King & Wood, P.A.

Top Myths of Estate Planning

“Having a plan in place ensures that your finances and health care are handled by someone you trust.”

There are far more than five myths about estate planning. However, the article “5 common myths about estate planning, debunked” from Utah Business examines the most common ones. Estate planning is crucial to safeguarding your financial future and asset disposition and ensuring that the right people are involved in caring for you in case of incapacity. Estate planning is for your life and your legacy.

Biggest myth of all: You only need a Will for estate planning. Your estate plan begins with a Last Will and Testament. However, a comprehensive estate plan addresses more than the distribution of assets. Trusts are used to ensure that assets are transferred to the right beneficiaries in a timelier manner than they would be if passed through your will. Your estate plan should include a Power of Attorney, Health Care Directive and a Living Will.

Myth 2: Only seniors need estate plans. Anyone of legal age who has a family and owns property needs a will. Young families need an estate plan to protect their children and ensure that the parent’s assets and any life insurance proceeds are managed and distributed to their children according to the parent’s wishes. Parent’s wills need to include naming a guardian to raise children in the unlikely event of both parents dying while the children are still minors. Without naming a guardian, a court decision will determine who raises your children.

Myth 3: Only rich people need wills. An argument could be made that estate planning is more critical for people who aren’t rich, protecting and growing more modest estates. A well-crafted estate plan will protect the estate from creditors, deter litigation between family members and minimize tax liabilities so wealth can be passed to the next generation.

Myth 4: Estate planning is only about what happens after death. Estate planning addresses what should happen in case of incapacity because of illness or an accident. If you can’t communicate your wishes, these documents allow others to act on your behalf. A Power of Attorney appoints someone to handle your financial and legal matters. Standard POAs aren’t the best option, since they may allow someone too much or insufficient control. You’ll also want a Health Care Power of Attorney so someone you name can take over your medical care and talk with your doctors and health insurance company. Another reason for placing assets into a trust is that the successor trustee may manage assets in the trust if you are incapacitated.

Myth 5: Once your estate plan is created, you’re all set. Your car and home require ongoing maintenance—and so does your estate plan. Life and laws change, and your estate plan won’t work if it’s outdated. Triggering events like marriage, divorce, birth, relocating, or big changes to your financial situation require a review of your estate plan.

Consult an experienced estate planning attorney to create or review your estate plan. You’ll breathe easier knowing you’ve taken steps to protect yourself and your loved ones.

Reference: Utah Business (June 12, 2024) “5 common myths about estate planning, debunked”

What Happens If You Inherit a Parent’s House?

“Inheriting a house is a process that should begin well before a parent dies. While discussing end-of-life topics can be uncomfortable, the conversations must happen before it’s too late.”

Inheriting your parent’s home is a combination of sadness, relief, and worry. The last one can be avoided if the right planning is done in advance, says a recent article, “6 lessons I learned from inheriting a parent’ s house” from Bankrate. When all these feelings are combined with navigating the inheritance among siblings, things can get complicated quickly.

Many people think children automatically inherit a house when their parents die, but this isn’t true. It’s possible for children to inherit without a will, but it doesn’t always happen. Every state has its own laws about who inherits what in the absence of a will. Without a will, there will be unpleasant surprises for the family.

Parents need to talk with their children to tell them if they have a will or estate plan and where the will can be found. If there is no will, the parents must meet with an estate planning attorney as soon as possible to ensure their wishes are documented.

Wills and estate plans are never completely done. Wills need to be updated as circumstances change over time. A will created while a parent is in their 50s may not reflect the family's status ten years later. Let’s say one sibling is disabled and receives means-tested government benefits. If the sibling is left something in the will, their benefits could be cut off. If the sibling was well ten years ago, the estate plan didn’t include a special needs trust, which would allow the family to provide for the disabled sibling without putting their benefits at risk.

The general rule for reviewing wills is to review wills every three to five years. They may not always need updating, but they definitely need reviewing.

Heirs need to put everything in writing if they have been left assets like the family home as a group. Siblings will have different lives and needs, so inheritances need to be clarified and documented. A verbal agreement is asking for trouble, even in the best of circumstances. If something happens to a sibling and their spouse has a different idea of what they want to happen to their share of the house, for instance, the way forward won’t be pleasant.

It's best to plan how your assets should be managed after death. Would a revocable trust work better to keep the family home out of probate? If the home is placed in a revocable trust upon the death of the owner, the ownership of the home goes to a trustee, avoiding probate.

Plan ahead and expect surprises. Inheriting a home isn’t great for every family, as it comes with costs. Property taxes, maintenance, and utility costs might make home ownership a burden rather than a blessing. Parents need to think carefully about whether or not inheriting the home will work for the family.

Consulting with an estate planning attorney in advance can facilitate a discussion about how best to pass the family home onto the next generation or determine it’s not in everyone’s best interests. Leaving a legacy of careful planning is as much a gift to the family as the home itself.

Reference: Bankrate (May 3, 2024) “6 lessons I learned from inheriting a parent’ s house”

Should I have an Irrevocable Trust?

“An irrevocable trust must be carefully funded, structured and managed to achieve both asset protection and tax planning.”

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”

Should You Have a Revocable Trust?

“There is a lot of confusion out there about the difference between a revocable and an irrevocable trust.”

Trusts are part of many estate plans and with good reason. Trusts are an excellent way to minimize or avoid having an estate go through probate, according to a recent article, “Is your trust revocable? Should it be?” from Coeur d’Alene/Post Falls Press.

Let’s start with the basics. A trust is a contract between the creator of the trust, known as the “grantor,” “trustor,” or “settlor,” and the person who will carry out the instructions within the trust document, known as the “trustee.” Those instructions include what to do or not to do with the assets in the trust if the grantor becomes incapacitated and what to do with the assets when the grantor is deceased.

Once you’ve decided to set up a trust, you’ll become the trust's grantor and, in most cases, will serve as your own trustee. The trust must include language naming secondary and, in some cases, tertiary trustees who will serve if you are incapacitated or upon your death. The trustee who steps up to serve once you cannot serve as your own trustee is known as the “successor trustee” although the term “successor” isn’t always used.

In a revocable trust, the grantor almost always has the right to change the trust document if they are living and not incapacitated. They can change who will get what from the trust upon their death, who will serve as the secondary trustee and what powers the secondary trustee will have. This flexibility is very useful as life circumstances and relationships change over time. As the name implies, the revocable trust can also be revoked altogether.

An irrevocable trust is very different. Once an irrevocable trust is established, the trust cannot be revoked, and no changes can be made. There are exceptions. However, none of them make it easy to make changes to the trust. The grantor usually must go to court to get permission to make changes.

Why would someone choose an irrevocable trust over a revocable trust? There are instances where an irrevocable trust makes more sense. Some examples include trusts designed to protect assets that would otherwise make someone ineligible for certain programs, like Medicaid. An estate planning attorney would create an irrevocable trust to establish a Special Needs or Supplemental Needs Trust for beneficiaries with disabilities.

It is also possible to have trusts created for married couples with children from prior relationships to protect the children from being disinherited.

Revocable trusts usually become irrevocable once the trust's grantor dies. This makes sense, since the grantor doesn’t want anyone to change the trust once they have passed.

There’s much to consider when setting up a trust, which is not a one-size-fits-all strategy. Talk with your estate planning attorney to discuss your unique situation and learn what type of trust would best protect yourself, your estate and your family.

Reference: Coeur d’Alene/Post Falls Press (Dec. 3, 2023) “Is your trust revocable? Should it be?”

How Does a Living Trust Protect Your Legacy

“A living trust won't be for everyone. However, it can provide big benefits for some. Many people use a living trust for one big reason: avoiding probate. However, there are other reasons you should seriously consider.”

Want to leave assets of any kind to loved ones? You’ll need to plan ahead. There are a number of options used to pass wealth to the next generation, including a last will and testament. This is a legal document designating someone to be in charge of your estate after you die and telling them how you want your assets to be divided.

Another means of passing assets along is explained in the recent article from The Motley Fool, “3 Reasons to Seriously Consider Using a Living Trust to Pass Inheritance to Your Family.” A living trust is a legal entity created while you are living to hold assets and designates someone to manage and disburse them based on specific directions in the trust document. You don’t have to be wealthy to have a trust.

While these two instruments sound similar, they have unique elements, making one better than another in certain situations. For many people, a living trust can benefit the individual making the trust (the grantor) and their families. Here are a few to consider.

Maintaining privacy. Wills must go through probate, a court-supervised process to review the decedent’s assets, approve their executor and rule on the will's validity. Because the will is under the court's review, it becomes public information. In most jurisdictions, anyone who wants to see your will can. They can also see who received what assets.

If you have concerns about maintaining your privacy or the privacy of your heirs, it may be worthwhile to create a trust. This will keep your assets and your heir’s receipt of assets private. The only people who know what’s in a trust are the grantor, the trustee who manages the trust and the beneficiaries.

Avoiding long delays. Since a trust doesn’t go through probate, it may be possible for the trustee to make distributions of assets much faster. The executor typically needs to file the will for probate and wait for the process to be concluded. Only then can they carry out the directions of a will.

When assets are in a trust, the trustee can implement the terms of the trust more quickly. This can significantly help loved ones, especially if they have paid for long-term care, hospital bills, funeral expenses, etc. If they were relying on an inheritance to cover these costs, the faster the trust can reimburse them, the better.

Managing assets if you become incapacitated. One of the biggest advantages of having a trust over a will is its value during your lifetime. A will doesn’t take effect until you die. On the other hand, a living trust with a successor trustee allows the successor to manage the trust if you become incapacitated and cannot serve as the primary trustee.

Whether you have a trust or not, you will want to name a Power of Attorney who will manage your financial and legal affairs if you cannot do so. However, financial institutions can be challenging when dealing with a POA.

Changing the trustee does not impact the trust’s status as a separate legal entity. The successor trustee steps in, and financial institutions will generally be on notice as long as the initial trust documents specify who the successor trustee will be.

Talk with your estate planning attorney about using a living trust as part of your estate plan. It may be wise to use a combination of a will and a trust to achieve your desired outcome. Do remember estate planning is not just for what happens after you die but for preparing to care for yourself and your family while you are living. A living trust could serve you and your family well, during life and after death.

Reference: The Motley Fool (Oct. 31, 2023) “3 Reasons to Seriously Consider Using a Living Trust to Pass Inheritance to Your Family”

How to Get Your Estate Plan Started

“You’re not too young, you do have enough assets and don’t you want to make things easier for your loved ones after you pass away?”

Estate planning involves deciding what you want to occur when you die and which of your trusted contacts may be empowered to manage those assets when you aren’t here. However, there are many misconceptions about estate planning, reports a recent article from Kiplinger, “It’s Estate Planning Week: Here’s How to Get Started.” Let’s set the record straight.

An estate plan can be as complicated or simple as you wish. For some, an estate plan may require a last will and testament to describe how you want your assets distributed upon death. If you have a large estate with many assets and complex goals, you could use a trust or a combination of trusts to administer assets after death.

For example, if you want to leave money for grandchildren but don’t want them to be able to access the funds until they reach a certain age or milestone, you could have a specific trust created for each beneficiary with descriptive language to explain what has to happen before the assets are distributed.

For married spouses, an estate plan typically leaves the assets to the surviving spouse and then, at the second spouse’s passing, includes instructions on who receives the assets. If there are no children, or you don’t want family members to inherit assets, you can use your estate plan to designate a charity or charities to receive gifts of cash or other assets.

Creating an estate plan involves creating an up-to-date balance sheet listing assets. How much you leave to heirs depends on whether you’ve spent your assets before you die or have significant liabilities.

You’ll need to name trustees to manage the assets if you establish trusts. You’ll also want to name successor trustees who can take over if the original trustee cannot serve. Talk with your trustees and successor trustees to be sure they are willing to take on the responsibility, since they will be in charge of the assets and need to make important financial decisions.

If your estate plan relies on a last will, you’ll need to name an executor who manages the estate, distributes assets, pays taxes and more. This person should be someone you trust implicitly. If you fail to name an executor, the court may appoint a representative.

An estate planning attorney will be familiar with any state-specific estate tax issues as well as federal estate tax issues. You’ll want to include your financial advisor and CPA to ensure that the estate plan works with all aspects of your life.

The estate plan isn’t completed until all documents have been signed and notarized and all assets are titled correctly. If assets are to be placed in a trust, your estate planning attorney will help you title assets to be sure the trust owns them and not your estate. If assets aren’t re-titled correctly, you may lose the benefit of the estate planning process. Check-in with your estate planning attorney every three to five years to be sure your estate plan still works. Family relationships and tax laws change, so estate plans need to be reviewed regularly. For example, the current federal estate tax exemption is $12.92 million for an individual, but unless Congress acts, this will sunset in 2025, when the exemption will revert to $5 million per person.

Reference: Kiplinger (Oct. 16, 2023) “It’s Estate Planning Week: Here’s How to Get Started”

Revocable Trusts Make Sense for Retirees

“If you plan to pass assets through a will, just remember that most of the time, that will becomes public once the probate estate is closed. Therefore, if you left one of your childrenout, left your favorite a bit more or are just a private person, you may be better off with a trust.”

Estate plans are not a one-size-fits-all commodity, especially when it comes to trusts. A revocable trust makes sense in many, but not all, cases, says a recent article from Kiplinger, “Four Reasons Retirees Need a (Revocable) Trust.” How can you tell whether or not you need a revocable trust?

Would you prefer to avoid probate? When people tell their estate planning attorney they need a trust, no matter what, there’s usually a family story involved. Maybe a parent created a trust that worked well, or maybe their parents didn’t have a trust, and they had a difficult experience in probate court.

Avoiding probate is a good reason to have a trust. Assets passing through a will go through probate, which is different depending on your jurisdiction. It can be expensive and time-consuming, although it can also be painless. A local, experienced estate planning attorney will know what you can expect.

Trusts are especially useful for people who own assets in multiple states because assets must be probated in each state. With a trust, assets pass to heirs directly and efficiently.

Do you want to control your estate? If some of your adult children are good with finances, but some are not, a trust allows you to structure asset distribution with great specificity. A certain percentage of assets can be released at certain ages, or annual distributions can be made according to any guidelines you set.

Would you prefer your estate to be private? Creating an estate plan is often an emotional process, balancing your goals and family dynamics. These wishes are typically kept private, except those who have some role in creating the plan. If your assets pass through probate, remember the will becomes part of the public record once it is admitted to probate. Anyone, from an estranged family member to a scammer, can see what you gave and who you gave it to. Trusts, on the other hand, are private.

Do you have a plan for incapacity? Your estate plan should contain a number of documents in case of incapacity, including Power of Attorney, Healthcare Proxy and a Living Will. In addition, a revocable trust with a successor trustee will create continuity and simplicity in managing your financial matters. The successor trustee named in the trust document will manage the assets according to the terms of the trust if you become incapacitated. Without such a trust in place, your family would need to go through the legal process of seeking a conservator to manage the assets in the trust.

An estate planning attorney is the best person to discuss whether or not a revocable trust belongs in your estate plan, along with other planning strategies.

Reference: Kiplinger (Sep. 13, 2023) “Four Reasons Retirees Need a (Revocable) Trust”

Why are Contingent Beneficiaries Important?

“When planning your estate rarely will you experience difficulty naming your initial beneficiary or beneficiaries for your will, IRA’s or life insurance.”

If you’ve been married or in a longstanding relationship, it’s almost certain your initial beneficiary will be your spouse or partner. If you have children, it’s likely an easy decision to make them contingent or successor beneficiaries to your estate. More often than not, children inherit equally, explains the article “PLANNING AHEAD: The problems we have naming contingent beneficiaries” from The Mercury.

To avoid conflict, parents often decide to name children equally, even if they’d prefer a greater share to go to one child over another, usually because of a greater need. This is, of course, a matter of individual preference.

However, as you move down the line in naming a successor or contingent beneficiaries, you may encounter some unexpected stumbling blocks.

If there is a beneficiary who is disabled, whether a child, grandchild or more distant relative, or even a spouse, you have to determine if naming them is a good idea. If the disabled individual is receiving Medicaid or other government assistance, an inheritance could cause this person to become ineligible for local, state, or federal government benefits. An estate planning attorney with knowledge of special needs planning will help you understand how to help your loved one without risking their benefits.

A Supplemental Needs Trust may be in order, or a Special Needs Trust. If the person’s only benefit is Social Security Disability—different from Supplemental Security Income or some others—they may be free to inherit without a trust and will not impact benefits. Social Security Disability recipients cannot work in “substantial gainful employment.”

Another issue in naming successor and contingent beneficiaries is the choice of a trustee or manager to handle funds if a beneficiary cannot receive benefits directly. A grandparent will sometimes be reluctant to name a son-in-law or a daughter-in-law as trustees for minors if their daughter or son predeceases and the inheritance is intended for a minor or disabled grandchildren. The grandparents may be concerned about how the funds will be used or how well or poorly the person has handled financial matters in the past.

The same concern may be at issue for a child. A trust can be structured with specific parameters for a grandchild regarding the use of funds. If a supplemental needs trust is established, the trustee must understand clearly what they can and cannot do.

What happens if you’ve run out of beneficiaries? For those with small families or who live into their 90s, many family members and friends have passed before them. These seniors may be more vulnerable to scams or new “friends” whose genuine interest is in their assets. In these cases, an estate plan prepared by an experienced estate planning attorney will need to consider this when mapping out the distribution of their estate, however large or small, to follow their wishes.

Reference: The Mercury (Aug. 28, 2023) “PLANNING AHEAD: The problems we have naming contingent beneficiaries”

Pros and Cons of a Will vs. a Trust

“Either a will or trust can be the foundation of your estate plan. If it’s a trust, it’s usually a revocable living trust.”

There are many estate planning strategies available for passing your financial legacy across generations, but what works best for one family may only work for some. Some of these estate planning tools work best together, says the recent article, “Which Is Best For Your Estate Plan: A Will Or Trust?” from Forbes. One of the key differences between a will and a trust? Property passed through a will goes through probate, and property owned by a trust avoids probate.

There are pluses and minuses to probate. The best-known disadvantage of probate is its cost and the time it takes to settle matters. Probate requires a complete inventory of the estate’s assets and liabilities to be compiled and submitted along with the will to the court. The court then reviews these documents and allows people to challenge the will. Assets may not be distributed to heirs until the court approves.

There are fees associated with probate; in some states, going through probate can be costly, even if the estate's total value is small. Probate is a streamlined process in other states, making it less expensive and time-consuming. These states reserve the traditional lengthy process of probate for high-value estates. Your estate planning attorney will know the process in your jurisdiction.

Another issue for heirs is the lack of privacy in the probate process. Once the will is filed with the court, it is open to the public. Many celebrity wills are available online. One famous American actor and singer, Bing Crosby, is said to have revised his estate plan by moving most of his assets to living trusts after his first wife died and details of her will became public.

Many wealthy people and celebrities transfer most assets into trusts to avoid publicity. However, the public scrutiny of a will and probate has certain advantages. Probate provides checks and balances. In addition to the court reviewing the details, heirs and potential heirs can see the asset inventory presented to the court and the details of the estate’s distribution. This provides an opportunity to see if assets are missing or if someone seems to have persuaded the decedent to change the terms of a will.

A will is more likely to be challenged than a trust since trust details remain private. The rules for challenging wills are well-established. Some people choose to use a will because it seems easier to change their minds about how they want assets to be distributed. With a trust, you have to name the trust as a legal property owner. This is done by transferring the legal title of the property to the trust. The trust must have legal title to assets to be funded and to work properly.

A revocable or living trust provides for a smoother transition of management and property ownership. The grantor—the person who establishes the trust—serves initially as the trustee and manages the property. Successor trustees named in the agreement automatically take control of the trust if the grantor becomes incapacitated or dies. There is no court involvement.

When a will is used, title to property first passes to your estate and eventually to final beneficiaries. If you become disabled, whoever holds your power of attorney must present it to financial institutions and have the POA accepted before they can manage assets. If there’s no POA in place, the courts will need to be involved in a conservatorship or guardianship proceeding.

Trustee transitions aren’t always smooth, as financial institutions must decide to accept the authority of a successor trustee, which requires a high degree of substantiation before recognizing the trustee’s authority.

Each estate plan needs to be designed for the needs of the individual situation, and all the details must be carefully managed. By working with an experienced estate planning attorney, your family and your legacy will be protected, and your goals for efficiency and privacy can be met.

Reference: Forbes (June 25, 2023) “Which Is Best For Your Estate Plan: A Will Or Trust?”

What Does “Power of Attorney” Mean?

“A power of attorney is a legal document that gives a person the authority to act on another's behalf.”

A power of attorney is a legal document giving one person—the “agent”—the legal power to make legal, financial, or medical decisions for another person. According to a recent article from Nerd Wallet, “What is a Power of Attorney (POA)? Types, How, When to Use,” the POA lets someone act on your behalf if you are traveling, too sick to act on your own behalf or can’t be present to sign legal documents.

You may name any adult, including your spouse, adult child, sibling, or a trusted friend, to act as your agent under power of attorney. It can be granted to anyone who is a legal adult and of sound mind. Ordinary power of attorney designations dissolve if you become incapacitated. However, durable power of attorney designations remain intact, even upon incapacity.

You can give one person power of attorney or divide the responsibilities among multiple people.

Most people don’t know that power of authority authorizations can be very specific or general, depending on your needs. When having an experienced estate planning attorney draft a power of attorney, review the desired scope of your agent’s authority, when it should take effect and the desired duration.

If you don’t have a power of attorney and become incapacitated, a court can appoint someone to act on your behalf. However, court intervention turns a private matter into a public proceeding, and you cannot know if the appointed conservator will follow your wishes.

There are several types of power of attorney. The durable power of attorney remains intact, even when you are incapacitated. The ordinary power of attorney becomes moot once you are incapacitated. A dual power of attorney gives power to two people and requires both individuals to sign off on any decisions.

A dual power of attorney may be useful if you have two children, for instance, and you’d like them to make joint decisions for you. Regardless of how many powers of attorney you appoint, you should always name successor agents for each power of attorney, in case the primary person is unable or unwilling to serve when needed.

A medical power of attorney, also called a health care proxy, is a type of advance directive giving another person to make all health care decisions for you in accordance with your wishes when you are unable to do so. Health care proxy decisions generally cover any type of medical treatment or procedure to diagnose and treat your health. Make sure the person you grant medical power of attorney to is familiar with your wishes and knows what decisions you would want in treatment or for life—supporting measures.

Reference: Nerd Wallet (May 10, 2023) “What is a Power of Attorney (POA)? Types, How, When to Use”