Can Mom Leave a Home to a Child but Not Grandchildren?

You have many options on how to leave a home to your child, but not a grandchild, including a will, trust and an enhanced life estate deed.

There are numerous ways to pass your property at death. A woman with three grown daughters faced a problem about passing down the family home. She wanted to leave a home to a child who has taken care of and is closest to her. However, she also wanted to be sure that, if something happened to this youngest daughter, the house would go to her two other daughters and not the close daughter’s adult children.

With proper planning, this can be done, as described in the article “Mom needs contingency plan to pass house title” from mySanAntonio.

One way is to rely on a last will and testament. The will would state that she leaves the house to the youngest daughter, under terms of a testamentary trust inside the will. The executor would probate the will and the trust would be established at death.  The trust terms would permit the daughter to use, enjoy, and live in the house during her lifetime, as the beneficiary of the testamentary trust.

The two older daughters would be named as the secondary beneficiaries of the trust. When the younger daughter dies, the trust distributes the house to the older daughters.  The trust would also provide what would happen to the property if the older daughters are deceased.

The plan will need to be prepared by a qualified estate planning attorney. This is not a terrible process, if the will is professionally written and properly executed, includes an executor and a trustee and clear instructions about her wishes.

However, there are other options, which can also be used in conjunction.  One is an enhanced life estate deed and another is a living trust. The enhanced life estate deed specifies that the woman is retaining a life estate, that is, the right to use, enjoy and occupy her home, for the rest of her life. The document specifies that when she dies, the home goes to her youngest daughter. The owner would also want to specify that she has the right to change her mind at any time.

This approach avoids probate. However, there is a downside. If the youngest daughter dies before the mother, then the mother will need to take legal action to cancel the deed and issue a new one to the two older daughters. If the daughter outlives her mother, once she inherits the house, there will be no way to have it transferred to the other sisters in the future (unless the daughter choses to do so) and presumably the property will go to the grandchildren after all.  Clients who try to construct their own estate plans often fall into this trap, they try to rely on beneficiary designations for everything and can’t address contingencies.

A living trust provides the detailed control allowed in a will, but the trust, which must be properly created and funded, avoids going to probate. The trust would let the mother live in the home, and when she dies, the title to the house stays in trust with her youngest daughter, who is able to live in the house. However, she never becomes the owner of the house. The trust would continue to own the house. The trust would specify that when the daughter dies, the house goes to the two older daughters. She may also use the enhanced life estate deed, and have it name the trust as beneficiary at her death to ensure it goes to the right beneficiaries.

There are other considerations which affect these decisions, such as taxes, who to put in charge of the process and long term care planning.  See here for more information.  https://galligan-law.com/removing-your-house-from-your-trust/

If you have a similar situation and want to learn more, call our office today.  We will walk you through these issues and help craft a plan that accomplishes your goals.

Reference: mySanAntonio (June 8, 2020) “Mom needs contingency plan to pass house title”

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Business Succession Planning in your Estate Plan

Business succession planning is critical in your estate plan to ensure your business succeeds when you’re gone and to preserve value for your beneficiaries.

When people think about estate planning, many just think about their personal property and their children’s future. If you have a successful business, you may want to think about how it will continue after you retire or pass away.  Business succession planning is critical because the value and success of the business will be greatly effected when you pass away.  Planning now will help prevent interruptions to the business and preserve the value for your beneficiaries, and for your employees.

Forbes’ recent article entitled “Why Business Owners Should Think About Estate Planning Sooner Than Later” says that many business owners believe that business succession planning, estate planning and getting their affairs in order happens when they’re older. While that’s true for the most part, it’s only because that’s the stage of life when many people begin pondering their mortality and worrying about what will happen next or what will happen when they’re gone. The day-to-day concerns and running of a business is also more than enough to worry about, let alone adding one’s mortality to the worry list at the earlier stages in your life.  Having been a business owner myself, I understand that the demands of the day seem so important, it’s hard to think about next week, let alone when you’re gone.

Business continuity is the biggest concern for entrepreneurs and one of the key components to address in business succession planning. This can be a touchy subject, both personally and professionally, so it’s better to have this addressed while you’re in charge.  One option is to create a living trust and will to put in place parameters that a trustee can carry out. With these names and decisions in place, you’ll avoid a lot of stress and conflict for those you leave behind.  You may do this as a trust solely for the business, such as a management trust, or as part of your regular estate planning.

They may be upset with you, but it’s better than the other or future owners and key employees being mad at each other.  This will give them a higher probability of working things out amicably at your death. The smart move is to create a business succession plan that names successor trustees to be in charge of operating the business, if you become incapacitated or die.

Business succession planning may include several other aspects.  For example, many owners complete buy sell agreements or similar documents that require a deceased owners estate to sell their interest to the other owners, or address what happens if an owner divorces, or becomes disabled.  Some even address buy outs for retiring owners.  It is also a good idea to consider employment agreements that entice key employees to stay with the company if you should retire or pass away.  These documents can be complex as they touch many issues, but are worth discussing with your estate planning or business attorney as part of your business succession plan.

A power of attorney document will nominate a fiduciary agent to act on your behalf, if you become incapacitated, but you should also ask your estate planning attorney about creating a trust to provide for the seamless transition of your business at your death to your successor trustees. The transfer of the company to your trust will avoid the hassle of probate and will ensure that your business assets are passed on to your chosen beneficiaries. Timely planning will also preserve your business assets, as advanced tax planning strategies might be implemented to establish specific trusts to minimize the estate tax.  See here for more details.  https://galligan-law.com/how-do-trusts-work-in-your-estate-plan/

Business succession planning and estate planning may not be on tomorrow’s to do list for young entrepreneurs and business owners. Nonetheless, it’s vital to plan for all that life may bring, and is critical to prevent disruptions to the business you created.

Reference: Forbes (Dec. 30, 2019) “Why Business Owners Should Think About Estate Planning Sooner Than Later”

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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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