The Basics of Estate Planning

Every now and again, it’s helpful to go back to the basics.  This blog will go back to the basics of estate planning to talk about how and why everyone should have an estate plan.  Forbes’ recent article entitled “Estate Planning Basics” explains that everybody has an estate.

No matter how BIG or small your net worth is, estate planning is a process that addresses how and to whom you leave your assets when you die and names decisionmakers who will wind-up your affairs at death and make financial, medical or personal decisions for you if you cannot yourself.

An estate is nothing more or less than the sum total of your assets and possessions of value. This includes:

  • Your car
  • Your home
  • Financial accounts
  • Investments; and
  • Personal property.

Part of estate planning is deciding which people or organizations are to get your possessions or assets after you’ve died.  This includes determining how to give it to them, and that plan addresses concerns such as marital status of the beneficiary, how they are with money, addiction problems, taxes and so on.

It’s also how you leave directions for managing your care and assets if you are incapacitated and unable to make financial or medical decisions. That is done with powers of attorney, a healthcare directive and a living will.

This is a very important aspect of estate planning, and you can learn more here:  https://galligan-law.com/power-of-attorney-why-it-is-important/

One of the biggest reasons people don’t have an estate plan is they assume they have no “estate” to be concerned with.  It might be true they don’t have much money, but everyone should consider naming individuals to act for them if they become incapacitated, ill or otherwise need help making decisions.

It also designates who can make critical healthcare and financial decisions on your behalf should you become incapacitated. If you have minor children, your estate plan also lets you designate their legal guardians, in case you die before they reach 18. It also allows you to name adults to safeguard their financial interests.

You can also create a trust to safeguard a minor child’s assets until they reach a certain age. You can also keep assets out of probate. That way, your beneficiaries can easily access things like your home or bank accounts.

All estate plans should include documents that cover three main areas: asset transfer, medical needs and financial decisions. Ask an experienced estate planning attorney to help you create your estate plan covering these three basic areas.

Reference: Forbes (Nov. 16, 2022) “Estate Planning Basics”

Continue ReadingThe Basics of Estate Planning

Revocable vs. Irrevocable Trusts

A living trust can be revocable or irrevocable, says Yahoo Finance’s recent article entitled “Revocable vs. Irrevocable Trusts: Which Is Better?” It is certainly true that not everyone needs a trust, and there are many different types of trusts you can establish. But, when considering a trust, clients need to consider the pros and cons of revocable versus irrevocable trusts.

Revocable Trust

A revocable trust is a trust that can be changed or terminated at any time during the lifetime of the trustor (i.e., the person making the trust). This means you could:

  • Add or remove beneficiaries at any time
  • Transfer new assets into the trust or remove ones that are in it
  • Change the terms of the trust concerning how assets should be managed or distributed to beneficiaries; and
  • Terminate or end the trust completely.

When you die, a revocable trust automatically becomes irrevocable and no further changes can be made to its terms.

The big advantage of choosing a revocable trust is flexibility. A revocable trust allows you to make changes and to grow with your needs. Revocable trusts can also allow your beneficiaries to avoid probate when you die.  Most clients use revocable trusts during their lifetimes, although they might establish irrevocable trusts for other people or to address specific circumstances.

However, a revocable trust doesn’t offer the same type of protection against creditors as an irrevocable trust. If you’re sued, creditors could still try to attach trust assets to satisfy a judgment. The assets in a revocable trust are part of your taxable estate and subject to federal estate taxes when you die, which is usually a good thing, but in some assets isn’t sufficient tax planning.  It also provides no advance asset protection for Medicaid.

Irrevocable Trust

An irrevocable trust is permanent. If you create an irrevocable trust during your lifetime, any assets you transfer to the trust stay in the trust. You can’t add or remove beneficiaries or change the terms of the trust.

Irrevocable trusts are commonly used for creditor protection or tax planning.  There are times, such as when considering long-term care Medicaid in a nursing home, or reducing the size of your estate for estate tax purposes, that you want the asset not in your name and out of your personal control.  The irrevocable trust can achieve that by having the trustee own it instead of you.

Irrevocable trusts created during your lifetime are often done in addition to a revocable trust so that you achieve the particular benefits of an irrevocable trust only for that property which needs the advantage.

Irrevocable trusts are more commonly something you set up to be effective at your death.  We’ve written extensively on this, but it is extremely common to leave your children’s inheritance to them in irrevocable trusts that set the rules by which they benefit from the trust and provide creditor and divorce protection to the beneficiary.  This also works with spendthrift beneficiaries and similar trusts are used when a beneficiary has a disability and is using government benefits.

See here for more:  https://galligan-law.com/how-do-trusts-work-in-your-estate-plan/  

It is worth noting that irrevocable trusts, despite their name, sometimes can be revoked, changed or you can remove property from them.

For example, irrevocable trusts might have a power of substitution allowing you to take out property as long as you put equal value property back in.  Irrevocable trusts can sometimes be revoked or changed by the agreement of all parties (including beneficiaries) although that doesn’t work if minors are involved.  Irrevocable trusts that are broken and no longer serve their original purpose can also sometimes be fixed by a process called decanting.  It involves creating a new trust and “decanting” the assets of the first into the second.

If you are using irrevocable trusts you are working with very sophisticated tax and creditor laws, so you’d have to check with your attorney if those options will fit with the trust you are creating.  It is also not something we like to rely on, which is one of the reasons irrevocable trusts are used less.

Speak with an experienced estate planning or probate attorney to see if a revocable or an irrevocable trust is best for you and your goals.

Reference: Yahoo Finance (Sep. 10, 2022) “Revocable vs. Irrevocable Trusts: Which Is Better?”

Continue ReadingRevocable vs. Irrevocable Trusts

What are the Duties of an Executor?

Many clients struggle with who can serve as an executor for their estate plan.  They may not have an easy option amongst their family, and are hesitant to ask others to serve as executor.  Many times clients want to know what are the duties of an executor so they can convey that to a potential candidate for the role.  It isn’t easy to explain everything an executor needs to do as they have to react to the circumstances as the time, but there are some general steps they will address.  A recent US News article entitled “How to Prepare to Be an Executor of an Estate” takes a further look into what is expected of an executor.

First, keep in mind that an executor is the person who helps wrap up the finances, assets and affairs for a deceased person. An executor is a person named in a will, and that is the scenario I’ll address.  If you are using trusts, many of the steps will overlap.

As executor of an estate, you will need to get copies of the death certificate and the will, and take both to an attorney well versed in probate law.  That attorney can help you probate the will through court.

Once appointed, you will follow the instructions in the will to administer the estate.  As executor, you are acting in a fiduciary capacity, and your efforts are directed toward the interests of the beneficiaries of the decedent’s the estate.

You will identify the assets of the estate, determine their value, pay off any valid debts, close accounts like utilities and cable or phone plans and distribute money and possessions to beneficiaries.  Depending on the terms of the will and the situation, you’ll have to file tax returns, make tax elections, and potentially sell property and the like.  You may also establish trusts for beneficiaries, or make arrangements to deliver assets such as personal property, real property, vehicles and more.

The duties of an executor also include reporting what assets they found in the estate through the filing of an inventory, to notify creditors or other essential parties.  Attorneys help with this process to ensure compliance with state laws.

The time required to be an executor can be extensive.  Any court process is not a fast one, and for that reason many clients choose to avoid it through the use of trusts in their plans.  Trusts do not require a court process and can be far more immediate for the family.  As I said before, the duties of an executor overlap with the trustee, so the issues for consideration when picking a trustee are similar.   You can see this article for more detail on the differences.  https://galligan-law.com/the-difference-between-an-executor-a-trustee-and-other-fiduciaries/ 

Finally, executors may be compensated for their work. Some states have commission schedules listed in their statutes that the executor can collect, while other states require that you keep track of your time and the judge will authorize “reasonable” compensation for your actual efforts.

Ask for help if tasks seem overwhelming or you do not understand certain instructions on accounts or the will. An experienced estate planning attorney can assist.

Reference: US News (Dec. 22, 2021) “How to Prepare to Be an Executor of an Estate”

Continue ReadingWhat are the Duties of an Executor?