Tag: irrevocable trust

Estate Planning

Avoiding Probate Litigation

SchulzeLawGroup

Disputes over guardianships, conservatorships, wills, trusts, and family real estate may be part of probate litigation. The most successful approach to mitigating or avoiding probate litigation risk is carefully planning for the future. Comprehensive estate plans that are routinely updated, careful consideration and documentation of gifts, and protective measures in the event of incapacity contribute to a challenge-free transfer of your estate assets to heirs.

Avoiding Probate with Trusts

A great way to avoid probate litigation is with a revocable living trust that permits you to title assets into the trust and manage it until your death. Years of managing your assets within this trust type prove that you handle your finances and property exactly as you intended if a contest is brought before a probate judge. Your competent management greatly reduces the risk of litigation as it demonstrates your mental capacity and financial management capability.

Common Causes for Contesting a Will in Probate

Gift-giving and real estate transfers to your children during your lifetime may open the doors for litigation after you are gone, particularly if these transfers have complex provisions and varying percentages. Consequences for unequal transfer of property or gifts often lead to children feeling the circumstances are unfair. Your adult children may not interpret your underlying future intent. For example, dividing ownership of the family cabin, giving one child eighty percent and the other twenty.

The same holds for personal gifts like jewelry, baseball cards, or art collections. A parent may promise inheritance of a gift, but you may be inviting future probate litigation without detailing it in a document with your signature. Gift promises and real estate transfers often lead to disputes between siblings, leading to probate litigation.

Ensuring Your Wishes are Followed When You’ve Been Incapacitated

Incapacity can be a challenging topic for a family to work through. Anyone at any age can become incapacitated by a sudden illness or accident. The thought of relinquishing financial and health care decisions to adult children or other family members can be unsettling. But implementing financial and medical powers of attorney can help avoid future litigation between family members. Nominate a guardian and financial and medical conservators while you have sound decision-making capacity and autonomy. They will be designated in your will and durable powers of attorney documents.

You can still make your own healthcare decisions even with a health care proxy or medical power of attorney. These individuals can only make decisions on your behalf once a doctor deems you physically or mentally incapacitated. In contrast, a durable financial power of attorney will retain decision-making powers over finances upon signing the document. An estate planning attorney helps you identify the criteria to consider for your specific needs when making decisions for this crucial role. Select both of these representatives well in advance of the unforeseen events that will require their help.

Planning Ahead

Establish your will and trusts early on as they are vehicles to control and communicate your personal and real property distribution to heirs. Your will protects your family from intestate statutes or laws that govern dying without a will. Your will nominates a personal representative to oversee your estate, the payment of outstanding debts, final taxes, guardianship, and the dispersal of remaining assets.

Know that most states will not consider stepchildren as part of an inheritable estate without a will specifically including them. Without a will naming a representative, most families typically fight over who is best suited to the job. This situation can lead to expensive and time-consuming litigation.

To avoid probate litigation, your will and the naming of financial and medical durable power of attorney representatives are crucial estate planning elements. To guard against litigation more fully, a revocable trust avoids court oversight altogether except in the case of a challenge. However, if you have been competently overseeing the revocable trust, this presents a formidable challenge to contest.

We hope you found this article helpful. If you have questions or would like to discuss your personal situation, please don’t hesitate to contact our Reno office by calling us at (775) 853-5700.

Elder Law, Estate Planning

How Do I Know if I Need a Trust?

SchulzeLawGroup

This article will help you decide if a trust fits your particular circumstances. For example, maybe you have a disabled child and you want a trust to permit that child to inherit without losing government benefits. Maybe your own or your spouse’s health is heading into difficulties, and you can foresee eventually needing long-term care benefits. Trusts can avoid an expensive, public, and lengthy probate process before your beneficiaries can inherit after you pass. Or, you might be in the classic “trust fund” situation, where you’re concerned that your children won’t be able to manage money wisely.

All these are excellent reasons to consider a trust. But what kind of trust? A quick count shows there are at least thirteen different varieties. Which one is best suited to your needs? Call us.

Here’s the basic idea behind trusts, to help you understand why you might or might not need one.

What is a Trust?

Think of a trust like a treasure chest. You originally bought property or earned money in your own name. You then transfer those assets into the trust’s name – into your treasure chest, in other words. The trust treasure chest becomes a legal entity separate from you, which now holds your property in its, and no longer in your, name.

Then you identify people who will occupy the three roles involved in managing trust property. First, you are the grantor, or settlor, or trustmaker – all those words mean the same thing, the “you” in this case. Second, you appoint a trustee. That person or entity is responsible for managing trust assets and following directions contained in the trust document. Third, you decide whom you want to receive trust assets – your beneficiary or beneficiaries, in other words.

In legal terms, a trust is a fiduciary agreement among you the original property owner, your trustee, and your beneficiary. The trust document contains instructions for what you want to be done with trust property, both for how you want it invested and, also, for how you want trust assets to be distributed when you pass. Trusts are, thus, a highly efficient hybrid between a power of attorney, an asset-management vehicle, and a last will and testament, all rolled into one legal entity and document.

There are two basic kinds of trusts to understand before they split off into their thirteen-or-more different flavors: revocable or irrevocable trusts.

The Revocable Trust

A revocable trust can be thought of like a treasure chest with an open lid. As grantor/settlor/trustmaker of a revocable trust, you can get at trust assets freely.

You yourself can also occupy all three roles in a revocable trust – grantor, trustee, and beneficiary. If need be, you can also tinker with trust terms, by freely amending them to change the directions, beneficiaries, or trustees. Or, you can revoke the whole thing. Before that point, though, the trust document will be there to take care of everything you want it to.

If you should meet with an accident and lose capacity, the terms of your trust will designate a person to step in on your behalf and, thus, avoid the need to go to court to get a guardian for you. The trust will also direct who inherits, thus keeping your affairs private and out of probate court. This feature is especially important if you (formerly) and then the trust (after you created it) own real property in various states. The savings in court costs in that situation could be significant.

The Irrevocable Trust

This is the trust for you if you’re seeing the need for Medicaid long-term care benefits in your future, or you work in a field where suits are common, such as owning a small business or in the construction industry.

The disadvantage to an irrevocable trust, however, is that you will be sacrificing all or almost all control over trust assets, unlike in the revocable-trust situation. Once an irrevocable trust is established, you as grantor/settlor/trustmaker cannot directly alter the terms and, generally speaking, your access to trust money is restricted or entirely precluded – as is required in order to enjoy the potent benefits of this kind of trust.

Think of an irrevocable trust as being like the treasure chest with the locked lid. Your trustee – who generally cannot be you – is the one with the key. You yourself can no longer reach your assets. This relinquishment of control is necessary to shelter your assets from creditors or to protect your assets when entitlement to government benefits would otherwise require you to spend almost all you own first.

There are ways to draft an irrevocable trust carefully, so you can still exert your will over how assets are to be used. Just as in the revocable situation, you can impose conditions that must be met before a beneficiary can receive funds. You can designate how trust income is to be used for specific purposes like college tuition, business start-up, or travel. You can also authorize a person or entity as a “trust protector,” who can alter trust language, correct drafting errors, or create a new similar trust if the law changes.

And there you have the basics. Now you’re ready to decide whether you need a credit shelter trust, or a charitable trust, or a qualified terminable interest trust, or a blind trust, or – just come see us to figure out all the rest!

Trust Caveats

Some sophisticated trusts do convey tax benefits, but, for the most part, IRS considers revocable trusts to be invisible. You as grantor/settlor/trustmaker will still pay tax on the revocable-trust income, albeit at your individual rate and not at the prohibitive trust rate.

As for estate taxes, trusts have no effect – but, at least regarding federal estate taxes, those are currently moot for most people. They are not incurred until the value of the estate exceeds $11.4 million as of 2019. Some states do impose estate and/or inheritance taxes; for those states, please consult this website:

Does Your State Have an Estate or Inheritance Tax?

Also, keep in mind that revocable trusts provide no protection against creditors. If you lose a legal action, a judge can force you to change the beneficiary of your trust to the winner. Irrevocable trusts are free from that kind of interference.

Still, irrevocable trusts must be established long before you run into that kind of trouble. If you create such a trust while credit problems are looming or have already arrived, you risk that your trust will be undone as a fraudulent conveyance.

Trust Your Attorney

Consult lawyers like us, who have experience and expertise in the trusts and estates area. Custom-constructing a treasure chest to fit your specific needs is a job for our specific skills.

If you have questions or would like to discuss your personal situation, please don’t hesitate to contact us. Please contact our Reno office by calling us at (775) 853-5700.