Category: Revocable Trust

Avoiding Probate: The Revocable Living Trust

4/25/2016

Revocable living trusts have been a hotly debated estate planning tool. Some estate planners refuse to consider revocable living trusts for their clients’ estate plans, while others consider it essential to a complete estate plan. This brief article will look at both sides, and explain the advantages and disadvantages of revocable living trusts.

Why are revocable living trusts used?
A revocable trust allows you to avoid probate. This saves both the three to nine month wait for completion of the probate process and the following cash savings:

Probate fees of $200 per every $100,000 of property you own.
Attorney fees of approximately $1500 to $4000 for handling an uncontested probate.
Double the above costs in the event that you have property in more than one state. Approximately an additional $1500 to $5000

A revocable trust allows you to choose a person to manage your finances.

In the event that you are unable to manage your finances, a revocable trust sets up a method for you to pass control to a person you choose.

A revocable trust has no tax impact while you manage the trust.

The revocable trust is set up as what is called a grantor trust. This means that you do not have to concern yourself with any additional tax documentation. You can take your tax credits or deductions just as you always have. In this way, the trust is simple to manage.

After you die, your revocable trust can be used to shelter your children’s inheritance from their creditors and spouse.

Often revocable trusts are set up to distribute all of your property and terminate after you die. However, you may also set up the trust to continue to hold money for your children under a spendthrift provision, which protects your child’s inheritance against his or her creditors.

What is a Revocable Living Trust?
What is a Trust?--A trust is a written agreement that names one person, the trustee, to be responsible for managing property for the benefit of others (the beneficiaries.) In general, a revocable living trust allows you to manage your money as trustee, and receive income and principal (those assets that you placed in the trust) for life. The remainder then passes to your beneficiaries.

What is a “revocable” Trust?--A revocable trust allows the creator (the grantor) to change or end the trust at any time and for any reason.

What is a “living” Trust?--A living trust is a trust created and funded during your lifetime. You may also create a trust in your will, to be funded after your death. This is known as a testamentary trust.

What differs between “living” and “testamentary” trusts?--The main difference between a living trust and a testamentary trust is whether the assets go through probate. The primary purpose of a living trust is probate avoidance.

Probate:
What is probate?--Probate is a court-supervised process transferring ownership of a deceased individual’s (decedent’s) assets.

What are the advantages of probate?--Probate has two main advantages:

Probate ends creditors’ claims. If a creditor fails to make a claim against the property within the allotted three to four months after receiving notice, they waive the right to any claim against the property. (This result may also be achieved by providing notice with the trust, but you will not be forced to do so.)
Probate creates proof of the value of property at date of death. Inherited property has a tax basis equal to the value of the property the day the decedent died. Therefore, when inherited property is sold, taxes are only due on the sales price above the value that the property had on the date of death. Probate serves as a means to prove the value of the property as of the date of death for this tax purpose.

What are the disadvantages of probate?--Probate has two main disadvantages:

Cost— Probate costs include a filing fee of 0.2% of the value of the total probate property, attorney fees (which can run in the $4000 range,) and personal representative fees (if your personal representative chooses to ask for a fee.)
Time—Distributions may only be made from the probate estate after the three to four month waiting period for creditor claims has elapsed. The family may only receive money before this time by court order.

Revocable Trust Disadvantages:
Are there any disadvantages to a revocable trust?—A revocable trust has several disadvantages:

If you ever appoint someone other than yourself or your spouse as trustee of the trust, the trust will be required to file a yearly informational report to the IRS.
A revocable trust needs maintenance. If you receive assets at a future date, you will have to be sure to put the assets in the revocable trust, otherwise you will not avoid probate. This can be accomplished on your own, or with simple guidance from an attorney. It may include assuring that any deeds for property are properly assigned to the trust and not to yourselves.

Should I have a revocable trust?--To determine whether you should have a revocable trust, you should consider both the advantages and disadvantages as they apply to your own scenario. For assistance with determining whether a revocable living trust is right for you, contact Attorney Derrick Heller-Neal via phone at (262)902-0595 or by email [email protected] to schedule a consultation.

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Protecting yourself and your children with Estate Planning/The Children's Trust

3/22/2016

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ESTATE PLANNING FOR INDIVIDUALS WITH CHILDREN
I have just had a child/ I have children, what estate planning do I need to do?--When you have a child, it is of the greatest importance to have an estate plan. A good estate plan will help to protect the well-being of both you and your child. This article focuses on the use of different estate planning tools as they specifically relate to your child. For most individuals with a child, a basic estate plan should include a will, testamentary trust, power of attorney for finances, power of attorney for healthcare, and an authorization for final disposition. If you have more than one child, even if you already created an estate plan when you had your first child, you should consider having the estate plan updated to include a children’s trust, which keeps your money in a single fund to be used for any child's care as needs arise.

THE CHILDREN’S TRUST

Why have a testamentary children’s trust?--A trust serves three purposes:

it allows you to choose a person (the “trustee”)who you want to manage your child’s property;
it allows you to treat your children fairly with the money you leave them; and
it allows you to choose when your child is old enough to receive their inheritance.

How does a trust treat children fairly?--A trust allows your money to be used on your children in exactly the same manner as it would if you were alive. As parents, we do not separate each child’s money into shares, which are used until the child runs out of money. We give the money to the children as the need arises. A single-pot trust acts in the same way. In a single-pot trust, the inheritance is kept as a single fund, distributed to each child as the need arises. It may later be broken into individual trusts for each child after they exit high school or college or reach an age you determine.

What is a trust?--A trust is a relationship. You choose an individual (the “trustee”) to manage the money and property you designate, and distribute the money and property to an individual (the “beneficiary”) as you dictate in the trust document. The trust document itself sets out the boundaries of the relationship, including the property that is a part of the trust, who the trust is benefiting, the times and purposes for which the funds in the trust should be spent, and when the trust will end.

The Will

What is a Will?--A will is a legal document that indicates your desires regarding how your property and dependents should be taken care of after your death.

Do I need a will?--Yes, a will accomplishes three main purposes:

it allows you to name a guardian for your children,
it allows you to dictate whom should receive your property after you die, and
it allows you to appoint a person (the “personal representative”) who will ensure that your desires are achieved.

Who will take care of my child if I die?--Who takes care of your child in the event of your death depends on whether you have elected a guardian for your child under your will. If you fail to elect a guardian under your will, the court will appoint an individual to care for your child.

What if I elect a guardian under my will?--An election of an individual for guardian does not guarantee that person will be appointed guardian. While Wisconsin courts generally follow the election made in the will, they will deviate in the following events:

if the person elected in the will is not willing to become guardian for the child, the court will be forced to select a different guardian;
if the court determines that appointing the individual elected in the will as guardian is not in the best interests of your child, the court will select a different guardian; and
if the biological parent of the child is still alive, the court will likely disregard any guardian listed in the will and give the child to its biological parent.

What if I know someone who would be amazing at raising my child, but is not good with money?--It is possible to appoint more than one person as a guardian of your child. There are two types of guardians: the guardian of the person and the guardian of the estate. The guardian of the person is effectively the substitute parent for the child, making day-to-day child-raising decisions. The guardian of the estate manages and controls the money that you leave to your child. This way you can choose the best person to raise your child, and leave the money management to someone more suited to that task.

THE POWER OF ATTORNEY DOCUMENTS
What is a Power of Attorney for Finances?--A Power of Attorney for Finances and Property is a document in which you (the “principal”) name another individual (the "agent") to manage your finances and property. You determine the money and property you want the agent to have authority over, as well as the authority you want the agent to have. The authority can be broad or specific, depending on your preference. A power of attorney for finances may be “durable,” meaning that your agent may manage your finances in the event of incapacity or incompetence.

What is a Power of Attorney for Healthcare?--A Power of Attorney for Healthcare is a different document, in which you (the “principal”) name another individual (the “agent”) to make healthcare decisions for you if you lack capacity to do so yourself. You may indicate your expectations for your end-of-life care or nursing home care within the document. A Power of Attorney for Healthcare or a guardianship is required if you want to allow someone the authority to place you in a nursing home or other long-term-care facility.

Why have these documents?--If you are injured, and unable to say what you want, the only legal method available for you to express your wishes is to explicitly appoint someone who will be responsible for seeing that your desires are carried out. Therefore, whether you are single or married, poor or rich, these documents are necessary for everyone.

THE AUTHORIZATION FOR FINAL DISPOSITION

Do I really need to think about my funeral?--No, but is it really fair to leave your loved-ones to plan, wondering whether they are doing what you would have wanted? Your death will be a hard time for your family. Doing some of the work yourself by writing down an outline of how you would like your funeral to be held can help ease the burden your family will feel. An authorization for final disposition is a document that can help put these plans into action.

What is the authorization for final disposition?--An authorization for final disposition allows you to appoint an individual who will be responsible for taking care of arrangements for your funeral. The document allows you to indicate whether you want to be cremated or not, whether you want any religious activities performed, what the funeral should include, and what funds should be used to pay for the funeral.

Conclusion

The documents above are only some of the estate planning tools that are used to plan for individuals with children. Other tools may include spendthrift trusts (in the event you have a child that cannot manage their money), asset protection trusts for individuals with disabilities (to ensure that they do not lose benefits), and additional planning for blended families. For more information about these issues, be sure to check back on March 28th, when we will discuss these situations.

This has just been a brief glimpse of the estate planning that many individuals with children need. For more information, please feel free to call Attorney Heller-Neal at (262) 902-0595 or email: [email protected].

Derrick Heller-Neal is a solo lawyer located in Racine, Wisconsin.

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How can an estate plan help me avoid probate?

3/2/2016

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Please see the articles: "Basics of the Probate Process" and "The Advantages and Disadvantages of the Probate Process" for information about what costs and procedures are involved in the probate process.

An estate plan uses the following methods to help avoid probate: Beneficiary Designations, Transfer on Death and Pay on Death designations, Revocable trusts, and Marital Property Agreements

Beneficiary Designations- Many different types of assets allow for nonprobate transfer through designating whom should receive the asset when you die, otherwise known as a beneficiary. As estate planning begins, it is important to review all assets where you can pick a beneficiary to be certain that the beneficiary chosen matches with your estate planning goal. This is doubly important with retirement accounts, which can have significant tax implications if beneficiary designations are not chosen appropriately.

Types of assets that commonly have beneficiary designations:.
1. Life Insurance
2. Retirement Plans
3. Stocks, Bonds, Mutual Funds, and Brokerage Accounts
4. Bank Accounts and Certificates of Deposit

Transfer on Death and Pay on Death- Transfer on Death (TOD) and Pay on Death (POD) are designations that may be placed on Bank accounts, Certificates of Deposit, Stocks, Bonds, Mutual Funds, Brokerage Accounts, and Real Estate to pass those assets outside of probate by designating a beneficiary for the asset. The asset remains yours to control and use, but passes to the chosen beneficiary when you die. To this end it is not subject to the beneficiary’s creditors during your lifetime, unlike when joint tenancy or joint accounts are used.

Joint Tenancy and Joint Accounts- Joint tenancy and Joint accounts are both types of property ownership in which both individuals have complete control of the property. This type of property ownership also allows the asset or account to pass outside of probate at the death of one of the joint owners to the other owner. However, unlike with transfer on death or pay on death designations, your co-owner has the full ability to use the property for himself or herself, and the property is subject to any creditors your co-owner may have.

Revocable Trusts- A revocable trust is a written agreement naming an individual (trustee) who will be responsible for managing the property in the trust for the benefit of others (beneficiaries.) Generally, you maintain control over the assets you place in the revocable trust. You may use the assets in any way you choose at whatever time you choose. In the event that you pass away, a person you choose in advance will become trustee and will have responsibility for managing and distributing the property from the trust to the remaining beneficiaries. This allows a seamless transition that has the added benefit of avoiding probate.

Marital Property Agreement- A marital property agreement allows a couple to opt-in or opt-out of Wisconsin’s marital property laws by specifically designating what assets are considered to be marital and what assets are individual. The marital property agreement has the added benefit of allowing transfers of marital property between spouses at the death of one spouse outside of probate through what is called a “Washington Will provision.” However, as is true with much of estate planning, a marital property agreement should be reexamined if either spouse may soon require long-term care.

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Avoiding Probate: The Revocable Living Trust

Protecting yourself and your children with Estate Planning/The Children's Trust

How can an estate plan help me avoid probate?

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