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Big “Life Changes” Often Mean Big “Estate Plan Changes”

Big “Life Changes” Often Mean Big “Estate Plan Changes”

Many people who put together an estate plan do so when they start a family – assuming they put an estate plan together at all during their lifetime. While putting an estate plan together is a good thing to do, many people make few updates once the plan has been created, despite other key life events happening over the years. This is a major mistake that can place your hard-earned money and assets into a costly probate or into the wrong hands.

Estate planning must be reviewed and updated regularly to ensure that your plan still accomplishes your goals and objectives and will work the way you want it to at incapacity and at death.

To make sure you do not run into these issues and your wishes are followed in the event of your incapacity at at your death, below are nine life decisions or events that should get you thinking about updating — or creating — your estate plan right away.

Important Life Decisions

There are several important life decisions that you should factor into your estate plan. They include:

  1. Getting married: Estate planning after tying the knot does not have to be complicated. Simply updating your beneficiary information, purchasing a life insurance policy, and updating emergency contact information are all things that should happen right away. You should also consider preparing a will and a living will. As your marriage progresses, it may make sense to consider a revocable trust as well. Having discussions with your spouse about how you want your estate to be managed depending on different scenarios is also important.
  2. Getting divorced: While couples do not plan for divorce, many spouses go through this process. For many, the emotional toll and legal complexities of divorce can be overwhelming. Oftentimes estate planning is overshadowed by the divorce, resulting in unintended consequences. Making sure you make changes to your estate plan as soon as your divorce proceedings have been finalized will make sure your ex will not end up with the house, life insurance proceeds or other assets of yours.
  3. Buying life insurance: These policies are present in virtually all estate plans and serve as a useful source of liquidity, education-expense coverage, and financial support for your family or loved ones. Make sure to list all beneficiaries under the policy and make sure to update them as time passes.
  4. Buying a new home: When you purchase or refinance a home or other real estate, you should always make sure the asset is titled appropriately. If you use a trust, sometimes a lender will take a property out of a trust during a refinance. The key is to make sure your title furthers your goals.
  5. Having a child: While adding another member to your family is an exciting time in your life, it is not an excuse to forget to update your estate plan. A new child necessitates major revisions to your estate plan. This not only affects who will inherit your estate upon your death but will also require you deciding who will be the guardian of your children if you should die before they become adults. As your child grows and matures — and more children are added — your estate plan will likely continue to change.
  6. Starting a business: If you start a business or ownership interest changes in a current business, you need to understand what impact these changes have on your estate plan. Even more, there may be tax implications that could affect your heirs without proper planning ahead of time.
  7. Death of a loved one: The passing away of someone listed in your will is often overlooked in estate planning. These individuals may be named guardians to your children, have an inheritance allocated to them, be designated as emergency contacts, or may be named as executors of your estate. Leaving the role vacant can have terrible unintended consequences and necessitates transitioning new people to fill the void left behind by your loved one’s death right away.
  8. Moving to another state or country: When you change your residency from one state to another, you must review your estate plan to make sure it conforms with local laws. The same is true if you move to another country. Likewise, if you have property in more than one state or country, special attention must be paid to how those assets will be distributed according to your estate plan and applicable law.
  9. Change in work benefits: Whether this happened through a promotion, demotion, or your employer just changed the benefits they offer, this could impact the type amount of assets you have available. Look at your estate plan to see if your goals are still achievable or if you can do more with what you have.

Estate Planning Advice

Planning based on your life stages is important because your circumstances over the years will change. The only thing certain in life is change. Your estate plan must be reviewed and updated regularly to reflect your life’s changes. If you have any questions about estate planning — or have had to make a recent big decision in your life — contact me at (858) 432-3923 to learn more about your options.

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Protecting Your Children’s Inheritance When You are Divorced

Protecting Your Children’s Inheritance When You are Divorced

Consider this story. Beth’s divorce from her husband was recently finalized. Her most valuable assets are her retirement plan at work and her life insurance policy. She updated the beneficiary designations on both to be her two minor children. She did not want her ex-husband to receive the money.

Beth passes away one year after her divorce. Her children are still minors, so the retirement plan and insurance company require an adult to be appointed to receive the inheritance Beth left behind. Who does the court presumptively look to serve as the caretaker of this money? Beth’s ex-husband who is now the only living parent of the children. (In some states, this caretaker of the money is called a guardian, whereas in others it is the conservator. The title does not matter as much as the role, which is to manage the funds on behalf of a minor, since the minor is not legally able to handle significant assets or money.)

Sadly, stories like Beth’s are all too familiar for the loved ones of divorced people who do not make effective use of the estate planning tools. Naming a beneficiary for retirement benefits or life insurance, or having a Will can be a good start. However, the complexities of relationships, post-divorce, often render these basic tools inadequate. Luckily, there is a way to protect and control your children’s inheritance fully.

Enter the Trust

A trust allows you to coordinate and control your estate in a way that no other tool can. For those who are not yet familiar, a Trust is a legal arrangement for managing your property while you are alive and quickly passing it at your death. There are a few key players in the trust. First, there is the person who created the trust, often called the Trustor, Grantor, or Settlor (this is you). Second, there’s the Trustee who manages the assets owned by the trust (usually you during your life and then anyone you select when you are no longer able to manage the assets). Finally, the Beneficiaries are the people who receive the benefit of the trust (usually you during your life, and then typically children or anyone else you choose).

How a Trust Protects Your Children’s Inheritance after a Divorce

A Trust protects your children’s inheritance in a few distinct ways:

  1. Since you select the Trustee, you can choose someone other than your ex-spouse to manage the assets. In fact, you can even state that the ex-spouse can never be a Trustee, if you wish. If Beth had a Trust, she could have named her brother to be Trustee after her death. Her brother (rather than her ex-husband) would then be in charge of the children’s inheritance.
  2. Since you select the Beneficiaries, you can determine how the trust assets can be used for them. You may have long-term goals for your beneficiaries, such as college, purchasing of a first home, or starting a business. When you share your intent, your Trustee can invest the assets appropriately and ensure your legacy is used the way you want, rather than the assets being potentially wasted or used in a thoughtless If Beth had a Trust, she could have instructed how she wanted the inheritance used, rather than leaving it to the whims of a court and her ex-husband.
  3. A fully funded Trust avoids probate, so your children do not have to deal with the cost, publicity, and delay that is all-too-common in probate cases. Although “plain” beneficiary designations, like the one that Beth used, also avoid probate, they may still open the door for a guardianship or conservatorship court case, especially when your children are minors. A fully funded Trust avoids these guardianship and conservatorship cases. This means more money for your intended beneficiaries and less for the lawyers and courts.

If you are divorced, it is essential to make sure your plan works precisely the way you want. Every situation is unique, but I am here to help design a plan that achieves your goals and works for your family.

As a Personal Family Lawyer®, I offer expert advice on Wills, Trusts, and numerous other estate planning vehicles, especially if you are going through a divorce or recently divorced. Using proprietary systems, such as my Family Wealth Inventory and Assessment™ and Family Wealth Planning Session™, I’ll carefully analyze your assets—both tangible and intangible—to help you come up with an estate planning solution that offers maximum protection for your family’s particular situation and budget.  Contact me today to get started.

This article is a service of Tara Cheever, Personal Family Lawyer®. I don’t just draft documents; I ensure you make informed and empowered decisions about life and death, for yourself and the people you love. That’s why I offer a Family Wealth Planning Session™ during which you will get more financially organized than you’ve ever been before, and make all the best choices for the people you love. You can begin by calling my office today to schedule a Family Wealth Planning Session and mention this article to find out how to get this $750 session at no charge.

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3 Things You Must Do During and After Divorce

3 Things You Must Do During and After Divorce

The divorce process can be long and expensive. However, the work does not end once the divorce decree is signed. In order to ensure that your assets and estate planning wishes are carried out in light of this major life change, there are three things you must do as soon as possible.

Change Beneficiary Designation On Life Insurance

A life insurance policy is a contract between you and the insurance company. You designate the beneficiary (the individual(s) or entity who will receive the proceeds upon your death) and the insurance company will pay them when you die. Because the beneficiary designation is a legally binding contract, the insurance company has to pay the individual listed as your beneficiary. If your ex-spouse is listed as the beneficiary, they will pay the funds out to him or her. It does not matter to the insurance company if the two of you are now divorced. Once the divorce is final, ensure that you update your beneficiary designations.

Update Beneficiary Designation On Retirement Plans

 Although state law may automatically revoke a designation on a retirement plan if the ex-spouse is listed, federal law states that the last named beneficiary is the one who is entitled to the funds. Depending upon what type of retirement account you have, it might be the state law that controls, or the federal law. To be on the safe side and avoid a potentially long and costly battle for your family, it is best to change the beneficiary as soon as possible after your divorce is final.

Create or Revise Your Estate Plan

If you and your former spouse had a joint trust, you will need to have your own individual trust created to hold the assets that you will own in your name only. California Law allows you to create a new estate plan while divorce proceedings are on-going; however, there are specific laws with respect to changing title on any community property assets. Therefore, it is crucial that you your Trust attorney and your Divorce attorney work together to discuss the character of all assets and when assets will be moved into your new Trust. In this new plan, you will need to think about who to name as the Trustee and Beneficiaries. If you have minor children, you may also need to consider who is going to be the individual to manage those assets on behalf of your children. In many cases, you probably don’t want your ex-spouse in these roles.

If you do not have any estate planning documents in place, now is the perfect time to get everything in order. After going through the divorce, you probably have a good idea as to what assets you own and the value of them. This will be very helpful as we discuss the right estate plan for you.

Your estate plan is more than just a Trust. It is a customized plan that ensures that you, your family and your assets are taken care when “something happens.” Something will happen and we do not have the fortune of knowing when, where and how. If you have an estate plan, this is the time to review them as many changes occurred post-divorce. Chances are you no longer want your ex-spouse to have the authority to sign documents on your behalf or make medical decisions for you. To avoid confusion by third parties as to who should be acting on your behalf, make sure to call me, your Personal Family Lawyer so we can update these essential documents.

I can help you cross the finish line

Divorce can be a long process. Before taking those next steps into your new life, call me, so I can make sure that you cross the finish line with documents that are able to carry you and your wishes forward.

As a Personal Family Lawyer®, I offer expert advice on Wills, Trusts, and numerous other estate planning vehicles, especially if you are going through a divorce or recently divorced. Using proprietary systems, such as my Family Wealth Inventory and Assessment™ and Family Wealth Planning Session™, I’ll carefully analyze your assets—both tangible and intangible—to help you come up with an estate planning solution that offers maximum protection for your family’s particular situation and budget.  Contact me today to get started.

This article is a service of Tara Cheever, Personal Family Lawyer®. I don’t just draft documents; I ensure you make informed and empowered decisions about life and death, for yourself and the people you love. That’s why I offer a Family Wealth Planning Session™ during which you will get more financially organized than you’ve ever been before, and make all the best choices for the people you love. You can begin by calling my office today to schedule a Family Wealth Planning Session and mention this article to find out how to get this $750 session at no charge.

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Why Not Just Go on NoloⓇ and Create Your Own Estate Planning Documents Cheaply?

Why Not Just Go on NoloⓇ and Create Your Own Estate Planning Documents Cheaply?

There are many software programs, as well as websites, that sell do-it-yourself estate planning documents. These websites and form tools seem to offer a convenient and cost-effective alternative to consulting with an estate planning attorney. But do they really meet your needs and protect your family? Is online, do-it-yourself estate planning worth the perceived upfront savings?

Penny Wise and Pound Foolish

In almost every scenario do-it-yourself estate planning is risky and can become a costly substitute for comprehensive in-person planning with a professional legal advisor. Typically, these online programs and services have significant limitations when it comes to gathering information needed to properly craft an estate plan. This can result in crucial defects that, sadly, won’t become apparent until the situation becomes a legal and financial nightmare for your loved ones.

Creating your own estate plan without professional advice can also have unintended consequences. Bad or thoughtless documents can be invalid and/or useless when they are needed. For example, you can create a plan that has no instructions for when a beneficiary passes away or when a specific asset left to a loved one no longer exists. You may create a trust on your own but fail to fund it, resulting in your assets being tied up in probate courts, potentially for years. Worse yet, what you leave behind may then pass to those you did not intend.

Your family situation and assets are unique. Plus, each state has its own laws governing what happens when someone becomes incapacitated or dies. These nuances may not be adequately addressed in an off-the-shelf document. In addition, non-traditional families, or those with a complicated family arrangement, require more thorough estate planning. The options available in a do-it-yourself system may not provide the solutions that are necessary. A computer program or website cannot replicate the intricate knowledge a qualified local estate planning attorney will have and use to apply to your particular circumstances.

If you’re a person of wealth, then concerns about income and estate taxes enter the picture too. An online estate planning website or program that prepares basic Wills without taking into account the size of the estate can result in hundreds of thousands of dollars in increased (and usually completely avoidable) tax liability and future probate fees. A qualified estate planning attorney will know how to structure your legal affairs to properly address these issues.

One important aspect of estate planning is protecting adult children from the negative financial consequences of divorce, bankruptcy, lawsuits, or illness. An online planning tool will not take these additional steps into account when putting together what is usually a basic estate plan. Similarly, parents who have children or adult loved ones with special needs must take extra caution when planning. There are complicated rules regarding government benefits that these loved ones may receive that must be considered, so that valuable benefits are not lost due to an inheritance.

Consult an Estate Planning Attorney

No matter how good a do-it-yourself estate planning document may seem, it is no substitute for personalized advice. Estate planning is more than just document production. In many cases, the right legal solution to your situation may not be addressed by these do-it-yourself products – affecting not just you, but generations to come. To make sure you are fully protecting your family, contact me, a Personal Family Lawyer®, today.

As a Personal Family Lawyer®, I offer expert advice on Wills, Trusts, and numerous other estate planning vehicles. Using proprietary systems, such as my Family Wealth Inventory and Assessment™ and Family Wealth Planning Session™, I’ll carefully analyze your assets—both tangible and intangible—to help you come up with an estate planning solution that offers maximum protection for your family’s particular situation and budget. Contact me today to get started.

This article is a service of Tara Cheever, Personal Family Lawyer®. I don’t just draft documents; I ensure you make informed and empowered decisions about life and death, for yourself and the people you love. That’s why I offer a Family Wealth Planning Session™ during which you will get more financially organized than you’ve ever been before, and make all the best choices for the people you love. You can begin by calling my office today to schedule a Family Wealth Planning Session and mention this article to find out how to get this $750 session at no charge.

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Are Payable-On-Death Accounts Right For You?

Are Payable-On-Death Accounts Right For You?

A payable-on-death account, also called a POD account, is a common way to keep bank and investment accounts out of probate, the court-supervised process that oversees distributing a deceased person’s property. Most people want to avoid their estate going through probate because their heirs will receive the inheritance faster, privately, and at lower cost.

Is a POD account an appropriate solution for your needs? Let’s examine what POD accounts do and how they fit into the overall picture.

POD Accounts: The Nuts and Bolts

A POD designation can be set up for savings, checking, certificates of deposit, U.S. savings bonds, and investment accounts. Upon the death of the account holder, the funds in the account pass directly to the named beneficiary.

Setting up a POD account is usually very easy. Typically, there’s a form you have to complete and sign to select your beneficiary or beneficiaries. Additionally, you can change beneficiaries whenever you like or name several beneficiaries (allowing them to split the money).

After the death of the POD account holder, the beneficiary can claim the money in a fairly simple process. Often, the beneficiary will need to show ID, provide a copy of the death certificate, and complete some forms provided by the financial institution.

Some Pros and Cons

So, POD sounds great because they are easy. But, there can be significant problems using this as the primary tool for passing along what you’ve worked to build.

What if a beneficiary predeceases you? If you do not name new ones before you die, then your estate is back to probate, thus negating the primary advantage of establishing the POD account in the first place!

What if the beneficiary is in the middle of a bankruptcy, divorce, or lawsuit? Because a POD account transfers the money to the beneficiary without any protection, your beneficiary may lose his or her entire inheritance simply because the death of the POD account owner occurred at the “wrong” time.

What if you are in a car crash and rendered legally incapacitated and unable to make decisions? The named beneficiary cannot access funds to provide for your needs. POD accounts only function at death. They provide no protection in the event of your incapacitation.

Trusts: A Comprehensive Solution

Here’s a comprehensive solution: establish a revocable living trust to hold your accounts. Just like a POD account, a funded trust avoids probate and is private. But, unlike a POD account, it can incorporate alternate beneficiaries, so your assets avoid court even if someone predeceases you. You can also provide long-term asset protection for your beneficiaries, protecting them against lawsuits, judgments, divorce, and bankruptcy courts. If you become incapacitated due to an accident or illness, the successor trustee can use the assets in your trust to pay for your care. Trusts provide all the benefits and peace of mind of a POD account without any of the downsides.

Remember: Estate Planning Tools are Context Dependent

Rather than pick tools out of a hat, you first need clarity on the big picture. What are your goals and priorities? What challenges do you face now—or do you anticipate confronting? Whom do you want to protect? What kind of legacy do you hope to leave?

I can organize your thinking and help you select appropriate planning tools from the arsenal. Want to discuss POD accounts, living trusts, or just your future in general? Please call or email me to set up a private appointment.

This blog is a service of Tara Cheever, Personal Family Lawyer®. I don’t just draft documents; I ensure you make informed and empowered decisions about life and death, for yourself and the people you love. That’s why I offer a Family Wealth Planning Session,™ during which you will get more financially organized than you’ve ever been before, and make all the best choices for the people you love. You can begin by calling my office today to schedule a Family Wealth Planning Session and mention this article to find out how to get this $750 session at no charge.

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The Perils of Joint Property

The Perils of Joint Property

People often set up bank accounts or real estate so that they own it jointly with a spouse or other family member. The appeal of joint tenancy is that when one owner dies, the other will automatically inherit the property without it having to go through probate. Joint property is all perceived to be easy to setup since it can be done at the bank when opening an account or title company when buying real estate.

That’s all well and good, but joint ownership can also cause unintended consequences and complications. And it’s worth considering some of these, before deciding that joint ownership is the best way to pass on assets to your heirs.

So let’s explore some of the common problems that can arise.

The other owner’s debts become your problem.

Any debt or obligation incurred by the other owner could affect you. If the joint owner files bankruptcy, has a tax lien, or has a judgment against them, it could cause you to end up with a new co-owner – your old co-owner’s creditors! For example, if you add your adult child to the deed on your home, and he has debt you don’t know about, your property could be seized to collect that debt. Although “your” equity of the property won’t necessarily be taken, that’s little relief when the house you live in is put up on the auction block!

Your property could end up belonging to someone you don’t intend.

Some of the most difficult situations come from blended families. If you own your property jointly with your spouse and you die, your spouse gets the property. On the surface, that may seem like what you intended, but what if your surviving spouse remarries? Your home could become shared between your spouse and her second spouse. And this gets especially complicated if there are children involved: Your property could conceivably go to children of the second marriage, rather than to your own.

You could accidentally disinherit family members.

If you designate someone as a joint owner and you die, you can’t control what she does with your property after your death. Perhaps you and an adult child co-owned a business. You may state in your will that the business should be equally shared with your spouse or divided between all of your kids; however, ownership goes to the survivor – regardless of what you put in your will.

You could have difficulty selling or refinancing your home.

All joint owners must sign off on a property sale. Depending on whether the other joint owners agree, you could end up at a standstill from the sales perspective. That is unless you’re willing to take the joint owner to court to force a sale of the property. (No one wants to sue their family members, not to mention the cost of the lawsuit.)

And what if your co-owner somehow becomes incapacitated, through accident or illness? In that case, you may have to petition a court to appoint a guardian or conservator to represent the co-owner’s interest in the sale. While you and your co-owner always worked together, an appointed guardian may see his responsibility as protecting the other owner’s interest–which might mean going against you.

You might trigger unnecessary capital gains taxes.

When you sell a home for more than you paid for it, you usually pay capital gains taxes–based on the increase in value. Therefore, if you make an adult child a co-owner of your property, and you sell the property, you’re both responsible for the taxes. Your adult child may not be able to afford a tax bill based on decades of appreciation.

On the other hand, heirs only pay capital gains taxes based on the increase in value from when they inherited the asset, not from the day you first acquired it. So often, while people worry about estate taxes, in this case–inheriting a property (rather than jointly owning it) could save your heirs a fortune in income tax. And with today’s generous $5.49 million estate tax exemption, most of us don’t have to worry about the estate tax (but the income tax and capital gains tax hits almost everyone).

You could cause your unmarried partner to have to pay a gift tax.

If you buy property and place it in joint tenancy with an unmarried partner, the IRS will consider that to be a taxable gift to your partner. This can create needless paperwork and taxes.

So what can you do? These decisions are too important and complex to be left to chance.  Contact me, a Family Business Lawyer like myself who specializes in estate planning.  I will help you decide the best way to manage your property to meet your needs and goals.

I can assist you in planning to reduce estate taxes, avoid potential legal pitfalls, and set up a trust to protect your loved ones. I understand not only the legal issues but the complex layers of relationships involved in estate planning. I’ll listen to your concerns and help you develop a plan that gives you peace of mind while achieving all of your goals you have for your family. Contact me and mention this blog article and I can share with you how to obtain a Life & Legacy Planning Session valued at $750 free of charge.

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Which life events require an immediate estate plan update?

Which life events require an immediate estate plan update?

Estate planning is the process of developing a strategy for the care and management of your estate if you become incapacitated or upon your death. One commonly known purpose of estate planning is to minimize taxes and costs, including taxes imposed on gifts, estates, generation skipping transfer and probate court costs. However, your plan must also name someone who will make medical and financial decisions for you if you cannot make decisions for yourself. You also need to consider how to leave your property and assets while considering your family’s circumstances and needs.

Since your family’s needs and circumstances are constantly changing, so too must your estate plan. Your plan must be updated when certain life changes occur. These include, but are not limited to: marriage, the birth or adoption of a new family member, divorce, the death of a loved one, a significant change in assets, and a move to a new state or country.

Marriage: it is not uncommon for estate planning to be the last item on the list when a couple is about to be married – whether for the first time or not. On the contrary, marriage is an essential time to update an estate plan. You probably have already thought about updating emergency contacts and adding your spouse to existing health and insurance policies. There is another important reason to update an estate plan upon marriage. In the event of death, your money and assets may not automatically go to your spouse, especially if you have children of a prior marriage, a prenuptial agreement, or if your assets are jointly owned with someone else (like a sibling, parent, or other family member). A comprehensive estate review can ensure you and your new spouse can rest easy.

Birth or adoption of children or grandchildren: when a new baby arrives it seems like everything changes – and so should your estate plan. For example, your trust may not “automatically” include your new child, depending on how it is written. So, it is always a good idea to check and add the new child as a beneficiary. As the children (or grandchildren) grow in age, your estate plan should adjust to ensure assets are distributed in a way that you deem proper. What seems like a good idea when your son or granddaughter is a four-year-old may no longer look like a good idea once their personality has developed and you know them as a 25-year-old college graduate, for example.

Divorce: some state and federal laws may remove a former spouse from an inheritance after the couple splits, however, this is not always the case, and it certainly should not be relied on as the foundation of your plan. After a divorce, you should immediately update beneficiary designations for all insurance policies and retirement accounts, any powers of attorney, and any existing health care Agent and HIPAA authorizations. It is also a good time to revamp your will and trust to make sure it does what you want (and likely leaves out your former spouse).

The death of a loved one: sometimes those who are named in your estate plan pass away. If an appointed guardian of your children dies, it is imperative to designate a new person. Likewise, if your chosen executor, health care proxy or designated power of attorney dies, new ones should be named right away.

Significant change in assets: whether it is a sudden salary increase, inheritance, or the purchase of a large asset these scenarios should prompt an adjustment an existing estate plan. The bigger the estate, the more likely there will be issues over the disposition of the assets after you are gone. For this reason, it is best to see what changes, if any, are needed after a significant increase (or decrease) in your assets.

A move to a new state or country: for most individuals, it is a good idea to obtain a new set of estate planning documents that clearly meet the new state’s legal requirements. Estate planning for Americans living abroad or those who have assets located in numerous countries is even more complicated and requires professional assistance. It is always a good idea to learn what you need to do to completely protect yourself and your family when you move to a new state or country. I am here to help you get fully settled in and build a plan to protect you and your family.

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How to Protect Your Child’s Inheritance from His or Her Untrustworthy Spouse

How to Protect Your Child’s Inheritance from His or Her Untrustworthy Spouse

Parents who develop an estate plan often do so to provide for their heirs financially. Many want to make sure hard-earned assets, family heirlooms, or closely held businesses stay within the family. Indeed, a common question is what cost effective options are available to protect one’s child’s inheritance from a spouse in the event of untrustworthiness or divorce. Thankfully, there are many ways to structure your child’s inheritance to help ensure it will remain in the family for future generations. Let’s look at a few of the options now.

Create a Trust

A trust involves three parties: (1) the person creating the trust (you might see this written as the “settlor,” “trustmaker,” or “grantor.”), (2) the person or entity holding the trust property for the benefit of the beneficiary, known as the “trustee”, and (3) the person(s) that benefit from the creation of the trust, known as the “beneficiaries.” Choosing a trustee who is independent can be a great way to eliminate any arguments that one beneficiary has more control to receive assets than what is actually provided in the trust documents than other beneficiaries, a helpful situation when you have an untrustworthy son- or daughter-in-law.

A lifetime trust is a type of trust that – as is evident from its name – lasts for the lifetime of the beneficiary and passes to the next generation of beneficiaries upon his or her death. It is commonly referred to as a “generation-skipping trust” and can also dramatically reduce or eliminate estate taxes. Assets in a lifetime trust are protected against commingling in the marriage and, therefore, cannot be pursued by a spouse. When assets are held by a trust your children – and, by extension, their spouses – cannot access these assets. Therefore, even in the event of a divorce, an ex-spouse cannot pursue them.

Use Prenuptial Agreements

In addition to creating a trust to protect your children’s inheritance from an untrustworthy spouse, your children can use a prenuptial agreement as a tool for asset protection. A prenuptial agreement is a document that details an agreement between your child and his or her spouse about the characterization of assets owned at the time of marriage and those earned after marriage. This legal document also provides the couple to agree upon the division of assets in the event there is a divorce. Because enforceability of prenuptial agreements varies by state, it is important to seek the advice of an attorney like myself before drafting and signing the contract. It may be an uncomfortable suggestion to bring up with your children, but it can be an incredible benefit in the event of a later divorce.

Other Planning Ideas

Beyond the actual legal tools, it is important for you to let your wishes be known to the family. One way to do this is to have a family discussion about your estate plan, explaining your intentions and reasons as to why it is set up in this manner. Additionally, using clear language in your estate planning documents that specify the intent or purpose in leaving the inheritance to benefit descendants – and not their spouses – can further solidify your wishes are followed. Finally, choosing a trustee that is independent will keep control over the funds in the trustee’s hands and not your child’s untrustworthy spouse. This will also allow you to manage or overcome any conflict that you may not have been expecting.

Bottom Line: Seek Out Estate Planning Help

If you wish to make sure your descendants receive a portion of your estate, discuss these intentions with your children and devise an estate plan that will guarantee this desire is fulfilled after your passing. Whether you have no estate plan, or have one that more than a few years old, sit down with me to create or update this plan to suit your goals.  Contact me for more information. I look forward to being of service to you!

 

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“I Love You” Wills don’t really say “I Love You”

“I Love You” Wills don’t really say “I Love You”

Here, I’m going to discuss the drawbacks of “I love you” wills and introduce you to the estate planning move that’s actually going to ensure you do well by your loved ones: a lifetime beneficiary trust.

Rise above the misconceptions

No aspect of estate planning brings out as much emotional decision-making as the division of assets. Many people think, “I love you,” so I’ll leave you everything. In order to understand why “I love you” wills are, contrary to their name, not the most caring of estate planning gestures, it’s important to understand the risks of “I love you” wills.

Simply, an “I love you” will is a common name for a will in which the Grantor leaves all of his or her assets outright to his or her surviving spouse.  Many people consider or even use this approach because they think that leaving assets in trust shows they don’t trust their spouse. They may also think that a lack of federal estate taxes protects their assets from getting into the wrong hands. Sadly, many people also think that a will can be used to avoid probate. Unfortunately, none of these things are true.

Understand why “I love you” wills aren’t effective 

Let’s assume for a moment that you want to ensure your spouse gets access to your wealth upon your death.  If all you have completed is a simple “I Love You” will, your spouse (or whomever you designated as your Personal Representative) will have to open a court proceeding, called, Probate, in order to validate your will and transfer your assets.  Depending on how your will was written, your Personal Representative may have to post bond.  Obtaining a Bond requires credit worthiness so if your Personal Representative has a credit problem, the Court may not allow that person to act and will appoint a Professional Fiduciary to act as your Personal Representative if a successor was not named.  In such case, that Personal Representative may not act according to what you had ultimately wanted if it wasn’t spelled out.

Once your spouse receives the assets, which could take years in the Probate Court, the assets are distributed outright.  An outright distribution of assets has many disadvantages, which are listed below.  With your spouse holding all of the assets outright, his/her estate plan will eventually control the distribution of whatever assets are left at her death – assuming proper estate planning was done, otherwise, an additional probate would be opened at his/her death.  If estate planning was completed, s/he has the right to alter his/her plan at any time and any verbal agreements that you two may have had are not enforceable and your wealth may end up in the hands of someone else, rather than your children or other beneficiaries.

Disadvantages of outright distributions include:

  • You could inadvertently disinherit your children. If you use an “I love you” will, your assets are now in your spouse’s hands for him/her to leave however s/he wants. For example, your spouse could leave the assets to his/her own kids, a charity, a lover, or a new spouse.  Likewise, assets left outright to children could be lost in a divorce.
  • Basic planning with outright inheritance sets your heirs up for asset protection issues. Once your assets are owned outright by your beneficiaries through a direct inheritance, those assets can be seized by creditors, divorcing spouses, or lost in bankruptcy. Even if your estate is below the exemption for the death tax, predatory creditors and lawsuits could still spell trouble.
  • These wills still have to go through probate. Surviving spouses do not receive an exemption from probate. Even a simple will still has to go through the process, which you may not be anticipating — especially if you had hoped to keep the details of the will private. If you end up in Probate, the matter becomes public record.  Trusts, however, don’t need to go through probate and all of your assets will pass according to the Trust as long as those assets are titled to your Trust.
  • An “I love you” will does not protect against guardianship or conservatorship court involvement for you or for your beneficiaries. For example, if you leave all of your assets to your spouse and s/he develops dementia, the entire estate (existing assets plus the inheritance s/he received from you) could be under the control of a guardianship or conservatorship court.
  • Basic plans pile more assets into survivors’ estates. Although portability between spouses can help, it still doesn’t prove useful with the generation-skipping transfer tax (GSTT). Portability isn’t available for non-spouse beneficiaries. While at this point in time, having a taxable estate affect a very narrow group of people with very high net worth; however, we don’t know yet what will happen with tax policy under the new Trump presidency. In a changing tax policy landscape, keeping yourself as informed as possible is an important tactic for ongoing success.

Explore lifetime beneficiary directed trusts

Comprehensive, trust-based estate planning with lifetime beneficiary trusts is a better option than outright inheritance for surviving spouses, children, grandchildren, or other beneficiaries. If you leave your assets in lifetime beneficiary trusts, you retain control over where assets end up in the long run. Plus, your beneficiaries obtain robust asset protection features that can keep wealth safe from courts, creditors, and divorcing spouses. Your family’s private information can stay out of public record. You can also take advantage of more sophisticated tax planning than you can with a basic will or trust with outright distributions.

With proper planning now, you can focus on enjoying your life without worry about what could happen in the future.  Now that’s something to love and truly expresses “I love you” to your beneficiaries.  Feel free to contact me and I can share some stories about people who neglected to plan and you can let me know if that is something that you want your family to experience.  I look forward to working for your best interests now as well as down the road.

 

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How You Can Build an Estate Plan that Includes Asset Protection

How You Can Build an Estate Plan that Includes Asset Protection

Yes, estate planning has to do with the way a person’s assets will be distributed upon their death; however, that’s only the tip of the iceberg. From smart incapacity planning to diligent probate avoidance, there is a lot that goes into crafting a comprehensive estate plan. One important factor to consider is asset protection.

Asset protection helps protect assets in a legal manner without engaging in the illegal acts of concealment, contempt, fraudulent transfer, tax evasion or bankruptcy fraud. One of the most important things to understand about asset protection is that not much good can come from trying to protect your assets reactively when surprised by situations like bankruptcy or divorce – at that point, it is too late. The only way to take full advantage of estate planning in regards to asset protection is to prepare proactively long before these things ever come to pass.

There are two main types of asset protection:

Asset protection for yourself:

This is the kind that has to be done long in advance of any proceedings that might threaten your assets, such as bankruptcy, divorce, or judgment. As there are many highly-detailed rules and regulations surrounding this type of asset protection, it’s important to seek advice from your estate planning attorney.

Asset protection for your heirs:

This type of asset protection involves setting up discretionary lifetime trusts rather than outright inheritance, staggered distributions, mandatory income trusts, or other less protective forms of inheritance. There are varying grades of protection offered by different strategies. For example, a trust that has an independent distribution trustee who is the only person empowered to make discretionary distributions offers much better protection than a trust that allows for “ascertainable standards” distributions. While all of this may sound complex, I am here to help you best protect your heirs and their inheritance.

This complex area of estate planning is full of potential misconceptions, so it’s crucial to obtain qualified advice and not solely rely on common knowledge about what’s possible and what isn’t. As a general outline, let’s take a look at three critical junctures when asset protection can help, along with the estate planning strategies we can build together that can set you up for success.

Bankruptcy

It’s entirely possible that you’ll never need asset protection, but it’s much better to be ready for whatever life throws your way. You’ve worked hard to get where you are in life, and just a little strategic planning will help you hold onto what you have so you can live well and eventually pass your estate’s assets on to future beneficiaries. If you experience an unexpected illness or even a large-scale economic recession, you could result in bankruptcy.

Bankruptcy asset protection strategy: Asset protection trusts

Asset protection trusts hold on to more than just liquid cash. You can fund this type of trust with real estate, investments, personal belongings, and more. Due to the nature of trusts, the person controlling those assets will be a trustee of your choosing. Now that the assets within the trust aren’t technically in your possession, they can stay out of creditors’ reach — so long as the trust is irrevocable, properly funded, and operated in accordance with all the asset protection law’s requirements. In fact, asset protections trusts must be formed and funded well in advance of any potential bankruptcy and have numerous initial and ongoing requirements. They are not for everyone, but can be a great fit for the right type of person.

 

Divorce

One of the last things you want to have happen to the nest egg you’ve saved is for your children to lose it in a divorce. In order to make sure your beneficiaries get the parts of your estate that you want to pass onto them — regardless of how their marriage develops — is a discretionary trust.

 Divorce asset protection strategy: Discretionary trusts

When you create a trust, the property it holds doesn’t officially belong to the beneficiary, making trusts a great way to protect assets from a divorce. Discretionary trusts allow for distribution to the beneficiary but do not mandate any distributions. As a result, they can provide access to assets but reduce (or even eliminate) the risk that your child’s inheritance could be seized by a divorcing spouse. There are a number of ways to designate your trustee and beneficiaries, who may be the same person, and, like with many legal issues, there are some other decisions that need to be made. Discretionary trusts, rather than outright distributions, are one of the best ways you can provide robust asset protection for your children.

Family LLCs or partnerships are another way to keep your assets safe in divorce proceedings. Although discretionary trusts are advisable for people across a wide spectrum of financial means, family LLCs or partnership are typically only a good fit for very well-off people.

 

Judgment

When an upset customer or employee sues a company, the business owner’s personal assets can be threatened by the lawsuit. Even for non-business owners, injury from something as small as a stranger tripping on the sidewalk outside your house can end up draining the wealth you’ve worked so hard for. Although insurance is often the first line of defense, it is often worth exploring other strategies to comprehensively protect against this risk.

Judgment asset protection strategy: Incorporation

Operating your small business as a limited liability company (commonly referred to as an LLC) can help protect your personal assets from business-related lawsuits. As mentioned above, malpractice and other types of liability insurance can also protect you from damaging suits. Risk management using insurance and business entities is a complex discipline, even for small businesses, so don’t only rely on what you’ve heard online or “common sense.” You owe it to your family to work with a group of qualified professionals, including your estate planning attorney and an insurance advisor, to develop a comprehensive asset protection strategy for your business.

 These are just a few ways we can optimize your estate plan in order to keep your assets protected, but every plan should be tailored to an individual’s exact circumstances. Give me a call at 858-432-3923 today to discuss your estate plan’s asset protection strategies.

 

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