FIVE ESTATE PLANNING MISTAKES YOU MAY BE MAKING RIGHT NOW

1. Not Talking To Your Family About Your Estate Plan.

            We've all seen the movie scene where the family gathers around Grandpa’s attorney while he reads off who gets what. There is a dramatic and unexpected gift made to a long lost son, or everyone gets disinherited and the dog takes it all. While this makes for wonderful movie drama, it makes for horrible estate planning. Talk to your family about your intentions. A lot of family feuds could have been prevented if the creator of the will and/or trust had been clear about their intentions to family members before they passed.

            If your concern is privacy or keeping your intentions private up until you pass, you can work with an attorney to draft a clear letter of intention to accompany your estate plan. A letter of intention is a non-binding but influencing document that can spell out to your loved ones what you hoped to accomplish with your estate plan. Legal jargon sometimes cannot convey your hopes and dreams for your family like a letter or heart-to-heart with loved ones can.

2. Doing It Yourself.

            I know, I know, you can go on (insert legal DIY website here) and download a Will for little to no money. My response: you've worked hard to earn what you’ve got, why take the risk. A knowledgeable attorney can help you avoid mistakes that can cost you and your family time, money and headaches down the road. My mantra “ Pay now, or Pay later…either way you're gonna pay.” It simply means this; you can pay a knowledgeable attorney to draft a complete and comprehensive plan now and have your assets pass and estate administered seamlessly later. Or you can DIY now to save money and have your family pay a knowledgeable attorney to step in and help sort through an incomplete or poorly drafted estate plan later.

        If, despite my warning, you are confident in your DIY skills and go forward with drafting your own documents, have an attorney review the documents to make sure they meet the minimum legal requirements. Most attorneys, including myself, will charge an hourly rate for legal advice/document review. An attorney can also help you determine whether you have included the documents relevant to your estate planning goals.

3. Not Funding Your Trust

            Ok so you made the first steps, consulted with an attorney, got your ducks in a row, and now the crisp papers of your estate plan pad your safe deposit box. Good for you! But those trust documents do not provide protection for your assets if your assets are not in the trust.

           If you are not sure how to move your assets into your trust consult with your attorney. Putting items in a trust can be as simple as naming or retitling assets into the trust. Some assets, like annuities and closely held stock ,  will require the help of your CPA of financial advisor in order to facilitate a proper transfer. In any case, in order for the trust to provide probate aversion and tax benefits, the assets must be in the Trust.

           If your trust is irrevocable, you will still have access and maintain control over your assets. If you trust is irrevocable, talk to your attorney or CPA about the best way to fund you trust while ensuring that you have the assets you need to address financial obligations and maintain your lifestyle.

           

4. Half Doing Your Estate Plan

            I recently spoke at a community legal forum, where a woman stood and shared with the group that her uncle had prepared his trust documents himself. He properly placed his home in the trust. I asked the woman, “So what is the problem ?” She waved the trust at me and said that the trust was the only document he had executed. There were no other documents, he had not executed a will or any power of attorneys. More importantly there was no pour-over will to default all of the assets left outside of the trust into the trust. As a consequence of the missing documents, the uncle, left his niece, the intended beneficiary of all his assets, with the home titled in the trust and nothing else.  The woman, who I found out was the man’s niece, was this woman angrily waving the manila folder at the crowd.

            This story may straddle the fence as an argument against do-it-yourselfers, but more importantly it shows the importance of creating a complete and comprehensive plan. I am asked all the time, by clients, if I could just offer the estate planning documents piece meal. I can and do but I always but a warn against it. An estate plan is just that, a plan, and in order for the plan to work properly you must have all of the elements of the plan. The manila-folder-waving-woman was months into a contested and stressful probate process that I believe her uncle intended to save her from.

I was reminded of one of my mother’s favorite quotes “Do it right or don't do it at all”.

5.Not Having An Estate Plan

            Of course the big no-no is not having an estate at all. Nearly once a week someone will tell me, “I don't really have anything of value anyway.” This argument is the reason I believe many people don't utilize any estate planning tools. In reply I tell them, and you “Everyone has something worth giving to your family when you pass”.

            To be clear, I'm not talking about money or homes. I am talking about the relief you provide your loved ones when they don't have to guess at complicated decisions in the wake of your death. It is hard enough to say goodbye to a loved one, it is even harder to then have to make the decision to cut off life support, or argue with family members about burial or cremation, what to do with the remains, sell the home or keep it, battle over guardianship of a minor or an incapacitated parent. You see where I'm going with this. An estate plan is not about giving away a piece of property, it is about giving your loved ones a piece of mind.

Keo'vonne W.

"Turn Your Dream Into Your Legacy"

You're Gonna Need a Bigger Tool Box

When most people think of trusts they often times think of a gilded estate-planning tool for the ultra wealthy, but a trust can be a great way of protecting the assets of the average person. This week we’ll discuss, what can be the most useful estate-planning tactic in your toolbox.

To keep the discussion stream lined this week will cover trust basics and the three kinds of Marital Trusts.

What is a Trust and how does it work?

A trust is a legal arrangement in which a person (can be more than one person or a business entity) entrusts a third party with power (and/or property) for some determined time for the benefit of another person or parties.

- The person who creates the trust by giving away the power or property to the third party is the settlor/Trustor/grantor.

- The third party with whom the power or property is entrusted is called the trustee.

- The person the trustee is holding power or property for, is the beneficiary.

Ex. John (settlor) designates Martha as trustee of his estate, until John’s daughter Sara (beneficiary) reaches the age of 21.

A trust documents the designation of power and property and names the beneficiaries. The trust document must reflect a clear intention of the settlor to create a trust, the property that is the subject of the trust must be clearly identified, and the beneficiaries must be identifiable.

Revocable vs. Irrevocable

What is the difference between a Revocable Trust and an Irrevocable Trust?

A Revocable trust may be revoked (changed or terminated) at any time during the life of the person who created the trust, ie the settlor. A revocable trust becomes irrevocable when the Trustor passes away.

            - Assets held in a revocable trust are still subject to creditors because the settlor still has access and control over the assets.

An Irrevocable trust may not be revoked (changed or terminated) at any time after it is created.

            - Assets held in an irrevocable trust are insulated from creditors because the settlor no longer has power over the assets. Assets held in an irrevocable trust are considered property of the trust.

Marital Trusts

No that we've covered what a Trust is, how it functions; and defined revocable and irrevocable, we will take a trip into the wonderful world of Marital Trusts.

As the name implies, a Marital Trust, aka an “A Trust” is established for the benefit of a settlor’s spouse and their children. There are three types of Marital Trusts: 1) Qualified Terminable Interest Property (QTIP) Trust, 2) Power Of Appointment Trust, 3) The Estate Trust.

It is critical to note that All U.S. residents can use the Unlimited Marital Deduction, which allows for property to be transferred to a spouse before or after death. The spouse must be a U.S. citizen in order to take advantage of this deduction.

At the first death assets are passed tax-free to the second spouse, then to the children at the death of the second spouse. The second transfer, the one made to the children of the marital couple, is subject to tax if there is not a Tax Credit Trust aka a “B Trust” set up. In general these trusts will operate together to maximize savings.

Pros

-Makes sure that the marital children inherit even if the surviving spouse remarries. Ordinarily the new spouse would be able to lay claim to the estate according to state statute.

- Great way for married couples to take advantage of tax breaks. 

Cons

- Must be used in conjunction with a “B Trust” to minimize taxation at the second spouse’s death.

Noteworthy Tidbit:

If the surviving spouse is not a U.S. citizen, he will inherit subject to all permissible estate and transfer taxes after the first $145,000. A well-drafted Qualified Domestic Trust aka “QDOT” will qualify for the marital tax deduction and can insulate a large portion of the assets used for the the benefit of a non-US citizen. (QDOTs will be explained in another post- but you should know that they exist)

1) Qualified Terminable Interest Property (QTIP) Trust-

Creates a life-long interest in the asset of the trust in the second spouse, but prevents him from passing the money on to subsequent spouse. Normally a settlor may not take advantage of the unlimited marital tax deduction if the surviving spouse is able to lose an interest in the property.

For example, if wife leaves her husband a property that belongs to him so long as he doesn’t get married. Whether or not he gets married is not relevant, but rather the fact that the act of getting married can cut off his interest in the property according to the terms of the wife’s trust. Wife would not be able to take advantage of the tax deduction in order to avoid taxation on the property. However the husband’s interest will be qualified for the tax deduction is wife grants him a life estate. That is he owns the home until he dies. When husband dies, his life estate ends and then the home becomes property of the estate and subject to the terms of the trust that give the home to the children rather than new wife.

Pros

-Gives the settlor power to prevent the estate assets from going to a new spouse.

                 -- The settlor can grant the surviving spouse some                                  power to alter distributions.

-Delays taxation until the death of the second spouse.

-Also may be used to ensure that children of the second marriage are provided for from the marital assets of the second marriage.

Cons

- Taxation at second death

- Limits the surviving spouse's power to name new beneficiaries or exclude existing beneficiaries.

2) Power Of Appointment Trust

This trust is similar to the QTIP trust because it gives the surviving spouse a life interest, that is the right to use the assets during her lifetime and then whatever assets remain at the death of the surviving spouse, are distributed. However, the key difference here is that the surviving spouse has the general power of appointment and may alter the distributions made at their death.

Pros

-Ultimately gives surviving spouse power over final distributions of the assets.

- Most liberal grant of power to the surviving spouse when comparing marital trusts. 

Cons

- Marital assets could end up in the hands of a new spouse.

 3) (Marital) Estate Trust

Does not necessarily give the surviving spouse rights to the entire marital estate during lifetime. It is usually used to make discretionary distributions to the surviving spouse. Discretionary distributions are distributions made at the discretion of the trustee (usually not the surviving spouse). This can be the most restrictive type of marital trust. Even if all of the assets are not available to the surviving spouse during her lifetime, any assets that remain in the marital trust must become the property of the surviving spouse’s estate. This is different from the QTIP trust, which prevented the remaining marital assets from becoming a part of the surviving spouse’s estate and instead streamed them directly to the marital children.

Pros

Can be used to provide for a spouse with a gambling or drug problem. Ensures the spouse will be taken care of but not use the trust assets recklessly.

Cons

Can be very restrictive.

Noteworthy Tidbits

Used alone, Martial Trusts do not completely eliminate taxes, but rather delay when the estate is taxed. This is desirable if the first spouse to pass is the primary breadwinner, the surviving spouse gets to enjoy the assets of the estate free from taxes. Taxes are levied against the estate when the second spouse dies and has little impact on the quality of life of the surviving spouse.

Marital Trusts are typically set up in conjunction with a B Trust also called a Tax Credit Trust, which we will discuss next week.

 The subject of Trusts is a vast but we will tackle a variety of trusts that can exist outside of a marital estate next week.   If there is a term or explanation in this post that is still unclear please ask for clarification by posting your inquiry in the comments section or emailing us at Info@KeovonneWilsonLegal.com

Keo'vonne W.

"Turn Your Dream Into Your Legacy"

The Who's Who of Estate Planning

When I lived in Brooklyn, I would wander down to a nearby park to play chess. The well worn tables were usually occupied by some of the most incredible chess players I'd ever met.  I was beat several times by a 14 year old chess master, but every time I played I became better at protecting my King.  This is a lesson that is useful in estate planning and thankfully I'm a better lawyer than I am a chess player. Let's imagine that the people involved in your estate plan are your chess pieces. They each have a particular duty, power or role. For the most part, their purpose is to defend your assets, ie your King. While the king himself isn't a powerful player, he is the reason all the other pieces are on the board; this is essentially how your assets function. 

In the world of estate planning, as in the game of chess, there are quite a few moving pieces. And as with chess, you can not protect your most valuable assets unless you know who's who and how they function. 

Testator

The testator is a person who makes a will. A woman who makes a will may be referred to as a testatrix.

 

Beneficiary

 When used in reference to estate planning, a beneficiary is someone who receives money, property, profits, and other property as a result of a trust, will, life insurance policy , or other method of gift giving.

            The following terms are sometimes used to distinguish between types of beneficiary.

            Devisees are the beneficiaries of a will who receive real property ( home, office building, apartment complex,  other forms of real estate)

            Legatees are the beneficiaries will who receive personal property ( jewelry, art, collections)

Noteworthy Tidbit

-The terms beneficiary is generally adequate and covers all types of gifts. 
-Personal property is generally anything that you can move around or hold.
  

Trustor – also called Grantor, Settlor, or Donor

 A Trustor is the person or organization that creates a Trust by setting sets aside gifts of funds, property and other assets for others (beneficiaries). They plainly express their intention designate someone (sometimes themselves) to maintain the assets until a designated time or event in which the assets will be dispersed to the beneficiaries.The Trustor may serve as trustee.

 

Trustee

  A trustee is the person that holds, manages, and or maintains the property held in a trust for the benefit of the Beneficiaries. She has the duty to distribute the property at a predetermined time or event. As the name indicates the trustee should be someone who is trustworthy and have the ability to manage the trust assets. A trustee owes a duty of loyalty to the Beneficiaries of the trust, which means she must act in the best interest of the beneficiaries at all times.

The Trustor may serve as trustee of the assets until she dies or at some predetermined date or event.

 

A successor trustee becomes trustee if the originally named trustee is unable to serve as the trustee. A trustee may be unable to serve due to incapacity, death, or unwillingness to serve as trustee. A successor trustee is usually chosen by the settlor and named in the trust document.

Co- trustees exist when there is more than one trustee for the same trust.

 

Below is a list of rights and duties a trustee may have. This list is not a complete list of duties and a Trustor may limit and designate more narrow or broad duties.

- Invest the trust assets

- Sell trust property

- Keep an accurate accounting of the trust assets

- Bring a lawsuit on behalf of the trust

- Defend the trust in a legal suit

- Distribute trust assets to beneficiaries

- Must remain unbiased when dealing with beneficiaries.

- May not use the trust assets for his own benefit (Even if he is a named beneficiary of the trust, he still has a duty to act in the best interest of all of the beneficiaries and must do so impartially. He may be removed by legal action if found to be acting in a way that             is not loyal to the trust beneficiaries)

 

Executor (also known as a Personal Representative)

 The executor is the person who wraps up the affairs of the deceased testator (will maker). He is designated in the Will and usually is tasked with submitting the will for probate. The executor is obligated to act to satisfy the testators wishes as spelled out in the will. She is also responsible for paying any remaining debts and taxes on the behalf of the testator. An executor must be over the age of 18 years old.

 

Administrator (also may be known as a Personal Preventative)

An administrator acts in the same way as an Executor but represents the interests of someone who dies without a will. She is usually a spouse or trusted family member of the person who has died. She may be appointed by the court in the case where there is no clear designation or where a named executor refuses to serve.

 

Guardian

A guardian serves as a sort of trustee, but rather than manage assets, he manages people. A guardian is responsible for the well being and care of a person. A guardian is usually chosen and named in a will document when the testator has minor children, but a guardian may care for an adult who is incapacitated. He may also petition for guardianship. If a guardian is not chosen in a will or estate document, a judge may appoint one.

 

Ward

 The ward is the person the guardian is caring for.

 

Conservator

 A conservator is appointed by the court to manage the financial affairs of an underage child or an incapacitated adult. The conservator may be the same person serving as the guardian.

 

Protected person

The protected person is the person whose estate the conservator has legal power over.

 

 Noteworthy Tidbit

- What’s the Difference? The Guardian has power over the person; the Conservator has power over the estate of the protected person.

 

- A Guardianship or Conservatorship may be ended if the ward/protected person can show to the court that they no longer need the protection and care of the guardian or conservator.

 

 

Trust Protector

 The trust protector is an uninterested third party, usually an attorney, financial advisor or bank, that makes sure that the trust is being taken care of the way the Trustor intended. He is usually not called to duty until someone, usually a disgruntled beneficiary, calls the Trustee’s behavior into question. The trust protector may remove a Trustee who is violating his duty of loyalty and replace him or act as Trustee until she finds a suitable successor trustee. Trust protectors are usually entitled to payment.

 

Next week's article will cover trusts. If there is a term or explanation in this post that is still unclear please ask for clarification by posting your inquiry in the comments section or emailing us at Info@KeovonneWilsonLegal.com

Keo'vonne W.

"Turn Your Dream Into Your Legacy"