As a New Parent, Have You Updated (or Created) Your Estate Plan?

You just had a baby. Now you’re sleep-deprived, overwhelmed, and frazzled. Having a child dramatically changes one’s legacy plan and makes having a plan all the more necessary, says ThinkAdvisor’s recent article, “5 Legacy Planning Basics for New Parents.”

Take time to talk through two high-priority items. Create a staggered checklist—starting with today—and set attainable dates to complete the rest of the tasks. Here are five things to put on that list:

  1. Will. This gives the probate court your instructions on who will care for your children, if something happens to both you and your spouse. A will also should name a guardian to be responsible for the children. Parents also should think about how they want to share their personal belongings and financial assets. Without a will, the state decides what goes to whom. Lastly, a will must name an executor.
  2. Beneficiaries. Review your beneficiary designations when you create your will, because you don’t want your will and designations (on life insurance policies and investments) telling two different stories. If there’s an issue, the beneficiary designation overrides the will. All accounts with a beneficiary listed automatically avoid probate court.
  3. Trust. Created by an experienced estate planning attorney, a trust has some excellent benefits, particularly if you have young children. Everything in a trust is shielded from probate court, including property. This avoids court fees and hassle. A trust also provides some flexibility and customization to your plan. You can instruct that your children get a sum of money at 18, 25 or 30, and you can say that the money is for school, among other conditions. The trustee will distribute funds, according to your instructions.
  4. Power of Attorney and Health Care Proxy. These are two separate documents, but they’re both used in the event of incapacitation. Their power of attorney and health care proxy designees can make important financial and medical decisions, when you’re incapable of doing so.
  5. Life Insurance. Most people don’t think about purchasing life insurance, until they have children. Therefore, if you haven’t thought about it, you’re not alone. If you are among the few who bought a policy pre-child, consider increasing the amount so your child is covered, if something should happen.

Reference: ThinkAdvisor (March 7, 2019) “5 Legacy Planning Basics for New Parents”

 

Continue ReadingAs a New Parent, Have You Updated (or Created) Your Estate Plan?

Why Is a Revocable Trust So Valuable in Estate Planning?

There’s quite a bit that a trust can do to solve big estate planning and tax problems for many families.

As Forbes explains in its recent article, “Revocable Trusts: The Swiss Army Knife Of Financial Planning,” trusts are a critical component of a proper estate plan. There are three parties to a trust: the owner of some property (settler or grantor) turns it over to a trusted person or organization (trustee) under a trust arrangement to hold and manage for the benefit of someone (the beneficiary). A written trust document will spell out the terms of the arrangement.

One of the most useful trusts is a revocable trust (inter vivos) where the grantor creates a trust, funds it, manages it by herself, and has unrestricted rights to the trust assets (corpus). The grantor has the right at any point to revoke the trust, by simply tearing up the document and reclaiming the assets, or perhaps modifying the trust to accomplish other estate planning goals.

After discussing trusts with your attorney, he or she will draft the trust document and re-title property to the trust. The assets transferred to a revocable trust can be reclaimed at any time. The grantor has unrestricted rights to the property. During the life of the grantor, the trust provides protection and management, if and when it’s needed.

Let’s examine the potential lifetime and estate planning benefits that can be incorporated into the trust:

  • Lifetime Benefits. If the grantor is unable or uninterested in managing the trust, the grantor can hire an investment advisor to manage the account in one of the major discount brokerages, or he can appoint a trust company to act for him.
  • Incapacity. A trusted spouse, child, or friend can be named to care for and represent the needs of the grantor/beneficiary. She will manage the assets during incapacity, without having to declare the grantor incompetent and petitioning for a guardianship. After the grantor has recovered, she can resume the duties as trustee.
  • This can be a stressful legal proceeding that makes the grantor a ward of the state. This proceeding can be expensive, public, humiliating, restrictive and burdensome. However, a well-drafted trust (along with powers of attorney) avoids this.

The revocable trust is a great tool for estate planning because it bypasses probate, which can mean considerably less expense, stress and time.

In addition to a trust, ask your attorney about the rest of your estate plan: a will, powers of attorney, medical directives and other considerations.

Any trust should be created by a very competent trust attorney, after a discussion about what you want to accomplish.

Reference: Forbes (February 20, 2019) “Revocable Trusts: The Swiss Army Knife Of Financial Planning”

Suggested Key Terms:

Continue ReadingWhy Is a Revocable Trust So Valuable in Estate Planning?

Does Anyone Really Need a Trust?

The simplest definition of a trust is a three-party fiduciary relationship between the person who created the trust and the fiduciary for the benefit of a third party. The person who created the trust is known as the “Grantor”, “Trustmaker”, “Settlor” or “Trustor.” The fiduciary, known as the “Trustee,” is the person or organization with the authority to handle the asset(s). The trustee owes the duty of good faith and trust to the third party, known as the “Beneficiary.”

That is accurately described by the Pittsburgh Post-Gazette in the article titled “Do I need a trust?”

Trusts are created by the preparation of a trust document by an estate planning attorney. The trust can be made to take effect while the Trustor is alive — referred to as inter vivos or after the person’s death — testamentary.

The document can be irrevocable, meaning it can never be changed, or revocable, which means it can change from one type of trust to another, under certain circumstances.

Whether you even need a trust, has nothing to do with your level of assets. People work with estate planning attorneys to create trusts for many different reasons. Here are a few:

  • Consolidating assets during lifetime and for ease of management upon disability or death.
  • Avoiding probate so assets can be transferred with privacy.
  • Protecting a beneficiary with cognitive or physical disabilities.
  • Setting forth the rules of use for a jointly shared asset, like a family vacation home.
  • Tax planning reasons, especially when IRAs valued at more than $250,000 are being transferred to the next generation.
  • Planning for death, disability, divorce or bankruptcy.

There is considerable misinformation about trusts and how they are used. Let’s debunk a few myths:

An irrevocable trust means I can’t ever change anything. Ever. Even with an irrevocable trust, the settlor typically reserves options to control trust assets. It depends upon how the trust is prepared. That may include, depending upon the state, the right to receive distributions of principal and income, the right to distribute money from the trust to third parties at any time and the right to buy and sell real estate owned by the trust, among others. Depending upon where you live, you may be able to “decant” a trust into another trust. Ask your estate planning attorney, if this is an option.

I don’t have enough assets to need a trust. This is not necessarily so. Many of today’s retirees have six figure retirement accounts, while their parents and grandparents didn’t usually have that much saved. They had pensions, which were controlled by their employers. Today’s worker owns more assets with complex tax issues.

You don’t have to be a descendent of an ancient Roman family to need a trust. You must just have enough factors that makes it worthwhile doing. Talk with your estate planning attorney to find out if you need a trust. While you’re at it, make sure your estate plan is up to date. If you don’t have an estate plan, there’s no time like the present to tackle this necessary personal responsibility.

Reference: Pittsburgh Post-Gazette (Jan. 28, 2019) “Do I need a trust?”

 

Continue ReadingDoes Anyone Really Need a Trust?