Estate Planning

Avoid the Pitfalls of Beneficiary Designations

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

Understanding the Differences Between Wills and Trusts

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.

Estate Planning

During COVID-19 Americans of All Ages Are Creating Their Wills

Understandably, the coronavirus pandemic has created the scramble to set up wills and end-of-life-directives. There has been an explosion in the numbers of Americans rushing to make their will online. However, online do it yourself (DIY) wills are often deemed invalid as they do not comply with all of the legal requirements of your state. According to Caring.com, the prevalence of will and estate planning has been on the decline since 2017 but this trend is quickly reversing itself with the advent of the coronavirus pandemic.

So, who needs a will? Ask yourself if you care who gets your property or money if you die? If you have minor children, do you care who will act as their legal guardian? The answer is anyone married, anyone with children or anyone with assets needs a properly executed will. Wills are governed by state law. Your will should reflect your wishes in the language and format required by the state in which you live for it to be valid.

Many law offices are turning to teleconference with their clients to address social distancing protocols while still providing legal services such as writing a will. Businesses like Zoom are experiencing a quadrupling of daily users. Part of this significant increase includes hosting secure attorney/client meetings for will preparations. The importance of an attorney guiding you through the process of creating a will cannot be understated as they understand the nuances of how things need to be written. Once your will is complete, it must be correctly notarized as mistakes made in the will-signing process can potentially invalidate your will.  Your attorney will guide you through the signing process, and could involve signing during a video conference.

Beyond the creation of a will, many Americans are increasingly concerned about their powers of attorneys, health care surrogates, living wills, and end of life directives. These “life documents,” as they are active while you are alive, are equally as important as your will. Named executors, successors, beneficiaries, power of attorneys should have several back-up representatives as the mortality rate due to the coronavirus remains unknown.

According to research in a recent New York Times report, health care workers are more likely to contract COVID 19 than the average person. During this pandemic, many doctors and other medical professionals are rushing to have their wills drawn up. In addition to doctors, anyone on the front lines in the fight against COVID 19, from hospital custodians to nurses to EMS responders, should either make a will or review and possibly update their existing one. However, the truth is no matter what your profession or likelihood of contracting this virus, you should have a properly executed will during this time of considerable uncertainty.

There are few things you can act on during the COVID 19 pandemic that can bring you assurance and a sense of relief. The legal creation of your will and life-directives is an action you can take that protects you and your family. We can help. If you have questions, please do not hesitate to contact our Reno office by calling us at (775) 853-5700 to schedule an appointment.