What Happens If Trust Not Funded – Annapolis and Towson Estate Planning Attorneys

Revocable trusts can be an effective way to avoid probate and provide for asset management, in case you become incapacitated. These revocable trusts — also known as “living” trusts — are very flexible and can achieve many other goals.

Point Verda Recorder’s recent article entitled “Don’t forget to fund your revocable trust” explains that you cannot take advantage of what the trust has to offer, if you do not place assets in it. Failing to fund the trust means that your assets may be required to go through a costly probate proceeding or be distributed to unintended recipients. This mistake can ruin your entire estate plan.

Transferring assets to the trust—which can be anything like real estate, bank accounts, or investment accounts—requires you to retitle the assets in the name of the trust.

If you place bank and investment accounts into your trust, you need to retitle them with words similar to the following: “[your name and co-trustee’s name] as Trustees of [trust name] Revocable Trust created by agreement dated [date].” An experienced estate planning attorney should be consulted.

Depending on the institution, you might be able to change the name on an existing account. If not, you will need to create a new account in the name of the trust, and then transfer the funds. The financial institution will probably require a copy of the trust, or at least of the first page and the signature page, as well as the signatures of all the trustees.

Provided you are serving as your own trustee or co-trustee, you can use your Social Security number for the trust. If you are not a trustee, the trust will have to obtain a separate tax identification number and file a separate 1041 tax return each year. You will still be taxed on all of the income, and the trust will pay no separate tax.

If you are placing real estate in a trust, ask an experienced estate planning attorney to make certain this is done correctly.

You should also consult with an attorney before placing life insurance or annuities into a revocable trust and talk with an experienced estate planning attorney, before naming the trust as the beneficiary of your IRAs or 401(k). This may impact your taxes.

Reference: Point Verda Recorder (Nov. 19, 2020) “Don’t forget to fund your revocable trust”

 

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

What Estate Planning Documents Should I Have when I Retire? – Annapolis and Towson Estate Planning

Research shows that most retirees (53%) have a last will and testament. However, they do not have six other crucial legal documents.

Money Talks News’ recent article entitled “6 Legal Documents Retirees Need — but Don’t Have” says in fact, in this pandemic, 30% of retirees have none of these crucial documents — not even a will — according to the 20th annual Transamerica Retirement Survey of Retirees.

In addition, the Transamerica survey found the following among retirees:

  • 32% have a power of attorney or medical proxy, which allows a designated agent to make medical decisions on their behalf;
  • 30% have an advance directive or living will, which states their end-of-life medical preferences to health care providers;
  • 28% have designated a power of attorney to make financial decisions in their stead;
  • 19% have written funeral and burial arrangements;
  • 18% have filled out a Health Insurance Portability and Accountability Act (HIPAA) waiver, which allows designated people to talk to their health care and insurance providers on their behalf; and
  • 11% have created a trust.

The study shows there is a big gap that retirees need to fill, if they want to be properly prepared for the end of their lives.

The coronavirus pandemic has created an even more challenging situation. Retirees can and should be taking more actions to protect their health and financial well-being. However, they may find it hard while sheltering in place.

Now more than ever, seniors may need extra motivation and support from their families and friends.

The Transamerica results should not shock anyone. That is because we have a long history of disregarding death, and very important estate planning questions. No one really wants to ponder their ultimate demise, when they can be out enjoying themselves.

However, planning your estate now will give you peace of mind. More importantly, this planning can save your heirs and loved ones a lot of headaches and stress, when you pass away.

Talk to an experienced estate planning attorney today to get your plan going.

Reference: Money Talks News (Dec. 16, 2020) “6 Legal Documents Retirees Need — but Don’t Have”

 

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Estate Planning Is Best When Personalized – Annapolis and Towson Estate Planning

Just as a custom-tailored suit fits better than one off the rack, a custom-tailored estate plan works better for families. Making sure assets pass to the right person is more likely to occur when documents are created just for you, advises the article “Tailoring estate to specific needs leads to better plans” from the Cleveland Jewish News.

The most obvious example is a family with a special needs member. Generic estate planning documents typically will not suit that family’s estate planning.

Every state has its own laws about distributing property and money owned by a person at their death, in cases where people don’t have a will. Relying on state law instead of a will is a risky move that can lead to people you may not even know inheriting your entire estate.

In the absence of an estate plan, the probate court makes decisions about who will administer the estate and the distribution of property. Without a named executor, the court will appoint a local attorney to take on this responsibility. An appointed attorney who has never met the decedent and does not know the family will not have the insights to follow the decedent’s wishes.

The same risks can occur with online will templates. Their use often results in families needing to retain an estate planning attorney to fix the mistakes caused by their use. Online wills may not be valid in your state or may lead to unintended consequences. Saving a few dollars now could end up costing your family thousands to clean up the mess.

Estate plans are different for each person because every person and every family are different. Estate plan templates may not account for any of your wishes.

Generic plans are very limited. An estate plan custom created for you takes into consideration your family dynamics, how your individual beneficiaries will be treated and expresses your wishes for your family after you have passed.

Generic estate plans also do not reflect the complicated families of today. Some people have family members they do not want to inherit anything. Disinheriting someone successfully is not as easy as leaving them out of the will or leaving them a small token amount.

Ensuring that your wishes are followed and that your will is not easily challenged takes the special skills of an experienced estate planning attorney.

Reference: Cleveland Jewish News (Dec. 9, 2020) “Tailoring estate to specific needs leads to better plans”

 

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Do You Know Your Job as Executor, Agent or Trustee? – Annapolis and Towson Estate Planning

It is not uncommon for a named executor or trustee to have some anxiety when they discover that they were named in a family member’s estate planning documents.

With the testator or grantor dead or incapacitated, the named individual is often desperate to learn what their responsibilities are.

It may seem like they are asked to put together pieces in a puzzle without a picture, especially when there is limited information to start with, says The Sentinel-Record’s recent article entitled “You’re an executor or trustee … Now what?”

Here is a quick run-down of the responsibilities of each of these types of agents:

An executor of an estate. This is a court-appointed person (or corporate executor) who administers the estate of a deceased person, after having been nominated for the role in the decedent’s last will and testament.

A trustee. This is an individual (or corporate trustee) who maintains and administers property or assets for the benefit of a beneficiary under a trust.

An agent named under a power of attorney. This person (or corporate agent) has the legal authority to act for the benefit of another person during that person’s disability or incapacity.

Each of these roles has different duties and responsibilities. For example, an executor, in most cases, is responsible for filing the original last will and testament of the testator with the probate court and then to be formally appointed by the court as the executor.

A trustee and executor both must provide notice to the beneficiaries of their role and a copy of the documents.

An agent named under a power of attorney may have authority to act immediately or only when the creator of the documents becomes disabled or incapacitated. This is often referred to as a “springing” power of attorney.

Each of these individuals is responsible for managing and preserving assets for the benefit of the beneficiary.

They also must pay bills out of the assets of the estate or trust, such as burial and funeral expenses.

Finally, they settle the estate or trust and make distributions.

Reference: The Sentinel-Record (Nov. 24, 2020) “You’re an executor or trustee … Now what?”

 

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Is Probate Required If There Is a Surviving Spouse? – Annapolis and Towson Estate Planning

Probate, also called “estate administration,” is the management and final settlement of a deceased person’s estate. It is conducted by an executor, also known as a personal representative, who is nominated in the will and approved by the court. Estate administration needs to be done when there are assets subject to probate, regardless of whether there is a will, says the article “Probating your spouse’s will” from The Huntsville Item.

Probate is the formal process of administering a person’s estate. In the absence of a will, probate also establishes heirship. In some regions, this is a quick and easy process, while in others it is a lengthy, complex and expensive process. The complexity depends upon the size and value of the estate, whether a proper estate plan was prepared by the decedent prior to death and if there are family members or others who might contest the will.

Family dynamics can cause a tremendous amount of complications and delays, especially if the family has blended children from prior marriages or if a child has predeceased their parents.

There are some exceptions, when the estate is extremely small and when probate is not required. However, in most cases, it is required.

A recent District Court case ruled that a will not admitted to probate is not effective for proving title and thereby ownership, to real estate. A title company was sued for defamation after the title company issued a title report that included the statement that the decedent had died intestate, that is, without a will.

The decedent’s son, who was her executor, sued the title company because his mother did indeed have a will and the title report was defamatory. The court rejected this theory, and the case was brought to the Appellate Court to seek relief for the family. The Appellate Court ruled that until a will has been admitted to probate, it is not effective for the purpose of proving title to real property.

If a person owns real estate, they must have an estate plan to ensure that their property can be successfully transferred to heirs. When there is no estate plan, heirs find out how big a problem this can be when someone decides they want to sell the property or divide it up among family members.

Problems also arise when the family finds that they must pay taxes on the property or that there are expenses that must be paid to maintain the property. Without a will, the disposition of the property is determined by the state’s estate law. Things can become complicated quickly, when there is no will.

If the deceased spouse has children from outside the most recent marriage, those children may have rights to the property and end up owning a portion of the property along with the surviving spouse. However, neither the children nor the surviving spouse can sell the property without each other’s approval. This is a common occurrence.

There are also limitations as to how probate can be used to distribute and manage an estate. In some states, the time limit is four years from the date of death.

An estate planning attorney can help the family move through the probate process more efficiently when there is no will. A better situation would be for the family to speak with their parents about having a will and estate plan created before it is too late.

Reference: The Huntsville Item (Nov. 22, 2020) “Probating your spouse’s will”

 

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How Much Power Does an Executor Have? – Annapolis and Towson Estate Planning

The Pauls Valley Daily Democrat’s recent article entitled “It doesn’t end with the will” explains that there is constant confusion about wills. This misunderstanding involves the scope of power of those named in the will as the personal representative (or executor) of the decedent’s estate. Let us try to straighten out some of these myths or pieces of bad information about wills and probate.

The Executor Does Not Need Court Permission. False. An estate executor or personal representative cannot distribute a decedent’s assets to themselves or to any heirs, until okayed by the court. Many people think that a will provides immediate authorization to distribute the assets of an estate.

If He Had A Will, We Do Not Need Probate. Another incorrect belief is that if a person dies with a will, probate is not needed or required. If a person has a will, the will and the distributions named in it can only be made valid by the probate court. There are ways to avoid the probate process. However, the fact that a person had a will does not do it.

The Executor Can Start Giving Away Stuff ASAP. This is also false. Some people think that as soon as a person receives appointment as the personal representative or executor from the probate court, they can begin distributing assets from the decedent’s estate. Nope. If this were true, it would defeat the objectives of probate, which is court oversight and control.

The Court Does Not Monitor The Executor’s Actions. This statement is also incorrect. The entire probate process is structured to provide a court monitored coordination of a decedent’s estate to make certain that his or her wishes are followed. This also helps to prevent unauthorized distributions or “raids” on a decedent’s assets by improper persons.

Remember, the executor’s Letters Testamentary authorize that person to act for the estate—they do not permit any distributions before court approval or final probate court order.

What Does Probate Do? Probate fulfills these purposes:

  • At death, the deceased’s property is subject to control and monitoring by the court.
  • The court then starts to see what the decedent’s wishes were for distribution and who was named to administer the estate.
  • The court must also review the scope of the estate, define all assets in the estate and determine all debts of the estate.
  • Probate requires a notice to creditors, so the executor has a complete list of debts of the estate and to give each creditor the opportunity to be paid.
  • The court watches any transfers, sales of assets or payments during probate.
  • The executor is authorized to receive money and manage the assets of the estate, but he cannot withdraw or transfer assets from the estate.
  • At a final hearing and after notice to interested parties, the court determines who should get distributions.

Ask an experienced estate planning attorney about the probate process and how to devise a complete estate plan.

Reference: Pauls Valley Daily Democrat (Oct. 1, 2020) “It doesn’t end with the will”

 

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How Do You Ask Parents about Estate Planning? – Annapolis and Towson Estate Planning

How do you ask your parents about their estate planning? No matter how you slice it, it is a touchy subject to bring up.

You do not want to come off as greedy when asking your parents about their estate planning.  However, you need answers to certain questions to ensure that their financial wishes are carried out and there is a smooth transition of wealth and assets.

Yahoo Finance’s recent article entitled “How To Talk to Your Parents About Their Estate Plan (Without Making It Awkward)” shows us how to approach this touchy subject and get the info that you need.

Begin by asking your parents about whether they have an estate plan. You can tell them that they do not need to share the numbers and that you just want to be able to follow their instructions. A good way to start this conversation, is to acknowledge how awkward and difficult this conversation is for you. You should emphasize that you do not want to think about their deaths but are just trying to sort things out.

Experts say that you will likely get a better reception from your parents, if you let the conversation happen organically and not schedule a time to talk. No matter how you approach the topic of an inheritance from your parents, the objective of the discussion is to make certain they have a plan in place, so there will be a clear path for whomever is left behind to go forward. You can start by asking if they have these key legal documents:

  • A will
  • A power of attorney; and
  • A living will or health care directive.

Ask where your parents keep these documents and how you can access them, if necessary.

You should also ask if your parents have written funeral or burial instructions. You also need to ask them to give you other important information, so you can handle their finances if they are unable to or when they die. This includes account numbers and passwords, insurance policies, information on their retirement plan or pension administrator, as well as the contact information for their accountant, attorney, financial planner, or other financial professional.

Reference: Yahoo Finance (Oct. 7, 2020) “How To Talk to Your Parents About Their Estate Plan (Without Making It Awkward)”

 

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Can I Fund a Trust with Life Insurance? – Annapolis and Towson Estate Planning

A trust is a legal vehicle in which assets are legally titled and held for the benefit of another party, the beneficiary, explains Forbes’ recent article entitled “How To Fund A Trust With Life Insurance.” The article says that trusts are often funded with a life insurance policy. This will provide assets to be used after the death of the insured for the benefit of their family. If you are a parent of minor children, the combination of life insurance and a trust may be the best way to make certain that your children have their financial needs satisfied and also make sure the assets are used in ways you want.

Trusts are either revocable or irrevocable. A revocable living trust is the most frequently used type of trust. It has some major benefits, like the ability to avoid probate, which can be an expensive and lengthy process. Assets in a revocable trust are accessible much more quickly than those left through a will.  Because they are revocable, the person who creates the trust (the grantor) can also make adjustments to the trust, as their situation changes.

A grantor will fund the trust with assets for the trust beneficiaries. For parents of minor children, funding a trust using term life insurance is an inexpensive tactic to make certain that your children are cared for after your death. Typically, each parent buys a life insurance policy, and in a two-parent household, usually each spouse names the other as the primary beneficiary with a revocable living trust as the contingent beneficiary.

If the second parent was to die, the life insurance policies would pay to the trust. The trustee would manage the trust assets for the minor children. Funding a trust with life insurance also benefits heirs, because it provides liquidity right after your death. Other assets like investment accounts and real estate can be very illiquid or have tax consequences. As a result, it can take a while to get to that equity.

On the other hand, term life insurance is a fast and tax-free funding way to build a trust. Purchase a term life policy that will last until your children are adults and out of college. In making the life insurance paid to a trust with your children as beneficiaries, you also have some control over the assets. If you name minor children as beneficiaries on a life insurance policy, they will not be able to use the money until they are an adult. Some children may also not be financially responsible enough to manage money as young adults in their 20s.

If you already own a life insurance policy and want to create a trust, you can transfer ownership of the policy to the trust. Work with an experienced estate planning attorney.

Reference: Forbes (Sep. 17, 2020) “How To Fund A Trust With Life Insurance”

 

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What Estate Planning Documents Do I Need for a Happy Retirement? – Annapolis and Towson Estate Planning

Estate planning documents are made to help you and your family, in the event of your untimely demise or incapacitation.

These documents will give your family specific instructions on how to proceed.

The Winston-Salem Journal’s recent article entitled “4 Must-Have Documents for a Peaceful Retirement” looks at these critical documents in constructing an effective estate plan.

  1. Power of Attorney (POA). If you become incapacitated or become unable to make your own financial decisions, a POA will permit a trusted agent to manage your affairs. Have an estate planning attorney review your POA before it is executed. You can give someone a limited POA that restricts their authority to specific transactions. You can also create a springing POA, which takes effect only at the time of your incapacitation.
  2. Will. About 40% of Americans actually have a will. Creating a valid will prevents you from leaving a mess for your heirs to address after you die. A will appoints an executor who will manage your affairs in a fiduciary manner. The will also details your plan for the distribution of your property. Make certain that your will is also in agreement with other documents you have set up, so it does not create any questions.
  3. TOD/POD Designation Forms. A Transfer-on-Death (TOD) or Payable-on-Death (POD) designation lets you to assign your investment accounts to a named beneficiary. The big benefit here is that accounts with a named TOD/POD beneficiary pass directly to that person when you die. Any accounts without a TOD/POD beneficiary will be subject to the terms of your will and will be required to go through the probate process.
  4. Healthcare POA/Advance Directives. These are significant health-related documents. A healthcare POA allows your named agent to communicate your wishes to medical professionals, if you are unable. They also include instructions as to whether you want to have life-saving measures performed, if you have a cardiac or respiratory arrest. These healthcare documents also remove the need for your family to make difficult decisions for you.

Reference: Winston-Salem Journal (Sep. 20, 2020) “4 Must-Have Documents for a Peaceful Retirement”

 

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What Does It Mean to Be an Executor? – Annapolis and Towson Estate Planning

Being named an executor can be a big deal, undertaking confidence and trust that someone is appointing you to manage their estate after they have died. An executor has a long to-do list, according to The Cleveland Jewish News’ recent article entitled “Role of executor comes with many responsibilities.”

First, the executor must find the signed will and file it at the probate court to officially be appointed.

Next, the executor must collect all of the estate’s assets, as well as track down any debts like mortgages, credit card bills, car payments and the like.

Once the bills are paid, the executor will distribute the assets to the beneficiaries.

Finally, the executor is tasked with going to the probate court and state that the bills were paid, so all of the assets can be distributed. At that point, the executor is discharged.

Any adult can be named an executor as an executor of an estate. However, in some circumstances, a bond is required. The bonding company will decide if the executor is financially sound. If a person dies without a will, an individual can apply to be an administrator of the estate.

When naming an executor, before death, the estate owners should discuss the role and responsibilities of their named executor to have a smooth transition with no surprises for those left behind.

In addition, an alternate executor should be named in the event the first person is unwilling or unable to serve.

Executors should consult an estate planning attorney throughout the process. This legal assistance is important to guide the executor through all the required steps, so he or she can fulfill the fiduciary responsibilities.

An experienced estate planning attorney can help review the will with the executor, so he or she understands what it means. The attorney can also review the steps of being appointed and what their role of the executor is as far as collecting the assets and debts, along with the details about which the average non-attorney might not consider.

Reference: Cleveland Jewish News (Sep. 23, 2020) “Role of executor comes with many responsibilities”

 

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