Is My Irrevocable Trust Revocable? – Annapolis and Towson Estate Planning

Irrevocable trusts aren’t as irrevocable as their name implies, according to Barron’s recent article, “Are Irrevocable Trusts True to Their Name?” The article says that for both new and existing trusts, there are ways to build in flexibility to make changes to a grantor’s wishes if terms are no longer appropriate or desirable for beneficiaries.

However, there are strict rules that apply. These rules vary between states. One of the main reasons for an irrevocable trust is to remove assets from an estate for estate tax purposes. If the rules aren’t followed carefully, a trust can be rendered unlawful. If that happens, the assets may be returned to the grantor’s estate and estate taxes may apply.

If you want to be certain that beneficiaries have some discretion in the future if circumstances change, grantors should build flexibility into the trust when it’s established. This can be accomplished by giving a power of appointment to beneficiaries. However, if the beneficiaries are looking to change the terms or the structure of an existing trust, the trust must be modified according to state law.

Most states allow trusts to be decanted. When you decant a trust, you pour its terms into a new trust and leave out the parts that are no longer wanted. Just like decanting a bottle of wine, it’s like the sediment left in the wine bottle.

In a state that doesn’t permit decanting, a trustee can ask a judge to allow it. You should be careful with decanting because you don’t want to do anything that would adversely affect the original tax attributes of the trust.

The power of appointment in a trust or the ability to decant can’t be given to the person who set up the trust. Thus, grantors can’t have a “re-do” or rescind the terms. It’s only trustees and the beneficiaries that can do that.

If you and your attorney create a trust with a lot of flexibility for the trustee, you may want to appoint an institutional trustee from a bank, trust, or other financial services company.

They can be either the sole trustee or serve as co-trustees with a personal, non-institutional trustee, like a family member. This can help to eliminate future conflicts.

Reference: Barron’s (June 18, 2019) “Are Irrevocable Trusts True to Their Name?”

Sims & Campbell, LLC – Annapolis and Towson Estate Planning Attorneys

What Debts Must Be Paid Before and After Probate? – Annapolis and Towson Estate Planning

Everything that must be addressed in settling an estate becomes more complicated when there is no will and no estate planning has taken place before the person dies. Debts are a particular area of concern for the estate and the executor. What has to be paid and who gets paid first? These are explained in the article “Dealing with Debts and Mortgages in Probate” from The Balance.

Probate is the process of gaining court approval of the estate and paying off final bills and expenses before property can be transferred to beneficiaries. Dealing with the debts of a deceased person can be started before probate officially begins.

Start by making a list of all of the decedent’s liabilities and look for the following bills or statements:

  • Mortgages
  • Reverse mortgages
  • Home equity loans
  • Lines of credit
  • Condo fees
  • Property taxes
  • Federal and state income taxes
  • Car and boat loans
  • Personal loans
  • Loans against life insurance policies
  • Loans against retirement accounts
  • Credit card bills
  • Utility bills
  • Cell phone bills

Next, divide those items into two categories: those that will be ongoing during probate—consider them administrative expenses—and those that can be paid off after the probate estate is opened. These are considered “final bills.” Administrative bills include things like mortgages, condo fees, property taxes and utility bills. They must be kept current. Final bills include income taxes, personal loans, credit card bills, cell phone bills and loans against retirement accounts and/or life insurance policies.

The executors and heirs should not pay any bills out of their own pockets. The executor deals with all of these liabilities in the process of settling the estate.

For some of the liabilities, heirs may have a decision to make about whether to keep the assets with loans. If the beneficiary wants to keep the house or a car, they may, but they have to keep paying down the debt. Otherwise, these payments should be made only by the estate.

The executor decides what bills to pay and which assets should be liquidated to pay final bills.

A far better plan for your beneficiaries is to create a comprehensive estate plan that includes a will that details how you want your assets distributed and addresses what your wishes are. If you want to leave a house to a loved one, your estate planning attorney will be able to explain how to make that happen while minimizing taxes on your estate.

Reference: The Balance (March 21, 2019) “Dealing with Debts and Mortgages in Probate”

Sims & Campbell, LLC – Annapolis and Towson Estate Planning Attorneys

Is it Wise to Have Three Grown Children Named Co-Executors of Your Will? – Annapolis and Towson Estate Planning

Is it a good idea to have your three grown children listed as co-executors of your will? This may get somewhat confusing when probating a will if there are multiple executors.

What are the pros and cons to choosing one child to act as your executor instead of selecting all three of your children to act together?

nj.com’s recent article asks “I’m planning my will. Is it bad to have more than one executor?”

The article explains that the duty of the executor is to gather all the decedent’s assets, pay any outstanding debts and liabilities and then account for and distribute the remaining estate to the beneficiaries according to the instructions in the decedent’s will.

The executor is allowed to hire professionals and others to help with tasks, like completing a decedent’s final income tax return or preparing the home for sale.

When you have multiple executors appointed, these tasks can be assigned to each person to lessen the burden of the many duties and responsibilities that an executor has.

On the downside, if those appointed can’t work together easily and without strife, appointing multiple siblings can make the administration of an estate much more difficult due to arguments, conflicts of interest, one sibling taking the lead to the resentment of the others or one executor undermining another executor’s actions.

The problem is, in situations where the siblings don’t get along, designating one of them as executor can cause hard feelings and conflict. It’s not uncommon for those siblings who aren’t named as executor to complain about every decision made by the named executor or delay in the administration of the estate.

If there are multiple executors, the majority rules. That can avoid deadlock. Simple math in this case says that you want to avoid naming an even number of executors or name a person who can act as the tiebreaker.

Even with a “majority rules” agreement among the executors, there are some financial institutions and other entities that may require all the executors to sign documents and/or checks on behalf of the estate. This can become burdensome and inefficient, if there are multiple executors.

Speak with your estate planning attorney about your family dynamics and get their opinion about what would be best in your personal situation.

Reference: nj.com (May 22, 2019) “I’m planning my will. Is it bad to have more than one executor?”

Sims & Campbell, LLC – Annapolis and Towson Estate Planning Attorneys 

What Can I Do When My Aging Parent Refuses to Give Up Control? – Annapolis and Towson Estate Planning

It’s a common problem for families when a parent in charge of finances develops cognitive impairment and needs help managing the family trust and his own spending. It can be financially dangerous with a stubborn parent.

Forbes’ recent article asks, “What Can You Do When A Stubborn Aging Parent Refuses To Give Up Control?” The article explains what it took one family to get an aging parent out of the position as trustee and to permit the successor, the adult daughter, to take over.

The family saw signs of dementia and a family member’s financial abuse.

The trust provided that the parent could be removed as trustee, if two physicians declared him to be incapacitated for handling his own finances. In that case, a judge’s decision wasn’t required. The doctors verified that the elderly parent was incapacitated to safely handle his money. However, all this takes time.

A parent’s failure to listen to reason and their stubborn refusal to resign as trustee when asked, can cost his children dearly. In that situation, a family may have to engage an attorney to resolve the problem.

Remember that even if your aging parents are fine, there’s no time like the present to ask them to review their estate planning documents with you. Look at the terms that define what happens in the event of “incapacity.” Be sure that all of you understand what would happen, if impaired parents are unwilling to give up financial control and you have to institute the proscribed process to remove control from them.

Those who are named in a trust as the “successor trustee,” must know what that means and how much responsibility is involved. The family needs to recognize that financial elder abuse is a huge problem in our country, and family members are frequently the abusers. If you see abuse, and your elderly parent can’t resist the pressure to give money to any dishonest person, an elder law attorney will be able to give you worthwhile advice on the best approach, as well as the law.

Lastly, in the event your aging parent never created an estate plan, work with an experienced estate planning attorney and ask your parent to get going for the family’s sake. You don’t want to live through the situation described above, with no legal means to stop an impaired parent from financial ruin.

Reference: Forbes (May 7, 2019) “What Can You Do When A Stubborn Aging Parent Refuses To Give Up Control?”

Sims & Campbell, LLC – Annapolis and Towson Estate Planning Attorneys

What Are Some Advantages of Making Lifetime Gifts? – Annapolis and Towson Estate Planning

There are several non-tax advantages of making lifetime gifts. One is that you’re able to see the recipient or “donee” enjoy your gift. It might give you satisfaction to help your children achieve financial independence or have fewer financial concerns.

WMUR’s recent article, “Money Matters: Lifetime non-charitable giving,” explains that lifetime giving means you dictate who gets your property. Remember, if you die without a will, the intestacy laws of the state will dictate who gets what. With a will, you can decide how you want your property distributed after your death. However, it’s true that even with a will, you won’t really know how the property is distributed because a beneficiary could disclaim an inheritance. With lifetime giving, you have more control over how your assets are distributed.

At your death, your property may go through probate. Lifetime giving will help reduce probate and administration costs, since lifetime gifts are typically not included in your probate estate at death.  Unlike probate, lifetime gifts are private.

Let’s discuss some of the tax advantages. First, a properly structured gifting program can save income and estate taxes. A gift isn’t taxable income to the donee, but any income earned by the gift property or capital gain subsequent to the gift usually is taxable. The donor must pay state and/or federal transfer taxes on the gift. There may be state gift tax, state generation-skipping transfer tax, federal gift and estate taxes, as well as federal generation-skipping transfer (GST) tax.

A big reason for lifetime giving is to remove appreciating assets from your estate (i.e., one that’s expected to increase in value over time). If you give the asset away, any future appreciation in value is removed from your estate. The taxes today may be significantly less than what they would be in the future after the asset’s value has increased. Note that lifetime giving results in the carryover of your basis in the property to the donee. If the asset is left to the donee at your death, it will usually receive a step-up in value to a new basis (usually the fair market value at the date of your death). Therefore, if the donee plans to sell the asset, she may have a smaller gain by inheriting it at your death, rather than as a gift during your life.

You can also give by paying tuition to an education institution or medical expenses to a medical care provider directly on behalf of the donee. These transfers are exempt from any federal gift and estate tax.

Remember that the federal annual gift tax exclusion lets you to give $15,000 (for the 2019 year) per donee to an unlimited number of donees without any federal gift and estate tax or federal GST tax (it applies only to gifts of present interest).

Prior to making a gift, discuss your strategy with an estate planning attorney to be sure that it matches your estate plan goals.

Reference: WMUR (April 18, 2019) “Money Matters: Lifetime non-charitable giving”

Sims & Campbell, LLC – Annapolis and Towson Estate Planning Attorneys

An Estate Plan Directs Assets According to Your Wishes – Annapolis and Towson Estate Planning

Anyone who has any assets they want distributed should have an estate plan, regardless of the size of their estate.

Having a will and an estate plan created by an experienced attorney is the easiest place to start, says the Observer-Reporter in the article “Set up an estate plan so your assets go where you want.” Without a will, the state will decide what happens to your assets and it may not be what you wanted.

If your will was done more than four years ago and was never updated, it may lead to some unwanted results. If people you named as beneficiaries or executors have died or if there were divorces in your family, these are examples of changes that should be addressed in the estate plan.

Many people don’t know that insurance policies, annuities, 401(k), or IRA accounts that have a designated beneficiary are going to the designated beneficiary, regardless of what is in the will. If the will says everything in the estate should be divided equally between children, but one child was named the beneficiary on the life insurance policy, then only the named child will inherit the insurance policy.

Another part of an estate plan that is needed to ensure that your wishes are followed, is a financial power of attorney and a health care power of attorney. The financial power of attorney gives the person you name the legal ability to make financial decisions for you, if you are incapacitated. The health care power of attorney, similarly, gives the person you name the power to make health care decisions for you if you cannot do so for yourself. A living will is another part of planning for incapacity that is a part of a comprehensive estate plan. The living will lets your wishes for end of life care be known to others.

Assets that pass to heirs through beneficiary designations do not go through the probate process. However, assets distributed through your will do so. Probate administration of an estate takes some time to complete depending upon where you live. In some states, probate is more involved and time consuming than in others.

Another reason why people like to avoid probate is that documents, including your will, are filed with the court and become part of the public record. That’s why many people who lose a family member find themselves receiving direct mail and phone calls about buying insurance policy or selling their home.

There are ways to minimize the number of assets that pass through probate, which your estate planning attorney will be able to explain. Trusts are used for this purpose. There are a variety of trusts that can be used depending upon your circumstances. Some are used to protect inheritances if a person has an opiate addiction or cannot manage her own affairs. Others are used so individuals with special needs do not receive inheritances that would make them ineligible for government benefits.

An estate planning attorney can advise you in creating an estate plan that fits your unique circumstances.

Reference: Observer-Reporter (April 19, 2019) “Set up an estate plan so your assets go where you want”

Sims & Campbell, LLC – Annapolis and Towson Estate Planning Attorneys