I have a Trust, so why do I Need a Pour Over Will?

Even if you utilize a trust in your estate plan, it is essential to have a “pour over will” that directs assets at your death to your trust through probate.

If the goal of estate planning is to avoid probate, it seems counter intuitive that one would sign a will, but the pour over will is an essential part of some estate plans, reports the Times Herald-Record’s article “Pour-over will a safety net for a living trust.”

If a person dies with assets in their name alone and without some contractual beneficiary which avoids probate (e.g. life insurance) those assets go through probate. The pour over will names the trust as the beneficiary of probate assets, so the trust controls who receives the inheritance. The pour over will works as a backup plan to the trust, and it also revokes past wills and codicils.

Living trusts became more widely used after a 1991 AARP study concluded that families should be using trusts rather than wills. Trusts were suddenly not just for the wealthy. Middle class people started using trusts rather than wills, to save time and money and avoid estate battles among family members. Trusts also served to keep financial and personal affairs private. Wills that are probated are public documents that anyone can review.  See here for more details.  https://galligan-law.com/how-do-trusts-work-in-your-estate-plan/

The one downfall to a trust is that it must be properly funded to work right.  As I said earlier, you probate assets in your name that do not pass by contractual obligation.  So, the trust must either own assets itself (“funding it”), have assets pass to it (e.g. the life insurance pays to the trust) or you must have some other mechanism for an asset to get to the trust or beneficiaries, such as a “joint tenants with rights of survivorship” account.  The pour over will is the safety net that makes sure if you missed something or obtained an asset you didn’t expect, there is still a way to get that asset to the trust and ultimately to your beneficiaries after death.

Speak with an experienced estate planning attorney to talk about how probate may impact your heirs and see if they believe the use of a trust and a pour over will would make the most sense for your family, and how best to fund the trust to accomplish your goals.

Reference: Times Herald-Record (Sep. 13, 2019) “Pour-over will a safety net for a living trust.”

Continue ReadingI have a Trust, so why do I Need a Pour Over Will?

The Perils of Online Estate Planning

The rise of online estate planning has lead to a rise in problems attorneys discover after the fact, many of which an estate planning attorney could avoid.

While the attraction of simplicity and low cost is appealing, the results are all too often disastrous, affirms Insurance News in the article “Mind Your Mouse Clicks: DIY Estate Planning War Stories.” The increasing number of glitches that estate planning attorneys are seeing in online estate planning after the fact has increased, as much as the number of people using online estate planning forms. For estate planning attorneys who are concerned about their clients and their families, the disasters are troubling, and very difficult to fix in estate administrations.

A few clumsy mouse clicks can derail an online estate plan and adversely affect the family. Here are five real life examples.

Details matter. One of the biggest and most routinely made mistakes in DIY estate planning goes hand-in-hand with simple wills, where both spouses want to leave everything to each other. Except this typical couple neglected something. See if you can figure out what they did wrong:

John’s will: I leave everything to my wife Phyllis.

Phyllis’ will: I leave everything to my wife Phyllis.

Unless John dies and Phyllis marries someone named Phyllis, this will is not going to work. It seems like a simple enough error, but the courts are not forgiving of errors.

Life insurance mistakes. Jeff owns a life insurance policy and has been using its cash value as a “rainy day” fund. He had intended to swap the life insurance into his irrevocable grantor trust in exchange for low-basis stock held in the trust. The swap would remove the life insurance from Jeff’s estate without exposure to the estate tax three-year rule, and the stock would receive a stepped-up basis at death, leading to tax savings on both sides of the swap.

However, Jeff had a stroke recently, and he’s incapacitated. He planned ahead though, or so he thought. He downloaded a free durable power of attorney form from a nonprofit that helps the elderly. The POA specifically included the power to change ownership of his life insurance.

Jeff put his name in the space designated for the POA. As a result, the insurance company won’t accept the form, and the swap isn’t going to happen.

Incomplete documents. Ellen created an online will leaving her entire probate estate to her husband. It was fast, cheap and she was delighted. However, she forgot to click on the space where the executor is named. The website address for the website company is the default information in the form, which is what was created when she completed the will. The court is not likely to appoint the website as her executor. Her heirs are stuck, unless she corrects this, hoping the court will understand. Hope is a terrible estate plan.

Letting the form define the estate plan. Single parent Joan has a 6-year-old son. Her will includes a standard trust for minors, providing income and principal for her son until he turns 21, at which point he inherits everything. Joan met with a life insurance advisor and applied for a $1 million convertible 20–year term life insurance policy. It will be payable to the trust. However, her son has autism, and receives government benefits. There are no special needs provisions in her will, so her son is at risk of losing any benefits, if and when he inherits the policy proceeds.

Don’t set it and forget it. One couple created online wills, when the estate tax exclusion was $2 million. They created a credit shelter, or bypass, trust to reduce their estate taxes, by allowing each of them to use their estate tax exclusion amount. However, the federal estate tax exclusion today is $11.4 million per person. With $4 million in separate assets and a $2 million life insurance policy payable to children from a previous marriage, the husband’s separate assets will go into the bypass trust. None of it will go to his wife.

Online estate planning is dangerous because there is no opportunity to receive legal advice on how to meet your goals in your estate plan.  An experienced estate planning attorney who is licensed to practice in your state is the best source for creating and updating estate plans, preparing for incapacity and ensuring that tax planning is done efficiently.  This post will help you get started.  https://galligan-law.com/how-to-begin-the-estate-planning-process/

Reference: Insurance News Net (Sep. 9, 2019) “Mind Your Mouse Clicks: DIY Estate Planning War Stories”

Continue ReadingThe Perils of Online Estate Planning

Estate Planning Avoids Problems With Selling the Family Home

Estate planning can help avoid problems when selling the family home.
Estate planning can help avoid problems when selling the family home.

Family members who are overtaken with grief are often unable to move forward with selling the family home after a parent has passed away. If the family home was not being well maintained while the parent was ill or aging, it might fall into further disrepair. When siblings have emotional attachments to the family home, things can get even more complicated. The difficulty of selling a parent’s home after their passing, depends to a large degree on what kind of estate planning the parent has done.

Much also depends on the family’s ability to ask for help and work with the right professionals in handling the sale of the home and managing the estate. The earlier the process begins, the better.

Parents can take steps while they are still living to ward off unnecessary complications. It may be a difficult conversation but having it will make the process easier and allow the family time to focus on their emotions, rather than the sale of property. This is why is is important to address what happens to the family home in an estate plan.

Here are a few pointers:

Make sure your parents have a will or a living trust. Many Americans do not. A survey from Caring.com found that only 42% of American adults had a will or a trust, and other estate planning documents.

After a parent passes away, there may be costs associated with maintaining the property and fixing any overdue repairs. Make sure to save all receipts and estimates.

Also, the Executor or successor Trustee under the parent’s estate planning documents should secure the property immediately. That may mean having the locks changed as soon as possible. Once an heir (or someone who believes they are or should be an heir) moves in, getting them out adds another layer of complication.

Be realistic about the value of the property. Have a real estate agent run a competitive market analysis on the property and consider an appraisal from a licensed appraisal. Avoid any accusations of impropriety—don’t hire a friend or family member. This needs to be all business.

To keep disagreements to a minimum, the Executor or successor Trustee should frequently update the heirs on how the sale of the house is progressing.

The biggest roadblock to selling the family house is often the emotional attachment of the children. It’s hard to clean out a family home, with all of the mementos, large and small. The longer the process takes, the harder it is.

This is not the time for any major renovations. There may be some cosmetic repairs that will make the house more marketable, but substantial improvements won’t impact the sale price. Remove all family belongings and show the house either empty or with professional staging to show its possibilities. Clean carpets, paint, if needed and have the landscaping cleaned up.

Keep tax consequences in mind. Depending on where the property is, where the heirs live and how much money is being inherited, there can be estate, inheritance and income taxes.  It is usually better to sell an inherited property as quickly as possible. When a property is inherited at death, the property value is “stepped up” to fair market value at the time of the owner’s death. That means that you can sell a property that was purchased many years ago, but not pay taxes on the value gained over those years.

Talk with an experienced estate planning attorney about what will happen when the home needs to be sold. It may be better for parents to create a revocable trust in advance, which will direct the sale, allow a child to continue living in the home for a certain period of time, or instruct the one child who loves the home so much to buy it from the trust. Trusts are typically easier to administer after parents pass away and can be very helpful in preventing family fights.

Dealing with issues in advance through estate planning will help minimize conflicts after a parent passes away. Learn more avoiding estate planning mistakes.

Reference: The Washington Post (May 16, 2019) “With proper planning, selling a parent’s house can be a relatively painless process”

Suggested Key Terms: 

Continue ReadingEstate Planning Avoids Problems With Selling the Family Home