Do Single People Need Estate Planning?

In evaluating your needs for estate planning, look at what might happen if you die intestate – that is, without a last will and testament. Your assets will likely have to go through the probate process, which means they’ll be distributed by the court according to the state intestate succession laws, says Hood County News’ recent article entitled “Even ‘singles’ need estate plans.”

Even if you do not have children, you may have a few nephews or nieces—or children of cousins or friends— to whom you would like to leave some of your assets. This can include automobiles, collectibles and family memorabilia. However, if everything you own goes through probate, there is no guarantee that these individuals will end up with what you wanted them to have.

If you want to leave something to family members or close friends, you will need to say this in your will. However, you also may want to provide support to one or more charitable organizations. You can just name these charities in your will. However, there may be options that could provide you with more benefits.

One option is a charitable remainder trust. With this option, you would transfer appreciated assets – such as stocks, mutual funds or other securities – into an irrevocable trust. The trustee, whom you have named (note that you could serve as trustee yourself) can then sell the assets at full market value, avoiding the capital gains taxes you would have to pay if you sold them yourself, outside a trust. If you itemize, you may be able to claim a charitable deduction on your taxes. The trust can purchase income-producing assets with the proceeds and provide you with an income stream for the rest of your life. At your death, the remaining trust assets will pass to the charities you have named.

There is also a third entity that is part of your estate plans: you. Everyone should make arrangements to protect their interests. However, without an immediate family, you need to be especially mindful of your financial and health care decisions. That is why, as part of your estate planning, you may want to include these two documents: durable power of attorney and a health care proxy.

A durable power of attorney allows you to name a person to manage your finances, if you become incapacitated. This is especially important for anyone who does not have a spouse. If you become incapacitated, your health care proxy (health care surrogate or medical power of attorney) lets you name another person to legally make health care decisions for you, if you cannot do so yourself.

Reference: Hood County News (Dec. 17, 2021) “Even ‘singles’ need estate plans”

Do Most People Need a Living Trust?
Living trust and estate planning form on a desk.

Do Most People Need a Living Trust?

Avoiding the costs and extensive time needed to settle an estate through probate is one reason people like to use trusts in estate planning. This type of trust allows you to designate a trustee to manage the assets in the trust after you have passed.  This is especially important if heirs are minor children or adults who cannot manage a large inheritance. A living trust, as explained in the article titled “The Lowdown on Living Trusts” from Kiplinger, has additional benefits. However, there are some pitfalls to be cautious about, especially concerning transferring assets.

Certain assets do not belong in a living trust. Regardless of their size, some assets should never be placed in a living trust, including IRAs, 401(k)s, tax deferred annuities, health savings accounts, and medical savings accounts and others .

Placing these assets in a trust requires changing the ownership on the accounts. Don’t do it! The IRS will treat the transfer as a distribution. You will be required to pay income taxes and penalties, if any are triggered, on the entire value of the account.

You may be able to make the trust a beneficiary of the retirement accounts. However, it is not appropriate for everyone. Changes to IRA distribution rules from the SECURE Act may make this a dangerous move, since the trustee may be required to empty the IRA within ten years of your death.

For practical purposes, assets like cars, boats or motorcycles do not belong in a trust. To transfer ownership to the trust, you will need to retitle them. This would result in fees and taxes. You would also have to change the insurance, since the insurance company may not cover assets owned by trusts. The cost may outweigh the benefits.

Assets belonging in a trust include real estate, especially your primary residence. Placing your home in a trust will minimize the hassle of transferring the home to heirs, if this is your plan. If you own property in another state, transferring the title to a living trust allows your estate to avoid probate in more than one state. Remember to get a new deed to transfer ownership to the trust. If you refinance or take a home equity line of credit, you may need to transfer the property out of the trust and into your name to get the loan. You will then need to transfer the property back into the trust.

Financial assets can be placed in a trust. Stocks, bonds, mutual funds, CDs, money market funds, bank savings accounts and even safe deposit boxes can be placed in a trust. There may be a lot of paperwork, and in some cases, you may need to open a new account in the name of the trust.

Once the trust has been created, do not neglect to fund it by transferring assets. Retitling assets requires attention to detail to make sure all of the desired assets have been retitled. The trust needs to be reviewed every few years, just as your estate plan needs to be reviewed. Be sure to have a secondary trustee named, if you are the primary trustee.

Trusts are an excellent option if you live in a state where probate is onerous and expensive. Assets placed in the trust can be distributed with a high degree of specificity, which also provides great peace of mind. If you believe your oldest son will benefit from receiving a large inheritance when he is 40 and not 30, you can do so through a trust. The level of control, avoidance of probate and protection of assets makes the living trust a powerful estate planning tool.

Reference: Kiplinger (March 24, 2022) “The Lowdown on Living Trusts”

How Does a Trust Fund Work?

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 ensure your trusts are appropriate for your situation, 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.

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

How Do I Avoid Probate?

Probate can tie up the estate for months and be an added expense. Some states have a streamlined process for less valuable estates, but probate still has delays, extra expense and work for the estate administrator. A probated estate is also a public record anyone can review.

Forbes’ recent article entitled “7 Ways To Avoid Probate Without A Living Trust” says that avoiding probate often is a big estate planning goal. You can structure the estate so that all or most of it passes to your loved ones without this process.

A living trust is the most well-known way to avoid probate. However, retirement accounts, such as IRAs and 401(k)s, avoid probate. The beneficiary designation on file with the account administrator or trustee determines who inherits them. Likewise, life insurance benefits and annuities are distributed to the beneficiaries named in the contract.

Joint accounts and joint title are ways to avoid probate. Married couples can own real estate or financial accounts through joint tenancy with right of survivorship. The surviving spouse automatically takes full title after the other spouse passes away. Non-spouses also can establish joint title, like when a senior creates a joint account with an adult child at a financial institution. The child will automatically inherit the account when the parent passes away without probate. If the parent cannot manage his or her affairs at some point, the child can manage the finances without the need for a power of attorney.

Note that all joint owners have equal rights to the property. A joint owner can take withdrawals without the consent of the other. Once joint title is established you cannot sell, give or dispose of the property without the consent of the other joint owner.

A transfer on death provision (TOD) is another vehicle to avoid probate. You might come across the traditional term Totten trust, which is another name for a TOD or POD account (but there is no trust involved). After the original owner passes away, the TOD account is transferred to the beneficiary or changed to his or her name, once the financial institution gets the death certificate.

You can name multiple beneficiaries and specify the percentage of the account each will inherit. However, beneficiaries under a TOD have no rights in or access to the account while the owner is alive.

Reference: Forbes (March 28, 2022) “7 Ways To Avoid Probate Without A Living Trust”

Can a Vacation Home Be Kept in the Family for Generations?

Many family traditions include gatherings at vacation homes. However, leaving these properties to the next generation is not always in the best interest of the family. Some people try to make a simple solution work for a complex problem, leading to more challenges, as explained in the article “Succession planning for the family lakehouse” from NH Business Review.

Joint ownership among siblings can lead to disputes about how the home is used, operated and maintained. Some children want to continue using the house, while others may see it as an income stream for a rental property. There may be siblings who cannot afford to participate in the house’s upkeep and need the cash more than the tradition. When joint ownership is presented as a surprise in a will, the adult children may find themselves fighting about the vacation home, with no parent around to tell them to knock it off.

Making matters more complicated, if the siblings live in different states and the house is in a neighboring state, ownership of the real estate at death may subject the decedent’s estate to estate taxes where the property is located. As a result, the property may need to go through probate in an additional state. Every state has its own tax rules, so the transfer of joint property will have to be analyzed by an estate planning attorney knowledgeable about the laws in each state involved.

A sensible alternative is creating a Limited Liability Corporation, ideally while the original owners—the parents—are still living. The organizational documents include a certificate of organization to file with the Secretary of State and an operating agreement. The LLC will need its own taxpayer identification number, or EIN.

The operating agreement governs the management of the property and addresses the operating expenses and maintenance of the property. It should also address the process for a child to cash in on their ownership to other children. LLC operating agreements often include these items:

  • Responsibilities for operating expenses
  • Process to transfer member units or interests
  • Duties for regular maintenance, budgeting and approval of property improvements
  • Development of a property use schedule
  • Establishing rules for the home’s use

There are some costs associated with creating an LLC, including annual filing requirements. However, these will be small, when compared to the cost of family fights and untangling joint ownership.

An LLC can also offer personal liability protection from lawsuits brought by renters, creditors, or any litigants. If there is an accident resulting from work being done on the property, the owners may be shielded from the liability because they do not personally own the property, the LLC does.

In the case of divorce, bankruptcy filing, or a large judgement being filed against one of the children, the LLC will protect their interest in the property.

The real estate owned by the LLC is not part of the owner’s probate estate. This avoids the need for a second probate in the state where the property is located. Some states have adopted the Uniform Transfer on Death Security Registration Act, and the LLC membership interest can be assigned along to the terms of the beneficiary designation.

Planning for what will happen to a vacation home after death provides peace of mind for all in the family. Speak with an experienced estate planning attorney to ensure that the property and the family’s peace is preserved.

Reference: NH Business Review (March 23, 2022) “Succession planning for the family lakehouse”

No Will? What Happens Now Can Be a Horror Show

Families who have lived through settling an estate without an estate plan will agree that the title of this article, “Preventing the Horrors of Dying Without a Will,” from Next Avenue, is no exaggeration. When the family is grieving is no time to be fighting, yet the absence of a will and an estate plan leads to this exact situation.

Why do people procrastinate having their wills and estate plans done?

Limited understanding about wealth transfers. People may think they do not have enough assets to require an estate plan. Their home, retirement funds or savings account may not be in the mega-millions, but this is actually more of a reason to have an estate plan.

Fear of mortality. We do not like to talk or think about death. However, talking about what will happen when you die or what may happen if you become incapacitated is very important. Planning so your children or other trusted family member or friends will be able to make decisions on your behalf or care for you alleviates what could otherwise turn into an expensive and emotionally disastrous time.

Perceived lack of benefits. Working with an experienced estate planning attorney who will put your interests first means you will have one less thing to worry about while you are living and towards the end of your life.

Estate planning documents contain the wishes and directives for your legacy and finances after you pass. They answer questions like:

  • Who should look after your minor children, if both primary caregivers die before the children reach adulthood?
  • If you become incapacitated, who should handle your financial affairs, who should be in charge of your healthcare and what kind of end-of-life care do you want?
  • What do you want to happen to your assets after you die? Your estate refers to your financial accounts, personal possessions, retirement funds, pensions and real estate.

Your estate plan includes a will, trusts (if appropriate), a durable financial power of attorney, a health care power of attorney or advanced directive and a living will. The will distributes your property and also names an executor, who is in charge of making sure the directions in the will are carried out.

If you become incapacitated by illness or injury, the POA gives agency to someone else to carry out your wishes while you are living. The living will provides an opportunity to express your wishes regarding end-of-life care.

There are many different reasons to put off having an estate plan, but they all end up in the same place: the potential to create family disruption, unnecessary expenses and stress. Show your family how much you love them, by overcoming your fears and preparing for the next generation. Meet with an estate planning attorney and prepare for the future.

Reference: Next Avenue (March 21, 2022) “Preventing the Horrors of Dying Without a Will”

How Do You Get a Power of Attorney?

If you are involved as a care provider for someone who is not able to manage their own affairs, you need to have the legal authority to act in the person’s best interest. To do that, you’ll need to have Power of Attorney (POA) for them, explains the article “How to get power of attorney for a loved one” from Tyron Daily Bulletin.

If the person you are trying to help suffers from dementia, a terminal illness or a condition which makes it difficult for them to communicate or make reasoned decisions, you may not be able to obtain a POA. As a result, may need to go to court for a guardianship or conservatorship instead.

POAs vary by state, so talk with an estate planning attorney to find out what your state allows. In most cases, the POA gives you the power to act on someone else’s behalf for a specific period of time regarding financial management. In most states, you will need a separate healthcare POA to make healthcare decisions or to speak with healthcare providers.

The agent (also known as an attorney in fact) under a POA is required to act in the best interest of the principal. Decisions regarding investments, property, bank accounts, debts and other financial matters must always place the principal first. It is crucial to maintain complete and accurate records of all transactions, and the agent’s finances and personal affairs must be kept separate from the principals.

If the principal is alive and of sound mind, they can overrule the agent’s decision, change or even terminate the POA agreement. They can also name someone else to serve as their agent with another POA. All POA powers terminate upon the death of the principal. Unless the same person has been named as agent under POA and as the executor of the estate or is appointed as executor (or administrator) by the court, that person’s responsibility ends upon the death of the principal.

There are a number of things that an agent under a POA cannot do:

  • Be paid for personal services provided to the principal
  • Vote in place of the principal
  • Take over the principal’s guardianship of another person
  • Change the principal’s will.

Even if you or the person who is naming you as the agent under their POA is in good health now, it is wise to plan for the future. We do not know when our capacity to manage finances or make healthcare decisions will be lost. Speak with an estate planning attorney about the POA to best serve your circumstances before it is needed.

Reference: Tyron Daily Bulletin (March 7, 2022) “How to get power of attorney for a loved one”

How to Handle Digital Assets in a Will

Now that cryptocurrency has become almost commonplace, it is necessary to incorporate it into estate plans and their administration, according to the article “Estate planners want to keep the crypt out of cryptocurrency” from Roll Call.

One advantage of using cryptocurrencies in estate planning is the ease of transference—if all parties know how crypto works. Unlike a traditional bank, which typically requires executors to produce an original death certificate and other documents to take control of accounts in the estate, cryptocurrency only requires the fiduciary to have passcodes to gain access to accounts.

The passcode is a complex, multicharacter code appearing to be a long string of unrelated numbers and letters. It is stored in a digital wallet, which can only be accessed through the use of the 64-digit passcode, also known as a key.

While the passcode is simple, it is also very vulnerable. If the key is lost, there is no way to retrieve it. The executor must know not just where the key is physically located if it has been written down on paper, or if it is kept in a digital wallet, but how to access the digital wallet. There are also different kinds of digital wallets.

People do not usually share their passwords with others. However, in the case of crypto, consider storing it in a safe but accessible location and telling a trusted person where it may be found.

People who own cryptocurrency need to give someone access info. If someone is named an executor at one point in your life and they have the information about digital assets, then at some point you change the executor, there is no way to guarantee the former executor might not access the account.

How do you protect digital assets? Using “cold storage,” an account passcode is stored and concealed on a USB drive or similar device, allowing the information to be shared without the user needing to learn the passcode to access the account. The cold storage USB drive can be given from one fiduciary to the successor fiduciary without either knowing the passcode.

Many bills have been introduced in Congress addressing cryptocurrency and blockchain policies. The IRS has issued a number of notices and publications regarding taxes on digital currency transactions. Crypto is no longer an “invisible” asset.

In addition to policies and regulations, litigation concerning estates and cryptocurrency is still relatively new to the judiciary. Planning for these assets to ensure they are passed to the next generation securely is very important as their use and value continues to grow.

Reference: Roll Call (Feb. 22, 2022) “Estate planners want to keep the crypt out of cryptocurrency”

Is Estate Planning Affected 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.

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.

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