Trusts & Estate Planning

There are many circumstances that can impact an estate plan, not the least of which is divorce. While ending a marriage is complicated, it is not only crucial to arrive at a fair and equitable distribution of the marital assets, but to preserve your estate as well.

While the laws vary from state to state, it is important to understand the difference between separate and marital property. Generally, separate property includes any property owned by either spouse before the marriage, as well as gifts or inheritances received by either party prior to or after the marriage.

Marital property, on the other hand, is any property that is acquired during the marriage such as houses, cars, retirement plans, 401(k)s, IRAs, life insurance, investments and closely held business, regardless of who owns or holds title to the property.

One way to protect an estate in the event of a divorce is to put in place a prenuptial agreement. This legal document specifies each party's property ownership and clarifies their respective property rights should they end the marriage. A prenuptial agreement can reduce the conflict that is normally associated with divorce, avoid court intervention regarding questions of property division and also serve as an effective estate planning tool.

In short, a well designed agreement will distinguish separate property from marital property so that those assets are not misclassified if one of the spouses dies. Moreover, a prenuptial agreement is beneficial to those who are entering into second marriages because it will help to preserve the rights of children from prior relationships. In addition, for those who marry later in life and acquire significant assets, a prenuptial agreement can protect the estate from claims by former spouses.

In the end, a prenuptial agreement can enable each spouse to protect their assets and provide for their loved ones in the event of divorce or death. If you are considering marriage, it is essential to put a comprehensive estate place that includes a prenuptial agreement.

Becoming a new parent is a life changing experience, and caring for a child is an awesome responsibility as well as a joy. This is also the time to think about your child's future by asking an important question: who will care for your child if you become disabled or die? The best way to put your mind at ease is by having an estate plan.

The most basic estate planning tool is a will, which enables a person to determine how his or her assets will be distributed after death. Without this important estate planning tool, the state's intestacy laws will govern how these assets will be distributed. In addition, decisions about who will care for any minor children will be made by the court. For this reason, it is crucial for new parents to have a will as this is the only way to name guardians for minor children.

In this regard, selecting guardians involves a number of important considerations. Obviously, it is important to name individuals who are emotionally and financially capable of raising a child. At the same time, a will can also establish a trust that provides funds to be used to provide for the child's needs. Ultimately, guardians should share the same moral and spiritual values, and childrearing philosophy of the parents.

In addition to naming guardians in a will, it is also critical to plan for the possibility of incapacity by creating powers of attorney and advance medical directives. A durable power of attorney allows a new parent to name a spouse, or other trusted relative or friend, to handle personal and financial affairs. Further, a power of attorney for healthcare, or healthcare proxy, designates a trusted person to make medical decisions in accordance with the parent's preferences.

Finally, new parents should also obtain adequate life insurance to protect the family. The proceeds from an insurance policy can replace lost income, pay household and living expenses, as well as any debts that may have been owed by the deceased parent. It is also important to ensure that beneficiary designations on any retirement accounts are up to date so that these assets can be transferred expediently.

In the end, having a child is a time of joy, but also one that requires careful planning. The best way to protect your family is by consulting with an experienced estate planning attorney who can help you navigate the process.

For many individuals, leaving a legacy of charity is an important component of estate planning, but there are many factors involved in creating a charitable giving plan.

First, it is important to select causes that you believe in such as environmental, educational, religious or medical, or those dedicated to providing food and shelter to the poor. The number of charities you wish to give to depends on your available resources, as well as other beneficiaries of your estate. Many people opt to limit their selections to a handful of charities that are most important to them.

Once charities have been selected, it is crucial to do some homework to make sure the charities are legitimate, and that your gift will be used for the intended purpose, rather than to pay salaries or administrative costs. A good place to start is with the charity's website, and there are many publicly available resources that evaluate charities.

Further, it is important to be realistic about how much of our assets can be dedicated to gift giving, and how those donations should be allocated to the designated charities. Proceeds can either be divided equally, or more money can be provided to the charity you deem most worthy.

Lastly, it is important to avoid the common mistakes many make when planning charitable gifts. It is crucial to ensure that you are donating to a legitimate charity by thoroughly evaluating the agency. In addition, your gift should not be overly restricted since this could make it difficult for the charity to use.If your assets are in stocks, they should not be sold and the profits donated, rather the stocks should be gifted directly to the charity.  

In sum, your gift needs to be helpful to the charity, but also take advantage of tax benefits to which you may be entitled, and these objectives can be achieved by establishing a trust. For example, a charitable remainder trust is one into which property is transferred with a charity named as the final beneficiary. In this arrangement, another individual receives income from the trust for a set period of time and then the remainder is given to the charity. In the end, if your objective is to become a sophisticated donor, it is essential to engage the services of an experienced trusts and estates attorney.

Many individuals are aware that a will is one way to plan for the distribution of their assets after death. However, a comprehensive estate plan also considers other objectives such as planning for long-term care and asset protection. For this reason, it is essential to consider utilizing an irrevocable trust.

This estate planning tool becomes effective during a person's lifetime, but it cannot be amended or modified. The person making the trust, the grantor, transfers property into the trust permanently. In so doing, the grantor no longer owns property, and a designated trustee owns and manages the assets for the benefit of the beneficiaries.

In short, irrevocable trust provide a number of advantages. First, the property is not subject to estate taxes because the grantor no longer owns it. Moreover, unlike a will, an irrevocable trust is not probated in court. Finally, assets are protected from creditors.

Common Irrevocable Trusts

There are a variety of irrevocable trusts, including:

• Bypass Trusts -  utilized by married couples to reduce estate taxes when the second spouse dies. In this arrangement, the property of the spouse who dies first is transferred into the trust for the benefit of the surviving spouse. Because he or she does not own it, the property does not become part of this spouse's estate when he or she dies.

• Charitable Trusts - created to reduce income and estate taxes through a combination of gifting and charitable donations.  For example, charitable remainder trust transfers property into a trust and names a charity as the final beneficiary, but another individual receives income before,  for a certain time period.

• Life Insurance Trusts - proceeds of life insurance are removed from the estate and ownership of the policy is transferred into the trust. While insurance passes outside of the estate, it is factored into the value of the estate for tax purposes, so this vehicle is designed to minimize estate taxes.

• Spendthrift Trusts – designed to protect those who may not be able to manage finances on their own. A trustee is named to manage and distribute the funds to the beneficiary or directly to creditors, depending on the terms of the trust.

• Special needs trusts - designed to protect the public benefits that many special needs individuals receive. Since an inheritance could disqualify a beneficiary from Medicaid, for example, this estate planning tool provides money for additional day to day expenses while preserving the government benefits.

The Takeaway

Irrevocable trusts are essential estate planning tools that can protect an individual's assets, minimize taxes and provide for loved ones. In the end, these objectives can be accomplished with the advice and counsel of an experienced estate planning attorney.

While advances in medicine allow people to live longer, questions are often raised about life-sustaining treatment terminally ill patients may or may not want to receive. Those who fail to formally declare these wishes in writing to family members and medical professionals run the risk of having the courts make these decisions.

For this reason, it is essential to put in place advance medical directives to ensure that an individual's preferences for end of life medical care are respected. There are two documents designed for these purposes, a Do Not Resuscitate Order (DNR) and a Physician Order for Life Sustaining Treatment (POLST).

What is a DNR?

A Do Not Resuscitate Oder alerts doctors, nurses and emergency personnel that cardiopulmonary resuscitation (CPR) should not be used to keep a person alive in case of a medical emergency.
Read more . . .

The most basic estate planning tool is a will which establishes how an individual's property will be distributed and names beneficiaries to receive those assets. Unfortunately, there are circumstances when disputes arise among surviving family members that can lead to a will contest. This is a court proceeding in which the validity of the will is challenged.

In order to have standing to bring a will contest, a party must have a legitimate interest in the estate. Although the law in this regard varies from state to state, the proceeding can be brought by heirs, beneficiaries, and others who stand to inherit. While these disputes are often the result of changes to the distribution plan from a prior will, some common types of will contests are as follows.

Lack of testamentary capacity

The testator, that is the person making the will, must have the mental capacity and be of sound mind at the time the will is executed , modified or revoked. Further, being of sound mind means that the testator knows what property he or she owns and understands the effect of executing the will. Although these are considered to be low standards, claims that the deceased lacked the mental capacity when the will was executed are common.

Undue influence

If the deceased was coerced into executing the will, it may be considered invalid. In order to ensure that the testator is not subjected to undue influence, the will should be prepared by an attorney. Moreover, heirs and beneficiaries should not take part in meetings and discussions between the testator and his or her attorney.

Will improperly executed

There are certain formalities that must be followed in order for a will to be considered validly executed. While some states require a notarized signature, others insist on a certain number of witnesses being present when the will is executed. If these formalities are not strictly followed, the will may be found to be improperly executed.

Fraud

A will can also be considered invalid if a person is intentionally deceived when preparing and executing the document.

The Takeaway

If a will is successfully contested, it can be declared invalid by the court. This means that the assets will be distributed either according to the terms of a prior will or if no such will exists, the state's intestacy rules. Ultimately, engaging the services of an experienced estate planning an attorney can minimize the risk of a will contest.

In spite of the vast amount of financial information that is currently available in the media and via the internet, many people either do not understand estate planning or underestimate its importance. Here's a look at the top five estate planning mistakes that need to be avoided.

1. Not Having an Estate Plan

The most common mistake is not having an estate plan, particularly not creating a will - as many as 64 percent of Americans don't have a will. This basic estate planning tool establishes how an individual's assets will be distributed upon death, and who will receive them. A will is especially important for parents with minor children in that it allows a guardian to be named to care for them if both parents were to die unexpectedly. Without a will, the courts will make decisions according to the state's probate laws, which may not agree with a person's wishes.

2. Failing to Update a Will

For those who have a will in place, a common mistake is to tuck it away in a drawer and be done with it. Creating a will is not a "once and done" matter as it needs to updated periodically, however. There are changes that occur during a person's lifetime, such as buying a home, getting married, having children, getting divorced - and remarried, that need to be accurately reflected in an updated will. Depending on the circumstances, a will should be reviewed every two years.

3. Not Planning for Disability

While no one likes to think about becoming ill or getting injured, an unexpected long-term disability can have devastating consequences on an individual's financial and personal affairs. It is essential to create a durable power of attorney to designate an individual to manage your finances if you are unable to do so. In addition, a power of attorney for healthcare  - or healthcare proxy, allows you to name a trusted relative or friend to make decisions about the type of care you prefer to receive when you cannot speak for yourself.

4. Naming Incapable Heirs

People often take for granted that their loved ones are capable of managing an inheritance. There are cases, however, when a beneficiary may not understand financial matters or be irresponsible with money. In these situations, a will can appoint an professional to supervise these assets, or in the alternative a "spendthrift trust" can be put in place.

5. Choosing the Wrong Executor

Many individuals designate a close relative or trusted friend to act as executor, but fail to consider whether he or she has the capacity and integrity to take on this role. By choosing the wrong executor, your will could be contested, leading to unnecessary delays, costs and lingering acrimony among surviving family members.

The Takeaway

In the end, estate planning is really about getting your affairs in order. By engaging the services of an experienced trusts and estates attorney, you can avoid these common mistakes, protect your assets and provide for your loved ones.

When a person dies with a will in place, an executor is named as the responsible individual for winding down the decedent's affairs. In situations in which a will has not been prepared, the probate court will appoint an administrator. Whether you have been named  as an executor or administrator, the role comes with certain responsibilities including taking charge of the decedent's assets, notifying beneficiaries and creditors, paying the estate's debts and distributing the property to the beneficiaries.

In some cases, an executor may also be a beneficiary of the will, however he or she must act fairly and in accordance with the provisions of the will. An executor is specifically responsible for:

• Finding a copy of the will and filing it with the appropriate state court

• Informing third parties, such as banks and other account holders, of the person’s death

• Locating assets and identifying debts

• Providing the court with an inventory of these assets and debts

• Maintaining any assets until they are disposed of

• Disposing of assets either through distribution or sale

• Satisfying any debts

• Appearing in court on behalf of the estate

Depending on the size of the estate and the way in which the decedent's assets were titled, the will may need to be probated. If the estate must go through s probate proceeding, the executor must file with the court to probate the will and be appointed as the estate's legal representative.

By doing so, the executor can then pay all of the decedent's outstanding debts and distribute the property to the beneficiaries according to the terms of the will. The executor is also is also responsible for filing all federal and state tax returns for the deceased person as well as estate taxes, if any. Lastly, an executor may be entitled to compensation for the time he or she served the estate. If the court names an administrator, this individual will have similar responsibilities.

In the end, being name an executor or appointed as an administrator ultimately means supporting the overall goal of distributing the estate assets according to wishes of the deceased or state law. In either case, an experienced probate or estate planning attorney can help you carry out these duties.

The loss of a loved one is a difficult time, often made more stressful when one has to handle the affairs of the deceased. This may be a great undertaking or rather minimal work, depending upon the level of estate planning done prior to death.

Tasks that have to be performed after the passing of a loved one will vary based on whether the departed individual had a will or not. In determining whether probate (a court-managed process where the assets of the deceased are managed and distributed) is needed, the assets owned by the individual, and whether these assets were titled, must be considered. It’s important to understand that assets titled jointly with another person are not probate assets and will normally pass to the surviving joint owner. Also, assets such as life insurance and retirement assets that name a beneficiary will pass to the named beneficiaries outside of the court probate process. If the deceased relative had formed a trust and during his life retitled his assets into that trust, those trust assets will also not pass through the probate process.

Each state’s rules may be slightly different so it is important to seek proper legal advice if you are charged with handling the affairs of a deceased family member or friend. Assuming probate is required, there will be a process that you must follow to either file the will and ask to be appointed as the executor (assuming you were named executor in the will) or file for probate of the estate without a will (this is referred to as dying "intestate" which simply means dying without a will). Also, there will be a process to publish notice to creditors and you may be required to send each creditor specific notice of the death. Those creditors will have a certain amount of time to file a claim against the estate assets. If a legitimate creditor files a claim, the claim can be paid out of the estate assets. Depending on your state's laws, there may also be state death taxes (sometimes referred to as "inheritance taxes") that have to be paid and, if the estate is large enough, a federal estate tax return may also have to be filed along with any taxes which may be due.

Only after the estate is fully administered, creditors paid, and tax returns filed and taxes paid, can the estate be fully distributed to the named beneficiaries or heirs. Given the many steps, and complexities of probate, you should seek legal counsel to help you through the process.

A Pooled Income Trust is a special type of trust that allows individuals of any age (typically over 65) to become financially eligible for public assistance benefits (such as Medicaid home care and Supplemental Security Income), while preserving their monthly income in trust for living expenses and supplemental needs. All income received by the beneficiary must be deposited into the Pooled Income Trust which is set up and managed by a not-for-profit organization.

In order to be eligible to deposit your income into a Pooled Income Trust, you must be disabled as defined by law. For purposes of the Trust, "disabled" typically includes age-related infirmities. The Trust may only be established by a parent, a grandparent, a legal guardian, the individual beneficiary (you), or by a court order.

Typical individuals who use a Pool Income Trust are: (a) elderly persons living at home who would like to protect their income while accessing Medicaid home care; (2) recipients of public benefit programs such as Supplemental Security Income (SSI) and Medicaid; (3) persons living in an Assisted Living Community under a Medicaid program who would like to protect their income while receiving Medicaid coverage.

Medicaid recipients who deposit their income into a Pool Income Trust will not be subject to the rules that normally apply to "excess income," meaning that the Trust income will not be considered as available income to be spent down each month. Supplemental payments for the benefit of the Medicaid recipient include: living expenses, including food and clothing; homeowner expenses including real estate taxes, utilities and insurance, rental expenses, supplemental home care services, geriatric care services, entertainment and travel expenses, medical procedures not provided through government assistance, attorney and guardian fees, and any other expense not provided by government assistance programs.

As with all long term care planning tools, it’s imperative that you consult a qualified estate planning attorney who can make sure that you are in compliance with all local and federal laws.

Many people own a family vacation home--a lakeside cabin, a beachfront condo--a place where parents, children and grandchildren can gather for vacations, holidays and a bit of relaxation. It is important that the treasured family vacation home be considered as part of a thorough estate plan. In many cases, the owner wants to ensure that the vacation home remains within the family after his or her death, and not be sold as part of an estate liquidation.

There are generally two ways to do this: Within a revocable living trust, a popular option is to create a separate sub-trust called a "Cabin Trust" that will come into existence upon the death of the original owner(s). The vacation home would then be transferred into this Trust, along with a specific amount of money that will cover the cost of upkeep for the vacation home for a certain period of time. The Trust should also designate who may use the vacation home (usually the children or grandchildren). Usually, when a child dies, his/her right to use the property would pass to his/her children.

The Cabin Trust should also name a Trustee, who would be responsible for the general management of the property and the funds retained for upkeep of the vacation home. The Trust can specify what will happen when the Cabin Trust money runs out, and the circumstances under which the vacation property can be sold. Often the Trust will allow the children the first option to buy the property.

Another method of preserving the family vacation home is the creation of a Limited Liability Partnership to hold the house. The parents can assign shares to their children, and provide for a mechanism to determine how to pay for the vacation home taxes and upkeep. An LLP provides protection from liability, in case someone is injured on the property.

It is always wise to consult with an estate planning attorney about how to best protect and preserve a vacation home for future generations.