Why Would I Need a Living Trust?

EIN Presswire’s recent article “Advantages of a Living Trust” explains that, if you have not prepared a will, your state of residence dictates the distribution of your estate by default.

A living trust is a legal document that is created during a person’s lifetime where a named person (the trustee) is given responsibility for managing the trustmaker’s assets for the benefit of the beneficiary. A living trust is designed to provide an easy transfer of the trustmaker’s assets, while bypassing the probate process.

If you fail to plan for your estate, it can result in the government—not your heirs—inheriting the majority of your assets. That is because the top estate tax rate is an 40%.

Moreover, probate costs can take from 5% to 25% of the gross value of your estate, and the probate process can take a year or longer. It can be a very difficult and frustrating experience for your surviving family.

You can’t just think you’re doing effective estate planning by putting everything you own into joint title or having a will leaving everything to your spouse. You need to review your circumstances with an experienced estate planning attorney. Let’s see what you can do with a living trust:

  1. Avoid probate delays and expenses.
  2. Reduce the emotional stress on your family.
  3. Eliminate or reduce taxes.
  4. Enjoy total flexibility, since a living trust can be changed or canceled at any time.
  5. Keep control of your assets, even in the event of your incompetency and after your death.
  6. Avoid a conservatorship at physical or mental incapacity.
  7. Keep your privacy, as a trust is completely confidential.
  8. Allow for a fast distribution of assets to beneficiaries; and
  9. Save time, money, and future headaches for your family.

Ask an experienced estate planning attorney, if a living trust fits into your comprehensive estate plan.

Reference: EIN Presswire (March 12, 2021) “Advantages of a Living Trust”

Remind Me Why I Need a Will

There are a number of reasons to draft a will as soon as possible. If you die without a will (intestate), you leave decisions up to your state of residence according to its probate and intestacy laws. Without a will, you have no say as to who receives your assets or properties. Not having a will could also make it difficult for your family.

Legal Reader’s recent article entitled “Top 7 Reasons to Fill Out a Will” reminds us that, before it is too late, consider these reasons why a will is essential.

Avoid Family Disputes. This process occasionally will lead to disagreements among family members, if there’s no will or your wishes aren’t clear. A contested will can be damaging to relationships within your family and can be costly.

Avoid Costly and Lengthy Probate. A will expedites the probate process and tells the court the way in which you want your estate to be divided. Without a will, the court will decide how your estate will be divided, which can lead to unnecessary delays.

Deciding What Happens to Your Assets. A will is the only way you can state exactly to whom you want your assets to be given. Without a will, the court will decide.

Designating a Guardian for Your Children. Without a will, the court will determine who will take care of your minor children.

Eliminate Stress for Your Family. Most estates must go to probate court to start the process. However, if you have no will, the process can be complicated. The court must name personal representatives to administer your estate.

Protect Your Business. A will allows you to pass your business to your co-owners or heirs.

Provide A Home For Your Pets. If you have a will, you can make certain that someone will care for your pets if you die. The law considers pets as properties, so you are prohibited from leaving assets to your pets in your will. However, you can name beneficiaries for your pets, leaving them to a trusted person, and you can name people to serve as guardians of your pets and leave them funds to meet their needs.

Drafting a will with the help of an experienced estate planning attorney can give you and your family peace of mind and convenience in the future.

Reference: Legal Reader (Jan. 28, 2021) “Top 7 Reasons to Fill Out a Will”

If My Estate Is the Beneficiary of My IRA, How Is It Taxed?

The named beneficiary of an IRA can have important tax consequences, says nj.com’s recent article entitled “How is tax paid when an estate is the beneficiary of an IRA?”

If an estate is named the beneficiary of an IRA, or if there’s no designated beneficiary, the estate is usually designated beneficiary by default. In that case, the IRA must be paid to the estate. As a result, the account owner’s will or the state law (if there was no will and the owner died intestate) would determine who’d inherit the IRA.

An individual retirement account or “IRA” is a tax-advantaged account that people can use to save and invest for retirement.

There are several types of IRAs—Traditional IRAs, Roth IRAs, SEP IRAs and SIMPLE IRAs. Each one of these has its own distinct rules regarding eligibility, taxation and withdrawals. However, with any, if you withdraw money from an IRA before age 59½, you’re usually subject to an early-withdrawal penalty of 10%.

A designated beneficiary is an individual who inherits the balance of an individual retirement account (IRA) or after the death of the asset’s owner.

However, if a “non-individual” is the beneficiary of an IRA, the funds must be distributed within five years, if the account owner died before his/her required beginning date for distributions, which was changed to age 72 last year when Congress passed the SECURE Act.

If the owner dies after his/her required beginning date, the account must then be distributed over his/her remaining single life expectancy.

The income tax on these distributions is payable by the estate. A compressed tax bracket is used.

As such, the highest tax rate of 37% is paid on this income when total income of the estate reaches $12,950.

For individuals, the 37% tax bracket isn’t reached until income is above $518,400 or $622,050 if filing as married.

Therefore, you can see why it’s not wise to leave your IRA to your estate. It’s not tax-efficient and generally should be avoided.

Reference: nj.com (Feb. 26, 2021) “How is tax paid when an estate is the beneficiary of an IRA?”

Estate Planning and a Second Marriage

In California, a community property state, a resident can bequeath (leave) 100% of their separate property assets and half of their community property assets. A resident may only bequeath the entirety of a community property asset to someone other than their spouse with their spouse’s consent or acquiescence. This can be extremely important to those in second marriages with prior children.

Wealth Advisor’s recent article entitled “Estate planning for second marriages” asks, first, does the individual’s (the testator) spouse even need support? If they don’t, a testator typically leaves his or her separate property assets directly to his or her own children. However, because the surviving spouse is an heir of the testator, his or her will and/or trust must acknowledge the marriage and say that the spouse is not inheriting. Otherwise, the surviving spouse as heir may be entitled either to a one-half or one-third share in the testator’s separate property, along with all of the couple’s community property assets. The surviving spouse would inherit, if the testator died intestate (with no will) or he or she passed with an outdated will he or she signed before this marriage that left out the current spouse.

If the spouse needs support, consider the assets and family relationships. Determine if the assets are the surviving spouse’s separate property from prior to marriage or from inheritance while married. It is also important to know if the testator’s spouse and children get along and whether it’s possible for the beneficiaries to inherit separate assets. If the testator’s surviving spouse and children aren’t on good terms and/or are close in age, and if it’s possible for separate assets to go to each party, perhaps they should inherit separate assets outright and part company. If not, it can get heated and complicated quickly. For example, the testator’s house could be left to his or her children and a retirement plan goes to the testator’s spouse.

If that type of set-up doesn’t work, a testator might consider making the spouse a lifetime beneficiary of a trust that owns some or all of an individual’s assets. A trust requires careful drafting, so work with an experienced estate planning attorney.

Next, determine if the children need support, and if so, what kind of support, such as Supplemental Security Income. Also think about whether the children can manage an outright inheritance or if a special needs or a support trust is required.

This just scratches the surface of this complex topic. Talk to an experienced estate planning attorney about your specific situation.

Reference: Wealth Advisor (Feb. 23, 2021) “Estate planning for second marriages”

Who Can Witness Wills?

For a will to be binding, there are a number of requirements that must be met. While state laws on wills vary, most require you to be of legal adult age to make a will and have testamentary capacity (i.e., that you be “of sound mind”).

Yahoo Finance’s recent article entitled “Who Can and Cannot Witness a Will?” explains that you usually must have your will witnessed.

Witnesses to your will are significant in the event that someone disputes its validity later or if there is a will contest. If one of your heirs challenges the terms of your will, a witness may be asked by the probate court to attest that they watched you sign the will and that you appeared to be of sound mind when you did so. Witnesses provide you with another layer of validity to a will, and it makes it more difficult for someone to dispute its legality.

When drafting a will, it’s important to understand several requirements, including who can serve as a witness. Generally, but depending on applicable state law, anyone can witness a will, as long as they meet two requirements: (i) they are of legal adult age; and (ii) they do not have a direct interest in the will. Therefore, the types of people who could witness a will for you include your friends who aren’t to receive anything from your estate, a neighbor, co-workers and any of your relatives who aren’t included in your will.

If you’ve hired an experienced estate planning attorney to help you draft your will, he or she can also act as a witness, provided they’re not named as a beneficiary. An attorney who’s also acting as the executor of the will (the person who oversees the process of distributing your assets and paying off any outstanding debts owed by your estate) can also witness a will.

Most states don’t allow you to select individuals who will benefit from your will as witnesses. If you are drafting a will that leaves assets to your spouse, children, siblings, or parents, then none of those individuals can serve as witnesses to the will’s signing because they all have an interest in the will’s terms. The same is true for relatives or spouses of any of the beneficiaries.

The witnesses to your will do not need to review the entire will document in order to sign it. They only need to be able to verify that the document exists, that you have signed it in their presence and that they have signed it in front of you.

When you sign the will, get both witnesses together at the same time. You’ll need to sign, initial and date the will in ink, then have your witnesses do the same. Some states require you to attach a self-proving affidavit or have the will notarized in front of the witnesses.

Reference: Yahoo Finance (Dec. 28, 2020) “Who Can and Cannot Witness a Will?”

What Estate Planning Documents Should I Have when I Retire?

Research shows that most retirees (53%) have a last will and testament. However, they don’t have six other crucial legal documents.

Money Talks News’ recent article entitled “6 Legal Documents Retirees Need — but Don’t Have” says in fact, in this pandemic, 30% of retirees have none of these crucial documents — not even a will — according to the 20th annual Transamerica Retirement Survey of Retirees.

In addition, the Transamerica survey found the following among retirees:

  • 32% have a power of attorney or medical proxy, which allows a designated agent to make medical decisions on their behalf
  • 30% have an advance directive or living will, which states their end-of-life medical preferences to health care providers
  • 28% have designated a power of attorney to make financial decisions in their stead
  • 19% have written funeral and burial arrangements
  • 18% have filled out a Health Insurance Portability and Accountability Act (HIPAA) waiver, which allows designated people to talk to their health care and insurance providers on their behalf; and
  • 11% have created a trust.

The study shows there is a big gap that retirees need to fill, if they want to be properly prepared for the end of their lives.

The coronavirus pandemic has created an even more challenging situation. Retirees can and should be taking more actions to protect their health and financial well-being. However, they may find it hard while sheltering in place.

Now more than ever, seniors may need extra motivation and support from their families and friends.

The Transamerica results shouldn’t shock anyone. That is because we have a long history of disregarding death, and very important estate planning questions. No one really wants to ponder their ultimate demise, when they can be out enjoying themselves.

However, planning your estate now will give you peace of mind. More importantly, this planning can save your heirs and loved ones a lot of headaches and stress, when you pass away.

Talk to an experienced estate planning attorney today to get your plan going.

Reference: Money Talks News (Dec. 16, 2020) “6 Legal Documents Retirees Need — but Don’t Have”

Should I Add that to My Will?

In general, a last will and testament is an easy and straightforward way to state who gets what when you die and designate a guardian for your minor children, if you (and your spouse) die unexpectedly.

MSN’s recent article entitled “Things you should never put in your will” explains that you can be specific about who receives what. However, attaching strings or conditions may not work because there’s no one to legally enforce the terms. If you have specific details about how a person should use their inheritance, whether they are a spendthrift or someone with special needs, a trust may be a better option because you’ll have more control, even from beyond the grave.

Keeping some assets out of your will can actually benefit your future heirs because they’ll get their inheritance faster. When you pass on, your will must be “proven” and validated in a probate court prior to distribution of your property. This process takes some time and effort, if there are issues—including something in your will that doesn’t need to be there. For example, property in a trust and payable-on-death accounts are two types of assets that can be distributed to your beneficiaries without a will.

Don’t put anything in a will that you don’t own outright. If you jointly own assets with someone, they will likely become the new owner. For example, this applies to a property acquired by married couples in community property states.

Property in a revocable living trust. This is a separate entity that you can use to distribute your assets which avoids probate. When you title property into the trust, it is subject to the trust’s rules.  Because a trust operates independently, you must avoid inconsistencies and not include anything in your will that the trust addresses.

Assets with named beneficiaries. Some financial accounts are payable-on-death or transferable-on-death. They are distributed or paid out directly to the named beneficiaries. That makes putting them in a will unnecessary (and potentially troublesome, if you’re inconsistent). However, you can add information about these assets in your letter of instruction (see below). As far as bank accounts, brokerage or investment accounts, retirement accounts and pension plans and life insurance policies, assign a beneficiary rather than putting these assets in your will.

Jointly owned property. Property you jointly own with someone else will almost always directly pass to the co-owner when you die, so do not put it in your will. A common arrangement is joint tenancy with rights of survivorship.

Other things you may not want to put in a will. Businesses can be given away in a will, but it’s not the best plan. Wills must be probated in court and that can create a rough transition after you die. Instead, work with an experienced estate planning attorney on a succession plan for your business and discuss any estate tax issues you may have as a business owner.

Adding your funeral instructions in your will isn’t optimal. This is because the family may not be able to read the will before making arrangements. Instead, leave a letter of instruction with any personal wishes and desires.

Reference: MSN (Dec. 8, 2020) “Things you should never put in your will”

Will I Get A Bill as My Inheritance?
Inheritance paper note on hundred dollar bills

Will I Get A Bill as My Inheritance?

When someone dies and leaves debts, you may ask if you have any personal liability to pay them. The answer is typically no, even though those debts don’t automatically disappear. However, there are situations in which you may have to address issues with a loved one’s creditors after they are gone, says KAKE’s recent article entitled “Can I Inherit Debt?”

The responsibility for ensuring the estate’s debts are paid, is typically that of the executor. An executor performs several tasks to wrap up a person’s estate after death. They include:

  • Obtaining a copy of the deceased’s will, if they had one, and filing it with the probate court
  • Notifying creditors and other entities of the person’s death (like the Social Security Administration to stop benefits)
  • Creating an inventory of the deceased’s assets and their value
  • Liquidating assets to pay off any debts owed by the estate; and
  • Distributing the remaining property to the individuals or organizations named in the deceased’s will (if they had one) or according to inheritance laws, if they didn’t.

In terms of debt repayment, executors must notify creditors who may have a claim against the estate. Creditors are given a set period of time to make a financial claim against the estate’s assets for repayment of debts. It’s not that uncommon for a disreputable creditor to attempt to get paid by the deceased’s relatives.

Any assets in the estate that have a named beneficiary, such as a life insurance policy, a 401(k), individual retirement account, payable on death accounts or annuity, would be transferred to that beneficiary automatically and cannot be touched by creditors.

You typically don’t inherit debts of another like you might inherit property or other assets from them. Thus, if a debt collector tries get money from you, you’re under no legal obligation to pay.

However, if you cosigned a loan with the deceased or opened a joint credit card account or line of credit, those debts are legally yours, just as much as they are the person who died. If they pass away, you’d be solely responsible for repaying them.

You should also know that you may be liable for long-term care costs incurred by your parents, while they were alive. Many states require children to cover nursing home bills, although they aren’t always enforced.

As for spouses, the same rules of debt responsibility apply. However, for debts that are in one spouse’s name only, it’s important to understand how living in a community property state can impact your liability for marital debts. If you live in a community property state (Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin), debts incurred after the marriage by one spouse can be treated as a shared financial obligation.

Reference: KAKE (December 2, 2020) “Can I Inherit Debt?”

 

What Do I Need to Know about Creating a Will?

A simple or basic will allows you to specifically say the way in which you want your assets to be distributed among your beneficiaries after your death. This can be a good starting point for creating a comprehensive estate plan because you may need more than just a basic will.

KAKE’s recent article entitled “What Is a Simple Will and How Do You Make One?” explains that a last will and testament is a legal document that states what you want to happen to your property and “worldly goods” when you die. A simple will can be used to designate an executor for the will and a legal guardian for minor children and specify who (or which organizations) should inherit your assets when you die.

A will must be approved in the probate process when you pass away. After the probate court reviews the will to make sure it’s valid, your executor will take care of the collection and distribution of assets listed in the will. Your executor would also be responsible for paying any debts owed by your estate.

Whether you need a basic will or something more complex, usually depends on a few factors, including your age, the size of your estate and if you have children (and their ages).

Having a will in place can be a good starting point for estate planning. However, deciding if it should be simple or complex can depend on a number of factors, such as:

  • The size of your estate
  • The amount of estate tax you expect to owe
  • The type of assets and property you own
  • Whether you own a business
  • The number of beneficiaries you want to name
  • Whether the beneficiaries are individuals or organizations (like charities)
  • Any significant life changes you anticipate, like marriages, divorces, or having more children; and
  • Whether any of your children or beneficiaries have special needs.

With these situations, you may need a more detailed will to plan how you want your assets to be distributed. In any event, work with an experienced estate planning attorney. With life or financial changes, you may need to create a more complex will or consider a trust. It is smart to speak with an estate planning attorney, who can help you determine which components to include in your plan and help you keep it updated.

Reference: KAKE (Nov. 23, 2020) “What Is a Simple Will and How Do You Make One?”

Is the Pandemic Motivating People to Do Estate Planning?

A survey from Policygenius, an online insurance marketplace, found that most people (60.4%) didn’t have a will, but that may be about to change. Nearly 40% of survey respondents (39.7%) said they feel it’s more important to get a will because of the pandemic.

PR Newswire’s recent article entitled “Policygenius survey finds Americans with misconceptions about estate planning” reports that many respondents also held misconceptions about the estate planning process, which may a reason they avoid it.

The survey found that more than one in five respondents (22.8%) who think getting a will is too expensive overestimated the cost by hundreds or even thousands of dollars.

A total of 48.2% incorrectly thought that their possessions would automatically pass to their spouse, if they died without a will. That may suggest that people may not be creating wills because they think they don’t need them.

There were 24.1% respondents who said that they don’t have a will because they haven’t had time to put one together, and more than half of those respondents (62%) were parents.

The survey also found that respondents prioritized family, with more than a third of them (35.9%) saying that having a child is the most important life event for someone, if they want to create a will. About two-thirds (65.5%) said that making the process of inheritance as easy as possible is one of their top three important issues, when getting a will.

Just 39.3% knew that if someone passes away without a will, a court will determine who gets their assets.

The Policygenius survey is based on responses from a nationally representative sample of 2,689 Americans ages 25 and over. It was conducted by SurveyMonkey from July 16 through July 17, 2020.

Ask an experienced estate planning attorney about a will and a comprehensive estate plan.

Reference: PR Newswire (Dec. 2, 2020) “Policygenius survey finds Americans with misconceptions about estate planning”