Understanding Why a Will is Important

A Will is an important estate planning tool that describes your wishes for your property after death and who is responsible to see your wishes through.

These questions presented by The Westerly Sun in the article “Making a will is an important legal step,” may seem very basic, but many people don’t really understand how a will works and why they are such an important part of estate planning. Let’s go through these fundamentals about wills.

A will is a legal document that must be prepared under very strict standards to explain your wishes about how you want your estate–that is, your property, money, tangible possessions, and real estate—distributed after you die.

A will also does more than that.  A will, which is sometimes referred to as a “Last Will and Testament,” also makes clear who is going to be in charge of your affairs after death, by naming them as executor of your estate.

A complete estate plan includes a will and several other documents, including a power of attorney, healthcare power of attorney and potentially a trust.  The goal of all of these documents is to make it easier for your surviving spouse or loved ones to take care of you and your affairs, if you become too ill to speak on your own behalf or when you die.

Your will provides instructions about what happens to your estate. Who should receive your money and property? These instructions must be followed by the person you choose as your executor. The local probate court must give its approval, and then the estate can be distributed.

If you have a valid will, it is admitted to probate (a court process) upon your death, and then your wishes are followed. If you don’t have a will, you are said to have died “intestate.” The laws of the state, and not you, and not your loved ones, decide what will happen to everything you own that is subject to the intestacy process. Usually this means that assets are distributed to family members based on their degree of kinship with you.  In Texas, it also means there may be a separate process to determine who those heirs are, which can be time intensive and costly.

It also may not be what you wanted. If you have minor children, the Court may appoint a guardian for those children, or may establish a court monitored trust for the property they receive until they are old enough to handle their own affairs.  All of these extra steps and complexity make a will necessary.

Many clients chose to also use trusts as part of their estate plan and coordinate the trust with the will.  This provides the added benefit of avoiding the probate process, making administration even easier.  Even if you use a trust in your estate plan, you may still need a will in conjunction with that trust.   See here for more details.  https://galligan-law.com/how-do-trusts-work-in-your-estate-plan/

No one likes to think about dying, or becoming incapacitated, but by planning ahead and working with an experienced estate planning attorney to prepare a will, you can determine what you want to happen, and protect those you love.

Reference: The Westerly Sun (August 18, 2019) “Making a will is an important legal step”

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Amending a Trust: What are your Options?

If your trust no longer meets your needs, there are many ways to amend the trust to serve your goals for you and your loved ones.

A son has contacted an elder law estate planning attorney now that mom is in a nursing home and he’s unsure about many of the planning issues, as reported by the Daily Republic. The article, “Amending trust easier if parents can make informed decision,” describes the family’s situation.

The son has numerous valid concerns about paying his parents’ bills, managing their assets and avoiding personal liability if they are sued.  The author addresses these concerns for the son, but I’d like to focus on one point: updating and amending the trust.

All estate plans change over time as an individual’s needs and wishes change.  Sometimes the trust will anticipate these changes, such as naming a successor trustee to take over when the trust creators can no longer make financial decisions.  In the son’s case, that might be enough.  However, if the trust doesn’t address the issue or if the trust makers’ needs and wishes change substantially, it is sometimes necessary to amend a trust.  Sometimes it is good to amend a trust for tax reasons, such as Mary describes here:  https://galligan-law.com/higher-estate-tax-exemption-means-you-could-save-income-taxes-by-updating-your-estate-plan/

If his parents have a revocable or living trust and have the capacity to handle their financial affairs, they can choose to amend the trust themselves.  This is by far the best and cheapest option as the parents can review the trust each year, put their son in charge of their affairs if they wish and make other appropriate changes.  They can do this very easily by either making an amendment or restating the trust.  Restating is amending the trust by rewriting the terms of the trust with the changes without actually creating a new trust.

If his parents do not have the capacity to make financial decisions, that doesn’t mean the son can’t amend the trust.  Often powers of attorney permit an agent to amend a trust if the principal (person who makes the power of attorney) is incapacitated.  Now, the powers of attorney will usually have limitations built in.  For example, they may require the agent to follow the principal’s “testamentary intent.”  This means that the beneficiaries of the estate plan should be generally the same.  So, if the son wasn’t a beneficiary of the trust, he can’t make himself one now. He also still needs to act in the best interest of the principal.  But, amending the trust to protect the assets and better care for his parents is just fine.

Let’s say the trust is an irrevocable trust, or perhaps the power of attorney doesn’t permit amending the trust, what then?   There are still options.

Some trusts include “trust protectors.”  This is a person named in the trust who can amend the trust in limited ways to make sure it still works.  A trust protector is usually a trusted individual, occasionally an attorney, who can make amendments to the trust.  Depending on the reason for the change, it is also possible to ask a Court to modify the trust.   It’s even possible sometimes to “decant” a trust.  Decanting is not really amending a trust, it is creating a whole new trust with new terms, and then transferring the assets from the old trust to the new one.  These techniques are more complex and expensive, but very helpful, especially with very out-of-date trusts that haven’t been reviewed or amended in some time.

The key point is that is important to review and keep your trust up to date.  But, even if you have a trust that is old or doesn’t work well, there are many ways to amend a trust to ensure proper administration of the assets for you and your beneficiaries.

Reference: Daily Republic (Aug. 10, 2019) “Amending trust easier if parents can make informed decision”

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Read more about the article How Do Trusts Work in Your Estate Plan?
Trusts offer many benefits, so speak with your attorney on how to fit them in your estate plan.

How Do Trusts Work in Your Estate Plan?

Trusts offer many benefits including probate avoidance, tax and disability planning and protecting beneficiaries.
Trusts offer many benefits including probate avoidance, tax and disability planning and protecting beneficiaries.

Trusts can be useful tools for passing on assets, allowing them to be held by a responsible trustee for the benefit of the beneficiaries. However, determining which type of trust is best for each family’s situation and setting them up so they work with an estate plan can be complex. You’ll do better with the help of an estate planning attorney, says The Street in the article “How to Set Up a Trust Fund: What You Need to Know.”

There are lots of reasons to use trusts.  Many are used to avoid the time and difficulty involved with the probate process.  Others are used for estate tax planning and Medicaid planning.  Still others are used to pass financial assets to beneficiaries who might not be able to use them well or by themselves, such as with a disabled beneficiary, a beneficiary who wastes money or has creditors, or perhaps is struggling with addiction.  Many parents leave assets to their children in trusts so that the assets are excluded from their child’s potential divorce.  Trusts can even be used for your pets!  We have many blog posts on different reasons to use a trust, and here are a few:  https://galligan-law.com/special-estate-planning-considerations-for-a-blended-family/ (blended families)  https://galligan-law.com/do-you-need-a-pet-trust-in-your-estate-plan/ (pets) https://galligan-law.com/some-common-estate-planning-mistakes-best-avoided/.    

If you are considering using a trust as part of your estate planning, you have to consider whether it will be revocable or irrevocable.  I’ll briefly describe both varieties.

Revocable Trusts are trusts that can be changed. They are often called Living Trusts.  This form of trust is typically used to avoid probate because assets properly owned or directed to the trust will not be probate assets.  Because of its flexibility, you can change beneficiaries, terminate it, or leave it as is. You have options, and it can change with you as your needs, wishes and plan change over time.  Once you die, the revocable trust becomes irrevocable and distributions and assets shift to the beneficiaries in the manner you chose. 

A revocable trust avoids probate for the assets it directs, but will be counted as part of your “estate” for estate tax purposes. They are includable in your estate, because you maintain control over them during your lifetime.  Under current law, very few people have an estate large enough to pay federal estate taxes, so having assets as part of your “estate” for estate tax purposes is actually a good thing.

Revocable Trusts are also used to help manage assets as you age, help you maintain control of assets if you don’t believe the trustees are ready to manage the funds, or to appoint other trustees in case you can no longer manage the assets yourself.

Irrevocable Trusts are called irrevocable because in theory you cannot change or revoke them.  However, most states have laws which permit revocation or change of irrevocable trusts in certain circumstances.  But, you should be careful about irrevocable trusts if you expect a need to change it in the future.

If estate taxes are a concern, it’s likely you’ll consider this type of trust. The assets are given to the trust, thus removing them from your taxable estate.  Irrevocable trusts of this type are less common than revocable trusts, but still can be a powerful weapon in your estate planning arsenal. 

These are just two of many different types of trusts. There are trusts set up for distributions to pay college expenses, providing for disabled individuals to preserve government benefits, charitable funds for philanthropic purposes, planning for pets after you are gone, leaving assets to a second spouse or children in a blended family and more.

Your estate planning attorney will be able to identify which types are most appropriate for your situation.  Here’s how to prepare for your meeting with an estate planning attorney when considering a trust:

Why do you want the Trust? Consider your goal.  Is it to avoid probate?  Is it for tax planning?  Is it because you know a beneficiary shouldn’t receive the assets but you still want to provide for them?

List beneficiaries. Include primary beneficiaries and have a plan for what happens when the primary beneficiary is deceased.

Map out the specifics. Who do you want to receive the assets? How much do you want to leave them? Why shouldn’t receive the assets immediately?  You should be as detailed as possible.

Choose a trustee. You’ll need to name someone who will respect your wishes, who understands your financial situation and who will be able to stand up to any beneficiaries who might not like how you’ve structured your plan. It can be a professional trustee as well.

Don’t forget to fund the it! This last step is very important. The trust does no good if it is not properly funded. You should speak with your estate planning attorney about how to fund the trust based upon the plan you selected.

Creating a trust can be a complex task. However, with the help of an experienced estate planning attorney, this strategy can yield a lifetime of benefits for you and your loved ones.

Reference: The Street (July 22, 2019) “How to Set Up a Trust Fund: What You Need to Know”

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