How Does a Trust Work?

You’ve worked hard to accumulate financial assets. You’ll need them to support your retirement. However, what if you also want to pass them on to loved ones? Trusts are used to pass assets to the next generation and have many benefits, says a recent article titled “Passing assets through a trust—What to know” from the Daily Bulldog.

“Funded” trusts don’t go through probate, which can be time-consuming, costly, and public. Your last will and testament becomes a public document when it is filed in the courthouse. Anyone can see it, from people wanting to sell your home to thieves looking for victims. Trust documents are not public, so no one outside of the grantor and the trustee knows what is in the trust and when distributions will be made. A trust also gives you the ability to be very specific about who will inherit assets in the trust, and when.

An estate planning attorney will help establish trusts, ensuring they are compliant with state law. There are three key questions to address during the trust creation process.

Who will serve as a trustee? There are several key roles in trusts. The person who creates the trust is the grantor of the trust. They name the trustee—the person or company charged with managing the trust’s assets and carrying out the instructions in the trust. You might choose a loved one. However, if they don’t have the knowledge or experience to manage the responsibilities, you could also name a corporate fiduciary, such as a bank or trust company. These entities charge for their services and usually require a minimum.

When will distributions be made? As the grantor, you get to decide when assets will be distributed and the amount of the distribution. You might want to keep the assets in the trust until the beneficiary reaches legal age. You could also structure the trust to make distributions at specific ages, i.e., at 30, 35 and 40. The trust could even hold the assets for the lifetime of the beneficiary and only distribute earned income. A large part of this decision has to do with how responsible you feel the beneficiaries will be with their inheritance.

What is the purpose of the trust? The grantor also gets to decide how trust assets should be used. The trust could designate broad categories, such as health, education, maintenance and support. The trust can be structured so the beneficiary needs to ask the trustee for a certain amount of assets. Other options are to structure the trust to provide mandatory income, once or twice a year, or tie distributions to incentives, such as finishing a college degree or purchasing a first home.

An estate planning attorney will explain the different types of trusts and which one is best for your unique situation. There are many different types of trusts. You’ll want to be sure to choose the right one to protect yourself and your loved ones.

Reference: Daily Bulldog (Dec. 24, 202) “Passing assets through a trust—What to know”

Should Each Child Get Equal Inheritance?

Every estate planning attorney has conversations with their clients about how adult children should inherit. While most people assume siblings should all inherit equally, in many situations, equal is not always appropriate. There are many situations where an equal inheritance might be unfair, says a recent article, “How Should Your Children Inherit? 4 Scenarios Where ‘Equal’ Is Not Appropriate,” from Kiplinger.

The Caretaker Child Lives With the Parent. When one of the children lives with the parent and has taken on most, if not all, of the responsibilities, it may be fair to treat the child differently than siblings who are not involved with the parent’s care. Taking care of paying bills, coordinating health care appointments, driving the parent to appointments and being involved with end-of-life care is a lot of responsibility. It may be fair to leave this child the family home or leave the home to a trust for the child for their lifetime. The parent may wish to leave the caretaking child a larger portion of the inheritance to recognize the additional help they provided.

A Special Needs Child. If the parent has been the primary caregiver for a special needs child, the estate plan must take this into consideration to ensure the child will be properly cared for after the parents die or are unable to care for the child. Depending on what government benefits the child receives, this usually means the parents need to have a Special Needs Trust or Supplemental Needs Trust created. Most government benefits are means-tested. To remain eligible, recipients may not have more than a certain amount of personal assets. The Special Needs or Supplemental Needs trust could receive more or less than an equal amount of the estate the child would have inherited.

In this scenario, siblings are generally understanding. The siblings often know they will be the ones caring for the family member with special needs when the parents can no longer provide care and welcome the help of an elder law estate planning attorney to plan for their sibling’s future.

An Adult Child With Problems. It’s usually not a good idea to leave an equal portion of an inheritance to an adult child who suffers from mental illness, substance abuse, is going through a divorce or has a life-long history of making bad choices. Putting the money into a trust with a non-family member serving as a trustee and strict directions for when and how much money may be distributed may be a better option. In some cases, disinheriting a child is the unpleasant but only realistic alternative.

Wealth Disparities Among the Siblings. When one child has been financially successful and another struggles, it’s fair to bequeath different amounts. However, wealth can change over a lifetime, so review the estate plan and the wealth distribution on a regular basis.

How To Decide What Will Work For Your Family? Every family is different, and every family has different dynamics. Have open and honest discussions with your estate planning attorney, so they can help you plan for your family’s situation. If possible, the same frank discussion should take place with adult children, so no one is taken by surprise at a time when they will be grieving a loss.

Reference: Kiplinger (Dec. 18, 2022) “How Should Your Children Inherit? 4 Scenarios Where ‘Equal’ Is Not Appropriate”

Do I Need to Name a Life Insurance Beneficiary?

When a loved one dies, there are questions to address, such as how to pay for a funeral and other death expenses. A life insurance policy may help. However, the deceased must have made sure the proper beneficiary is named.

If a beneficiary isn’t designated, some issues with the estate could arise, or the policy could go to the decedent’s estate. Likewise, the same is true if the one beneficiary preceded the decedent in death.

Yahoo Finance’s recent article entitled “What Happens If I Don’t Name a Life Insurance Beneficiary?” explains that a life insurance policy is a contract you enter into with a life insurance company.

When you set up your life insurance policy, you have the right to name one or more beneficiaries who’ll get the proceeds of the policy when you die. You pay premiums on the policy until your death, to guarantee your beneficiaries that right.

You might designate just one beneficiary to receive all the proceeds. In addition to the primary beneficiary, you can name contingent beneficiaries who will receive the proceeds of the policy if the primary beneficiary predeceases the policyholder.

It is important to add as much identifying information about your beneficiaries as possible, so they can be easily identified. It’s also important to keep your policy up to date on the information of your beneficiaries.

If there are no beneficiaries living, either the proceeds of the policy will enter the probate process, or the life insurance proceeds will pass to the decedent’s heirs-at-law who are those people who are close to the decedent and would probably inherit, if there was a beneficiary designation or will.

Heirs-at-law are also defined as those people who will inherit your assets, if you die intestate.

Dying without a beneficiary in place or leaving your estate as beneficiary of your policy have different rules in each state.

Ask an experienced estate planning attorney about your state’s rules and the rules of the life insurance company when you’re setting up your life insurance policy and will.

Reference: Yahoo Finance (Dec. 10, 2022) “What Happens If I Don’t Name a Life Insurance Beneficiary?”

Can I Contest Dad’s Will While He’s Still Living?

The Maryland Daily Record’s recent article entitled “Wills cannot be challenged until testator dies, Md. appeals court says” explains the Court of Special Appeals said a will or revocable trust is only a draft document until its drafter, or testator, has died.

As a result, those challenging a living person’s will or trust would be merely “presumptive heirs” who have no legal standing to challenge a legal document that’s not yet final.

“Pre-death challenges to wills may be a waste of time – the testator might replace it with a new one, die without property, or the challenger might die before the testator,” Judge Andrea M. Leahy wrote for the Court of Special Appeals.

The appellate court’s decision was the second defeat for Amy Silverstone, whose legal challenge to her mother Andrea Jacobson’s will was dismissed by a Montgomery County Circuit Court judge for lack of standing.

Silverstone argued that it should be declared void based on her claim that her aunt unduly influenced her mother. The mother suffers from dementia and memory impairment.

This undue influence led Silverstone’s mother, Andrea Jacobson, to change her will in 2018 to expressly “disinherit” Silverstone and her son, Silverstone alleged.

The mother’s new will stated that Silverstone and her son shall not “in any way be a beneficiary of or receive any portion of the trust or the grantor’s estate.”

The disinheritance came amid a falling out between mother and daughter, according to court documents.

Silverstone’s challenge to the will and related trust is premature while her mother is alive, the court held.

Reference: The Maryland Daily Record (Dec. 12, 2022) “Wills cannot be challenged until testator dies, Md. appeals court says”

How Do You Stop a Sibling from Stealing an Inheritance?

If the parent does not have a will, there may be questions about which sibling should inherit what. This gets complicated fast. State law can define siblings’ rights after parents’ deaths, explains a recent article from yahoo!, “Can a Sibling Take Your Inheritance?”

An estate planning attorney can be a valuable resource, regardless of the size of the estate.

When a parent dies and there are multiple siblings, what they can inherit depends on a few factors:

  • Did the parent leave behind a will or were trusts created?
  • Is there a surviving spouse who can inherit?
  • What are the state’s inheritance laws?

For the most part, state inheritance laws give precedence to a surviving spouse ahead of any children. Some states grant children the legal right to inherit from a parent’s estate, even if they were not included in the will. However, most states allow parents to exclude children from their will, which can block them from inheriting anything.

How does a will determine siblings’ rights after the death of a parent? The will lets the person making the will specify how they want their assets to be distributed upon their death. The will, once deemed valid by the court, serves as the basis for dividing the estate.

If both parents died at the same time their estate would be divided among siblings according to the terms of the will. There are a few different ways this is done.

  • One child inherits the house and the contents, while the other siblings divide any remaining assets in the estate.
  • The executor sells the home and contents then splits the proceeds of the sale among siblings.
  • Each sibling receives specific property or assets from the estate
  • One child receives the entire contents of the estate, to the exclusion of others.

Estate planning becomes more complex when there are children from multiple marriages with different parents. Whether or not half-siblings receive the same inheritance as full siblings depends on state law.

If there is no will, state inheritance laws generally rely on a kinship order. In New York State, the first $50,000 in assets plus half of the remaining assets go to the surviving spouse first. The remainder is then distributed among any bloodline children.

Are siblings entitled to see the contents of wills or trusts? If they are beneficiaries, most states will permit a viewing of the will or trust documents. However, if someone is not listed in the will or a trust as a beneficiary, they don’t have an automatic right to review these documents.

If a sibling doesn’t agree with the terms of a will, or the distribution of assets, they could challenge a will in probate court. They can also petition the court to ask for a larger share of the estate. For instance, if one sibling was the primary caregiver for many years, providing financial and health care support, they would ask the court to take this into consideration.

An estate battle based on the distribution of property by a deceased parent can be avoided by having good communication between parents and siblings about the parent’s estate plan and their wishes. An experienced estate planning attorney creates plans for families to address their unique issues, and this can preclude sibling rivalry, which can sometimes get worse, not better, as the years go by.

Reference: yahoo! (November 30, 2022) “Can a Sibling Take Your Inheritance?”

The Basics of Estate Planning

No matter how BIG or small your net worth is, estate planning is a process that ensures your assets are handed down the way you want after you die.

Forbes’ recent article entitled “Estate Planning Basics” explains that everybody has an estate.

An estate is nothing more or less than the sum total of your assets and possessions of value. This includes:

  • Your car
  • Your home
  • Financial accounts
  • Investments; and
  • Personal property.

Estate planning is the process of deciding which people or organizations are to get your possessions or assets after you’ve died.

It’s also how you leave directions for managing your care and assets if you are incapacitated and unable to make financial or medical decisions. That is done with powers of attorney, a healthcare directive and a living will.

Your estate plan details who gets your assets. It also designates who can make critical healthcare and financial decisions on your behalf should you become incapacitated. If you have minor children, it also lets you designate their legal guardians, in case you die before they reach 18. It also allows you to name adults to safeguard their financial interests.

Your estate plan directs assets to specific entities or people in a legally binding manner. If you want your daughter to have your coin collection or your favorite animal rescue organization to get $500, it’s all mapped out in your plan.

You can also create a trust to safeguard a minor child’s assets until they reach a certain age. You can also keep assets out of probate. That way, your beneficiaries can easily access things like your home or bank accounts.

All estate plans should include documents that cover three main areas: asset transfer, medical needs and financial decisions. Ask an experienced estate planning attorney to help you create your  plan.

Reference: Forbes (Nov. 16, 2022) “Estate Planning Basics”

Should I Need a Trust in My Estate Plan?

Fed Week’s recent article entitled “Considerations for Including a Trust in Your Estate Plan” describes what a trust can offer. This includes the following:

  • Protection against possible incompetency. To protect yourself, you can create a trust and move your assets into it. You can be the trustee, so you’ll control the assets and enjoy the income.
  • Probate avoidance. Assets held in trust also avoid probate. In the documents, you can state how the trust assets will be distributed at your death.
  • Protection for your heirs. After your death, a trustee can keep trust assets from being squandered or lost in a divorce.

If your heirs are young, you can set up a trust to stay in effect until they are older and can handle their own finances. Another option is to keep the trust in effect for the lives of the beneficiaries.

A trust can be revocable or irrevocable. A revocable trust must be created during your lifetime. If you change your mind, you can revoke the trust and reclaim the assets as your own.

A revocable trust can offer incapacity protection and probate avoidance but not tax reduction.

An irrevocable trust can be created while you’re alive or at your death. A revocable trust may become irrevocable at your death.

Assets transferred into an irrevocable trust during your lifetime will be beyond the reach of creditors and divorce settlements. The same is true of assets going into an irrevocable trust at your death.

Your family members can be the beneficiaries of an irrevocable trust, while a trustee or co-trustees you’ve named will be responsible for distributing funds to those trust beneficiaries.

The trustee will be responsible for protecting assets.

Reference:  Fed Week (Oct. 5, 2022) “Considerations for Including a Trust in Your Estate Plan”

Planning for Crypto and NFT Assets in Estate Plan

People generally don’t like to deal with their own mortality. However, assets need the protection of an estate plan. If they are digital assets, planning is even more important. According to a recent article from nft.now titled “What Happens to Your Crypto and NFTs When You Die?”, Bitcoin’s total circulation is unlikely to reach its stated limit of 21 million due to early adopters who either died without an estate plan or lost their private keys and access to their bitcoin permanently.

The challenge of digital asset distributions is built into the decentralized nature of the blockchain. The core of the Web3 security is not to give away private keys, even to friends or loved ones, since there’s no centralized authority to address any wrongdoing. Striking a balance between security and accessibility about crypto asset management and inheritance is still an evolving process.

Estate planning attorneys know doing nothing is the worst thing to do. While state laws account for intestacy (what happens when there’s no will), and state law will be applied by the court to distribute assets if there’s no will, one option is to put digital assets into a will. However, there are potential pitfalls.

A will becomes a public document during probate. If the purpose of owning crypto is to keep the existence of the crypto wealth private, a will is not the best option. Wills are useful for many assets, but in the eyes of many, trusts are the preferred means of transferring crypto assets.

Managing digital inheritances with trusts offers many benefits, since the trusts bypass the courts and do not become public documents. Trusts are managed by a trustee, during life and after death.  Therefore, the trustee can act quickly if managing NFTs or crypto. The volatile nature of cryptocurrencies makes speed and easy access a necessity to protect digital fortunes.

When setting up a trust to manage cryptocurrency or NTFs, be sure that the trustee is well-versed in digital assets. If they don’t know how to manage your wallet, the assets could be lost. One means of overcoming this is to add a provision in the trust to allow the trustee to hire someone who has expertise with cryptocurrency and NFTs, so they will be properly managed.

Trusts do have some vulnerabilities. Estate planning for crypto requires some sharing of private keys or transferring digital assets. However, the typical crypto investor is usually loathe to hand over this information. It may be more acceptable for them to leave behind instructions on where the trustee can find the information. However, this creates another layer of vulnerability.

Solutions to the issue of digital asset dispersal in the event of incapacity or death are still evolving. There are a number of commercial solutions, some of which are as technical to the layperson as cryptocurrency is to the non-user.

An experienced estate planning attorney will be able to guide you in planning for digital and traditional assets, so they are not lost in the real world or in cyberspace. Prior planning is needed to protect wealth, whatever form it takes.

Reference: ntf.now (Oct. 27,2022) “What Happens to Your Crypto and NFTs When You Die?”

What Is the Point of a Trust?

A trust is an agreement made when a person, referred to as the trustor or grantor, gives a third party, known as the trustee, the authority to hold assets for the trust beneficiaries. The trustee is in charge of the trust and responsible for executing the trust’s instructions as per the language in the trust, explains a recent article from The Skim, “What is a Trust? (Spoiler: They’re Not Just for the Wealthy).”

Some examples of how trusts are used: if the grantor doesn’t want beneficiaries to have access to funds until they reach a certain age, the trustee will not distribute anything until the age as directed by the trust. The funds could also be solely used for the beneficiaries’ health care needs or education or whatever expense the grantor has named, the trustee decides when the funds should be released.

Trusts are not one-size-fits-all. There are many to choose from. For instance, if you wanted the bulk of your assets to go to your grandchildren, you might use a Generation-Skipping Trust. If you think your home’s value may skyrocket after you die, you might want to consider a Qualified Personal Residence Trust (QPRT) to reduce taxes.

Trusts fall into a few categories:

Testamentary Trust vs. Living Trust

A testamentary trust is known as a “trust under will” and is created based on provisions in the will after the grantor dies. A testamentary trust fund can be used to make gifts to charities or provide lifetime income for loved ones.

In most cases, trusts don’t have to go through the probate process, that is, being validated by the court before beneficiaries can receive their inheritance. However, because the testamentary trust is tied to the will, it is subject to probate. Your heirs may have to wait until the probate process is completed to receive their inheritance. This varies by state, so ask an estate planning attorney in your state.

Living trusts are created while you are living and are also known as revocable trusts. As the grantor, you may make as many changes as you like to the trust terms while living. Once you die, the trust becomes an irrevocable trust and the terms cannot be changed. There’s no need for the trust to go through probate and beneficiaries receive inheritances as per the directions in the trust.

What are the key benefits of creating a trust? A trust doesn’t always need to go through probate and gives you greater control over the assets. If you create an irrevocable trust and fund it while living, your assets are removed from your probate estate, which means whatever assets are moved into the trust are not subject to estate taxes.

Are there any reasons not to create a trust? There are costs associated with creating a trust. The trust must also be funded, meaning ownership documents like titles for a car or deeds for a house have to be revised to place the asset under the control of the trust. The same is true for stocks, bank accounts and any other asset used to fund the trust.

For gaining more control over your assets, minimizing estate taxes and making life easier for those you love after you pass, trusts are a valuable tool. Speak with your estate planning attorney to find out which trust works best for your situation. Your estate plan and any trusts should complement each other.

Reference: The Skim (Oct. 26, 2022) “What is a Trust? (Spoiler: They’re Not Just for the Wealthy)”