Category: Trustee

Maximize the Benefits of a Trust Fund

Maximize the Benefits of a Trust Fund

To maximize the benefits of a trust fund, you’ll need to understand how trusts funds work and how to create a trust fund the right way, advises this recent article from Yahoo! Money titled “How to Start a Trust Fund the Easy Way.” You don’t have to be a millionaire to start a trust fund, by the way. “Regular” people benefit just as much as millionaires from using trusts to protect assets and minimize taxes.

A trust fund is an independent legal entity created to own assets and ensure money and property are used to benefit loved ones. They are commonly used to transfer assets to family members.

Trust funds are created by grantors, the person who sets up the trust and transfers money or assets into it. An experienced estate planning attorney will be essential, since creating a trust is not like going to the bank and opening an account. You need the assistance of a professional who can create a trust to reflect your wishes and comply with your state’s laws.

When assets are moved into a trust, the trust becomes the legal owner of the property. Part of creating the trust is naming a trustee, who manages the trust and is legally bound to follow the wishes of the trust following the grantor’s wishes. A successor trustee should always be named, in case the primary trustee becomes unwilling to serve or dies.

Subject to compliance with specific requirements, assets owned by an irrevocable trust are not countable towards Medicaid, if someone in the family needs long-term care and is concerned about qualifying. Any transfer must be done at least five years in advance of applying for Medicaid. An elder law attorney can help in preparation for this application and to ensure eligibility. This is a very complex area of law. Do not attempt it alone without the assistance of an elder law attorney.

Trusts can have a long or short life. Some trusts are held for a child until the child reaches age 25, while others are structured to distribute a portion of the assets throughout the beneficiary’s lifetime or when the beneficiary reaches certain milestones, such as finishing college, starting a family, etc.

A revocable trust allows the grantor to have the most control over the assets in the trust, but at a cost. The revocable trust may be changed at any time, and property can be moved in and out of it. However, the assets are available to creditors and are countable towards long-term care because they are in the control of the grantor.

The irrevocable trust requires the grantor to give up control, in exchange for the benefits the trust provides.

There are as many types of trusts as there are situations for trusts. Charitable Remainder Trusts reduce estate taxes and allow beneficiaries to receive an income stream for a designated period of time, at the end of which the remainder of the trust’s assets go to the charity. Special Needs Trusts are created for disabled persons who are receiving means-tested government benefits. There are strict rules about SNTs, so speak with an experienced estate planning attorney to ensure that your loved one continues to be eligible, if you want them to receive assets from you.

Trusts are often used so assets will pass through the trust and not through the probate process. Assets owned by a trust pass directly to beneficiaries and information about the assets does not become part of the public record, which is part of what occurs during the probate process.

Your estate planning attorney will help you maximize the benefits of a trust fund, achieve your specific wishes and are in compliance with your state’s laws. A boilerplate template could present more problems than it solves. For trusts, the experienced professional is the best option. If you would like to learn more about the benefits of a trust, please visit our previous posts.

Reference: Yahoo! Money (March 18, 2022) “How to Start a Trust Fund the Easy Way”

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Estate Planning complicated by Property in Two States

Estate Planning complicated by Property in Two States

Estate planning can be complicated by property in two states. Cleveland Jewish News’ recent article titled “Use attorney when considering multi-state estate plan says that if a person owns real estate or other tangible property (like a boat) in another state, they should think about creating a trust that can hold all their real estate. You don’t need one for each state. You can assign or deed their property to the trust, no matter where the property is located.

Some inherited assets require taxes be paid by the inheritors. Those taxes are determined by the laws of the state in which the asset is located.

A big mistake that people frequently make is not creating a trust. When a person fails to do this, their assets will go to probate. Some other common errors include improperly titling the property in their trust or failing to fund the trust. When those things occur, ancillary probate is required.  This means a probate estate needs to be opened in the other state. As a result, there may be two probate estates going on in two different states, which can mean twice the work and expense, as well as twice the stress.

Having two estates going through probate simultaneously in two different states can delay the time it takes to close the probate estate.

There are some other options besides using a trust to avoid filing an ancillary estate. Most states let an estate holder file a “transfer on death affidavit,” also known as a “transfer on death deed” or “beneficiary deed” when the asset is real estate. This permits property to go directly to a beneficiary without needing to go through probate.

A real estate owner may also avoid probate by appointing a co-owner with survivorship rights on the deed. Do not attempt this without consulting an attorney.

If you have real estate, like a second home, in another state (and) you die owning that individually, you’re going to have to probate that in the state where it’s located. It is usually best to avoid probate in multiple jurisdictions, and also to avoid probate altogether.

A co-owner with survivorship is an option for avoiding probate. If there’s no surviving spouse, or after the first one dies, you could transfer the estate to their revocable trust.

Estate planning can be complicated by property in two states. Each state has different requirements. If you’re going to move to another state or have property in another state, you should consult with a local estate planning attorney. If you would like to learn more about managing real estate in your estate planning, please visit our previous posts.

Reference: Cleveland Jewish News (March 21, 2022) “Use attorney when considering multi-state estate plan”

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Several Advantages in a Discretionary Trust

Several Advantages in a Discretionary Trust

There are several advantages in establishing a discretionary trust. The trustee who oversees a discretionary trust can use their discretion in determining when and how trust assets should be distributed to beneficiaries. The Facts’ recent article entitled “Your Estate Plan Could Improve with This Type of Trust” explains that a trust is a legal arrangement in which assets are managed by a trustee on behalf of one or more beneficiaries. In a typical trust arrangement, assets are managed according to the directions and wishes of the grantor (also known as the trustmaker, settlor, or trustor).

However, with a discretionary trust, the trust lets the trustee have full discretion when overseeing the distribution of trust assets to beneficiaries. This is a type of irrevocable trust, which means that the transfer of assets is permanent. The grantor can provide direction about when trust assets should be distributed and how much each trust beneficiary should receive. However, it is up to the trustee to decide what choices are made with regard to distributions of principal and interest from trust assets.

A discretionary trust can help to prevent mismanagement of assets on the part of beneficiaries. It can also offer protection against creditor lawsuits. The assets in a discretionary trust are protected because the trustee technically owns those assets, not the trust beneficiaries.

A discretionary trust can also be used in other situations where you may have concerns over how trust assets will be used, such as in the event a beneficiary divorces.

An experienced estate planning attorney can create a discretionary trust. When establishing the trust, you’ll need to decide:

  • Who to name as trustee and successor trustees
  • Which assets will be transferred to the trust
  • Who to name as trust beneficiaries; and
  • Under what situations you’d like assets to be distributed to beneficiaries.

It is an irrevocable trust. As a result, the transfer of assets is permanent. Therefore, be sure beforehand that this type of trust is appropriate for your estate planning needs.

One of several advantages in a discretionary trust is the ability to protect your beneficiaries from their own poor money habits, while preserving a legacy of wealth for future generations.

A properly structured discretionary trust can also have some estate tax planning benefits. Ask your attorney to explain this to you when you meet. If you would like to read more about discretionary trusts, please visit our previous posts. 

Reference: The Facts (March 7, 2022) “Your Estate Plan Could Improve with This Type of Trust”

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Incorporate Cryptocurrency into your Estate Plan

Incorporate Cryptocurrency into your Estate Plan

If you have $10 in a cryptocurrency wallet or $1 million stashed offline in cold storage, you need a plan to help your next of kin gain access when you die, especially if heirs are not familiar with the brave new world of digital money. That’s the no-nonsense message from a recent article titled “What Happens to Your Crypto When You Die? Make a Plan, Or Lose Your Investments Forever” from Next Advisor. It is estimated that early buyers of cryptocurrency have already lost millions or billions because they died without a succession plan or lost their wallet keys and were not able to access their accounts. You need to incorporate cryptocurrency into your estate plan.

Cryptocurrency is not small change today. It is here to stay.

Crypto estate planning is a balance between keeping the assets secure and accessible at the same time. Bitcoin and other cryptocurrencies are decentralized, meaning they are not issued by any country’s central banking authority. Unless another person has the right information to access the account, the assets will be gone permanently when you die. There is no paper trail and no 800-number to call.

The first step is to set up proper storage for the crypto and any other digital assets, like NFTs (non-fungible tokens) under a number of layers of security. You will need to set up tiered back-up accounts to store these assets, with varying layers of security.

If you buy and sell crypto on an exchange, loved ones may be able to access the exchange by signing into the company’s portal, similar to ones commonly used for banking, accounting, or financial investments. They need to know your password and username and will probably need access to your cell phone and email to receive a two-step verification code.

However, if you have significant sums of cryptocurrencies, you will need a more secure back-up option, which will be harder for executors to access. You will need to give your executor a crypto education as well as an estate plan.

There are centralized crypto exchanges, like Coinbase. There are hot wallets, also known as mobile wallets, that are not on a centralized platform and require a 12 or 24 word secret seed phrase to gain access. There’s also cold storage, which works like a digital safe via a USB drive. A 12 or 24 word secret seed phrase is also needed to recover or backup account information.

Your plan to pass these assets to the executor includes a physical copy of security phrases and a physical fireproof, waterproof lock box. Secure your cold storage hardware wallet—a private wallet key with a 12 or 24 word secret seed phrase—in the lockbox and make sure your executor knows the location of the safe and how to access it. Then, in one or preferably more than one separate location, store physical documents describing each digital wallet.

Describe each wallet in detail: is it an exchange, mobile wallet, or hardware wallet? Include all of the security keys, seed phrases, usernames, password information with instructions for each, including cell phone codes for the mobile wallets on your phone. Do not store anything on the internet.

You will likely need to educate family members about how crypto and other digital assets work.  They may not be comfortable with this new kind of asset. An alternative is to liquidate digital currency into more traditional assets, by transferring the crypto from the wallet into a centralized exchange, then selling it for U.S. dollars. There will be taxes due, since the IRS recognizes selling crypto as selling assets. Incorporating cryptocurrency into your estate plan is a complicated process that should only be undertaken with the advise and guidance of your estate planning attorney. If you would like to learn more about protecting digital assets, please visit our previous posts. 

Reference: Next Advisor (Feb. 17, 2022) “What Happens to Your Crypto When You Die? Make a Plan, Or Lose Your Investments Forever”

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Why You should review Estate Planning

Why You should review Estate Planning

There is a line from John Lennon that states, “Life is what happens to you while you’re busy making other plans.” This is especially true when reviewing your estate planning. Maybe your estate plan was created when you were single, and there have been some significant changes in your life. Perhaps you got married or divorced. You also may now be on better terms with children with whom you were once estranged. This is why you should periodically review your estate planning to ensure they are accurate and up-to-date.

Tax and estate laws can also change over time, requiring further updates to your planning documents.

WMUR’s recent article entitled “The ‘final’ estate-planning step” reminds us that change is a constant thing. With that in mind, here are some key indicators that a review is in order.

  • The value of your estate has changed dramatically
  • You or your spouse changed jobs
  • Changes to your income level or income needs
  • You are retiring and no longer working
  • There is a divorce or marriage in your family
  • There is a new child or grandchild
  • There is a death in the family
  • You (or a close family member) have become ill or incapacitated
  • Your parents have become dependent on you
  • You have formed, purchased, or sold a business;
  • You make significant financial transactions, such as substantial gifts, borrowing or lending money, or purchasing, leasing, or selling assets or investments
  • You have moved
  • You have purchased a vacation home or other property in another state
  • A designated trustee, executor, or guardian dies or changes his or her mind about serving; and
  • You are making changes in your insurance coverage.

Your should review your estate planning after every major change of life. Sit down with your estate planning attorney and take the time to review your planning. If you would like to read more about making changes to your estate planning, please visit our previous posts.

Reference: WMUR (Feb. 3, 2022) “The ‘final’ estate-planning step”

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A trust provides more flexibility than a will

A Trust provides more flexibility than a Will

A trust is defined as a legal contract that lets an individual or entity (the trustee) hold assets on behalf of another person (the beneficiary). The assets in the trust can be cash, investments, physical assets like real estate, business interests and digital assets. There is no minimum amount of money needed to establish a trust. A trust provides more flexibility than a will.

US News’ recent article entitled “Trusts Explained” explains that trusts can be structured in a number of ways to instruct the way in which the assets are handled both during and after your lifetime. Trusts can reduce estate taxes and provide many other benefits.

Placing assets in a trust lets you know that they will be managed through your instructions, even if you’re unable to manage them yourself. Trusts also bypass the probate process. This lets your heirs get the trust assets faster than if they were transferred through a will.

The two main types of trusts are revocable (known as “living trusts”) and irrevocable trusts. A revocable trust allows the grantor to change the terms of the trust or dissolve the trust at any time. Revocable trusts avoid probate, but the assets in them are generally still considered part of your estate. That is because you retain control over them during your lifetime.

To totally remove the assets from your estate, you need an irrevocable trust. An irrevocable trust cannot be altered by the grantor after it’s been created. Therefore, if you’re the grantor, you can’t change the terms of the trust, such as the beneficiaries, or dissolve the trust after it has been established.

You also lose control over the assets you put into an irrevocable trust.

Trusts provide you with more flexibility to control your assets than a will does. With a trust, you can set more particular terms as to when your beneficiaries receive those assets. Another type of trust is created under a last will and testament and is known as a testamentary trust. Although the last will must be probated to create the testamentary trust, this trust can protect an inheritance from and for your heirs as you design.

Trusts are not a do-it-yourself proposition: ask for the expertise of an experienced estate planning attorney. If you would like to read more about trusts, please visit our previous posts.

Reference: US News (Feb. 7, 2022) “Trusts Explained”

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options to give assets to minor grandchildren.

Options to give Assets to Minor Grandchildren

If a married couple is creating its estate plan, then how does the couple leave the estate to non-adult grandchildren? What if something were to happen to them before the grandchildren become adults? Can this couple make sure the minor grandchildren do not get control of any inheritance until they’re adults? There are options to give assets to minor grandchildren.

Nj.com’s recent article entitled “How can I leave my money to my minor grandchildren when I die?” says that one way to solve these issues is to create a testamentary trust to provide for young beneficiaries whether they’re children, grandchildren, step-children, or unrelated beneficiaries. The terms of a testamentary trust are in your will. It is only established and funded after you pass away.

The terms of the trust generally provide instructions to the trustee about the ages at which distributions must be made, if any. These instructions also allow the trustee to make discretionary distributions of income and principal to the beneficiaries.

Beneficiaries do not need to be identified by name or need to be born at the time the will is written.  However, they must be able to be identified upon your death. As a result, you can provide a bequest to all of your grandchildren, whether or not they are born yet.

It doesn’t matter where your grandchildren live as far as estate planning is concerned. However, if they live outside the United States and the bequest is considerable, the laws of their home country should be addressed. This is because a big gift may cause adverse tax implications to the recipient.

For children, some states’ laws allow you to add a term in your will that penalizes any interested person — like an heir or beneficiary — for contesting the will.

However, if there’s probable cause initiating a proceeding concerning the estate, then the clause will not be enforced.

When a person names another as primary beneficiary, they should also name one or more contingent beneficiaries, so that if the first person predeceases him or her, they will not have to revise the will.

If you do not designate a contingent beneficiary, and an heir predeceases, the assets pass according to the state’s intestacy statute rather than according to the will. You have options to ensure assets you give to minor grandchildren are honored after you pass. An experienced estate planning attorney will help you draft a testamentary trust that is right for you. If you would like to learn more about testamentary trusts, please visit our previous posts. 

Reference: nj.com (Dec. 9, 2021) “How can I leave my money to my minor grandchildren when I die?”

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Understanding the Legal Terms in Estate Planning

Understanding the Legal Terms in Estate Planning

Having a working understanding of the legal terms used in estate planning is the first step in working successfully with an estate planning attorney, says a recent article, “Learn lingo of estate planning to help ensure best outcome” from The News-Enterprise. Two of those key words:

Principal—the individual on whose behalf documents are prepared, and

Fiduciary—the person who signs some of these documents and who is responsible for making decisions in the best interest of the principal and the estate.

In estate planning and in business, the fiduciary is the person or business who must act responsibly and in good faith towards the person and their property. You’ll see this term in almost every estate planning or financial document.

Within a last will and testament, there are more: beneficiary, conservator, executor, grantor, guardian, testator, and trustee are some of the more commonly used terms for the roles people take.

The testator is the principal, the person who signs the will and on whose behalf the will was drafted.

Beneficiaries are individuals who receive property from the estate after death. Contingent beneficiaries are “back-up” beneficiaries, in case the beneficiaries are unable to receive the inheritance. In most wills, the beneficiaries are listed “or to descendants, per stirpes.” This means if the beneficiary dies before the testator, the beneficiary’s children receive the original beneficiary’s share.

In most cases, specific distributions are made first, where a specific asset or amount of money goes to a specific person. This includes charitable donations. After all specific distributions are made, the rest of the estate, referred to as the “residuary estate,” is distributed. This includes everything else in the probate estate.

The administrator or executor is the fiduciary charged with gathering assets, paying bills and making the distribution to beneficiaries. The executor is the term used when there is a will. If there is no will, the person in the role is referred to as the administrator and may be appointed by the court.

If a beneficiary is unable to take the inheritance because they are a minor or incapacitated, the court will appoint a conservator to act as fiduciary on behalf of the beneficiary.

A guardian is the person who takes care of the beneficiary, or minor children, and is named in the will. If there is no guardian named in the will, or if there is no will, a court will appoint a person to be the guardian. Judges do not always select family members to serve as guardians, so there should always be a secondary guardian, in case the first cannot serve. If the first guardian does not wish to serve or is unable to, naming a secondary guardian is better than a child being sent to foster care.

Finally, the trustee is the person in charge of a trust. The person who creates the trust is the grantor or settlor. It’s important to note the executor has no control or input over the trust. Only the trustee or successor trustee may make distributions and they are the trust’s fiduciary.

Having firm understanding of legal terms will make you feel more comfortable in your estate planning. It will make the process easier and help you understand the different roles and responsibilities involved. If you would like to learn more about estate planning, please visit our previous posts.

Reference: The News-Enterprise (Jan. 18, 2022) “Learn lingo of estate planning to help ensure best outcome”

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How Executors manage Accounts after Death

How Executors manage Accounts after Death

One of the first, big questions that comes up after a loved one passes is how executors manage financial accounts after death. Executors administering probate assets usually have to deal with several different financial institutions. If good planning has been done by the decedent, the executor has a list of assets, account numbers, website addresses and phone numbers. Otherwise, the personal representative or successor trustee starts by gathering information and identifying the accounts, as described in a recent article “Dealing with the back offices of banks and brokerages” from Lake Country News.

The accounts must be identified, retitled to become part of the estate, or liquidated and moved into the estate account.

If the decedent had a financial advisor who handled all of their investments, the process may be easier, since there will only be one person to deal with.

If there is no financial advisor who can or will personally manage the assets, the executor starts by contacting the back office department of the institution, often referred to as the “estates department.” The contact info can usually be found on the institutions’ website or on the paper statements, if there are any.

Expect to spend a lot of time on hold, especially in the beginning of the week. It may be better to call on a Wednesday or Thursday.

The first call is to introduce the executor, advise of the death of the decedent and learn about the company’s procedures for transferring, retitling, or otherwise gaining control of the account. The bank usually assigns a case number, to be used on all future communications.

If possible, obtain their name, direct dial, and direct email of whoever you speak with. It may only be with one assigned representative, or a different person every time. It depends upon the organization. Take careful notes on every interaction. You may need them.

Some of the documents needed to complete these transactions include an original death certificate, a court certified letter of administration or trustee’s certification of trust and a letter of authorization signed by the client to allow the institution to communicate with the executor or successor trustee.

Financial institutions will often only accept their own forms, which then need to be prepared for completion and signature. Expect to be asked to notarize some documents. In many cases, the institution will require a new account be opened and the assets transferred to the new account.

Be organized—you may find yourself needing to submit the documents multiple times, depending on the financial institution. If hard copy documents are sent, use registered or express mail requiring a signature on delivery. If documents are sent by email, they should only be sent via an encrypted portal to protect both estate and executor.

For an executor, managing financial accounts after death is not a quick process and requires diligent follow up, with multiple emails and phone calls. If the value of the estate is large and the assets are complex, it may be better to have the estate planning attorney handle the process. If you are interested in reading more about the role of the executor, please visit our previous posts.

Reference: Lake Country News (Jan. 15, 2022) “Dealing with the back offices of banks and brokerages”

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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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