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PREFERENCES FOR FUNERALS AND DISPOSITION OF REMAINS

My wife has told me very clearly, “Now listen, when I die, I don’t want to be eaten by bugs. So, I want you to cremate me. I want you to put my ashes in a box and then into a columbarium where the family can come visit me.”

I am glad she has told me this—and I take her words very seriously.

It’s not easy to talk to your husband, much less your child about your possible illness and death. Usually, the children say, “Oh, Mom and Dad, you’re going to live forever! We don’t want to talk about that stuff.” To them, it’s almost as if talking about death might make it happen sooner.

But talk about death you must. Your estate plan should include instructions for your funeral and final disposition of remains. Instructions may include authorization for use of your body for organ donation, medical training, or research. You can also specify the nature of your funeral, and perhaps most importantly, who will make the decisions about your funeral.

Once again, failure to give instructions about funerals can lead to confusion and strife within a family.

Take the case of a woman I know who died with no plan, and five kids that hate each other. She had no durable power of attorney for healthcare, nor a living will with instructions for disposition of her remains. Her five children, of course, could not agree, so the funeral home cremated the body and divided the ashes into five separate urns—one for each of them to do with as they pleased. No kidding.

Remember, however, that writing a document is not a substitute for discussing the details with your loved ones in advance. When you become seriously ill or die, decisions will have to be made very rapidly, and the documents may not be available.

DON’T FORGET THE POSSIBILITY OF PRE-NEED PLANNING

Your preparations may include pre-need planning, which I strongly recommend. With these arrangements, you go to a funeral home and pick everything out from the red carnations to the Studebaker-themed casket. Not to mention the white cake with strawberries and French crème filling to be served at the memorial service.

You can plan it all ahead and pay for it ahead of time. But you don’t pay any monies directly to the funeral home— what if they are not around when the time comes? Instead, the money goes to an insurance company, which pays out a death benefit to cover these expenses at guaranteed rates.

Pre-need offers a pretty good deal, saves additional heartache, and makes the to-do list that much shorter when someone dies.

THE ROLE OF THE LIVING TRUST IN INCAPACITY

As we saw in the case of Jack, a living trust may be even more important during your incapacity than it will be after you die.

Let’s again begin by distinguishing between a will and a living trust. A will is only valid at death. Before a death, a will is only a piece of paper.

A living trust, on the other hand, is a living document which has binding legal effects from the moment it is signed. It lives with you and helps you and your family throughout your lifetime. Then, it continues to protect your estate and your loved ones after you die.

In Mistakes #10 and #9, we learned a lot about living trusts. If needed, go back and read those chapters now to see how a living trust creates a bucket for your assets, which can efficiently be passed into the control of others. You are the grantor of the trust, which exists for you as the beneficiary. While you are alive and capable, you are also the trustee, controlling the trust.

But in your living trust, you will designate a series of fallback trustees to take over when you die or become incapacitated. We lawyers call these people “successor trustees.” The moment you are incapable of acting as trustee, someone else can immediately take over—whether it’s your spouse, a child, a lawyer, a bank, or whoever you choose. Using their powers as trustee, coordinated with the power of attorney for property you have granted to them or to others, this person can pay your bills, manage your investments, or whatever else needs to be done.

While you are alive, your trustee can do this work only for your benefit. Why? Because even though you are lying unconscious in a hospital, you are still the legal beneficiary of the trust.

I should mention at this point that for a variety of legal and tax reasons, a living trust is not the appropriate bucket for certain kinds of assets, including annuities, IRAs, 401(k)s, 403(b)s, and TSA investments. Other vehicles are needed for those assets, and we will deal with them under Mistake #5. For now, however, you just need to know that a proper durable power of attorney for property can give the same person similar control over these other kinds of retirement plans and investments. That’s why both kinds of documents must exist, and must be designed to work together.

Your attorney can also advise you on the use of an irrevocable trust as part of a strategy to obtain public assistance benefits such as Medicaid and Veterans Administration aid to help pay for long-term care and nursing home bills.

Our knowledgeable attorneys can help you with all your living trust needs. Attend one of our seminars for a FREE consultation.

TRUSTS TO PROTECT AGAINST LAWSUITS, CREDITORS, PREDATORS, AND DIVORCE

Any significant asset can be threatened by creditors, predators, and major relationship shifts like divorce. A good trust will take into account the highly specific dangers faced by your circumstances—both during your life, and when you’ve passed that asset on to your heirs.

Suppose you own an apartment building and you have hired somebody to manage it. When you die, you pass the apartment building on to your child, outright.

One day, long after you are gone, the apartment manager says something stupid to a prospective tenant like, “We don’t rent to people like you.” (Feel free to insert any protected class for the word “people.”) The prospective tenant sues your child, even though he or she never hired the manager, and like you, never instructed the idiot to say any such thing. If the lawsuit is based on race, disability, or similar protected circumstances, then your child will probably not be covered by insurance.

I could come up with any number of similar examples where people do things that are not your family’s fault, but trigger legal responsibility.

A savvy estate attorney can structure a series of trusts so when you die, instead of your child inheriting the apartment building outright, it goes from your bucket into a second bucket. Your child did not create that second bucket—you were the grantor of the asset in that bucket, and you are gone. Your child can now control and benefit from the apartment building, but he or she can be shielded from the threats of creditors, predators, and lawsuits. This same strategy can ensure that your child does not lose such assets in a divorce. Again, because your child does not technically own the asset, it is owned by an irrevocable trust “bucket.”

We’ll learn more about predators, creditors, and divorce in Mistake #6: Letting Third Parties Take Advantage of Your Beneficiaries.

In the ever-expanding universe of trusts, you will find trusts which pour from one bucket to the next, trusts within trusts, and many kinds of children’s trusts. Each must be carefully coordinated with your overall estate plan. And just to repeat, none are “generic.”

HELPING MINORS AND UNTRUSTWORTHY HEIRS

You can, for example, set up a trust for the benefit of your children into which other relatives can place money. Suppose both sets of grandparents are interested in using their annual gift-tax exemption to help their grandkids save for college. Such a trust would not technically be considered a “living trust,” but could go a long way toward funding your children’s education.

Even a basic living trust to benefit your children must be carefully considered from every angle. For example, as I have discussed (see Mistake #10), you may not want your living trust to read simply: “When the kid is eighteen, he gets it all.”

Or, even when he’s twenty-five. You may sit down with your estate attorney and say, “Gee, my kid is twenty-five and still lives at home. He sits on the couch all day smoking dope and playing video games. Already this drives me crazy. At least, if I die tomorrow, I don’t want to go on supporting that lifestyle. Maybe I could just give him a little bit each year, but not quite enough to live on, so he’ll have to go out and get a job?”

With a properly written living trust, controlled by a separate trustee, you can indeed make that specific kind of provision to help your child move forward after you are gone. But you cannot download a template from the Internet and make that kind of provision. You can’t fill out an online form, which will make that work.

HOW TO GET A PERSONALIZED TRUST

Now that you realize how a personalized living trust, along with other kinds of trusts require some serious expertise, how do you go about finding that expertise? In the Introduction, I explained some tells for identifying a good estate attorney. But the best attorneys don’t just learn by doing estate planning. Before anyone can create a really workable and airtight plan, he or she must thoroughly understand what happens after that plan is triggered.

When my firm trains lawyers in estate planning, we don’t start by teaching them how to meet with clients and draw up trusts. We start by teaching them about the probate process, the conservatorship process (see Mistake #8), and trust administration. We get them directly involved in the events which follow the death of a client. That way, they see how the crucial decisions made during planning play out in the real world.

Lights go on for these lawyers: “Gee, if this couple had just added a provision for care of Uncle Ted to their living trust, all this hassle for their heirs could have been avoided.” Or, “I wish someone had told these people not to name these particular two people as co-trustees. As a result, this brother and sister have really come to hate each other.” Or, just as commonly, “Gee, if this couple had come back every five or six years and reviewed their estate plan, everything would be working a heck of a lot better. So much changed in the thirty years before they died that it’s now impossible to administer this trust the way they intended!”

Unfortunately, many attorneys do not get this kind of training. They just don’t have the experience of babysitting multiple estates through probate, setting up conservatorships, or administering trusts. They haven’t litigated wills on behalf of heirs. They don’t see how different kinds of trusts lead to different kinds of results. So, just like their clients, attorneys all too often assume that a “standard living trust” will be good enough.

Once you’ve found that good attorney, the one who has actually walked through probate and administered trusts and conservatorships—your next job is to make sure they sit down with you to ask a lot of questions. Make sure they turn over every rock and force you to face whatever the two of you find underneath.

Tough questions may include the unexpected, like: “Do you get along with your siblings?”

Why would such a question matter? Because if you are incapacitated, a sibling could easily step in and cause havoc in your planning, even if you have adult children. It happens.

Based on your individual circumstances, an attorney should also ask questions like, “Do you get along with your spouse? With your ex-spouse? Will your children get along when they sit in the room hearing the will read? Is your son or daughter likely to face divorce some day? Does he or she have a complex tax situation? If you become incapacitated, what will happen to that vote you have on the board of your brother-in-law’s business?”

You can see more examples of good question-asking by attorneys in the Introduction.

PARALEGALS AREN’T ENOUGH

As I have now complained many times, attorneys often do not bother to dig deeply. They may simply pull up the John and Judy Smith Living Trust they did last week and replace all the names with Fred and Sally Jones.

But “search and replace planning” gets even worse with paralegals. Even if I have convinced you not to download a template or log into a “living trust service,” I worry that you may still attempt to save money by avoiding the services of an attorney. You may think, “Okay, but I have a very simple situation. I’ll save money on lawyers by going to a paralegal to get an estate plan drawn up.”

Paralegals have been trained in a variety of common legal processes. They do great work in many realms, and they are invaluable to keeping my own practice on track. But with all due respect to the profession, you must recognize the limits of a paralegal’s scope. Not only do paralegals lack the training and experience of a lawyer, they simply do not think like lawyers.

Law school not only teaches people legalities and case law, it truly rewires people’s brains. I will not dwell on this rewiring process, as much has been written about it by others. But I know it occurs, perhaps as an actual change in brain chemistry.

Lawyers learn to think ahead to many more moves of the chess game. They anticipate objections to documents. They anticipate the emotions of judges and litigants. When reading, they read between the lines. When speaking, they watch body language.

Let me give you a quick analogy from the medical world. I had a colleague who developed intestinal cancer go in to discuss his surgery. The surgeon says, “You know, before we do surgery, I want you to meet with your cardiologist for one more checkup. Don’t worry, it’s routine.” The cardiologist gets out his stethoscope and listens to the pulse on my colleague’s neck, and immediately orders a raft of tests. Bottom line: the guy has a hunk of fat nearly blocking his neck artery. The cardiologist immediately arranges for this to be removed. Later, the cardiologist tells my friend that had he not come to see the cardiologist and had gone through with the abdominal surgery with the blockage in his neck, he would have died. Indeed, if he was lucky, he would have died. Most likely, he would have had a massive stroke.

When you have surgery, you go to experts in the medical field. These professionals look for the unexpected and the unanticipated. They see clues only experience will notice. My colleague went in about one problem, but the pros saw something more.

The same is true in the legal profession. It’s my job to identify “fact patterns” the layman does not see, and follow through based on my experience. We’ve been trained to look at common fact patterns and possible results, then apply them to new situations—to see around corners, and to make sure you deal with “what you don’t know you don’t know.” (See Introduction)

You really do need someone “to think like a lawyer” and anticipate the consequences of a plan that will play out for decades after you are gone.

For a consultation with one of our licensed attorneys and more information on how we can help you, attend one of our FREE seminars.

 

Assuming All Trusts Are the Same

If you read through Mistake #10, you now understand how a mere “last will and testament” does not provide the vital mechanisms offered by a living trust. A will can be partly disregarded by a judge or indefinitely delayed by probate. A living trust offers you the chance to bypass many of the frustrations of the probate, conservatorship, and guardianship systems.

Do not, however, be tempted create a living trust by yourself, or on the cheap. I urge you to reread the Introduction before you run to the Internet and download a generic living trust template, or pay $59.99 for a “Guaranteed 100 Percent Legal Online Living Trust in One Hour or Less.” If my warnings about gathering a “mushroom stew for your children” still fail to convince you to hire a qualified estate attorney, I urge you to consider the message of this chapter: there is no such thing as a generic trust.

A single person needs one kind of trust and a married couple needs another. Depending on their circumstances, a married couple may want to create a joint trust or two single trusts.

Sometimes a married couple should opt for an “A-B trust.”

These trusts have become obsolete for most purposes (see Mistake #4), but may be highly relevant to blended families, as it preserves the estate tax exemption of the first spouse to die, but limits the surviving spouse’s control over the deceased spouse’s share of the estate. In this way, an A-B trust protects the deceased spouse’s beneficiaries from the whims of the surviving spouse. Upon the death of the first spouse, an A-B trust sub-divides into an “A

Trust” (also known as a “Survivor’s Trust”) and a “B Trust” (also known as an “Exemption Trust,” a “Bypass Trust,” or a “Family Trust” with separate control mechanisms).

Sometimes, it’s appropriate to create a “revocable” trust and sometimes an “irrevocable” trust. As the word implies, an irrevocable trust cannot be amended or revoked. Generally speaking, an irrevocable trust serves the purpose of preventing property from being included in your total assets—your estate—during life or after death, or both. Some clients who are helping elderly parents get financial help for healthcare will use an irrevocable trust as part of the overall estate plan. It often provides the best protection of assets from creditors and predators, as the assets have “irrevocably” changed ownership.

Many useful trusts are not “living trusts” at all. The term “living trust” is short for “inter-vivos trust” or “a trust between living people.” Importantly, a living trust does not require a separate taxpayer identification number, and you need not file a separate tax return for your living trust. But, as you will see in some of the upcoming chapters, it’s not the right vehicle for all situations. For example, living trusts are always “revocable.”

Many problems arise from what we attorneys call an “I Love You Trust,” in which somebody creates a document which says, in essence, “I love you. I’m going to give you everything I have,” without any consideration of the taxes or legal pitfalls the loved one will face. You should not assume, however, that a well-written trust will include all the tax-planning provisions within its own structure. In 2014, we saw a significant change in tax law, which made it foolish to include certain then-common tax planning provisions in living trusts.

IRAs pose a special problem; you may want to consider an IRA Stretch Trust. In fact, whatever else you skip in this book, don’t skip Mistake #5: Assuming Your Living Trust Covers Things Like IRAs, 401(k)s, 403(b)s, 457s, Annuities, and Insurance.

Bottom line: you have to know what you are doing.

Take a couple with a large estate, say $5 million, $10 million, or more. The trust and will can be structured so that all the property goes to the surviving spouse. That sounds great. But suppose the husband dies and now all the assets are in the wife’s estate. If the assets continue to grow, they can become larger than the inheritance tax exemption the wife has at her death. As of this writing, the individual federal, tax-free limit for estates lies between $5 million and $6 million. These numbers are indexed to inflation. If her assets grew beyond that point (quite possible), the estate could take a huge tax hit. A married couple doubles up on the exemption, but when one spouse dies, the survivor must file a Form 706 and elect “portability.” This process should be handled with qualified professionals.

A tax-savvy estate attorney will know the trust strategies that protect the estate from such dangers. For example, some of the deceased’s assets could be held in a separate irrevocable trust created at his death. If properly structured, such assets might not be counted in the wife’s estate, so the total could grow to an unlimited amount and still not trigger the inheritance tax.

Other “tax planning trusts” might include charitable trusts, which are creatures of specific tax statutes.

Here’s a further example of a non-generic trust. Suppose you are wealthy and you have a wealthy child. When you die, you may not want to give that child your property outright, because when he or she dies, the grandchildren will have to pay inheritance taxes. A good estate attorney can create a separate trust to be used for the benefit of your child when you die, but has been excluded from his or her estate. The wealthy child can enjoy full access to the money during his or her lifetime, but this “generation skipping” trust preserves the wealth for the grandkids— even though it does not actually skip any generations at all.

For more information on living trusts or for a personal attorney consultation, attend one of our FREE seminars.

 

WHAT IS A LIVING TRUST, EXACTLY?

Much of the rest of this book will be about constructing a good living trust. But what is a living trust, exactly?

As I explained briefly earlier in the book, you can think of a living trust as a kind of vessel, a bucket which you create, and into which you place your stuff. Some things, like IRAs, 401(k)s, annuities and life insurance do not go into the trust, (See Mistake #5).

Basically, when your stuff goes into a bucket, it’s a lot easier for you to carry around, a lot easier to track, and a whole lot easier to pass on to another person. Forgive me for extending the metaphor, but if your stuff is not in a bucket, when you die, it falls onto the ground. Then other people have to find it, figure out who owned it, and go to court to prove it’s now theirs. Only then can they pick it up off the ground.

When you (or you and your spouse) create a living trust, you literally transfer many of the things you own into that trust. And while you are alive, you remain in control of that trust. When you die or become incapacitated, you give control of your trust to someone else. Because, according to law, the living trust owns all that stuff, and the trust survives you, no probate is required. There is nothing to prove to a judge. No “probate” needed. The trust continues to be the legal owner of the assets. Control of the trust simply passes to a new trustee.

As I also said in the Introduction, a living trust may sound like a legal fiction, but it is not. Living trusts are the very sensible way our society has devised to make succession easy, logical, and low cost. Trusts are the way we preserve legacies—a way of cheating some of the chaos created by death.

Every living trust includes at least three key roles. And while you are alive and of sound mind, you can play all three roles in the trust.

First, there’s the grantor. That’s the person (or jointly as a married couple) who creates the trust “bucket” and puts all their stuff into it. In the beginning, that would be you, or your parents, if you’re helping them get this done. Sometimes, other names are used for the grantor, such as the settlor, trustor, or trust maker, but it’s all the same idea. Attorneys prefer grantor, because that word has a specific meaning in our tax laws—the Internal Revenue Code.

Second, there’s the trustee. That’s the person (or couple) who controls the trust. Again, while the grantor is alive and well, that’s usually you.

Third, there’s the beneficiary. This is the person (or couple) who has a right to all the benefit of the stuff in the bucket.

While you are alive, this is definitely you.

Again, when you are alive and well, you generally play all three roles—that’s why it’s a living trust, because the trust protects you now, and continues to protect your estate when you are no longer able to protect it yourself. All your stuff is in the bucket, and as the grantor, when you get more stuff, you just add it to the bucket.

Need to pay your credit card bill? Your mortgage? Get some groceries? Buy a ticket to Hawaii? As trustee, you are the only one who can reach into the bucket and take stuff out for use by the beneficiary. You can do that as often as you like, because while you are alive, you are also the beneficiary.

Your kids go off to college? You write a check from the trust. Your daughter gets married? Paid from the trust.

You can treat the money in a trust completely as your own money, the house owned by the trust as your house, the car in the trust as your car—though again, in the eyes of the law, it all technically belongs to the trust.

HOW A LIVING TRUST PROTECTS YOU AND YOUR ESTATE

Now, what if you become so sick that you cannot exercise proper control over your assets? Without a trust, a lot of uncertainty and confusion attends disability. (See Mistake #8: Forgetting to Plan for Disability.)

With a trust, everyone knows exactly what will happen. Why? Because it’s written down. You will have designated someone else to take the role of trustee in your absence. Crucially, however, because you (or you and your spouse) remain the sole beneficiaries of the trust, the new trustee can only use your assets to take care of your needs: food, clothing, and mortgage payments, for example. In the event that you become capable of taking the trustee role again, the trust returns that power to you.

Here’s the key to avoiding probate: when you (or you and your spouse) pass away, the trust continues. It does not die with you. Only the names playing the roles change. There’s a new trustee and a new beneficiary, specified by you in the trust. And, presto! Your assets can be dealt with and passed on without any court or probate process required.

If Bob Sr. had created a living trust, placed all of his assets and accounts into that trust, and then named Bob Jr. as trustee when he died, well, our story would have had a very different ending.

On that first Monday morning when Bob Jr. showed up at Friendly Bank, he would only have needed to bring a copy of the signed trust, his father’s death certificate, and his photo ID. That’s it. The bank would have immediately given him control of his father’s accounts. Bob Jr. may also have had to get a “Taxpayer Identification Number (TIN)” from the IRS by submitting a form SS-4. The TIN belongs to the trust and functions like a Social Security number for the trust to deal with assets in the trust. Bob Jr. would not use his Social Security number, or that of his late father.

The manager would have said, “Terrific. You are now the trustee. You are in charge. We will change the name on the living trust account here at Friendly Bank, and starting today, you can sign the checks.”

That’s how simple the succession would have been. No published notices, no court dates, no legal fees, no judge, and no “form pleading.” Just an orderly passage of assets, generation to generation, in exactly the manner Bob Sr. would have desired.

Had minor children been involved, Bob Sr. could have designated a trustee to watch over the assets in his trust until those children were out of college. And in separate documents, as part of a complete estate plan, he could have nominated proper guardians for their well-being.

There’s more, of course. If Bob Sr. were a partner in a business, he could have used his estate plan to designate a trustee to take over his decision-making powers and business assets for the benefit of his estate and heirs. Maybe that trustee would have been Bob Jr. Or perhaps, it would have been a business associate he trusted, with Bob Jr. still being the beneficiary.

I hope you now understand why you must do whatever you can to protect your heirs from probate—and how a living trust will be critical to your plans.

Even with this understanding, however, it is imperative that you avoid making the mistake of assuming that all living trusts are more or less the same. Or, that they can be created with some cut-and-paste template.

In our next posts, we’ll look at the different kinds of living trusts, and how they must be custom-built for the complexities of modern families and modern life.

For more information on how to begin your living trust, contact our team today.

PROBATE IS DANGEROUSLY PUBLIC

Like Bob Jr. from our earlier post, most people are shocked to learn that probate offers the family no privacy whatsoever. Literally, anyone can go to any court in America, walk up to the probate filing window, and say, “I’d like to see such and such file number.” The clerk will turn over a file that will include the probate petition and lots of other documents containing the names and addresses of executors, beneficiaries, and anyone else involved, adults and minors alike. The date of the inheritance and the amount of the inheritance is a matter of public record, along with the specific value of all assets in the estate and all of its debts.

Right there, for anyone to see.

Any scam artist who wants to troll court records and take advantage of people who have just inherited money could do no better than start at the probate filing window. Creditors of a beneficiary may subscribe to a data service and say, “Hey, I’m owed $100,000 by Bob Jr. Tell me whenever his name pops up in court records. This same creditor may show up at the probate hearing and say, “Don’t give the money to this heir, give it to me.” I have seen it happen.

Conservatorship processes for adults offer limited privacy. If you get Alzheimer’s disease, and have not made proper prior arrangements, your conservatorship hearing will become a matter of public record. The medical portion of your file can remain “sealed,” but family ties and the amounts of money spent become a matter of public record. This means that all of your personal details, from the names of your relatives to a second degree of kinship to your financial records, will be available to anyone who inquires about them. If $118.36 was spent for adult diapers at Walgreens three years ago, anyone can find out.

ENTER THE LIVING TRUST

I have left out a lot of details about the actual processes of probate courts. Why? Because solid advice for navigating probate requires a whole other book, and an attorney.

This book has a different job. This book exists to keep heirs out of probate court altogether. Consider that statement your mission, whether you are planning your own succession or helping your parents plan theirs. Regardless of your financial situation, your goal should be to make your wishes so clear that no judge has to clarify them. Then, structure your estate so it can be passed on without a hearing.

How can you avoid the terrible hassle of probates and guardian processes? The arguments? The uncertainty? The delays?

Do a good estate plan with its foundation in a living trust. For more information on how to begin, contact a licensed attorney on our team today.

MINOR CHILDREN PRESENT A SPECIAL PROBLEM – The Question of Guardianship

We continue our discussion of probate court today on the topic of probate court and minor children. The costs of probate will go up considerably if the succession involves orphaned minor children. But in that case, of course, more than money is at stake.

When children are under eighteen, and no parent survives, the state or other “interested person” will seek a guardianship for the child’s “person” and a guardian for the child’s money, or “estate.” Sometimes, these will be the same person, and sometimes they will not. In the Introduction of this book, we discussed a common situation in which these two roles should be separated. Let’s look at these issues more deeply.

In most states, if someone under the age of eighteen inherits any money of significance, the question of guardianship for this money will arise in court. If the child does not have a living parent, and a parent has not nominated anyone, the court will start looking for suitable guardians for both the person and the estate. If the child inherits a couple of hundred thousand dollars, the cost of creating these guardianships alone will cost $10,000 to $15,000. It’s not uncommon for the full cost of a probate process that includes a guardianship court proceeding for minor orphans to run $100,000 in legal fees.

Why so much? For starters, the court generally appoints an investigator to look into the backgrounds of nominated guardians. There’s typically an additional attorney appointed to represent the minor child. The costs of hiring these people is not paid for by the state if the estate has the ability to pay.

But minor children present an even greater risk to your financial legacy. The moment the child turns seventeen and 366 days, he or she can take complete control of their money and blow it, which they usually do. Do you remember being eighteen? Boys generally buy cars. Girls buy clothes or cars for their boyfriends. In any case, they have been thinking about this money for a long time—and now they’ve got it.

Guardianship creates a heavy responsibility whether it’s guardianship of the person, of the finances, or of both. The guardian will have to file an accounting with the court every two years, or as the court may otherwise order, and give a final accounting when the child turns eighteen. If you don’t find a suitable guardian to agree to take on this role before something happens to you, the court may not be able to find a good, willing guardian at all. And your children will end up in foster homes with strangers as their guardians.

Guardians sometimes drop out before the child comes of age, or they do something irresponsible, which makes it vital to move them out of the role. In that case, the court will appoint a new guardian.

Many other situations will trigger a guardianship or a conservatorship (i.e., guardianship for an adult) proceeding.

These include mentally incompetent, adult dependents and mentally incompetent, surviving spouses. Again, if you don’t plan for these possibilities in advance, a court appointed social worker will.

How do guardians get put into place? If you die suddenly, and your children under eighteen have no surviving parent (divorced or otherwise), social services may claim responsibility for them. The relevant agency will then start interacting with family members. “Did they find a will? Did the parent make some other nomination for a guardian? Did the deceased parent write anything down that says, ‘I want this person to care for my minor child?’”

If no one petitions to become the guardian, social services will petition the court to name a guardian. If social services identify a nominated guardian, and the nominee agrees, then he or she must go on to file a petition with the court to become the guardian. No petition, no guardian. The process is not automatic.

The guardianship process and hearing are very much like the probate process I described for Bob Jr. A potential guardian has to file a stack of papers and appear in court. But in this case, he or she will also have to go through a pretty serious background check, including perhaps fingerprints, etc. As mentioned, this investigative process will indeed cost money, paid by the estate.

No nominee designated by the deceased parents? Social services will start sorting through the rest of your family. Any grandparents out there? What if four grandparents are alive, and both sets want to be the guardians? Now that can be a nasty fight.

Such situations cannot always be avoided. But their cost, their burden on the family, and the chance of a bad outcome can all be greatly reduced by proper estate planning. And all parents should do it.

I believe it is every parent’s responsibility to create proper documents nominating guardians for minor children— every parent with any child under eighteen. In fact, just as important, I believe parents should create a living trust and designate a trustee to watch over their children’s financial estate until they are well older than eighteen—perhaps until they complete an undergraduate education or later.

For more information on creating your living trust and guardianship for minors, contact one of our licensed attorneys today!

In Most States, “Title Controls” – Probate Court Continued

Without a complete estate plan, even surviving spouses often have to go through long or short versions of probate to get full control of their family’s assets. In the meantime, terrible hardships can ensue.

Wait! If your spouse dies—don’t you automatically get control of his or her assets, even if no will was signed?

The answer is maybe yes, and maybe no.

In most states, “title controls.” This means that if your name is jointly included on the title of the asset, whether a house or a bank account, and the title was structured for joint tenancy with rights of survivorship, the surviving joint tenant will get the account or property. In other words, you, as the survivor, will indeed be given instant control of that asset.

Or not. It depends. Even if all your assets are held as joint tenancy with right of survivorship, what happens when the last man (or woman) dies?

Sometimes joint tenancy and joint ownership have their own pitfalls. Suppose, for example, your spouse has a business bank account that he shares with a business partner. Your spouse dies, it might be the partner—not you—who gets control of that account. You may be on the sidelines yelling, “Hey, that was marital property, I’m entitled to my half of that account.” But absent a clear estate plan, you may have to file a probate petition and start a battle that may or may not let you gain control of the disputed assets. The matter will quickly become complicated, and it’s likely that lawyers will get involved.

A class of assets which generally avoid probate are: Transfer on Death (TOD), or Payable on Death (POD) accounts. You will generally see TOD on securities and POD on bank accounts.

If some of Bob Sr.’s money resided in a POD bank account, and he named Bob Jr. as the POD beneficiary to the account, then indeed, Bob Jr. would merely have to show up at that bank with a photo ID and a death certificate in order to gain control of the account. Such accounts do not need to go through probate. In fact, they are not even covered by a will.

This may simplify things, or it may create unintended problems for multiple heirs.

If you are going through life creating some assets that are

POD to multiple names, some that are jointly held, some that are inside a living trust (see below), and others that you simply fail to track properly, then you are creating more and more issues for the next generation.

Those issues will have a name: probate.

SOMETIMES, PROBATE IS A NIGHTMARE

Bob Jr. from our previous post had it easy.

I have plenty of clients for whom the failure to do proper estate planning has led to a true nightmare. Take a couple I will call Katerina and Ivan, immigrants from the Ukraine who have lived much of their adult lives in California. They’ve become citizens of the United States, and have four kids.

At age forty-eight, Ivan died of a heart attack while driving a truck at work. Katerina’s English was poor, so when she came to see me, she brought along a translator, just in case.

Now, it was a mistake, but hardly unusual, for Katerina’s forty-eight-year-old husband to have made no will. If Ivan thought about it at all, he probably assumed that under the marital property or “community property” laws of California, his wife would get everything if he died.

Ivan was wrong, for he had made another important succession error.

Shortly before he died, Katerina had run up about $25,000 on her credit card, and the couple worried that they would lose their home to the credit card company. At that point, Ivan said to Katerina, “I’ll tell you what. Let’s just put the house in my name alone, and that will take care of everything. The credit card company can’t take the house if it belongs only to me.” This alone was very flawed thinking on the part of Ivan. If asset protection were that easy, no legal industry would have grown up around asset protection. To Katerina, however, it seemed like a good idea. She went along with the plan and transferred her ownership of the house to Ivan “as his sole and separate property.”

Even worse, Ivan did not take the next crucial step. He did not write a will in which he left everything including the house to his wife. How many people worry about such things at forty-eight? Because the house was in his name “as his sole and separate property,” when he died, it was not considered “marital property” anymore, and guess what? Their children had an immediate legal right to part of the house. Of the four kids, three were adults, and one was still a minor. The complexities swiftly multiplied.

Katerina sat in my office, crying. “Not only have I lost my husband,” she despaired, “but now I have this issue with my own house.” She was not going to be able to sell the house without going through probate. She wasn’t even going to be able to refinance it without going through probate. And she was certainly going to have to give up some ownership to the children.

Here, we have a clear case of how what you don’t know you don’t know can hurt you, and hurt you badly. Katerina’s struggle could have been avoided if she and Ivan had consulted an estate planning attorney and put their affairs in order. With the right will and the right living trust, no probate hearing would have been required, and Katerina would have taken full control of the house.

Would that have cost a little money? Yes. Would it have been worth it? Oh, yes.

PROBATE GETS EXPENSIVE FAST

Probate is not just a hassle and a potential nightmare, but it can be very expensive. Why? Never mind the court fees, which are annoying, but manageable for most. Probate gets expensive because the cases are rarely as simple as Bob Jr.’s, with a clear will and a single heir.

In most of the probate cases I see, heirs are not working their way through the court process on their own. They may have started out doing it themselves, but they quickly become frustrated, annoyed, and unhappy. So, they hire an attorney to finish the process for them. Typically, the executor of the will also takes a fee to complete his or her responsibilities. All this adds up quickly.

In California and New York, a million-dollar estate typically pays almost $50,000 in probate fees and expenses. Often, these fees are based on the gross value of the assets of the estate without regard to debts. Think about that. If the debts to the estate are high, it’s easy to see how the whole process could end up underwater.

Would you like more information on estate planning and how to avoid probate court? Attend one of our FREE seminars or contact one of our licensed attorneys today!

 

How Much Should a Living Trust Cost?

A living trust is an alternative to a Will when planning how and who will handle your affairs following your incapacity and death. Wills require probate court involvement, living trusts do not require probate court. The price of a Will is generally less than then price of a living trust. However, the overall cost of a Will is typically more than a living trust when considering probate fees that commonly exceed $50,000.

A living trust centered estate plan requires more skill, time and attention on the part of the lawyer hired to write it. In fact, the price of a living trust plan will often exceed 5 times the price of preparing a Will. However, since the overall cost of a living trust centered plan is often less than a Will, many California residents choose a living trust centered plan over a Will based plan. Working with an expert attorney is highly recommended.

So, what is the price of a living trust?  In large part, it is tied to the hourly rate of the lawyer. It takes no less than 10 hours of attorney time to educate the client, elicit the client’s hopes, fears, and aspirations for the client’s loved ones and client’s legacy. Then there is the follow up.  Making sure that assets that should go into the trust actually end up in the trust, takes time and expertise. Taking less than 10 hours doesn’t leave much time to know the client’s story and write that into a complete living trust estate plan.

Lawyers charge a range of fees. Some attorneys charge $300 per hour and others charge over $1,000 per hour. If you multiply that by 10, you get a starting point.  Fees can go higher – but only when the lawyer is adding value. A more sophisticated plan may be required due to various reasons: family dynamics, taxes, health, addiction, problem beneficiaries, creditors, divorces, business interests, etc. After all, every person has a unique story, and your estate plan should reflect that.

A good way of gauging what the price of the living trust plan will be and whether the lawyer will devote enough time to your matter is to simply ask that lawyer his or her hourly rate. If its $300 per hour, then you should expect to pay no less than $3,000 for a quality estate plan. If the lawyer charges $600 per hour expect to pay at least $6,000.  If the lawyer’s hourly rate is $300 per hour and the fee is $1000 for a living trust plan, your plan will likely not get the time, effort and attention it deserves.

For more answers and information on how we can help you with your living trust, contact us today!

 

Choosing A Trustee

How do most people choose a trustee? What process will they follow to pick a candidate for a job which involves the proper handling of attorneys, bank officers, gun collections, and possibly millions of dollars?

Usually, mom and dad sit around the kitchen table filling out estate documents. They come to the blank for filling in the trustee’s name. Who will they choose to execute their will and trust when they fall ill or pass away?

“Well, I don’t know,” says Dad. “Of the three kids, Johnny’s the oldest. We’ll pick him as trustee. It should be the oldest, right? As an honor?”

Then the documents are filed away in a drawer for thirty years, and pulled out only when both mom and dad have died.

Well, Johnny was a great guy at twenty-one, but will he be the right person to manage an estate as trustee at fifty one? Does he have the time, the drive, and the integrity to do this right?

Thirty years later, maybe Johnny himself isn’t so sure. Maybe Johnny has grown into a super-busy businessman with little time or interest in his parent’s trust.

Or, maybe Johnny hates paperwork and lives on a fishing boat in Tampa Bay, without a phone.

THREE’S A CROWD

Then again, back at that kitchen table thirty years earlier, maybe mom and dad just couldn’t decide. Maybe they didn’t want to make any of their kids angry, so Mom said, “I know, let’s name all three of the kids as joint trustees!”

Now, all these years later, when the three kids are middle-aged, they have a serious problem. Now they see each other as three cooks in the same, ugly kitchen.

Johnny and Eddie never agree, so Lisa usually has the veto, and she usually goes with Eddie. Anger frequently flares, and it’s not really the kids’ fault. Anytime you have more than one trustee, it’s tough to make any big decision. Even tough to see the decision through.

Should Johnny, Eddie, and Lisa sell the family land in Hawaii to a developer? With only one trustee, a decision can be fast. But with three, things can get complicated and stay complicated.

Say that Eddie and Lisa agree to sell. As a majority, they sign the papers, and the process of the sale begins. But Johnny hates the idea of cutting down all those coconut trees, and refuses to sign. The company buying the land gets nervous. Sure, they’ve won a majority vote among the trustees, but what if that one rogue trustee goes off and does something to block the sale down the line? The buyers may think, “Unless all three trustees sign off, we’d better look elsewhere.”

A good attorney would have advised mom and dad to choose a single trustee—sometimes two if they get along. And an attorney would have advised them to update their estate plan as their kids grew and their circumstances changed. That one, cozy, kitchen table session just wasn’t enough.

GO WITH EXPERIENCE?

When people sit down to choose a trustee, they must sometimes choose between a family member with no experience and a family member who has administered a trust before. Both situations may present an issue.

Someone who has never administered a trust may be starting blind. But someone who has done it before may be burned out. Here’s a common situation:

Mom and dad sit down at the kitchen table to fill out their trust documents, and Mom says, “Well, my sister was the trustee for my mother, and she was the trustee for both my brothers’ estates. She’s done this three or four times, so she’s an expert by now. I want to name her.”

Well, she’d better check with her sister, because her sister may not want the job. I have plenty of clients who come in and say, “Darn it (or a much stronger expletive), this is the fifth trust I’m going to have to administer, and everyone keeps naming me, because I’m the person in the family who apparently does all of this. Well, sorry, I don’t want to do trust administration anymore. It’s a pain in the ass. I don’t want to spend the final years of my life handling everyone else’s estates. I’d rather garden. Or head off on a cruise. Or just about anything else. How can I get out of this?”

MORE FACTORS TO CONSIDER

Regardless of experience, do not name someone as trustee “to honor” them. Name someone who you believe to be trustworthy and responsible.

Let’s start with that word “responsible.” Merely “well intentioned” will not cut it. You want someone who can get the job done.

If you don’t have a friend or family member you consider responsible, what I call a “civilian,” you may want to consider a “private professional fiduciary.” These are people who hold themselves out to the world as professional trust administrators. Some states actually have a registry for private professional fiduciaries and may require them to act under a bond (see below for more on bonds). Some states don’t regulate the profession at all. A trustee has tremendous and independent power, so if you go the professional route, do your due diligence.

Whether you choose a civilian or professional trustee, consider everyone’s age carefully.

If you are in your fifties or sixties, and you name a trustee about your same age, remember that that person will age right along with you. It’s likely that you will have reached your eighties or nineties by the time you need your trustee.

A trustee who’s also eighty or ninety years old may be in worse shape than you. Or already gone.

Professional fiduciaries are often second-career folks who start in their fifties, so they may not be around when the time comes. You may be dealing with their successor, or they may have named no successor at all. As part of choosing a private professional, you must ask, “What is your succession plan? Who’s the next person in line? What happens if you are hit by a bus?”

If you choose any individual, you must review your choice periodically. People change. Their circumstances change. They pass away.

What happens if you cannot find the right person for the job? Stay tuned next week for our blog on Trust Banks as we answer this question for you. And as always, if you have questions or are ready to begin your estate planning, contact us today!

 

 

When a Loved One Dies: A Successor Trustee’s Checklist

When a loved one dies, it is an emotional time accompanied by confusion on what happens next. If you are named as the successor trustee, you likely haven’t had any experience dealing with the steps you need to take in settling your loved one’s Living Trust. If you are the Successor Trustee – or need to figure out who is – this simple guide provides a few steps you need to follow. Getting support from an attorney with experience in Trust Administration enables the process to be implemented smoothly and efficiently.

Step 1: Inventory

The first step in settling your loved one’s Living Trust is to locate all the decedent’s original estate planning documents, Pour-Over-Will, and other important papers.

If your loved one has left any written funeral, cremation, burial, or memorial instructions, store them in a safe place until you meet with your trust attorney.

Part of the inventory process is to obtain information about your loved one’s assets, including bank and brokerage statements, stock and bond certificates, life insurance policies, corporate records, car and boat titles, and deeds for real estate. You will also need information about the decedent’s debts, including utility bills, credit card bills, mortgages, personal loans, medical bills, and the funeral bill.

Step 2: Review the Provisions of the Living Trust

After you locate the important documents, you need to read the Living Trust to determine the provisions. Note the following as you read it over:

• Are there special instructions regarding the decedent’s funeral, cremation, or burial?
• Who gets the decedent’s personal effects?
• Who gets any specific bequests?
• Who gets the decedent’s residuary trust?
• What was the date and location where the trust agreement was signed?
• Who signed the trust as witnesses and Notary Public?

Step 3: Make a List

In addition to reading the Living Trust and summarizing what it says, review your loved one’s financial documents and make a list of what he or she owned and owed, how each asset is titled (in the name of the trust, in the decedent’s individual name, as tenants in common, or in joint names with someone else), and–for assets and debts that have a statement–the value of the asset or debt as listed on the statement and the date of the statement. In addition, the decedent’s prior three years of income tax returns should be located and set aside.

Step 4: Meet With a Trust Attorney

You do not have to go through this process of settled your loved one’s estate alone, or subject yourself to personal financial liability as the successor trustee. You can work with a Trust Attorney to: determine the accurate value of the estate; resolve any outstanding debts and expenses; minimize estate taxes; administer trusts in conjunction with your family’s existing advisors and fiduciaries; and distribute assets to the proper beneficiaries as quickly and efficiently as possible.

If the estate and trust assets are improperly accounted for or in violation of California law, the executor and/or trustee can be held personally liable. Strategies and tools to minimize taxes may be overlooked, and there could be confusion over which beneficiaries are entitled to specific assets. All of this can lead to unnecessary expense, costly disputes, litigation, family infighting, and other financial and interpersonal problems. This is where a Trust Attorney can be of tremendous help to you and minimize your risk.

Step 5: Value the Assets

Once you’ve met with a trust attorney, the next step in settling a trust is to establish date of death values for all your loved one’s assets.

All financial institutions where the decedent’s assets are located must be contacted to obtain the date of death values. For assets including real estate, personal effects including jewelry, artwork, collectibles, and closely held businesses, they will need to be appraised by a professional appraiser.

Note that the value of all of the decedent’s assets will need to be established, including those passing outside of the trust, in order to determine if any estate taxes and/or inheritance taxes will be owed. Assets that can pass outside of the trust may include life insurance, IRAs, 401(k)s and annuities with named beneficiaries.

Step 6: Pay Bills

Once the date of death values have been determined for all of your loved one’s assets, the next step in settling the Living Trust is to pay your loved one’s final bills and ongoing expenses related to administering the trust. This is also the time that you, as the Successor Trustee, will need to evaluate whether trust assets, such as real estate or a business, should be sold. It is your job as a successor Trustee to figure out what bills are owed at the time of death, determine if the bills are legitimate, and then pay the bills. You will also be responsible for paying the ongoing expenses of administering the trust, such as legal fees, any accounting fees, utilities, insurance premiums, mortgage payments, and homeowner’s or condominium association fees.

Step 7: Pay the Taxes

Once you have paid the final bills and have the ongoing trust expenses under control, the next step in settling the trust is to pay any income taxes and death taxes that may be due. No bills should be paid to anyone until you are certain you have enough money to pay the taxes.

Aside from filing the decedent’s final income tax return, if the estate earns income during the course of administration, then the successor Trustee will need to prepare and file all required federal estate income tax returns as well as any required state estate income tax returns.

Step 8: Distribute

One of the last steps is to distribute trust income or property to trust beneficiaries according to terms of the trust agreement. You will need to complete transfer deeds and other change of title documentation. For information on how to write a final distribution letter to beneficiaries you should contact a Trust Attorney.

Handling an estate is a tremendous responsibility, time-consuming, and involves a lot of tasks. This is only a brief Successor Trustee checklist and there are more duties that need to be done. If you need help walking you through the process, consult with an Estate or Trust Attorney for guidance. CunninghamLegal has more than 20 years of experience handling the intricacies of Trusts, and we would love to help you.