Tag: trusts

Estate Planning

The Six Biggest Estate Planning Mistakes

SchulzeLawGroup

Unfortunately, many individuals make costly mistakes without the proper advice and guidance of a qualified estate planning attorney. Beyond undermining your intent and diminishing your financial legacy, poor planning can create additional stress to your heirs in their time of grief.

Six common errors frequently happen during the estate planning process. These mistakes often occur because the complete financial picture was not fully considered. It is easiest to avoid estate planning mishaps by knowing what they are before you begin or looking for these errors when reviewing and updating your plan.

Financial procrastination causes problems. While examining your mortality and making end-of-life preparations is not a particularly fun activity, try viewing it as helping and enhancing your loved ones’ future lives while creating a sense of peace during your own. 

The need to protect your finances using wills, trusts, and power of attorney (POA) documents is not solely the domain of the elderly. Putting off the drafting of legal documents necessary to protect yourself and your inheritors can lead to disastrous outcomes.

By far, failing to create an estate plan is the most common mistake. Even if you do not have a lot of money, you need a will to protect any minor children you have by naming their guardians. Your will also ensures your asset distribution to heirs is carried out according to your intentions when you die and names a representative to handle debt obligations, final taxes, and other estate administrative duties. Dying without a will or “intestate” can lead to dire consequences.

Outdated wills, forms, and POAs create problems. If you made a will twenty years ago and have not reviewed and updated its contents, chances are many of the details no longer reflect current assets or beneficiaries. Estate planning is not a “set it and forget it” proposition. Reviewing estate planning documents and beneficiary forms every two years is generally adequate, barring a major life change such as divorce, birth, death, remarriage, or relocation to another state.

Beneficiaries without coordination can create expensive oversight. Beneficiary forms for retirement accounts like 401(k)s and IRAs, annuities, and life insurance policies may constitute a significant portion of your estate’s assets. These beneficiary forms are legally binding and will supersede the contents of your will. Failure to update beneficiary forms can lead to an ex-spouse receiving assets that preferably would go to your heirs. Routine checks of all beneficiary designations are best practices for estate planning.

Failing to title trust assets properly can lead to probate. While not everyone requires a trust, those who do must carefully retitle their assets into the name of the trust. Forgetting to add more recently purchased property or opening a new account requires you to title them into the trust to receive trust benefits. Whether real estate, cash, mutual funds, or stocks, if you fail to move the asset into the trust, they become subject to the probate court, possible tax consequences (depending on the trust type), and a public record of these assets.

Life insurance can trigger estate tax. Life insurance can provide heirs with liquidity without the sale of assets and tax consequences when handled correctly. However, if a wealthy individual dies while maintaining ownership of their life insurance policy, they may inadvertently create a tax event for their heirs. Although life insurance death benefits are not subject to state or federal income taxes, any “incident” of ownership by the decedent can create an inheritance tax.

An estate planning attorney can help shelter life insurance proceeds from high-value estates by gifting the policy to an Irrevocable Life Insurance Trust (ILIT) or draft a new trust to purchase a new policy where the trust is the owner and beneficiary. A policy owned by the trust does not create a taxable situation to death benefits. Your attorney’s careful structuring of this trust type is complex but can provide proper protection.

Joint ownership of assets with your children can lead to disastrous consequences. Naming your children as co-owners of assets, even digital, permits their creditors to access your money. The better way to address the situation is to give your adult child power of attorney and assign them as a beneficiary to a payable on death bank or brokerage account. This tactic permits them to access your funds if required during your lifetime. However, it keeps your assets from your child’s estate and away from their potential creditors.

Ultimately the biggest error you can make is not finding the right estate planning attorney to guide you. This specialized attorney receives training on avoiding probate, tax implications, and asset protection if you require long-term care. Proper planning with the right guidance will help you avoid costly estate planning mistakes and protect your family’s future financial well-being.

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.

Estate Planning

The Trustee’s Role: A Brief Overview

SchulzeLawGroup

Your estate planning process, whether it is in the middle or just getting underway, likely contains questions regarding how and to whom your assets should be distributed. A trust can be a great tool in your estate planning tool kit. A properly created trust can give you and your family more options and privacy than a will.

Unlike a will, a trust will help keep your estate from going through an expensive, time-consuming, and public probate process. If you set up a trust, you still create a will, but it becomes a pour-over will, which moves (pours) your assets into your trust. You can choose from different types of trusts, depending on how and when you want your assets dispersed.

Types of Trusts

There are many types of trusts, but they all establish a financial arrangement between three parties: the trustor(s), the trustee(s), and the beneficiary(ies). The person creating the trust is known as the trustor, grantor, or trustmaker. Trusts can be created by more than one person. The trustor chooses one or more persons or entities to serve as the trustee. The trust is for the benefit of one or more beneficiaries, which can be people or entities, such as charities. For some trusts, the trustor, trustee, and beneficiary are the same person.

The Role of a Trustee

The role of a trustee can vary widely, depending on the nature of the trust, wishes of the trustor, and needs of the beneficiaries. Generally speaking, a trustee manages the trust and the assets it holds and disperses income or principal from the trust in accordance with the terms of the trust. A trustor may grant the trustee broad latitude in distributing assets to the beneficiaries or may impose strict guidelines. For example, a trustee may be allowed to make funds available for the general wellbeing and happiness of the beneficiaries or may only be able to disperse funds for educational purposes.

If the trustor has a beneficiary who has special needs and is receiving benefits from Medicaid, Medicare, or another government program, then the trustee needs to make sure they are dispersing assets without disqualifying the beneficiary from the government program. Some trusts have a special or supplemental needs provision in them, and some are wholly for the person with special needs.

In addition to dispersing the funds of a trust, the trustee also pays any taxes that are owed, records expenses and income, and oversees the physical assets owned by the trust, such as real estate. The trustee may be required to report taxes, expenses, and income to the beneficiaries on a scheduled basis. All these duties will be dictated by the language in the trust.

Choosing a Trustee

In most cases, the trustee of a trust can also be a beneficiary of the trust. One notable example of when a beneficiary cannot be the trustee of their trust is with a special needs trust. For the beneficiary of a special needs trust to qualify for government assistance, they cannot have any control over the assets of their trust or how they are managed and dispersed.

When considering who will be the trustee of your trust, choose a person you can rely on to follow the instructions you lay out in the trust. This person can be a reliable family member or friend, or an entity, such as a bank or trust company. For some trusts, such as a living trust, you can be the initial trustee and select someone else to be the trustee if you become incapacitated or when you die.

More than One Trustee

More than one person can serve as trustee at a time. This can be a good option for when beneficiaries are young. For example, a trustor can allow a young beneficiary to serve as a co-trustee of their trust along with an older trustee until a certain age when the beneficiary can serve as sole trustee.

Choosing the trustee of a trust is an important decision. When you are making this decision, consider the purpose of the trust now and in the future. Consider who will be able to best manage the trust’s assets and the beneficiaries’ needs. An experienced estate planning attorney can help you create the trust, or trusts, that will best suit your needs and select the right trustees.

This article offers a summary of aspects of estate planning law. It is not legal advice, and it does not create an attorney-client relationship. For legal advice, you should contact an attorney. 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.

Estate Planning

Avoid the Pitfalls of Beneficiary Designations

SchulzeLawGroup

It may seem simple to leave your property to your heirs. You make a will or a trust, you do a transfer-on-death deed for your real estate, you put your kids on your bank account, you designate beneficiaries for your life insurance and retirement accounts, and you’re done.

If only things were that simple. The result you wanted can be seriously foiled, if all the above elements are not carefully coordinated.

After you consider the following, we hope you’ll agree that it’s best to consult a qualified attorney. That’s the person you need to help you construct an estate plan that will do what you want it to do.

A pitfall: Conflict between deeds and wills or trusts

If your will or trust conflicts with a deed for real property, the law will resolve the conflict for you by following the deed, not the will or trust. This can produce unintended results.

Suppose Mary wanted to divide her property equally between her two children, John and Jane. She recorded a beneficiary deed for John so he could inherit the house. She wrote a will leaving money to her daughter Jane that was roughly the same value as the house.

Subsequently, however, Mary forgot about John’s deed. She made another will that split everything equally between John and Jane.

On Mary’s death, John ended up getting significantly more than Jane. The portion of the second will including the house would be invalidated because the earlier deed would supplant the will. So John got the house through the deed, plus half the money through the will. Jane got half the money only. That was not what Mary intended and the unfairness damaged John’s and Jane’s relationship.

A similar pitfall: Conflict between beneficiary designations and wills or trusts

Financial accounts can transfer automatically to people of your choice, avoiding probate, if you designate beneficiaries by means of “transfer on death” (TOD) through your broker. But you must not depend on your will to change TOD designations. The beneficiary designations establish a contract between the holder of the account and you. When you pass, the holder is legally obligated to transfer your account to the beneficiaries you designate, regardless of what your will says. The designations, like deeds, supplant wills.

So if you have named your spouse as a beneficiary of, say, a retirement account, and then you get divorced and forget to change the beneficiary designation, your ex-spouse – and neither your new spouse nor your children nor anybody else – will receive the account proceeds when you die, regardless what your will says.

Underage beneficiaries and guardianship proceedings

Suppose your financial advisor calls to alert you that you have not designated beneficiaries on your accounts and that if you don’t do so, your estate will have to go through probate when you pass. By making TOD designations, your beneficiary would simply present a death certificate and the assets would transfer to him or her without the need to go to court. That sounds good. So you follow your advisor’s suggestion and designate your beneficiaries.

In the meantime, your lawyer drafts a good will for you. This will, as good wills should, contain a subtrust providing for underage beneficiaries. Your lawyer, echoing your financial advisor, explains that the subtrust is intended to avoid the necessity of court proceedings.

Your efforts to avoid court will be defeated, however, if you choose an underage beneficiary to receive your financial account through TOD. Guardianship proceedings would still be necessary to administer the money until the beneficiary came of age.

It would have been better to route the gift to the underage beneficiary through a will or trust and not through TOD designation. If wills or trusts are properly drafted, they contain provisions to administer the underage beneficiary’s inheritance privately and thereby avoid the court guardianship proceedings.

Another pitfall: Disabled beneficiaries and government benefits

The pitfall here is similar to the one above. If your beneficiary is disabled and gets a TOD (or any other kind of) inheritance, the inherited money could jeopardize the beneficiary’s entitlement to government benefits. Most benefits programs are “means-tested.” To be eligible, recipients must own practically nothing. If your beneficiary were suddenly to inherit, he or she would lose benefits and end up having to pay for care until the inheritance was spent. That could involve a lot of money!

Rather, like for underage beneficiaries, the disabled beneficiary’s inheritance should be routed through a will or “supplemental needs trust” (SNT) that imposes restrictions on spending. With those restrictions in place, the benefits would keep coming, and the inheritance assets could be used to pay for “extras” that benefits don’t cover. These extras might include payment of real estate taxes, upkeep of a residence, or vacations, or a flat-screen television. The inherited money would be managed by a trusted person and the disabled beneficiary would still continue to receive the crucially important benefits.

Bank accounts and disabled or underage beneficiaries

The pitfall is the same as above. If you have designated underage or disabled beneficiaries by making your accounts “payable on death” (POD), court proceedings will be necessary in the case of the underage beneficiary, or the inheritance could jeopardize or eliminate the disabled beneficiary’s government benefits.

“Spendthrift” beneficiaries

The problem is likewise similar here. If your beneficiary has a gambling habit or drug addiction, or if he or she needs bankruptcy protection from creditors, and if he or she inherits without trust protections, the inheritance could be lost to the beneficiary’s detriment.

Joint tenancy of real property

It may be tempting to avoid probate by putting real estate in your beneficiaries’ names as joint tenants. But if multiple people own real estate jointly, all must agree on what is to be done with the land and all should contribute equally to property maintenance expenses. This can create disputes. A better solution might be to subject the property to probate, to dispose of it in orderly court proceedings.

Joint bank accounts

The intent to avoid probate here is similar to a joint tenancy of land, but putting your bank account in your and your children’s names exposes the funds to risk that should be avoided. Once a person is named as a co-owner of a bank account, that person has immediate and unfettered access to the funds. The funds are thus exposed to misappropriation by the joint-tenant child, or they can go instead to the child’s creditors in bankruptcy, or to ex-spouses in divorce proceedings.

It would be better to create a power of attorney that allows a trusted agent access to bank-account funds for your benefit while you are alive. Then, for when you pass, you could name beneficiaries via a POD designation with the bank – but remember the warnings above regarding underage or disabled or spendthrift beneficiaries. Those beneficiaries’ access to funds should be protected by a trust.

A lot of moving parts

Each of the estate-planning strategies above could work well in and of themselves, but, taken together, may have an adverse impact. Crafting a plan that combines and coordinates the various strategies requires expertise and care. That care is worth taking, to safeguard the wealth you have built up over the years. Don’t risk a result you don’t want. Call on us to design a plan that harmonizes all the moving parts, so the gears will work together and you will leave the legacy you intended.

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.

Estate Planning

Reassessment of an Estate Plan Is Necessary Following the Death of a Spouse

SchulzeLawGroup

The passing of a spouse is not only a very emotional challenge but can be financially difficult as well. It is common for one spouse to handle family tax and estate plans, and a widow(er) may be looking at a complex financial situation with more questions than answers. It is a mistake to think that a complete estate plan needs no further action after a spouse’s passing. Many times there are decisions to make and act on within a set timeframe. Prioritizing the review and reassessment of your finances and estate plan is a must.

Start by taking an inventory of your current bills; making a plan that covers those expenses for the next six to twelve months. If your spouse’s social security monthly benefit is higher than yours and your marriage was ten years or more, petition to receive the higher dollar amount. Put off making big decisions if at all possible during this time. Adapting to the loss of a loved one can cloud good decision-making, and allowing for time to analyze decisions may even find you developing new financial goals. However, identify and act on those decisions with deadlines, particularly the portability election on the decedent’s estate tax return and any probate timelines. Be particularly careful during tax time and work closely with your tax preparer to understand both your deceased spouse and your taxes. It is not uncommon for a widow to discover previously unknown accounts.

If you have a solid relationship with your family attorney and financial advisor, reach out to them for guidance. These professionals are well versed in the processes that accompany the loss of a spouse. If you are not familiar with these individuals, make appointments to meet with and review your current situation. Ask for strategy options and see how they fit into what may become your forward plans. Re-evaluate your investments and match needs to risk tolerance. Many widows are happy with a lesser return if stability is the offset. Be sure you are content with your investment philosophy before making significant changes, carefully weighing professional input.

Keep your formal estate plan updated. Laws change, and so has your situation. Ensure that all beneficiaries on IRAs, life insurance, and some investment accounts reflect your current wishes. If necessary, update your power of attorney for both financial and medical directives. When outright gifting to your children, remember it may create problems if there were to be a later divorce. An ex-spouse can lay claim to the gifted property, which you can lose in a lawsuit. Speak with your estate planning attorney as trusts are a beneficial entity to manage and protect property of significant value. Trusts are also worth considering to protect substantial assets that do not have a beneficiary designation to bypass probate and protect your heirs.

Take stock in your home, weighing your financial situation and your emotional connection to your home. Does it make sense to stay in your current residence? Is it financially possible to do so? Even if the home is mortgage-free, maintenance and upkeep of the home and property can become overwhelming and expensive. Alternatively, many widows prefer to remain in the home with longstanding memories of their spouse and children growing up in the environment. Even though it may make economic sense to move, the emotional ties to the property may be in the best interest of the widow to preserve.

census.gov

According to a Fidelity Investments survey, most Americans who find themselves widowed are female, and nearly seventy percent will retain a new financial advisor within the first year of the death of their spouse. Regardless of why this happens, it is clear that amending financial goals and revisiting the estate plan are likely to be the actions of a widow. Predictions are that women will inherit close to thirty trillion dollars of intergenerational wealth transfers over the next few decades. Becoming educated about family financial decisions for all widows(ers) is of the utmost importance, particularly for women who tend to outlive their husbands.

How a spouse passes, whether from a lengthy disease battle or taken quickly, matters not. The grief is still there. How long and deep the grief varies significantly among individuals. While it is essential to address time-sensitive decisions, it is best to make significant financial changes when a widow feels emotionally intense and clear-minded to avoid making regretful decisions. Professional guidance and advice are of the utmost importance to fully understand your situation and the decisions you need to make. While the process can be complex, even heartwrenching, it is of utmost importance to your future to handle what is before you competently. 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.

Estate Planning

Understanding the Differences Between Wills and Trusts

SchulzeLawGroup

Wills and trusts have specific and quite different benefits for estate planning purposes. Each state has specific laws and regulations governing these legal documents. You can have both a will and a trust; however, the information in each should compliment the other. As a standalone, it is not accurate to say one is better than the other. The better choice for you, or a blend of both documents, depends on your assets and life circumstances. Begin by assessing your situation, goals, and needs, and understanding what wills and trusts do to guide your decision making. Then, along with an attorney, you will be able to identify the solution that best suits and protects your family.

At its most basic level, a will allows you to appoint an executor for your estate, name guardians for your children and pets, designate where your assets go, and specify final wishes and arrangements. A will is only enacted upon your death. It has some limitations regarding the distribution of assets, and wills are also subject to a probate process (which occurs in court and is overseen by a judge) and, as such, are part of public records.

Types of Wills for Your Estate Plan

The last will and testament designates a person’s final wishes about bank accounts, real estate, personal property, and who should inherit these items. A personal will outlines how to distribute possessions, whether to another person, a group, or donate them to charity. It also deems responsibility to others for custody of dependents and management of accounts and other interests. Accounts can include digital assets with a tangible or monetary value associated with it, such as funds in a PayPal account.

A pour-over will ensures an individual’s remaining assets will automatically transfer to a previously established trust upon their death. This type of will always accompanies a trust.

A living will or advance directive specifies the type of medical care that an individual prefers if they cannot communicate their wishes.

A joint will and mutual will is meant for a married couple to ensure that their property is disposed of in an identical manner. A mirror will is two separate but identical wills, which may or may not also be mutual wills.

A holographic or handwritten will is valid in about half of the states and must meet the specific state’s requirements. Authentication of this will type for acceptance to the probate process also varies by state. There is always the possibility that a court will not accept a holographic will. Even if you have limited assets, your best strategy is to have your will professionally documented by an attorney. A video of your final wishes does not create a valid will.

Trusts are somewhat more complicated than wills, and the many different trust types can greatly benefit your estate and beneficiaries. Generally, a trust provides for the distribution and management of your assets during your lifetime and after death. Trusts can apply to any asset you hold inside the trust and offer more control over when and how your assets are distributed. There are many different trust forms and types, far more than wills.

However, the creation of a trust is only the beginning of the process. You must fund your trust by legally transferring assets into it, making the trust the owner of those assets. This process makes creating a trust a bit more complicated to set up; however, a trust is often enacted to minimize or completely avoid probate, thus keeping personal records private. Avoiding probate is a huge advantage for some people and often justifies the additional complex legal work of setting up a trust. There are nearly as many types of trusts as issues to address in your estate planning, and each offers different protections. However, trusts generally fall into three basic categories.

Basic Trust Types For an Estate Plan

A revocable living trust is, by far, the most commonly implemented trust type. The person who creates and funds the trust is known as the grantor and will typically act as the directing trustee during their lifetime. The grantor may undo the trust, change its terms, and move property and assets in and out of the trust’s ownership as they deem desirable. Revocable living trusts are designed to switch to an irrevocable trust upon the death of the grantor.

An irrevocable living trust is legally binding on its date of designation and allows very few provisions for change. The trust grantor funds the irrevocable living trust with property and assets, and the trust property is then under the care and control of the individual the grantor names as trustee. The grantor cannot change their mind and “undo” the trust. There are unique tax implications and other benefits to an irrevocable trust, including protecting a person’s home and savings from the high costs of long term care. These benefits can make relinquishing control worthwhile.

A testamentary trust is a provision within a will, appointing a trustee to manage the deceased’s assets. This trust is often used when the beneficiaries are minor children or someone who is receiving public benefits. This trust type is also used to reduce estate tax liabilities and ensure professional asset management. A testamentary trust is not a living trust. It only exists upon the death of the testator (the writer of the will). The executor of the deceased’s estate would follow the terms of the trust (called administering the trust) as part of the probate process.

Things to put into a trust include but are not limited to:
·      Stocks, bonds, mutual funds
·      Money market accounts
·      Brokerage accounts
·      Patents, copyrights, and royalty contracts
·      House and other real estate
·      Business interests and notes payable to you
·      Jewelry and precious metals
·      Works of art or other valuable collections
Assets that are not affected by trusts include but are not limited to:
·      Life insurance proceeds
·      Payable on death bank accounts
·      Retirement accounts
·      Jointly owned assets
·      Real estate subject to transfer-on-death deed

The many benefits that proper estate planning with wills and trusts can provide to your family are worth some thoughtful contemplation, legal counsel, and properly drafted documents.  We would be happy to meet with you and discuss which options are best for your particular situation. Please contact our Reno office by calling us at (775) 853-5700 to learn more about your estate planning options.