Read more about the article Protecting Assets with a Trust vs. Limited Liability Company – Annapolis and Towson Estate Planning

Protecting Assets with a Trust vs. Limited Liability Company – Annapolis and Towson Estate Planning

While trusts and Limited Liability Companies (LLCs) are very different legal vehicles, they are both used by business owners to protect assets. Understanding their differences, strengths and weaknesses will help determine which is best for your situation, as explained by the article “Trust Vs. LLC 2023: What Is The Difference?” from Business Report.

A trust is a fiduciary agreement placing assets under the control of a third-party trustee to manage assets, so they may be managed and passed to beneficiaries. Trusts are commonly used when transferring family assets to avoid probate.

A family home could be placed in a trust to avoid estate taxes on the owner’s death, if the goal is to pass the home on to the children. The trustee manages the home as an asset until the transfer takes place.

There are several different types of trusts:

A revocable trust is controlled by the grantor, the person setting up the trust, as long as they are mentally competent. This flexibility allows the grantor to hold ownership interest, including real estate, in a separate vehicle without committing to the trust permanently.

The grantor cannot change an irrevocable trust, nor can the grantor be a trustee. Once the assets are placed in the irrevocable trust, the terms of the trust may not be changed, with extremely limited exceptions.

A testamentary trust is created after probate under the provisions of a last will and testament to protect business assets, rental property and other personal and business assets. Nevertheless, it only becomes active when the trust’s creator dies.

There are several roles in trusts. The grantor or settlor is the person who creates the trust. The trustee is the person who manages the assets in the trust and is in charge of any distribution. A successor trustee is a backup to the original trustee who manages assets, if the original trustee dies or becomes incapacitated. Finally, the beneficiaries are the people who receive assets when the terms of the trust are satisfied.

An LLC is a business entity commonly used for personal asset protection and business purposes. A multi-or single-member LLC could be created to own your home or business, to separate your personal property and business property, reduce potential legal liability and achieve a simplified management structure with liability protection.

The most significant advantage of a trust is avoiding the time-consuming process of probate, so beneficiaries may receive their inheritance faster. Assets in a trust may also prevent or reduce estate taxes. Trusts also keep your assets and filing documents private. Unlike a will, which becomes part of the public record and is available for anyone who asks, trust documents remain private.

LLCs and trusts are created on the state level. While LLCs are business entities designed for actively run businesses, trusts are essentially pass-through entities for inheritances and to pass dividends directly to beneficiaries while retaining control.

Your estate planning attorney will be able to judge whether you need a trust or an LLC. If you own a small business, it may already be an LLC. However, there are likely other asset protection vehicles your estate planning attorney can discuss with you.

Questions? Contact us to schedule a complimentary initial call with one of our experienced estate planning attorneys.

Reference: Business Report (April 14, 2023) “Trust Vs. LLC 2023: What Is The Difference?”

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Read more about the article What Is a Beneficiary? Annapolis and Towson Estate Planning

What Is a Beneficiary? Annapolis and Towson Estate Planning

A beneficiary can be designated by the owner or automatically assigned through the policy or contract. It’s essential to understand who these beneficiaries are and how they will be affected by the annuity payments to best plan for retirement income needs, says The Salisbury Post’s recent article entitled “What exactly is a beneficiary?” Let’s look at the different types:

  • Primary Beneficiary: This is typically designated by the owner when they buy the account who will receive any remaining funds from the annuity after the owner’s death. If there are multiple primary beneficiaries on an account, each may get a proportional portion of any remaining funds at death based on their age and relationship to the owner. Depending on individual circumstances, this may be taxable.
  • Secondary Beneficiaries: This is another individual who might benefit from an annuity upon the death of both owners (if it’s owned jointly). If a secondary beneficiary isn’t named, any remaining funds will pass directly through the owner’s estate according to state laws of intestate succession, if applicable.
  • Contingent Beneficiaries: In some instances, an owner may want to name a contingent beneficiary in the event that the primary and secondary beneficiaries predecease him or her before taking ownership of the annuity.

Annuity owners should keep their beneficiaries up to date by making sure they’re aware of changes in their lives such as marriages, divorces, the births or adoptions of children, the deaths of a loved ones, or any other relevant life events that may impact the ownership and/or distribution of the annuity policy.

It’s also important to think about the tax implications for everyone involved and how the funds should be allocated should something unexpected happen.

By understanding annuity beneficiaries and taking the time to name them correctly, an annuity owner can be sure his or her beneficiaries receive the funds from the annuity in accordance with their wishes.

Speak to an experienced estate planning attorney for more information about annuities and how naming the correct beneficiaries may help protect both you and those closest to you in the future.

Contact us to review your estate plan with one of our experienced estate planning attorneys.

Reference: Salisbury Post (Feb. 26, 2023) “What exactly is a beneficiary?”

 

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Read more about the article Do I Need a Will If I’m Leaving Insurance Policy to a Beneficiary? Annapolis and Towson Estate Planning

Do I Need a Will If I’m Leaving Insurance Policy to a Beneficiary? Annapolis and Towson Estate Planning

If you aren’t thorough with your estate planning, you could create conflict, even with the best of intentions, says a recent article from Yahoo Entertainment titled “Life Insurance Beneficiary vs. Will: Do I Need Both?”

Your life insurance beneficiary designation supersedes your will, so you’ll need to have your life insurance policy and your will aligned to save heirs from stress, confusion, and possible litigation. You can use both life insurance beneficiaries and wills to bequeath assets to others when you die. However, they can work together or against each other, so meticulous planning is key.

Here’s how they work, and which takes precedence.

A life insurance beneficiary is the person or entity, like a charity, named to receive proceeds from your life insurance policy when you die. Your beneficiary will receive payment from the life insurance policy according to the terms of the policy. Who you designate as a beneficiary doesn’t have anything to do with who receives other assets from your estate, such as property or financial accounts.

A will is a legal document declaring who should receive your possessions after death. The will does not define the destination of one specific asset, like a life insurance beneficiary. Instead, it contains a list of the beneficiaries who you wish to receive your assets.

If you have minor children, a will is also used to assign legal guardians, the people who you wish to raise your children in your absence.

Your will needs to go through probate court before beneficiaries receive anything. The probate process confirms your will’s authenticity, interprets the language in the will and authorizes the named executor to carry out your intentions. Your life insurance policy goes directly to your beneficiary without probate review.

Does a life insurance policy override a will? If you designate one person to receive your life insurance policy proceeds and then name a different person in the will to receive the proceeds, the person named in the life insurance policy will win. Any intentions in the Will don’t influence or have any legal power over what’s in the will.

Your beneficiary designation in the policy is the sole determining factor, with one exception. If the beneficiary passes away before you and there is no contingent beneficiary named, the life insurance proceeds will go to your estate. Your executor will then disburse assets from the estate according to the beneficiaries named in your will.

Do you need a will? While a will has no influence over your life insurance, it’s a critical part of your estate plan. Probate court uses the will to determine who receives assets and name an executor. Just be sure that your will, any trusts and named beneficiaries on life insurance and other accounts are aligned to avoid creating friction between loved ones. It’s best to have a will to bring cohesion to your estate plan, instead of relying on separate beneficiary designations.

Contact us to review your estate plan with one of our experienced estate planning attorneys.

Reference: Yahoo entertainment (Feb. 6, 2023) “Life Insurance Beneficiary vs. Will: Do I Need Both?”

 

Sims & Campbell, LLC – Annapolis and Towson Estate Planning Attorneys

Read more about the article Is an Estate Plan Battle Looming? Annapolis and Towson Estate Planning

Is an Estate Plan Battle Looming? Annapolis and Towson Estate Planning

Some people don’t create an estate plan before they die. Or, if they do, they failed to have an estate plan created with an experienced estate planning attorney and their will is unclear, or even invalid. They might die with debts conflicting with their wishes. These and other situations can lead to a long and expensive probate period, as described in the article “In-fighting Families, Wills, Laws & Other Things That Could Hold Up Probate” from yahoo!.

How long does it take for an estate to move through the probate process? It depends upon the complexity of the estate and how well—or poorly—the estate plan was created.

What is probate? Probate is the process where the court oversees the settlement of an estate after the owner dies. If there is a will, the court authenticates the will and accepts or denies the executor named in the will to carry out its instructions. The executor is usually the decedent’s spouse or closest living relative.

How does probate work? Probate is governed by state law, so different states have slightly different processes. The first thing is authenticating the will and appointing an executor. The court then locates and accesses all of the property owned by the decedent. If there are any debts, the estate must first pay off the debts. When the debts have been paid, the court can distribute the remaining assets in the estate to heirs.

If there is no will, the person is said to have died intestate. The court may then appoint an administrator to carry out the necessary tasks of paying debts and distributing assets. The administrator is paid from the estate.

How long does it take? It depends. If the decedent had placed most of their assets in trust, those assets are not subject to probate and are distributed according to the terms of the trust. If there are multiple properties in multiple states, probate has to be conducted in all states where property is owned. In other words, probate could be six months or three years.

Estate size matters. Certain states use the total value of the estate to determine its size, rather than examine individual properties. Possessions subject to probate usually include personal property, cash and cash accounts, transferable accounts with no named beneficiaries, assets with shared ownership or tenancy in common and real estate.

Possessions not typically subject to probate include insurance proceeds, accounts owned as Joint Tenant with Rights of Survivorship, accounts with a beneficiary designation and assets owned in trusts.

Probate varies from state to state. Probate is not nationally regulated, and state-level laws vary. An estate could be swiftly completed in one state and take a few months in another. Some states have adopted the Uniform Probate Code (UPC), designed to streamline the probate process by creating standardized laws. However, only 18 states have adopted this code to date.

Fighting among heirs makes probate take longer. Even small disputes can extend the probate process. If there are estranged family members, or someone feels they deserve a larger share of the estate, conflicts can lead to probate coming to a full stop.

An experienced estate planning attorney can help structure an estate plan to minimize the amount of assets passing through probate, while ensuring that your wishes are followed and loved ones are protected.

Contact us to review your estate plan with one of our experienced estate planning attorneys.

Reference: Yahoo (Nov. 21, 2022) “In-fighting Families, Wills, Laws & Other Things That Could Hold Up Probate”

 

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Read more about the article When Is Life Insurance Taxable to Beneficiaries? Annapolis and Towson Estate Planning

When Is Life Insurance Taxable to Beneficiaries? Annapolis and Towson Estate Planning

When people purchase life insurance policies, they designate a beneficiary who will benefit from the policy’s proceeds. When the life insurance policyholder dies, the policy’s beneficiary then receives a payout known as the death benefit.

Yahoo Finance’s recent article entitled “Will My Beneficiaries Pay Taxes on Life Insurance?” says the big advantage of buying a life insurance policy is that, upon death, your beneficiaries can get a substantial lump sum payment without taxation, unless the amount of the life insurance pushes your estate above the applicable federal estate tax exemption. In that case, your estate will need to pay the tax.

While death benefits are usually tax-free, there are a few situations where the beneficiary of a life insurance policy may have to pay taxes on the lump sum payout. When you earn income from interest, it’s typically taxable. Therefore, if the beneficiary decides to delay the payout instead of receiving it right away, the death benefit may continue to accumulate interest. The death benefit won’t be taxed. However, the beneficiary will typically pay taxes on the additional interest.

If a life insurance policyholder decides to name their estate as the death benefit beneficiary, the estate could be subject to taxation. When you don’t designate a person as your beneficiary, the proceeds from the life insurance policy are subject to Section 2024 of the IRS code. That says if the gross estate incorporates proceeds of a life insurance policy, the value of a life insurance policy must be payable to the estate directly or indirectly or to named beneficiaries (if you had any “incidents of ownership” throughout the policy term).

The proceeds of a life insurance policy may also pass to the estate if the beneficiary dies, and there are no contingent beneficiaries. If you have a will in place, the proceeds will be paid out according to the terms of the will. If there’s no will in place, the probate court decides the way in which to distribute your assets.

The individual insured on a life insurance policy and the policyholder are usually the same person. The policyholder then names a beneficiary. However, a gift tax may apply if the insured, the policyholder and the beneficiary are three different parties. Because the IRS assumes the death benefit was a gift from the policyholder to the beneficiary, you might have to pay gift taxes on the death benefit.

Beneficiaries usually won’t have to pay taxes on life insurance proceeds. However, some situations can result in a taxable event. Be sure that your beneficiary designations are clearly outlined in the policy to avoid taxation.

Contact us to review your estate plan with one of our experienced estate planning attorneys.

Reference: Yahoo Finance (Jan. 17, 2023) “Will My Beneficiaries Pay Taxes on Life Insurance?”

 

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Read more about the article What Is Needed in Estate Plan Besides a Will? Annapolis and Towson Estate Planning

What Is Needed in Estate Plan Besides a Will? Annapolis and Towson Estate Planning

Having a will is especially important if you have young children, says Fed Week’s recent article entitled “Estate Planning Doesn’t Stop with Making a Will.”  In your will, you can nominate guardians, who would raise your children in the event neither you nor your spouse is able to do so.

When designating a guardian, try to be practical.

Remember, your closest relatives—like your brother and his wife—may not necessarily be the best choice.

And keep in mind that you’re acting in the best interests of your children.

Be sure to obtain the consent of your guardians before nominating them in your will.

Also make sure there’s sufficient life insurance in place, so the guardians can comfortably afford to raise your children.

Your estate planning isn’t complete at this point. Here are some of the other components to consider:

  • Placing assets in trust will help your heirs avoid the hassle and expense of probate.
  • Power of Attorney. This lets a person you name act on your behalf. A “durable” power will remain in effect, even if you become incompetent.
  • Life insurance, retirement accounts and payable-on-death bank accounts will pass to the people you designate on beneficiary forms and won’t pass through probate.
  • Health care proxy. This authorizes a designated agent to make medical decisions for you, if you can’t make them yourself.
  • Living will. This document says whether you want life-sustaining efforts at life’s end.

Be sure to review all of these documents every few years to make certain they’re up to date and reflect your current wishes.  Contact us to review your estate plan with one of our experienced estate planning attorneys.

Reference: Fed Week (Dec. 28, 2022) “Estate Planning Doesn’t Stop with Making a Will”

 

Sims & Campbell, LLC – Annapolis and Towson Estate Planning Attorneys

Read more about the article Can I Protect My Family after Death? Annapolis and Towson Estate Planning

Can I Protect My Family after Death? Annapolis and Towson Estate Planning

Estate planning involves a close look at personal and financial goals while you are living and after you have died, as explained in a recent article titled “Professional Advice: Secure your future with estate planning” from Northwest Indiana Business Magazine. Having a comprehensive estate plan ensures that your wishes will be carried out and loved ones protected.

Your last will and testament identify the people who should receive an inheritance—heirs—who will manage your estate—executor—and who will take care of your minor children—guardian. Without a valid will, the state will rely on its own laws to distribute assets and assign a guardian to minor children. The state laws may not follow your wishes. However, there won’t be anything your family can do if you didn’t prepare a will.

Assets with beneficiary designations can be passed to heirs without going through probate. Certain assets, like life insurance policies and retirement accounts, allow a primary and secondary beneficiary to be named. These assets can be transferred to the intended beneficiaries swiftly and efficiently.

Many people use trusts to pass assets for a variety of reasons. For example, a trust can be created for a family member with special needs, protecting their eligibility to receive government benefits. Depending on the type of trust you create, you might be able to eliminate estate taxes. Certain trusts are also useful in protecting assets from creditors and lawsuits and ensure that assets are distributed according to your wishes.

Revocable living trusts provide protection in case of incapacity, avoid probate and ancillary probate and may provide asset protection for beneficiaries. If you are the creator of a trust—grantor—you will need to appoint a successor trustee to manage the trust if you are the original trustee and become incapacitated. Upon death, a revocable trust usually becomes irrevocable. Assets placed in the trust avoid probate, the court proceeding used to settle an estate, which can be both time-consuming and costly.

A Power of Attorney allows you to name a person who will handle your financial affairs and protect assets in the event of incapacity. That person—your agent—may pay bills, sell assets and work with an elder law estate planning attorney on Medicaid planning. The POA should be customized to your personal situation. you may give the agent broad or narrow powers.

Everyone should also have a Health Care Proxy, which gives the person named the legal right to make health care decisions on your behalf if you are unable to. You’ll also want to have a HIPAA Release Form (Health Insurance Portability and Accountability Act), so your agent can speak with all health care providers, access medical records and speak with the health insurance company on your behalf.

A Living Will is the document used to convey your wishes regarding end-of-life care if you are unable to do so yourself. It is certainly not pleasant to contemplate. However, it should be thought of as a kindness to your loved ones. Without knowing your wishes, they may be forced to make a decision and will never know if it was what you wanted. A Living Will also avoids conflicts between health care providers and family members and makes a stressful time a little less so.

Having a comprehensive estate plan provides protection for the individual and their family members. It avoids costly and stressful problems arising from the complex events accompanying illness and death. Every three to five years (or when life or financial circumstances warrant), meet with an estate planning attorney to keep your estate plan on track.

Reference: Northwest Indiana Business Magazine (Dec. 27, 2022) “Professional Advice: Secure your future with estate planning”

 

Sims & Campbell, LLC – Annapolis and Towson Estate Planning Attorneys

Read more about the article Beneficiary Mistakes to Avoid – Annapolis and Towson Planning

Beneficiary Mistakes to Avoid – Annapolis and Towson Planning

Planning for one’s eventual death can be a somber task. However, consider what would occur if you failed to plan: loved ones trying to figure out your intentions, a long and expensive legal battle with unintended heirs and instead of grieving your loss, wondering why you didn’t take care of business while you were living. Planning suddenly becomes far more appealing, doesn’t it?  Annapolis and Towson Estate Planning

A recent article from Yahoo finance, “5 Retirement Plan Beneficiary Mistakes to Avoid,” explains how to avoid some of the issues regarding beneficiaries.

You haven’t named a beneficiary for your retirement accounts. This is a common estate planning mistake, even though it seems so obvious. A beneficiary can be a person, a charity, a trust, or your estate. Your estate planning attorney will be able to help you identify likely beneficiaries and ensure they are eligible.

You forgot to review your beneficiary designations for many years. Most people have changes in relationships as they move through the stages of life. The same person who was your best friend in your twenties might not even be in your life in your sixties. However, if you don’t check on beneficiary designations on a regular basis, you may be leaving your retirement accounts to people who haven’t heard from you in decades and disinheriting loved ones. Every time you update your estate plan, which should be every three to five years, check your beneficiary designations.

You didn’t name your spouse as a primary beneficiary for a retirement account. When Congress passed the 2019 SECURE Act, the bill removed a provision allowing non-spousal beneficiaries to stretch out disbursements from IRAs over their lifetimes, also known as the “Stretch IRA.” A non-spouse beneficiary must empty any inherited IRA within ten years from the death of the account holder. If a minor child is the beneficiary, once they reach the age of legal majority, they are required to follow the rules of a Required Minimum Distribution. Having a spouse named as beneficiary allows them to move the inherited IRA funds into their own IRA and take out assets as they wish.

You named an estate as a beneficiary. You can name your estate as a beneficiary. However, it creates a significant tangle for the family who has to set things right. For instance, if you have any debt, your estate could be attached by creditors. Your estate may also go through probate court, a court-supervised process to validate your will, have your final assets identified and have debts paid before any remaining assets are distributed to heirs.

You didn’t create a retirement plan until late in your career. Retirement seems very far away during your twenties, thirties and even forties. However, the years pass and suddenly you’re looking at retirement without enough money set aside. Creating an estate plan early in your working life shifts your focus, so you understand how important it is to have a retirement plan.

An experienced estate planning attorney can help square away your beneficiary designations as part of your overall estate plan. The best time to start? How about today?  Contact us to review your estate plan with one of our experienced estate planning attorneys.

Reference: Yahoo finance (Dec. 19, 2022) “5 Retirement Plan Beneficiary Mistakes to Avoid”

 

Sims & Campbell, LLC – Annappolis and Towson Estate Planning Attorneys

Some Assets Better Left Outside of Will – Annapolis and Towson Estate Planning

A will is a document of last resort to transfer assets. There are many ways to transfer assets that would preempt the terms of a will. AARP’s recent article entitled “The Legal Limits of Your Will” provides a list of some major assets that often fall outside a will’s scope, along with tips for getting them to the people or organizations you want.

Retirement accounts. Those named as beneficiaries will get those assets, no matter what the will says. That’s because a beneficiary designation already informed the plan administrator how to handle the asset after your death. There’s no need for probate court involvement.

Life insurance policies. A life insurance policy’s beneficiary listing, not the will, determines who gets the proceeds. However, some states automatically revoke the beneficiary designation of an ex-spouse on a life insurance policy.

Bank accounts. If an account is titled as transfer on death (TOD), payable on death (POD) or joint tenancy with right of survivorship (JTWROS), those designations generally override the will. The account’s signature card would show if any of these designations applies. Ask the bank to look up your card if you aren’t sure. For individual accounts titled TOD or POD, the beneficiary can go to the bank with a death certificate (or death certificates) and proof of identity to transfer or collect the funds. JTWROS accounts become the property of the surviving account holder, who will need to show the bank a death certificate for the other account holder.

Real estate. If two spouses own a home jointly with right of survivorship or as tenants by the entirety, the property automatically is transferred to the remaining spouse without a court’s involvement. Real estate can also be transferred outside a will in certain states through a TOD deed, in which you name the beneficiary on the property.

Trusts. Any asset in a trust isn’t governed by a will. Therefore, trusts are another tool for distributing assets outside of probate court. However, after a trust is created, you must retitle accounts, change beneficiaries, or take other measures so that each asset you want to put into the trust will actually end up there.

Reference: AARP (September 29, 2022) “The Legal Limits of Your Will”

Sims & Campbell, LLC – Annapolis and Towson Estate Planning Attorneys

Read more about the article Estate Plans Can Protect against Exploitation – Annapolis and Towson Estate Planning

Estate Plans Can Protect against Exploitation – Annapolis and Towson Estate Planning

Financial exploitation is far more common than most people think, especially of the elderly. There are several types of individuals more at risk for exploitation, according to a recent article from mondaq titled “How An Estate Plan Can Protect Against Financial Exploitation.” These include someone with a cognitive impairment, in poor physical health, who is isolated or has a learning disability.

Exploiters share common characteristics as well. They are often people with mental health illness, substance abusers or those who are financially dependent on the person they are exploiting.

There are warning signs of financial abuse, including:

  • Changes in patterns of spending, transfers, or withdrawals from accounts
  • Isolation from friends and family
  • Unexplainable financial activity
  • An inability to pay for routine bills and expenses
  • Sudden changes to estate planning documents, beneficiary designations, or the addition of joint owners to accounts or property titles

One way to avoid financial exploitation is with an estate plan prepared in advance with an eye to protection. Instead of relying on a durable power of attorney, a funded revocable trust may provide more robust protection. A revocable trust-based plan includes safeguards like co-trustees and a requirement for independent party consent to any trustee change or amendment.

A support system is also important to protect a person if someone is attempting to exploit them. Estate planning attorneys team up with financial advisors, CPAs and other professionals to create a plan to avoid or end elder abuse. Other steps to be taken include:

  • Consolidating accounts with a trusted financial advisor, so all assets are easily observed
  • Have a family member or trusted person receive copies of account statements
  • Consider a credit freeze to avoid any possibility of being coerced into opening new credit card accounts or taking out loans.
  • Establishing a budget and sharing information with advisors and a trusted person, so any spending anomalies are easy flagged.

Elder financial abuse is an all-too common occurrence but taking proactive steps to safeguard the vulnerable family member is a good strategy to deter or thwart anyone intent on taking advantage of a loved one.

Reference: mondaq (Sep. 23, 2022) “How An Estate Plan Can Protect Against Financial Exploitation.”

Sims & Campbell, LLC – Annapolis and Towson Estate Planning Attorneys