Trusts Aren’t Just for Billionaires: Reasons for a Trust

Occasionally clients are hesitant to utilize trusts in their estate plan because they “just have a simple estate” or believe they need substantial assets to warrant a trust.   In fact, trusts are for everyone and solve a variety of purposes in estate planning.  According to an article entitled “3 Reasons a trust may make sense for your family even though your name isn’t Trump, Gates or Rockefeller” from Market Watch, trusts give great flexibility in how assets are divided after your death, no matter how modest or massive the size of your estate. Using trusts in your estate plan is a smart move, for many reasons.

There are two basic types of trust. A Revocable Trust is flexible and can be changed at any time by the person who creates the trust.  This person is known by many different names based upon the convention of where the trust is established, but is often known as the “grantor” or “trustor” or something similar.   These are commonly used because they allow a high degree of control while you are living, especially if your goal is to avoid probate while being able to revise your plan in the future.  The idea is that if your trust is the owner of an asset or properly receives the assets at your death, there will be no need for a Will to be probated through the court system.

Once the trust is created, homes, bank and investment accounts and any other asset you want to be owned by the trust are retitled in the name of the trust or directed to it upon death, depending on the type of asset and what your goals are. This is a step that sometimes gets forgotten, with terrible consequences. Once that’s done, then any documents that need to be signed regarding the trust are signed by you as the trustee, not as yourself. You can continue to sell or manage the assets as you did before they were moved into the trust.

See here for a more robust discussion of how a trust works versus a will.  https://www.galliganmanning.com/will-vs-living-trust-a-quick-and-simple-reference-guide/

There are many kinds of trusts for particular situations. A Special Needs Trust, or “SNT,” is used to help a disabled person, without making them ineligible for government benefits. A Charitable Trust is used to leave money to a favorite charity, while providing income to a family member during their lifetime.

Assets that are placed in trusts do not go through the probate process and can control how your assets are distributed to heirs, both in timing and conditions.

An Irrevocable Trust is permanent and once created, cannot be changed subject to a few caveats. This type of trust is often used to save on estate taxes, by taking the asset out of your taxable estate. Funds you want to take out of your estate and bequeath to grandchildren are often placed in an irrevocable trust.  These types of trust are becoming more and more useful as the estate tax exemption is expected to go down leaving more and more clients exposed to potential estate taxes.

If you have relationships, properties or goals that are not straightforward, talk with your estate planning attorney about how trusts might benefit you and your family. Here’s a few reasons for a trust and why this makes sense:

Reducing estate taxes. While the federal exemption is $11.58 million in 2020 and $11.7 million in 2021, state estate tax exemptions are far lower. New York excludes $6 million, Massachusetts exempts $1 million, Texas has none at all.  Some states are even more complicated in having inheritance tax (taxes are applied against the exact amount transferred).  Further, it is widely accepted that the federal estate tax exemption will be lowered as well.  An estate planning attorney in your state will know what your state’s estate taxes are, and how trusts can be used to protect your assets.  You can also see here for a recent article I wrote on life insurance trusts as a good example of a common trust used to reduce estate tax exposure.  https://www.galliganmanning.com/the-irrevocable-life-insurance-trust-why-should-you-have-one/ 

If you own property in a second or third state, your heirs will face a second or third round of probate and estate taxes. If the properties are placed in a trust, there’s less management, paperwork and costs to settling your estate.

Avoiding family battles. Families are a bit more complicated now than in the past. There are second and third marriages, children born to parents who don’t feel the need to marry and long-term relationships that serve couples without being married. Trusts can be established for estate planning goals in a way that traditional wills do not. For instance, stepchildren do not enjoy any legal protection when it comes to estate law. If you die when your children are young, a trust can be set up so your children will receive income and/or principal at whatever age you determine. Otherwise, with a will, the child will receive their full inheritance when they reach the legal age set by the state. An 18- or 21-year-old is rarely mature enough to manage a sudden influx of money. You can control how the money is distributed.

Protect your assets while you are living. Having a trust in place prepares you and your family for the changes that often accompany aging, like Alzheimer’s disease. A trust also protects aging adults from predators who seek to take advantage of them. Elder financial abuse is an enormous problem, when trusting adults give money to unscrupulous people—even family members.

Talk with an estate planning attorney about your wishes and your worries. They will be able to create an estate plan and trusts that will protect you, your family and your legacy.

Reference: Market Watch (Dec. 4, 2020) “3 Reasons a trust may make sense for your family even though your name isn’t Trump, Gates or Rockefeller”

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Five Estate Planning Mistakes to Avoid

Five common estate planning mistakes are easy to avoid with the right information and support, as well as a little creativity.

While it’s true that no estate is completely bulletproof, there are mistakes that people make that are big enough to walk through, while others are more like a slow drip, making things harder in a slow but steady process. There are common estate planning mistakes that can be easily avoided, reports Comstock Magazine in the article “Five Mistakes to Avoid When Planning Your Estate.”

  1. Misunderstanding Estate Law. Some people are so thrown by the idea of an estate plan, that they can’t get past the word “estate.” You don’t need a mansion to have an estate. An “estate” does not mean extreme wealth.  The term is actually used to refer to any and all property that a person owns, regardless of debts. Even people with modest estates need a plan to help beneficiaries avoid unnecessary costs and stress, and typically estate planning is even more critical for such individuals. Talk with an estate planning attorney to learn what your needs are, from a will to trusts to incapacity planning. Make sure that this is the attorney’s key practice area.  A real estate attorney, family law attorney or the friend or family member who is a lawyer won’t have the same knowledge and experience.
  2. Getting Bad or Incomplete Advice. It takes a team to create a strong estate plan. That means an estate planning attorney, a financial advisor and an accountant. Look for a firm that will tailor an estate plan specifically to your goals. The is no one size fits all approach, and many tools are needed for a complete estate plan. Buying an insurance policy or an annuity is not an estate plan, but may helps achieve those goals.
  3. Naming Yourself as a Sole Trustee without a Back-up. Naming yourself as a sole trustee puts you and your estate in a precarious position. What if you develop Alzheimer’s or are injured in an accident? A trusted individual, a family member, a longstanding friend or even a professional trustee, needs to be named to protect your interests, if you should become incapacitated.  This is also why you should have Durable Financial Powers of Attorney and Healthcare Powers of Attorney, among other documents, to ensure someone you trust may act on your behalf if you cannot.
  4. Losing Track of Assets. Without a complete list of all assets, it’s nearly impossible for someone to know what you own and who your heirs may be. Some assets, including retirement funds, life insurance policies, or investment accounts, have named beneficiaries. Those people will inherit these assets, regardless of what is in your estate plan. If your heirs can’t find the assets, they may be lost or there may be a long delay in obtaining them. If you don’t update your beneficiaries, they may go to unintended heirs—like children of prior relationships, someone other than your spouse and so on.
  5. Deciding on Options Without Being Fully Informed. When it comes to estate planning, the natural tendency is to go with what we think is the right thing. For example, people often say “I just need a will,” but learn later that the will requires probate, or doesn’t address the disability of a child.  However, unless you are an estate planning attorney, chances are you don’t know what the right thing is. For tax reasons, for instance, it may make sense to transfer assets, while you are still living. However, that might also be a terrible idea, if you choose the wrong person to hold your assets or don’t put them in the right kind of trust.  It may also make sense to leave income taxable assets to charities, and non-income taxable assets such as life insurance, to individuals.  You don’t know what you don’t know, so it is important to work with an estate planning attorney to craft the plan that’s right for you.   See here for some estate planning frequently asked questions to get you started.  https://www.galliganmanning.com/estate-planning-questions/

Estate planning is still a highly personal process that depends upon every person’s unique experience. Your family situation is different than anyone else’s. An experienced estate planning attorney will be able to create a plan and help you to avoid the big, most commonly made mistakes.  Please contact our office to discuss how your plan can avoid these estate planning mistakes.

Reference: Comstock Magazine (Dec. 2019) “Five Mistakes to Avoid When Planning Your Estate”

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Elder Law Community Follows Proposed New Alzheimer’s Legislation

Assistance may be on the way for those with younger onset Alzheimer's disease.
Assistance may be on the way for those with younger-onset Alzheimer’s disease.

Elder law issues can also affect those under 65. About 200,000 individuals aged less than 65 have younger-onset Alzheimer’s disease, according to Clay Jacobs, executive director of the Greater Pennsylvania Chapter of the Alzheimer’s Association.

“The need to reach everyone affected will grow significantly in the coming years,” he said.

A bipartisan effort in Congress to make these elder care services available to younger people affected by Alzheimer’s disease recently resulted in the introduction of new proposed legislation known as the “Younger-Onset Alzheimer’s Disease Act.”

Nutritional programs, supportive services, transportation, legal services, elder-abuse prevention and caregiver support have been available through the “Older Americans Act” since 1965. However, under the current law, only individuals over 60 are eligible for these kind of elder care services.

“These programs would make a huge difference in the lives of individuals living with younger-onset Alzheimer’s disease, who don’t have support services available to them,” said a Congressional hearing witness Mary Dysart Hartt of Hampden, ME, a caregiver to her husband, Mike, who has young-onset Alzheimer’s.

Another bipartisan effort in Congress affecting elder law involves the proposed “Lifespan Respite Care Act” to help communities and states provide respite care for families. This legislation would earmark $20 million for fiscal year 2020, with funding increasing by $10 million annually to reach $60 million for fiscal year 2024. The program lets full-time caregivers take a temporary break from their responsibilities of caring for aging or disabled family members.

Elder law attorneys are following this legislation in hopes that the new laws, if passed, will provide additional ways to help those afflicted with early onset Alzheimer’s disease and to ease the burdens on full-time caregivers.

Reference: McKnight’s Senior Living (April 3, 2019) “Bill would aid those with younger-onset Alzheimer’s disease”

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