Which Takes Priority in a Conflict: a Will or a Trust? – Annapolis and Towson Estate Planning

A will and a trust are separate legal documents that usually have a common goal of coordinating a comprehensive estate plan. The two documents ideally work in tandem, but because they are separate and distinct documents, they sometimes can conflict with one another. This conflict can be accidental or on purpose.

A revocable trust is a living trust established during the life of the grantor. It can be changed at any time, while the grantor is still alive. Since revocable trusts become operative before the will takes effect at death, the trust takes precedence over the will, in the event that there are issues between the two.

An Investopedia article from 2019, “What Happens When a Will and a Revocable Trust Conflict?” reminds us that a will has no power to decide who receives a living trust’s assets, such as cash, equities, bonds, real estate and jewelry because a trust is a separate entity. It is a separate entity from an individual. When the grantor dies, the assets in the trust do not go into the probate process with a decedent’s personal assets. They remain trust property.

When a person dies, their will must be probated, and the deceased individual’s property is distributed according to the terms in the will. However, probate does not apply to property held in a living trust, because those assets are not legally owned by the deceased. As such, the will has no authority over a trust’s assets, which may include cash, real estate, cars, jewelry, collectibles and other tangible items.

Let us say that the family patriarch named Christopher Robin has two children named Pooh and Roo. Let us also assume that Chris places his home into a living trust, which states that Pooh and Roo are to inherit the home. Several years later, Chris remarries and just before he dies, he executes a new will that purports to leave his house to his new wife, Kanga. In such an illustration, Chris would have needed to amend the trust to make the transfer to Kanga effective, because the house is trust property, and Chris no longer owns it to give away. That home becomes the property of the children, Pooh and Roo.

This can be a complex and confusing area, so work with an experienced estate planning attorney to be sure you do not end up like Kanga with nowhere to live.

Remember a revocable trust is a separate entity and does not follow the provisions of a person’s will upon his or her death.  It is wise to seek the advice of a trust and estate planning attorney to make sure proceedings go as you intend.

While a revocable trust supersedes a will, the trust only controls those assets that have been placed into it. Therefore, if a revocable trust is formed, but assets are not moved into it, the trust provisions have no effect on those assets, at the time of the grantor’s death. If Christopher Robin created the trust but he failed to retitle the home as a trust asset, Kanga would have been able to take possession under the will. Oh bother!

Reference: Investopedia (August 5, 2019) “What Happens When a Will and a Revocable Trust Conflict?”

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Should I Create a Trust? – Annapolis and Towson Estate Planning

Just 40% of adults in the United States have any kind of estate planning documents in place. That leaves 60% of adults who don’t have their property and other assets protected in the event of death.

Without planning, their family and loved ones will have trouble trying to determine what to do next.

Frequently, when thinking of estate planning, we think of a will. However, there are other options. Creating a living trust may be a better option for you and your family, advises kake.com’s recent article entitled “What Are the Advantages of Creating a Living Trust for My Family?”

The article provides some of the major benefits of a living trust.

It can save your family money. When a person with a living trust passes, the trustee takes possession and control over the trust property, according to the instructions provided by the trustor. It can be less expensive, because there are no fees that may be incurred in probate. Everything also moves faster.

Protection of your privacy. A living trust is much more private, because it does not have to go through the probate court and will not become public record. In contrast, a will becomes public record, that anyone can request to view as a court record.

A trust is for more than death. A living trust can be invoked at other times before death. The creator can add specific stipulations and conditions to the living trust to designate when the trustee can take over the management of property and finances.

More difficult to challenge. A will can be contested in court, if a family member thinks that he or she is entitled to more of your assets than was outlined in the will. A judge can rule that your will is not valid, and the contesting family member can possibly get more than you intended. With a living trust, there is much less chance that this will happen.

Creating a living trust takes legal expertise, so work with an experienced estate planning attorney. You can then discuss an entire estate planning strategy.

Reference: kake.com (April 20, 2020) “What Are the Advantages of Creating a Living Trust for My Family?”

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Am I Making One of the Five Common Estate Planning Mistakes? – Annapolis and Towson Estate Planning

You do not have to be super-wealthy to see the benefits from a well-prepared estate plan. However, you must make sure the plan is updated regularly, so these kinds of mistakes do not occur and hurt the people you love most, reports Kiplinger in its article entitled “Is Anything Wrong with Your Estate Plan? Here are 5 Common Mistakes.”

An estate plan contains legal documents that will provide clarity about how you would like your wishes executed, both during your life and after you die. There are three key documents:

  • A will
  • A durable power of attorney for financial matters
  • A health care power of attorney or similar document

In the last two of these documents, you appoint someone you trust to help make decisions involving your finances or health, in case you cannot while you are still living. Let us look at five common mistakes in estate planning:

# 1: No Estate Plan Whatsoever. A will has specific information about who will receive your money, property and other property. It is important for people, even with minimal assets. If you do not have a will, state law will determine who will receive your assets. Dying without a will (or “intestate”) entails your family going through a time-consuming and expensive process that can be avoided by simply having a will.

A will can also include several other important pieces of information that can have a significant impact on your heirs, such as naming a guardian for your minor children and an executor to carry out the business of closing your estate and distributing your assets. Without a will, these decisions will be made by a probate court.

# 2: Forgetting to Name or Naming the Wrong Beneficiaries. Some of your assets, like retirement accounts and life insurance policies, are not normally controlled by your will. They pass directly without probate to the beneficiaries you designate. To ensure that the intended person inherits these assets, a specific person or trust must be designated as the beneficiary for each account.

# 3: Wrong Joint Title. Married couples can own assets jointly, but they may not know that there are different types of joint ownership, such as the following:

  • Joint Tenants with Rights of Survivorship (JTWROS) means that, if one joint owner passes away, then the surviving joint owners (their spouse or partner) automatically inherits the deceased owner’s part of the asset. This transfer of ownership bypasses a will entirely.
  • Tenancy in Common (TIC) means that each joint owner has a separately transferrable share of the asset. Each owner’s will says who gets the share at their death.

# 4: Not Funding a Revocable Living Trust. A living trust lets you put assets in a trust with the ability to freely move assets in and out of it, while you are alive. At death, assets continue to be held in trust or are distributed to beneficiaries, which is set by the terms of the trust. The most common error made with a revocable living trust is failure to retitle or transfer ownership of assets to the trust. This critical task is often overlooked after the effort of drafting the trust document is done. A trust is of no use if it does not own any assets.

# 5: The Right Time to Name a Trust as a Beneficiary of an IRA. The new SECURE Act, which went into effect on January 1, 2020 gets rid of what is known as the stretch IRA. This allowed non-spouses who inherited retirement accounts to stretch out disbursements over their lifetimes. It let assets in retirement accounts continue their tax-deferred growth over many years. However, the new Act requires a full payout from the inherited IRA within 10 years of the death of the original account holder, in most cases, when a non-spouse individual is the beneficiary.

Therefore, it may not be a good idea to name a trust as the beneficiary of a retirement account. It is possible that either distributions from the IRA may not be allowed when a beneficiary would like to take one, or distributions will be forced to take place at a bad time and the beneficiary will be hit with unnecessary taxes. Talk to an experienced estate planning attorney and review your estate plans to make certain that the new SECURE Act provisions don’t create unintended consequences.

Reference: Kiplinger (Feb. 20, 2020) “Is Anything Wrong with Your Estate Plan? Here are 5 Common Mistakes”

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

What are Some Good Estate Planning Ideas in the Pandemic? – Annapolis and Towson Estate Planning

With the COVID-19 pandemic, many people are looking to execute estate plans they have delayed in finalizing and signing. Others are ready to get going on their estate plans that they should have started years ago.

Forbes’ recent article entitled “Eight Estate Planning Strategies In A COVID-19 World” lists some things you should know.

Most estate planning can be done at home. While you may be restricted from physically seeing your attorney, you can still create, update, or finalize your estate plan. Attorneys are working remotely and are available via email, telephone and video conferencing to help you.

Get your estate planning in order. The odds are you now have some time to consider the issues you have placed on the back burner for a long time. Leverage this time to address your estate planning.

New options for signing document. Many attorneys are approaching estate plan document signings on a case-by-case basis. You may be able to sign in the attorney’s office or at your home, while practicing social distancing and wearing gloves and masks. Some law firm are even offering drive-up will signings.

Some states now permit online notarization of certain types of documents.

These new laws allow for remote online notarization (RON), a process by which notarization is conducted via video conferencing. In this process, the signing party (the “principal”) must undergo an identity-proofing process that differs by state.

In most states, the principals are required to answer several personal questions. They also must show valid ID, which in many states, must be examined and verified by a third-party security service. Once the principal’s identity is confirmed, she signs the document with a digital signature. The remote online notary witnesses the document, by affixing an electronic seal as they stream the live, audio-visual conference.

Talk to an experienced estate planning attorney about how you should proceed with your estate planning, in light of this new (and hopefully temporary) reality.

At least, you can get all your documents organized and ready to sign when it is safe to venture outside.

Reference: Forbes (March 23, 2020) “Eight Estate Planning Strategies In A COVID-19 World”

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

Do I Need to Be Wealthy to Set Up a Trust? – Annapolis and Towson Estate Planning

Trust funds are intended to let a person’s money continue to be useful, after they pass away. However, they are not only useful for ultra-high-net-worth individuals. Many people can benefit from the use of a trust.

Investopedia’s recent article entitled “How to Set Up a Trust Fund if You’re Not Rich” says that you can place cash, stock, real estate, or other valuable assets in your trust. Work with a trust attorney, decide on the beneficiaries, and set any instructions or restrictions. With an irrevocable trust, you do not have the ability to dissolve the trust, if you change your mind later on. Once you place property in the trust, it is no longer yours but is under the care of a trustee. Because the assets are no longer yours, you do not have to pay income tax on any money made from the assets, and with an estate planning attorney’s guidance, the assets can be exempt from estate and gift taxes.

Tax exemptions are a main reason that some people set up an irrevocable trust. If you, the trustor (the person establishing the trust) is in a higher income tax bracket, creating an irrevocable trust lets you remove these assets from your net worth and move into a lower tax bracket.

If you do not want to set up a trust, there are other options. However, they do not give you as much control over your property. As an alternative or in addition to a trust, you can have an attorney draft your will. With a will, your property is subject to more taxes, and its terms can easily be contested in probate. You also will not have much control over how your assets are used.

Similar to a 529 college-savings plan, UGMA/UTMA custodial accounts are designed to let a person use the funds for education-related expenses. You can use an account like this to gift a certain amount up to the maximum gift tax or fund maximum to reduce your tax liability, while setting aside funds that can only be used for education-related expenses. The downside to UGMA/UTMA Custodial Accounts and 529 plans is that money in the minor’s custodial account is considered an asset. This may make them ineligible to receive need-based financial aid.

For those who do not have a high net-worth but want to leave money to children or grandchildren and control how that money is used, a trust may be a good option. Talk it over with a qualified estate planning attorney.

Reference: Investopedia (Dec. 12, 2019) “How to Set Up a Trust Fund if You’re Not Rich”

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

Why Is Estate Planning more Complicated with a ‘Gray Divorce’? – Annapolis and Towson Estate Planning

The increasing divorce rates among Americans over the age of 50 is a problem, because minimizing discord among beneficiaries is one of the top three reasons why people engage in estate planning.

The Clare County Review’s recent article entitled “Rising Gray Divorce Rates Are Making Estate Planning Problems More Complicated” notes that along with prolonged life expectancy and rising healthcare costs, this upward trend in couples divorcing after the age of 50 has created activity and interest in estate planning.

According to the CDC, the divorce rate in the United States is 3.2 per 1,000 people. The ‘first divorce rate,’ or the number of marriages that ended in divorce per 1,000 first marriages for women 18 and older, was 15.4 in 2016, according to research by the National Center for Family and Marriage Research at the Bowling Green State University. As noted earlier, black women experience divorce at the highest rate, 26.1 per 1,000, and the rate is lowest for Asian women at 9.2 per 1,000.  In Michigan, the current divorce rate is 9%, but Tennessee is way up at 43%.

Gray divorce is adding another level of complexity to estate planning that already happens with blended families, designation of heirs and changing domestic structures. Therefore, it is more crucial than ever to proactively review and discuss the estate plans with your estate planning attorney on an ongoing basis.

According to the TD Wealth survey, 39% of respondents said that divorce effects the costs of retirement planning and funding the most. Another 7% said that divorce impacts those responsible for enacting a power of attorney and 6% said divorce impacts how Social Security benefits will be determined.

It is important to communicate the estate plan with family members to reduce family conflict during the divorce process.

The divorce process is complicated at any age. However, for divorcing couples over the age of 50, the process can be especially tough because the spouse is frequently designated as a beneficiary on many, if not all, documents. Each of these documents will need to change to show new beneficiaries after the divorce has been finalized. It means that wills, trusts, retirement accounts, life insurance policies and listed assets will need to be revised.

Reference: Clare County Review (Feb. 10, 2020) “Rising Gray Divorce Rates Are Making Estate Planning Problems More Complicated”

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

If Not Now, When? It is the Time for Estate Planning – Annapolis and Towson Estate Planning

What else could possibly go wrong? You might not want to ask that question, given recent events. A global pandemic, markets in what feels like free fall, schools closed for an extended period of time—these are just a few of the challenges facing our communities, our nation and our world. The time is now, in other words, to be sure that everyone has their estate planning completed, advises Kiplinger in the article “Coronavirus Legal Advice: Get Your Business and Estate in Order Now.”

Business owners from large and small sized companies are contacting estate planning attorney’s offices to get their plans done. People who have delayed having their estate plans done or never finalized their plans are now getting their affairs in order. What would happen if multiple family members got sick, and a family business was left unprotected?

Because the virus is recognized as being especially dangerous for people who are over age 60 or have underlying medical issues, which includes many business owners and CEOs, the question of “What if I get it?” needs to be addressed. Not having a succession plan or an estate plan, could lead to havoc for the company and the family.

Establishing a Power of Attorney is a key part of the estate plan, in case key decision makers are incapacitated, or if the head of the household cannot take care of paying bills, taxes or taking care of family or business matters. For that, you need a Durable Power of Attorney.

Another document needed now, more than ever: is an Advance Health Care Directive. This explains how you want medical decisions to be made, if you are too sick to make these decisions on your own behalf. It tells your health care team and family members what kind of care you want, what kind of care you do not want and who should make these decisions for you.

This is especially important for people who are living together without the legal protection that being married provides. While some states may recognize registered domestic partners, in other states, medical personnel will not permit someone who is not legally married to another person to be involved in their health care decisions.

Personal information that lives only online is also at risk. Most bills today do not arrive in the mail, but in your email inbox. What happens if the person who pays the bill is in a hospital, on a ventilator? Just as you make sure that your spouse or children know where your estate plan documents are, they also need to know who your estate planning attorney is, where your insurance policies, financial records and legal documents are and your contact list of key friends and family members.

Right now, estate planning attorneys are talking with clients about a “Plan C”—a plan for what would happen if heirs, beneficiaries and contingent beneficiaries are wiped out. They are adding language that states which beneficiaries or charities should receive their assets, if all of the people named in the estate plan have died. This is to maintain control over the distribution of assets, even in a worst-case scenario, rather than having assets pass via the rules of intestate succession. Without a Plan C, an entire estate could go to a distant relative, regardless of whether you wanted that to happen.

Reference: Kiplinger (March 16, 2020) “Coronavirus Legal Advice: Get Your Business and Estate in Order Now.”

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Do I Need a Revocable Living Trust? – Annapolis and Towson Estate Planning

A revocable living trust is created with a written agreement or declaration that names a trustee to manage and administer the property of the grantor. If you are a competent adult, you can establish an RLT. As the grantor, or creator of the trust, you can name any competent adult as your trustee, or you can use a bank or a trust company for this role. The grantor can also act as trustee throughout his lifetime.

Investopedia’s article from last fall entitled “Should You Set up a Revocable Living Trust?” explains that after it is created, you must retitled assets—like investments, bank accounts, and real estate—into the trust. You no longer “own” those assets directly. Instead, they belong to the trust and do not have to go through probate at your death. However, with a revocable living trust, you retain control of the assets while you are alive, even though they no longer belong to you directly. A revocable living trust can be changed, and any income earned by the trust’s assets passes to you and is taxable. However, the assets themselves do not transfer from the trust to your beneficiaries until your death.

Avoiding probate is the big benefit of a living trust, but other benefits like privacy protection and flexibility make it a good choice. A living trust can be used to help control a guardian’s spending habits for the benefit of minor children. It can also instruct another individual to act on your behalf, if you become incapacitated and need someone to make decisions for you. Should you become impaired or disabled, the trust can automatically appoint your trustee to oversee it and your financial affairs without a durable power of attorney.

Although there are several advantages to establishing a revocable living trust, there also some drawbacks:

Expense. Establishing a trust requires legal assistance, which is an expense.

Maintaining Records. Most of the time, you need to monitor it on an annual basis and make adjustments as needed (they do not automatically adapt to changed circumstances, like a divorce or a new grandchild). There is the trouble of ensuring that future assets are continuously registered to the trust.

Re-titling Property. When your RLT is established, property must be re-titled in the name of the trust, requiring additional time. Fees can apply to processing title changes.

Minimal Asset Protection. Despite the myth, a revocable living trust offers little asset protection beyond avoiding probate if you retain an ownership interest, such as naming yourself as trustee.

Administrative Expenses. There can also be additional professional fees, such as investment advisory and trustee fees, if you appoint a bank or trust company as the trustee.

There’s No Tax Break. Your assets in the RLT will continue to incur taxes on their gains or income and be subject to creditors and legal action.

Compared to wills, revocable trusts have more privacy, more control and flexibility over asset distribution. With a revocable living trust, you do most of the work up front, making the disposition of your estate easier and faster. However, an RLT requires more effort, and there is an expense in creating and maintaining it.

Work with an experienced estate planning attorney, if you are considering a revocable living trust.

Reference: Investopedia (Oct. 31, 2019) “Should You Set up a Revocable Living Trust?”

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

Do You Think Everything Is All Set with Your Estate Plan? – Annapolis and Towson Estate Planning

Many people would like to believe that estate planning is simple, and that once you sign everything you’re finished. Not so. There are other things to consider as part of the process, and topics that need to be revisited over time.

When you pass away, your executor will typically have many tasks to handle to settle your estate. Anything you can do in advance to add clarity and lessen the burden on her work is wise. MarketWatch’s recent article entitled “Why your estate plan is not as buttoned up as you think it is” gives us a list of seven items to review to be certain that your estate is as planned as you think:

Check to make sure your will is up to date. That is assuming you have written your will (and if you have not, get on it!). How long has it been since you drafted it? Think about any major changes in your life that have happened since that time. If things have changed, be sure to update it.

Check to make sure that your will is sufficiently detailed. Most people think about the big stuff in their estate, like the house, car and jewelry. However, you also need to provide directions for items with sentimental value. This will help to avoid family fighting over these items. Leave directions about who gets what, even if these items of sentimental value do not have a high dollar value.

Check to make sure that your will spells out your wishes in a way that’s legally binding. Every state has its own laws, when it comes to the requirements for a valid will. Work with a seasoned estate planning attorney to make certain that your will is valid. You can also let them do it, so you do not make a mistake that could lead to problems for your executor after you are gone.

Check to make sure that your will has your funeral plans sufficiently detailed. Do not force your grieving family to plan your funeral and try to guess your wishes at the same time. Preplan your funeral. Funeral directors are happy to talk to you to preplan. Leave instructions regarding your wishes, including whether you want to be cremated or buried in a casket; the services you would like and if you would like charitable donations to be made in lieu of people sending flowers.

Be sure that your financial affairs are organized. Your executor will need to know about your typical monthly bills. Make a list of your account numbers and passwords to simplify your executor’s job. Be sure to include automatic deductions or charges on your credit card for things like internet-based subscriptions, club memberships, recurring charitable donations and automatic utility payments.

Make arrangements for the care of your family members who survive you. If you are a caregiver to a parent, spouse, child, or another family member, create a detailed plan concerning who will take over their care, if they outlive you. Do not forget your pets, since the laws on the care for animals contained in a will are different in each state. It is a good idea to make your loved ones aware of your wishes for your furry family members.

Thorough estate planning will help ensure that you family has less to deal with in their grief. Anything you can do to help them get through that difficult time by managing your affairs today is a great gift to them.

Reference: MarketWatch (March 4, 2020) “Why your estate plan is not as buttoned up as you think it is”

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What are the Main Estate Planning Blunders to Avoid? – Annapolis and Towson Estate Planning

There are a few important mistakes that can make an estate plan defective—most of these can be easily avoided by reviewing your estate plan periodically and keeping it up to date.

Investopedia’s article from a few years ago entitled “5 Ways to Mess Up Estate Planning” lists these common blunders:

Not Updating Your Beneficiaries. Big events like a marriage, divorce, birth, adoption and death can all have an effect on who will receive your assets. Be certain that those you want to inherit your property are clearly detailed as such on the proper forms. Whenever you have a life change, update your estate plan, as well as all your financial, retirement accounts and insurance policies.

Forgetting Important Legal Documents. Your will may be just fine, but it will not exempt your assets from the probate process in most states, if the dollar value of your estate exceeds a certain amount. Some assets are inherently exempt from probate by law, like life insurance, retirement plans and annuities and any financial account that has a transfer on death (TOD) beneficiary listed. You should also make sure that you nominate the guardians of minor children in your will, in the event that something should happen to you and/or your spouse or partner.

Lousy Recordkeeping. There are few things that your family will like less than having to spend a huge amount of time and effort finding, organizing and hunting down all of your assets and belongings without any directions from you on where to look. Create a detailed letter of instruction that tells your executor or executrix where everything is found, along with the names and contact information of everyone with whom they will have to work, like your banker, broker, insurance agent, financial planner, etc.. You should also list all of the financial websites you use with your login info, so that your accounts can be conveniently accessed.

Bad Communication. Telling your loved ones that you will do one thing with your money or possessions and then failing to make provisions in your plan for that to happen is a sure way to create hard feelings, broken relationships and perhaps litigation. It is a good idea to compose a letter of explanation that sets out your intentions or tells them why you changed your mind about something. This could help in providing closure or peace of mind (despite the fact that it has no legal authority).

No Estate Plan. While this is about the most obvious mistake in the list, it is also one of the most common. There are many tales of famous people who lost virtually all of their estates to court fees and legal costs, because they failed to plan.

These are just a few of the common estate planning errors that commonly happen. Make sure they do not happen to you: talk to a qualified estate planning attorney.

Reference: Investopedia (Sep. 30, 2018) “5 Ways to Mess Up Estate Planning”

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