King & Wood, P.A.

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

“The person you choose to inventory and distribute the assets of your estate should not learn that fact while deep in grief.”

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”

Why a Trust Works for Multi-State Property Owners

“Whatever the case may be, owning real property in more than one state can be a problem after your death if you don’t want your estate tied up in probate court.”

If you own real estate when you die, it is most likely your estate will be required to go through probate. This can take months to years and becomes expensive, as explained in the article “Why a trust is so useful for those who own real property in multiple states” from Coeur d’Alene/Post Falls Press. However, here’s the thing to be aware of: if you own property in more than one state, your estate must go through the probate process in every state where you own property.

A few strategies must be considered for snowbirds with homes in northern and southern regions or who own out-of-state rental property.

Some families will add an intended heir to the title (deed) of the real estate while the primary owners are still living. This is rarely recommended, since it can open the door to any number of problems. If the intended heir has a financial crisis, like a lawsuit, divorce, creditor issues, etc., the jointly owned property is an attachable asset.

Another solution people try is the “Pay on Death Deed.” This is a special type of deed where the recipient gets the real property on the death of the owner. This strategy has a few problems. However, the main one is that not all states allow these types of deeds to be used.

An experienced estate planning attorney will know whether or not your state allows the Pay-on-Death-Deed.

The best solution for most people owning property in multiple states is using a living trust.

The living trust provides the same directions as a last will and testament about who should receive what assets from your estate after your death, including real property. It also names a trustee, who manages the assets in the trust and distributes them after your death.

A key reason to use a living trust is the assets owned by the trust are outside of the probate estate. These assets pass to beneficiaries according to the terms of the trust and do not go through the probate process.

Once the living trust is established, the trust may hold title to any real property, regardless of where the property is located. The trustee does not have to deal with the courts in multiple states.

There is a tendency to think trusts are only used by the very wealthy. However, this is not true. Anyone who owns real property and doesn’t want it to go through one or more probate proceedings benefits from using a trust.

An experienced estate planning attorney can establish the trust and guide you through putting assets into the trust.

Reference: Coeur d’Alene/Post Falls Press “Why a trust is so useful for those who own real property in multiple states”

Why You Shouldn’t Leave Your Home to Your Children

“The home represents a large portion of the estate of many Americans. You, therefore, may intend to leave your family home to your children, as it is an asset that should retain its value over time.”

For financial and sentimental reasons, many people want to leave their homes to their children.  However, there are many reasons making this a bad idea, says the article “Generational Wealth: 7 Reasons to NOT Leave the Family Home to Your Children” from yahoo! finance.

Homes are transferred to children in several ways. However, each has drawbacks, from tax liabilities to the risk of losing the family home entirely. Here are how homes are typically transferred:

• Trusts
• Gifts
• Inheritances
• Transfer on death deed
• Sales

A Probate Hold Up. If the home is left to the children in your will, it could get tangled up in the probate process. Probate could hold up the transfer of the home by months or even years. If the house is tied up in probate, who will take on the tasks of paying the mortgage, if there is one, maintaining the home and paying bills? Who will protect the house from vandalism, squatters, or thefts if it is vacant?

Capital Gains Taxes. If the house is left to the children and they decide to sell it, they may have to pay a capital gains tax if the home has appreciated since the owner’s death. If the home is gifted to the children before you die and they sell it at a future date, they’ll have to pay capital gains taxes based on the market value of the house when they received it and the sale price. Where will the money for these taxes come from?

More Taxes to Consider. If you place the home in a living trust and instruct it to be transferred to the children upon your death, you have not shielded it from estate taxes. If you do this to reduce assets to qualify for Medicaid, the living trust is still a countable asset in most states. Your estate planning attorney will know how this might impact your estate and your Medicaid accountability.

What if Your Children Lose the House? Gifting the home to your children, adding them to the deed while you are living, or even selling the home to them exposes the house to risk. The home may face foreclosure if any person on the deed has financial difficulties and can’t make the mortgage payments. If they go through a divorce, the house will be considered a marital asset. Your years of paying the mortgage and caring for the home will evaporate.

Do They Want the House? Parents who feel generous may assume their children want their home when they might not. They will see it as yet another piece of unfinished business left for them to manage when their own lives might be very busy with their own children and careers. If they grew up in the home and have fond memories of it, this will make selling it even harder.

Can They Afford the House? Not every child enjoys financial success. If they can’t afford a mortgage, property taxes, utility bills and the inevitable costs of home ownership, like replacing a roof, etc., home ownership may become a huge burden. If “forced” into possession via inheritance, they may have to sell it at a lower cost to get out from under the bills.

Will They Fight Over the House? Families experiencing grief are not in the best place to make big decisions and are vulnerable to spats that rise to legal disputes. If one child is living in the house and wants to keep it, will they be able to buy out the other’s shares of ownership? A discussion of what you all want to happen with the house and what is realistic needs to occur. This should be followed by a conversation with your estate planning attorney to have the plan made, whether it’s part of your will or another type of agreement.

Reference: yahoo! finance (Dec. 11, 2023) “Generational Wealth: 7 Reasons to NOT Leave the Family Home to Your Children”

Estate Planning for Millennials and Gen Zers

“Millennials and Gen Zers are taking their estate planning seriously. These tips can help make the process seem less daunting.”

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”

Have Estate Plan Checkup before Heading to Warmer Winter

“If you are headed somewhere warm to spend the winter months, you will want to be sure you have everything in order before you go.”

“Snowbirds” spend their winters somewhere warm, which usually means they own assets in more than one state. For them, special attention is needed to certain decisions in their estate planning documents, including Wills, Trusts, Power of Attorney, and Advanced Medical Directives, according to a recent article from Coeur d’Alene/Post Falls Press, “Headed South for the winter? Your estate plan may need some attention.”

If you live in multiple states at different times of the year or own assets like real estate in more than one state, your estate planning documents and overall estate planning strategy need to take this into account. Many people aren’t aware of the need for planning to avoid having their estate go through probate in every state where they own property.

Even if you don’t mind the idea of your estate being administered through probate, a formal court-controlled process, you probably don’t want your loved ones to go through this process in multiple states, which takes time and can be costly.

Another issue for Snowbirds concerns the Power of Attorney documents. Which state these are prepared in and which state’s laws govern the use of these POA documents is more complex than most people expect. There’s no one-size-fits-all answer, so having this discussion with your estate planning attorney before you travel for the season is critical. Don’t assume you have it all set up and can efficiently deal with it once you arrive at your winter home. The law is a little more complicated than that.

Any time you leave your home state for an extended period, you should bring copies of important legal documents. For most people, this includes your Financial Power of Attorney, Health Care Power of Attorney, Last Will and Testament, Living Trust, or any other Trusts you may have, Living Will, and a Physician’s Orders for Scope of Treatment Form. This last document is known by different names in different jurisdictions, which is another reason to review these documents with your estate planning attorney.

Will copies of these documents be accepted? This is another question to ask your estate planning attorney. In some cases, a copy will be sufficient for any purpose, while in others, the originals will be needed, regardless of how far away you are from them.

Estate planning documents should be in a safe and secure location, like a fireproof safe or your estate planning attorney’s office. If you are traveling, a set of copies should always travel with you.

Before you head to the airport or pack up for your winter sojourn, call your estate planning attorney to be sure your estate planning documents are all in order. Hopefully, you won’t need any of them, but if you do, you’ll be glad to be prepared.

Reference: Coeur d’Alene/Post Falls Press (Sep. 13, 2023) “Headed South for the winter? Your estate plan may need some attention”

Do You Need a Will or Trusts or Both?

“A traditional will could be the simplest but not necessarily the best way to pass on your legacy.”

A comprehensive estate plan is the best way to protect yourself during your lifetime and your family after you’ve passed. For many people, it’s tempting to think a simple will is all they need, as reported in a recent article, “Is a Will Really the Best Way to Pass an Inheritance to Your Family?” from The Motley Fool. This might be true if your estate is relatively small. However, there are good reasons to consider using a trust or other estate planning strategies.

A last will and testament is a binding document to allocate assets after death, assign guardianship for minor children, name an executor to manage your estate and convey other last wishes.

However, there are other considerations to an estate plan, including taxes, special needs of heirs and how quickly you want assets and property to be transferred. Your estate planning attorney can discuss how best to accomplish your goals once they are articulated.

One of the challenges of having only a will is probate. This court process authenticates a will and gives the named executor the power to manage the estate and eventually distribute assets. Probate can be a long, costly and public process when assets are unavailable to heirs.

In some jurisdictions, probate is a matter of months. In others, it can be years before probate is completed if the estate is complicated.

Most people don’t know this, but wills in probate become part of the public record. Anyone can see everything in your will, including who you leave property to and how much they receive.

An alternative is the living trust. This document establishes a legal entity to hold assets during your lifetime. The trustee can be yourself and a secondary trustee. The trustee administers the trust according to your wishes, which are established in the language of the trust.

Depending upon your state, your estate planning attorney can put a provision moving assets into the trust after your death, in case any asset is accidentally forgotten and not moved into the trust.

Living trusts are also revocable, meaning they can be amended or revoked at any point during your lifetime. This provides a great deal of flexibility.

Joint ownership is another option used mainly by married spouses. Joint Tenancy with Right of Survivorship (JTWRS) is a popular way to own property. Assets owned jointly transfer directly to the surviving spouse (or joint owner) without the need for probate.

Just as everyone’s life is different, everyone’s estate plan is different. State law varies, and the size and complexity of your estate will influence how your estate plan is structured. Your best bet might be a mixture of wills, trusts and joint ownership arrangements. An experienced estate planning attorney can create a comprehensive estate plan to suit your and your family’s needs.

Reference: The Motley Fool (September 4, 2023) “Is a Will Really the Best Way to Pass an Inheritance to Your Family?”

Can You Plan for Probate?

“The probate process can be expensive for some estates. Settling an estate through probate can cost you both time and money.”

What can you do to help heirs have a smooth transition when settling your estate? A recent article from The Community Voice, “Managing probate when setting up your estate,” provides some recommendations.

Joint accounts. Married couples can own property as joint tenancy, which includes a right of survivorship. When one of the spouses dies, the other becomes the owner and the asset doesn’t have to go through probate. In some states, this is called tenancy by the entirety, in which married spouses each own an undivided interest in the whole property with the right of survivorship. They need content from the other spouse to transfer their ownership interest in the property. Some states allow community property with right of survivorship.

There are some vulnerabilities to joint ownership. A potential heir could claim the account is not a “true” joint account, but a “convenience” account whereby the second account owner was added solely for financial expediency. The joint account arrangement with right of survivorship may also not align with the estate plan.

Payment on Death (POD) and Transfer on Death (TOD) accounts. These types of accounts allow for easy transfer of bank accounts and securities. If the original owner lives, the named beneficiary has no right to claim account funds. When the original owner dies, all the named beneficiary need do is bring proper identification and proof of the owner’s death to claim the assets. This also needs to align with the estate plan to ensure that it achieves the testator’s wishes.

Gifting strategies. In 2022, taxpayers may gift up to $16,000 to as many people as you wish before owing taxes. This is a straight-forward way to reduce the taxable estate. Gifts over $ 16,000 may be subject to federal gift tax and count against your lifetime gift tax exclusion. The lifetime individual gift tax exemption is currently at $12.06 million, although few Americans need worry about this level.

Revocable living trusts. Trusts are used to take assets out of the taxable estate and place them in a separate legal entity having specific directions for asset distributions. A living trust, established during your lifetime, can hold whatever assets you want. A “pour-over will” may be used to add additional assets to the trust at death, although the assets “poured over” into the trust at death are still subject to probate.

The trust owns the assets. However, with a revocable living trust, the grantor (the person who created the trust) has full control of the assets. When the grantor dies, the trust becomes an irrevocable trust and assets are distributed by a successor trustee without being probated. This provides privacy and saves on court costs.

Trusts are not for do-it-yourselfers. An experienced estate planning attorney is needed to create the trust and ensure that it follows complex tax rules and regulations.

Reference: The Community Voice (Nov. 11, 2022) “Managing probate when setting up your estate”

How Can I Minimize My Probate Estate?

“Estate planning is not just for the wealthy. Anyone with a bank account, house, car or other personal property should have a will.”

Having a properly prepared estate plan is especially important if you have minor children who would need a guardian, are part of a blended family, are unmarried in a committed relationship or have complicated family dynamics—especially those with drama. There are things you can do to protect yourself and your loved ones, as described in the article “Try these steps to minimize your probate estate” from the Indianapolis Business Journal.

Probate is the process through which debts are paid and assets are divided after a person passes away. There will be probate of an estate whether or not a will and estate plan was done, but with no careful planning, there will be added emotional strain, costs and challenges left to your family.

Dying with no will, known as “intestacy,” means the state’s laws will determine who inherits your possessions subject to probate. Depending on where you live, your spouse could inherit everything, or half of everything, with the rest equally divided among your children. If you have no children and no spouse, your parents may inherit everything. If you have no children, spouse or living parents, the next of kin might be your heir. An estate planning attorney can make sure your will directs the distribution of your property.

Probate is the process giving someone you designate in your will—the executor—the authority to inventory your assets, pay debts and taxes and eventually transfer assets to heirs. In an estate, there are two types of assets—probate and non-probate. Only assets subject to the probate process need go through probate. All other assets pass directly to new owners, without involvement of the court or becoming part of the public record.

Many people embark on estate planning to avoid having their assets pass through probate. This may be because they don’t want anyone to know what they own, they don’t want creditors or estranged family members to know what they own, or they simply want to enhance their privacy. An estate plan is used to take assets out of the estate and place them under ownership to retain privacy.

Some of the ways to remove assets from the probate process are:

Living trusts. Assets are moved into the trust, which means the title of ownership must change. There are pros and cons to using a living trust, which your estate planning attorney can review with you.

Beneficiary designations. Retirement accounts, investment accounts and insurance policies are among the assets with a named beneficiary. These assets can go directly to beneficiaries upon your death. Make sure your named beneficiaries are current.

Payable on Death (POD) or Transferable on Death (TOD) accounts. It sounds like a simple solution to own many accounts and assets jointly. However, it has its own challenges. If you wished any of the assets in a POD or TOD account to go to anyone else but the co-owner, there’s no way to enforce your wishes.

An experienced, local estate planning attorney will be the best resource to prepare your estate for probate. If there is no estate plan, an administrator may be appointed by the court and the entire distribution of your assets will be done under court supervision. This takes longer and will include higher court costs.

Reference: Indianapolis Business Journal (Aug. 26,2022) “Try these steps to minimize your probate estate”

How Do Estate Plans and Trusts Work?

“In this article, we will address two terms which some people use interchangeably, but which are very different things: living trusts and estate plans.”

There can be some confusion around terms used in estate planning. Unless you are an estate planning attorney yourself, it’s not likely you know all the terminology used. A recent article from The Dallas Morning News explains further in the article “Clearing up confusion: The difference between a living trust and an estate plan.”

Living trusts, sometimes called “revocable living trusts,” or more formally, “inter-vivos trusts” are documents prepared and implemented when a person is living. They commonly include a distribution plan for assets owned in the trust, in contrast to a last will and testament, which only comes into effect when the person has died.

In most cases, the person who has created the trust (the grantor) is also the person to benefit from the trust (the beneficiary) as well as the person who controls and manages the trusts (the trustee). A living trust also makes provisions for the trust to be controlled and managed by a successor trustee, in case the owner is incapacitated. This also prevents the need for guardianship proceedings to gain control of the trustee.

If the person has no family members to care for them in the event of incapacity, the successor trustee may be a bank or other financial institution.

Living trusts are good tools to use for disposition of assets, especially in blended family situations. Trusts are harder to challenge than wills, and unlike wills, they are private documents. When an estate goes through probate, the will becomes part of the public record. As a result, anyone can see its contents.

An estate plan refers to the larger plan, which may or may not contain a living trust. It also includes an analysis of all of your assets and directions for how each will pass to your beneficiaries. Estate planning also addresses tax planning: federal and state estate taxes and inheritance taxes.

An estate plan also plans for incapacity. Preparing financial and medical powers of attorney, HIPAA releases and advance directives allow designated representatives to take care of your business affairs, talk with doctors about your care and know what your wishes are, if end-of-life decisions need to be made.

To be clear, estate planning is the “process” which creates a course of action for the passage of assets and the preparation of documents to facilitate the plan. A living trust is part of an estate plan, but not the only piece of the estate plan.

Some people are confused by the use of the word “estate.” Your estate includes everything you own at the time of death. Assets owned outside of trusts are divided into probate estate and non-probate estate assets. The non-probate estate consists of assets with beneficiary designations, usually life insurance policies, investment accounts, jointly owned assets and any Transfer on Death or Payable on Death accounts.

The probate estate includes assets distributed under the terms of a will. If you don’t have a will, the court will appoint an administrator to distribute your assets according to the laws of your state. There’s no obligation for the court to name a family member as the administrator. Therefore, a complete stranger might be in charge of everything you’ve ever worked for. The better route: speak with an estate planning attorney to create an estate plan and learn if your situation warrants a living trust.

Reference: The Dallas Morning News (May 24, 2022) “Clearing up confusion: The difference between a living trust and an estate plan”

Why Is Beneficiary Designation Important?

“When you set up your estate plan it is important to coordinate the legal planning documents that you or you and your attorney create with the document provided by your retirement account custodian and/or your life insurance carrier called a ‘Designation of Beneficiary.’”

The beneficiary designation will always supersede language of your will. Neglecting to know which assets have beneficiary designations and failing to update the designations can undo even the best estate plan.

The beneficiary designation for your life insurance or retirement account custodian provides an opportunity to tell the company who is to receive life insurance proceeds or retirement savings upon your death, explains a recent article titled “This Important Estate Planning Step is Often Missed” from Coeur d’Alene/Post Falls Press. If these are not coordinated with a last will and testament, the results are problematic at best, and worse, financially, and emotionally devastating.

This epic fail comes in many different forms, but the most common is when a life insurance policy has never been updated and an ex-spouse receives the policy proceeds. The rules differ between retirement accounts and life insurance and can be impacted by various state and federal laws (and the divorce decree, if the life insurance policy was included). However, for the most part, the ex will receive the proceeds and litigation will not succeed.

Another common beneficiary designation mistake is when a person has created a living trust or revocable trust to prevent assets from going through probate when they die. Probate can take many months to complete and there are several strategies used to take assets out of the probate estate.

When the living trust is established and assets are transferred into the trust, those assets do not pass through probate.

However, if a person (or married couple) established a living trust and fails to list both primary and secondary beneficiaries for life insurance and/or retirement accounts, it is entirely possible that the assets will go through probate.

Take the time to make an inventory of all assets and accounts. Determine which ones have a beneficiary designation and find out who is named as the beneficiary. If your retirement accounts and life insurance policies were established decades ago, this is especially important.

Failing to coordinate beneficiary designations with your estate plan could undermine your wishes. Review these items with your estate planning attorney to avoid these and many other potential pitfalls.

Reference: Coeur d’Alene/Post Falls Press (May 23, 2022) “This Important Estate Planning Step is Often Missed”