Avoiding Probate with a Trust

Privacy is just one of the benefits of having a trust created as part of an estate plan. That’s because assets that are placed in a trust are no longer in the person’s name, and as a result do not need to go through probate when the person dies. An article from The Daily Sentinel asks, “When is a trust worth the cost and effort?” The article explains why a trust can be so advantageous even when the assets are not necessarily large.

Let’s say a person owns a piece of property. They can put the property in a trust by signing a deed that will transfer the title to the trust. That property is now owned by the trust and can only be transferred when the trustee signs a deed. Because the trust is the owner of the property, there’s no need to involve probate or the court when the original owner dies.

Establishing a trust is even more useful for those who own property in more than one state. If you own property in a state, the property must go through probate to be distributed from your estate to another person’s ownership. Therefore, if you own property in three states, your executor will need to manage three probate processes.

Privacy is often a problem when estates pass from one generation to the next. In most states, heirs and family members must be notified that you have died and that your estate is being probated. The probate process often requires the executor, or personal representative, to create a list of assets that are shared with certain family members. When the will is probated, that information is available to the public through the courts.  Family members who were not included in the will but were close enough kin to be notified of your death and your assets, may not respond well to being left out. This can create problems for the executor and heirs.

Having greater control over how and when assets are distributed is another benefit of using a trust rather than a will. Not all young adults are prepared or capable of managing large inheritances. With a trust, the inheritance can be distributed in portions: a third at age 28, a third at age 38, and a fourth at age 45, for instance. This kind of control is not always necessary, but when it is, a trust can provide the comfort of knowing that your children are less likely to be irresponsible about an inheritance.

There are other circumstances when a trust is necessary. If the family includes a member who has special needs and is receiving government benefits, an inheritance could make them ineligible for those benefits. In this circumstance, a special needs trust is created to serve their needs.

Another type of trust growing in popularity is the pet trust. Check with a local estate planning lawyer to learn if your state allows this type of trust. A pet trust allows you to set aside a certain amount of money that is only to be used for your pet’s care by a person you name to be their caretaker. In many instances, any money left in the trust after the pet passes can be donated to a charitable organization, usually one that cares for animals.

Finally, trusts can be drafted that are permanent, or “irrevocable,” or that can be changed by the person who wants to create it, a “revocable” trust. Once an irrevocable trust is created, it cannot be changed. Trusts should be created with the help of an experienced trusts and estate planning attorney, who will know how to create the trust and what type of trust will best suit your needs.

Reference: The Daily Sentinel (Jan. 23, 2020) “When is a trust worth the cost and effort?”

 

Estate Planning for Unmarried Couples

For some couples, getting married just doesn’t feel necessary. However, they don’t enjoy the automatic legal rights and protections that legally wed spouses do especially when it comes to death. There are many spousal rights that come with a marriage certificate, reports CNBC in the article “Here’s what happens to your partner if you’re not married and you die.” Without the benefit of marriage extra planning is necessary to protect each other.

Taxes are a non-starter. There’s no federal or state income tax form that will permit a non-married couple to file jointly. If one of the couple’s employers is the source of health insurance for both, the amount that the company contributes is taxable to the employee. A spouse doesn’t have to pay taxes on health insurance.

More important, however, is what happens when one of the partners dies or becomes incapacitated. A number of documents need to be created so should one become incapacitated the other is able to act on their behalf. Preparations also need to be made so the surviving partner is protected and can manage the deceased’s estate.

In order to be prepared, an estate plan is necessary. Creating a plan for what happens to you and your estate is critical for unmarried couples who want their commitment to each other to be protected at death. The general default for a married couple is that everything goes to the surviving spouse. However, for unmarried couples the default may be a sibling, children, parents or other relatives. It won’t be the unmarried partner.

This is especially true if a person dies with no will. The courts in the state of residence will decide who gets what depending upon the law of that state. If there are multiple heirs who have conflicting interests, it could become nasty—and expensive.

However, a will isn’t all that is needed. Most tax-advantaged accounts—Roth IRAs, traditional IRAs, 401(k) plans, etc.—have beneficiaries named. That person receives the assets upon death of the owner. The same is true for investment accounts, annuities, life insurance and any financial product that has a beneficiary named. The beneficiary receives the asset regardless of what is in the will. Therefore, checking beneficiaries need to be part of the estate plan. Checking, savings and investment accounts that are in both partner’s names will become the property of the surviving person, but accounts with only one person’s name on them will not.

Unmarried couples who own a home together need to check how the deed is titled, regardless who is on the mortgage. The legal owner is the person whose name is on the deed. If the house is only in one person’s name, it won’t become part of the estate. Change the deed so both names are on the deed with rights of survivorship, so both are entitled to assume full ownership upon the death of the other.

To prepare for incapacity, an estate planning attorney can help create a durable power of attorney for health care, so partners will be able to make medical decisions on each other’s behalf. A living will should also be created for both people which states wishes for end of life decisions. For financial matters, a durable power of attorney will allow each partner to have control over each other’s financial affairs. It takes a little extra planning for unmarried couples, but the peace of mind that comes from knowing that you have prepared to care for each other, until death do you part, is priceless.

Reference: CNBC (Dec. 16, 2019) “Here’s what happens to your partner if you’re not married and you die”

 

Not a Billionaire? Trusts Can Still Be Beneficial

You don’t have to be wealthy to benefit from the use of a trust. A trust is a legal arrangement by which one person transfers his or her assets to a trustee who will hold those assets in trust for third parties, explains the Stamford Advocate’s article “Trusts are not for the wealthy only.” As the person who created the trust, referred to as “the settlor,” you determine who the trustee is, as well as naming the beneficiaries.

There are many different types of trusts which serve different purposes. However, the two basic categories of trusts are revocable (also known as “living” trusts) and irrevocable trusts. Their names reflect two chief characteristics: the revocable trust can be changed and controlled by the settlor. The irrevocable trust cannot be changed, and the settlor gives up the control of the trust. However, it should be noted that the irrevocable trust has certain tax and other benefits not offered by the revocable trust.

A will is definitely necessary to pass assets on according to your wishes, but a trust can serve other purposes. Here’s a look at some common reasons why people use trusts:

  • Protect assets from creditors
  • Allow heirs to avoid probate of assets in the trusts
  • Avoid, minimize or delay estate taxes, transfer taxes or income taxes
  • Control how assets are disbursed or invested
  • Facilitate business succession planning and manage business assets
  • Shelter assets for descendants, if a spouse remarries
  • Establish a family tradition of philanthropy

Trusts allow assets to be passed on quickly and privately, while eliminating some expenses for heirs. They also permit closer management of who will benefit from your assets.

The cost of setting up a trust depends on the complexity of the trust and the estate, as well as other factors, like the number of beneficiaries and how many generations are being planned for. Bear in mind that the cost of setting up a trust should be measured against the future cost of not just taxes, but any litigation that might occur if the estate is probated and becomes public knowledge, or if family members are dissatisfied with the distribution of assets.

Speak with an estate planning attorney to first determine what kind of trusts are needed for your estate plan to achieve your wishes. Discuss the role of a Special Needs trust, if any family members have mental or physical needs that make them eligible for public assistance. An experienced estate planning attorney will know which planning strategies are best in your unique circumstances.

Reference: Stamford Advocate (Jan. 19, 2020) “Trusts are not for the wealthy only”

 

Five Estate Planning Mistakes to Avoid

While it’s true that no estate is completely bulletproof, there are mistakes that people make that are big enough to walk through, while others are more like a slow drip, draining retirement finances in a slow but steady process. There are mistakes that can be easily avoided, reports Comstock Magazine in the article “Five Mistakes to Avoid When Planning Your Estate.”

  1. Misunderstanding Estate Law. Some people are so thrown by the idea of an estate plan, that they can’t get past the word “estate.” You don’t need a mansion to have an estate. The term is actually used to refer to any and all property that a person owns. Even modest people need a plan to help beneficiaries avoid unnecessary costs and stress. Talk with an estate planning attorney to learn what your needs are, from a will to trusts. Make sure that this is the attorney’s key practice area. A real estate or personal injury attorney won’t have the same knowledge and experience.
  2. Getting Bad Advice. It takes a team to create a strong estate plan. That means an estate planning attorney, a financial advisor and an accountant. Be wary of firms that focus entirely on selling trusts. There’s definitely a role for trusts in estate plans, but there are many other tools that are needed. Buying an insurance policy or an annuity is not an estate plan.
  3. Naming Yourself as a Sole Trustee. Naming yourself as a sole trustee puts you and your estate in a precarious position. What if you develop Alzheimer’s or are injured in an accident? A trusted individual, a family member, a longstanding friend or even a professional trustee, needs to be named to protect your interests, if you should become incapacitated.
  4. Losing Track of Assets. Without a complete list of all assets, it’s nearly impossible for someone to know what you own and who your heirs may be. Some assets, including retirement funds, life insurance policies, or investment accounts, have named beneficiaries. Those people will inherit these assets, regardless of what is in your will. If your heirs can’t find the assets, they may be lost. If you don’t update your beneficiaries, they may go to unintended heirs—like ex-spouses.
  5. Deciding on Options Without Being Fully Informed. When it comes to estate planning, the natural tendency is to go with what we think is the right thing. However, unless you are an estate planning attorney, chances are you don’t know what the right thing is. For tax reasons, for instance, it may make sense to transfer assets, while you are still living. However, that might also be a terrible idea, if you choose the wrong person to hold your assets or don’t put them in the right kind of trust.

Estate planning is still a highly personal process that depends upon every person’s unique experience. Your family situation is different than anyone else’s. An experienced estate planning attorney will be able to create a plan and help you to avoid the big, most commonly made mistakes.

Reference: Comstock Magazine (Dec. 2019) “Five Mistakes to Avoid When Planning Your Estate”

How Do I Change My Will?

Many parents have wills that were drafted years ago. Now they want to leave some specific items to people. Those are items not specifically mentioned in the will.  How can he change his will? Can he just write this list and sign it in front of a notary or does he need to have his will changed?

If you’re the executor and don’t want your father to have to spend more money to add these items to the will, how is it done?  Dad can keep it simple, says nj.com’s recent article, “Does my dad need to pay money to get a new will?” However, doing so will likely cause more trouble for the executor.

The father can create a written list that disposes of tangible personal property, not otherwise identified and disposed of by the will.

The list must either be in the testator’s handwriting and signed by the testator. This list also must describe the item and the recipient clearly. This list can be created before or after the will is signed.

This list can be amended or revoked. It should be kept with the will or given to the executor, so he or she knows about it and can ensure it is followed.

This list isn’t legally enforceable. The executor may elect to honor such a distribution assuming the beneficiaries of the other tangible personal property and/or residuary estate agree. That’s so, even if the will doesn’t reference the written list but the testator nevertheless leaves the list.

However, it would not be in the interest of the executor and may be perceived as a breach of fiduciary duty to honor such a list and make such a distribution if the beneficiaries named in the will object. No one wants to cause a fight over the items on the list after the parent is gone.

As a result, it would be wiser to invest in having the items added to a revised will to protect the father’s wishes. If some of the beneficiaries got into a quarrel over the items on the list it could result in a family fight that a properly drafted and executed revision or amendment could prevent. In order to protect the testators wishes it is suggested that you contact an estate planning attorney and have the will reviewed.

Reference: nj.com (October 14, 2019) “Does my dad need to pay money to get a new will?”

 

Estate Plan—or Lack of One—Will Have an Impact on How You are Remembered

You have a will, even if you never make the effort to have one. However, it may not be the one you wanted, explains an article from The Washington Post titled “You will die. Don’t exit leaving a hot mess behind.” When someone dies without a will the laws of their state determine how assets are distributed to their heirs.

We read many news articles about celebrities who die without wills. One of the most notable was Aretha Franklin, who died last year. She actually left behind three hand-written wills including one found under a couch cushion. Her four children are now tangled in an expensive court battle. The fight has gotten so heated that a judge put the estate’s administration under court supervision.

The rich and famous aren’t the only ones who leave messes behind for their heirs to deal with. The stories told by the woman in charge of funeral services at a Maryland church are so sad. Try these on for size, the next time you want to put off creating or revising your will:

A woman has four children. She dies with no will. Two children wanted to have her cremated, the other two wanted to honor her wishes for a burial. The matter ends up in court where it is revealed that she had purchased a cemetery plot for herself. The family remains divided.

An older gentleman dies leaving a $125,000 life insurance policy to his much younger girlfriend of two years. His adult children had no idea she was the beneficiary. The girlfriend refused to contribute to the funeral or burial. That was her right. However, the children were furious. When she tried to attend the funeral the police were called.

Heard enough? Here’s one that will send you to the phone to make an appointment with your estate planning attorney right now:

A man died and his current wife did not want either his children from his first marriage nor his first wife to have anything to do with the funeral. However, the man never took his first wife’s name off of the house title or as the beneficiary of his insurance policy. The ex-spouse got everything. The first wife paid for the funeral and buria, but she also reclaimed the house that was rightfully hers. The widow went to live with her mother.

Do yourself, your children and your current spouse a favor. Make an appointment with an estate planning attorney, check the beneficiaries on your insurance policies, retirement and investment accounts and get your affairs in order. We never know when we will pass only that we will pass. Be remembered as the person who took care of their loved ones.

Reference: The Washington Post (Oct. 5, 2019) “You will die. Don’t exit leaving a hot mess behind”

 

Your Spouse Just Died … Now What?

There are several steps to take while both spouses are alive and well, to help reduce the chance of the surviving spouse finding themselves in a “financial deadlock” situation, or worse. The preparations require the non-financially dominant partner to be involved as much as possible, says Barron’s in the article “How to Avoid Financial Deadlock—or Worse—After One Spouse Dies”

Step one is to prepare the financial equivalent of a “go-bag,” like the ones people are supposed to have when they must leave their home in a crisis. That means a list of all financial contacts, advisors, estate planning attorney, accountants, insurance professionals and copies of all beneficiary designations. There should also be a list or a spreadsheet of all the couple’s assets and liabilities, including digital assets and passwords to these accounts. The spouse should also note the location of financial records, including insurance policies, wills, trusts and any other critical legal documents.

Each partner must have access to checking and cash independently of the other, and the spouses need to review together how assets and accounts are titled.

It is especially important for both spouses to be on the deed to their home so that the surviving spouse can easily prove that they are the sole owner of the home after the spouse dies. Otherwise, they may not be able to communicate with the mortgage company. If a surviving spouse must go to court and file probate in order to deal with the home it can become costly and more stressful.

It’s not emotionally easy to go through all this information but it is critical for the surviving spouse’s financial security.

Any information that will be needed by the surviving spouse should be documented in a way that is easily accessible and understandable for the spouse. Even if someone is very organized and has a well-developed description of their assets and estate plan it may not be as easily understood for someone whose mind works differently. This is especially true if the couple has had years where the non-financial spouse was not involved with the family’s assets and is suddenly digesting a lot of new information.

It is wise for the non-financial spouse to meet with key advisors and take on some of the tasks like bill paying, reviewing insurance policies and reconciling accounts well before either spouse experiences any kind of cognitive decline. Ideally, the financially dominant partner takes the time to train the other spouse and then lets them take the lead, until they are both comfortable managing all the details.

Each spouse needs to understand how the death of the other will impact the household income. If one spouse has a pension without survivor benefits and that spouse is the first to die, the surviving spouse may find themselves struggling to replace that income. They also need to consider daily aspects of their lives, like if one spouse is highly dependent upon the other for caregiving.

Spouses are advised not to make any big financial or life decisions within a year or so of a spouse’s death. The surviving spouse is often not in a good emotional state to make smart decisions and this is the time that they are most at risk for senior financial abuse.

Both spouses should sit down with their estate planning attorney and discuss what will happen when they are widowed. It is a difficult topic but planning ahead will make the transition less traumatic from a financial and legal perspective.

Reference: Barron’s (Sep. 15, 2019) “How to Avoid Financial Deadlock—or Worse—After One Spouse Dies”

 

Estate Planning Is for Everyone, at Every Age

As we go through the many milestones of life, it’s important to plan for what’s coming, and also plan for the unexpected. An estate planning attorney works with individuals, families and businesses to plan for what lies ahead, says the Cincinnati Business Courier in the article “Estate planning considerations for every stage of life.” For younger families, having an estate plan is like having life insurance: it is hoped that the insurance is never needed, but having it in place is comforting.

For others, in different stages of life, an estate plan is needed to ensure a smooth transition for a business owner heading to retirement, protecting a spouse or children from creditors or minimizing tax liability for a family.

Here are some milestones in life when an estate plan is needed:

Becoming an adult. It is true, for most 18-year-olds estate planning is the last thing on their minds. However, at 18 most states consider them legal adults, and their parents no longer control many things in their lives. If parents want or need to be involved with medical or financial matters, certain estate planning documents are needed. All new adults need a general power of attorney and health care directives to allow someone else to step in, if something occurs.

That can be as minimal as a parent talking with a doctor during an office appointment or making medical decisions during a crisis. A HIPAA release should also be prepared. A simple will should be considered, especially if assets are to pass directly to siblings or a significant person in their life, to whom they are not married.

Getting married. Marriage unites individuals and their assets. For newly married couples, estate planning documents should be updated for each spouse, so their estate plans may be merged, and the new spouse can become a joint owner, primary beneficiary and fiduciary. In addition to the wills, power of attorney, healthcare directive and beneficiary designations also need to be updated to name the new spouse or a trust. This is also a time to start keeping a list of assets in case someone needs to access accounts.

When children join the family. Whether born or adopted, the entrance of children into the family makes an estate plan especially important. Choosing guardians who will raise the children in the absence of their parents is the hardest thing to think about, but it is critical for the children’s well-being. A revocable trust may be a means of allowing the seamless transfer and ongoing administration of the family’s assets to benefit the children and other family members.

Part of business planning. Estate planning should be part of every business owner’s plan. If the unexpected occurs, the business and the owner’s family will also be better off, regardless of whether they are involved in the business. At the very least, business interests should be directed to transfer out of probate, allowing for an efficient transition of the business to the right people without the burden of probate estate administration.

If a divorce occurs. Divorce is a sad reality for more than half of today’s married couples. The post-divorce period is the time to review the estate plan to remove the ex-spouse, change any beneficiary designations, and plan for new fiduciaries. It’s important to review all accounts to ensure that any controlling-on-death accounts are updated. A careful review by an estate planning attorney is worth the time to make sure no assets are overlooked.

Upon retirement. Just before or after retirement is an important time to review an estate plan. Children may be grown and take on roles of fiduciaries or be in a position to help with medical or financial affairs. This is the time to plan for wealth transfer, minimizing estate taxes and planning for incapacity.

Contacting an experienced estate planning attorney to help assist you is your best bet.

Reference: Cincinnati Business Courier (Sep. 4, 2019) “Estate planning considerations for every stage of life.”

 

So, You Have to Manage Someone Else’s Money – Now What?

This sounds like a disaster in the making. A durable power of attorney document must follow the statutory requirements, must delegate proper authority, must consider the timing of when the agent may act and a host of other issues that must be addressed, warns My San Antonio in the article “Guide to managing someone else’s money.” A durable power of attorney document can be so far reaching that a form downloaded from the Internet is asking for major trouble.

Start by speaking with an experienced estate planning attorney to provide proper advice and draft a legally valid document that is appropriate for your situation.

Once a proper durable power of attorney has been drafted, talk with the agent you have selected and with the successor agents you want to name, about their roles and responsibilities. For instance:

When will the agent’s power commence? It may start immediately, or it may not become active, until the person becomes incapacitated.

If the power is postponed, how will the agent prove that the person has become incapacitated? Will he or she need to go to court?

What is the extent of the agent’s authority? This is very important. Do you want the agent to be able to talk with the IRS about your taxes?, with your investment advisor? will the agent have the power to make gifts on your behalf, and to what extent? May the agent set up a trust for your benefit?, can the agent change beneficiary designations and what about caring for your pets? Can they talk with your lawyer or accountant?

When does the agent’s authority end? Unless the document sets an earlier date, it ends when you revoke it, when you die, when a court appoints a guardian for you, or if your agent is your spouse, when you divorce.

What does the agent need to report to you? What are your expectations for the agent’s role? Do you want immediate assistance from the agent or will you continue to sign documents for yourself?

Does the agent know how to avoid personal exposure? If the agent signs a contract for you by signing his or her own name that contract may be performed by the agent. Legally, that means that the cost of the services provided could be taken out of the agent’s wallet. Does the agent understand how to sign a contract to avoid liability?

All of these questions need to be addressed long before any durable power of attorney papers are signed. Both you and the agent need to understand the role of a power of attorney. An experienced estate planning attorney will be able to explore all the issues inherent in a durable power of attorney and make sure that it is the correct document.

Reference: My San Antonio Life (Aug. 26, 2019) “Guide to managing someone else’s money”

 

Why Wills Need to be Updated

Lives change and laws change. People come and go in our lives, through birth, death, marriage and divorce. Change is a constant factor in everyone’s lives. If your estate plan doesn’t keep up to date, says Next Avenue in the article “8 Reasons You May Need to Update Your Will,” you could create real problems for those you love. Here are eight reasons why people need to review their wills to ensure that your estate plan reflects your current life.

Moving to a new home. If you’ve moved to a new state since the last time your will was written, your will needs a review. Remember, wills are administered under the laws of the state where you live so the new state’s laws apply. An out-of-state will could present issues. If the number of witnesses required to make a will valid in your old state of residence was one but the new state requires two witnesses your will could be deemed invalid.

Selling one home and buying another. If your will does not reflect your current address, it’s going to be very difficult for your executor to properly transfer ownership or manage the sale of the house. Most wills incorporate specific language about homes that includes the address.

You’ve done a good job of downsizing. Kudos to you for cleaning out and getting rid of unwanted items. If you no longer own things that are itemized in a will, they’ll be skipped over. However, do you want to give heirs something else? Without specific instructions, they won’t know who gets what.

Did you already give away possessions? Avoid family conflicts by being clear about who gets what. If you already gave your oldest daughter an antique dining room set but your will says it goes to the youngest son, things could become awkward. Similarly, if you gave one child something with a higher market or sentimental value than what you gave to another, it could create tension in the family. Updating your will is an opportunity to adjust these gifts.

Charity relationships change. The same organization that mattered greatly to you ten years ago may not have as much meaning—or may have changed its focus. Update your will to reflect the charitable contributions that matter to you now.

Finances change. If a will spells out exact amounts and the money is gone, or if your accounts have increased, those numbers may no longer be accurate or reflect your wishes. The dollar amounts may create a challenge for your executor. What if you designated a gift of stock to someone that wasn’t worth much at the time, but is worth a small fortune now? Amending a will can ensure that your gifts are of the value that you want them to be.

One child is now your primary caregiver. If one child has dedicated the last five years to taking care of you, you may want to update the document to show your gratitude and compensate them for lost earnings or expenses. If you do, explain your reasons for this kind of change to other children, so that there’s no misunderstanding when the will is read.

A beneficiary has passed away. If you are a surviving spouse, that alone may not be reason to update your will, if—and this is a big if—your will included alternate recipients as a plan for this situation. If there were no alternate recipients, then you will need to revise your will after the death of a spouse. If you listed leaving items to a beneficiary who has died, instructions on how to distribute these items or assets to someone else can be done with an amended will.

Your estate planning attorney will be able to review your will and your estate plan with you to determine what items need to be updated. Your documents may need only a tune-up, and not a complete overhaul, but it is advisable to review estate plans every three or four years.

Reference: Next Avenue (August 22, 2019) “8 Reasons You May Need to Update Your Will”