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”

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?”

Do I Need a Last Will and Testament?

Estate planning encompasses everything from planning for property distribution at death to preparing for incapacity, tax planning and guardian planning for minor children. An experienced estate planning attorney is involved with far more than a last will and testament. However, this is what most people think of when they sit down for their first meeting.

A recent article titled “Last Will and Testament” from mondaq examines what the last will and testament does and how it differs from trusts. These two are only part of a comprehensive estate plan.

A will is only effective upon death. Its directions are not followed while living or if a person becomes incapacitated. A will does not avoid probate, rather it ensures assets go to the people as directed by the person making the will. Without a will, assets are distributed according to the laws of the state, usually determined by kinship. A certain percentage will go to a spouse and another percentage will go to biological children. Unmarried partners and stepchildren have no legal right of inheritance.

The will is also the legal document used to name an executor, the person responsible for carrying out the directions in the will and managing the estate. The executor has a long list of duties, from making sure the will is validated by the court during probate to applying for an estate tax identification number with the IRS, opening an estate bank account, notifying Social Security of the decedent’s passing, paying debts, paying taxes for the individual and for the estate and distributing property,

The will is used to name a guardian for minor children. When planning has been done correctly, the guardian is provided with information about the children’s lives and financial planning has been done for the children’s support and for their education. A trust is usually used to hold assets for the benefit of the children, with a trustee named to manage funds.

Wills go through probate, which varies by state. Once the will is filed in court, it becomes a public document. Heirs must be notified, even those not included in the will. An alternative is creating and placing assets in a trust to protect privacy and manage and distribute property.

Trusts are not just for wealthy people. They are used to maintain privacy, as the assets in the trust do not pass through probate. The trustee is in charge of the trust and making distributions to beneficiaries. There are many different types of trusts; an experienced estate planning attorney will be able to recommend the optimal one for each client based on their situation.

The trust is effective upon its creation and is a separate legal entity and is also used to protect assets from creditors. Trusts are more complicated than traditional bank accounts. However, their ability to protect assets and maintain privacy make them a valuable part of any estate plan.

If a person becomes incapacitated, the trust remains in effect. If the trust is a revocable trust, meaning the grantor is able to change its terms as long as they are living and the grantor becomes incapacitated, a successor trustee can step in and manage the trust without court intervention.

Trusts do require diligence to create. Trust must be funded, meaning assets need to be retitled so they are owned by the trust. New accounts may need to be open, if retitling is not possible. Beneficiaries need to be established and terms need to be set. The trust can be created to fund a college education or for general use. However, terms need to be established.

A comprehensive estate plan protects the individual while they are living and protects the family after they have passed. It is a gift to those you love.

Reference: mondaq (Nov. 16, 2022) “Last Will and Testament”

Can Executor Take the Money and Run?
Living trust and estate planning form on a desk.

Can Executor Take the Money and Run?

What if your executor or trustee decides to run off to the Bahamas with all your assets, leaving heirs with nothing? Ohio Farmer’s recent article entitled “What if trustee runs off with assets?” says that safeguards should be in place to protect the heirs of an estate.

The most common way to protect against this possibility is a fiduciary bond. An executor, trustee, or guardian would get a bond early in a probate case and file it with the court. The bond would remain in place while the fiduciary is serving his or her role. If the fiduciary absconds with estate assets, the bond is there to help the beneficiaries.

This expense would be covered by the fiduciary, who would need to find a bond company willing to issue it. The bond amount is connected to the value of personal property, such as financial accounts, vehicles and personal effects.

Do you need a bond to cover the value of land? No. The primary difference is that land can’t be picked up easily and moved, making a bond unnecessary. It’s also very hard to transfer land without extensive safeguards. In some cases, court permission is required for a transfer. To sell a farm or ranch, a title company might raise suspicion. Real estate-related actions are also often public record. In some cases, a court action can correct issues or order damages.

It’s possible to waive the requirement of a bond. That’s a default setting for bonds with estates, trusts, or guardianships. Most estate planning documents waive the bond requirement, because family members often serve as fiduciaries.

State law may also describe several situations where a bond isn’t required. However, if a party motions the court, and the judge thinks there’s good cause for a bond, one can be required for a fiduciary.

While a bond can provide some important protections for heirs, the likelihood of a fiduciary running off with assets is low. As a result, most administrations view the bond as an unnecessary step and expense.

However, if a family is concerned about the trustworthiness of a fiduciary, the bond requirement should be reinstated.

If an administration is pending, the family can petition the court to require a bond. Consult with an experienced estate planning attorney to determine the role of bonds for your estate plan.

Reference: Ohio Farmer (Nov. 22, 2022) “What if trustee runs off with assets?”

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”

Can You Prevent Will from Being Contested?

The best planning doesn’t preclude disappointed family members and hangers-on from trying to get what they consider their “fair share” of an estate or will.

There are some steps you can take to avoid this happening to your estate, says a recent article, “Counterattack: Tips for Thwarting a Will Contest,” from Kiplinger.

Traditionally, an in terrorem provision is added, known as a “no-contest” clause to a will or a revocable trust to discourage attacks. If triggered, it can cause an heir to lose their entire inheritance if the person is excluded from a will or trust, or if the person challenges the appointment of the personal representative or trustee or claims to be a creditor when the probate court has denied this status.

However, the no-contest provision isn’t always permitted. They are unenforceable in Florida and Indiana. In some courts, states may refuse to enforce them under certain fact scenarios. There are other ways to achieve the goal of excluding an heir or maintaining a firm grip on the estate.

Authorize personal representative or trustee to pay the cost of a potential contest. In some states, personal representatives and trustees are authorized to litigate on behalf of an estate or trust or retain attorneys to do so. Even when a potential heir is omitted from a will or trust, knowing the assets of the estate will be used for litigation expenses and will shrink the size of the estate is enough to deter some litigious people.

Require mediation for any disputes. Some states allow the use of mediation, arbitration, or alternative dispute resolutions to resolve issues. A will could require a potential challenger to use an alternative to litigation and provide guidelines for dispute mediation, from determining how mediators will be selected, whether the process should be adjudicatory or collaborative and the scope, timing and nature of mediation.

Establish a “litigation holdback fund.” Instead of forfeiting the entire interest in the estate by filing a lawsuit, the beneficiary’s interest in the estate could be escrowed, with access restricted during a will contest. When eventually paid to the beneficiary, the interest would be reduced by the cost of litigation.

Create a separate trust for a contentious beneficiary. The law requires beneficiaries the right to request a complete copy of the trust agreement created for their benefit. By creating revocable trusts for each beneficiary, the beneficiary named in one trust will not see the contents of the trust for other beneficiaries. This could prevent a disgruntled person from comparing their trust to another, but there is a risk of a beneficiary alleging a fraudulent transfer in creating separate trusts.

What else can you do to prevent a will contest?

  • Have the testator/settlor undergo an examination by two physicians to eliminate any charges of incapacity and provide the physician’s signed statements as scheduled to the will or trust.
  • Include a statement of intent from the testator/settlor about the estate plan to demonstrate their intentions.
  • Video the execution of the will or trust. Explain the dispositive scheme and inclusion of beneficiaries and obtain a signed statement from each witness and notary. Have a third party certify the video’s authenticity.

If you are concerned about protecting your estate plan, it’s best to meet with an experienced estate planning attorney to review your estate plan for any potential vulnerabilities. A plan in advance could save all concerned from the headache and expense of an estate battle.

Reference: Kiplinger (Nov. 10, 2022) “Counterattack: Tips for Thwarting a Will Contest”

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”