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It isn’t a surprise to anyone that those typically motivated to do estate planning are those that have their mortality staring back at them. Examples include clients preparing for travel, life challenging illnesses or individuals in advancing years.
I don’t need to remind anyone that life can be cut short since all of us have been affected by a passing that came too soon and too fast. In my practice, I’ve had parents pass without making their choice be known for a guardian of their children and recently an individual passed and because she didn’t have a will, it passed to an individual that the rest of the family kept shaking their heads saying “she must be turning in her grave that so-and-so inherited her estate.”
Sure, very few of us like planning for our passing. But often, it is the things we least want to face that end up giving us the greatest peace once faced, tackled and then resolved.
Give us a call and we will be happy to assist you with the process, make the planning and implementation of your estate plan as simple as possible and will guarantee that the burden that gets lifted off your shoulders will give you great satisfaction.
While this is a common misconception, I believe it mixes up two ideas, estate planning and estate tax planning. Estate tax planing is actually a small, but important, part of the overall estate planning process.
Estate planning is about making sure your estate is in order and passes as you wish. Estate tax planning is making sure the government gets as little of your estate as you can.
Estate planning uses a trust, or a will, to organize your affairs and distribute it to who you care about when you die. Estate planning is for tax and non-tax reasons. Of course no one is required to have an estate plan. Many would be unhappy to know that our legislature in Arizona has written an estate plan for everyone that hasn’t written an estate plan themselves.
But wait, there’s more; there’s Loving Trusts, Family Trusts, Grantor Retained Trusts and many more.
Let’s start with revocable vs. irrevocable trusts. These are exactly what they say. The revocable trust can be changed, amended, and even thrown away. The irrevocable trust however rarely can be changed except for very limited circumstances.
The revocable trust is the most common trust, the basis of an estate plan and typically what a client uses in lieu of a Last Will & Testament for the core estate plan. The irrevocable trust is usually a more advanced estate planning trust IN ADDITION to the client’s existing estate plan (using a revocable trust). I will wait for a discussion on when to use a irrevocable trust for a future blog.
What about all the other names? Family Trust, Living Trust, Revocable Trust, Loving Trust, and Grantor Trust are pretty much the same thing. These trusts are great vehicles for holding your assets so that when you become unable to take care of yourself, or pass away, someone you have named can step in and take care of your affairs in your absence. Great tools to avoid probates, conservatorships, court involvement and the best of all, far more private than a basic will.
If we can explain more, please feel free to call our office at 480-345-0444.
“Putting my child’s name on an asset avoids probate”
This is how the conversation usually goes: “someone told me if I put my child’s name on my bank account, upon my death it goes to that child and I avoid probate.”
This particular myth is a real “land mine” waiting for an unsuspecting person to step on. Some assets do pass by title and by operation of law, most notably bank accounts and real estate, and therefore escape the need for using a Will or trust to transfer to the surviving joint tenants, at least until the death of the last surviving tenant on the asset. After all, your estate is going to them after you die anyway, right?
First, if you add a child as a joint tenant on your account or home, you have potentially made a taxable gift to that child. If gift tax is to be paid, it is the donor who pays it, not the recipient.
The bigger issue is your child is now on title with you. This means that your home (or other joint account) is now exposed to what might go wrong in the life of that child. What happens to your home if your child declares bankruptcy, and is listed as an owner on your home? Maybe it’s not a bankruptcy, but an auto accident where your child is “at fault”, and the resulting settlement exceeds the liability limits of your child’s auto insurance. Might your home or other assets potentially be at risk due to the joint tenancy title arrangement? The answer is yes.
Notwithstanding the liability issues discussed above, your child is under no legal obligation to share this distribution with the other children, and could simply keep the entire balance of the joint tenancy property. No one would ever do that, would they? I leave the reader to answer that question.
In conclusion, before you think of using Joint Tenancy as the “simple” or “easy” way to avoid the need for a formal estate plan, consider some of the issues just covered. Is that something you are willing to risk, just to avoid drafting or revising a Will or trust?
We avoid what we don’t know. For many financial, insurance and accounting professionals, they feel they ought to know estate planning better than they think they do. They also feel they should be assisting their clients in getting their estate’s in order but due to the professional’s discomfort with estate planning, put off discussing this need with their clients. This is completely understandable but also leaves the client with an unmet need.
To be frank, most attorneys that do not practice in this area of law are intimidated by estate planning and these are men and women that learn this area of law in law school! I am not surprised that non-lawyers often feel the same way.
I don’t want to go into a big estate planning lesson here even though I hope through time this blog provides some education to these professionals. Instead, may I suggest various way to connect the client with an estate planning attorney.
Our office has three was of meeting the estate planning needs for the clients of the professional. All depending on the involvement the professional wants to be in the process.
The first way is direct involvement. Our office for example has an online procedure for creating an estate plan. The process walks the client through the questions, with simple explanations, followed by a recommendation from the law firm of the appropriate estate plan. The client will speak to an attorney, either on the phone or in person. The professional is facilitating the discussion but is protected from any suggestions that he or she is practicing law. This may be a good approach to some but most prefer the next option.
The second approach is a legal assistant that facilitates the entire process. The legal assistant meets with the client. The client can be at the professional’s office or at their home. The client will speak to an attorney during the process and a signing appointment for recommended estate planning documents is either handled at the professional’s office or at our office. With this approach the professional and client are assisted during the entire process.
The third approach is the traditional referral to a law firm.
As you can see, at no point in time is the professional put on the spot to fully explain estate planning. He or she merely facilitates the process and gets to choose his or her level of involvement. Most importantly, the client’s estate planning needs are met as a result of the professional’s service to their entire financial, estate and tax needs.
Kevin P. McFadden, Knollmiller & Arenofsky, LLP 480-345-0444
Question: Does Having a Will Mean You Avoid Probate? Answer: No, almost by definition, a Last Will & Testament implies that a probate will be needed to administer the estate. The best way to avoid probate is using a revocable trust.
Another way to avoid probate, but sometimes causing more problems than the probate itself, is to have all your assets in joint tenancy with right of survivorship or pass by beneficiary designation. The issues this cause is that the beneficiaries tend to get unequal distributions from the decedent, die before expected or assets don’t pass upon death as expected and probate ends up being required in spite of efforts to avoid it. Therefore, revocable trusts are still your best tools to avoid probate if this is your goal.
This question usually gets asked by the family after a loved one has died and they are told they have to go through probate. How did this happen?
Yes, one of the benefits of a revocable trust is avoiding probate. The explanation everyone has heard is because the assets are held in trust there isn’t an estate to be probated. Instead, the successor trustee can access, get under control, liquidate and ultimately distribute the estate to the trust beneficiaries. So, if this is what is suppose to work, what went wrong? These are the most common cases of probates in spite of a revocable trust being in place:
Refinance. Very often when a client has a house in a trust decides to refinance the mortgage, the house gets transferred out of trust in order to make the financing go through. Too often the title company will transfer the property out but never takes any steps to transfer the house back in or even remind the owner that the house needs transferred back.
IRA or Insurance Beneficiary dies. If you have named a beneficiary of your IRA or life insurance and they die, often the contract states it will be paid to your “Estate.” This often means probate.
Leaving checking or investment accounts and vehicles out of trust. While you can have up to $75,000 outside of trust and not go through probate, sometimes accounts do not get titled in the name of the trust. If the total non-trust assets exceed $75,000, you may be in probate.
Mortgages. While a house may be in the trust, and therefore avoid probate, if you have to work with a lender, you will need to have an executor appointed to represent the decedent in all dealings with the lender. The same may apply to other debts or the IRS.
Of course most of these can be avoided with just being mindful that most assets need to be titled in the name of the trust.
The “typical” client 20 years ago was very concerned about ending up in probate after their passing. I am not sure if this came from all the advertised estate planning seminars that used this to scare people into living trusts, or more accurately stated, buying their financial products. Probate is certainly still a concern for many clients, which in this writer’s opinion isn’t the terrible process it is made out to be. The bigger concern now is a client’s possible dementia or incapacity in later years.
This is certainly an advantage of a trust over a will. The assets held in trust and an excellent power of attorney for the day to day financial matters are a great way to take care of each individual in later years. If one happens to be unable to care for their own self, their successor trustee and agent under the power of attorney can almost always take care of all their financial matters without court action, conservatorship or governmental involvement.
Everyone should have an estate plan, meaning a Will, powers of attorney, and similar. But when should you have a trust? The benefit of revocable trust include a tool to assist us in the event of our incapacity. Instead of going to court to seek a conservatorship, your chosen one can manage your assets and take care of your financial needs acting as your trustee. No court involvement, much easier transition. Upon your passing, you also will avoid probate. Another public, court procedure, entirely avoided with a trust. The administration of your estate is private, easily administered, and can almost always done outside of the lawyers and court system.