargo, cable, satellite reception, or gas, there are specifically outlined penalties for these thefts. Consult the Alabama code for information on these specific penalties, as they vary from the usual theft classifications. 

Fourth-Degree Theft

Fourth Degree Theft is considered a class A misdemeanor in Alabama and carries a minor penalty. If the theft involves property theft under $500, the case will likely be ruled as fourth-degree theft. 

Class A misdemeanors can carry penalties of up to a year of jail time, a fine of $6,000, or both. 

Third-Degree Theft

If the property is valued between $500 and $1,500, the offense is considered Third-Degree Theft. In addition, if a credit or debit card is the item in question, the theft is considered third-degree, regardless of the card’s actual value. 

Third-Degree Theft is a class D felony in Alabama and can carry a minimum one-year imprisonment sentence and up to five years incarceration. Fines can be up to $7,500, and in some cases, the court may enforce both penalties. 

Second-Degree Theft

If the item or service in question is valued between $1,500 and $2,500, the crime is considered a Second-Degree Theft and a Class C felony. 

If the instance involves firearms, controlled substances, or livestock, the case is automatically considered second-degree theft, regardless of the value of the items. 

Class C felonies can be charged with anywhere between a one-year and ten years’ prison sentence and a fine of up to $15,000. Again, the court may issue one or both of these penalties. 

First-degree Theft

If the property is valued at $2,500 or more, the state of Alabama considers the offense to be a First-Degree Theft and a class B felony. Any situation involving a motor vehicle of any value is automatically considered a class B felony. 

Class B felonies can come with a two-year to a twenty-year prison sentence and a fine of up to $30,000.

Further Penalties and Restitution 

Alabama law includes stipulations for repeat felony offenders. What this means is that, for every number of convictions, the penalty increases. This also holds for somebody with a prior criminal history. 

Fines or jail time will increase for each offense depending on how many past felony convictions a person has and the felony offense level for the current offense. 

Second Felony: Sentence is raised one level 

Third Felony: Minimum ten years prison for class C, 15 years for a class B, and 99 years for a class A 

Fourth Felony: Minimum 15 years for class C, 20 years for class B, and a life sentence for class A 

Class D Felony with prior convictions: If the defendant faces a class D felony, and the person has two or more class A or B felony convictions, or three or more felonies in general, the penalty increases to a class C felony. 

Because the law in Alabama dictates specific sentencing guidelines, prosecutors and judges lose some discretion in handling a case. If a court wants to deviate from sentencing guidelines, it must present a compelling reason. Typically, judges will follow the recommended guidelines. 

Talk To A Lawyer

The laws in Alabama can be complex, and understanding where a charge falls in the complicated system is difficult on your own. If you’re facing theft charges in Alabama, speak to a criminal defense attorney right away. 

Brackin and Johnson can help. We understand the criminal justice process, how to work with each District Attorney and Assistant District Attorney, city prosecutor, or judge handling your criminal case, and the possibilities prior to ever entering the courtroom. 

Our experience allows us to better inform our clients of what to expect prior to even entering the courtroom. We believe in integrity, justice, and honor. We know that going through the legal process is not easy and therefore aim to take as much off of your plate as possible. Contact us today, and let us fight for your future.

Contact Brackin & Johnson Today!

We produce results by getting our clients what they are entitled to receive.

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