Is It Time for an Estate Plan Checkup?

Because life brings many changes, you should have an estate plan checkup at least every three years.
Because life brings many changes, you should have an estate plan checkup at least every three years.

After you’ve met with an attorney to do your first Will, it is easy to assume that you have checked estate planning off of your to do list forever. The reality is not so simple. Not only do tax laws frequently change, but so does your life. The smallest change could have a big impact on your estate plan. That’s why it’s a good idea to go through an estate plan checkup at least every three years to ensure your estate plan still accurately reflects your values, needs, and hopes for your legacy.

Even if you have already created an estate plan you feel confident about, circumstances surrounding your decisions may change. Marriages end, children grow up, and serious illnesses occur. When laws change, some estate planning techniques can become outdated.

An estate plan checkup should include a look at how your accounts and property are titled to see if any changes are necessary. Joint ownership of your property, for example, may be a good idea or a bad idea, depending on the circumstances. Births or deaths of loved ones may lead you to change your beneficiaries. The person you named as one of your trusted decision-makers (for example, a trustee, executor, agent under a financial power of attorney, or agent under a medical power of attorney) may no longer be the best option due to relationship changes or physical relocation. Such changes can occur without your thinking of the effect they have on your estate plan, so it is worth a periodic estate plan checkup to make sure your your plan still reflects your wishes.

Significant financial change can also be a good reason for an estate plan checkup. If you have taken on a new job, bought a house, or made new investments, you will want your estate plan to reflect these changes. If you have a trust, the only way to ensure that your accounts and property are kept out of probate is to have all of your accounts and property appropriately funded into the trust or naming the trust as beneficiary.

Changes in the laws affecting how assets are left to beneficiaries seem to be happening with more and more frequency. For example, the recent SECURE Act and the elimination of the lifetime stretch for nonspouse beneficiaries shows how important it is for you to talk with your estate planning attorney  about the effect this new law may have on the beneficiaries of your retirement accounts.

Life is ever changing, and many changes may have a great impact on your estate plan. If you or your family have undergone any changes since your estate planning documents were originally created, now is the perfect time to reach out to your estate planning attorney for an estate plan checkup.

If you think it may be time to consider a revocable living trust instead of a Will, you may be interested in https://www.galliganmanning.com/will-vs-living-trust-a-quick-and-simple-reference-guide/.

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Estate Planning for Non-U.S. Citizens

A non-U.S. citizen owning property in the U.S. needs an estate plan.
There are a number of special estate planning issues a non-U.S. citizen needs to consider.

The United States has experienced a surge in immigration since 1970, and there are now approximately 45 million foreign-born people living in the United States. Some of them have become U.S. citizens, but many non-citizens live in the United States as well. See https://www.dhs.gov/immigration-statistics/special-reports/legal-immigration. Like U.S. citizens, it is essential for non-U.S. citizens to have estate plans in place. But there are also a number of special issues non-U.S. citizens need to consider.

Common law vs. civil law

There are many differences in the law between countries such as the United States and the United Kingdom, which have common law systems, and countries such as Germany, France, or China, which have civil law systems. For example, common law countries recognize trusts, but civil law countries do not.

In addition, common law and civil law countries have different rules regarding which country’s law will apply (e.g., in a common law country, the jurisdiction where real estate is located governs its disposition, but under civil law, the law of the country of the deceased person’s nationality or habitual residence may be the governing law).

These differences (and there are many more not discussed here!) must be taken into account in determining the best options for estate planning involving property located in other countries.

Wills and trusts

In the United States, wills and trusts are some of the instruments most commonly used by individuals to distribute their money and property. However, when a non-citizen owns property in other countries, the law of the country where the property is located may affect how it is distributed. In addition, if the property is located in another country, that country may not accept a United States will as valid. Some foreign countries may recognize it if it satisfies all of their legal formalities. However, other countries never recognize a will drafted in another country or recognize it only in certain special situations.

As a will created in the United States may not be legally valid in other countries, it may be necessary to have multiple wills, each one dealing only with money and property located in that country (and drafted by someone familiar with the local law). In addition, it is important for special care to be taken to make sure that none of the wills unintentionally revoke any previously drafted wills from another jurisdiction.

Tax Considerations for Non-Citizens

Property located abroad taxed in U.S. for U.S. residents

U.S. citizens, and non-citizens who meet the IRS’s definition of a “resident” of the United States, are subject to federal gift and estate taxes on all of their money and property, worldwide. However, U.S. residents can also benefit from the $11.58 million lifetime gift and estate tax exemption and the $15,000 gift tax annual exclusion. In general, a non-citizen is a permanent resident if he or she currently resides in the United States and intends to remain there indefinitely.

Different rules for non-residents

For non-residents, i.e., non-citizens who do not intend to remain in the United States, only money and property “situated” in the United States is subject to estate and gift tax in the United States. However, their estate tax exemption drops from $11.58 million to $60,000, which could result in a very large estate tax bill if the non-resident has a lot of property located in the U.S. Moreover, they may also be subject to estate tax in their country of citizenship, raising the issue of double taxation. The United States has entered into an estate and/or gift tax treaty with a limited number of countries allowing a citizen of one of the treaty countries who owns property to avoid the possibility of both countries taxing the same asset at the time of death.

Special rules for non-citizen spouses

Unlimited marital deduction not available. A U.S. citizen who is married to a non-citizen should keep in mind that the unlimited marital deduction is not available for gifts or bequests to non-citizens, even if the spouse is a permanent resident. If the spouse receiving the assets is not an U.S. citizen, the tax-free amount that can be transferred to a spouse is only $157,000 a year (in 2020).  However, the unlimited marital deduction is available for transfers from a non-citizen spouse to a citizen spouse.

Tip: A non-citizen spouse can inherit from a U.S. citizen spouse free of estate tax if the U.S. citizen creates a special trust called a qualified domestic trust (QDOT). The U.S. citizen can leave property to the trust, instead of directly to the non-citizen spouse, with special rules applying as to who can be Trustee and how distribution may be made.

Estate planning for non-U.S. citizens is very complex. If you are a non-citizen or are married to a non-citizen, an experienced estate planning attorney can help you think through all of the issues that may affect how you plan for the future.

This article references that wills and trusts are commonly used in the United States to transfer assets at death. If you are interested in learning more about Wills and living trusts see https://www.galliganmanning.com/will-vs-living-trust-a-quick-and-simple-reference-guide/

 

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Will vs Living Trust: A Quick and Simple Reference Guide

Which is better for you? A will or a revocable living trust?
Which is better for you? A will or a revocable living trust?

Confused about the differences between a will and a living trust?  If so, you are not alone. While it is always wise to contact an estate planning attorney to help you decide which is right for you, it is also important to understand the basics. Here is a quick and simple reference guide:

What a Revocable Living Trust Can Do – That a Will Cannot

  • Avoid guardianship. A revocable living trust allows you to name your spouse, partner, child, or other trusted person to manage your money and property, that has been properly transferred to the trust, should you become unable to manage your own affairs. A will only becomes effective when you die, so a will is useless in avoiding  guardianship proceedings during your life.
  • Bypass probate. Accounts and property in a revocable living trust do not go through probate to be delivered to their intended recipients. Accounts and property that pass using a will guarantees probate. The probate process, designed to wrap up a person’s affairs after satisfying outstanding debts, is public and can be costly and time consuming.
  • Maintain privacy after death. A will is a public document; a trust is not. Anyone, including nosey neighbors, predators, and the unscrupulous can discover what you owned and who is receiving the items if you have a will. A trust allows you to maintain your loved ones’ privacy after death.
  • Protect you from court challenges. Although court challenges to wills and trusts occur, attacking a trust is generally much harder than attacking a will. If there is a challenge to a will, the probate court will stop all proceedings until the matter is resolved, which can put the will contestant in the very strong position of demanding to be paid to go away. Because there is no probate court involvement is no necessary in the administration of a trust, challenging a trust does not result in everything grinding to a halt. This puts the trust contestant at a disadvantage and removes the leverage the contestant would have had in probate court. For other ways on how to avoid conflict over your estate after you pass away, see https://www.galliganmanning.com/how-to-avoid-family-fighting-in-my-estate/.

What Both a Will & Trust Can Do:

  • Allow revisions to your document. Both a will and revocable living trust can be revised whenever your intentions or circumstances change so long as you have the mental ability to understand the changes you are making. (WARNING: There is such as a thing as irrevocable trusts, which cannot be changed without legal action. Irrevocable trusts are different estate planning tools from a revocable trust, which is what we are talking about here.)
  • Name beneficiaries. Both a will and trust are vehicles which allow you to name who you want to receive your accounts and property. A will simply describes the accounts and property and states who gets what. Only accounts and property in your individual name will be controlled by a will. If an account or piece of property has a beneficiary, pay-on-death, or transfer-on-death designation, this will trump whatever is listed in your will. While a trust acts similarly, you must go one step further and “transfer” the property into the trust or name the trust as beneficiary of your property and financial accounts – commonly referred to as “funding.” This is accomplished by changing the ownership of your accounts and property from your name individually to the name of the trust or by naming the trust as beneficiary of the property or account. Only accounts and property in the name of your trust  or designating your trust as beneficiary will be controlled by the trust’s instructions.
  • Provide asset protection. Both a trust and a will may include protective sub-trusts which can allow your beneficiaries to receive some enjoyment and benefit from the accounts and property in the trust but also keep the accounts and property from being seized by your beneficiaries’ creditors such as divorcing spouses, car accident litigants, bankruptcy trustees, and business failures.

While some of the differences between a will and living trust are subtle; others are not. An estate planning attorney can work with you to help you determine which is better for you, a will or a revocable living trust, so that you end up with an estate plan personalized to your needs.

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