Michigan Estate Planning Blog

How to Choose a Successor Trustee?

 

Trusts are a popular estate planning tool, allowing for control and protection of assets and tailored to meet specific needs. A trust requires both a trustee or successor trustee, says a recent article from Kiplinger, “You’ve Got a Trust: Now Who Should Be the Successor Trustee?”

If you have an irrevocable trust, you might want to have two different people to serve as trustees. The investment trustee is in charge of managing the investments in the trust, while the administrator trustee manages the operations aspect of the trust. One person could perform both roles, but having two people may provide a second layer of oversight. Irrevocable trusts require the grantor to give up control of the assets in the trust, which may be more acceptable when two people are in charge of the trust.

Revocable or living trusts allow the grantor to be a trustee and have complete control over the trust. A successor trustee is named so someone can take over the trust if the grantor is incapacitated or dies.

The grantor may again choose to have two trustees. One can be the trustee in case of incapacity, and the second can be the trustee when the grantor dies. If you name an adult child as your executor and they are also the trustee of your revocable will, one person is responsible for everything. Dividing the roles could lighten the load for busy adult children. If a trustee lives far away, it may be challenging for them to act on your behalf during incapacity and you may wish someone more local to serve in this role.

Successor trustees have a number of duties. They have a fiduciary duty to identify and protect trust assets, pay bills, oversee finances, manage investments, manage the distribution of trust assets, file tax returns, make tax elections and manage any legal or financial issues relating to the trust. Depending upon the size of the trust, this could be a time-consuming responsibility.

Before automatically naming the eldest child to serve as successor trustee, take some time to think about whether or not they are the best person for the job. If the trust estate is passing to the children and the successor trustee’s role will be simple—dividing assets evenly among beneficiaries—this might be an easy decision.

Suppose there are more complex matters, like a distribution being held back because one of the beneficiaries is a minor or has a drug dependency issue, and distributions are at the discretion of the trustee. In that case, the trustee may face repercussions from family members.

Naming a successor trustee is like choosing someone to serve as your executor. They have to be honest, organized, good with financial matters, and able to communicate with heirs even when there’s little or a lot of resentment about their being in charge. They must also be available to interact with your professionals, including an estate planning attorney, financial advisor and accountant. There are instances when a bank, private fiduciary, or estate planning attorney may be a better choice for a successor trustee.

Your estate planning attorney can help you sift through the personalities and skill sets of possible trustees to determine the best candidate for the job.

Reference: Kiplinger (Dec. 18, 2024) “You’ve Got a Trust: Now Who Should Be the Successor Trustee?”

How Dying Without a Will Leaves Heirs an Extra Dose of Grief

 

Don’t delay having a will prepared by an experienced estate planning attorney, warns a frank article from Barron’s, “What Happens if You Die Without a Will? You Could Leave Heirs—and Pets—With Even More Grief.”

If you die without a will, a probate court will name heirs to receive assets and guardians to raise children. However, no one will be required to protect your pets. In worst-case scenarios, assets with no designated beneficiaries, including bank accounts, real estate property and retirement accounts, can end up in the state’s unclaimed property department.

If you’d rather choose who will be your heir, assign a person you know and trust to raise your children and want to ensure that your beloved animal companions live comfortably after you’ve passed, then you need a will.

A family member embarking on a search to identify property might be able to glean some information from the prior year’s tax returns. They’ll still first have to find the tax returns and then go to court to be appointed administrator of your estate. If you have digital assets, including cryptocurrency, and haven’t made a plan for someone to take control and manage those assets, your family may never see those assets.

Having assets titled with preferred beneficiaries is as important as having a will. Retirement accounts with named beneficiaries, including 401(k)s, supersede directions in a will. If most of your wealth is in a 401(k) or other accounts with the ability to name a beneficiary, make sure that those names are correct.

In community property states like California, spouses are entitled to community property, and asset distribution follows state law.

If you have children, and especially if they are still minors, you want to have a will to explicitly state who you want to raise your children if both parents die. While other family members can petition the court for guardianship, your children could become the center of a family blowup if more than one person wants to take custody.

If you care about what will happen to your pet, you must also plan for them. Even the most well-intentioned family member isn’t required to take your pet into their home. Shelters have many senior dogs and cats left behind when their owners die and are less likely to be adopted than kittens or puppies. Most states allow you to create a pet trust, where you set aside funds for the care of your pet and name a person to be the pet’s guardian and another person to be in charge of the trust. You can name the guardian to be the same person as the trustee, or you can keep the roles separate.

Unless you want to create a maelstrom for your family and let other people make important, life-altering decisions for those you love, schedule a meeting with an estate planning attorney to review your estate and create a will, along with other necessary estate planning documents.

Reference: Barron’s (Dec. 6, 2024) “What Happens if You Die Without a Will? You Could Leave Heirs—and Pets—With Even More Grief”

Make Life Easier for Heirs: Get Your Estate Organized

 

The holiday season is not when most of us think about death and dying. However, we do think about gift-giving. Estate planning is a gift for your family. Wouldn’t you prefer a package wrapped in festive paper and decorated with ribbons than an unwrapped item hastily stuffed into a shopping bag? The article “5 Things to Do Now to Make Your Estate Simpler for Your Heirs” from The Wall Street Journal offers a starting point.

Update all estate planning documents. Failing to update estate planning documents, including finalizing new documents, can wreak havoc on families. One example is a woman who took about two decades to update her will and then died before signing the papers. Her will included giving assets to stepchildren she hadn’t seen in more than twenty years. Her adult children are spending thousands to have the new will enforced by a judge, even though it’s unsigned.

When did you last examine the beneficiary designations for all your financial accounts? Life insurance, retirement accounts, bank and investment accounts, pensions and other financial accounts provide an opportunity to name a person or people to receive the assets directly upon your death. If your old college pal is the person you thought of when you started your 401(k) with your first job, your wife may not appreciate his receiving hundreds of thousands of dollars upon your death.

Named beneficiaries receive assets directly from the financial institution and do not go through probate. No matter what language is in a will or even a living trust, these assets belong to the people you named to receive them. You should have a list of all of these accounts and know who the beneficiaries are.

Digital assets are now part of estate plans. There are very few people today who don’t have digital assets. These include the content in your emails, photos stored on the cloud, websites, content on social media platforms, online businesses and anything you’ve created online. Most people don’t understand the Terms of Service Agreement they make between the service provider and themselves when they click on the link to approve the TOSA. However, this is a legally binding contract delineating what the platform owns and what the user owns. You may not own books, movies, or other digital assets; you might have rented them unknowingly.

Digital assets need to be organized for heirs, since there isn’t a paper trail for them to follow like in previous decades. You can create a spreadsheet, use a password manager or a pad of paper. However, there should be a means for your digital executor to identify and access your digital assets.

Some digital platforms allow you to name a “legacy” contact who can take care of your digital assets after you’ve passed. You’ll need to go through each of your digital assets to find out which platform has this or related features. If it seems annoying, imagine how your heirs will feel trying to untangle your digital assets.

If your estate includes cryptocurrency, this is especially important. Millions of dollars of crypto have been lost because people have failed to secure their pass keys or digital wallets.

Deal with personal property now. Especially if you have multiple heirs, hoping the kids “work things out” could be a recipe for disaster. Make a list of your personal items and who you want to receive what. In some families, this is relatively straightforward. However, your adult children will be grieving after your passing and vulnerable to disputes. Another tactic: give items while you’re living.

Get your estate planning documents organized. Create a three-ring binder with all essential documents. Contact information for your estate planning attorney, CPA and financial advisor should be provided. Include a list of bills paid online, like utility, mortgage, taxes, health insurance, car insurance, etc. Also included are Power of Attorney, Health Care Power of Attorney, Living Will, Trusts and other estate planning documents. Tell your executor and adult children where the folder is.

An organized estate plan helps avoid family conflict. Having documents prepared, property assigned and accounts recorded all takes time. However, by doing so, you’ve minimized the work for loved ones and minimized reasons for quarrels during what will already be a difficult time.

Reference: The Wall Street Journal (Nov. 14, 2024) “5 Things to Do Now to Make Your Estate Simpler for Your Heirs”

How Does a Trust Work in an Inheritance?

 

It’s not easy to create an estate plan without the guidance of an experienced estate planning attorney. They can help work through the many moving parts and address concerns about how family members will respond to your plan to pass on assets. A recent article from msn, “3 Reasons to Seriously Consider Using a Living Trust to Pass an Inheritance to Your Family,” says. At the same time, you may think keeping things simple with a last will and testament may be sufficient, but there are also good reasons to use a living trust.

If you have many beneficiaries, a living trust allows you to control assets while living and after you’ve passed. If you have a large family and want to include grandchildren, nieces and nephews in your estate plan, the living trust is easier than a will. Beneficiaries can be easily added or removed, as events like marriage, birth and divorce occur within the family.

The living trust allows you to get very specific about exactly how much of which asset you want to pass to each beneficiary. If your heirs include minors, a living trust consists of a trustee who can manage their assets until they reach a certain age. You can also determine at what age you want beneficiaries to receive your wealth. You might, for instance, decide to give a grandchild their inheritance not when they reach the age of majority (legal age) but when they turn 30.

Do you own real estate property? This asset can be tricky to bequeath in a will, especially if you own property in multiple states. Your estate would have to go through probate in each state, which all have their own rules and laws. This becomes expensive and time-consuming. Retitling real estate property into a living trust means the properties don’t need to go through probate. Your estate planning attorney will help make this an efficient process.

Trusts should be in your estate plan if privacy is important to you. Most people don’t know their wills become public documents as part of probate. This means anyone who is interested can read your will. This could be an estranged family member who feels they were wrongfully left out of the will, an ex-spouse, creditors, salespeople and thieves.

The public nature of probate is another reason why wills should not contain any specific account information, like account names, numbers, or the amount of money in the accounts. For the same reason, the names of digital assets, including user names and passwords, should never be included in a will.

Trusts are one of many means of passing assets to heirs without anyone except the grantor (the person creating the trust), the trustee (the person in charge of managing the trust), and the beneficiaries knowing about the trust’s existence and what it contains. This is especially important if your situation includes someone you wish to keep in the dark about your assets or your intentions.

Meet with an experienced estate planning attorney to discuss the different ways to pass wealth to loved ones, including a will and trusts. Learning what options are available will allow you to make an informed choice.

Reference: msn (Nov. 2, 2024) “3 Reasons to Seriously Consider Using a Living Trust to Pass an Inheritance to Your Family”

Planning to Protect Your Children’s Inheritance: Asset Protection

 

No one likes to think about the possibility of losing a lifetime of earnings through unfortunate events like divorce, spendthrift heirs, or litigation. However, ignoring these risks won’t prevent them. A recent article from Kiplinger, “Want Your Kids to Inherit? You Need an Asset Protection Plan, ” explains several asset protection strategies used to protect wealth from disappearing in nefarious ways.

Prenuptial agreements aren’t the most welcoming topic when your adult child announces their engagement. Still, this should be discussed and encouraged no matter how much you love your prospective new family member. A prenuptial agreement or prenup is a contract between two adults agreeing on how they will distribute assets in case of divorce. This legally binding document addresses assets, debts, spousal support, alimony, gifts and inheritances. It’s also helpful as a supporting document if one of the spouses should die unexpectedly. However, the couple should have a will, power of attorney and other estate planning documents created as soon as they are married.

Depending on the state, there may be laws concerning when the prenup is signed for it to be valid. Signing a prenup under duress could make it invalid, so this needs to be addressed in a timely manner.

Another option is to create a postnuptial agreement (postnup). Spouses may contractually agree to terms outlining the distribution of assets in the event of a divorce after the wedding.

Asset protection includes determining and formalizing how assets will be passed on to heirs. Parents should consider creating trusts as part of their estate plan. Trusts allow grantors (the person creating the trust) a much higher degree of control over who receives the assets in the trust and takes them out of the probate estate.

For example, the trust may call for a beneficiary to receive a portion of their inheritance at ages 30 and 40 and the balance at age 50. An heir with a drug dependency might be required to complete a rehabilitation program or maintain employment over a steady period of time before the trustee can distribute some or all of the assets in the trust.

If assets are left through a will, a number of vulnerabilities are created. First, they are part of the probate estate and subject to federal and state taxes. Second, the will becomes a public document when it goes through probate, so creditors can learn if someone is receiving an inheritance. Creditors may include ex-spouses, credit card companies and financial institutions.

An experienced estate planning attorney is familiar with the tools used to protect assets and ensure that they pass to the next generation according to your wishes. Protecting a lifetime of hard work is a worthy endeavor, creating a legacy and providing security for those you love.

Reference: Kiplinger (Nov. 9, 2024) “Want Your Kids to Inherit? You Need an Asset Protection Plan”

Why an Updated Estate Plan Is Critical, Especially Now

 

Without a properly prepared and current estate plan, property is distributed following the intestacy law of the decedent’s state of residence. In most cases, the laws are centered around kinship, with spouses and children dividing percentages of the estate.

If you had something else in mind, it wouldn’t matter—the time to create and update an estate plan is while you’re living. We all know this. However, many just keep procrastinating. A recent article, “Make sure your estate plan is updated to reflect law changes,” from Los Altos Town Crier, explains precisely what pitfalls your loved ones will face if you put off creating an estate plan until it’s too late.

Probate can be minimized or avoided with a professionally prepared estate plan. The probate experience varies with the jurisdiction: in some courts, it’s a streamlined process, while in others, it is a series of delays, sometimes stretching out over months or even years. The time and costs of probate also depend upon the complexity of the estate. In some states, probate can cost 4—7% of the estate’s total value.

An estate planning attorney works with clients to create a means of passing assets to their intended beneficiaries without court involvement. This takes many different shapes depending on the family, the value of the assets, the structure of ownership, etc. Trusts, payable on death accounts, joint tenancy ownership and LLCs (Limited Liability Corporations) are just a few means of passing wealth without involving probate.

Estate planning attorneys help clients control how and when assets are passed to heirs. For instance, if someone had a child who is exceptionally mature and responsible, they may wish to provide the child with their inheritance upon their death. A trust can be created to address the concerns of a family with an adult child who, for whatever reason, cannot manage money. The trust can have a trustee who will be charged with distributing assets according to directions provided by the parents—after achieving certain milestones, at specific ages, or when the trustee deems funds should be distributed.

Incapacity is unpleasant to consider but is as much a part of estate planning as planning for asset distribution after death. Without having a plan for incapacity, the family may be forced to go to court and petition for a supervised conservatorship, a costly and stressful process.

Incapacity or death are the last things on the minds of new parents. However, when a new child joins the family, updating an estate plan to include naming a guardian becomes critical. If there is no will or the will has never been updated to reflect the addition of children, the court determines who will raise the children. Any interested party may petition the court to be appointed as a guardian. The court ultimately makes the decision. However, the decision by the parents, as expressed in an estate plan, will have more weight than an estranged sibling.

An estate plan protects the family by lessening the chances of family disputes and legal battles, which can lead to lifelong divisions. A meeting with an estate planning attorney will give you insight into the importance of having an estate plan and how it serves as a gift to loved ones.

Reference: Los Altos Town Crier (Oct. 29, 2024) “Make sure your estate plan is updated to reflect law changes”

How Can a Will Be Changed?

 

A last will and testament is a legal document that distributes assets, including investments, real estate and personal property after death. Once a will has been signed and executed, it becomes the foundation for an estate plan. However, what happens if you want to make changes? This is the topic addressed in a recent article from smartasset.com, “What is a Codicil to a Will?”

A codicil is a legal document that changes an already completed and valid will. Some prefer to use a codicil rather than revise their entire will, usually for reasons of economy. The codicil allows the will’s creator to update specific provisions. A codicil can be used to change beneficiaries, assign a different person to be the estate executor, or even change the size of gifts made to heirs.

Codicils are like wills: they need to be signed and witnessed according to the laws of the state to be valid. People like the ability to make changes to their wills quickly and easily. However, sometimes, a codicil is not the right way to change a will.

The codicil performs best when changes being made to the will are minor in nature. They should be used to make small changes when the testator’s wish is to maintain the overall intent of the will. For instance, the birth of a new child and the addition of an heir could be reflected through a codicil.

An experienced estate planning attorney must create the codicil. Making a note on an original will with initials and a date is not a codicil. It’s a separate document, requiring a formal signature and the presence and signatures of witnesses. Most states don’t require a codicil to be notarized. However, you should check with your estate planning attorney to find out if this applies to your state.

Making a lot of changes to a will with multiple codicils may result in estate problems in the future. There are numerous instances where multiple changes, especially repetitive ones, like taking the same person off and then adding them back, are perceived as changing the intent of the testator (the person who made the will). This leaves the entire estate vulnerable to challenges.

Some typical reasons for using a codicil:

Changing beneficiaries

Replacing an executor

Revising asset distribution

Divorce, marriage, birth, death.

Making new bequests

Correcting prior errors or omissions

Before having your estate planning attorney create a codicil, there are a few steps to take. First, discuss the reason for the change and whether the entire will should be revised. A new will may be better if the change is not simple and straightforward. If the codicil is being done to disinherit a beneficiary, your estate planning attorney may have other suggestions. If you have created trusts, the changes to the will don’t carry over to your trusts. They may need to be modified as well.

Reference: smartasset.com (Oct. 23, 2024) “What is a Codicil to a Will?”

What Is Needed for End-of-Life Planning?

 

Becoming incapacitated or dying without planning isn’t uncommon. Nevertheless, it is harmful to loved ones who are left to address the legal and financial aspects at the same time they are experiencing the grief of loss. What needs to happen is addressed in an article from Twin Cities Pioneer Press, “Your Money: A balanced approach to end-of-life planning.”

End-of-life care is expensive. Costs rise as the person moves through the different stages of illness or age. Medicare doesn’t cover long-term nursing care in a facility or at home, so resources without planned protection will rapidly be exhausted. An estate planning attorney can help the family prepare for these costs, but only when planning takes place in advance.

Once incapacitated, people cannot legally sign and execute legal documents. If the family hasn’t arranged for a Power of Attorney or Medical Proxy to be created while the person is still legally able, the family may be faced with the additional expense of going to court to petition for guardianship and/or conservatorship.

There are five basic estate planning documents to be prepared. While every adult should have these documents, they become more critical when someone is closer to passing.

Last Will and Testament. A will directs how you want your assets to be distributed upon your passing. It may include personal property, real estate, jewelry, family heirlooms and any other material goods. Note the will becomes a public document when the estate goes through probate, so don’t include any account numbers or information you don’t want to read by others.

Healthcare Directives. Privacy laws are strict, and healthcare providers are limited in what they can discuss with spouses and children if the right documents are not in place. A Medical Power of Attorney or Healthcare Proxy is needed for family members to be involved in medical decisions. A HIPAA Release Form should be created to access health care and health insurance records.

Many accounts, including bank and investment accounts, IRAs, SEPs and life insurance policies, have beneficiary designations, where a person or persons are named to receive the asset upon the original owner's death. Make sure these are up to date to reflect the owner’s wishes.

Trusts take assets out of an estate for tax and wealth transfer purposes. The person creating the trust dictates how and when the beneficiaries should receive assets. Distributions can occur over an extended period or when certain conditions are met.

Meet with an experienced estate planning attorney if you or a loved one is ill and may be approaching the end of life. Putting an estate plan in place ensures that wishes are fulfilled and spares the family from having to guess what a loved one would have wanted in their final days.

Reference: Twin Cities Pioneer Press (Oct. 12, 2024) “Your Money: A balanced approach to end-of-life planning”

Can an Irrevocable Trust Be Changed or Ended?

 

Headlines around Rupert Murdoch’s estate battle concern his wish to change an irrevocable trust to give one son an elevated role and more control of his empire. The other siblings have taken their father to court. According to a recent article from Market Watch, “No trust is set in stone. Even irrevocable trusts can have some wiggle room.” What does this mean for regular people who want to change irrevocable trusts?

Trusts are legal structures in which the person creating the trust, the grantor, passes assets to another person or entity, referred to as the beneficiary. Revocable trusts can, as their name implies, be changed by the grantor at any time. Trusts are used to pass wealth to heirs, pass assets without needing to go through probate, maintain privacy and remove assets from the taxable estate.

Irrevocable trusts are intended to be permanent and transfer control of assets when they are created. Many are used for tax planning, while others help families to help a parent become eligible for Medicaid. For blended families, irrevocable trusts ensure that assets are distributed to spouses and biological children as per the wishes of the grantor.

Despite the name, there are ways to make changes to irrevocable trusts by knowledgeable estate planning attorneys. For new irrevocable trusts, careful drafting of the trust with built-in flexibility is critical. Some common provisions today are for the grantor to have the ability to change the trustee, amend terms, change beneficiaries and even revoke the trust.

If the original grantor is incapacitated or dies, a “trust protector” can be named to change the trust.

Decanting the trust is another way to make a change. Just as it sounds, this process involves having the assets in one trust decanted (or poured) into another trust. One example is if a family has created a multi-generation irrevocable trust, and the next generation includes a person with substance abuse issues. The family doesn’t want this person to have access to large sums. The trust is “decanted,” and assets move from the original trust to another with more restrictive provisions.

Consult with an experienced estate planning attorney to be sure that any changes to an irrevocable trust align with your state’s laws. If you are creating a new irrevocable trust, discuss having flexibility built into the trust.

Reference: Market Watch (Sept. 28, 2024) “No trust is set in stone. Even irrevocable trusts can have some wiggle room.”

Can I Bequeath the Family Home to My Children?

 

You may believe giving your home to your adult children is a generous move leading to happy memories. However, this isn’t always true. One story recounted in a recent article, “Inheriting a Home With Your Siblings? Here’s All That Can Go Wrong,” from Realtor.com, is an example of how badly this could go.

Three siblings were left their parent’s house when the second parent died. One sibling wanted to keep the house, while a second brother and a sister wanted to sell it and split the money. They had the property appraised, and the sibling who wanted the house bought out his sibling’s shares, paying them both a third of the house's current value. One brother blew his inheritance on a sports car, exotic vacations and an expensive nightlife. The sister bought a boat.

Fast-forward a few years, and real estate values skyrocketed. The brother who bought the house decided to sell it before moving away to be closer to his wife’s family. The house had tripled in value. His siblings now think he should share the profits he made, even though his siblings didn’t want the house. The rest of the family sides with the siblings, making matters harder for the brother.

Estate planning attorneys were asked for their opinions on the matter, and all agreed. He made the decision to buy the property when they didn’t want it, so he owned it free and clear. They aren’t entitled to share the profits. They certainly wouldn’t have shared the losses if the property value had gone down!

Other families fight about the contents of the house. This is why everyone needs an estate plan with a last will and testament clearly detailing how they want their estate, including personal possessions, to be distributed. Hoping the children “work things out” doesn’t end well for most families.

Some families like to have an estate sale company come in and sell the contents of the house and split the profits, while others flip a coin to see who gets what.

Another issue about personal possessions is items disappearing. Sometimes, aging parents decide to declutter without telling anyone. In other cases, a child or family member decides to take something without telling anyone.

How can you prevent your children from fighting over the house or its contents? Have a will made and discuss how to handle your unique situation with an estate planning attorney. Make sure the will includes clear directions as to whether or not the house should be sold or how the shares should be distributed. You could also add a provision stating that if one child buys the shares at fair market value, the transaction is final and the other siblings may not pursue any future gains after the sale.

Parents should never leave property to one child and expect the child to share the proceeds with any other siblings or family members. If property is left to one sibling, they have no legal requirement to share any portion of their inheritance. This happens more often than you’d think despite it being an easy situation to avoid.

As the example above illustrates, even buying out siblings’ shares can lead to problems. If the sibling buying out others' shares is also the executor or the trustee, the siblings and parents would be wise to meet with the estate planning attorney to clarify how this asset will be distributed and what their role will be. Executors who are also beneficiaries can find themselves at the centers of estate battles.

Families may think they don’t need to put things in writing. After all, they’re family. However, when it comes to inheritances, having everything in writing, property prepared by an experienced estate planning attorney and clearly understood by all, is the best you can do to prevent any estate battles among your loved ones.

Reference: Realtor.com (Sep. 14, 2024) “Inheriting a Home With Your Siblings? Here’s All That Can Go Wrong”

What’s the Primary Purpose of a Living Trust?

 

One of many options for people who want to pass an inheritance to loved ones is a living trust, also known as a revocable trust. There are several benefits, as detailed in this article from msn.com, “3 Benefits of Using a Living Trust to Pass an Inheritance to Your Family.”

Trusts are used to avoid the probate process. This is a court process where the court evaluates the will, decides whether or not it is valid and then supervises how the assets in the estate are distributed. If you’ve ever had the misfortune of experiencing the probate process, you know it can be stressful.

Probate takes time. While it varies depending on the jurisdiction, it can take months and sometimes years to complete. While the estate is in probate, heirs cannot access estate assets.

Probate can be expensive. There are court costs, administrative fees, legal fees and accountant's fees if the estate is complicated.

Probate is public, and trusts are private. Once a will is entered into probate, it becomes public information and anyone can access it. This includes estranged relatives, creditors, salespeople and thieves. They all look at the will to learn about the size of the estate, asset values, names of beneficiaries and where they live and whatever information is in the will.

The only people who have access to trusts are the estate planning attorney who created them, the trustee and the beneficiaries. This level of privacy is sometimes a bigger reason to have a trust than avoiding probate, especially for people who scammers could target.

Trusts allow flexibility. Living trusts are also called “revocable” because they can be changed during your lifetime. You can change the terms of the trust, the names of the beneficiaries, what assets you want heirs to receive, etc. If you have a big change in your financial situation, good or bad, the trust can be modified.

If a revocable trust sounds like a good option for your situation, speak with an experienced estate planning attorney. They’ll help you create a trust and estate plan to protect you and your loved ones.

Reference: msn.com (Aug. 21, 2024) “3 Benefits of Using a Living Trust to Pass an Inheritance to Your Family”

How Special Needs Trusts are Used to Protect Loved Ones

 

To qualify for Supplemental Security Income (SSI) and Medicaid, you have to own less than $2,000 in assets. These two programs are intended to pay for basic living expenses and primary medical services, according to a recent article from Barron’s, “Kids With Special Needs Deserve Benefits. A Trust Protects Them.”

A Special Needs Trust (SNT) is used to pay for other expenses. This can be anything from the cost of having a cell phone to traveling for the individual and a companion. An estate planning attorney should create the trust in tandem with the family’s overall estate plan.

There are two types of SNTs to consider for high-income families, and a third, explained below, is useful for families of moderate means. The main difference between the first two SNTs is how the money left in the trust is distributed after the death of the disabled person.

In a third-party supplemental trust, the special needs family member doesn’t have access to the money at any time. The trustee designates a beneficiary if any assets are left in the trust upon the death of the disabled person.

A first-party supplemental trust is used for money received outright, such as from an improperly planned inheritance or an award from a lawsuit. Assets in these trusts can be used during the individual’s lifetime, but upon their death, Medicaid can take back benefits paid over the person’s lifetime before any remaining assets are distributed to beneficiaries.

Parents planning for their child’s well-being after their own deaths typically choose a family member who is close to the disabled person as their trustee. This is good thinking, with some limitations. The person who is the trustee needs to be financially savvy. Remember, the person with special needs may never receive money directly. If they do, their benefits are at risk.

Trustees need to know the details of SNTs so they don’t mishandle funds. For instance, funds in the trust should not be used for anything already paid for by SSI, like housing.

An alternative to privately created and managed trusts is a Pooled Trust. These are run by nonprofit organizations, which offer services like trustees for smaller accounts.

When it comes to retirement, parents need to address their retirement assets to enjoy their retirement years. They can fund SNTs by taking out life insurance policies. Life insurance policies make sense also because funds in trusts should be liquid. For younger parents in particular, term life might be a good option.

A warning for parents with SNTs who are tempted to leave all of their assets to their child with special needs: this is not necessary and could be problematic. Don’t forgo taking care of siblings, or resentment may lead to a family member resenting the family member with special needs.

Reference: Barron’s (July 27, 2024) “Kids With Special Needs Deserve Benefits. A Trust Protects Them.”

Should All of My Assets Be in a Trust?

 

By now, you may have heard about the “great wealth transfer,” which refers to Americans inheriting as much as $72 trillion over the next twenty years. Do you have a plan in place for your family? A recent article, “Is a Living Trust Really the Best Way to Pass an Inheritance to Your Family?” from The Motley Fool, explains how this estate planning tool works.

How does wealth pass to heirs? One way is a Last Will and Testament. However, a Living Trust may be better. The Living Trust is the creation of a legal entity, the trust, which allows the person creating it—the grantor—to control the trust and the assets in it during their lifetime. When the grantor passes, the secondary trustee takes over, managing assets in the trust and distributing them according to the language in the trust.

A living trust isn’t for everyone. There are definite advantages. However, there are also some disadvantages you’ll want to understand before deciding if this is for you.

Living Trusts allow the grantor to maintain control of the trust and the assets within the trust. The grantor can change their mind about any aspect of the trust at any time. They can change beneficiaries, remove assets or even close the trust.

The Living Trust takes assets out of your probate estate, meaning the assets in the trust are distributed to beneficiaries with no court involvement. Probate is a lengthy, expensive and public process. It can take months or years to complete, and the will becomes part of the public record. Anyone who wants to, from nosy relatives to scammers, can read the will.

Those with significant wealth use trusts to keep their private business private. People with estranged family members use trusts to maintain privacy and prevent feuds.

However, there are some downsides to consider. There is some work and costs associated with trusts. Placing assets into a trust requires retitling those assets, such as real estate or investment accounts.

You should speak with an estate planning attorney, especially if your goal in creating a trust is to qualify for Medicaid. This is a different type of trust requiring the help of an experienced estate planning attorney.

A trust isn’t an instant tax shelter. An estate planning attorney should be consulted to create the proper legal entities if your main goal is to take assets out of your estate to avoid federal, state, or inheritance taxes.

Trusts aren’t do-it-yourself projects. To do this right, you’ll want the help of an experienced estate planning attorney. They’ll help you define your goals and then create a plan to achieve them.

Reference: The Motley Fool (July 5, 2024) “Is a Living Trust Really the Best Way to Pass an Inheritance to Your Family?”

Can You Get Around Probate?

 

As any estate planning attorney will tell you, probate takes time, costs money and adds stress to settling a loved one’s estate. A reporter shares her personal experience in a recent article appearing in Market Watch, “Inheritance isn’t automatic: The probate process can take almost two years and cost thousands of dollars.”

Most people have a vague notion of what probate is. They understand it to be a process where the family must file the will with the country court and wait for it to be approved before distributing assets. If there’s no will, they may think probate is the process of settling the estate.

Others think inheritance happens automatically, with heirs receiving 35% of an estate. This is not true. One of the easiest ways for assets to go to heirs outside of probate is to make the most of beneficiary designations. Certain financial accounts offer the option to assign someone as a beneficiary, usually investment, retirement and bank accounts. After the account owner dies, the heirs apply for their inheritance with a death certificate and proof of their identity.

A recent study showed that only 2% of people understood that the average period of time to probate an estate is 20 months. While there are some jurisdictions where probate happens more efficiently, most estates take a long time to go through the process.

How can you avoid probate or simplify your estate so fewer assets go through probate? Your estate planning attorney will be able to explain how using trusts takes assets out of the estate. Another is simplifying your life. If you have assets with multiple investment companies, for instance, consolidating them into one account with one financial institution could streamline the process for your heirs.

While you’re consolidating your accounts, check on your beneficiary designations. If you opened an investment account twenty years ago, you may have named someone who isn’t in your life anymore. They may be happy to receive a surprise inheritance from you. However, your family won’t be able to get the assets, even if your will says otherwise.

For an excellent example of how to manage an estate, consider the actor Matthew Perry. Most of his estate was transferred to heirs through trusts, which avoided large assets going through probate and kept his personal business private. One bank account had no named beneficiaries, so his family went to probate court to file his “pour-over will.” This is a will where assets not already in trust are directed to be added to the trust after death. Because the will was filed in court, reporters were able to obtain information about this one account. The rest was private.

Consult with your estate planning attorney to determine how to structure your estate best to avoid or minimize probate for your loved ones.

Reference: Market Watch (July 17, 2024) “Inheritance isn’t automatic: The probate process can take almost two years and cost thousands of dollars”

Do You Need a Medicaid Asset Protection Trust?

 

 

The numbers are clear: 70% of Americans expect to need long-term care at some point in their retirement. Many people aren’t aware of the importance of long-term care until they are uninsurable because of health conditions or can’t afford the premiums. How can you plan?

Depending upon where you live and the type of care needed, long-term care costs anywhere from $50,000 to $100,000 per year. With an average stay of two to five years, it’s a hefty financial burden without long-term care insurance, a MAPT, and good planning.

Creating a Medicaid Asset Protection Trust requires the help of an experienced estate planning attorney to be sure you obtain all of the benefits of such a trust. Long-term care costs are one of the biggest financial worries for retirees, as noted in a recent article, “This Trust Can Protect Your Assets From Long-Term Care Costs,” from Kiplinger.

The Medicaid Asset Protection Trust (MAPT) moves money out of your estate into a trust, so it becomes uncountable for Medicaid means-testing purposes. It has to be created and funded at least five years before the applicant can be deemed eligible for Medicaid funding, known as the “Medicaid look-back.”

The trust needs to be set up by an experienced estate planning attorney because there are many fine points to consider. The MAPT won’t serve its intended purpose if it's not set up correctly.

The MAPT must be an irrevocable trust, meaning the grantor (who set up the trust) no longer has access to those assets. This can be a little unnerving. You’ll also want to speak with your estate planning attorney about your plans for the near and distant future. How will you access funds if you’re putting funds into the trust? Who will be able to access them?

This trust will also benefit families with assets closer to the old estate tax levels. In 2024, the gift and estate tax exemptions are still very high—$13.61 million. However, if the law sunsets without Congress acting, the estate tax could revert to around $5 million or lower if the federal government decides more wealth needs to be taxed. Assets in a trust are not part of the taxable estate, so having a trust also protects assets from federal and state estate taxes.

Trusts are also powerful means of controlling asset distribution. Your MAPT could distribute a set amount of money to a beneficiary throughout their lifetime, or a minor grandchild could be given a certain amount after they’ve completed four years of college or achieved a particular goal.

Consult an estate planning attorney to learn how MAPTs work, if they’re right for you, and how to get started.

Reference: Kiplinger (July 11, 2024) “This Trust Can Protect Your Assets From Long-Term Care Costs”

Top Estate Planning Mistakes to Avoid

Suppose you’ve reached retirement age and have savings, including a 401(k), IRA, investment accounts, home and life insurance policies. Congratulations! While you’ll use these assets during retirement, some of them may end up in your estate. This, according to a recent article from Rocky Mount Telegram, “Avoid these estate planning mistakes,” is why you need an estate plan.

An estate planning attorney will be able to create such a plan. They’ll also know how to avoid common mistakes made by people with less experience. Once you get your information in order, the process isn’t as daunting as you think. Here’s what you need to know to have a successful plan:

Don’t wait until the “right time.” Putting off creating a plan and taking care of the details, like funding a trust or getting documents executed, leaves many people with no plan. Illness and accidents occur without warning. Estate plans address incapacity and distribute assets. If there is no will, your state’s laws of intestacy will determine how to distribute your estate. Contact an estate planning attorney and schedule a meeting sooner, not later.

Neglecting to update an estate plan and related documents. Estate planning isn’t a “set it and forget it” process. Most people’s lives include change—marriage, divorce, moving, etc. Your estate plan needs to change too—to be updated in the event of a large event, like the birth of a second child or grandchild, moving, a change in health or financial status and to take advantage of always-changing tax laws.

Forgetting to update beneficiaries. The number of people leaving generous surprises to people no longer in their lives because they forgot to update their beneficiaries would surprise you. However, it would not surprise an estate planning attorney. People start retirement funds at their first job and forget they assigned someone to receive the assets twenty or thirty years later. Your will only addresses assets in your estate—accounts with beneficiary designations are outside the purview of your will.

Neglecting to fund a trust after it’s been created. This is another common mistake to avoid. The entire estate plan might not achieve your goals if the trust is created and not funded. Assets being moved into the trust need to be retitled, and it takes some attention to detail to ensure that this is all done.

Naming a bad executor. The executor is responsible for carrying out your wishes as expressed in your will, overseeing the distribution of assets, filing estate and final personal taxes and many other tasks. They need to be extremely well organized and financially responsible. Your legacy will be impacted if you choose someone based on family relationships instead of competence.

Most people start this process by consulting with an estate planning attorney. It will take some time and effort on your part. However, imagine your family having to dig through all your records and documents and guess what you wanted to happen. Is that not a pretty picture? A better choice is to start and finish your estate plan with an experienced attorney.

Reference: Rocky Mount Telegram (May 10, 2024) “Avoid these estate planning mistakes”

Should I have an Irrevocable Trust?

 

You may have heard the terms “revocable trusts” and “irrevocable trusts.” Both are created to hold assets for different purposes. The differences are explained in a recent article from Kiplinger, “With Irrevocable Trusts, It’s All About Who Has Control.”

Both types of trusts are separate legal entities created through contracts. They name a trustee who is in charge of the trust and its assets. The trustee is a fiduciary, having a legal obligation to manage the assets in the trust for the beneficiaries. Depending on how the trust is structured, these are the people who will receive assets or income generated by the assets in the trust.

With the revocable trust, the grantor—the person who creates the trust—can be a trustee and maintain total control of the trust. They can change the terms of the trust, beneficiaries, and successor trustees at any time. In exchange for this level of control, however, come some downsides. The revocable trust doesn’t have the same level of protection as an irrevocable trust while the grantor is living.

The irrevocable trust trades control for benefits. The grantor of an irrevocable trust can’t change the trust once it’s been created, nor can they move assets in and out of the trust at will. Beneficiaries may not be changed either. However, when the irrevocable trust is properly created with an experienced estate planning attorney, they achieve many estate and tax goals.

Your estate planning attorney will be able to explain which irrevocable trust suits your situation, as there are many different kinds.

An irrevocable trust where the grantor is also the beneficiary is referred to as a Domestic Asset Protection Trust or DAPT. The grantor is allowed to be the beneficiary of the trust, but it has to be created in one of the 20 jurisdictions where the grantor is allowed to be the beneficiary. You can have a trust created in a jurisdiction other than your own.

The first step is to determine how to fund an irrevocable trust, where assets are transferred into the trust. There are fine points here. For instance, you can’t fund an irrevocable trust if there are issues with the IRS or the threat of litigation from a creditor. If the dispute goes to court, a judge can set aside the transfers into the trust as they were made with the intent to circumvent a creditor’s claim under fraudulent transfer laws.

Creating irrevocable trusts, like much of estate planning, needs to be completed before issues arise. Decisions about naming trustees, successor trustees, beneficiaries, and funding sources should be discussed with an experienced estate planning attorney first.

Reference: Kiplinger (April 28, 2024) “With Irrevocable Trusts, It’s All About Who Has Control”

How to Plan for Beneficiaries with Disabilities

 

When creating an estate plan, it’s important to consider all of the possibilities—including disability, says a recent article, “Beneficiaries with disabilities will impact plans,” from The News-Enterprise. A well-prepared estate plan can protect all heirs.

Disability planning typically includes two types of protections: first, to protect the disabled individual’s inheritance from the loss of government benefits. This includes Medicaid, SSI, food stamps, Section 8 housing and other means-tested assistance programs.

Good planning protects continuity of care. Most disabled individuals who qualify for government benefits live in supportive housing communities and/or are helped by caregivers. Losing access to these support systems could become overwhelming to a disabled person.

If the inherited assets are used in place of these programs because of poor planning, upon their depletion, the disabled individual would have to start the process of applying for government assistance all over again. The possibility of being assigned to the same programs and receiving the exact same support is unlikely. A long wait time for services could also become problematic.

Second, an estate plan that considers a disabled individual must protect them from vulnerabilities and exploitation. Financial scams and outright thefts are not limited to the able-bodied. A disabled person known to have access to an inheritance becomes a target for scammers. The estate plan needs to ensure a responsible and savvy individual serving as the trustee is looking out for their best interests.

Testamentary documents are most helpful in estate planning for people with disabilities. The most common mistakes made are completely disinheriting the beneficiary or putting funds under the control of a caregiver. Disinheritance is common, as most people don’t understand there are ways to prevent the loss of services while keeping inherited assets available for the individual.

Giving funds to a caregiver is almost always a recipe for disaster. The caregiver may not follow the directions or become a victim of scammers, leaving the disabled heir without the benefit of their inheritance.

One answer is a third-party trust. This is created by one person—the grantor—for the benefit of another person—the beneficiary. It is funded with assets that never belonged to the beneficiary, so any funds in the trust aren’t subject to a payback provision to the state when the beneficiary dies. Third-party trusts are an excellent tool for estate planning and can also pass funds along to contingent beneficiaries when the original beneficiary passes.

An experienced estate planning attorney will know the nuances of planning for disabled individuals. Your estate plan deserves to be created by a professional to protect those you love.

Reference: The News-Enterprise (April 27, 2024) “Beneficiaries with disabilities will impact plans”

 

What Is the Primary Purpose of a Revocable Trust?

 

There are many basic tools of estate planning, which become more effective when they are coordinated and complement each other. For asset protection and tax planning, aligning strategies is critical for success, says a recent article from Kiplinger, “Revocable Trusts: The Most Common Trusts in Estate Planning.” The benefits of revocable trusts include letting the grantor—the person making the trust—have control of assets.

As the name implies, revocable trusts are more flexible than irrevocable trusts. The grantor of a revocable trust may change the terms of the trust whenever they wish, transfer property in and out of the trust, and change beneficiaries at will.

A revocable trust has many benefits. One benefit is that assets placed in a trust are not subject to probate when the estate is settled, keeping the terms of the trust and the nature of the assets private. A revocable trust allows for a step-up in basis, which can reduce or, in some cases, eliminate capital gains taxes.

The language of the trust provides instructions for managing and disposing of the assets upon the grantor’s death. A revocable trust can also be designed to protect assets for beneficiaries, set certain conditions for asset distribution, or require the funds to be used for specific costs, like education or home purchase.

There are some limitations to be aware of, which should be discussed with your estate planning attorney. If the goal is to protect assets for the grantor, an irrevocable trust is better. For example, if the grantor was involved in litigation and lost, a revocable trust’s assets could be recovered as part of the judgment. This is because the grantor still has control of the assets.

If the assets were in an irrevocable trust, the grantor would have no access to them, which adds a layer of protection.

The grantor needs to consider trading control of and access to assets for protection from court judgments and creditors.

You and your estate planning attorney should discuss which trust is better for your situation. A revocable trust is an excellent tool for estate planning, but an irrevocable trust provides more protection and can potentially shield assets from taxes.

Many people of modest means find that a revocable trust serves their interests well. In contrast, people with higher estate values find a combination of revocable and irrevocable trusts allows them to structure trusts to meet their goals.

Reference: Kiplinger (April 4, 2024) “Revocable Trusts: The Most Common Trusts in Estate Planning”

Would Your Family Benefit from a Living Trust?

 

Estate planning is rarely on top of anyone’s bucket list. However, taking charge of your legacy is a gift to your family and should be done sooner rather than later. A recent article from The Motley Fool explains why a living trust should be part of your estate plan. The title says it all: “3 Reasons to Seriously Consider Using a Living Trust to Pass Inheritance to Your Family.”

At its essence, a trust is a way for one person to own and manage another person’s property or even to manage their own property. The IRS definition of a trust is as follows: “In general, a trust is a relationship in which one person holds title to property, subject to an obligation to keep or use the property for the benefit of another.”

A living trust requires you (the grantor) to transfer assets into it. If you manage the trust yourself, you are also the trustee. This lets you make all decisions for the trust while leaving instructions in very specific language for its distribution by a successor trustee (or two successor trustees) after you pass away.

Having the correct language is essential for the trust to achieve your goals, which is best prepared by an experienced estate planning attorney. They will know how the laws of your jurisdiction treat trusts and what language must be included for the trust to be valid.
Property can also be distributed through a last will and testament. However, there are several advantages to using a living trust.

Trusts avoid the time and costs of probate. During probate, the court supervises the distribution of assets. It takes time—months or, depending on the complexity of the estate, years. During this time, heirs don’t have access to assets, which they may have been counting on to pay for final expenses or maintain a home.

Trusts keep your life and death private. Once a will is filed with the court, it becomes a public document. Anyone who wants to can review its contents. Creditors, ex-spouses, estranged family members and salespeople can all review the will. This is why phone calls and mailings from realtors and financial advisors after a death in the family often besiege loved ones. Trusts remain private and are only reviewed by the trustee and, in some cases, beneficiaries.

Revocable trusts are flexible. While a revocable trust doesn’t provide the same level of tax protection as an irrevocable trust, it allows you, as the grantor, to make changes. You can add or delete beneficiaries, move assets in or out of the trust and change your appointed successor trustees.

A trust of any kind is not a do-it-yourself project. Consult an experienced estate planning attorney to define your goals and determine the best trust for your situation.

Reference: The Motley Fool (Feb. 12, 2024) “3 Reasons to Seriously Consider Using a Living Trust to Pass Inheritance to Your Family”

How to Protect Your Spouse when Diagnosis Is Dementia

 

Few illnesses are as terrifying as dementia, for which there is no cure. If estate planning is in place, it may need to be adjusted to address new, more imminent issues. Reviewing the family situation from a legal and financial aspect is critical, and there is no time for delay, explains a recent article from Morningstar, “’I don’t want my wife to lose everything’: I’ve been diagnosed with dementia –I suddenly could not spell or write legibly.”

There are a number of steps to be taken to smooth the path ahead. First is to update your will and create a financial power of attorney. Don’t try to do this without the help of an experienced estate planning attorney.

This may also be the time to reassess your investment portfolio based on your new financial plan and risk tolerance.

An Advanced Healthcare Directive will inform doctors what actions you want them to take when you cannot make those decisions for yourself. You may want to list your wife as your healthcare proxy to carry out these decisions, but be mindful of the pressures put on a marriage when serious healthcare issues occur. Your spouse will need emotional support as well, and you’ll want to have a successor to your spouse for both the healthcare and POA documents.

Share your situation with trusted family and friends to create a team–a community of people who can provide support, part of which will be updating beneficiaries. Now would also be the time to record instructions for access to devices, documents, and even daily habits.

Long-term care insurance will help with expenses and should serve as an example for anyone reading this article. Policies should be purchased early in life when they are relatively affordable to help alleviate the financial burden of nursing home costs.

An estate planning attorney and financial advisor will help you take an accounting for assets, expenses, and projected long-term care costs. You’ll want a team approach to provide as much guidance as possible.

When to put your long-term care policies into payout status is a difficult decision. You’ll need to time this with a Medicaid plan, which your elder law estate planning attorney will be able to help with.

Now may also be the time to create a trust and divest assets to make it through the five-year Medicaid look-back, using your long-term care policy in the next five years.

There are exceptions to the five-year look-back rule for Medicaid eligibility. They include paying off debts, buying medical devices, or making home improvements to improve accessibility. However, eligibility depends upon income and other assets.

Some states, including Florida and New York, have rules exempting homes from assets calculated by Medicaid under certain circumstances. California eliminated an asset limit this year, making a person’s home automatically safe from Medicaid while they are living, but this does not mean it’s exempt from the Medicaid Estate Recovery Program.

Working with a team of professionals, including an estate planning attorney, and having the support of family and trusted friends will be important as time goes by and the disease progresses.

Reference: Morningstar (Feb. 25, 2024) “’I don’t want my wife to lose everything’: I’ve been diagnosed with dementia –I suddenly could not spell or write legibly”

Will My Family Need to Pay an Estate Tax?

 

Known as the “death tax,” an estate tax is applied to assets inherited by others when you die. In addition to the federal tax, twelve states and the District of Columbia have their own estate taxes, says a recent article from CNBC, “What is estate tax and who pays it?”

Inheritance taxes and estate taxes are often confused. A beneficiary pays inheritance taxes, while estate taxes are paid from the decedent’s estate before any remaining property or assets are distributed to heirs.

One of the executor’s duties is to file an estate tax return. The value of the assets is usually determined by their fair market value.

The unlimited marital deduction means the surviving spouse is exempt from federal estate taxes. However, the second spouse to die’s estate will need to pay estate taxes.

The current federal estate tax exemption ranges from 18% to 40%, depending on how much the estate is over $13.61 million. This historically high number will revert to $5 million (indexed for inflation) on January 1, 2026.

Twelve states and the District of Columbia impose their own estate taxes. These include Connecticut, Hawaii, Illinois, Maine, Maryland, Massachusetts, Minnesota, New York, Oregon, Rhode Island, Vermont, and Washington. Connecticut and Vermont have flat estate taxes. However, most estate tax rates increase with the total value of the assets.

An experienced estate planning attorney will help identify strategies to minimize or avoid paying estate taxes altogether. For instance, if you leave assets to a qualifying charity, that amount is deducted from the gross estate before taxes.

Gifting is a frequently used means of minimizing estate taxes. In 2024, you can gift up to $18,000 per individual without paying the federal gift tax and without the gift counting towards your lifetime gift exemption of $13.61 million. A married couple may give up to $36,000 tax-free combined.

Irrevocable trusts transfer control of an asset from the grantor to the beneficiary, protecting it from creditors and reducing the estate's value. While rules vary from state to state, irrevocable trusts typically may not be amended, modified, or terminated without the beneficiary's consent.

Contributions can also be made to 529 educational plans, which offer tax-free earnings and withdrawals for educational expenses. They are excluded from the taxable estate. However, the contribution can’t be more than $18,000 per year, or it will be subject to the gift tax. Each state sets its own contribution limits per beneficiary.

Most Americans don’t have to pay federal estate taxes. Still, many state taxes have lower exemption levels, so speak with your estate planning attorney to learn your estate’s tax liability and consider how to minimize it for your heirs.

Reference: CNBC (Feb. 17, 2024) “What is estate tax and who pays it?”

How Does an Estate Plan Address Young Beneficiaries?

 

Certain beneficiaries require more intentional estate planning than others. While the law sets the age of adulthood at 18, specific testamentary instruments can redefine at what age a beneficiary is considered an adult. A recent article from The News-Enterprise, “When planning for young beneficiaries, consider all options,” explains how this works.

Young beneficiaries, especially 18-year-olds still in high school, are still immature, and their brains are still developing. Add a strong dose of grief to a teenager’s life, and even a bright, stable adolescent may not make good decisions.

Young adult beneficiaries are categorized in two ways: primary and contingent.

A primary beneficiary is one who the testator or grantor expects to be a young beneficiary at the time of distribution of assets or who is young when the estate planning documents are executed. This is typically the parents of young children or grandparents who intend to leave property to young grandchildren.

Contingent beneficiaries are those who are not anticipated to receive property as young beneficiaries. However, they could inherit if a primary beneficiary dies, such as when a grandchild receives an inheritance following their parent's death.

Even for contingent beneficiaries, some level of planning needs to be done to define the age of majority and provide options for distribution. This is done through an immediate split of assets, with assets going into a general needs trust or a common pot trust.

Assets are most commonly left to young beneficiaries through an immediate split of assets upon estate distribution. Assets are held in a separate trust for each beneficiary, with a trustee appointed for each trust. Assets within the trust are typically available for the child's health, education, maintenance, or support until the child reaches the predetermined age.

Upon reaching the age defined by the trust, the child may receive the assets either outright or incrementally over a period of time.

Another option is to use a common pot trust. This is used for parents with multiple minor children. This type of trust allows the assets to remain in one trust to be used for the needs of all children until a triggering event, such as the youngest child reaching age 18. At that time, the remaining trust assets are split into as many shares as there are beneficiaries, and the shares are distributed according to the remaining instructions. Each separate share is usually left in an ongoing general needs trust until a certain age.

Leaving property in trust for young beneficiaries doesn’t cut off their ability to use the money property. The trustee can continue to use the assets for the beneficiary's care. However, whatever is left is distributed to the beneficiary upon reaching the distribution age.

Your estate planning attorney can help you determine the best way to structure trusts for your children or grandchildren based on your wishes and their ages. By redefining the age of majority and outlining specific directions for distributions, young beneficiaries can receive the most value from their inheritance.

Reference: The News-Enterprise (Feb. 10, 2024) “When planning for young beneficiaries, consider all options”

What to Do Before Naming a Family Member or Friend to Be a Trustee

Here’s an all-too-common scenario: a husband and father of adult children had created a living trust to protect assets and eventually direct the family’s wealth to heirs. During his lifetime, the man had served as the trustee. His wife became the trustee when he died, as explained in the article “Before Naming Trustees, Get Their Consent” from Next Avenue.

When the mother died, the trustee role was given to one of the adult children. The child was stunned because no one had ever told him about this responsibility.

Living trusts typically require trustees to work with estate planning attorneys and financial professionals to manage assets, distribute investment income to beneficiaries, oversee taxes, and sometimes, maintain or sell real property. This is not just for wealthy families. Families of modest means benefit from tax and estate planning aspects of trusts. They allow grantors (the person establishing the trust) to leave assets privately and, in some states, avoid probate, which is usually a public proceeding and can take time to complete.

Some heirs may not be happy with the person named to be the successor trustee. Some living trusts include special instructions for certain beneficiaries intended to control spending, if the grantor thinks the heir may be unable to manage their inheritance.

This can be avoided by having candid discussions with all family members about the parents’ future plans. Sometimes, having a family meeting at the estate planning attorney’s office—neutral territory and an expectation of mature behavior—may make the conversation less tumultuous.

The person named to be a successor trustee needs to be considered carefully. Just inserting someone’s name in the trust document without speaking to them first about the possibility of taking on the role and what it entails is a recipe for disaster.

Before the estate planning attorney completes trust documents, grantors need to think about who would do the best job, what relevant skills they have and who would be able to manage the family’s relationships if unpopular decisions need to be made.

If there are two adult children, the better choice isn’t necessarily the older of the two. The one with the greater financial acumen is the better candidate.

Suppose no suitable candidates from the family can be identified or no one is willing to take on the tasks. In that case, grantors may consider their estate planning attorney or a professional trustee from a financial firm. Although some grantors would prefer to have a family member as their successor trustee, this may not always be possible.

Once the candidate has been named and before the documents are completed, a meeting is needed to outline the trustee's responsibilities. Once the candidate fully understands what they must do and agrees to the role, the grantors might want to hold a family meeting to explain their choice and have an open, hopefully peaceful, discussion.

Reference: Next Avenue (December 22, 2023) “Before Naming Trustees, Get Their Consent”

What Is the Biggest Mistake People Make on Their Wills?

 

Making mistakes in your estate planning can torpedo every effort made to protect your family after you die, warns a recent article from Kiplinger, “Common Estate Planning Mistakes.” Everyone benefits from a professionally-made comprehensive estate plan, a process for preparing your legal and financial affairs so assets and possessions are passed on after your death to the people or charities you want.

Not having an estate plan can create a world of trouble for those you love. The biggest estate planning mistake of all is not having an estate plan. After that, there are several others.

Procrastination. Suppose you unexpectedly become incapacitated and don’t have an estate plan. In that case, your family will be left guessing what you would want your medical care to be, in addition to needing to go to court to apply for guardianship so they can pay your bills and keep your household running. Everyone should have documents like Health Care Power of Attorney, Power of Attorney, HIPAA Release Form and Living Will in place.

Trying to make an estate plan on your own. Unless you’re an experienced estate planning attorney, there’s a lot you could leave out if you attempt a DIY estate plan. If there are errors, a court could declare your will invalid and it’s as if you never had a will in the first place. The laws of your state will be used to distribute your assets. It may not be what you had in mind.

Keeping estate planning documents in a safe or safe deposit box. Documents need to be where someone can get them in an emergency or after your passing. Safety deposit boxes are often sealed on the death of the owner. Give copies of your estate plan to your appointed executor or trustee, a trusted family member and your estate planning attorney.

Missing key documents. If your estate plan lacks key documents, your heirs might find themselves battling over the estate. Make sure your estate plan includes these documents:

Last will and testament—This document outlines all final wishes and instructions for distributing your assets and how you want your affairs managed after you die. It also is used to name a guardian for minor children and an executor to oversee the instructions in the will.

Beneficiary designations—Any account allowing for beneficiaries, including IRAs, pension plans, investment accounts and insurance policies, will pass directly to named beneficiaries. Be sure that these are up to date.

Durable power of attorney for medical care—Allows another person to make medical decisions for you if you become incapacitated. Depending on your jurisdiction, it may include an advanced healthcare directive, which gives your instructions on whether or not to use life support.

Funeral instructions—Do you want a traditional burial? Cremation? Tell your family your wishes for a funeral or memorial service.

Proof of identity—Your Social Security card, birth certificate, marriage and/or divorce certificate and any prenuptial agreements will be needed for administering the estate.

Deeds or loan documents for large assets—Collect paperwork for homes, boats and other big assets.

Digital assets. These include websites, cloud storage, social media accounts and cryptocurrency, to name a few. By assigning a digital fiduciary and sharing key information, you help heirs avoid identity theft and lost assets.

Failing to update your plan. Your estate plan needs to reflect the changes in your life. If your estate plan is outdated, you may unintentionally disinherit beneficiaries.

Appointing the wrong person as executor or trustee. If your eldest child is a disaster with money management, don’t name them your executor. Consider a trusted person who is unbiased and able to manage money and family dynamics and talk with them about taking on this role before appointing them to this critical role.

Reference: Kiplinger (Dec. 30, 2023) “Common Estate Planning Mistakes”

What are the Rules for Inheriting an IRA?

 

Inherited Individual Retirement Accounts (IRAs) are created when the funds in an IRA or employer-sponsored retirement plans are inherited after the original owner dies. The beneficiary may not make any additional contributions to the account and must comply with a series of rules regarding the inherited account or face an expensive tax situation. A recent article from U.S. News & World Report,

“What Is the Inherited IRA 10-Year Rule?” explains the basics beneficiaries need to know.
What is the Inherited 10-Year Rule? The rule applies to those who inherit an IRA on or after January 1, 2020. In most situations, all funds must be withdrawn within ten years of the previous owner’s death, but there are exceptions depending on your age and relationship with the deceased. Spouses who inherit an IRA have options, as do beneficiaries who meet certain criteria.

The inherited IRA 10-year rule was part of the SECURE Act. Before then, a non-spouse beneficiary could take required minimum distributions (RMDs) based on the heir’s life expectancy. Following the SECURE Act, funds from an inherited IRA must be withdrawn over ten years. This eliminated the ability of the beneficiary to keep the retirement account funded for the rest of their life and gain the advantages of the long-term tax-free growth of the IRA.

Does the 10-year rule apply to you? The exceptions to the 10-year rule are:
The IRA owner’s surviving spouse
The IRA owner’s minor child
An individual who is not more than 10 years younger than the IRA owner
A disabled or chronically ill person, as determined by IRS rules.

If a minor child inherits the IRA, the 10-year clock starts ticking once they reach the legal age of adulthood.

Heirs may take the entire amount from the IRA, but it will be taxable as regular income.

For spouses, there are decisions to make. The surviving spouse may open and transfer the assets into an inherited IRA and then withdraw funds during the 10-year timeframe. If the decedent was taking RMDs from a traditional IRA at the time of their passing, the spouse would need to take the RMD during the year of death if it wasn’t already taken. Otherwise, the spouse can wait until they reach the required age to take RMDs from the account.

If funds are taken from your own IRA before 59 ½, there is a 10% penalty plus taxes on the withdrawals. However, a surviving spouse under age 59 ½ could open an inherited IRA and start taking distributions. 

There are strategies to optimize the 10-year rule. One strategy is for the owner to name a Charitable Remainder Trust as a beneficiary for your IRA. A CRT is an irrevocable trust that generates an income stream for the beneficiary with the remainder of the assets after the trust term. The trust term can be longer than the 10-year inherited IRA limit, allowing the beneficiary to stretch tax benefits longer.

An estate planning attorney can help you navigate the complex rules about inherited IRAs and determine how to use traditional and Roth IRAs to manage your tax liability.

Reference: U.S. News & World Report (Dec. 18, 2023) “What Is the Inherited IRA 10-Year Rule?”

 

Estate Planning for Millennials and Gen Zers

 

Estate planning is increasingly on the mind of younger adults, far from the stereotype of being only of interest to older, affluent couples nearing retirement or dealing with health concerns. These younger generations have unique attributes, including pragmatic financial views and humanitarian concerns, according to a recent article, “Six Estate Planning Tips for Younger Generations,” from Kiplinger. Here are tips to make this process easier for any generation.

Start with a basic will, which guides how assets and possessions are distributed after one’s passing. Prepared by an experienced estate planning attorney, the will should minimize potential disputes, include a clear delineation of assets and beneficiaries and name an executor to manage the estate and guardianship for any surviving dependents.

Appoint a power of attorney and draft medical directives. Power of Attorney and Medical Directives are basic documents that state your preferences during incapacity. A POA grants a named individual the legal authority to act on your behalf for legal and financial matters, if you cannot do so. Medical directives establish your wishes regarding medical treatment and end-of-life care. While taking care of these matters, you may also want to consider becoming an organ donor.

Determine who you want to be your children’s guardian. Naming a guardian of your minor children isn’t pleasant. However, it ensures that you and your partner make this decision, not the court.

Consider a living trust. Living trusts offer a strategic means of managing assets and helping to ensure that your surviving loved ones maintain control of your assets after you have passed. The trust, established with the help of an estate planning attorney, grants ownership of certain assets or properties into the trust, which becomes their owner. A trustee is named to manage and distribute these assets in accordance with your wishes. In some instances, it makes sense to hire a professional trustee, especially if the trust will need to be managed for decades.

By taking assets out of your estate and placing them into a trust, these assets won’t go through the probate process. Probate involves your executor filing your will with a court after you die. The court reviews the will to validate it and grants the named executor the power to execute your final instructions. Probate can be lengthy, expensive and emotionally charged for the family. Your will is entered into the public record, so anyone who wants to can see your will and know your final wishes.

Don’t forget your digital assets. Younger generations are more aware of the value and footprint of their digital assets. They often name a specific digital executor in their estate plans to ensure that their many accounts and digital assets are managed after their passing.

Seek professional advice and update documents. Despite a plethora of online sites and apps, estate planning documents require the skillful handling of an experienced estate planning attorney. Estate laws are state-specific, so wills and trust documents must be created with local laws in mind. Your estate plan documents, from wills to insurance policies, should be reviewed every three to five years. Every time there’s a significant change in your life, like getting married, buying a home, having a child, or getting divorced, this should also be done.

Reference: Kiplinger (Dec. 3, 2023) “Six Estate Planning Tips for Younger Generations”

Don’t Make These Estate Planning Mistakes

 

Everything from life savings to digital assets to pets must be considered when creating an estate plan, according to the article “Seven Big Mistakes People Make When It Comes to Estate Planning” from Kiplinger. No matter how good your intentions are, some mistakes are commonly made. Use the tips below to avoid them.

Implementing the estate plan. Creating an estate plan with an experienced estate planning attorney is step one. However, there are further tasks to be done. For example, if trusts are created, they must be funded. This may mean retitling accounts or moving assets. If trusts are not funded, they won’t perform as planned. In addition, your trusted loved ones should be told about the existence of an estate plan and where documents can be found when needed.

Don’t ignore your own mortality. People often wait until it’s too late to start planning, thinking they have a world of time. None of us knows when we will become incapacitated or die. Don’t delay.

Neglecting to create a trust. Having a trust created by an estate planning attorney can help avoid the costs and delays of probate. A trust can also ensure opportunities to provide specific assets to beneficiaries and could be a better way to distribute assets to children, especially if they are not financially responsible.

Failing to create a deadline-driven checklist for your estate plan. Most people simply do better when they have a checklist with deadlines. The tasks are clearly identified, and the date keeps most people focused. This is essential to have a secure estate plan and avoid missing crucial steps.

Leaving room for misinterpretation. Vague wording can sink your estate plan. Use complete, legal names when designating beneficiaries. If there are a number of people in the family with the same name, include their date of birth to avoid any confusion.

Forgetting to distribute personal property. Create a home inventory, and if any items are of high value, have them valued by a qualified professional appraiser. Family members often fight just as much over personal possessions as financial assets—don’t underestimate the emotional impact of sentimental value.

Getting it done! Most people don’t have a will, power of attorney, named guardians for minor children, health care power of attorney, living will and more because they fail to finish what they’ve started. Even smart people procrastinate over estate plans. The result is loved ones having to deal with taxes, legal fees, inaccessible assets and even family litigation. Contact an estate planning attorney and get this done sooner rather than later.

Reference: Kiplinger( Nov. 21, 2023) “Seven Big Mistakes People Make When It Comes to Estate Planning”

What Does the Executor of an Estate Do?

 

Being named the executor of an estate usually means you’ve lost someone close to you, and it’s a challenging time. The article “What to do when you’re the executor of an estate” from Bankrate explains what you’ll need to do and outlines the steps to stay on track.

The executor is the personal representative of a deceased person’s estate until the probate process is completed and all assets have been distributed. One of the key tasks is distributing assets according to the terms of the decedent’s will.

You can say no if you are not able or willing to serve as the executor. A secondary executor may be named in the will, or the probate judge can name a replacement. However, this task is doable if you set up a detailed checklist and work with an estate planning attorney.

Obtain the death certificate. The funeral home issues these; you’ll need them to notify banks, investment firms, life insurance companies, the Social Security Administration, the Department of Veterans Affairs and others. You’ll also need them for filing final tax returns. You’ll also need to notify Social Security to turn off payments going directly into the person’s bank account.

Locate the will and any trust documents. Hopefully, the person who notified you of the death will know where these documents are. Depending on the state where the decedent was domiciled, the last will needs to be filed within a few days to a month to a year after the death. If there are trusts, the trust documents name the trustees in charge of distributing assets owned by the trusts. Trust assets can be distributed immediately by the trustees without court approval.

Seek professional advice. After reviewing the will and trust documents, you’ll better understand how complex the estate is. You may want to consult with an estate planning attorney, CPA, appraiser, or other professionals whose expertise can help you avoid any mistakes. Trying to do it yourself could leave you personally responsible for mistakes, and the process may take far longer.

File “letters testamentary.” If the estate goes through probate, the court will legally confirm your appointment as executor with letters testamentary, sometimes referred to as surrogate certificates. These are legal documents proving your authority to act on behalf of the estate, pay bills, file tax returns, manage and distribute assets, deal with beneficiaries and open or close bank accounts.

Locate and protect assets. In the best scenario, the executor is given a complete list of assets and related information. This would include wills, trusts and paperwork related to insurance, investment accounts, prearranged funeral plans, bank accounts, real property, artwork, business interests and partnerships. A complete list of digital accounts is also needed.

Pay bills and taxes. The estate is responsible for paying debts, including income and estate taxes. If the debts exceed assets, beneficiaries are not responsible for paying them. The executor opens an estate bank account, which pays bills for the estate. Before paying debts, the executor must confirm the estate’s ability to pay. If a list of monthly bills, income and debts were not left for the executor, they’ll need to figure this out.

Don’t rush. It’s common for the executor to want to get the tasks done, distribute any inheritance to beneficiaries and have done with the process. However, if you rush and miss some important tasks, you could be found personally liable. It can take six months to a year to work through an estate. Keep careful records of all transactions and a copy of everything sent and received from creditors, beneficiaries, financial institutions, the IRS, the Social Security Administration and others.

Having an estate planning attorney can help. An attorney can also mediate between the executor and beneficiaries if things take a turn for the worse.

Reference: Bankrate (Nov. 17, 2023) “What to do when you’re the executor of an estate”

 

Why Do I Need a Will?

Every state has different rules for who inherits your assets if you pass away without a will (known as “intestacy”). However, most states follow rules similar to this:

If your spouse survives you and you have no children, he or she inherits everything;

If you're survived by your spouse and at least one child, your spouse gets a portion of your assets, and your child(ren) gets the rest;

If your children are minors, their assets are held for them until they turn a particular age (usually 18 or 21), then they control their inheritance, no matter how large; and

If you're survived by children but no spouse, your children inherit everything equally.

Your will is the only document a probate court will recognize in which you can name guardians for your minor children. If you die without a will, your family must decide who will care for your children, or a court will decide.

J.P Morgan Wealth Management’s article, “Estate planning: Why everyone should have a will,” says that if you have a will, you will have designed an executor or personal representative. This is the person in charge of carrying out your instructions. If you die without a will, your heirs can go to court to be put in charge of your estate. In either event, unless you've structured your assets so they don't go through probate, your heirs will have to go to court; the court will oversee the process.

You may be able to minimize or avoid probate by, for example, owning everything jointly with rights of survivorship, having beneficiaries designated to receive your assets, or putting everything in a revocable trust.

You should ask an experienced estate planning attorney about your state's probate process to understand how important it might be for you to avoid court — and the only way to avoid court is to have an estate plan.

Unfortunately, any of us can die at any moment, young or old, in good or bad health.

Reference: J.P Morgan Wealth Management (Jan. 27, 2023) “Estate planning: Why everyone should have a will”

What are the Basics of Trusts?

Trusts aren’t just for the uber-wealthy; using one in your estate plan can make sense no matter how much money you have. But work with an experienced estate planning attorney to see if a trust is right for your situation.

A survey by Wealth.com found that three-quarters (76%) of respondents created an estate plan to take care of their families.

A trust could help you achieve that goal with its combination of privacy, asset protection, and the ability to avoid the potentially drawn-out process of probate.

Fortunes’ recent article, “Understanding trusts: An important estate planning tool for everyday

Americans,” explains that at its core, a trust is a legal document that creates a triangle-like relationship between three different parties: the trust, its trustee, and its beneficiaries.

The trust is the legal entity that holds title to the assets;

The trustee is the trust’s decision-maker; and

The beneficiaries are those who receive assets from the trust.

A trust—created by the grantor—says how assets can be used during their lifetime and how they should pass to the grantor’s beneficiaries when they die. Trusts offer an added estate planning perk: avoiding probate.

And while the word “trust” might be intimidating, they’re just arrangements that most people already use in their day-to-day finances.

While there are different types of trusts, they all work the same way. The grantor establishes the trust and specifies how the assets in the trust should be managed and transferred to the beneficiaries at their death.

The grantor will put assets in the trust, which removes the assets from the grantor’s name and estate. In addition, the grantor names a trustee, the person charged with making the day-to-day decisions for the trust, its assets, and its beneficiaries. When the grantor dies, the trustee will direct the distributions of assets held in the trust according to the trust’s terms.

You can create a trust by contracting with an estate planning attorney.

Reference: Fortune (June 9, 2023) “Understanding trusts: An important estate planning tool for everyday Americans”

When Should I Begin Estate Planning for the Farm?

 

Successful Farming’s recent article entitled “Is 50 Too Early For Estate Planning?” gives us some guidelines, so you can address the what-ifs as changes occur and eventually solidify everything.
Let’s look at some key guidelines:
1. Define parameters. Regardless of what age you implement your plan, it needs definition. Outline the basics like how the rent will be calculated, how buyouts will be done, what defines a farming heir and at what ages distribution should happen.
2. Lay out options. There need to be “defined options.” These include:
Who has the option to farm?
Who has to option to rent or buy?
Are there equal options or secondary options?
3. Consider involvement. Your plan should reward those who are involved on the farm. You might want to hold off on the actual distribution of any assets until the youngest child has reached the age of 25 or 30. This gives everyone the opportunity to be involved if they want to.
4. Choose the right document. For example, drafting a revocable trust or planning a will allows you to make changes later in your lifetime.
With a revocable trust, its terms can be altered or canceled based on the wishes of the grantor or the originator of the trust. During the life of the trust, income earned is distributed to the grantor, but when they die, the property transfers to the trust’s beneficiaries.
5. Don’t overpromise and under-deliver. If you tell your children you’re going to do what will help them keep the farm together, be sure you do it. If you tell someone without documenting, it can lead to a major conflict later.
6. Update your life insurance. You can also change ownership and beneficiary designations of life insurance policies.
The biggest “what if” is “what if you don’t have anything in place?”
Reference: Successful Farming (March 16, 2023) “Is 50 Too Early For Estate Planning?”

Do You Need a Revocable or an Irrevocable Trust?

 

It’s not always obvious which type of trust is the best for an individual, says a recent article titled “Which is Best for Me: A Revocable or Irrevocable Trust?” from Westchester & Fairfield County Business Journals.

In a revocable living trust (RLT), the creator of the trust, known as the “grantor,” benefits from the trust and can be the sole Trustee. While living, the grantor/trustee has full control of the real estate property, bank accounts or investments placed in the trust. The grantor can also amend, modify and revoke the trust.

The goal of a revocable trust is mainly to avoid probate at death. Probate is the process of admitting your last will and testament in the court in the county where you lived to have your last will deemed legally valid. This is also when the court appoints the executor named in your last will. The executor then has access to the estate’s assets to pay bills and distribute funds to beneficiaries as named in the last will.

Probate can take six months to several years to complete, depending upon the complexity of the estate and the jurisdiction. Once the estate is probated, your estate is part of the public record.

A revocable living trust and the transfer of assets into the trust can accomplish everything a last will can. However, distribution of assets at the time of death remains private and the court is not involved. Distribution of assets takes place according to the instructions in the trust.

By comparison, irrevocable trusts are not easily revoked or changed. Most irrevocable trusts are used as a planning tool to transfer assets for the benefit of another person without making an outright gift, or for purposes of Medicaid or estate tax planning. An Irrevocable Medicaid Asset Protection Trust is used to allow an individual to protect their life savings and home from the cost of long-term care, while allowing the trust’s creator to continue to live in their home and benefit from income generated by assets transferred into the irrevocable trust.

The transfer of assets to a Medicaid Asset Protection trust starts a five-year penalty period for Nursing Home Medicaid and a two-and-a-half-year penalty period for Home Care Medicaid for applications filed after March 1, 2024. After the penalty (or “look back”) periods expire, the funds held by the trust are protected and are not considered countable assets for Medicaid.

An irrevocable trust can also be used to transfer assets for the benefit of a loved one, friend, child, or grandchild. Assets are not controlled by the beneficiaries but can be used by the trustee for the beneficiary’s health, education, maintenance and support.

Trusts are used to reduce the size of the taxable estate, to plan for the well-being of loved ones, and to protect the individual and couple if long-term care is needed. Speak with an estate planning attorney about which trust is best for your unique situation.

Reference: Westchester & Fairfield County Business Journals (Jan. 26, 2023) “Which is Best for Me: A Revocable or Irrevocable Trust?”

Are Your Beneficiary Designations Up-To-Date? Saginaw, Michigan

A lot can happen in a year. Whether small or life-changing, ignore changes to your peril. This is especially true when it comes to your estate planning. Often, the biggest mistakes we can make when it comes to our estate planning are also some of the easiest to prevent. For example, the consequences of failing to update your beneficiary designations can be catastrophic, while the “fix” is as easy as a phone call or completing a paper (or online) form. A recent Forbes article titled “The Big Estate-Planning Goof You May Be Making” puts the importance of proper beneficiary designations in perspective. With the New Year upon us and our resolutions still holding up (or newly renewed?), this may be a good time to review the beneficiary designations we have made for our assets. You see, beneficiary designations are a peculiar thing. They carry with them very important powers for good or ill. Many accounts from IRAs to policies of one type or another offer the chance to name a beneficiary. Ultimately, the beneficiary will automatically assume ownership of the account upon your passing. That is powerful. For starters, assets that pass by beneficiary designation escape probate. For a basic tutorial on the distinction between probate and non-probate assets, click here for a good, general explanation from ElderLawAnswers.com. So, what happens when your life changes and someone named as beneficiary a good long time ago is simply no longer appropriate (read: the ex-spouse, or other horror-story staples)? Well, they still get it. Bottom line: begin the New Year right with a review of your current estate plan and beneficiary designations. Make sure they are consistent and not in conflict with your wishes.

Reference: Forbes (December 16, 2013) “The Big Estate-Planning Goof You May Be Making

For more information, see www.jerryreiflawyer.com

 

Are Your Beneficiary Designations Up-To-Date? Mid-Michigan

A lot can happen in a year. Whether small or life-changing, ignore changes to your peril. This is especially true when it comes to your estate planning. Often, the biggest mistakes we can make when it comes to our estate planning are also some of the easiest to prevent. For example, the consequences of failing to update your beneficiary designations can be catastrophic, while the “fix” is as easy as a phone call or completing a paper (or online) form. A recent Forbes article titled “The Big Estate-Planning Goof You May Be Making” puts the importance of proper beneficiary designations in perspective. With the New Year upon us and our resolutions still holding up (or newly renewed?), this may be a good time to review the beneficiary designations we have made for our assets. You see, beneficiary designations are a peculiar thing. They carry with them very important powers for good or ill. Many accounts from IRAs to policies of one type or another offer the chance to name a beneficiary. Ultimately, the beneficiary will automatically assume ownership of the account upon your passing. That is powerful. For starters, assets that pass by beneficiary designation escape probate. For a basic tutorial on the distinction between probate and non-probate assets, click here for a good, general explanation from ElderLawAnswers.com. So, what happens when your life changes and someone named as beneficiary a good long time ago is simply no longer appropriate (read: the ex-spouse, or other horror-story staples)? Well, they still get it. Bottom line: begin the New Year right with a review of your current estate plan and beneficiary designations. Make sure they are consistent and not in conflict with your wishes.

Reference: Forbes (December 16, 2013) “The Big Estate-Planning Goof You May Be Making

For more information, see www.jerryreiflawyer.com

 

Thinking Beyond Your Last Will Saginaw, MI

So, you prepared your Last Will and Testament. However, that does not mean your Will is the final word on the distribution of all of your assets. For instance, your IRA likely will be governed by that common beneficiary form you may have completed without thinking through the consequences. Warning: do not designate your “estate” as the beneficiary of your IRA. This severely limits the distribution (and taxation) options available to your heirs. This matter was explored in a recent article in The Slott Report titled “IRAs and Wills Don’t Mix.” While your “estate” can be the beneficiary of your IRA and your Will thereafter determines the distribution of the retirement funds, this might not be best idea tax-wise. IRAs are very specific and peculiar assets with very specific inheritance rules. If your “estate” is the beneficiary of your IRA, then very “unfavorable” withdrawal rules apply. Instead of the IRA being withdrawn over the life expectancy of the beneficiary (typically younger than the plan owner), the funds must be withdrawn within five years or perhaps over your remaining life expectancy. Yes, this can get rather complicated. Make sure you consult with competent legal counsel when coordinating the distributions from your Last Will and from your IRA.

Reference: The Slott Report (July 29, 2013) “IRAs and Wills Don’t Mix”

For more information, see www.jerryreiflawyer.com

 

Pay Close Attention to Beneficiary Designations Saginaw Michigan

Naming beneficiaries seems pretty straight forward, but there may come a time when you forget who you’ve selected on various accounts. Thankfully there are shortcuts around this issue, you just have to know when and where to take them. When it comes to proper estate planning, the shortcuts are the existing options you already have with insurances and retirement accounts that allow you to designate your beneficiaries on a simple beneficiary designation form. For many of us, the beneficiary form is the first practical experience we have with estate planning. For thoughtful and downright tactful tips for designating your beneficiaries designations, consider a recent article in Fox Business titled “Bulletproofing Your Beneficiaries.” When it comes to beneficiary designations, some of them are shortcuts and some of them are dead-ends, and still others can completely undo your estate plans if you simply forget about them. That noted, there are at least two key points to consider. The second point is the beneficiary designation must be coordinated with your overall estate plan to the right beneficiaries (or even a system of trusts) to eliminate probate and minimize taxes. The first point, and a source of immediate concern, is that you must know who all of your beneficiaries are on all your accounts at all times. If you don’t know all of your beneficiaries, is it time for a “beneficiary audit” of all your accounts? You may want to consider reworking those designations to meet your distribution goals and ensure that your plans will end up as you intended.

For more information see www.jerryreiflawyer.com

Reference: Fox Business (October 1, 2012) “Bulletproofing Your Beneficiaries”

 

Estate Taxes – The Gift That Keeps on Taking

Death does not necessarily mark the end of your estate. In fact, for some families, it may mean the beginning of your financial legacy. On the other hand, for other families, it may mean the beginning of some serious taxes. The prospect of future tax battles with the IRS was the subject of the recent case of U.S. v. Mary Carol S. Johnson. Forbes explored this case in an article titled “When Estates Don't Pay Tax, IRS Chases Beneficiaries.” The case recounts the story of Anna Smith, her fortunes in the Stateline Hotel, and the IRS audit that ultimately led to a battle over a lost fortune. Smith’s fortune was bound up in stock in the hotel, and it was worth enough at her passing to trigger an estate tax that the family elected to pay in installments over several years (which can be done). According to her estate plan, the family distributed the stock amongst themselves under with an agreement to set aside a portion to pay the estate taxes owed. Apparently that agreement was reached in the “good days” of the hotel. In fact, those days were so good that the IRS audit on the estate tax return, years later, came up with higher numbers and a greater tax. Of course, when the IRS finally got around to making that decision, the hotel was not doing so well. However, the family agreed to pay the higher tax as a matter of duty and paid on those rates for several years. Boom. The hotel value collapsed, the stock became worthless, and the estate had nothing left to pay for the taxes on the past wealth. The IRS, not being one to forgive and forget, didn’t forget and carried on the fight to the beneficiaries and personal representatives of the estate. In the end, the IRS held two members of the family acting as personal representatives to be personally liable, even though they did the right thing by the original numbers. The original article is an interesting read and a sobering reminder, albeit far from unique. The IRS can audit any taxpayer, even if it’s an estate, and sometimes it has good reasons to do so. As a sidebar, the case demonstrates the importance of an accurate valuation. Regardless, this U.S. v. Mary Carol S. Johnson serves as a lesson for those currently planning their estates. With the current lifetime gifting exemption pegged at $5.12 million, this may be a window of opportunity to pass significant wealth before the year’s end. Bottom line: If the estate doesn’t fully pay off any amounts due, the IRS turns to the estate beneficiaries, sometimes even for amounts forgotten until years later.

Reference: Forbes (June 28, 2012) “When Estates Don't Pay Tax, IRS Chases Beneficiaries”

Estate Taxes – The Gift That Keeps on Taking

Death does not necessarily mark the end of your estate. In fact, for some families, it may mean the beginning of your financial legacy. On the other hand, for other families, it may mean the beginning of some serious taxes. The prospect of future tax battles with the IRS was the subject of the recent case of U.S. v. Mary Carol S. Johnson. Forbes explored this case in an article titled “When Estates Don't Pay Tax, IRS Chases Beneficiaries.” The case recounts the story of Anna Smith, her fortunes in the Stateline Hotel, and the IRS audit that ultimately led to a battle over a lost fortune. Smith’s fortune was bound up in stock in the hotel, and it was worth enough at her passing to trigger an estate tax that the family elected to pay in installments over several years (which can be done). According to her estate plan, the family distributed the stock amongst themselves under with an agreement to set aside a portion to pay the estate taxes owed. Apparently that agreement was reached in the “good days” of the hotel. In fact, those days were so good that the IRS audit on the estate tax return, years later, came up with higher numbers and a greater tax. Of course, when the IRS finally got around to making that decision, the hotel was not doing so well. However, the family agreed to pay the higher tax as a matter of duty and paid on those rates for several years. Boom. The hotel value collapsed, the stock became worthless, and the estate had nothing left to pay for the taxes on the past wealth. The IRS, not being one to forgive and forget, didn’t forget and carried on the fight to the beneficiaries and personal representatives of the estate. In the end, the IRS held two members of the family acting as personal representatives to be personally liable, even though they did the right thing by the original numbers. The original article is an interesting read and a sobering reminder, albeit far from unique. The IRS can audit any taxpayer, even if it’s an estate, and sometimes it has good reasons to do so. As a sidebar, the case demonstrates the importance of an accurate valuation. Regardless, this U.S. v. Mary Carol S. Johnson serves as a lesson for those currently planning their estates. With the current lifetime gifting exemption pegged at $5.12 million, this may be a window of opportunity to pass significant wealth before the year’s end. Bottom line: If the estate doesn’t fully pay off any amounts due, the IRS turns to the estate beneficiaries, sometimes even for amounts forgotten until years later.

Reference: Forbes (June 28, 2012) “When Estates Don't Pay Tax, IRS Chases Beneficiaries”