A living trust is a legal document in estate planning indicating which assets are to be used for your benefit while you are still living and to whom these benefits would transfer with your passing. Living trusts are used by those desiring to avoid the administrative hassle and possible publicity involved in the probate process.
To take the most advantage of a trust, you should make sure everything you own is held in trust form. It is important to occasionally revisit your trust provisions to ensure all of your assets are included as no assets become a part of the trust without explicit inclusion.
A revocable living trust enables the grantor to later change his mind about the property placed into it or even the existence of the trust itself. Benefits of a revocable living trust include avoidance of probate, resulting in faster distribution of assets to beneficiaries, potential money savings, privacy, and the ability to manage your affairs without court involvement should you become incapacitated.1
An irrevocable living trust is one that cannot be changed once it is signed by the grantor. With certain limited exceptions regarding transfers occurring within three years of death, only property owned at the time of death is subject to estate taxes.2 One big potential benefit of an irrevocable living trust is the avoidance of probate and estate taxes because ownership of property transfers to the trust while the grantor is still alive. Properties that fall under the federal estate tax exemption are not subject to these taxes.
The most important thing to consider when deciding between the two types of living trusts is any potential tax consequences. Talk to an estate planning attorney to obtain further guidance on creating a living trust and ensure your assets are used exactly as you wish during and after your lifetime.Read More
If you run a family-owned business, estate planning can be tricky, especially if one child had worked beside you to build the business. While there are several options for leaving this business to your children, consult with an estate planner. Attorneys have a wealth of resources to help you fairly pass the value of your business to your beneficiaries.
Most importantly you will need to get a verified, third-party assessment of the value of your business. In addition, you will need to set aside funds for this same procedure when you pass away. Trying to avoid this step for the sake of simplicity will have serious financial ramifications. Think about your business as a big mansion. No probate court would simply accept that your $2,000,000 house was worth $1 simply because you say so. You want to avoid the high fees of probate court; you must include your business in your estate plan at its full market value.
Distributing business ownership shares to your children generally falls into the same financial restrictions set by the IRS’s estate tax and gift tax laws. You can gift about $14,000 per year with (roughly) a $5,000,000 limit. That limit is generally the same as the estate tax threshold. But even if your business is valued at less than $5,000,000, you still have some financial challenges to overcome.
If you have one child who has worked for years to build the business, simply splitting the value and handing over equal shares to your beneficiaries may be unfair. Would your business have been as successful if you hadn’t had that family member working by your side. Doesn’t he or she deserve more ownership than anyone else? On the other hand, isn’t your business a significant part of your estate that should be equally divided among your heirs no matter what path they chose in life?
Estate planners have endless options to help you design a fair plan based on your business and your family. For example, you could annually gift shares of ownership over to the family member that works inside the business. Then, upon your death, the remaining shares you still hold are equally divided among your heirs. Plus you can add a buy-out option so that one family member can opt to buy everyone’s shares before the shares are distributed.
Again, an estate planning professional can give you endless options. But you can’t wait. Business succession planning takes time and consideration. Start now for a fair and financially responsible plan.151Read More
When writing your will, you have to find a balance between your specific wishes and the eventuality that your assets will change between the date you sign the will and the day you pass away. The biggest mistake in over-thinking your estate is procrastinating the final signature. It’s far better have an imperfect will than no will at all.
Generally, you won’t list too many specific numbers in your will. Perhaps you can include smaller sums of money for friends or charities. The majority of your cash assets (80%-90%) should be in percentages. For example, “40% of my liquid assets will go to each of my two children.” Large sums of money change over time, and in less than five years you could significantly more money that you had upon signing the will.
The major problem will undistributed funds is that it may have to go through probate court. And anything that goes through probate court will have to pay court fees. Your family could see thousands of dollars wasted in court fees that could be put to better use like an education fund.
Your estate planner can help you account for 99.9% of the assets in your estate. Although you might want to control how much money each beneficiary receives, you might do more harm than good. Generally your estate plan will include a catch-all phrase like, “Any undistributed funds will then go to my spouse.”Read More
Even if you have a relatively small estate, you might face some uncomfortable questions by your family regarding your estate planning. Sometimes, these concerns are well-founded; and sometimes, the questions are simply rude.
“Do you have a will?”
Generally, this is an acceptable question. An estate that passes into probate can cost thousands of dollars in fees; many of which can be avoided by simply having a valid will. If a family members asks this questions, they may simply want to know where you keep your will. It’s not outrageous for a close family member to want to know the name of your estate attorney and the location of your will.
“What’s Your Plan for Your Estate?”
Occasionally, this is an appropriate plan. Generally, only the closest family members have the right to ask such a person question. Because financial circumstances can change so dramatically over time, a will is not a promise, but simply a plan that may need adjusting when your estate is released to beneficiaries. Sometimes, adult children with significant assets of their own may want to make a contribution to the overall plan. For example, an adult child might want to buy the family summer home in an attempt to keep it in the family instead of seeing it sold after you pass.
“How Much Will I Get When You Die?”
While there are several ways to answer this question, the best answer might be with your own question. “Why?” “How much will I get?” is a rude question, but it might be based in a pressing need. Instead of being offended, you might delve deeper to find out if there is something you can do while you are alive. For example, you might be able to offset the cost of tuition for a grandchild or offer a gift for a down payment on a house.Read More
When you create an estate plan, most people take children into consideration. However, parental care is a serious issue, and many elderly people rely on adult children to help them maintain a dignified existence.
Start by asking your parents if they will have sufficient funds to live in their own home when they retire. Because the cost of a maintaining a home will use up at least one social security check, your parents may need to rely on you if they don’t have any additional retirement funds.
Work with your estate planner to assign some portion of your estate to your parents. Of course, if your have a spouse and children, dividing the estate between generations could cause serious conflict before or after your untimely passing.
Your estate attorney will be able to help you build a portfolio of life insurance and financial contingency plans to ensure that everyone in your family has financial resources. For example, you could create a plan that would pay-off the mortgage on both your home and your parent’s home if you passed away.
If you have (or will have) a single, elderly parent, you should assume he or she will eventually need your help. Once a single parent develops a chronic illness, you will be called upon to help. Work with your lawyer now so these financial eventualities are addressed before they become an impossible burden.Read More
First, your spouse needs to know where to find a comprehensive list of any financial accounts you have. If you have several, disconnected investment accounts, you need to keep a list of account numbers and bank names. Banks don’t go scouring the obituaries for the names of dead customers. If your spouse doesn’t know you have an account at a specific bank, that money could sit untouched for generations. This is especially true today because banks are no longer sending paper statements. With nothing more than e-mail communications, your spouse could live on, completely unaware of your hidden nest egg.
Next, are there any major surprises in your will? If so, prepare your spouse for the news long before your death. If you are planning on giving half of your money to a charity, you should consult with your spouse. Without his or her consent, your spouse has grounds for contesting the will, nullifying your wishes, and doing as he or she wants with your money.
Finally, does your spouse know your lawyer or estate planner? With a substantial estate, the lawyer who wrote the will can manage post-death estate issues. However, if your spouse has never had a face-to-face meeting with your lawyer, he or she might be very unwilling to trust a stranger with such important financial matters. Your spouse needs to have quick and easy access to your estate planner’s contact information along with the trust to let the lawyer handle the will during a difficult time.Read More
Both revocable and irrevocable trusts can protect your house (or other assets) from creditors including the IRS, but neither provides total protection. Consult with an estate planner to create a trust to protect your current assets for your future beneficiaries. Use your trust to protect your assets from medical debt and other end-of-life expenses.
Because assets can move in and out of a revocable trust, they offer less protection against creditors. However, if you appoint someone other than yourself as the trustee, you legally lose control over the trust making it more difficult for anyone to place a lien against the assets in the trust.
Irrevocable trust offer more protection, however, they also are more difficult to create and maintain. Irrevocable trusts operate as independent entities, responsible for filing tax returns annually, just like a living person.
While irrevocable trusts offer more protection, your estate planner can probably use a revocable trust to protect your assets without the challenges that come with irrevocable trusts.Read More
Trusts are a common way to pass assets along without worrying about probate court and probate costs. Generally, your lawyer will use a trust to legally hold your assets (like your house and your major investment accounts). Every trust has a grantor (also known as a settlor or trustor), a trustee, and (one or more) beneficiaries.
The grantor, settlor, or trustor is the person who created the trust by contributing assets. This person will never change. Even after death, the grantor of the trust remains the same.
The trustee manages the assets. When you create the trust, you can name yourself as the trustee of the trust. At any point, you can change the person who is named as the trustee. As part of your estate plan, you and your lawyer should name a primary and secondary successor. As soon as you become incapacitated or die, the primary trustee will take over administration of the trust.
The beneficiary or beneficiaries of the trust receives the benefits of the assets. Again, you can be the beneficiary of the trust when you create it and while you are alive. You can name as many people as you’d like to be beneficiaries of your trust, and one of these beneficiaries can also be a trustee of the trust.
At any point, you can hold all three positions of a trust you created. Your trust can exist forever and you can structure the trust so that there will always be a trustee to manage the funds for whomever you or the trustee see fit.Read More
There are several kinds of assets, investments, and investment tools that don’t need to be mentioned in your will. Generally, you should review these assets with your estate planner to ensure they will be passed along as you wish.
Life insurance always comes with a named beneficiary. In fact, life insurance is not your asset and it doesn’t pass through probate court. The beneficiary of the life insurance money receives the payment directly from the insurance company. In addition, life insurance is generally not taxable.
There are several kinds of investments, such as 401(k) funds and banking accounts that give you the option of passing them directly to a beneficiary upon your death. Because these are part of your assets while alive, you will need to consult with an attorney to calculate how estate taxes could impact this kind of transfer.
There are several kinds of trusts you can use to help avoid probate court. Usable before and after you death, trusts can help you move assets to your beneficiaries without public record and court interference.
Lastly, you can consult with your attorney to discuss the way in which you are listed on the deed to your house. With just a few legal edits to the deed, you can avoid putting your real estate assets through probate court.
While some people use these tactics to keep asset allocation private, many estate holders use these methods to make the transfer of wealth as fast and easy as possible after their passing.Read More
Frequently parents are confronted with the moral dilemma of how to divide up their estate among children so that jealousies and rivalries don’t flair. Successful heirs frequently don’t see how their less fortunate siblings deserve the same or more inheritance. Less fortunate siblings often feel isolated from a family that never seemed to understand or care about life’s difficulties.
Fortunately, with very little investment, parents can leave as much or as little money to each child — with each child being unaware of the other’s share. By creating a separate trust for each child, there are very limited ways for each child to know how much the other(s) inherited.
There are several types of trusts, and an estate lawyer can help you prepare your estate plan to keep the peace after your passing. Setting up multiple trusts is also a way for you to ensure your money is used wisely and as you’d prefer. For example, if you have a successful heir with his or her own children, you could leave money in a college fund for the grandchildren. If you have an heir with a poor history of money management, you can set up a trust to slowly dole an allotted allowance over the course of your child’s life.
Of course no estate plan is completely free of risk. No matter how many trusts you establish, heirs can file lawsuits and contest your will. However, if you simply communicate this plan with your heirs, your family should remain a cohesive unit after your passing.Read More