Category: Trusts

The Estate of The Union Season 2, Episode 3 – Mis-Titled Assets Can Wreck Your Planning out now!

The Estate of The Union Season 2 Episode 3 is out now!

The Estate of The Union Season 2, Episode 3 – Mis-Titled Assets Can Wreck Your Planning is out now!

Almost everyone thinks that once they have a Will or Living trust in place, they are set when the unthinkable happens.  Unfortunately, that ain’t always so!

The way in which you take title to assets can affect your estate, taxes and perhaps the disposition of the asset if a couple divorces. In our latest edition of our Podcast, The Estate of the Union, Brad Wiewel explores what MUST happen behind the scenes to make the estate plan happen! It’s not just the documents, it’s aligning your assets with the plan – which is called “Funding.” And if this part gets screwed-up, it’s a train wreck that may happen the minute someone passes away or becomes incapacitated.

We’ve got sixteen other episodes posted and more to come. We hope you will enjoy them enough to share it with others. These are available on Apple, Spotify and other podcast outlets.

In each episode of The Estate of The Union podcast, host and lawyer Brad Wiewel will give valuable insights into the confusing world of estate planning, making an often daunting subject easier to understand. It is Estate Planning Made Simple! The Estate of The Union Season 2, Episode 3  – Mis-Titled Assets Can Wreck Your Planning can be found on Spotify, Apple podcasts, or anywhere you get your podcasts. If you would prefer to watch the video version, please visit our YouTube page. Please click on the link below to listen to the new installment of The Estate of The Union podcast. We hope you enjoy it.

The Estate of The Union Season 2, Episode 3 – Mis-Titled Assets Can Wreck Your Planning out now!

Texas Trust Law focuses its practice exclusively in the area of wills, probate, estate planning, asset protection, and special needs planning. Brad Wiewel is Board Certified in Estate Planning and Probate Law by the Texas Board of Legal Specialization. We provide estate planning services, asset protection planning, business planning, and retirement exit strategies.

www.texastrustlaw.com/read-our-books

A Pot Trust can Provide Flexibility

A Pot Trust can Provide Flexibility

A pot trust is a type of trust that names the children as beneficiaries and the trustee is given discretion to decide how the trust assets should be spent. This trust lets the grantor create a single pool of assets to be used for the benefit of multiple children. A pot trust can provide flexibility as to how trust assets are used if you plan to leave your entire estate to your children, says Yahoo Finance’s recent article entitled “How Does a Pot Trust Work?”

If you create a family pot trust for your three children and one of them experiences a medical emergency, the trustee would be able to authorize the use of trust funds or assets to cover those costs.

Flexibility is a key element of family pot trusts. Assets are distributed based on the children’s needs, rather than setting specific distribution rules as to who gets what. You might consider this type of trust over other types of trusts if:

  • You have two or more children;
  • At least one of those children is a minor; and
  • You plan to leave your entire estate to your children when you pass away.

Pot trusts can be created for children when you plan to leave all of your assets to them. Generally, a pot trust ends when the youngest included as a beneficiary reaches a certain age. As long as the trust is in place, the trustee can use his or her discretion to determine the way in which trust assets may be used to provide for the beneficiaries’ well-being. The aim is to satisfy the financial needs of individual children as they arise.

However, pot trusts don’t ensure an equal distribution of assets among multiple children. And a family pot trust can also put an increased burden on the trustee. In effect, the trustee has to take on a parental role for financial decision-making. That’s instead of adhering to predetermined directions from the trust grantor. And children may also not like at having to wait until the youngest child comes of age for the trust to terminate and assets to be distributed.

Setting up a pot trust isn’t that different from setting up any other type of trust and it can provide you with more flexibility as to how assets are managed. Ask an experienced estate planning attorney to help you. If you would like to learn more about pot trusts, please visit our previous posts.

Reference: Yahoo Finance (Aug. 30, 2021) “How Does a Pot Trust Work?”

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The Estate of The Union Season 2, Episode 2 – The Consumer's Guide to Dying is out now!

 

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Less Restrictive Alternatives to Guardianship

Less Restrictive Alternatives to Guardianship

The benefit of less restrictive alternatives to guardianships is that they don’t require court approval or judicial oversight. They are also much easier to set up and end.

The standard for establishing incapacity is also less rigorous than the standard required for a guardianship, says Kiplinger’s recent article entitled “Guardianships Should Be a Last Resort – Consider These Less Draconian Options First.”

Limited guardianships. A guardianship takes away an individual’s right to make decisions, just as full guardianships do, but they are specific to only some aspects of the person’s life. A limited guardianship can be established to manage an individual’s finances and estate or to control medical and health care decisions. These types of guardianships still require court approval and must be supported by a showing of incapacity.

Powers of attorney. Powers of attorney can be established for medical or for financial decisions. A second set of eyes ensures that financial decisions are well-considered and not harmful to the individual or his or her estate. A medical power of attorney can allow an agent to get an injunction to protect the health and well-being of the subject, including by seeking a determination of mental incapacity. A durable power of attorney for health care matters gives the agent the right to make medical decisions on behalf of the subject if or when they are unable to do so for themselves. Unlike a guardianship, powers of attorney can be canceled when they are no longer needed.

Assisted decision-making. This agreement establishes a surrogate decision-maker who has visibility to financial transactions. The bank is informed of the arrangement and alerts the surrogate when it identifies an unusual or suspicious transaction. While this arrangement doesn’t completely replace the primary account holder’s authority, it creates a safety mechanism to prevent exploitation or fraud. The bank is on notice that a second approval is required before an uncommon transaction can be completed.

Wills and trusts. These estate planning documents let people map out what will happen in the event they become incapacitated or otherwise incapable of managing their affairs. Trusts can avoid guardianship by appointing a friend or relative to manage money and other assets. A contingent trust will let the executor manage assets if necessary. For seniors, it may be wise to name a co-trustee who can oversee matters and step in should the trustor lose the capacity to make good decisions.

Speak with your estate planning attorney to explore if these less restrictive alternatives to guardianship work for your family’s situation. If you would like to learn more about guardianships, please visit our previous posts. 

Reference: Kiplinger (July 7, 2022) “Guardianships Should Be a Last Resort – Consider These Less Draconian Options First”

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The Estate of The Union Season 2, Episode 2 – The Consumer's Guide to Dying is out now!

 

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There are Benefits to a QTIP Trust

There are Benefits to a QTIP Trust

There are some significant benefits to a QTIP trust. A Qualified Terminable Interest Property Trust, or QTIP, is a trust allowing the person who makes the trust (the grantor) to provide for a surviving spouse while maintaining control of how the trust’s assets are distributed once the surviving spouse passes, as explained in the article “QTIP Trusts” from Investopedia.

QTIPs are irrevocable trusts, commonly used by people who have children from prior marriages. The QTIP allows the grantor to take care of their spouse and ensure assets in the trust are eventually passed to beneficiaries of their own choosing. Beneficiaries could be the grantor’s offspring from a prior marriage, grandchildren, other family members or friends.

In addition to providing the surviving spouse with income, the QTIP also limits applicable estate and gift taxes. The property within the QTIP trust provides income to the surviving spouse and qualifies as a marital deduction, meaning the value of the trust is not taxable after the death of the first spouse. Rather, the property in the QTIP trust will be included in the estate of the surviving spouse and subject to estate taxes depending on the value of their own assets and the estate tax exemption in effect at the time of death.

The QTIP can also assert control over how assets are handled when the surviving spouse dies, as the spouse never assumes the power of appointment over the principal. This is especially important when there is more than one marriage and children from more than one family. This prevents those assets from being transferred to the living spouse’s new spouse if they should re-marry.

A minimum of one trustee must be appointed to manage the trust, although there may be multiple trustees named. The trustee is responsible for controlling the trust and has full authority over assets under management. The surviving spouse, a financial institution, an estate planning attorney or other family member or friend may serve as a trustee.

The surviving spouse named in a QTIP trust usually receives income from the trust based on the trust’s income, similar to stock dividends. Payments may only be made from the principal if the grantor allows it when the trust was created, so it must be created to suit the couple’s needs.

Payments are made to the spouse as long as they live. Upon their death, the payments end, and they are not transferable to another person. The assets in the trust then become the property of the listed beneficiaries.

The marital trust is similar to the QTIP, but the is a difference in how the assets are controlled. A QTIP allows the grantor to dictate how assets within the trust are distributed and requires at least annual distributions. A marital trust allows the surviving spouse to dictate how assets are distributed, regular distributions are not required, and new beneficiaries can be added. The marital trust is more flexible and, accordingly, more common in first marriages and not in blended families.

There are benefits to a QTIP trust and a marital trust. Your estate planning attorney will explain further how else these two trusts are different and which one is best for your situation. There are other ways to create trusts to control how assets are distributed, how taxes are minimized and to set conditions on benefits. Each person’s situation is different, and there are trusts and strategies to meet almost every need imaginable. If you would like to learn more about different types of trusts, please visit our previous posts.

Reference: Investopedia (Aug. 14, 2022) “QTIP Trusts”

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The Estate of The Union Season 2, Episode 2 – The Consumer's Guide to Dying is out now!

 

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Preparing for Retirement with a Special Needs Child

Preparing for Retirement with a Special Needs Child

For parents of children with disabilities, the challenges of preparing for retirement with a special needs child are far higher than for families with healthy, high-functioning adults. Planning for your own retirement, while needing to secure the stability and basic needs of a child who will be a dependent forever often feels impossible, according to the recent article “Planning for Your Retirement, and for a Child’s Special Needs, All at Once” from The New York Times.

Even under the best of circumstances, where there’s plenty of money available and many hands to help, caring for an adult child with special needs is emotionally and physically challenging. As parents age, they have to address their own needs plus the needs of their adult dependent. Who will care for them, provide safe and comfortable housing and care for them when their parents no longer can?

Understanding the entire picture can be difficult, even for parents with the best of intentions. First, they need to understand how preparing for their retirement will be different than other families without a special needs child. Their investments need to be multi-generational to last not just for their lifetimes, but for their child’s lifetime. They can’t be too conservative because they need long-term growth.

In addition, special needs parents need to keep a certain amount of funds liquid and easily accessible, for times when their child needs a new piece of expensive equipment immediately.

One of the parents will often leave the workforce to provide care or take a lower paying position to be more available for care. This creates a double hit; the household budget is reduced at the same time its strained by costs not covered by benefits or insurance. Paying for gas to drive to therapy appointments and day program, buying supplies not covered by insurance, like adult diapers, waterproof bedding, compression garments to promote circulation, specialized diets, etc. adds up quickly.

Even with public health assistance, finding affordable housing is not easy. One adult may need supervised care in a group home, while others may need in-home care. However, the family home may need to be modified to accommodate their physical disabilities. With wait times lasting several years, many families feel they have no choice but to keep their family member at home.

Another challenge: if the parents wanted to downsize to a smaller house or move to a state where housing costs are lower, they may not be able to do so. Most of the public benefits available to special needs people are administered through Medicaid at the state level. Moving to a state with a lower cost of housing may also mean losing access to the disabled individuals’ benefits or being placed at the end of the waiting list for services in a new state.

For disabled individuals, maintaining eligibility is a key issue. Family members who name a disabled individual as a beneficiary don’t understand how they are jeopardizing their ability to access public benefits. Any money intended for a disabled person must be held in a specialized financial instrument, such as a special needs trust.

The money in a special needs trust (SNT) may be used for quality-of-life enhancements like a cellphone, computer, better food, care providers, rent and utilities among other qualified expenses.

There are two main categories of SNTs: first party trusts, created with assets belonging to the individual. Any money in this trust must go to reimburse the state for the cost of their care. Another is a third-party special needs trust, established and funded by someone else for the benefit of the disabled individual. These are typically funded by parent’s life insurance proceeds and second-to-die life insurance policies. Both parents are covered under it, and the policy pays out after the second spouse dies, providing a more affordable option than insuring both parents separately. Your estate planning attorney can assist you in preparing for retirement with knowledge that your special needs child’s future is secure. If you would like to read more about planning for families with a disabled loved one, please visit our previous posts. 

Reference: The New York Times (Aug. 27, 2022) “Planning for Your Retirement, and for a Child’s Special Needs, All at Once”

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The Estate of The Union Season 2, Episode 2 – The Consumer's Guide to Dying is out now!

 

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Options in Managing Unequal Inheritances

Options in Managing Unequal Inheritances

Estate planning attorneys aren’t often asked to create estate plans treating heirs unfairly. However, when they do it usually is because a parent is estranged from one child and wishes to leave him or her nothing. When it comes to estate planning, equal isn’t the same as fair, explains the article “Are Unequal Inheritances Fair?” from Advisor Perspectives. There are options in managing unequal inheritances in your estate planning.

An example of this can be seen in the case of a widow with four adult children who asked an estate planning attorney how to approach distributing her assets. Three of her children were high-income earners, already building substantial net worth. A fourth child had mental health issues, limited education, had been in and out of jail and was unable to hold a job.

She understood that her fourth child needed the financial stability the others did not. She wanted to provide some support for him, but knew any money left directly to him would be gone quickly. She was considering leaving money for him in a trust to provide a monthly income stream, but also wanted to be fair to the other three children.

The trust would be the best option. However, there were problems to consider. If the estate were to be divided in four equal parts, the fourth child’s share of the estate would be small, so trustee fees would take a significant amount of the trust. If she left her entire estate for him, it would be more likely he’d have funding for most, if not all, of his adult life.

The worst thing the mother could do was to leave all the funds for the fourth child in a trust without discussing it with the other three siblings. Unequal inheritances can lead to battles between siblings, sometimes bad enough to lead them into a court battle. This is often the case where one child is believed by others to have unduly influenced a parent, when they have inherited all or the lion’s share of the estate.

Sibling fights can occur even when the children know about and understand the need for the unequal distribution. The children may suppress their emotions while the parent is living. However, after the parent dies and the reality sets in, emotions may fire at full throttle. Logically, in this case the three successful siblings may well understand why their troubled sibling needs the funds. However, grief is a powerful emotion and can lead to illogical responses.

In this case, the woman made the decision to leave her estate in equal shares to each child and giving the three successful siblings the options to share part of their inheritance with their brother. She did this by having her estate planning attorney add language in the will stating if any child wanted to disclaim or refuse any of their inheritance, it would pass to a trust set up for the troubled sibling. This gave each child the opportunity to help or not.

Was it a perfect solution? Perhaps not, but it was the best possible solution given the specific circumstances for this family. Speak with your estate planning attorney about your options in managing unequal inheritances. If you would like to learn more about inheritances, please visit our previous posts. 

Reference: Advisor Perspectives (Aug. 22, 2022) “Are Unequal Inheritances Fair?”

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The Estate of The Union Season 2, Episode 2 – The Consumer's Guide to Dying is out now!

 

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Estate Planning is critical for Blended Families

Today, a blended family is more common than ever, with stepfamily members, half-siblings, former spouses, new spouses and every combination of parents, children and partners imaginable. Traditional estate planning, including wills and non-probate tools like transfer on death (TOD) documents, as valuable as they are, may not be enough for the blended family, advises a recent article titled “Legal-Ease: Hers, his and ours—blended family estate planning” from limaohio.com. Estate planning is critical for blended families.

Not too long ago, when most people didn’t take advantage of the power of trusts, couples often went for estate plans with “mirror” wills, even those with children from prior marriages. Their wills basically said each spouse would leave the other spouse everything. This will would be accompanied by a contract stating neither would change their will for the rest of their lives. If there was a subsequent marriage after one spouse passed, this led to problems for the new couple, since the surviving spouse was legally bound not to change their will.

As an illustration, Bob has three children from his first marriage and Sue has two kids from her first marriage. They marry and have two children of their own. Their wills stipulate they’ll leave each other everything when the first one dies. There may have been some specific language about what would happen to the children from the first marriages, but just as likely this would not have been addressed.

It sounds practical enough, but in this situation, the children from the first spouse to die were at risk of being disinherited, unless plans were made for them to inherit from their biological parent.

Todays’ blended family benefits from the use of trusts, which are designed to protect each spouse, their children and any child or children they have together. There are a number of different kinds of trusts for use by spouses only to protect children and surviving spouses.

Trust law requires the trustee—the person who is in charge of administering the trust—to give a copy of the trust to each beneficiary. The trustee is also required to provide updates to beneficiaries about the assets in the trust.

A surviving spouse will most likely serve as the trustee when the first spouse passes and will have a legal responsibility to honor the shared wishes of the first spouse to pass.

If you and your new spouse have created a blended family, it is critical to evaluate your estate planning. Your estate planning attorney will be able to explain the many different types of spousal trusts, and which is best for your situation. If you would like to learn more about estate planning for blended families, please visit our previous posts. 

Reference: limaohio.com (Aug. 20, 2022) “Legal-Ease: Hers, his and ours—blended family estate planning”

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The Estate of The Union Season 2, Episode 2 – The Consumer's Guide to Dying is out now!

 

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Protecting the Community Spouse is Necessary

Protecting the Community Spouse is Necessary

Despite the intent of the law, allowing one spouse to remain in the family home and having enough income to live on when the other spouse needs Medicaid to pay for nursing home care does not happen automatically. According to the article “What a ‘Community’ spouse can keep” from The Bristol Press, protecting the community spouse is necessary if they are to maintain their prior standard of living.

The community spouse is entitled to have a minimum monthly maintenance needs allowance (MMNA), which changes every year. If the MMNA is $2,288.00, and the healthy spouse has an income of $1,000.00, Medicaid allows a diversion of the sick spouse’s income of the difference, or $1,288.00 per month to the healthy spouse. In most situations, this is not enough to maintain a home, pay bills and enjoy a well-deserved retirement.

An elder law lawyer can help protect assets for the community spouse. The family home is exempt, if it is in the name of the healthy spouse, although most states have a limit to the allowed value. If the sick spouse is approved for Medicaid, the healthy spouse may choose to sell the home and keep the proceeds or downsize to a smaller home.

The community spouse may keep up to $137,400.00 in investment assets in 2022. That’s considered one half of the couple’s total “countable” assets. If the couple’s investment exceeds this amount, there are a number of strategies used to protect the life savings, as long as they stay within the “spend down” rules. Money may be spent on house expenses or improvements. A new car could replace an old model.

Another method is the use of a Single Premium Immediate Annuity, sometimes referred to as a Medicaid Annuity Trust. The well spouse can purchase this and protect their life savings. However, if the well spouse dies before the sick spouse, the balance of the annuity will need to be paid to Medicaid to reimburse it for expenses paid for the care of the sick spouse.

One positive note: personal property is not considered a countable asset. Things like home furnishings, decorations, jewelry, etc., and any personal property will not be counted. Embarking on a spending spree with an eye to reselling personal property to raise cash is not a good idea, since few items maintain their value after the initial purchase.

Planning should be done in advance, when both spouses are well and healthy, because Medicaid strictly enforces the five-year look back rule. Protecting the community spouse is necessary if they are to maintain their prior standard of living. Any assets transferred within five years of a Medicaid application will make the sick spouse ineligible for Medicaid coverage, and healthcare expenses will have to be paid out of pocket. If you would like to learn more about Medicaid planning, please visit our previous posts. 

Reference: The Bristol Press (July 29, 2022) “What a ‘Community’ spouse can keep”

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The Estate of The Union Season 2, Episode 2 – The Consumer's Guide to Dying is out now!

 

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Way you Title Assets has an Impact on your Estate

Way you Title Assets has an Impact on your Estate

The way you title your assets has an impact on your estate plan. FedWeek’s recent article entitled “How Assets Are Titled Can Make a Big Difference discusses the different ways property may be titled, and the significance of each one.

The way in which you take title to assets can affect your estate, taxes and perhaps the disposition of the asset if a couple divorces. Many couples want assets to be titled simply in the event something happens to one, so the other spouse can take possession immediately without taxes or complications. Joint ownership may be the simplest way to meet most of these objectives. However, this can get complicated if any number of things happen, such as divorce, second marriage, children from multiple marriages, adoption and blended families of all types.

It’s critical to be educated on the different types of ownership, so you know when a change may be needed. Here are the main options:

Holding Assets in Your Own Name is simple and inexpensive. However, if you become incompetent, those assets might be mismanaged. At your death, individually owned assets may have to go through probate.

Joint Tenants with Right of Survivorship is when one co-owner dies, all assets held this way automatically pass to the survivor. One joint owner can take over if the other is incapacitated, and jointly held assets don’t go through probate.

Tenants in Common means there’s a divided interest, although none of the owners may claim to own a specific part of the property. At the death of one of the joint owners, the share owned by the deceased must pass through their will to determine ownership. The surviving joint owner doesn’t automatically own the entirety of assets.

Tenancy by the Entirety is a type of joint ownership similar to rights of survivorship for married couples. It lets spouses own property together as a single legal entity. Ownership can’t be separated, which means creditors of an individual spouse may not attach and sell the property. Only creditors of the couple may make claims against the property.

With Entity Ownership, you might create a trust, a partnership (such as a family limited partnership), or a limited liability company (LLC) to hold assets. These entities may provide protection from creditors and tax benefits.

Community Property may only be used by married couples in community property states (Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin). Each person owns an undivided interest in the entire property. When a spouse dies, the survivor automatically receives the entire interest, so there’s no need for probate. Community property can’t be controlled by a person’s will or trust.

Remember, the way you title your assets has an impact on your overall estate plan. Ask an experienced estate planning attorney to review your estate plan and how assets are titled. If you would like to learn more about titling your assets, please visit our previous posts. 

Reference: FedWeek (July 27, 2022) “How Assets Are Titled Can Make a Big Difference”

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The Estate of The Union Season 2, Episode 2 – The Consumer's Guide to Dying is out now!

 

Read our Books

Information in our blogs is very general in nature and should not be acted upon without first consulting with an attorney. Please feel free to contact Texas Trust Law to schedule a complimentary consultation.
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