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?”

 

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”

 

How Do I Avoid Unintentionally Disinheriting a Family Member?

When an account owner dies, their assets go directly to beneficiaries named on the account. This bypasses and overrides the will or trust. Therefore, you should use care in coordinating your overall estate plan. You don’t want the wrong person ending up with the financial benefits.

The News-Enterprise recent article, “Don’t accidentally leave your estate to the wrong person,” tells the story of the widower who remarried after the death of his first wife. Because he didn’t change his IRA beneficiary form, at his death, his second wife was left out. She received no money from the IRA, and the retirement money went to his first wife, the named beneficiary. Many types of accounts have beneficiary forms, like U.S. savings bonds, bank accounts, certificates of deposit that can be made payable on death, investment accounts that are set-up as transfer on death, life insurance, annuities and retirement accounts.

Remember that beneficiary designations don’t carry over, when you roll your 401(k) to a new plan or IRA. You can name as your beneficiaries individuals, trusts, charities, organizations, your estate, or no one at all. You can name groups, like “all my living grandchildren who survive me.” However, be certain that the beneficiary form lets you to pass assets “per stirpes,” meaning, equally among the branches of your family. For example, say you’re leaving your life insurance to your four children. One predeceases you. Without the “per stirpes” clause, the remaining three remaining children would divide the death proceeds. With the “per stirpes” clause, the deceased child’s share would pass to the late child’s children (your grandchildren).

Don’t leave assets to minors outright, because it creates the process of having a court appointed guardian care for the assets, until the age of 18 in most states. Instead, you might create trusts for the minor heirs, have the trust as the beneficiary of the assets, and then have the trust pay the money to heirs over time, after they have reached legal age or another milestone.

You should also not name disabled individuals as beneficiaries, because it can cause them to lose their government benefits. Instead, ask your estate planning attorney about creating a special needs or supplemental needs trust. This preserves their ability to continue to receive the government benefits.

Reference: The News-Enterprise (November 30, 2019) “Don’t accidentally leave your estate to the wrong person”

 

What is a Special Needs Trust?

Supplemental Security Income and Medicaid are critical sources of support for those with disabilities, both in benefits and services.  To be eligible, a disabled person must satisfy restrictive income and resource limitations.  That’s why many families ask elder law and estate planning attorneys about the two types of special needs trusts.

Moberly Monitor’s recent article, “Things to know, things to do when considering a special needs trust,” explains that with planning and opening a special needs trust, family members can hold assets for the benefit of a family member without risking critical benefits and services.  If properly thought out, families can continue to support their loved one with a disability long after they’ve passed away.  After meeting the needs of their disabled family member, the resources are kept for further distribution within the family. Distributions from a special needs trust can be made to help with living and health care needs.

To establish a special needs trust, meet with an attorney with experience in this area of law. They work with clients to set up individualized special needs trusts frequently.

Pooled trust organizations can provide another option, especially in serving lower to more moderate-income families, where assets may be less and yet still affect eligibility for vital governmental benefits and services.

Talk to an elder law attorney to discuss what public benefits are being received, how a special needs trust works and other tax and financial considerations. With your attorney’s counsel, you can make the best decision on whether a special needs trust is needed or if another option is better, based on your family’s circumstances.

Reference: Moberly Monitor (October 27, 2019) “Things to know, things to do when considering a special needs trust”

 

How Do I Plan My Estate With a Disabled Child?

Yahoo News’ recent article, “4 Tips for Estate Planning When Your Child Has a Disability” gives us four simple steps to take, if you have children with disabilities.

  1. Draft a letter of intent. This is a letter of instruction that includes instructions that your family and friends will need, if you die or for any reason become incapacitated. This letter should list the passwords to your online financial accounts and personal information someone would need to efficiently step into your life, your home and care for child with a disability. It can include medications, daily routine, strategies you use for calming, therapists’ contact info and other daily living items someone not living in your home may not know about your life.
  2. See an experienced estate planning lawyer. Ask an attorney to help you build a vision for what you want your child’s future to look like. Have the attorney create a will and a special needs trust. A special needs trust lets you to distribute funds and property in a way that doesn’t interfere with government program benefits.
  3. Create a power of attorney or guardianship or conservatorship. A power of attorney for financial and medical issues may be a viable solution. Supported decision-making is an alternative that empowers those with intellectual disabilities to make choices with support and while preserving their rights. If guardianship/conservatorship is your objective, talk to an experienced estate planning attorney before your child reaches age 17. At age 18, the child is no longer considered a juvenile and it is much more difficult to obtain these.
  4. Create a new account. This account can hold funds to ensure your child’s regular account never has more than $2000, which would jeopardize government program benefits, like Medicaid.

This may seem like a gigantic task, so take it one step at a time. Do one thing at a time. Begin the process with the letter of intent and think about the vision you have for your child. Then speak with an experienced estate planning attorney who is experienced in helping special needs families.

Reference: Yahoo News (August 26, 2019) “4 Tips for Estate Planning When Your Child Has a Disability”

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What Goes into an Estate Plan?

The very idea of creating an estate plan can be intimidating, but this article from Brainerd Dispatch, “Navigating your estate plan,” wisely advises breaking down the process into smaller pieces making it more manageable. By taking it step by step, it’s more likely that you’ll be comfortable getting started with the process.

Start with Beneficiaries. This may be the easiest way to start. If you have retirement accounts, like IRAs, 401(k)s, 403(b)s or other retirement accounts, chances are you have already written down the name of the person who you want to receive your assets if you die. The same goes for life insurance policies. The beneficiary designation tells who receives the assets on your death. You should also note that there are tax ramifications if you do not have a beneficiary. Your assets could become taxable five years after you die without a named beneficiary.

Be aware that no matter what your will says, the name on your beneficiary designations on these accounts determines who gets the assets. You need to check on these to be sure the people you have named are still the people who you want to receive your accounts. You should review the designations every time you review your estate plan with your estate planning attorney which should be every three or four years.

Where There’s a Will, There’s a Way Forward. The will is a key document in your estate plan. It can be used to minimize taxes on your estate, ensure that your family has the management assistance they need, and if you have minor children, establish who their guardians should be. Don’t neglect updating your will whenever there is a big change to the law or changes in your life. Not having a will leaves your family in a terrible position where they will have to endure unnecessary expenses and added stress. Your assets will be distributed according to the laws of the Commonwealth of Massachusetts, and not according to your own wishes.

Directives for Difficult Times Health care proxies give your loved ones direction when a terrible situation occurs. If you become incapacitated, through an accident or serious illness, the health care proxy tells your family members what kind of care you want—or do not want. That  person can make medical decisions on your behalf. An estate planning attorney who is licensed will know what forms are accepted.

In addition, you’ll need a Durable Power of Attorney. This allows you to designate someone to step in and manage your finances in the case of incapacity. This is especially important if you are single because otherwise a court may name someone to be your financial guardian.

What About Trusts? If you own a lot of assets, own several piece of real estate or business entities or if your estate is complicated, a trust may be helpful. Trusts are legal entities that hold assets on behalf of a beneficiary or beneficiaries. There are many different types of trusts that are used to serve different purposes, from Special Needs Trusts that are designed to help families plan for an individual with special needs; revocable trusts are used to avoid probate and testamentary trusts are created only when you die. An experienced estate planning attorney will know which trusts are appropriate for your individual situation.

Reference: Brainerd Dispatch (Aug. 11, 2019) “Navigating your estate plan”

 

What Kind of Money Do I Need to Put into a Special Needs Trust for my Child?

One of the toughest things about planning for a child with special needs, is trying to calculate the amount of money it’s going to take to provide both while the parents are alive and after the parents pass away.

Kiplinger’s recent article asks “How Much Should Go into Your Special Needs Trust?” The article explains that it’s not uncommon for people to have done some estate planning but not necessarily special needs estate planning. They haven’t thought about how much money they should earmark to fund that trust someday and which assets would be the best to use.

Special needs estate planning involves creating a special needs trust that allows a person with a disability continue to receive certain public benefits. Typically, ownership of assets more than $2,000 would make the individual ineligible for certain public benefits. Assets held in a special needs trust don’t count toward this amount.

A child with special needs can generate multiple expenses. The precise amount will be based on the needs and lifestyle of the family and the child’s capabilities.

When the parents die, this budget must be increased, because the things the parents did must be monetized.

A special needs trust usually isn’t funded until the parents’ death. The trust would then need to file a tax return each year and pay taxes.

There are also legal and trust administration expenses to think about. Public program benefits can, in many cases, offset many of the above-mentioned costs.

It’s vital to conduct a complete analysis of the future costs to provide for a child with special needs so that parents can start saving and making adjustments in their planning.

Speak with an elder law or estate planning attorney about special needs trusts.

Reference: Kiplinger (June 10, 2019) “How Much Should Go into Your Special Needs Trust?”

 

What the Elder Law Attorney Needs to Know

If you went to a doctor’s office and did not tell the doctor what your symptoms were, it would be hard to get a good diagnosis and treatment. The same goes for a visit to the elder law estate planning attorney. Without all the necessary facts, advises the Times Herald-Record in the article “What you need to tell the elder law estate planning attorney,” the estate plan may need to be revised or created all over again, the inheritance may be given to people other than those you intended and there could be family conflicts.

Elder law is all about planning for disability and incapacity, to include identifying the people who would make decisions for you, if you become incapacitated and protecting your hard-earned assets from the cost of nursing home care.

Estate planning is focused on transferring assets to the desired people, the way you want, when you want, with minimal court costs, taxes, or unnecessary legal fees and avoiding disputes over an inheritance.

Here are some of the things your attorney will need to know, with full disclosure from you:

Family dynamics. If you have a child you haven’t seen in years, you need to discuss the child. They may have a legal claim to your estate, and that must be planned for. Perhaps you want to include the child in the estate, perhaps you don’t. If you disinherit a child in a will and you die without a plan, that child becomes a necessary party to probate proceedings and has the right to contest your will.

Health issues are important to disclose. If you don’t have long-term care insurance, you need five years to protect assets in a Medicaid Asset Protection Trust (MAPT). Therefore, now may be the time to start a plan. If you have a child who is disabled and receives government benefits, you can leave them money in a Special Needs Trust (SNT).

Full disclosure of all your assets, income, how assets are titled, who the beneficiaries are on your IRAs, 401(k)s and life insurance policies, are all the kinds of information needed to create a comprehensive estate plan. Keeping secrets during this process could lead to a wide variety of problems for your family. Your entire estate could be consumed by taxes, or the cost of nursing home care.

There’s no doubt of the seriousness of these issues. You or your spouse may experience some strong emotions, while discussing them with your attorney. However, creating a proper estate plan, preparing for incapacity and loved ones with special challenges will provide you with peace of mind.

One last point: an estate plan is like your home, requiring maintenance and updates. Once it is done, make a note in your schedule to review it every time there is a major life event or every three or four years. Laws change, and life changes. Your estate plan may also need to change so speak with an experienced elder law/estate planning attorney in your area who can assist you.

Reference: Times Herald-Record (May 25, 2019) “What you need to tell the elder law estate planning attorney”

 

Special Needs Families and Special Needs Trust

If nothing prepares a person for parenting, consider how much harder it is to be prepared to raise a child with special needs. Parents often sink in uncharted waters. It’s not just a matter of negotiating all of the day-to-day details, says Newsday in the article “Be ‘biggest advocate’: Parents plan future for adult children with special needs.” Special needs families need to plan for what will happen as the parents age, become ill or die.

As an adult child with disabilities ages, eventually there will be medical issues. If the parents are gone, who will be able to make medical decisions? Where they live, who will oversee their finances and who will be there for them to rely on in a parenting role? There are many questions and they all need answering.

For one family, raising their special needs daughter was a full-time challenge. Their daughter, now 24, has autism. The couple sought out others in their same situation, noting that often even their own family members could not relate to their daily experiences.

It takes a village for special needs families to do more than survive. That includes estate planning and elder law attorneys with deep experience in special needs planning, social workers, therapists and medical professionals. Here’s what needs to be top-of-mind:

Don’t wait to plan. Families often think they have time, but you never know when unexpected events occur. Have a plan in place for legal guardianship, finances and health care.

Work with experienced legal help. You want to work with an attorney who has a great deal of experience and knowledge in special needs law and estate planning. Someone who dabbles on the side of a real estate practice is not the right professional for the task.

Stay in control. When children turn 18, they are adults. Parents and guardians will need to go through probate court to become the child’s guardian. Unless that is done, the parents and guardians will have no legal rights about the child’s medical, financial or other affairs. A successor guardian also needs to be named, so that when the parents are no longer able to serve, someone is in place to care for the child.

Create a Special Needs Trust. A trusts attorney with experience in Special Needs planning will be able to work with the family to create and structure a Special Needs Trust (SNT). A disabled person usually cannot earn enough to support himself, or the caregiver who remains at home to care for them and care-related expenses. The SNT helps to meet current needs and plan for future needs. The trust is used to preserve eligibility for any means-tested state and federal benefits. It allows the individual to have a better quality of life, by providing for expenses that are not covered by their benefits.

It’s very important that no assets be left to the child in an inheritance. Any assets must be placed in the trust. A well-meaning relative could put their eligibility for aid in jeopardy.

Parents and guardians also need to name a trustee and a successor trustee. The person needs to be competent, good with money management, organized and focused on caring for the loved one. It cannot be an emotional decision.

Parents of special needs children are advised to create a Letter of Intent, a narrative that outlines their child’s likes and dislikes, strengths and weaknesses, activities and friends they enjoy and other details that will help them to continue an enjoyable life, when their parents are gone.

Parent’s own estate planning must be done with an eye to maintaining the SNT and caring for their other children. This is a case when assets need to be distributed in a realistic and fair manner. If one sibling is the successor trustee, for example, they may need a larger portion of an estate to help care for their sibling.

Reference: Newsday (May 9, 2019) “Be ‘biggest advocate’: Parents plan future for adult children with special needs.”

 

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”