How can I Revoke an Irrevocable Trust?

Is there a way to get a house deed out of the trust?

Nj.com’s recent article entitled “Can I dissolve an irrevocable trust to get my house out?” says that prior to finalizing legal documents, it is important to know the purpose and consequences of the plan.

An experienced estate planning attorney will tell you there are a variety of trust types that are used to achieve different objectives.

There are revocable trusts that can be created to avoid probate, and others trusts placed in a will to provide for minor children or loved ones with special needs.

Irrevocable trusts are often created to shield assets, including the home, in the event long-term nursing care is required. Conveying assets to an irrevocable trust typically starts the five-year “look back” period for Medicaid purposes, if the trust is restricted from using the assets for, or returning assets to, the individual who created the trust (known as the “grantor”).

When you transfer assets to a trust, control of the assets is given to another person (the ‘trustee”).

This arrangement may protect assets in the event long-term care is required. However it comes with the risk that the trustee may not always act how the grantor intended.

For instance, the grantor can’t independently sell the house owned by the trust or compel the trustee to purchase a replacement residence, which may cause a conflict between the grantor and trustee. Because the trust is irrevocable, it could be difficult and expensive to unwind.

In light of this, it’s important to designate a trustee who will work with and honor the wishes of the grantor.

An experienced estate planning attorney retained for estate and asset planning should provide clear, understandable and thoughtful advice, so the client has the information needed to make an informed decision how to proceed.

Reference: nj.com (April 6, 2021) “Can I dissolve an irrevocable trust to get my house out?”

 

Estate Planning Meets Tax Planning

Not keeping a close eye on tax implications, often costs families tens of thousands of dollars or more, according to a recent article from Forbes, “Who Gets What—A Guide To Tax-Savvy Charitable Bequests.” The smartest solution for donations or inheritances is to consider your wishes, then use a laser-focus on the tax implications to each future recipient.

After the SECURE Act destroyed the stretch IRA strategy, heirs now have to pay income taxes on the IRA they receive within ten years of your passing. An inherited Roth IRA has an advantage in that it can continue to grow for ten more years after your death and then be withdrawn tax free. After-tax dollars and life insurance proceeds are generally not subject to income taxes. However, all of these different inheritances will have tax consequences for your beneficiary.

What if your beneficiary is a tax-exempt charity?

Charities recognized by the IRS as being tax exempt don’t care what form your donation takes. They don’t have to pay taxes on any donations. Bequests of traditional IRAs, Roth IRAs, after-tax dollars, or life insurance are all equally welcome.

However, your heirs will face different tax implications, depending upon the type of assets they receive.

Let’s say you want to leave $100,000 to charity after you and your spouse die. You both have traditional IRAs and some after-tax dollars. For this example, let’s say your child is in the 24% tax bracket. Most estate plans instruct charitable bequests be made from after-tax funds, which are usually in the will or given through a revocable trust. Remember, your will cannot control the disposition of the IRAs or retirement plans, unless it is the designated beneficiary.

By naming a charity as a beneficiary in a will or trust, the money will be after-tax. The charity gets $100,000. If you leave $100,000 to the charity through a traditional IRA and/or your retirement plan beneficiary designation, the charity still gets $100,000. If your heirs received that amount, they’d have to pay taxes on it—in this example, $24,000. If they live in a state that taxes inherited IRAs or if they are in a higher tax bracket, their share of the $100,000 is even less. However, you have options.

Here’s one way to accomplish this. Let’s say you leave $100,000 to charity through your IRA beneficiary designations and $100,000 to your heirs through a will or revocable trust. The charity receives $100,000 and pays no tax. Your heirs also receive $100,000 and pay no federal tax. A simple switch of who gets what saves your heirs $24,000 in taxes. That’s a welcome savings for your heirs, while the charity receives the same amount you wanted.

When considering who gets what in your estate plan, consider how the bequests are being given and what the tax implications will be. Talk with your estate planning attorney about structuring your estate plan with an eye to tax planning.

Reference: Forbes (Jan. 26, 2021) “Who Gets What—A Guide To Tax-Savvy Charitable Bequests”

 

How Do I Disinherit My Child?

Disinheriting a child or any person trying to gain access to your assets after you have died requires skilled estate planning. The things that can be done before you die to protect your estate are the subjects of a recent article “Disinheriting a child” from Westfair Online. It should be noted that if you anticipate a challenge to your will, or if you suspect claims will emerge after you pass, it will be wise to prepare your estate and family members for the legal, financial and emotional aspects of an estate battle.

Here are some of the steps to consider.

Avoiding probate. The probate estate includes assets that are controlled by your Last Will and Testament on the day you die. It does not include assets where there are named beneficiaries. Such assets pass directly to beneficiaries.

Before a will can be executed, it must go through probate. Part of the probate process is the notification of any individuals who may be entitled to receive assets. If you pass away without a will, the estate still needs to be probated and those individuals must still be provided with a notice of your passing and the distribution of your assets. If you had intended to disinherit someone and did not take the necessary steps, it is as if you have issued an invitation to them.

Using a revocable trust. Trusts are used to remove assets from probate estates. A revocable trust is a trust that allows you to maintain complete control over the assets in the trust, while you are living. When you die, the trust does not go through probate and no one needs to be notified of the trust’s existence or its terms, if you so specify and state law permits. Your wishes and assets may remain private. This is especially useful, if you want to disinherit someone.

The revocable trust is not immune from contest, but it makes the challenging more difficult.

Changing titles to joint ownership and naming beneficiaries. Changing your bank, investment and real estate property ownership to joint ownership is a way to avoid probate and have assets pass directly to your intended beneficiaries. However, there are complications to this strategy. If the person you add to an account has money problems, your assets are now available to their creditors. If the person on the account goes through a divorce, your assets are legally available to their spouse. And if the joint owner should die before you, any protection you may have obtained is gone. A trust may be a better solution.

Review your retirement plans and any other assets that allow you to name a beneficiary to ensure that the person who will receive these assets is still the person you want.

What about a no-contest clause? It seems like a simple solution—by including a no-contest clause, often referred to as an “in terrorem” clause, anyone who seeks to contest the will immediately forfeits any distribution to that person, if they are not successful in the will contest. However, what if they are successful in the will contest?

Talk with an experienced estate planning attorney about these and other strategies to defuse a disinherited person’s potential claims. Disinheriting a child sparks many estate battles, so preparations need to be made to protect the family and the estate.

Reference: Westfair Online (Jan. 26, 2021) “Disinheriting a child”

 

Estate Planning Basics for Difficult Times

Most people who contract COVID-19 experience mild symptoms but it does not hurt to be prepared just in case you need to be hospitalized, explains the article “A Guide to Estate Planning During the Coronavirus Pandemic” from HuffPost.com. It is scary to think about being so sick that you aren’t able to make decisions for yourself. However, that’s the point of an estate plan to ease your fears. You’ll feel better knowing you’ve made health and financial decisions in advance and your loved ones won’t have to guess about your wishes. These are the estate planning basics for difficult times.

Even without a global pandemic, everyone should have an estate plan. If you don’t have one, now is the time to get it done, even if you are single and have limited wealth. An estate plan includes documents like a revocable trust, financial powers of attorney (FPOA), health care powers of attorney (HCPOA) and more.

Right now, the medical and financial powers of attorney are on everyone’s mind. These two documents allow a person you name to do your banking, pay your bills and make medical decisions, if you are quarantined at home, admitted to the hospital, or become incapacitated. If you don’t have a financial power of attorney, a family member will need to request the probate court to appoint a guardian. This will be expensive and time-consuming. The same goes for the health care power of attorney. If a decision needs to be made in an emergency situation, the family will not have the ability to enforce your wishes.

A living will, known in some states as an advance health care directive, lets you be specific about what end-of-life treatment you do or do not want to receive, if you become terminally ill or permanently unconscious. Without a living will, the decision to remove life support must be made by loved ones, without knowing what you want.

A HIPAA waiver permits your loved ones to access medical information. Even when there is a health care power of attorney, there are some institutions that will refuse access to medical information without a standalone HIPAA waiver.

The last will and testament is the legal document that is used to direct distribution of property at the time of death, appoint an executor who will oversee the distribution of assets, and, if you have minor children, name a guardian for them. Without a last will, the court will rely on state laws to determine who inherits your property and who will raise your children.

A living trust is a legal contract that creates an entity to hold your assets. If it is a revocable trust, you control it and you can make changes to it anytime you wish. If you become incapacitated or unable to manage your estate, the living trust avoids the need for a court-appointed conservatorship. When you create the living trust, you appoint a successor trustee who will step in when you are unable to manage your affairs. The living trust creates privacy, since the assets in the trust do not go through probate, which is a public process.

Once you have an estate plan, make sure that the documents are safe and the right people can access them. Some estate planning attorneys store documents for their clients. Copies of relevant documents should be given to your treating physician, financial advisor, family members and any trustees or agents. Keep high quality scanned copies on your computer, and label them, so that they can be identified. Don’t name them “Scan1” and “Scan2.” Label them accurately and include the date the documents were signed.

Speak with your estate planning attorney to ensure that you have all of the necessary documents to protect yourself, your loved ones and your property.

Reference: HuffPost.com (April 7, 2020) “A Guide to Estate Planning During the Coronavirus Pandemic”

 

Does Your Estate Plan Need a Will or a Trust—Or Both?

When you pass, having a structure in place that clearly directs who is in charge and who gets what assets, gives most people a sense of relief about their estate plan. Does your estate plan need a will or a trust or both. It’s important to understand how a will works, how a trust works and when to use each of these planning tools, reports the article “Revocable trust vs. will: A guide to estate planning in the age of coronavirus” from Bankrate. In many cases, using both achieves the ultimate goal of protecting the family assets and their privacy.

The will process is more complex than its typical portrayal in film or fiction. The will directs who is to receive the property of the deceased. Without a will, property may be distributed by the courts following the “intestate succession” law of the state. That’s usually the next of kin—not always who you want to inherit your estate.

If property is owned jointly, then it passes to the surviving owner. Accounts and assets with a named beneficiary go directly to that beneficiary. Any assets held in a trust are subject to the directions in the trust. That is one reason to check all accounts you own and make sure they have two named beneficiaries—primary and contingent. That applies to retirement and investment accounts, as well as life insurance policies.

The probate court appoints an executor— who should be chosen by the decedent and nominated in the will—to carry out the directions in the will, pay any outstanding debts, take care of taxes and oversee the distribution of assets. The process of administering the will can be lengthy, depending upon the size and the complexity of the estate. During probate, the will becomes a public document. Predatory creditors are able to see the will, including the amount of assets and their distribution. In many jurisdictions, there are court fees associated with probate that can take a bite (or a nibble) out of the estate.

Trusts are used to circumvent some of the issues created when assets are passed via a will. Trusts are legal structures that provide protection for assets. The assets in a trust do not belong to the individual, they belong to the trust.  Therefore, they are not subject to probate. When the trust is created, a trustee is named whose job it is to manage the affairs of the trust. A successor trustee is named to manage the trust, if the trustee cannot or will not serve.

The revocable trust is used to take assets out of the estate while allowing the asset owner to maintain control. Assets can be moved in or out of the trust, or the trust can be dissolved, and the assets taken back. However, there are no tax benefits since the trust owner is the trust maker, the trustee, and the beneficiary, as long as the owner is alive. On the owner’s passing, the designated successor trustee takes over.

With an irrevocable trust, there are significant tax benefits. However, there is also a loss of control of the assets. Trusts do cost more to establish than wills but they offer a number of advantages. The use of a trust means that less or none of your assets will go through probate, speeding up the distribution process. Trusts also protect the family’s privacy, since the details in the trusts do not become part of the public record. There is less involvement by the court in distributing assets, so fees may be lower.

Speak with an estate planning attorney about how trusts may play a useful part in your estate plan and for passing wealth down to multiple generations.

Reference: Bankrate (April 17, 2020) “Revocable trust vs. will: A guide to estate planning in the age of coronavirus”

 

Trusts Make Sense Even When You Aren’t a Billionaire

Trusts are used to solve problems in estate planning, giving great flexibility in how assets are divided after your death, no matter how modest or massive the size of your estate, according to an article titled “3 Reasons a trust may make sense for your family even though your name isn’t Trump, Gates or Rockefeller” from Market Watch. Don’t worry about anyone thinking your children are “trust fund babies.” Using trusts in your estate plan is a smart move, for many reasons.

There are two basic types of trust. A Revocable Trust is flexible and can be changed at any time by the person who creates the trust, known as the “grantor.” These are commonly used because they allow a high degree of control, while you are living. It’s as if you owned the asset, but you don’t—the trust does.

Once the trust is created, homes, bank and investment accounts and any other asset you want to be owned by the trust are retitled in the name of the trust. This is a step that sometimes gets forgotten, with terrible consequences. Once that’s done, then any documents that need to be signed regarding the trust are signed by you as the trustee, not as yourself. You can continue to sell or manage the assets as you did before they were moved into the trust.

There are many kinds of trusts for particular situations. A Special Needs Trust, or “SNT,” is used to help a disabled person, without making them ineligible for government benefits. A Charitable Trust is used to leave money to a favorite charity, while providing income to a family member during their lifetime. A real estate trust can be used for real property.  Assets that are placed in trusts do not go through the probate process and can control how your assets are distributed to heirs, both in timing and conditions.

An Irrevocable Trust is permanent and once created, cannot be changed. This type of trust is often used to save on estate taxes, by taking the asset out of your taxable estate. Funds you want to take out of your estate and bequeath to grandchildren are often placed in an irrevocable trust.

If you have relationships, properties or goals that are not straightforward, talk with your estate planning attorney about how trusts might benefit you and your family. Here’s why this makes sense:

Reducing estate taxes. While the federal exemption is $11.58 million in 2020 and $11.7 million in 2021, state estate tax exemptions are far lower. New York excludes $6 million, but Massachusetts exempts $1 million. An estate planning attorney in your state will know what your state’s estate taxes are, and how trusts can be used to protect your assets.

If you own property in a second or third state, your heirs will face a second or third round of probate and estate taxes. If the properties are placed in a trust, there’s less management, paperwork and costs to settling your estate.

Avoiding family battles. Families are a bit more complicated now than in the past. There are second and third marriages, children born to parents who don’t feel the need to marry and long-term relationships that serve couples without being married. Trusts can be established for estate planning goals in a way that traditional wills do not. For instance, stepchildren do not enjoy any legal protection when it comes to estate law. If you die when your children are young, a trust can be set up so your children will receive income and/or principal at whatever age you determine. Otherwise, with a will, the child will receive their full inheritance when they reach the legal age set by the state. An 18- or 21-year-old is rarely mature enough to manage a sudden influx of money. You can control how the money is distributed.

Protect your assets while you are living. Having a trust in place prepares you and your family for the changes that often accompany aging, like Alzheimer’s disease. A trust also protects aging adults from predators who seek to take advantage of them. Elder financial abuse is an enormous problem, when trusting adults give money to unscrupulous people—even family members.

Talk with an estate planning attorney about your wishes and your worries. They will be able to create an estate plan and trusts that will protect you, your family and your legacy.

Reference: Market Watch (Dec. 4, 2020) “3 Reasons a trust may make sense for your family even though your name isn’t Trump, Gates or Rockefeller”

 

Your Will Isn’t the End of Your Estate Planning

Even if your financial life is pretty simple, you should have a will. However, there’s more work to be done. Assets must be properly titled, so that assets are distributed as intended upon death.

Forbes’ recent article, “For Estate Plan To Work As Intended, Assets Must Be Properly Titled” notes that with the exception of the choice of potential guardians for children, the most important function of a will is to make certain that the transfer of assets to beneficiaries is the way you intended.

However, not all assets are disposed of by a will—they pass to beneficiaries regardless of the intentions stated in the will. Your will only controls the disposition of assets that fall within your probated estate.

An example of when a designated beneficiary controls the disposition of a financial asset is life insurance. Other examples are retirement accounts, such as a 401(k) or an IRA. When there’s a named beneficiary, assets will be distributed accordingly, which may be different than the intentions stated in a will.

The title of real estate controls its disposition. When property is jointly owned, how it is titled determines if the decedent’s interest in the property passes to the surviving partner, becomes part of the decedent’s estate, or passes to a third party. Titling of jointly owned property can be complicated in community property states.

In the same light, a revocable trust is an inter vivos or living trust that’s created during the grantor’s life, as part of an estate plan.

Such a trust can be used to ensure privacy, avoid the expenses and delays in the probate process and provide for continuity of asset management. A critical part of the planning is that the grantor must transfer (or retitle) assets to the trust.

Wills are very important in estate planning. To ensure that your estate plan fulfills your intentions, talk to an estate planning attorney about the proper titling of your assets.

Reference: Forbes (May 20, 2019) “For Estate Plan To Work As Intended, Assets Must Be Properly Titled”

 

Communicate Your Wishes and Have the Documents in Place

Without a will or other estate planning documents, your property is distributed according to the law of intestate succession in the state where you live at the time of your death. That means any wishes you might have as to how your assets are distributed will not be considered, says the article “Make Your Wishes Known” from the Concord Monitor.

If you want to have a say in what happens to your property, including financial accounts and personal items, you need a will. However, that’s not the only document you need. Here’s a list of the documents that are part of an estate plan.

Last will and testament. This transfers property through the probate process. It ensures that you get to tell others how you want your assets distributed. It may include naming a guardian to be responsible for a minor or incapacitated heir’s personal care and assets.

If you have minor children, you may wish to include a testamentary trust so assets can be managed, and their distribution controlled. If your family includes an individual with special needs, you’ll want a Special Needs Trust (SNT), so they do not lose their eligibility for government benefits.

There are many different types of trusts, and they serve different purposes.

Revocable Trust. This can distribute property without going through probate. It also preserves privacy, since documents do not become public. To avoid probate, the trust must be funded during your lifetime, by changing the title on assets from your name to the name of your revocable trust. That may include bank and investment accounts, personal property and real estate. Income, dividends, gains and losses continue to be reported on your tax returns, while you are living.

If you own a business, talk with your estate planning attorney about whether the ownership of the business should be transferred to a trust.

Married couples should speak with their estate planning attorney about having a joint trust together, or if they should each have separate trusts for estate tax planning, creditor protection, protecting children from prior marriages, or ensuring the continuation of a family business.

You may need a pour-over will with your revocable trust, so assets may be transferred into the revocable trust that are outside of the trust at the time of your death. Your estate planning attorney will be able to discuss this in detail, to see if it is a good option.

Joint ownership. If assets are owned in joint tenancy, property automatically transfers upon death to the surviving joint owner. It is not affected by your will and is a way to avoid probate. However, there may be a loss of control and there may be gift, estate, or income tax consequences.

Beneficiary designations. Life insurance, retirement assets, annuities and other Pay on Death accounts all have a person named to receive the asset upon the death of the owner. Every asset you own with a beneficiary designation should be checked every few years to make sure the right person is set to receive the asset. The beneficiary designation supersedes anything written in your will. There should always be a primary and a secondary beneficiary named, just in case the primary predeceases you or does not want to accept the asset.

Power of Attorney. Everyone should have a Power of Attorney, in the event of incapacity. This permits someone to act as your agent in any financial matters. There is also the Health Care Power of Attorney, which gives another person the authority to make health care decisions on your behalf, if you are not able to communicate your wishes.

All these documents should be the foundation of your estate plan. Each person’s situation is different, but an experienced estate planning attorney will help determine what you need.

Reference: Concord Monitor (April 22, 2019) “Make Your Wishes Known”

 

Surviving Spouse Needs An Estate Plan

When one spouse dies after meticulously titling assets to pass through joint tenancy to the surviving spouse, estate planning attorneys flinch. There are occasions when everything works smoothly, but they are the exception. As this article from the Santa Cruz Sentinel warns “After husband’s death, wife needs to create revocable trust.” Actually, she needs more than a revocable trust: she needs an estate plan.

Most of the assets in the plan created by her husband, in this case, did pass to the wife outside of probate. However, there are a number of details that remain. She needs to obtain date-of-death values for any non-IRA securities the couple owned, and she should also have their home’s value determined, so that a new cost basis for the house will be established. She also needs an appointment with an estate planning attorney to create a will and an estate plan.

If she dies without a will, her children will inherit the estate in equal shares by intestate succession. However, if any of her children pass before she does, the estate could be distributed to her grandchildren. If they are of legal age, there is no control over how the assets will be managed.  Making matters worse, if a child or grandchild is disabled and receiving government benefits, an inheritance could make them ineligible for Social Security and Medicaid benefits, unless the inheritance is held within a Special Needs Trust.

Another reason for an estate plan: a will details exactly how assets are distributed, from the set of pearls that great aunt Sarah has kept in the family for decades to the family home. A durable power of attorney is also part of an estate plan, which lets a named family member or trusted friend make financial decisions on your behalf, if you become incapacitated. An estate plan also includes an advance health care directive, so a loved one can make medical decisions on your behalf if you are not able.

These are the basics of an estate plan. They protect loved ones from having to go to court to obtain the power to make decisions on your behalf, as well as protect your family from outsiders making claims on your estate.

A revocable trust is one way to avoid probate. An estate planning attorney will be able to evaluate your own unique situation and determine what the best type of trust would be for your situation, or if you even need a trust.

You may be thinking of putting your home, most families’ biggest asset, into joint tenancy with your children. What if one or more of your children have a divorce, lawsuit or bankruptcy? This will jeopardize your control of your home. A revocable trust will allow your assets to remain in your control.

The last piece in this estate is the IRA. If you are the surviving spouse, you’ll want to roll over your spouse’s IRA into your own. Make sure to update the beneficiary designation. If you neglect this step and the IRA pays into your estate when you pass, then the IRA has to be cashed in within five years of your death. Your children will lose the opportunity to stretch IRA distributions over their lifetimes.

An estate planning attorney can help guide you through this entire process, working through all the details. If your goal is to avoid probate, they can make that happen, while protecting you and your loved ones at the same time.

Reference: Santa Cruz Sentinel (March 24, 2019) “After husband’s death, wife needs to create revocable trust”