King & Wood, P.A.

Why Everyone Needs a Will and an Estate Plan

“Estate planning is the process of anticipating and arranging for the management and disposal of a person's estate during the person's life in preparation for a person's future incapacity or death.”

Some still hold onto the old-school idea of estate planning being needed only by people living on an estate, owning a business, or having inherited significant wealth. This isn’t true, as explained in the article “Everyone needs a will—and here’s why” from JOLT News.

Times change, and so do laws and possibilities. Estate planning is vital for everyone. It includes planning for incapacity, which can happen to anyone at any age and stage of life. A durable power of attorney is one of the most important estate planning tools. If you become incapacitated, it allows you to name another person to manage your financial and legal affairs.

Without a durable power of attorney, your family will need to go to court and be named your guardian to be able to pay your bills and tackle other everyday tasks we usually don’t think twice about. Unfortunately, obtaining guardianship is a lengthy and expensive process. Having an experienced estate planning attorney create a power of attorney customized to your particular situation is a far better option.

When the last will and testament is needed, a power of attorney expires upon death. This is the foundation of distributing your assets. An estate planning attorney will review your situation thoroughly to make the best plan for you and your family.

A common mistake occurs when people think they can circumvent estate planning by adding another person to their bank and investment accounts. This unfortunately makes the accounts vulnerable to a number of bad outcomes. For example, if the person you name has any problems with debt, their creditors can come after your assets.

Upon the original owner’s death, the assets in the jointly owned accounts will be distributed directly to the joint owner, which may or may not have been the intention. As a result, heirs will have no ability to recover those assets.

For those living in community property states, some assets automatically transfer to the surviving spouse. However, some will require an administrative process to transfer assets to the surviving spouse formally. A meeting with an estate planning attorney will clarify and document the couple’s wishes.

The will is the most common planning tool. It must be signed by the person making the will, known as the testator, in the presence of witnesses. In some states, one witness is required, but two are required in other states. Your estate planning attorney will know the policies and requirements of your state.

Your will is the document used to name an executor, who will administer the estate and distribute assets. If you have minor children, you’ll name a primary and secondary guardian to raise the children in the event of your passing.

Reference: JOLT News (April 19, 2023) “Everyone needs a will—and here’s why”

Do Heirs Have to Pay Debts from an Estate?

“First, debts in a person’s estate are payable from the decedent’s assets in the course of administering their probate estate or administering their living trust estate.”

Part of estate planning is considering how future repayment of debts, both owed to the person and debts they are responsible for, will impact inheritances received by beneficiaries. A recent article from Lake County News, “Estate Planning: Debts and Estate Planning,” explains how the process works.

Assets passing to a beneficiary directly, outside of probate, are not typically subject to paying a decedent’s debts. These are life insurance proceeds, joint tenancy assets, Payable on Death (POD) and Transfer on Death (TOD), to name a few.

The estate plan must consider how much debt exists and how it might be paid. One approach is to purchase life insurance made payable to the trust estate.

A person may specifically gift real property, which would be subject to repaying an outstanding debt, like a mortgage.

If the beneficiary who would otherwise receive the residence takes it subject to repaying the secured debt, other assets in the estate would need to be reduced to pay the debt.

This should be addressed when the estate plan is created and must be expressly documented. If not addressed, the default rule is that any secured debt goes with the gift. It’s not likely to have been the plan. However, this is how the law works.

Third, parents and children may loan money between themselves. This is usually between parent and child.

Such family debts merit attention during estate planning. For example, parents may wish to loan money to a child to pay higher education costs, to buy a home, or to launch a business.

Upon the death of the parent, should any unpaid balance be repaid by the child to the parent’s estate, or should the child’s debt be forgiven? This must also be clearly stated in the will or trust, whatever is relevant.

If the parent wishes the child to pay the unpaid balance, the debt obligation and its payment history must be in writing and updated. The debt may be assigned to the parent’s trust and enforced by the successor trustee.

At death, the unpaid balance would need to be added back into the estate's value to arrive at the correct gross value necessary to assess each share of the total estate.

The unpaid balance is usually subtracted from the debtor’s share.

Children might also be owed money from a parent. For example, the adult child might provide at-home personal care services to their parent, or money may be lent to help with the parent’s cost of living. The debt and repayment history also needs to be in writing and updated regularly.

Debt must be acknowledged, and the means of repaying the debt must be made clear. An estate planning attorney will help document and build repayment into the estate plan.

Reference: Lake Country News (April 29, 2023) “Estate Planning: Debts and Estate Planning”

What Is the Purpose of an Executor?

“Being named as an executor in a loved one’s Last Will and Testament is a big responsibility. It is important to understand what you are agreeing to before you step into the role as executor.”

It is flattering to be named the executor for a loved one. It demonstrates an extremely high level of trust and respect, as the person considers you capable enough to fulfill their wishes when they have passed. However, just because you have been named executor does not mean you are obliged to serve, says the recent article, “What are the responsibilities of an executor?” from Daily Local News.

Suppose you decide the responsibilities of being an executor are more than you’re willing or able to handle. In that case, you can renounce your position as executor, and a successor executor named in the will becomes the executor. If the person who named you executor did not name a successor, the court will select a person for the role.

If you have any doubts about this role, please tell the person who asks you to serve, so they can make other arrangements.

If you choose to serve, you’ll want to understand what the job entails. Each estate is unique, and its administration depends upon the assets owned by the deceased, what debts they had and their wishes for distribution.

Some duties are the same regardless of the complexity or simplicity of the estate. For example, the executor often makes arrangements with the funeral home and provides information for the death certificate. Once the death certificate is issued, the executor probates the will with the local court in the county where the decedent last lived. Most people retain an estate planning attorney to guide them through probate and estate administration.

Once the petition for probate has been filed and the court issues Letters Testamentary empowering you to serve as the executor, the administration begins. Some, but not all, of the tasks, include:

• Gathering assets
• Notifying beneficiaries named in the will
• Obtaining an EIN federal tax number for the estate
• Opening an estate checking account
• Verifying and paying the debts of the decedent
• Liquidating and transferring estate assets into the estate checking account
• Filing a final personal income tax return
• Providing an accounting to beneficiaries and distributing the estate in accordance with the decedent’s will
• Filing an estate tax return.

The executor also handles other tasks, such as selling the contents of the person’s residence and home.

The executor is entitled to reasonable compensation for their services. The amount is treated as taxable income. Determining the fee depends on the value and complexity of the estate and the amount of time it took to settle the estate. Some family members waive a fee, while others feel their time deserves compensation.

An estate planning attorney can provide invaluable assistance and prevent expensive mistakes from occurring. If the estate involves businesses, complex ownership structures, trusts, or other sophisticated assets, it is worthwhile to have the help of an experienced professional.

Reference: Daily Local News (March 22, 2023) “What are an executor’s responsibilities?”

What Is Probate?

“How this is handled now depends on the plans the deceased made when they were alive. For some people, that might mean probate.”

Unless they’ve experienced it themselves, most people don’t know what happens after the funeral is over and mourners return to their lives. A recent article from San Francisco Bay Times, “Probate in a Nutshell,” explains how the probate process works.

Probate is the legal process of administering the estate of a deceased person. It includes transferring assets of the decedent to their heirs, beneficiaries, or creditors. Probate is court-supervised and can be a lengthy, complex and often stressful experience, depending in part on the complexity of the estate and the jurisdiction.

Probate starts with filing the last will and testament in the court and appointment of an executor. If there is no will, then the court appoints an administrator to handle the estate. The executor or administrator gathers the assets, pays debts, and taxes and distributes the remaining assets according to the terms of the will. If there is no will, the laws of the state determine, usually by kinship, how the assets are distributed.

The probate process can take months or years to complete. During this time, the executor or administrator must keep careful records of all transactions. They must also file tax returns for the last year of the person’s life and diligently track all expenses and income of the estate.

Once the probate process is completed, the executor or administrator must file a final report with the court. This report must include all financial transactions. The probate court then reviews the report and determines whether or not it approves all transactions. Only then can assets be distributed to beneficiaries.

Why is probate so complex and time-consuming? First, it takes time to complete an inventory of someone’s property, including real estate, bank accounts, investment accounts, artwork, vehicles, jewelry and tangible assets. The asset list also includes life insurance policies, pensions, annuities, and other assets the person owned.

A professional appraiser may be needed to determine the value of assets. The executor must also gather proof of ownership for all these assets, such as deeds or titles.

Any debts or liabilities must also be identified, including credit cards, loans, mortgages, liens, and outstanding debts. Finally, taxes must be reviewed: income tax, property tax, estate tax, or gift tax.

Finally, a complete list of all estate beneficiaries must be prepared, including family members, friends, or others who may be named in the will. Contact information will be required for all.

Many complications can arise during probate. This is why many people take the time to have an experienced estate planning attorney create an estate plan to remove assets from the probate estate through trusts, gifts and other estate planning strategies. Of course, estate administration still needs to take place after someone dies. However, having an estate plan can minimize the court’s involvement, cut down on delays and avoid unnecessary expenses.

Reference: San Francisco Bay Times (April 4, 2023) “Probate in a Nutshell”

Probate: What Is it? How Does it Work?

“In certain instances, particularly when there is no Will, the system ensures that all accounts and property are distributed in accordance with state law.”

Many times, the word probate carries a negative connotation and it’s often positioned as something to avoid at all costs. According to a recent article “The Legal Corner: Pros and Cons of Probate” from The Huntsville Item, it’s important to understand the role probate plays in the estate planning and administration process. A comprehensive estate plan can minimize the probate process, and in some instances, it is a convincing reason to have a professionally created estate plan.

In cases where there is no will, the probate system ensures that all accounts and property are distributed in accordance with state law. There are potential benefits to having an estate go through probate in the administration of a decedent estate, including:

• Probate provides a reliable procedure for the distribution of the deceased’s property in the absence of a will.
• If a will exists, probate validates and enforces the wishes of the decedent.
• Probate ensures that taxes and valid debts are paid, so beneficiaries are not left with an uncertain feeling regarding the decedent’s affairs.
• If there were debts or unpaid bills, probate provides a means of limiting the amount of time creditors have to file claims, which may result in debt discharge, reduction, or other advantageous settlements.
• It allows for third-party oversight by a court, potentially reducing family conflicts and in certain instances, encouraging family members to act properly.

There are also reasons to avoid probate. An experienced estate planning attorney can create an estate plan where wealth and property pass directly to beneficiaries, avoiding or minimizing all or part of the estate going through probate. These include:

• Privacy is a big benefit of avoiding probate. Probate is a matter of public record, so certain documents, including personal and financial information, are accessible to the public. This is why wills should never have specific account names and numbers included.
• Probate means that your estranged family member will be able to find out how the estate was distributed and read the will, even if you didn’t wish this to happen.
• Probate can be costly. Probate requires court fees, attorney fees and executor fees, which are then deducted from the value of assets intended for loved ones.
• Probate can be time-consuming, depending on where you live. In some jurisdictions, probate courts run smoothly. However, this is not aways the case. If the family is depending on receiving assets quickly, for example, if funds are needed in order to maintain the decedent’s house so it can be sold, probate will require them to find other resources.

An estate planning attorney will be able to review the estate and determine which assets can be transferred to heirs through other means to avoid having the entire estate go through probate. They will also be familiar with the courts in your local jurisdiction and know how long it will take, if the estate needs to go through probate.

Reference: The Huntsville Item (Feb. 12, 2023) “The Legal Corner: Pros and Cons of Probate”

Can a Revocable Trust Protect Assets from Creditors?

“With a revocable trust, you are typically both the founder and the trustee. This means that you both create the trust and manage its assets and operations.”

Revocable trusts, sometimes referred to as “living trusts”, do not protect assets from creditors. They are subject to collections actions and lawsuits, and can be included when third parties evaluate personal assets, as explained in a recent article titled “Will Revocable Trusts Protect My Assets From Creditors” from yahoo!

There are many different types of trusts. However, the overwhelming majority fall into one of two categories: revocable or living trusts and irrevocable trusts. With a revocable trust, the grantor has full access to the trust’s terms, beneficiaries and assets at all times. They can change how the trust operates, who benefits from it and even dissolve the trust as they wish. They can also take assets out of the trust.

Contrast this with an irrevocable trust, where the grantor can’t take any of these actions. A revocable trust is considered a legal entity existing as an extension of a person’s financial and estate plan, while an irrevocable trust is an entirely independent legal entity. Once it has been created, the grantor can’t easily change the terms of the trust or access its assets.

What then is the purpose of a revocable trust? As a legal entity, the revocable trust survives the grantor’s death. Assets can then be distributed to heirs without having to go through probate. A revocable trust is also useful in case the grantor becomes incapacitated or is otherwise unable to make decisions about the assets in the trust.

Creditors can access a revocable trust. While the revocable trust is extremely useful as a planning tool, the level of access means the grantor is the legal owner of the trust and its assets. Courts and creditors alike can fully access the contents because its assets are indistinguishable from that of the grantor. If the grantor owes money, any assets in a revocable trust are considered part of their net worth.

A court can order a grantor to pay debts based on what’s in the trust. They are considered part of the grantor’s total assets during a bankruptcy proceeding.

Some irrevocable trusts can be used protect assets. An irrevocable trust is an entirely separate legal entity from its creator. Therefore, the grantor loses control of any assets placed into it, subject to the terms of the trust. However, those assets are then legally considered no longer owned by the grantor.

This depends upon the jurisdiction and the nature of the trust, as state laws vary. Some trusts don’t work for protecting assets, especially not if the grantor has been named as a beneficiary. Some jurisdictions don’t recognize this at all, but it is a viable option under the right circumstances. But if a court determines the grantor moved assets around to keep them away from creditors, it would be considered fraud.

If you’re considering using trusts in your estate plan, speak with an estate planning attorney who can determine which type of trust is best suited to your needs.

Reference: yahoo! (Jan. 27, 2023) “Will Revocable Trusts Protect My Assets From Creditors”

Can a Revocable Trust Protect Assets from Creditors?

“With a revocable trust, you are typically both the founder and the trustee. This means that you both create the trust and manage its assets and operations.”

Revocable trusts, sometimes referred to as “living trusts”, do not protect assets from creditors. They are subject to collections actions and lawsuits, and can be included when third parties evaluate personal assets, as explained in a recent article titled “Will Revocable Trusts Protect My Assets From Creditors” from yahoo!

There are many different types of trusts. However, the overwhelming majority fall into one of two categories: revocable or living trusts and irrevocable trusts. With a revocable trust, the grantor has full access to the trust’s terms, beneficiaries and assets at all times. They can change how the trust operates, who benefits from it and even dissolve the trust as they wish. They can also take assets out of the trust.

Contrast this with an irrevocable trust, where the grantor can’t take any of these actions. A revocable trust is considered a legal entity existing as an extension of a person’s financial and estate plan, while an irrevocable trust is an entirely independent legal entity. Once it has been created, the grantor can’t easily change the terms of the trust or access its assets.

What then is the purpose of a revocable trust? As a legal entity, the revocable trust survives the grantor’s death. Assets can then be distributed to heirs without having to go through probate. A revocable trust is also useful in case the grantor becomes incapacitated or is otherwise unable to make decisions about the assets in the trust.

Creditors can access a revocable trust. While the revocable trust is extremely useful as a planning tool, the level of access means the grantor is the legal owner of the trust and its assets. Courts and creditors alike can fully access the contents because its assets are indistinguishable from that of the grantor. If the grantor owes money, any assets in a revocable trust are considered part of their net worth.

A court can order a grantor to pay debts based on what’s in the trust. They are considered part of the grantor’s total assets during a bankruptcy proceeding.

Some irrevocable trusts can be used protect assets. An irrevocable trust is an entirely separate legal entity from its creator. Therefore, the grantor loses control of any assets placed into it, subject to the terms of the trust. However, those assets are then legally considered no longer owned by the grantor.

This depends upon the jurisdiction and the nature of the trust, as state laws vary. Some trusts don’t work for protecting assets, especially not if the grantor has been named as a beneficiary. Some jurisdictions don’t recognize this at all, but it is a viable option under the right circumstances. But if a court determines the grantor moved assets around to keep them away from creditors, it would be considered fraud.

If you’re considering using trusts in your estate plan, speak with an estate planning attorney who can determine which type of trust is best suited to your needs.

Reference: yahoo! (Jan. 27, 2023) “Will Revocable Trusts Protect My Assets From Creditors”

Some Expenses are Paid by Estate and Some by Beneficiary

“If you’re set to inherit, you may be wondering what estate expenses are paid by the beneficiary. The answer can depend on what assets are passed on to you when a family member or loved one passes away.”

Settling an estate can be complex and time-consuming—it all depends on how much “estate planning” was done. According to a recent article from yahoo! Finance titled “What Expenses Are Paid by the Estate vs. Beneficiary?,” the executor is the person who creates an inventory of assets, determines which expenses need to be paid and distributes the remainder of the estate to the deceased’s beneficiaries. How does the executor know which monies are paid by the estate and which by the beneficiaries?

First, let’s establish what kind of expenses an estate pays. The main expenses of an estate include:

Outstanding debts. The executor has to notify creditors of the decedent’s death and the creditors then may make a claim against the estate. Because a person dies doesn’t mean their debts disappear—they become the debts of the estate.

Taxes. There are many different taxes to be paid when a person dies, including estate, inheritance and income tax. The federal estate tax is not an issue, unless the estate value exceed the exemption limit of $12.92 million for 2023. Not all states have inheritance taxes, so check with a local estate planning attorney to learn if the beneficiaries will need to pay this tax. If the decedent has an outstanding property tax bill for real estate property, the estate will need to pay it to avoid a lien being placed on the property.

Fees. There are court fees to file documents including a will to start the probate process, to serve notice to creditors or record transfer of property with the local register of deeds. The executor is also entitled to collect a fee for their services.

Maintaining real estate property. If the estate includes real estate, it is likely there will be expenses for maintenance and upkeep until the property is either distributed to heirs or sold. There may also be costs involved in transporting property to heirs.

Final expenses. Unless the person has pre-paid for all of their funeral, burial, cremation, or internment costs, these are considered part of estate expenses. They are often paid out of the death benefit associated with the deceased person’s life insurance policy.

What expenses does the estate pay?

The estate pays outstanding debts, including credit cards, medical bills, or liens.

• Appraisals needed to establish values of estate assets
• Repairs or maintenance for real estate
• Fees paid to professionals associated with settling the estate, including executor, estate planning attorney, accountant, or real estate agent
• Taxes, including income tax, estate tax and property tax
• Fees to obtain copies of death certificates

The executor must keep detailed records of any expenses paid out of estate assets. The executor is the only person entitled by law to see the decedent’s financial records. However, beneficiaries have the right to review financial estate account records.

What does the beneficiary pay?

This depends on how the estate was structured and if any special provisions are included in the person’s will or trust. Generally, expect to pay:

• Final expenses not covered by the estate
• Personal travel expenses
• Legal expenses, if you decide to contest the will
• Property maintenance or transportation costs not covered by the estate

Some of the expenses are deductible, and the executor must use IRS Form 1041 on any estate earning more than $600 in income or which has a nonresident alien as a beneficiary.

An estate planning attorney is needed to create a comprehensive estate plan addressing these and other issues in advance. If little or no planning was done before the decedent’s death, an estate planning attorney will also be an important resource in navigating through the estate’s settlement.

Reference: yahoo! finance (Dec. 29, 2022) “What Expenses Are Paid by the Estate vs. Beneficiary?”

What Is Included in an Estate Inventory?

“One of the essential steps in the probate process is filing an inventory of all the assets that are part of the estate.”

The executor’s job includes gathering all of the assets, determining the value and ownership of real estate, securities, bank accounts and any other assets and filing a formal inventory with the probate court. Every state has its own rules, forms and deadline for the process, says a recent article from yahoo! Finance titled “What Do I Need to Do to Prepare an Estate Inventory for Probate,” which recommends contacting a local estate planning attorney to get it right.

The inventory is used to determine the overall value of the estate. It’s also used to determine whether the estate is solvent, when compared to any claims of creditors for taxes, mortgages, or other debts. The inventory will also be used to calculate any estate or inheritance taxes owed by the estate to the state or federal government.

What is an estate asset? Anything anyone owned at the time of their death is the short answer. This includes:

• Real estate: houses, condos, apartments, investment properties
• Financial accounts: checking, savings, money market accounts
• Investments: brokerage accounts, certificates of deposits, stocks, bonds
• Retirement accounts: 401(k)s, HSAs, traditional IRAs, Roth IRAs, pensions
• Wages: Unpaid wages, unpaid commissions, un-exercised stock options
• Insurance policies: life insurance or annuities
• Vehicles: cars, trucks, motorcycles, boats
• Business interests: any business holdings or partnerships
• Debts/judgments: any personal loans to people or money received through court judgments

Preparing an inventory for probate may take some time. If the decedent hasn’t created an inventory and shared it with the executor, which would be the ideal situation, the executor may spend a great deal of time searching through desk drawers and filing cabinets and going through the mail for paper financial statements, if they exist.

If the estate includes real property owned in several states, this process becomes even more complex, as each state will require a separate probate process.

The court will not accept a simple list of items. For example, an inventory entry for real property will need to include the address, legal description of the property, copy of the deed and a fair market appraisal of the property by a professional appraiser.

Once all the assets are identified, the executor may need to use a state-specific inventory form for probate inventories. When completed, the executor files it with the probate court. An experienced estate planning attorney will be familiar with the process and be able to speed the process along without the learning curve needed by an inexperienced layperson.

Deadlines for filing the inventory also vary by state. Some probate judges may allow extensions, while other may not.

The executor has a fiduciary responsibility to the beneficiaries of the estate to file the inventory without delay. The executor is also responsible for paying off any debts or taxes and overseeing the distribution of any remaining assets to beneficiaries. It’s a large task, and one that will benefit from the help of an experienced estate planning attorney.

Reference: yahoo! finance (Dec. 3, 2022) “What Do I Need to Do to Prepare an Estate Inventory for Probate”

What Exactly Does an Executor Do?

“The main responsibility of an executor of a will is to carry out the final wishes of the person who bestowed that position of trust.”

The executor is usually a spouse, close family member or trusted friend. If no such person is available, a qualified compensated person can be appointed under state law, according to a recent article from The Street entitled “Top Duties of an Estate Executor and How to Carry Them Out.”

The executor needs to be trustworthy and organized, since there are many details involved. Depending on the complexity and size of the estate, the executor’s duties could include additional tasks. However, the following are the five main categories:

• Filing the will with the court
• Gathering documents
• Paying debts and taxes and collecting from any debtors
• Closing out Social Security accounts, insurance policies and retirement accounts; and
• Maintaining any real estate property, until it is sold or ownership is transferred to an heir.

Once the will is filed with the court and the will is deemed to be valid, the court will issue Letters Testamentary, and the executor will be empowered to go forward with their tasks as directed by the will.

Gathering documents.

The executor needs to gather documents, including:

• Death certificates
• Deeds and titles of ownership
• Trust documents; and
• Insurance policies.

Combine assets and close accounts.

The executor needs to contact the decedent’s banks, credit card companies, lenders, leasing companies and any accounts holding assets.

The executor also applies to the IRS for an estate tax ID number, also known as an EIN, and opens an estate bank account. This is where any assets are deposited, including proceeds from the sale of any assets.

The Social Security Administration needs to be notified of the death. Depending on the date of death, the last Social Security deposit may be recouped from the decedent’s bank account. If there is an eligible survivor, the executor may help the spouse or dependent apply for benefits.

Collect money owed and pay debts.

The executor may help beneficiaries file for life insurance proceeds.

The executor needs to examine and adjudicate any outstanding debts owed to the decedent and handle any creditor claims. The debts are not the financial responsibility of the executor and should be paid only from funds in the estate account.

With good planning, the executor can ensure an orderly and uncontested flow of assets from the deceased’s estate to heirs. This includes consultation with the testator while they are still living and can discuss their wishes and plan for a smooth transition. This is certainly not the most comfortable discussion. However, it can make the process easier for all concerned, if done with kindness and care in advance.

Reference: The Street (Dec. 5, 2022) “Top Duties of an Estate Executor and How to Carry Them Out”