Trust

What Is a Pour-Over Will?

If the goal of estate planning is to avoid probate, it seems counterintuitive that one would sign a will, but the pour-over will is an essential part of some estate plans, reports the Times Herald-Record’s article “Pour-over will a safety net for a living trust.”  So, what is a pour-over will?

What is a pour-over will
A pour-over will works in conjunction with your trust to make sure all your assets are distributed according to your wishes.

If you pass away with assets in your name alone, those assets will have to go through probate. The pour-over will names a trust as the beneficiary of probate assets, so the trust controls who receives the inheritance. The pour-over will works as a backup plan to the trust, and it also revokes past wills and codicils.

Living trusts became very common, and widely used after a 1991 AARP study concluded that families should be using trusts rather than wills, and that wills were obsolete. Trusts were suddenly not just for the wealthy. Middle class people started using trusts rather than wills, to save time and money and avoid estate battles among family members. Trusts also serve to keep your financial and personal affairs private. Wills that are probated are public documents that anyone can review.

Even a simple probate lasts about a year, before beneficiaries receive inheritances. A trust can be settled in months. Regarding the cost of probate, it is estimated that between 2—4% of the cost of settling an estate can be saved by using a trust instead of a will.

When a will is probated, family members receive a notice, which allows them to contest the will. When assets are in a trust, there is no notification. This avoids delay, costs and the aggravation of a will contest.

Wills are not a bad thing, and they do serve a purpose. However, this specific legal document comes with certain legal requirements.

The will was actually invented more than 500 years ago, by King Henry VIII of England. Many people still think that wills are the best estate planning document, but they may be unaware of the government oversight and potential complications when a will is probated.

Speak with an experienced estate planning attorney to discuss how probate may impact your heirs and see if you agree that the use of a trust and a pour-over will would make the most sense for your family.

Reference: Times Herald-Record (Sep. 13, 2019) “Pour-over will a safety net for a living trust.”

What is the Best Way to Leave an Inheritance to a Grandchild?

Leaving an inheritance to a grandchild requires careful handling, usually under the guidance of an estate planning attorney. Specially if your grandchild is under the age of 18.  The same is true for money awarded by a court, when a minor has received property for other reasons, like a settlement for a personal injury matter.

Use trusts when leaving an inheritance to your grandchild
Leaving an inheritance to your grandchild in a trust will protect the child and the inheritance.

According to the article “Gifts from Grandma, and other problems with children owning property” from the Cherokee-Tribune & Ledger News, if a child under age 18 receives money as an inheritance through a trust, or if the trust states that the asset will be “held in trust” until the child reaches age 18, then the trustee named in the will or trust is responsible for managing the money.

Until the child reaches a stated age (say, 25 or 30 years old), the trustee is to use the money only for the child’s benefit. The terms of the trust will detail what the trustee can or cannot do with the money. In any situation, the trustee may not benefit from the money in any way.

The child does not have free access to the money. Children may not legally hold assets in their own names. However, what happens if there is no will, and no trust?

A child could be entitled to receive property under the laws of intestacy, which defines what happens to a person’s assets, if there is no will. Another way a child might receive assets, would be from the proceeds of a life insurance policy, or another asset where the child has been named a beneficiary and the asset is not part of the probate estate. However, children may not legally own assets. What happens next?

The answer depends upon the value of the asset. State laws vary but generally speaking, if the assets are below a certain threshold, the child’s parents may receive and hold the funds in a custodial account. The custodian has a duty to manage the child’s money, but there isn’t any court oversight.

If the asset is valued at more than the state threshold, the probate court will exercise its oversight. If no trust has been set up, then an adult will need to become a conservator, a person responsible for managing a child’s property. This person needs to apply to the court to be named conservator, and while it is frequently the child’s parent, this is not always the case.

The conservator is required to report to the probate court on the child’s assets and how they are being used. If monies are used improperly, then the conservator will be liable for repayment. The same situation occurs, if the child receives money through a court settlement.

Making parents go through a conservatorship appointment and report to the probate court is a bit of a burden for most people. A properly created estate plan can avoid this issue and prepare a trust, if necessary, and name a trustee to be in charge of the asset.

Another point to consider: turning 18 and receiving a large amount of money is rarely a good thing for any young adult, no matter how mature they are. An estate planning attorney can discuss how the inheritance can be structured, so the assets are used for college expenses or other important expenses for a young person. The goal is to not distribute the funds all at once to a young person, who may not be prepared to manage a large inheritance.

For more information about leaving assets to children, download Mastry Law’s free book or estate planning reports.

To learn more about how to transfer assets to your grandchildren using a trust, schedule a complementary consultation with Mastry Law.

Reference: Cherokee-Tribune & Ledger News (March 1, 2019) “Gifts from Grandma, and other problems with children owning property”

How Do I Leave My Home to My Family?

Figuring out what will happen to your assets after you pass away, is an unpleasant but necessary task. This ensures that your assets are distributed to the people you want. The publication, the day, recently published a story, “Planning to leave your home to your heirs,” that reminds us that it’s best to begin your estate planning, as soon as possible.

Death can unexpectedly impact young or middle-aged families, and your family may not be sufficiently prepared, if you don’t have a will. Estate planning can make certain that your wishes are clearly stated and executed.

Real estate is frequently given to an adult child, grandchild, or is divided among several heirs. Once you know who will receive the property, discuss your plans with these people to keep them apprised of your plans and avoid any unpleasant surprises.

If you include your home in the will, you can stipulate precisely who should benefit from it. You can also say if you want the home to stay in the family or be sold.

Dividing the interest in a property evenly among beneficiaries might seem fair, but it can also create some unexpected complications. If one beneficiary wants to move into the home and another wants to sell it and split the proceeds, things could get dicey. Discuss this issue with your beneficiaries to resolve this potential conflict in advance. One beneficiary could buy out the other beneficiaries’ shares in the property to take sole possession of it. However, you may need a life insurance policy to be sure that the cash is there for a buyout.

A will is also used to delegate responsibilities to certain heirs. You select an executor to oversee the disposition of your estate after your death.

An outstanding mortgage balance can cause some trouble, when passing on a property. Any debts you have at the time of your death, need to be paid before your estate can be settled. If you were still making mortgage payments, be sure your beneficiaries have a plan to avoid a default. Beneficiaries, a surviving spouse, the executor of estate, or any other party can continue to make payments to your bank to avoid a foreclosure process. There are several ways that your beneficiaries can resolve a mortgage, after they take possession of the home. In addition to just selling the property, they can refinance the loan or pay off the mortgage with any assets they have or receive from your estate. That way, they would own the home free and clear.

Review your will regularly to keep it up to date. Make a change if a beneficiary dies, if your own circumstances change, or if your relationship with an heir goes bad.

You can also transfer your home to a living trust. This lets you use and benefit from the asset while living and then transfer it to beneficiaries upon death. This will avoid the probate process and save heirs time and money. The trust document identifies beneficiaries and determines how the estate will be distributed after death. It can also name a trustee to oversee this process and avoid conflict among beneficiaries.

One downside of a living trust is that any outstanding debts must be taken care of before the home and any other assets in the trust can be transferred to beneficiaries.

If a beneficiary is comfortable with assuming some responsibility for owning your home, you can also update the deed to include them. This can be especially helpful, if your spouse isn’t currently on the deed. This will make transfer of the home easier. If the deed says: “transfer on death,” you own the home outright until your death, then it passes to any beneficiaries you name in the deed. When the deed includes the words “joint tenant with right of survivorship,” ownership of the home automatically transfers to any other co-owners on the deed, when you pass away.

Reference: the day (February 15, 2019) “Planning to leave your home to your heirs”

This is the Year to Complete Your Estate Plan!

Your estate plan is an essential part of preparing for the future. It can have a dramatic effect on your family’s future financial situation. Estate planning can also have a significant impact on your tax liability immediately. Utah Business’s article, “5 Estate Planning Tips For 2019,” helps us with some tips.

Your Will. If you have a will, you’re ahead of more than half of the people in the U.S. Remember, however, that estate planning isn’t a one-time thing. It’s an ongoing process that requires making sure your plan reflects your current wishes and financial situation. You should review your will at least every few years. However, there are also some life events that should trigger a review, regardless of when the last review occurred. These include marriage, divorce, the birth or adoption of a child or grandchild, an inheritance, a large financial loss and the loss of a spouse.

If You Haven’t Started Your Estate Plan, Now is The Time.

A Trust. Anyone can create a trust, and it has big estate planning advantages. You can use a trust to pass assets to heirs and other beneficiaries, just like you could with a will. However, assets passed through a trust don’t need to go through probate, which saves time and money. Using a trust to transfer assets provides privacy.

The Current Tax Breaks. The 2017 Tax Cuts and Jobs Act gives us some significant tax cuts in 2019, such as a temporary doubled lifetime exclusion for the gift and estate tax, temporary exemptions from the generation-skipping transfer tax, higher annual gift limits and charitable contribution deductions.

Talk to an Attorney for a Review of Your Estate Plan. It’s important to remember that estate planning is based on a complex set of state and federal laws. You should, therefore, develop a comprehensive estate plan with the help of an experienced attorney. Don’t be tempted to use an online legal do-it-yourself service to save a few dollars, because any mistakes you make could have a big impact on you and your family’s financial future.

Every state has its own laws regarding the formalities required to create a valid will. If you fail to follow any of these, a court may declare your will invalid. Your entire estate will then be distributed according to the laws of intestate succession. These laws may not reflect your wishes for the distribution of your estate. Meeting with an attorney will make certain that your estate planning documents are in order. It will also help you to identify your goals and ensure that your assets are protected and transferred in the most efficient way possible.

Schedule a consultation with Mastry Law to complete your estate planning this year.

Reference: Utah Business (February 5, 2019) “5 Estate Planning Tips For 2019”

Why Do I Need Estate Planning If I’m Not Rich?

Most people spend more time planning a vacation than they do thinking about who will inherit their assets after they pass away. Although estate planning isn’t the most enjoyable activity, without it, you don’t get to direct who gets the things you’ve worked so hard for after you pass away.

Estate Planning isn't only for the rich
An Estate Plan will protect your assets and your loved ones

Investopedia asks you to consider these four reasons why you should have an estate plan to avoid potentially devastating results for your heirs in its article “4 Reasons Estate Planning Is So Important.”

Wealth Won’t Go to Unintended Beneficiaries. Estate planning may have been once considered something only rich people needed, but that’s changed. Everyone now needs to plan for when something happens to a family’s breadwinner(s). The primary part of estate planning is naming heirs for your assets and a guardian for your minor children. Without an estate plan, the courts will decide who will receive your property and raise your kids.

Protection for Families With Young Children. If you are the parent of small children, you need to have a will to ensure that your children are taken care of. You can designate their guardians, if both parents die before the children turn 18. Without a will with a guardianship clause, a judge will decide this important issue, and the results may not be what you would have wanted.

Avoid Taxes. Estate planning is also about protecting your loved ones from the IRS. Estate planning is transferring assets to your family, with an attempt to create the smallest tax burden for them as possible. A little estate planning can reduce much or even all of their federal and state estate taxes or state inheritance taxes. There are also ways to reduce the income tax that beneficiaries might have to pay. However, without an estate plan, the amount your heirs will owe the government could be substantial.

No Family Fighting (or Very Little). One sibling may believe he or she deserves more than another. This type of fighting happens all the time, and it can turn ugly and end up in court, pitting family members against each other. However, an estate plan enables you to choose who controls your finances and assets, if you’re unable to manage your own assets or after you die. It also will go a long way towards settling any family conflict and ensuring that your assets are handled in the way you wanted.

To protect your assets and your loved ones when you no longer can do it, you’ll need an estate plan. Without one, your family could see large tax burdens, and the courts could say how your assets are divided, or even who will care for your children.

Reference: Investopedia (May 25, 2018) “4 Reasons Estate Planning Is So Important”

Why Did the Hawaii Attorney General Oppose a Change to the Trust of a Hawaiian Princess?

Attorney General Russell Suzuki claimed in a court filing that 92-year-old Native Hawaiian princess Abigail Kawananakoa’s amendment to her trust is too complex and invalid based on a prior court ruling, according to The Honolulu Star-Advertiser.

The Clay Center Dispatch reports in the recent article, “Attorney general opposes Hawaiian princess’ trust amendment,” that Judge Robert Browning ruled last fall that Kawananakoa doesn’t have the mental capacity to manage her $215 million trust, after she suffered a stroke in 2017. The judge appointed First Hawaiian Bank to serve as trustee and removed Jim Wright, her longtime attorney who stepped in as trustee following her stroke.

Kawananakoa has indicated that she is feeling okay. She fired attorney Wright and then married Veronica Gail Worth—her girlfriend of 20 years.

Kawananakoa is considered a princess, because she is a descendant of the family that ruled the islands before the overthrow of the Hawaiian Kingdom in 1893.

The princess inherited her wealth as the great-granddaughter of James Campbell, an Irish businessman who made his fortune as a sugar plantation owner and one of the state’s largest landowners.

The Hawaiian princess says she also wants to create a foundation to benefit Hawaiians and exclude board members appointed by Wright. She previously created a foundation to benefit Native Hawaiian causes.

“I will not contribute any further assets to that foundation because I do not want those individuals having anything to do with my trust, my estate and any charitable gifts I make during my lifetime or at my passing,” she said in the amended trust.

Her current foundation has requested a judge to appoint a guardian for Kawananakoa.

In his filing, Attorney General Suzuki wrote that the proposed changes will substantially alter the estate plan Kawananakoa executed before her mental capacity came into question.

In this case, the state represents the public interest in the protection of the trust’s charitable assets, Suzuki said.

A court hearing on the trust amendment is scheduled for next month.

Reference: The Clay Center Dispatch (January 3, 2019) “Attorney general opposes Hawaiian princess’ trust amendment”

estate planning for married couples

Getting Married Again? Protect Your Spouse and Your Children

One of the goals in estate planning when one spouse moves into the home of another spouse, is to ensure that if the owner spouse dies first, the new spouse will be permitted to remain in the home, while preserving the value of the home for the owner spouse’s children. It’s not always an easy situation to resolve, according to an article in the Times Herald-Record, titled “How to preserve your home’s value when remarrying,” but with good planning and a solid estate plan, it can be done.

With poor planning, however, your assets could go to your second spouse and then, to his or her own children, leaving your own children empty-handed.

A common approach is to leave the surviving spouse the right to use and occupy the residence, with a provision in a trust or a will that the surviving spouse pays taxes and home insurance costs and maintains the house. The right to live in the house can be for a limited number of months or years or until they pass away or enter a care facility. When the surviving spouse dies, or the time limit is reached, he or she leaves the house, the house is sold and the proceeds are divided among the children of the owner.

There are other ways to provide more flexibility to the surviving spouse. If the house is too large or expensive to maintain, he or she may be given the right to use and occupy a substituted property, which may be purchased with the proceeds from the owner spouses’ home. Another arrangement allows the owner spouse’s home to be sold with the surviving spouse using the income from the proceeds of the sale of the house to pay for a rental. When the surviving spouse dies (or when the term expires), the children of the first spouse inherit what is left.

A few important things to consider:

  • How well the surviving spouse will be able to maintain the house, either for financial or physical reasons.
  • If the surviving spouse is not taking care of the house and it falls into disrepair, the children may have to file an eviction proceeding.
  • If the trust or will does not specifically instruct the surviving spouse to pay for home maintenance, the children of the owner spouse could be responsible for those costs, and depending on how long the surviving spouse lives, that could be a large burden for a long period of time.

This situation requires thoughtful planning, with many “what if’s” to be asked. An experienced estate planning attorney, who has worked with second marriages and home ownership issues, will be able to provide an objective view of the issues and the solutions.

In addition, bringing family members in for a meeting to discuss the situation, may go along way to prevent, or at least attempt to prevent, larger issues in the future.

Reference: Times Herald-Record (Sep. 22, 2018) “How to preserve your home’s value when remarrying”

Common Estate Planning Mistakes That You Can Avoid

The number one estate planning mistake is failing to have or to update an estate plan, says the Times Herald in the article “Top six estate planning mistakes.” Therefore, start by working with an estate planning attorney to create an estate plan, and you’ll be way ahead of most Americans. Why does this matter?

An estate plan allows you to stay in control of your assets while you are alive, provide for your loved ones and for yourself in the event you become mentally or physically incapacitated, and when you die, give what you have worked to achieve to those you wish. It costs far less to take care of all of this while you are alive. It’s a gift to those you love, who are spared a lot of stress and costs if it must be figured out after you have passed.

Once you have a plan in place, you have to keep it updated. An estate plan is like a car: it needs gas, oil changes, and regular maintenance. If your family experiences significant changes, then your estate plan needs to be reviewed. If you change jobs, have a change in your financial status, or if you receive an inheritance, it’s time for a review. When there are changes to the law, regarding taxes or non-tax matters, you’ll want to make sure your plan still works.

The second biggest mistake we make is failing to plan for retirement. If you start thinking about retirement when it is five or 10 years away, you’re probably going to be working for a long time. When you are in your twenties, it is the ideal time to start saving for retirement. Most people don’t start thinking about retirement until their thirties, and many don’t plan at all.

There are many different “rules” for how to save for retirement and how to calculate how much income you’ll need to live during retirement. However, not all of them work for every situation. Advisors are now telling Americans they need to plan for living until and past their ninetieth birthday. That means you could be living in retirement for four decades.

Mistake number three—failing to fund trusts. Trust funding is completely and correctly aligning your assets with your trust. If you don’t fund the trust, which means putting assets into the trust by retitling assets that include bank accounts, investment accounts, real estate, insurance policies and other assets, adding the trust as an additional insured to home and auto insurance policies and have every change verified, you have an incomplete estate plan. Your heirs will have to clean up the mess left behind.

Fourth, failing to communicate your estate plan to your executor, beneficiaries and heirs is a common and easily avoidable mistake. Talk with everyone who is a part of your estate plan and explain what their roles are. Speak with the person you have named as Power of Attorney and Healthcare Proxy on a regular basis. Make sure they continue to be willing and able to perform the tasks you need them to do on your behalf. Make sure they know where your documents are.

Fifth, don’t neglect to make arrangements for bills to be paid and financial matters to be handled, when you are not able to do so. There are many studies which show that after age 60, our financial abilities decrease about 1% per year. Expect to need help at some point during your later years and put a plan in place to protect yourself and your spouse. If you are the main bill-payer, make sure your spouse can take care of everything as well as you, before any emergency strikes.

Finally, talk with your successors about what you would like to happen if and when you become mentally unable to make good decisions, including caregiving options. As we age, the likelihood of needing to be in a nursing home or other care facility increases. You can’t necessarily rely on your spouse living long enough to take care of you. Make sure that your financial power of attorney contains the appropriate gifting language, your assets are titled properly, and your successor financial agents know about the plan you have created. If you don’t have a long-term care policy now, try to buy one. They are less expensive than having to pay for care.

Protect yourself, your family and your loved ones by addressing these steps. You’ll be giving yourself, your spouse and your loved ones peace of mind.

Reference: Times Herald (Dec. 14, 2018) “Top six estate planning mistakes”

Estate Planning Checklist

A will is just one of a handful of documents every adult should have in place to protect themselves while they are living, and their heirs and families after they have passed away. Here are the “5 estate planning must-haves,” according to an article from the Augusta Free Press:

  1. Wills and Trusts. Your will directs the distribution of your assets. Without a will, the court will determine who gets your possessions, real property and any other assets, following the laws of your state. Depending on your situation, you and your heirs may benefit from setting up trusts to protect your assets from the probate process, maintain your privacy and possibly avoid some taxes. Keep in mind that if the will or trust is not created properly or doesn’t follow your state’s laws, it could be challenged or deemed invalid. Work with an experienced estate planning attorney to protect your family.
  2. Many of your accounts—bank accounts, investment accounts, retirement accounts, insurance policies—may already have a named beneficiary, who will inherit the account upon your death. However, if you have not updated those names recently, you may find the wrong person inheriting your assets. Once that occurs, there is no legal means of transferring the assets to another person. Always make sure you have a contingent (or secondary) beneficiary named, so if the primary beneficiary dies before you, or for some reason declines to accept the asset, you will have had an opportunity to choose another person to receive the asset. If there is no contingent beneficiary, the court will make that decision.
  3. Letter of Intent. It must be said that this is not a legally binding document. However, the information it could provide to your loved ones might be very helpful, as they move through the process of settling your estate. It can explain why you structured your asset distribution the way you did, why you would want a given family heirloom passed to a specific family member, or what you would like to have happen at your funeral. If you are not able to discuss these matters in a face-to-face conversation with your loved ones, this is a useful alternative.
  4. Power of Attorney. Planning for incapacity is an important part of estate planning. If you become incapacitated, you’ll need to have already given someone the power to manage your financial affairs. If you do not have a power of attorney, your family will need to turn to the court system, which will create delays and added stress. You’ll also want to have a healthcare power of attorney in place. Most people assume their spouses will immediately take on this role, but not everyone is capable of making the hard decisions, especially during an emergency situation.
  5. Legal Advice. Estate planning laws are governed by your state of residence. Your best option is to make an appointment with a local estate planning attorney to learn whether there are any other documents and plans you need to put into place. Some law firms provide a means of documenting assets to ensure that, at the time of death, your family isn’t on a scavenger hunt to identify assets. In certain states, you can assign a funeral representative to make sure your funeral, burial or cremation and memorial service wishes are carried out. Your attorney will know what you and your family need.

Reference: Augusta Free Press (Nov. 27, 2018) “5 estate planning must-haves”

Why Do I Need an Estate Plan?

Investopedia’s recent article, “4 Reasons Estate Planning Is So Important,” says you should think about the following four reasons you should have an estate plan. According to the article, doing so can help avoid potentially devastating consequences for your family.

  1. An Estate Plan Keeps Your Assets from Going to Unintended Beneficiaries. A primary part of estate planning is choosing heirs for your assets. Without an estate plan, a judge will decide who gets your assets. This process can take years and can get heated. There’s no guarantee the judge will automatically rule that the surviving spouse gets everything.
  2. An Estate Plan Protects Your Young Children. If you are the parent of minor children, you need to name their guardians, in the event that both parents die before the children turn 18. Without including this in your will, the courts will make this decision.
  3. An Estate Plan Eliminates a Large Tax Burden for Your Heirs. Estate planning means protecting your loved ones—that also entails providing them with protection from the IRS. Your estate plan should transfer assets to your heirs and create the smallest tax burden as possible for them. Without a plan, the amount your heirs may owe the government could be substantial.
  4. An Estate Plan Reduces Family Headaches After You’ve Passed. There are plenty of horror stories about how the family starts fighting after the death of a loved one. You can avoid this. One way is to carefully choose who controls your finances and assets, if you become mentally incapacitated or after you die. This goes a long way towards eliminating family strife and making certain that your assets are handled in the way you want.

If you want to protect your assets and your loved ones after you’re gone, you need an estate plan. Without one, your heirs could face large tax burdens and the courts could decide how your assets are divided or even who will care for your children.

Reference: Investopedia (May 25, 2018) “4 Reasons Estate Planning Is So Important”

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