There Is a Difference between Probate and Trust Administration

Many people get these two things confused as there is a difference between probate and trust administration.   A recent article, “Appreciating the differences between probate and trust administration,” from Lake County News clarifies the distinctions.

Let’s start with probate, which is a court-supervised process. To begin the probate process, a legal notice must be published in a newspaper and court appearances are needed. However, to start trust administration, a letter of notice is mailed to the decedent’s heirs and beneficiaries. Trust administration is far more private, which is why many people chose this path.  In the probate process, the last will and testament and any documents in the court file are available to the public. While the general public may not have any specific interest in your will, estranged relatives, relatives you never knew you had, creditors and scammers have easy and completely legal access to this information.

If there is no will, the court documents that are created in intestacy (the heirs inherit according to state law), are also available to anyone who wants to see them.

In trust administration, the only people who can see trust documents are the heirs and beneficiaries.

There are cost differences. In probate, a court filing fee must be paid for each petition. There are also at least two petitions from start to finish in probate, plus the newspaper publication fee. The fees vary, depending upon the jurisdiction. Add to that the attorney’s and personal representative’s fees, which also vary by jurisdiction. Some are on an hourly basis, while others are computed as a sliding scale percentage of the value of the estate under management. For example, each may be paid 4% of the first $100,000, 3% of the next $100,000 and 2% of any excess value of the estate under management. The court also has the discretion to add fees, if the estate is more time consuming and complex than the average estate.

For trust administration, the trustee and the estate planning attorney are typically paid on an hourly basis, or however the attorney sets their fee structure. Expenses are likely to be far lower, since there is no court involvement.

There are similarities between probate and trust administration. Both require that the decedent’s assets be collected, safeguarded, inventoried and appraised for tax and/or distribution purposes. Both also require that the decedent’s creditors be notified, and debts be paid. Tax obligations must be fulfilled, and the debts and administration expenses must be paid. Finally, the decedent’s beneficiaries must be informed about the estate and its administration.

The use of trusts in estate planning can be a means of minimizing taxes and planning for family assets to be passed to future generations in a private and controlled fashion. This is the reason for the popularity of trusts in estate planning.  It should be noted that a higher level of competency—mental comprehension—must be possessed by an individual to execute a trust than to execute a will. A person whose capacity may be questionable because of Alzheimer’s or another illness may not be legally competent enough to execute a trust. Their heirs may face challenges to the estate plan in that case.

In both instances, you will need the help of an experienced estate planning attorney.

Reference: Lake County News (July 4, 2020) “Appreciating the differences between probate and trust administration”

 

What are the Different Kinds of Powers of Attorney?

If I asked you what you thought is the most important document in your estate plan, you may say it’s your last will and testament or your trust. However, that’s not always the case. In many situations, the most important planning document is a well-drafted power of attorney and there are different kinds of powers, says The Miami News-Record’s recent article entitled “Power of attorney options match different circumstances.” 

When a person can’t make his or her own decisions because of health, injury, or other unfortunate circumstances, a power of attorney (POA) is essential. A POA is implemented to help their loved ones make important decisions on their behalf. It helps guide decision-making, enhances comfort and provides the best care for those who can’t ask for it themselves. A POA permits the named individual to manage their affairs.

To know which type of POA is appropriate for a given circumstance, you should know about each one and how they can offer help. There are five power of attorney forms.

Durable and Non-Durable Power of Attorney. This is the most common. These leave a person with full control of another person’s decisions, if they’re unable to make them. A Durable POA continues to be in effect when you are incapacitated. That is what the “durable” part means. A Non-Durable Power of Attorney is revoked, when you become incapacitated. Be sure you know which version you are signing.

Medical Power of Attorney. Especially in a hospice setting, it permits another person to make medical decisions on the patient’s behalf, if they lose the ability to communicate. This includes decisions about treatment. In this situation, the POA takes the role of patient advocate, typically with the presiding physician’s consent.

Springing Power of Attorney. This POA is frequently an alternative to an immediately effective POA, whether it durable or non-durable. Some people may not feel comfortable granting someone else power of attorney, while they’re healthy. This POA takes effect only upon a specified event, condition, or date.

Limited Power of Attorney. This POA provides the agent with the authority to handle financial, investment and banking issues. It’s usually used for one-time transactions, when the principal is unable to complete them due to incapacitation, illness, or other commitments.

If you don’t have a power of attorney, ask a qualified elder law or estate planning attorney to help you create one. If you already have a POA, review it to be sure it has everything needed, especially if you have a very old POA or one that was drafted in a state other than the one in which you reside.

Reference: The Miami (OK) News-Record (July 7, 2020) “Power of attorney options match different circumstances”

 

How Can We Do Estate Planning in the Pandemic?

We can see the devastating impact the coronavirus has had on families and the country. However, if we let ourselves dwell on only a few areas of our lives that we can control, the pandemic has given us some estate and financial planning opportunities worth evaluating, says The New Hampshire Business Review’s recent article entitled “Estate planning in a crisis.”

Unified Credit. The unified credit against estate and gift tax is still a valuable estate-reduction tool that will probably be phased out. This credit is the amount that a person can pass to others during life or at death, without generating any estate or gift tax. It is currently $11,580,000 per person. Unless it’s extended, on January 1, 2026, this credit will be reduced to about 50% of what it is today (with adjustments for inflation). It may be wise for a married couple to use at least one available unified credit for a current gift. By leveraging a unified credit with advanced planning discount techniques and potentially reduced asset values, it may provide a very valuable “once in a lifetime” opportunity to reduce future estate tax.

Reduced Valuations. For owners of closely-held companies who’d like to pass their business to the next generation, there’s an opportunity to gift all or part of your business now at a value much less than what it would’ve been before the pandemic. A lower valuation is a big plus when trying to transfer a business to the next generation with the minimum gift and estate taxes.

Taking Advantage of Low Interest Rates. Today’s low rates make several advanced estate planning “discount” techniques more attractive. This includes grantor retained annuity trusts, charitable lead annuity trusts, intra-family loans and intentionally defective grantor trusts. The discount element that many of these techniques use, is tied to the government’s § 7520 rate, which is linked to the one-month average of the market yields from marketable obligations, like T-bills with maturities of three to nine years. For many of these, the lower the Sect. 7520 rate, the better the discount the technique provides.

Estate Planning. Now is the time to contact an experienced estate planning attorney to get your affairs organized

Bargain Price Transfers. The reduced value of stock portfolios and other assets, like real estate, may give you a chance to give at reduced value. Gifting at today’s lower values does present an opportunity to efficiently transfer assets from your estate, and also preserve estate tax credits and exclusions.

 

Reference: New Hampshire Business Review (May 21, 2020) “Estate planning in a crisis”

 

How Do I Include Care for My Children in Estate Planning?

To make certain that parents’ wishes are followed, they should create a will that designates a guardian and a conservator in case both parents die, counsels The Choteau (MT) Acantha article entitled “Plan for children’s future when making out a will.” 

A guardianship provides for the care of the children until they reach adulthood (usually age 18) and gives the guardian the authority and responsibility of a parent. A guardian makes decisions about a child’s well-being, education and health. A conservatorship is designed to manage and distribute funds and assets left to children until they’re age 18. A single individual can be appointed to do both roles or separate people can be designated as guardian and conservator.

Frequently, the toughest decisions parents have is agreeing who they want to have the responsibility of raising their children and managing their money. Usually they select a person with similar values, lifestyle and child rearing beliefs.  It can be important to talk about the issue with older children, because some states (like Montana) permit children ages 14 and older to ask a court to appoint a guardian other than the person named in parents’ wills. You should also name a backup guardian and conservator in case their first choices aren’t up to the task and review your choices periodically.

In many states, the law stipulates that when children attain the age of 18, they are able to get the property that was in the care of a conservator, no matter what their capability to manage it. Another option is to leave the assets in a trust rather than a conservatorship.  Parents can provide in their wills the property that they want to pass directly to the trust, which is also called a testamentary trust. These assets can include life insurance payments, funds from checking accounts, stocks, bonds, or other funds. Parents can create a trust agreement with an experienced estate planning attorney that provides their named trustee with the power to manage the trust assets and use the income for their children’s benefit.

The trust agreement goes into effect at the death of both parents. It says the way in which the parents want the money to be spent, who the trustee should be and when the trust ends. The trustee must follow the parents’ instructions for the children.

Reference: Choteau (MT) Acantha (May 13, 2020) “Plan for children’s future when making out a will”

 

Should I Create an LLC for Estate Planning?

If you want to transfer assets to your children, grandchildren or other family members but are worried about gift taxes or the weight of estate taxes your beneficiaries will owe upon your death, a LLC can help you control and protect assets during your lifetime, keep assets in the family and lessen taxes owed by you or your family members. Should you create an LLC for estate planning and what is an LLC?

Investopedia’s article entitled “Using an LLC for Estate Planning” explains that a LLC is a legal entity in which its owners (called members) are protected from personal liability in case of debt, lawsuit or other claims. This shields a member’s personal assets, like a home, automobile, personal bank account or investments.

Creating a family LLC with your children lets you effectively reduce the estate taxes your children would be required to pay on their inheritance. A LLC also lets you distribute that inheritance to your children during your lifetime, without as much in gift taxes. You can also have the ability to maintain control over your assets.

In a family LLC, the parents maintain management of the LLC, and the children or grandchildren hold shares in the LLC’s assets. However, they don’t have management or voting rights. This lets the parents purchase, sell, trade, or distribute the LLC’s assets while the other members are restricted in their ability to sell their LLC shares, withdraw from the company, or transfer their membership in the company. Therefore, the parents keep control over the assets and can protect them from financial decisions made by younger members. Gifts of shares to younger members do come with gift taxes. However, there are significant tax benefits that let you give more and lower the value of your estate.

As far as tax benefits, if you’re the manager of the LLC, and your children are non-managing members, the value of units transferred to them can be discounted quite steeply—frequently up to 40% of their market value—based on the fact that without management rights, LLC units become less marketable.

Your children can now get an advance on their inheritance but at a lower tax burden than they otherwise would’ve had to pay on their personal income taxes. The overall value of your estate is reduced which means that there is an eventual lower estate tax when you die. The ability to discount the value of units transferred to your children also permits you to give them gifts of discounted LLC units. That lets you to gift beyond the current $15,000 gift limit without having to pay a gift tax.

You can give significant gifts without gift taxes and at the same time reduce the value of your estate and lower the eventual estate tax your heirs will face.

Speak to an experienced estate planning attorney about a family LLC, since estate planning is already complex. LLC planning can be even more complex and subject you to heightened IRS scrutiny. The regulations governing LLCs vary from state to state and evolve over time. In short, a family LLC is certainly not for everyone and it appropriately should be vetted thoroughly before creating one.

Reference: Investopedia (Oct. 25, 2019) “Using an LLC for Estate Planning”

 

Should I Write My Will During the Pandemic?

Writing a will allows you to instruct your executor how you want your property to be distributed when you die. If you have minor children, your will says who will raise them if you die and their other parent is deceased.

The Oakland Press’s article entitled Writing a will today is more important than ever” says that if you pass away without a will, the state will make these critical decisions for you. What the state decides may not reflect your wishes. This may create conflict and stress within your family and cause financial troubles for those you leave behind. In addition, none of your assets will go to your favorite charities.

A will, and other estate planning documents, are critical because this gives you control over how your affairs are handled when you die. This includes the way in which your assets are distributed and who will take care of your children, if they’re minors. When you draft your will, it’s important that it’s legally valid. There’s no guarantee that a will prepared without an estate planning lawyer will meet the criteria. If the probate judge doesn’t accept your will, it’s as if you died without one.

As a result, it’s very important that you work with a qualified estate planning attorney to prepare your estate plan. If you don’t, it is possible that your will or other estate documents you purchased online might not meet the state requirements.

Therefore, you’ve wasted money, and your instructions may not be followed. This can mean uncertainty in how your estate is eventually administered, and it can make an already stressful situation even worse for your family. An experienced estate planning attorney can make sure your will meets the state’s requirements, decreases hard feelings within your family and keeps your family from challenging its validity in court.

If you have a will, consider updating it especially if a beneficiary listed on the document has died, if you’ve sold your home and bought another, given away some of your possessions, your financial circumstances or the value of your property has changed or your charity relationships have changed.

You may want to change your estate plan, when your children become adults or if others that were provided for in the estate plan are no longer living.

Reference: Oakland Press (May 16, 2020) Writing a will today is more important than ever”

 

What Can I Do to Combat Dementia?

If you’re just trying to keep your mind sharp or you’re attempting to ward off dementia, there are some things you can do to help your brain stay healthy, says the Orange County Register’s recent article entitled “Here are 3 surprising things you can do to fight dementia.”

Here are some things to keep your brain busy and fight dementia:

Study French. Comment allez-vous? OK, perhaps you haven’t attempted to learn a new language since high school. However, did you know it can help fight dementia? Researchers have studied patients with dementia and found that speaking a second language puts these patients at an advantage, regardless of their level of education. In one study, the bilingual patients in the group developed dementia an average of four and a half years after those who spoke just one language.

Get Some Exercise. Regular exercise is recommended to keep your body healthy throughout your life— and it may also help keep your mind sharp. Exercise may keep your brain healthy, by supporting vascular health and by helping release chemicals to protect your brain. You can visit a gym, go for a run, or play sports with friends to get in the exercise. There is no wrong way to be physically active. To get the benefit, shoot for 150 minutes of moderate activity a week or 75 minutes of vigorous exercise.

Make Friends. Partying with your best buds isn’t just for college students. The young at heart can and should also have an active social life. This also helps you avoid loneliness and provides you with something to do. An active social life can also be a tool in the fight against dementia. Having a large social network of friends and family has been linked to a lower risk of dementia. In fact, seniors without any social ties are more than two times as likely to develop dementia as those with ties to at least five other people. In addition, skipping a social engagement earlier in life is connected with a higher risk for dementia. Therefore, be certain that you reach out and make some friends at every stage of life.  “Strong social ties can help keep your mind sharp, and you can build these relationships no matter your circumstances,” said Amy Santo, administrator at Smith Ranch Skilled Nursing and Rehabilitation Center. “People who live in care facilities often benefit from social interactions with their caregivers and by participating in group activities with other residents.”

A person is diagnosed with dementia about every minute in the U.S. There are things you can do to help your brain stay healthy as you age. These efforts can help to delay or stave off dementia.

It doesn’t hurt to try them, and you may find you enjoy the work while you’re at it.

 

Reference: Orange County Register (June 29, 2020) “Here are 3 surprising things you can do to fight dementia”

 

Your Estate Plan Needs to Be Customized

The only thing worse than having no estate plan, is an estate plan created from a ‘fill-in-the-blank’ form, according to the recent article “Don’t settle for a generic estate plan” from The News-Enterprise. Your estate plan needs to be customized. Compare having an estate plan created to buying a home. Before you start packing, you think about the kind of house you want and how much you can spend. You also talk with real estate agents and mortgage brokers to get ready.

Even when you find a house you love, you don’t write a check right away. You hire an engineer to inspect the property. You might even bring in contractors for repair estimates. At some point, you contact an insurance agent to learn how much it will cost to protect the house. You rely on professionals, because buying a home is an expensive proposition and you want to be sure it will suit your needs and be a sound investment.

The same process goes for your estate plan. You need the advice of a skilled professional–the estate planning lawyer. Sometimes you want input from trusted family members or friends. There other times when you need the estate planning lawyer to help you get past the emotions that can tangle up an estate plan and anticipate any family dynamics that could become a problem in the future.

An estate planning attorney will also help you to avoid problems you may not anticipate. If the family includes a special needs individual, leaving money to that person could result in their losing government benefits. Giving property to an adult child to try to avoid nursing home costs could backfire, making you ineligible for Medicaid coverage and cause your offspring to have an unexpected tax bill.

Your estate planning lawyer should work with your team of professional advisors, including your financial advisor, accountant and, if you own a business, your business advisor. Think of it this way—you wouldn’t ask your real estate agent to do a termite inspection or repair a faulty chimney. Your estate plan needs to be created and updated by a skilled professional: the estate planning lawyer.

Once your estate plan is completed, it’s not done yet. Make sure that the people who need to have original documents—like a power of attorney—have original documents or tell them where they can be found when needed. Keep in mind that many financial institutions will only accept their own power of attorney forms, so you may need to include those in your estate plan.

Medical documents, like advance directives and healthcare powers of attorney, should be given to the people you selected to make decisions on your behalf. Make a list of the documents in your estate plan and where they can be found.

Preparing an estate plan is not just signing a series of fill-in-the-blank forms. It is a means of protecting and passing down the estate that you have devoted a lifetime to creating, no matter its size.

Reference: The News-Enterprise (June 23, 2020) “Don’t settle for a generic estate plan”

 

Possible Pitfalls for Special Needs Planning for Parents

Public benefits for disabled individuals include health care, supplemental income, and resources, like day programs and other vital services. Some benefits are based on the individual’s disability status, but others are “needs tested,” where eligibility is determined based on financial resources, as explained in the article “Planning for loved ones with special needs” from NWTimes.com.  However, there are possible pitfalls for Special Needs Planning for parents.

Needs testing” is something that parents must address as part of special needs planning, in concert with their own estate planning. This ensures that the individual’s government benefits will continue, while their family has the comfort of knowing that after the parents die, their child may have access to resources to cover additional costs and maintain a quality of life they may not otherwise have.  Families must be very careful to make informed planning decisions, otherwise their loved ones may lose the benefits they rely upon.

A variety of special planning tools may be used, and the importance of skilled help from an elder law estate planning attorney cannot be overstated.

One family received a “re-determination” letter from the Social Security Administration. This is the process whereby the SSA scrutinizes a person’s eligibility for benefits, based on their possible access to other non-governmental resources. Once the process begins, the potential exists for a disabled person to lose benefits or be required to pay back benefits if they were deemed to have wrongfully received them.

In this case, a woman who lived in California, engaged in a periodic phone call with California Medicaid. California is known for aggressively pursuing on-going benefits eligibility. The woman mentioned a trust that had been created as a result of estate planning done by her late father. The brief mention was enough to spark an in-depth review of planning. The SSA requested no less than 15 different items, including estate documents, account history and a review of all disbursements for the last two years.

The process has created a tremendous amount of stress for the woman and for her family. The re-determination will also create expenses, as the attorney who drafted the original trust in Indiana, where the father lived, will need to work with a special needs attorney in California, who is knowledgeable about the process in the state.

Similar to estate planning, the special needs process required by Medicaid and the SSA is a constantly evolving process, and not a “one-and-done” transaction. Special needs and estate planning documents created as recently as three or four years ago should be reviewed. Contact a experienced estate planning attorney if you need assistance.

Reference: NWTimes.com (June 21, 2020) “Planning for loved ones with special needs”

 

What Can a Strong Estate Planning Attorney Help Me Accomplish?

The Legal Reader’s recent article entitled “When Should I Start My Estate Planning?” explains that, as we settle down, we should start considering how we’ll provide for and protect those you love.  Talk to an experienced estate planning attorney—one with the knowledge and skill to help you design a workable, legally binding estate plan that will keep your assets safe as they accumulate, protect your spouse and children and consider the possibility that you may become incapacitated when you least expect it.

No matter what your age, the estate planning attorney you hire should have outstanding credentials and testimonials to his/her efficiency and personal concern.

This legal professional must be able to:

  • Listen, understand, and address your individual needs
  • Clarify your options
  • Draft, review, and file all necessary estate planning documents
  • Make certain your estate plan covers all contingencies; and
  • Is prepared to modify your documents as your life circumstances change.

When you see that the future is unpredictable, you realize that estate planning can help you make that future as secure as possible. Estate planning can be as complicated as it is essential. Accordingly, regardless of our age, speak with a highly competent estate planning attorney as soon as possible.

As the COVID-19 pandemic has dramatically shown us, planning for the unexpected can never be addressed too soon.

Reference: Legal Reader (June 23, 2020) “When Should I Start My Estate Planning?”