April 12, 2017October 25, 2023

The Core of Estate Planning

If you feel overwhelmed about planning your estate, it might be helpful to remember what is at the core of estate planning. It is a way to transfer assets.

Estate planning can be and do many different things. It can provide for the care of minor children. It can be a way to let people know that you love them. It can create a charitable legacy.

In fact, there are so many things estate planning can be and do that may people get overwhelmed thinking about all of them. As a result, they do not create estate plans.

At its core, however, estate planning is not that complicated. Estate planning can be as simple as transferring your assets after death.

As the Times Herald-Record explains in “Transferring assets upon death,” there are four main ways to do that, including:

Wills – In a will you state who should get your assets and appoint someone to be in charge of making sure that your wishes are carried out. Wills have to be approved by a probate court.
Joint Ownership – If you have assets in joint ownership with another person, then by law when you pass away the joint owner becomes the sole owner of the asset.
Beneficiary Designations – For life insurance policies, retirement accounts and savings accounts, you name a specific beneficiary to receive the assets after you pass away. A court does not need to approve the designation.
Trusts – With a trust, you state how your assets should be handled, appoint someone to handle them and name the people for whose benefit the assets will be handled.

How do you know which approach or approaches are best for your circumstances? Contact an experienced estate planning attorney.

Reference: Times Herald-Record (March 15, 2017) “Transferring assets upon death.”

April 7, 2017

The Aging Wealthy are Making Plans

Much of the world's wealth is in the hands of a relatively small number of super wealthy individuals. Many of them are now elderly and making plans about what will happen to their wealth, after they pass away.

Over the past few years, you may have heard reports about income and wealth inequality in the U.S. Economic data shows that the country's wealth is rapidly being concentrated into fewer and fewer hands, at the top of the socioeconomic scale.

As a result, many politicians like to talk about the top 1%. However, the data shows that wealth is even far more concentrated than that. Actually, it is in the top 0.1%.

This same phenomenon is not just occurring in the U.S. It is happening all over the world.

What will happen to all of that concentrated wealth when the current holders pass away, is a burning question as they continue to get older and older and eventually die?

This was the subject of a recent Private Wealth article "The World's Aging Rich Are Plotting What's Next."

The article provides many examples of what various wealthy people are planning. They naturally wish to keep their wealth away from waiting governments and do not want their families to fight over it.

This has led to various legal methods to avoid estate taxation and other problems.

Some are choosing to transfer the bulk of their assets to family members now. Others are planning to give a large portion of their wealth away to charities, so their families have nothing to fight over.

Since much of the world's wealth is in complicated trusts and other entities, it will be interesting to see how it all gets sorted out when the current holders continue to age and do pass away.

Reference: Private Wealth (March 3, 2017) "The World's Aging Rich Are Plotting What's Next."

April 6, 2017February 23, 2022

Delaware Trusts in Doubt

For decades, Delaware trusts were considered the gold standard for asset protection. A recent case has called that into doubt and many people now prefer Nevada trusts.

When people set up dynasty trusts, one of their goals is to keep assets in the family. That is the primary reason for the trusts. People would rather have their assets go to their children and grandchildren, instead of an ex-spouse of one of the children getting the assets, for example.

For a long time, the preferred way of accomplishing this was to create a Delaware dynasty trust. It was believed that Delaware offered the best asset protection.

A 2014 court decision, however, has led many people to question whether Delaware is still the best option, according to Kiplinger in “Delaware Trust? You May Want to Consider Nevada Instead.”

The case is truly only remarkable because the decision came as a surprise.

The facts themselves are simple.

A man created a Delaware dynasty trust for the benefit of his son, his son’s spouse and his grandchildren. Over the years, the trust assets grew to hundreds of millions of dollars. The son and his wife got divorced.

The court ruled that the now ex-spouse was entitled to a portion of the dynasty trust, so the assets were not kept in the family as desired.

This decision has caused many to look for other states in which to create trusts that better preserve assets in the family. Nevada is the most popular choice, since it allows trusts to be created that shield assets from ex-spouses, even for child support purposes.

Reference: Kiplinger (March 2017) “Delaware Trust? You May Want to Consider Nevada Instead.”

February 16, 2017

Signing an Inheritance Away. It Happens.

It is every parent's worst fear. A child will agree to give away their inheritance for far less than it is worth for quick money.

Recently, MarketWatch published an advice column with the following question as its title: "My drug-addicted friend signed away his $800,000 inheritance to his brother — now he’s clean, can he get it back?"

The title is an almost complete description of what happened. A reader wrote in with a story about his friend who inherited $800,000 from his father's will. The friend was addicted to drugs and agreed to sign his rights to the inheritance away to his own brother for only $10,000.

Now, that the friend is sober, the reader wonders whether there is any way to get the inheritance back.

The column writer suggests that the friend hire an attorney and sue the brother for fraud based on the premise that he knowingly took advantage of someone who was mentally incapacitated. That might work in some cases.

But not so fast.

There are some states and courts that are not quick to undo agreements that drug addicts voluntarily enter into, especially if it cannot be proven they were high at the time of making the agreement.

This is the type of scenario about which many parents have nightmares, when it comes to their addicted children. Leaving the child an inheritance outright can quickly be lost.

Fortunately, there are ways to avoid the problem altogether without disinheriting the drug-addicted child. A trust can be used to protect the inheritance with a trustee who is granted the discretion to only distribute money when the child is able to handle it.

Reference: MarketWatch (Jan. 24, 2017) "My drug-addicted friend signed away his $800,000 inheritance to his brother — now he’s clean, can he get it back?"

February 7, 2017

Market Shifts and Trust Investments

Some experts believe that equities and bonds are about to undergo a dramatic shift in their relationship. That could have an important impact on how trustees invest trust assets.

For approximately 30 years, many types of investors have enjoyed a luxury that many of them did not know was unusual. The equity and bond markets had a negative correlation. That made maintaining a diversified portfolio relatively easy.

Prior to the last 30 years, the two markets had been positively related. Some experts believe the change was brought about because of the relatively low inflation rates in recent decades. They believe that inflation rates will rise in the near future and cause a return to the more historical positive correlation between equities and bonds.

This is reported by Financial Advisor in "Forget 30 Years Of Stock And Bond Divergence, Bernstein Says."

If this shift does occur, trustees will need to pay attention. Trustees are required to invest trust assets by following the prudent investor rule. For the last 30 years, that has meant following modern portfolio theory and diversifying assets between different classes of investment. However, a return to bonds and equities having a positive relationship will make diversification of investments more difficult.

Trustees' jobs will become much more difficult.

Of course, this shift has not happened yet and might never happen. Most market predictions never come to fruition. However, trustees should pay attention and make sure that they are following the best advice about investing trust assets.

Reference: Wealth Management (Jan. 10, 2017) "Forget 30 Years Of Stock And Bond Divergence, Bernstein Says."

January 5, 2017

What Estate Planning Is

Do not be confused about what estate planning is and whether or not you need to do it.

Most Americans do not have estate plans. One of the reasons that they don’t is confusion about what getting an estate plan means and who should have them. The term "estate" often conjures up images of the palatial estates of the ultra-wealthy. However, the term applies to the property of anyone who passes away.

We all have estates. For that reason, it is important to know what estate planning actually does.

Recently, the Vail Daily discussed some basics in "Estate Planning."

If an estate is the property you have when you pass away, then estate planning is deciding what should happen to that property. It is you deciding beforehand who you want to have your property and the legal means by which they will receive it.

The two most common methods to have your property distributed are through wills and trusts.

A will is a legal document that is submitted to a court. The will sets out who should receive what. If the will is valid, the court will oversee the process of making sure that the property goes where you want it to.

A trust creates a new legal entity to hold and distribute property. It is not normally submitted to a court, unless it is a “testamentary” trust created under a will to manage the estate distribution. Another person known as a trustee, is charged with making sure that your directions are followed.

There are other aspects of estate planning you should address, including planning for your own end-of-life care. Visit an estate planning attorney if you have questions about wills, trusts, or any other aspects of estate planning. Profit Law Firm works with clients to find their goals and wishes and create plans that implement their desires.

Reference: Vail Daily (Dec. 8, 2016) "Estate Planning."

December 21, 2016November 26, 2024

What You Might Have Wrong About Wills and Trusts

Although wills and trusts have been standard legal documents for a long time, many people still have misconceptions about them.

Estate planning can be complicated by the fact that many people have misconceptions about the basics of wills and trusts and what having either one of them means. This problem is compounded by the Internet as people who are wrong, often share their misconceptions with other people online. The result is more confusion.

Recently, TCPalm discussed common misconceptions in “Common misconceptions about wills and trusts,” including:

Having a will means that your estate does not have to go through probate. This is completely false. In most cases, wills have to be submitted to a probate court for administration in both Maryland and the District of Columbia.
If your estate is not large enough to pay the estate tax, then you do not need to have a will or trust. This is another falsehood since there are many other reasons to have a will or trust. The most important is that if you do not, then all of your property will be distributed according to statutory rules instead of how you might have preferred it to be distributed.
By putting your assets in a revocable trust, you lose the ability to have any control over the assets. This is not true. If you are the trustee of your trust and the trust is drafted properly, then you will still be able to do whatever you want with your assets during your lifetime.
You have to file a separate tax return for your revocable trust. This is also not true. As long as your trust is properly drafted, a revocable trust will not be considered a separate legal entity during your lifetime and you will not need to file a separate tax return for it.
Another misconception about revocable trusts is that they reduce your tax burden. They do not. Some irrevocable trusts do that. Call Profit Law Firm for a consultation and advice on using revocable trusts and irrevocable trusts.

Talk to a qualified estate planning attorney who will be more than happy to educate you on the realities of estate planning.

Reference: TCPalm (Dec. 2, 2016) “Common misconceptions about wills and trusts.”

December 20, 2016September 15, 2022

Naming Your Trust the Beneficiary of Your IRA

If you have a trust and would like to make it the beneficiary of your IRA instead of an individual, you can do so. However, there are some important things to consider before doing so.

When people get trusts, one of the first things they are told is that they should put all of their important assets into the trust. They are often told that they can designate their trusts as beneficiaries of their life insurance policies and retirement accounts, and that they should consider doing so.

However, for tax purposes, it is not always a good idea to designate a trust as the beneficiary of your IRA, as Financial Advisor explains in “Is Naming A Trust As Beneficiary Of A Client’s IRA A Good Idea?”

The biggest and most important issue is that IRA beneficiaries must take required minimum distributions or face tax consequences. This requirement does not go away when the beneficiary is a trust and not an individual.

Satisfying the requirement with a trust can get technical.

Every beneficiary of the trust must be identifiable and must be an individual. While that might seem easy to accomplish, it is not always the case. Every successive beneficiary must be an identifiable individual. Therefore, the beneficiaries who would automatically receive the trust assets when a previous beneficiary passes away, must be an identifiable individual.

This can be an issue if a residual clause in the trust includes giving assets to a charity, for example.

That is not the only complication with designating a trust as the beneficiary of an IRA. There are other potential problems, which is why you should consult with an estate planning attorney before doing so.

Reference: Financial Advisor (Dec. 2, 2016) “Is Naming A Trust As Beneficiary Of A Client’s IRA A Good Idea?”

December 19, 2016February 23, 2022

Depression Era Trusts May Expire Soon

Many family dynasty trusts created during the Great Depression to avoid rising taxation, will automatically terminate soon. Trustees and beneficiaries need to be prepared.

One of the lasting legacies of the Great Depression will soon come to an end. In response to that crisis, the government greatly increased the gift and estate tax rates. Wealthy families responded, in turn, by creating dynastic trusts to hold their wealth and preserve it for future generations.

Most of the trusts created at that time have mandatory termination dates at which time the trust assets must be distributed to the residual beneficiaries.

Successfully carrying out that process will require some planning as the Wills, Trusts & Estates Prof Blog explained in “Preparing for Trust Termination.”

The first challenge for many trusts and trustees will be determining the residual beneficiaries. In many cases, they could be distant relations of the original trust settlors and not the same people who currently receive regular distributions from the trusts.

Once the beneficiaries are determined, they will need to plan for how receiving the trust assets, will impact their lives and financial futures. Depending on the amount of money received, the beneficiaries’ tax and estate plans could change dramatically.

Those who do not plan appropriately, could face negative consequences that could have been avoided.

If you are a residual beneficiary of a depression era trust, you should seek independent legal advice. It might not be a good idea to rely on the advice offered by the trustees and their legal advisors. Profit Law Firm, LLC can provide an independent consultation.

You need an attorney who will be acting only in your interests.

Reference: Wills, Trusts & Estates Prof Blog (Dec. 5, 2016) “Preparing for Trust Termination.”

December 14, 2016February 23, 2022

A Charitable Legacy Requires Planning

If you want to be remembered for charitable giving, then you should get started with an estate plan.

At this time of year, it can seem like giving to charity is something done with little forethought. It can require no more than dropping loose change in a bell ringer’s bowl at the grocery store or putting a new toy in a designated box at the mall.

While anonymous giving like that is helpful, having a true charitable legacy requires more work and considerable forethought.

People who want to be remembered for being charitable benefactors, need to get comprehensive estate plans as the Port Huron Times Herald explains in “Plan today to make a difference tomorrow.”

With an estate plan, you can set up your charitable giving to be ongoing after you pass away. If you want, you can leave one time gifts in your plan but also create new legal entities that will continue to give to charity indefinitely. You can even dictate what charities these entities will give to and for what purposes. In essence, an estate plan gives you much greater control over how and what your charitable giving will accomplish.

The entities you use to accomplish charitable giving can be relatively simple trusts or they can be complex family foundations. We provide more information on charitable giving on the Profit Law Firm, LLC website.

Without proper planning, however, creating a charitable legacy is nearly impossible. Attempts to do so can easily fall afoul of the law and IRS regulations. Thus, if you would like to leave a charitable legacy, consult with an estate planning attorney to review your options. Profit Law Firm can help inform you about the various charitable trusts you can use to accomplish your goals.

Reference: Port Huron Times Herald (Nov. 25, 2016) “Plan today to make a difference tomorrow.”

Building Legacies that Last Estate Planning and Elder Law

Tag: Trusts