Why Everyone Needs an Estate Plan

Why Everyone Needs an Estate Plan

Estate planning means making plans to manage and distribute assets and caring for loved ones in the event of a person’s death or incapacity. It also involves the creation of legally binding documents to outline a person’s wishes for health care and financial matters. Estate planning ensures your wishes are carried out and is also used as a means to minimizes taxes, as explained in the article “Why Estate Planning Is Important Even If You Don’t Have Assets” from The LA Progressive.

Even if you don’t have significant assets, you still need to make decisions about your health care, which is done as part of an estate plan. Here are the fundamentals to get you started.

Will. This is a legal document with specific instructions regarding how your assets are to be distributed after death and who should be named as a guardian to care for minor children. The will is also used to name a person to serve as executor of your estate to carry out your wishes and manage distribution of assets.

Trust. A trust is a legal entity holding property or other assets on behalf of another person, known as the beneficiary. There are many different types of trusts, including revocable, irrevocable and charitable trusts.

The revocable trust allows you to maintain control over assets in the trust during your lifetime. After death, the assets in the trust are distributed according to the terms in the trust. An irrevocable trust can’t be changed or amended once it’s established. Charitable trusts are used to provide for a nonprofit organization.

Trusts are used to manage and distribute assets during a person’s lifetime and after their death. They are also used to remove assets from the taxable estate and can also be used to manage expenses associated with the distribution of one’s estate.

Healthcare Power of Attorney. This document allows you to name someone to make medical decisions on your behalf if you are incapacitated and can’t make decisions for yourself. These should be created with your personal situation in mind; a standard form may not permit the nuances you want to convey to another person. With a customized healthcare POA, you can specify the type of decisions your healthcare agent may make and describe any limitations you want over their authority.

Financial Power of Attorney. The financial POA allows you to name a person, called your “agent” or “attorney in fact,” to manage finances if you are too sick or injured to do so. This should also be a customized document, as you may want to limit your agent’s authority to pay bills or allow them to do everything from paying bills to managing investment accounts. The POA expires upon your death and the agent can’t perform any tasks once you have passed away.

Without an estate plan, the care of minor children and distribution of assets takes place according to state laws, which isn’t how most people want their decisions made. The solution is actually quite easy: talk with a local estate planning attorney and get started on creating your estate plan.

Reference: LA Progressive (Jan. 11, 2023) “Why Estate Planning Is Important Even If You Don’t Have Assets”

How Does My Co-op Fit into My Estate Planning?

How Does My Co-op Fit into My Estate Planning?

Parents bought a studio apartment in a New York City co-op for their adult son with special needs. He’s able to live independently with the support of an agency.

The couple asked the co-op board to let them transfer the property to an irrevocable trust, so when they die, the son will still have a place to live. However, the board denied their request.

An individual with special needs can’t inherit property directly, or he’ll no longer be able to receive the government benefits that support him. What should the parents do?

The New York Times’ recent article entitled “Can I Leave My Co-op to My Heirs?” explains that parents can leave a co-op apartment to their children in their will or in a trust. However, that doesn’t mean their heirs will necessarily wind up with the right to own or live in that apartment.

In most cases, a co-op board has wide discretion to approve or deny the transfer of the shares and the proprietary lease.

If the board denied the request, the apartment will be sold and the children receive the equity. Just because the will says, ‘I’m leaving it to my children,’ that doesn’t give the children the absolute right to acquire the shares or live there.

In some instances, the lease says a board won’t unreasonably withhold consent to transfer the apartment to a financially responsible family member. However, few, if any, leases extend that concept to include trusts.

The parents here could wait to have the situation resolved after their deaths, leaving clear directives to the executor of their estate about what to do should the board reject a request to transfer the property into a trust for their son. However, that leaves everyone in a precarious position, with years of uncertainty.

Another option is to sell the co-op now, put the proceeds in a special-needs trust and buy a condo through that trust. The son would then live there.

Unlike co-ops, condos generally allow transfers within estate planning, without requiring approval.

While this route would involve significant upheaval, the parents would have more peace of mind.

However, before buying the condo, an experienced estate planning attorney should review the building’s rules on transferring the unit.

Reference: New York Times (Oct. 1, 2022) “Can I Leave My Co-op to My Heirs?”

Should Spouses Use the Same Estate Planning Lawyer?

Should Spouses Use the Same Estate Planning Lawyer?

It’s a question that some couples should ask. For many, their estate is their estate together, right? Not always. There are benefits to using the same estate planning attorney. However, there may be reasons to use different attorneys, as discussed in the article “Should My Spouse and I Hire the Same Estate Lawyer?” from The Street.

If your estates are relatively simple and your interests are the same, it does make sense to use the same estate planning attorney. If there’s no need for sophisticated tax planning, yours is a first marriage with no children, or you own one piece of property, one attorney can represent both partners.

It’s important to understand joint representation. This means both partners and the attorney agree to share all information learned from one spouse with the other spouse. These terms are often outlined in the engagement letter signed when the attorney is retained.

However, life and marriages are not always so simple. Let’s say that one spouse owns property or a share of property in another state purchased before the marriage and not co-owned with the spouse. This often occurs when property is owned by members of the spouse’s immediate family, like a business property or a vacation home they own jointly with siblings or parents. It may also be property one spouse is likely to inherit with the expectation the property ownership remains solely with bloodline family members.

Note that owning property in another state will likely also require the services of another estate planning attorney who is familiar with the local laws. The out-of-state attorney can advise if there are any special planning considerations needed, such as placing property in a family-controlled entity, like a limited liability company or other family partnership.

Coordinating communication between the out-of-state attorney and the primary in-state attorney will be important, since there may be interrelated planning considerations to be addressed in wills or trusts.

What if you and your spouse have different communication styles? One wants a talkative attorney who wants to dive into long-term planning goals, engaging in discussions about building a legacy, while the other wants documents prepared, signed and executed, minus any big picture conversations.

A simple solution would be for each spouse to identify an attorney at the same firm who matches their personal style.

Another reason for using different estate planning attorneys is if one wants to use a “floating spouse” provision, which can cause some feelings to arise. This is a provision defining a “spouse” as the person you are married to at the time of death. If there’s a divorce and the prior spouse would have had a vested interest in property, the floating spouse provision affords another layer of protection to keep assets to the spouse at the time of death.

There are non-divorce related reasons for the floating spouse provision. If an irrevocable trust is created to benefit the spouse, the ability to make changes to the trust can be challenging, time consuming and costly. With a floating spouse provision, the prior spouse is removed as a beneficiary and the new spouse could be easily substituted. In this case, independent counsel is advised, as interests are considered legally adverse.

Estate planning is a personal process and there is no one-size-fits-all solution. If any part of the estate creates adverse interests, joint representation may not work. However, when the estate is relatively simple and the couple’s goals are the same, having a spouse by your side during the planning procress could give each of you the incentive to take care of this very important task.

Reference: The Street (Nov. 30, 2022) “Should My Spouse and I Hire the Same Estate Lawyer?”

Should I Need a Trust in My Estate Plan?

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”