What’s the Best Way to Mess Up Estate Plan? – Annapolis and Towson Estate Planning

Forbes’ recent article entitled “5 Ways People Mess Up Their Estate Plan” describes the most common mistakes people make that wreak havoc with their estate plans.

Giving money to an individual during life, but not changing their will. Cash gifts in a will are common. However, the will often is not changed. When the will gets probated, the individual named still gets the gift (or an additional gift). No one—including the probate court knows the gift was satisfied during life. As a result, a person may get double.

Not enough assets to fund their trust. If you created a trust years ago, and your overall assets have decreased in value, you should be certain there are sufficient assets going into your trust to pay all the gifts. Some people create elaborate estate plans to give cash gifts to friends and family and create trusts for others. However, if you do not have enough money in your trust to pay for all of these gifts, some people will get short changed, or get nothing at all.

Assuming all assets pass under the will. Some people think they have enough money to satisfy all the gifts in their will because they total up all their assets and arrive at a large enough amount. However, not all the assets will come into the will. Probate assets pass from the deceased person’s name to their estate and get distributed according to the will. However, non-probate assets pass outside the will to someone else, often by beneficiary designation or joint ownership. Understand the difference so you know how much money will actually be in the estate to be distributed in accordance with the will.  Do not forget to deduct debts, expenses and taxes.

Adding a joint owner. If you want someone to have an asset when you die, like real estate, you can add them as a joint owner. However, if your will is dependent on that asset coming into your estate to pay other people (or to pay debts, expenses or taxes), there could be an issue after you die. Adding joint owners often leads to will contests and prolonged court battles. Talk to an experienced estate planning attorney.

Changing beneficiary designations. Changing your beneficiary on a life insurance policy could present another issue. The policy may have been payable to your trust to pay bequests, shelter monies from estate taxes, or pay estate taxes. If it is paid to someone else, your planning could be down the drain. Likewise, if you have a retirement account that was supposed to be payable to an individual and you change the beneficiary to your trust, there could be adverse income tax consequences.

Talk to your estate planning attorney and review your estate plan, your assets and your beneficiary designations. Do not make these common mistakes!

Reference: Forbes (Oct. 26, 2021) “5 Ways People Mess Up Their Estate Plan”

 

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

When Should a Trust Be Reviewed? – Annapolis and Towson Estate Planning

Life changes, and laws change too. The great trust created two decades ago may not be a good idea today and may no longer be suitable for you or your beneficiaries. As a general rule, you should review your estate plan and trust every other year, according to the article “Revisit trust on a regular basis” from the Santa Cruz Sentinel.

Start with the Table of Contents, if there is one. There should be language concerning “Successor Trustees.” Are the trustees you named still alive? Are they still part of your life, and do you still trust them? How are their money skills? If they do not get along with the rest of the family, or if they have been embroiled in a series of petty disputes, they may not be appropriate to manage your trust. Do not be afraid to make changes. Your estate planning attorney will know how to do this smoothly and properly.

Next, find the paragraph that discusses “Disposition on Death” or “Disposition on Death of Surviving Spouse.” Does it still make sense for your loved ones? Have any children or family members who are listed as receiving benefits died? Are any heirs disabled and receiving government benefits? Have any of your children developed addictions, problems handling money, married people you do not trust, or are preparing to divorce their spouses? Changes can be made to protect your children from themselves and from others in their lives.

Look for a “Schedule of Trust Assets.” When was the last time this was updated? If you have moved and the trust still lists your last residence, you need to change it. Is your new home in the trust? Are retirement accounts correctly listed? Do you have new assets you have never placed in the trust? This is a common, and costly, oversight.

If married, how does the trust address what occurs between the death of the first spouse and the surviving spouse? Do you have an A/B trust to divide everything between a Survivor’s Trust and a Bypass Trust or Exemption Trust? Maybe you do not need or want an A/B trust anymore. Talk with your estate planning attorney to be sure this is structured properly for your life right now.

How is your health? If you or a spouse are in a nursing home or if one of you is ill and likely to need nursing home care, it may be time to start planning for a Medicaid Asset Protection Trust.

While you are reviewing your trusts, trustees and beneficiaries, do not forget to review the people named as beneficiaries for your retirement accounts and life insurance policies. These should be reviewed regularly as well.

Reviewing your trust and estate plan on a regular basis is just as necessary as an annual physical. Leaving your accumulated assets unprotected is easily fixed, while you are alive and well.

Reference: Santa Cruz Sentinel (Nov. 20, 2021) “Revisit trust on a regular basis”

 

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

How to Protect Assets from Medicaid Spend Down? – Annapolis and Towson Estate Planning

Medicaid is not just for poor and low-income seniors. With the right planning, assets can be protected for the next generation, while helping a person become eligible for help with long-term care costs.

Medicaid was created by Congress in 1965 to help with insurance coverage and protect seniors from the costs of medical care, regardless of their income, health status or past medical history, reports Kiplinger in a recent article “How to Restructure Your Assets to Qualify for Medicaid.” Medicaid was a state-managed, means-based program, with broad federal parameters that is run by the individual states. Eligibility criteria, coverage groups, services covered, administration and operating procedures are all managed by each state.

With the increasing cost and need for long-term care, Medicaid has become a life-saver for people who need long-term nursing home care costs and home health care costs not covered by Medicare.

If the household income exceeds your state’s Medicaid eligibility threshold, two commonly used trusts may be used to divert excess income to maintain program eligibility.

QITs, or Qualified Income Trusts. Also known as a “Miller Trust,” income is deposited into this irrevocable trust, which is controlled by a trustee. Restrictions on what the income in the trust may be used for are strict. Both the primary beneficiary and spouse are permitted a “needs allowance,” and the funds may be used for medical care costs and the cost of private health insurance premiums. However, the funds are owned by the trust, not the individual, so they do not count against Medicaid eligibility.

If you qualify as disabled, you may be able to use a Pooled Income Trust. This is another irrevocable trust where your “surplus income” is deposited. Income is pooled together with the income of others. The trust is managed by a non-profit charitable organization, which acts as a trustee and makes monthly disbursements to pay expenses for the individuals participating in the trust. When you die, any remaining funds in the trust are used to help other disabled persons.

Meeting eligibility requirements are complicated and vary from state to state. An estate planning attorney in your state of residence will help guide you through the process, using his or her extensive knowledge of your state’s laws. Mistakes can be costly—and permanent.

For instance, your home’s value (up to a maximum amount) is exempt, as long as you still live there or will be able to return. Otherwise, most states require you to spend down other assets to $2,000 per person or $4,000 per married couple to qualify.

Transferring assets to other people, typically family members, is a risky strategy. There is a five-year look back period and if you have transferred assets, you may not be eligible for five years. If the person you transfer assets to has any personal financial issues, like creditors or divorce, they could lose your property.

Asset Protection Trusts, also known as Medicaid Trusts. You may transfer most or all of your assets into this trust, including your home, and maintain the right to live in your home. Upon your death, assets are transferred to beneficiaries, according to the trust documents.

Right of Spousal Transfers and Refusals. Assets transferred between spouses are not subject to the five-year look back period or any penalties. New York and Florida allow Spousal Refusal, where one spouse can legally refuse to provide support for a spouse, making them immediately eligible for Medicaid. The only hitch? Medicaid has the right to request the healthy spouse to contribute to a spouse who is receiving care but does not always take legal action to recover payment.

Talk with your estate planning attorney if you believe you or your spouse may require long-term care. Consider the requirements and rules of your state. Keep in mind that Medicaid gives you little or no choice about where you receive care. Planning in advance is the best means of protecting yourself and your spouse from the excessive costs of long term care.

Reference: Kiplinger (Nov. 7, 2021) “How to Restructure Your Assets to Qualify for Medicaid”

 

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

Do I Need a Living Trust? – Annapolis and Towson Estate Planning

Yahoo Finance’s recent article entitled “What Is a Living Trust in Real Estate?” says that a living trust is a legal document that makes it easier for you to pass assets to your loved ones after you die. It allows property to be transferred directly to your designated beneficiaries without needing to go through probate. A living trust will be managed by a trustee, while you are still living (that can be you).  You will name a successor trustee who will manage the trust, if you become incapacitated and distribute its assets after you pass away.

While the trust holds these assets, you are still considered in possession of them while you are alive (assuming you named yourself the trustee). Therefore, you can move assets in and out of the trust as you see fit. If you have a revocable trust, you can even cancel or change it at any time.

Creating a living trust can simplify the inheritance process for your family when you die. That is because any property you own is subject to the probate process when you die. Probate can be a very lengthy process.

While waiting, your family may be unable to manage, use, or sell the property you left behind. Until probate is complete, your executor will be responsible for maintaining the property, including paying taxes, making repairs and paying the bills (like insurance).

A living trust is a beneficial financial product for many reasons. First, it bypasses the probate courts. There are some types of assets that will pass on to your beneficiaries directly, and others will need to clear the probate courts before they can be disbursed to your beneficiaries. This probate process can take months or even years and can be both costly and complicated.

Another benefit of a trust is that you keep control of your estate, even after you pass away. A living trust lets you set rules, timelines and stipulations for your estate. This may be something like keeping your children from getting a substantial sum of money in their early 20s. With a living trust, you can state instructions for your trustee as to when your kids receive that inheritance. For example, you may provide that they receive their inheritance in stages, like a third at 30, 35 and 40.

Finally, a trust is private. Unlike a will, your trust can be kept as private as you want. Once you pass away, and your will is filed with the probate court, it becomes public record. However, if you would rather have your estate and your wishes kept out of the public eye, a trust can help you do so.  Because a trust skips the probate process, it is also much harder for someone to challenge your directives.

Reference: Yahoo Finance (Oct. 7, 2021) “What Is a Living Trust in Real Estate?”

 

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

What is a ‘Property Trust’? – Annapolis and Towson Estate Planning

Yahoo Finance’s article “What Is a Property Trust and Who Needs One?” says that there technically is not a specific type of trust known as a “property trust.”

Any trust can be filled with a variety of assets, including property and real estate.

Trusts are most often used by people who are planning their estates and want to make certain their financial legacy is carried out to their wishes.

Know that a trust does not necessarily protect your assets from estate taxes. Therefore, if the estate is valued above the state and or federal threshold, the applicable taxes will be assessed, even if everything you own is in a trust.

Nonetheless, there are some good reasons to consider creating a trust for the purpose of storing property.

First, it makes it easier to make sure your wishes are followed after you die, since you appoint a trustee to manage the trust after you die. You can state exactly who should get various physical items. In addition, property trusts make it easier for your family after you have died. Property in a trust will allow such property to avoid probate. That means your family will spend less time dealing with the court and receive any inheritance more quickly.

However, not everyone needs a trust. Those with fewer assets might not. However, if you have very specific ideas as to what you want done with your assets or if you have a particularly large and complex estate, a trust may be a good idea. Sit down with an experienced estate planning attorney to discuss your trust needs.

A property trust is not technically a specific type of trust. All trusts can be “property” trusts, if they are used to house the ownership of property.

There are revocable trusts, which can be modified and terminated, along with irrevocable trusts, which are permanent.

Reference: Yahoo Finance (Sep. 10, 2021) “What Is a Property Trust and Who Needs One?”

 

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

What is the Difference between a Trust and a Will? – Annapolis and Towson Estate Planning

Trusts and wills are two different ways to distribute and control your assets after your death. They have some key differences. Family trusts and wills are both worthwhile estate planning tools that can make sure your assets are protected and will pass to heirs the way you intended, says MSN’s recent article entitled “Family Trusts vs. Wills: What Are the Differences Between These Estate-Planning Options?”

This article tells you what you need to know about the differences between family trusts and wills to help you avoid estate planning mistakes.

Remember that without a will, the state probate laws will determine what happens to your assets. It may or may not be what you want. In contrast, a will lets you state to whom you want to distribute your assets.

Note that a trust permits the grantor (the person making the trust) to do what he or she wants with the assets. A trust also avoids probate.

A family trust is a wise choice for those who want to provide for the management of their assets if they become incapacitated, people interested in keeping information about their assets and who inherits those assets private and those who have a significant number of assets or a large estate. Here are some other situations in which a family trust would be appropriate to use:

  • Asset protection from creditors and divorce
  • For disabled beneficiaries who need to qualify for government benefits
  • For tax-planning; and
  • For cost and time efficiency over a lengthy probate process.

Everyone should have a will. It is a way to leave bequests, nominate guardians for a minor child and an executor.

If you have a family trust, you still need a will. There may be some assets not owned by the trust, such as vehicles and other personal property. There may also be payments due you at your death. Those assets must go through probate, if not arranged to avoid probate.

Once that process is complete, the assets are distributed to the family trust and are governed by its provisions. This is what is known as a “pour-over will” because the assets “pour over” to the family trust.

Contact an experienced estate planning attorney to discuss the estate planning options available for you and your situation.

Reference: MSN (Aug. 27, 2021) “Family Trusts vs. Wills: What Are the Differences Between These Estate-Planning Options?”

 

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

When Should You Update Your Estate Plan? – Annapolis and Towson Estate Planning

Updating an estate plan is not usually the first thing on one’s mind when large life events occur. However, if you fail to update your estate plan, over time the plan may not work—for you or your loved ones. Reviewing estate plans at least once every three or four years will help to reach your goals and protect your family, explains the article “Do I Need to Update My Estate Plan?” from Arkansas Business.

Two key documents are used to distribute your assets: your last will and testament and trusts. As your children and other family members mature, those documents should change as may be needed.

If you have a revocable trust, you need to review the dispositive provisions and the trust funding. One of the biggest mistakes in estate planning, after failing to have an estate plan, is failing to fund or manage the funds in a trust.

Trusts are created to avoid probate and establish a process for distributing assets in case of disability or death. However, if assets are not retitled to be owned by the trust, or if the assets do not have an appropriate beneficiary designation to transfer assets to the trust at the time of your death, they will not perform as intended. As new assets are purchased, they also need to be incorporated into your estate plan.

Relationships you have with people who have responsibilities for your estate plan may change over time. Those need to be updated, including the following:

Trustee—The person or institution administering and managing a revocable trust, when you can no longer do so.

Guardian—The individual who will have legal authority and responsibility to raise your minor child(ren).

Executor—The person who is in charge of administering and managing your estate.

Health Care Agent—The person you authorize to make medical decisions in the event of incapacity.

Another common point of failure for estate plans: neglecting to update beneficiary designations for assets like life insurance, retirement plans and any asset that customarily passes to an heir through a beneficiary designation.

A regular review of your estate plan with your estate planning attorney also allows your plan to incorporate changes in tax laws. The last few years have seen many significant changes in tax laws, and more changes are likely in the future. Strategies that may have been extremely effective five or ten years ago are probably outdated and might create costs for your heirs. A review with an experienced estate planning attorney can prevent unnecessary tax liabilities, unexpected inheritances and family feuds.

Reference: Arkansas Business (Sep. 2021) “Do I Need to Update My Estate Plan?”

 

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

What Is a Dynasty Trust? – Annapolis and Towson Estate Planning

Do not be put off by the term “dynasty.” Just as every person has an estate, even if they do not live in a million-dollar home, every person who owns assets could potentially have a dynasty trust, even if they do not rule a continent. If you have assets that you wish to pass to others, you need an estate plan and you may also benefit from a dynasty trust, says this recent article from Kiplinger, “A Smart Option for Transferring Wealth Through Generations: The Dynasty Trust.”

When parents die, assets are typically transferred to their descendants. In most cases, the assets are transferred directly to the heirs, unless a trust has been created. Estate taxes must be paid, usually from the assets in the estate. Inheritances are divided according to the will, after the taxes have been paid, and go directly to the beneficiary, who does what they want with the assets.

If you leave assets outright to heirs, when the beneficiary dies, the assets are subject to estate taxes again. If assets are left to grandchildren, they are likely to incur another type of taxes, called Generation Skipping Transfer Taxes (GSTT). If you want your children to have an inheritance, you will need to do estate planning to minimize estate tax liability.

If you own a Family Limited Partnership (FLP) or a Limited Liability Company (LLC), own real estate or have a large equity portfolio, you may have the ability to use gifting and wealth transfer plans to provide for your family in the future. You may be able to do this without losing control of the assets.

The “dynasty trust,” named because it was once used by families like the DuPont’s and Fords, is created to transfer wealth from generation to generation without being subject to various gift, estate and/or GSTT taxes for as long as the assets remain in the trust, depending upon applicable state laws. A dynasty trust can also be used to protect assets from creditors, divorcing spouses and others seeking to make a claim against the assets.

Many people use an Irrevocable Life Insurance Trust (ILIT) and transfer the assets free of the trust upon death. Most living trusts are transferred without benefit of being held within trusts.

A dynasty trust is usually created by the parents and can include any kind of asset—life insurance, securities, limited partnership interests, etc.—other than qualified retirement plans. The assets are held within the trust and when the grantor dies, the trust automatically subdivides into as many new trusts as the number of beneficiaries named in the trust. It is also known as a “bloodline” trust.

Let us say you have three children. The trust divides into three new trusts, dividing assets among the three. When those children die, the trust subdivides again for their children (grandchildren) in their own respective trusts and again, assets are divided into equal shares.

The trust offers broad powers for health, welfare, maintenance and support. The children can use the money as they wish, investing or taking it out. When created properly, the assets and growth are both protected from estate taxes. You will need a trustee, a co-trustee and an experienced estate planning attorney to draft and execute this plan.

Reference: Kiplinger (Oct. 2, 2021) “A Smart Option for Transferring Wealth Through Generations: The Dynasty Trust”

 

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

Where Do You Score on Estate Planning Checklist? – Annapolis and Towson Estate Planning

Make sure that you review your estate plan at least once every few years to be certain that all the information is accurate and updated. It is even more necessary if you experienced a significant change, such as marriage, divorce, children, a move, or a new child or grandchild. If laws have changed, or if your wishes have changed and you need to make substantial changes to the documents, you should visit an experienced estate planning attorney.

Kiplinger’s recent article “2021 Estate Planning Checkup: Is Your Estate Plan Up to Date?” gives us a few things to keep in mind when updating your estate plan:

Moving to Another State. Note that if you have recently moved to a new state, the estate laws vary in different states. Therefore, it is wise to review your estate plan to make sure it complies with local laws and regulations.

Changes in Probate or Tax Laws. Review your estate plan with an experienced estate planning attorney to see if it has been impacted by changes to any state or federal laws.

Powers of Attorney. A power of attorney is a document in which you authorize an agent to act on your behalf to make business, personal, legal, or financial decisions, if you become incapacitated.  It must be accurate and up to date. You should also review and update your health care power of attorney. Make your wishes clear about do-not-resuscitate (DNR) provisions and tell your health care providers about your decisions. It is also important to affirm any clearly expressed wishes as to your end-of-life treatment options.

A Will. Review the details of your will, including your executor, the allocation of your estate and the potential estate tax burden. If you have minor children, you should also designate guardians for them.

Trusts. If you have a revocable living trust, look at the trustee and successor appointments. You should also check your estate and inheritance tax burden with an estate planning attorney. If you have an irrevocable trust, confirm that the trustee properly carries out the trustee duties like administration, management and annual tax returns.

Gifting Opportunities. The laws concerning gifts can change over time, so you should review any gifts and update them accordingly. You may also want to change specific gifts or recipients.

Regularly updating your estate plan can help you to avoid simple estate planning mistakes. You can also ensure that your estate plan is entirely up to date and in compliance with any state and federal laws.

Reference: Kiplinger (July 28, 2021) “2021 Estate Planning Checkup: Is Your Estate Plan Up to Date?”

 

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

Benefit Controlled Trust May Be Answer to Protecting Legacy – Annapolis and Towson Estate Planning

When beneficiaries receive their inheritance in their own names, a legacy becomes vulnerable to creditors, lawsuits, divorce and a second estate tax when they die. Complicating matters further, if the heir receives means-tested government benefits, their benefits may be lost if they receive a direct inheritance.

There is a solution, explains the article “What a Beneficiary Controlled Trust Can Do to Protect Your Legacy After You Are Gone” from Kiplinger. Having each beneficiary’s inheritance go into their own Beneficiary Controlled Trust can protect your legacy. Properly created and funded, the beneficiary may control, use and enjoy their inheritance with less risk than outright ownership. A Beneficiary Controlled Trust protects loved ones from the ups and downs of life. Divorce, lawsuits, creditor claims, bankruptcy are all unpleasant, but they do happen.

A Spendthrift Trust is used for beneficiaries who cannot be trusted to make good financial decisions, or who have people in their lives who cannot be trusted. It is like a spigot on a garden hose. The trustee decides when the beneficiary should receive access to assets, how much and when.

In a Beneficiary Controlled Trust, the beneficiary can also be the controlling trustee. The beneficiary has the same level of control as they would with outright ownership. They can make investment decisions. Assets, including real property or investment accounts, are owned by the trust.

After inheritance, the primary beneficiary has the ability to alter the level of control or protection, if they are concerned about upcoming risks. If the risk is particularly strong, for example, a contentious divorce, the primary beneficiary may resign as a trustee and appoint a trusted family member or professional to act as a trustee.

Another trust is a HEMS trust, one limited to providing distributions for the beneficiary’s Health, Education, Maintenance and Support. HEMS trusts are used to avoid estate tax. However, in some states, certain creditors, including divorcing spouses or health care providers, are permitted to pierce the trust and access assets.

If the primary beneficiary of a Beneficiary Controlled Trust wishes to enhance asset protection, they can appoint an independent trustee who serves as the distribution trustee. They may make distributions to the beneficiary at their discretion, which can provide another level of protection. The beneficiary may not wish to giver such broad discretion to an independent trustee, as in the case of Brittney Spears. This can be minimized by giving the primary beneficiary the right to remove and replace the independent trustee. The beneficiary will not have direct control over the distributions, but they decide who will manage the trust. The person may not be a related party or subordinate person.

Taxes should always be a consideration when creating trusts. Your estate planning attorney should review goals, concerns, and your unique situation to determine which type of trust works best for you and your family.

Reference: Kiplinger (Sep. 13, 2021) “What a Beneficiary Controlled Trust Can Do to Protect Your Legacy After You Are Gone”

 

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