What Happens If Trust Not Funded
Senior couple meeting financial adviser for investment

What Happens If Trust Not Funded

Revocable trusts can be an effective way to avoid probate and provide for asset management, in case you become incapacitated. These revocable trusts — also known as “living” trusts — are very flexible and can achieve many other goals.

Point Verda Recorder’s recent article entitled “Don’t forget to fund your revocable trust” explains that you cannot take advantage of what the trust has to offer, if you do not place assets in it. Failing to fund the trust means that your assets may be required to go through a costly probate proceeding or be distributed to unintended recipients. This mistake can ruin your entire estate plan.

Transferring assets to the trust—which can be anything like real estate, bank accounts, or investment accounts—requires you to retitle the assets in the name of the trust.

If you place bank and investment accounts into your trust, you need to retitle them with words similar to the following: “[your name and co-trustee’s name] as Trustees of [trust name] Revocable Trust created by agreement dated [date].” An experienced estate planning attorney should be consulted.

Depending on the institution, you might be able to change the name on an existing account. If not, you’ll need to create a new account in the name of the trust, and then transfer the funds. The financial institution will probably require a copy of the trust, or at least of the first page and the signature page, as well as the signatures of all the trustees.

Provided you’re serving as your own trustee or co-trustee, you can use your Social Security number for the trust. If you’re not a trustee, the trust will have to obtain a separate tax identification number and file a separate 1041 tax return each year. You will still be taxed on all of the income, and the trust will pay no separate tax.

If you’re placing real estate in a trust, ask an experienced estate planning attorney to make certain this is done correctly.

You should also consult with an attorney before placing life insurance or annuities into a revocable trust and talk with an experienced estate planning attorney, before naming the trust as the beneficiary of your IRAs or 401(k). This may impact your taxes.

Reference: Point Verda Recorder (Nov. 19, 2020) “Don’t forget to fund your revocable trust”

What Should I Know about a Living Trust?
Fountain Pen Lying on the "Living Trust and Estate Planning" - Close Up

What Should I Know about a Living Trust?

A will and a living trust both can be very important in your estate plan. However, a living trust doesn’t require probate to transfer your assets.

KYT24’s recent article entitled “Fundamentals Of A Living Trust” explains that everyone who owns a home and/or other assets should have a will or a living trust. Proper estate planning can protect your family from unnecessary court costs and delay, if you become incapacitated, disabled, or die.

With a living trust, you can avoid all probate delays and related costs and make life much simpler for your family in a crisis. If you pass away, your spouse will be able to automatically and immediately continue without any delay or unnecessary expense.

When you and your spouse both die, your assets will also transfer directly to your beneficiaries.

Living trusts can save time, expense and stress for your loved ones. Speak with an experienced estate planning attorney about creating a living trust.

A trust agreement, being a legal document, must be written by an experienced estate planning attorney who has the knowledge and experience to prepare such a legal document to cover all of your needs and desires. If not properly and completely drafted, you run the risk of issues after you’re gone for your family.

After your attorney drafts your living trust, you must fund the trust, by titling or adding assets to it. If assets aren’t titled to or otherwise connected to your trust agreement, they won’t be legally part of the trust.

This totally defeats the purpose of drafting your living trust agreement in the first place.

It’s a common mistake to fail to fund a trust, which can happen as a result of poor follow through after signing the trust.

Work with an experienced estate planning attorney to complete a living trust and your entire estate plan. This includes a thorough review of your goals and objectives, as well as reviewing all estate assets to complete the funding of your trust, by transferring assets into the name of the living trust.

Reference: KYT24 (Nov. 14, 2020) “Fundamentals Of A Living Trust”

What are the Biggest Estate Planning Mistakes?

One of the largest wealth transfers our nation has ever seen is about to occur, since in the next 25 years, roughly $68 trillion of wealth will be passed to succeeding generations. This event has unique planning opportunities for those who are prepared, and also big challenges due to the ever-changing legal and tax world of estate planning.

Fox Business’ article “5 estate planning disasters you’ll want to avoid,” discusses the biggest estate planning errors to avoid.

Failing to properly name beneficiaries. This common estate planning mistake is easily overlooked, when setting up a retirement plan for the first time or when switching investment companies. A big advantage of adding a beneficiary to your account, is that the account will avoid probate and pass directly to your beneficiaries.

Any account with a properly listed beneficiary designation will override what is written in your will or revocable living trust. Therefore, you should review your investment and bank accounts to make certain that your beneficiaries are accurate and match your intentions.

Naming a minor as a beneficiary. This can be a problem, if they are still minors when you die. A minor won’t have the legal authority to take control of inheritance or investment accounts until they reach the age of 18 or 21 (depending on state law). When a minor receives an asset as a beneficiary, a court-appointed guardianship will be created to supervise and manage the assets on behalf of the minor. To avoid this mistake, you can name a guardian for the minor child in your will.

Forgetting to fund a trust. Creating a trust is the first step, but many people don’t properly fund their trust after it’s established.

Making a tax mess for your heirs. A significant advantages of passing on real estate or other highly appreciated investments or property, is that your beneficiaries receive what is known as a “step-up” in basis, so that they aren’t responsible for any income taxes on the appreciated assets when they are received. The exception is when inheriting retirement accounts, such as 401k’s and traditional IRAs. Except for a surviving spouse, inheriting a traditional IRA or 401k means that you are now responsible for the taxes owed. With the recent passage of the SECURE Act, most non-spouse beneficiaries must totally withdraw a 401k or IRA within 10 years. It is deemed to be ordinary income for beneficiaries, which could result in a huge tax bill for your heirs. To avoid this, you can convert some or all of your retirement account assets to a Roth IRA during your lifetime, which lets you to pay the conversion taxes at your current income tax rate—a rate that may be much lower than your children or grandchildren’s tax rate. When you pass away, any money that is passed inside a Roth IRA goes tax-free to your heirs.

Failing to create a comprehensive estate plan. Properly establishing your estate plan now, will care for your loved ones financially, and can also save them a lot of emotional stress after you’re gone.

Talk to an experienced estate planning attorney about planning now. It can really affect your family for generations. It is one of the best gifts that you can leave your family.

Reference: Fox Business (Nov. 12, 2020) “5 estate planning disasters you’ll want to avoid”

 

Is My Estate Plan Set with a Power of Attorney?

A June 2020 Transamerica Center for Retirement Studies survey showed that a mere 28% of retirees have a financial power of attorney (POA)—and many people don’t understand that there are two types of these advance directives that serve different purposes.

MarketWatch recently published an article “Does your estate plan use the right type of Power of Attorney for you?” that says knowing how both types work is crucial in the pandemic, especially in the event that you get sick with coronavirus.

A Durable Power of Attorney for Finance can be either “springing” or “immediate.” “Durable” refers to the fact that this Power of Attorney will endure after you have lost mental or physical capacities, whether temporary or permanent. It lists when the powers would be granted to the person of your choosing and the powers end at your death.

An “immediate” Durable Power of Attorney for Finance is effective, as soon as you sign the document. In contrast, a “springing” POA for Finance means two physicians must first examine you and confirm in writing that you can no longer manage independently.

Therefore, to begin paying your bills, your agent must have those two physicians’ letters, and he or she doesn’t automatically have the authority to ask for them.

When issues, such as doctors’ letters, are required before the agent you chose can serve you, ask your estate planning attorney for guidance.

An obstacle for a Durable Power of Attorney for Finance can come upon you very fast and possibly include you and your spouse at the same time. For example, you both might get COVID-19.

The powers granted by a typical POA for Finance are often broad and permit selling and buying assets; managing your debt, car and Social Security payments; filing your tax returns; and caring for any assets not named in a trust you may have, such as your IRA.

If you recover your capacity, your agent must turn everything back over to you when you ask.

Remember that your advance directive documents are only as good as the people who implement them. You should also make certain anyone named knows that they’ll have the job, if needed. They must know where to find your POA and all other important information.

For more information about this or other topics, click here.

Reference: MarketWatch (Oct. 9, 2020) “Does your estate plan use the right type of Power of Attorney for you?”

Can I Fund a Trust with Life Insurance?

A trust is a legal vehicle in which assets are legally titled and held for the benefit of another party, the beneficiary, explains Forbes’ recent article entitled “How To Fund A Trust With Life Insurance.” The article says that trusts are often funded with a life insurance policy. This will provide assets to be used after the death of the insured for the benefit of their family. If you are a parent of minor children, the combination of life insurance and a trust may be the best way to make certain that your children have their financial needs satisfied and also make sure the assets are used in ways you want.

Trusts are either revocable or irrevocable. A revocable living trust is the most frequently used type of trust. It has some major benefits, like the ability to avoid probate, which can be an expensive and lengthy process. Assets in a revocable trust are accessible much more quickly than those left through a will.  Because they’re revocable, the person who creates the trust (the grantor) can also make adjustments to the trust, as their situation changes.

A grantor will fund the trust with assets for the trust beneficiaries. For parents of minor children, funding a trust using term life insurance is an inexpensive tactic to make certain that your children are cared for after your death. Typically, each parent buys a life insurance policy, and in a two-parent household, usually each spouse names the other as the primary beneficiary with a revocable living trust as the contingent beneficiary.

If the second parents were to die, the life insurance policies would pay to the trust. The trustee would manage the trust assets for the minor children. Funding a trust with life insurance also benefits heirs, because it provides liquidity right after your death. Other assets like investment accounts and real estate can be very illiquid or have tax consequences. As a result, it can take a while to get to that equity.

On the other hand, term life insurance is a fast and tax-free funding way to build a trust. Purchase a term life policy that will last until your children are adults and out of college. In making the life insurance paid to a trust with your children as beneficiaries, you also have some control over the assets. If you name minor children as beneficiaries on a life insurance policy, they won’t be able to use the money until they are an adult. Some children may also not be financially responsible enough to manage money as young adults in their 20s.

If you already own a life insurance policy and want to create a trust, you can transfer ownership of the policy to the trust. Work with an experienced estate planning attorney.

Reference: Forbes (Sep. 17, 2020) “How To Fund A Trust With Life Insurance”

Trusts: The Swiss Army Knife of Estate Planning

Trusts serve many different purposes in estate planning. They all have the intent to protect the assets placed within the trust. The type of trust determines what the protection is, and from whom it is protected, says the article “Trusts are powerful tools which can come in many forms,” from The News Enterprise. To understand how trusts protect, start with the roles involved in a trust.

The person who creates the trust is called a “grantor” or “settlor.” The individuals or organizations receiving the benefit of the property or assets in the trust are the “beneficiaries.” There are two basic types of beneficiaries: present interest beneficiaries and “future interest” beneficiaries. The beneficiary, by the way, can be the same person as the grantor, for their lifetime, or it can be other people or entities.

The person who is responsible for the property within the trust is the “trustee.” This person is responsible for caring for the assets in the trust and following the instructions of the trust. The trustee can be the same person as the grantor, as long as a successor is in place when the grantor/initial trustee dies or becomes incapacitated. However, a grantor cannot gain asset protection through a trust, where the grantor controls the trust and is the principal recipient of the trust.

One way to establish asset protection during the lifetime of the grantor is with an irrevocable trust. Someone other than the grantor must be the trustee, and the grantor should not have any control over the trust. The less power a grantor retains, the greater the asset protection.

One additional example is if a grantor seeks lifetime asset protection but also wishes to retain the right to income from the trust property and provide a protected home for an adult child upon the grantor’s death. Very specific provisions within the trust document can be drafted to accomplish this particular task.

There are many other options that can be created to accomplish the specific goals of the grantor.

Some trusts are used to protect assets from taxes, while others ensure that an individual with special needs will be able to continue to receive needs-tested government benefits and still have access to funds for costs not covered by government benefits.

An estate planning attorney will have a thorough understanding of the many different types of trusts and which one would best suit each individual situation and goal.

Reference: The News Enterprise (July 25, 2020) “Trusts are powerful tools which can come in many forms”

 

What are the Estate Planning Basics?

Estate planning is an all-encompassing term that refers to the process of organizing, inventorying and making plans for the proper handling of your affairs after you die, including your dependents as well as your assets, valuables and heirlooms. This typically involves writing a will, setting up a power of attorney and detailing funeral arrangements with the help of an experienced estate planning attorney.

CNET’s article entitled “Estate planning 101: Your guide to wills, trusts and all your end-of-life documents” provides us with some of the key steps in getting started with estate planning.

Create an Inventory. Your estate includes all of the things you own, such as your car and other valuable possessions, plus “intangible assets” like investments and savings. If you own a company, that’s also part of your estate. Everything you own should be given a valuation. Have your home and other valuables appraised.

Evaluate your family’s needs. A big reason for estate planning is to make certain that your family is cared for, in the case of your death or incapacitation. If you’re a breadwinner for your family, the loss of your income could be devastating financially. Consider a life insurance policy to help provide a financial cushion that can be used to cover living expenses, college tuition cost, and mortgage payments. You may also need to designate a guardian, if you have children under the age of 18.

Make job assignments. Dividing up a person’s property can be a tough and emotional task. Make it easier by ensuring that all of your assets have been assigned a beneficiary. You’ll also name a few people to coordinate the process of dividing up your belongings. List your beneficiaries, so they know who gets what.

Create a Will. You should have a legally binding document setting everything out in as much detail as possible. A will is a legal document that directs the way in which you want your assets and affairs handled after you die. This includes naming an executor, who is someone to manage how your will is executed and take care of the distribution of your assets.

Help your family if you’re incapacitated. A living will (also known as a medical care or health care directive) states your healthcare preferences, in case you’re unable to communicate or make those decisions on your own. If you need life support, a living will states your preferences.

Start estate planning sooner rather than later. Talk to an experienced estate planning attorney today.

Reference: CNET (June 8, 2020) “Estate planning 101: Your guide to wills, trusts and all your end-of-life documents”

How Do I Use the Pandemic to Finish My Estate Plan?

The coronavirus is making this a most challenging time. It can make considering our own death all the more frightening. However, for some, this is the perfect time to think about estate planning strategy. Your estate plan should be a priority in this crisis.

While looking for issues is important, there are also opportunities to consider, according to Yahoo Finance’s recent article entitled “How to Take Advantage of New Estate Planning Opportunities Caused by the Coronavirus.”

For some, the current financial landscape may be advantageous, due to low interest rates and depressed asset values. That is where your estate planning strategy is needed.

The IRS just announced one of the lowest rates applicable to certain wealth transfer techniques. This, in addition to depressed asset prices, can make for some great opportunities.

This is a very good time for estate planning, because of the federal estate tax system. Even though the federal estate tax rate is a flat 40%, we can currently gift during life or leave at death a total of $11.58 million to children or loved ones without any taxes.

As a result, a married couple can leave more than $23 million to loved ones, before they start to pay federal estate tax.

The federal estate tax exemption is very liberal, when compared to the past. It is also scheduled to adjust upward for inflation until the end of 2025. The federal estate tax exemption will then be cut in half, unless extended or made permanent.

Yes, Congress can also act before that. They can enact a law, and a president could sign it to decrease the exemptions even sooner. Therefore, regardless of the current opportunity, it may be the right time to make gifts before the exemptions decrease.

The key is to have a strategic plan and to make decisions that are right for you and your family.

Estate planning can be intimidating and doubly so in this pandemic. Talk to an experienced estate planning attorney and take care of this today to protect your families and their futures.

Reference: Yahoo Finance (April 2, 2020) “How to Take Advantage of New Estate Planning Opportunities Caused by the Coronavirus”

What Should My Estate Plan Include?
Estate Plan, Living Will, and Healthcare Power of Attorney documents

What Should My Estate Plan Include?

In the COVID-19 pandemic, the two most critical documents to have are medical and financial powers of attorney. You should name someone to do your banking or make your medical decisions, if you are quarantined in your home, admitted to the hospital, or become incapacitated. When you have those in place, you need to create a comprehensive estate plan.

The Huffington Post’s recent article entitled “A Guide To Estate Planning During The Coronavirus Pandemic” says that almost everyone should have an estate plan—even if there’s no major health threat. If you don’t have one, right now is a great time to put it together. Let’s look at the documents you should have and what they mean.

  1. A Financial Power of Attorney. This is a legal document that gives your agent authority to take care of your financial affairs and protect your assets by acting on your behalf. For example, your agent can pay bills, write checks, make deposits, sell or purchase assets, or file your tax returns. Without an FPOA, there’s no one who can act on your behalf. Family members will have to petition the probate court to appoint a guardian to have these powers, and this can be a time-consuming and expensive process.
  2. A Health Care Power of Attorney. Like a financial power of attorney, this legal document gives an agent the power to make health care decisions on your behalf, if you become incompetent or incapacitated. If you’re over the age of 18 and don’t have an HCPOA, your family members will have to ask the probate court to again appoint a guardian with these powers.
  3. A Living Will (Advance Health Care Directive). This allows you to legally determine the type of end-of-life treatment you want to receive, in the event you become terminally ill or permanently unconscious and cannot survive without life support. Without a living will, the decision to remove life support is thrust upon your health care agent or family members, and it can be an extremely stressful decision. If you draft a living will, you detail your wishes and take that decision out of their hands.
  4. A HIPAA Waiver. An advance health care directive will likely contain language that allows your agent to access your medical records, but frequently hospitals will refuse access to medical information without a separate HIPAA waiver. This lets your agents and family members access your medical data so they can speak freely with your physicians, if there is a medical emergency or you become incapacitated.
  5. A Will. A last will and testament is a legal document through which you direct how you want your assets disbursed when you pass away. It also allows you to name an executor to oversee the distribution of your assets. Without a will, the distribution of your assets will be dictated by state law, and the court will name someone to oversee the administration of your estate. A will also lets you name a guardian to take care of your minor children.
  6. A Living Trust. A revocable living trust is a legal tool whereby you create an entity to hold title to your assets. You can change your trust at any time, and you can set it up to outlive you. In the event you become incapacitated or are unable to manage your estate, your trust will bypass a court-appointed conservatorship. A trust also gives you privacy concerning the details of your estate, because it avoids probate, which is a public process. A living trust can also help provide for the care, support, and education of your children, by releasing funds or assets to them at an age you set. A living trust can also leave your assets to your children in a way that will lessen the ability of their creditors or ex-spouses to take your children’s inheritance from them.

Speak with your estate planning attorney to get these documents put in place before it is too late. To learn more about this and other estate planning blogs click here.

Reference: The Huffington Post (April 7, 2020) “A Guide To Estate Planning During The Coronavirus Pandemic”

Is Your Estate Really as Set as You Think?

Next Avenue’s recent article entitled “Is Your Estate as Planned As You Think?” explains that when you pass away your executor will have many tasks to perform when settling your estate.

It’s helpful to add clarity and lessen the burden of that person’s work in advance. Look at this list of things to make sure your estate is as planned as you think it is:

Is your will current? If you’ve written your will, how long has it been since you drafted it? Have there been any major changes in your life since that time? If so, it’s likely time to update it. Review your will to make certain that it’s an accurate representation of your assets and your wishes now.

Is your will detailed? Yes, you’ve addressed the big stuff, but what about smaller items with sentimental value? You should list who gets what, to avoid fighting.

Have you set out your wishes, so they’re legally binding? Each state has different rules as to what is required for a valid will. Work with an experienced estate planning attorney to make sure your will is valid.

Are your financial affairs organized? Your executor will need to know if you have any recurring payments, as well as your account number, and online passwords. Create a list of regular monthly bills, along with your account numbers and access codes to simplify your executor’s job.

You will also need to let the executor know about any automatic deductions or charges on your credit card, internet-based subscriptions, club memberships, recurring charitable donations and automatic utility payments.

Do you have a way to distribute your personal items? You should determine how your family will divide up the possessions not explicitly listed in your will, such as the lawnmower, dishes and photographs. All of it will need to be either distributed to one of your beneficiaries, donated, or sold.

Conducting comprehensive planning of your estate with an attorney can help ensure that there’s less stress and an easy distribution of your assets.

While speaking with your estate planning attorney, ask about appointing a guardian for your minor children in your will, a healthcare directive, a living will, a HIPAA waiver and whether you should have a trust.

Reference: Next Avenue (Feb. 25, 2020) “Is Your Estate as Planned As You Think?”