Paul O. Dillon, Attorney at Law

Estate Planning 101: What You Need to Know

Have you done any estate planning? If you have a will, kudos to you! You’re ahead of so many people and celebrities who die without a will, creating unnecessary expenses and stress and risking family fights over assets large and small. However, a recent article from Kiplinger, “The Basics of Estate Planning,” reminds us of the importance of regularly updating estate planning documents and beneficiary designations.

Failing to do so could put heirs in a financial and legal tangle after you die or create unexpected tax consequences. You might also leave your assets to a wrongful heir, and your family might be unable to do anything about it.

What makes up the foundation of an estate plan?

The will directs your wishes to distribute assets to heirs upon your death. It’s not as straightforward as expected, so talk with an estate planning attorney to create a valid will. For instance, you don’t want to include anything you don’t want the public to know, like account numbers or passwords. The will becomes a public document when it is submitted to probate court.

A living trust, sometimes called a revocable trust, is used to own assets in a more private manner. You can put cash, securities and other assets into a trust, and the trustee, who you name to manage the trust, will be in charge of distributing assets after you die.

A living will, sometimes called an advance healthcare directive, outlines your wishes for care if you become incapacitated or for end-of-life care. This includes medical decisions like keeping you alive via artificial means, from respirators to feeding tubes. Letting your family know your wishes will spare them a lifetime of guessing what you want.

Powers of Attorney for finances and healthcare (also known as a healthcare proxy) names others to act on your behalf to manage financial and healthcare matters. Without these documents, your family may have to go to court to manage your bills and be part of your healthcare decisions.

Today’s estate plan also includes digital assets. You can designate a person as your Digital POA so they can access digital assets like emails, websites and social media accounts. They’ll need to be someone you trust and who can navigate the digital world.

All these documents need to be reviewed regularly to ensure that they align with your wishes and are current concerning any changes in the law. Most estate planning attorneys will advise you to update your documents whenever there is a big change in your life like birth, death, divorce, or a move to a new state. They should also be reviewed every three to five years as laws change.

Assets also pass through beneficiary designations. These are commonly retirement accounts and insurance policies, which ask you to name a person to receive the assets upon your death. These assets don’t go through probate. People often forget to update these documents, and old friends and ex-spouses find themselves with a surprise windfall.

It’s essential to update estate planning documents and beneficiary designations on the death of a spouse. This is not likely the first thing on your mind when grieving the loss of a loved one, but it is necessary.

The rules for inherited IRAs have changed. Therefore, your heirs need to be prepared for the impact, especially if your estate includes a large IRA. As a result of the SECURE Act of 2019, adult children or non-spouse heirs of a traditional IRA must empty the IRA within ten years of the original owner's death. During the ten years, heirs must take annual withdrawals and pay taxes on those withdrawals as income. The alternative is to take the entire IRA at once and pay taxes on the whole account. This rule doesn’t apply to surviving spouses, who have more options.

Think of your estate plan as a gift to loved ones after you’ve passed. Without one, they may need to go to court, wait months or years to receive their inheritance or devote endless hours working on gaining control and distributing assets. Talk with an experienced estate planning attorney to protect your family and legacy.

Reference: Kiplinger (Oct. 1, 2024) “The Basics of Estate Planning”

What’s the Primary Purpose of a Living Trust?

One of many options for people who want to pass an inheritance to loved ones is a living trust, also known as a revocable trust. There are several benefits, as detailed in this article from msn.com, “3 Benefits of Using a Living Trust to Pass an Inheritance to Your Family.”

Trusts are used to avoid the probate process. This is a court process where the court evaluates the will, decides whether or not it is valid and then supervises how the assets in the estate are distributed. If you’ve ever had the misfortune of experiencing the probate process, you know it can be stressful.

Probate takes time. While it varies depending on the jurisdiction, it can take months and sometimes years to complete. While the estate is in probate, heirs cannot access estate assets.

Probate can be expensive. There are court costs, administrative fees, legal fees and accountant's fees if the estate is complicated.

Probate is public, and trusts are private. Once a will is entered into probate, it becomes public information and anyone can access it. This includes estranged relatives, creditors, salespeople and thieves. They all look at the will to learn about the size of the estate, asset values, names of beneficiaries and where they live and whatever information is in the will.

The only people who have access to trusts are the estate planning attorney who created them, the trustee and the beneficiaries. This level of privacy is sometimes a bigger reason to have a trust than avoiding probate, especially for people who scammers could target.

Trusts allow flexibility. Living trusts are also called “revocable” because they can be changed during your lifetime. You can change the terms of the trust, the names of the beneficiaries, what assets you want heirs to receive, etc. If you have a big change in your financial situation, good or bad, the trust can be modified.

If a revocable trust sounds like a good option for your situation, speak with an experienced estate planning attorney. They’ll help you create a trust and estate plan to protect you and your loved ones.

Reference: msn.com (Aug. 21, 2024) “3 Benefits of Using a Living Trust to Pass an Inheritance to Your Family”

Should All of My Assets Be in a Trust?

By now, you may have heard about the “great wealth transfer,” which refers to Americans inheriting as much as $72 trillion over the next twenty years. Do you have a plan in place for your family? A recent article, “Is a Living Trust Really the Best Way to Pass an Inheritance to Your Family?” from The Motley Fool, explains how this estate planning tool works.

How does wealth pass to heirs? One way is a Last Will and Testament. However, a Living Trust may be better. The Living Trust is the creation of a legal entity, the trust, which allows the person creating it—the grantor—to control the trust and the assets in it during their lifetime. When the grantor passes, the secondary trustee takes over, managing assets in the trust and distributing them according to the language in the trust.

A living trust isn’t for everyone. There are definite advantages. However, there are also some disadvantages you’ll want to understand before deciding if this is for you.

Living Trusts allow the grantor to maintain control of the trust and the assets within the trust. The grantor can change their mind about any aspect of the trust at any time. They can change beneficiaries, remove assets or even close the trust.

The Living Trust takes assets out of your probate estate, meaning the assets in the trust are distributed to beneficiaries with no court involvement. Probate is a lengthy, expensive and public process. It can take months or years to complete, and the will becomes part of the public record. Anyone who wants to, from nosy relatives to scammers, can read the will.

Those with significant wealth use trusts to keep their private business private. People with estranged family members use trusts to maintain privacy and prevent feuds.

However, there are some downsides to consider. There is some work and costs associated with trusts. Placing assets into a trust requires retitling those assets, such as real estate or investment accounts.

You should speak with an estate planning attorney, especially if your goal in creating a trust is to qualify for Medicaid. This is a different type of trust requiring the help of an experienced estate planning attorney.

A trust isn’t an instant tax shelter. An estate planning attorney should be consulted to create the proper legal entities if your main goal is to take assets out of your estate to avoid federal, state, or inheritance taxes.

Trusts aren’t do-it-yourself projects. To do this right, you’ll want the help of an experienced estate planning attorney. They’ll help you define your goals and then create a plan to achieve them.

Reference: The Motley Fool (July 5, 2024) “Is a Living Trust Really the Best Way to Pass an Inheritance to Your Family?”

Do You Need a Living Trust?

Trusts have been called the Swiss army knife of estate planning, and rightly so. There are trusts for every purpose in estate planning, including the living trust, also known as the revocable trust. As described in the article “Is a Living Trust Really the Best Way to Pass an Inheritance to Your Family?” from The Motley Fool, you start by creating a living trust, then retitle assets to move them into the trust. When you die, assets in the trust are distributed according to the directions in the trust.

Trusts protect assets in ways last wills and testaments can’t. This is especially so if your wishes for the assets change during your lifetime.

One of the most significant advantages of trusts over wills is the avoidance of having the assets in the trust go through probate. While probate is better in some jurisdictions than others, in general, probate takes some time and requires the involvement of the court. In the process, your will becomes part of the public record. Anyone who wants to can read the will, grab the information you may have wanted to keep private and contact heirs to solicit them. That includes creditors and potential litigants.

The living trust keeps your private business private. If discretion is important, or if you have a family with a history of battling over assets, a trust could be a good move for you.

Trusts can also be used to give very specific information about what you want to happen to your assets. You can tell the trustee to provide gradual distributions of assets to beneficiaries over extended periods or stipulate the conditions they need to meet to receive an inheritance.

Trusts are also used to manage assets if incapacity strikes. A trustee can be appointed, and the trust can be structured so that if you cannot manage your own affairs, they can use assets to pay household expenses and medical bills and manage the investments or other assets the trust owns.

Whether or not to create a living trust depends upon your own unique situation. What type of trust to establish also depends upon many different factors. An experienced estate planning attorney who understands the pros and cons of different types of trusts is your best resource when making this decision.

Remember that the trust needs to work alongside other aspects of your estate plan. If you have a last will and testament including certain assets and then place the assets in the trust, the directions of the trust will take precedence. You can leave whatever you want to whomever you want, but what is owned by the trust will be distributed regardless of the direction of the will.

Your best move is to contact an estate planning attorney and have them create your will and trusts in tandem for optimal results.

Reference: The Motley Fool (June 2, 2024) “Is a Living Trust Really the Best Way to Pass an Inheritance to Your Family?”

Do I Need a Pour-Over Will?

A living trust, also known as a revocable trust, is used in estate planning to transfer ownership of assets in trusts and accomplishes several things. It takes assets out of your probate estate, while permitting you to continue to control the assets. You can be the trustee while living and of sound mind, as explained in the article “What Is A Pour Over Will?” from Forbes. The trust names a backup or successor trustee who manages the trust assets if you become incapacitated or die. The living trust includes the names of your beneficiaries, which may be individuals or charitable organizations.

When you die, assets held in the living trust are transferred using the trust administration process. Assets held (owned) outside the trust must be addressed differently. This usually means going through probate.

If you have no will, your state's intestacy laws will apply. These laws would distribute your assets to family members based on their relationship to you—kinship. This may not be what you wanted, especially if a family member is estranged from you. However, it won’t matter, and other family members will have to live with the court’s decision.

However, you can use a pour-over will to “pour over” any assets not in the trust at the time of your death into the trust after your passing. This ensures that the assets will be transferred through the trust administration as well.

When the living trust is established, assets must be retitled so the trust becomes the legal owner. But you might not do this with everything you own, or you may acquire assets after the trust is created and die before you can transfer them. You might simply forget some assets.

As you create a trust for the specific reason to facilitate effective management and transfer of property through the trust administration process, it makes sense to have all your property moved into that trust upon your passing.

An experienced estate planning attorney can help create the living trust and coordinate it with your will and instructions for all assets not otherwise accounted for to pass into the trust upon your death. You’ll need to work with an estate planning attorney to be sure the trust, will and other estate planning documents comply with your state’s laws.

An estate planning attorney can help you understand other options for transferring assets and provision for loved ones. The pour-over will is one of many estate planning tools available to protect your loved ones.

Reference: Forbes (Jan. 29, 2024) “What Is A Pour Over Will?”

What Is the Purpose of a Living Trust?

There are so many misconceptions around trusts, especially thinking trusts are only for wealthy people, according to a recent article, “2 Key Benefits of Living Trusts” from Forbes. During your lifetime, a living trust is an extension of yourself. There are no tax benefits or tax liabilities until you die, when living trusts provide benefits compared to assets not held in trust.

What happens to different types of assets after death?

If you own assets with beneficiary designations, these will be passed to beneficiaries outside of probate. These are typically retirement accounts, life insurance, some investment accounts, pensions and annuities.

If you have joint ownership of assets, they will become the property of the surviving joint owner(s) after death. The most common jointly owned assets are real estate, bank and investment accounts.

If you own assets as an individual, they will go through probate. While bank and investment accounts do permit transfer-on-death (TOD) and payable-on-death (POD) elections to bypass probate, this is not appropriate for every situation.

Two of the most common benefits of having a living trust are avoiding probate or reducing the probate estate and having greater control over the distribution of assets.

If one spouse passes and owns all liquid funds (and/or a privately owned business) in their own name, the survivor may be left without funds to pay bills while the probate estate is being settled. Having a living will means the survivor, if named as a beneficiary of the trust, has access to assets during probate.

Probate also incurs expenses and can take months to settle an estate. Any assets going to through probate become part of the public record, which can create a host of other issues. A large estate in probate can become a burden on the surviving spouse and family.

When assets go through probate, the court has the final word on how assets are distributed. This may align with your will, but it might not. Suppose assets are held in a living trust. In that case, probate or at least reduce the number of assets going through probate and control the distribution of the assets without your personal financial information becoming part of the public record.

Your estate planning attorney can create a living trust, naming you as the trustee and a person to serve as a successor trustee. Your successor trustee will be responsible for distributing the assets in the trust upon your death.

There are many ways to create the trust. The spouse is typically the successor trustee, with varying levels of access to assets during the surviving partner’s lifetime, with the remainder going to children or relatives. Trust laws are state-specific, so speak with an experienced estate planning attorney to create a trust that suits your unique situation.

Reference: Forbes (Jan. 24, 2024) “2 Key Benefits of Living Trusts”

What to Do Before Naming a Family Member or Friend to Be a Trustee

Here’s an all-too-common scenario: a husband and father of adult children had created a living trust to protect assets and eventually direct the family’s wealth to heirs. During his lifetime, the man had served as the trustee. His wife became the trustee when he died, as explained in the article “Before Naming Trustees, Get Their Consent” from Next Avenue.

When the mother died, the trustee role was given to one of the adult children. The child was stunned because no one had ever told him about this responsibility.

Living trusts typically require trustees to work with estate planning attorneys and financial professionals to manage assets, distribute investment income to beneficiaries, oversee taxes, and sometimes, maintain or sell real property. This is not just for wealthy families. Families of modest means benefit from tax and estate planning aspects of trusts. They allow grantors (the person establishing the trust) to leave assets privately and, in some states, avoid probate, which is usually a public proceeding and can take time to complete.

Some heirs may not be happy with the person named to be the successor trustee. Some living trusts include special instructions for certain beneficiaries intended to control spending, if the grantor thinks the heir may be unable to manage their inheritance.

This can be avoided by having candid discussions with all family members about the parents’ future plans. Sometimes, having a family meeting at the estate planning attorney’s office—neutral territory and an expectation of mature behavior—may make the conversation less tumultuous.

The person named to be a successor trustee needs to be considered carefully. Just inserting someone’s name in the trust document without speaking to them first about the possibility of taking on the role and what it entails is a recipe for disaster.

Before the estate planning attorney completes trust documents, grantors need to think about who would do the best job, what relevant skills they have and who would be able to manage the family’s relationships if unpopular decisions need to be made.

If there are two adult children, the better choice isn’t necessarily the older of the two. The one with the greater financial acumen is the better candidate.

Suppose no suitable candidates from the family can be identified or no one is willing to take on the tasks. In that case, grantors may consider their estate planning attorney or a professional trustee from a financial firm. Although some grantors would prefer to have a family member as their successor trustee, this may not always be possible.

Once the candidate has been named and before the documents are completed, a meeting is needed to outline the trustee's responsibilities. Once the candidate fully understands what they must do and agrees to the role, the grantors might want to hold a family meeting to explain their choice and have an open, hopefully peaceful, discussion.

Reference: Next Avenue (December 22, 2023) “Before Naming Trustees, Get Their Consent”

Why a Trust Works for Multi-State Property Owners

If you own real estate when you die, it is most likely your estate will be required to go through probate. This can take months to years and becomes expensive, as explained in the article “Why a trust is so useful for those who own real property in multiple states” from Coeur d’Alene/Post Falls Press. However, here’s the thing to be aware of: if you own property in more than one state, your estate must go through the probate process in every state where you own property.

A few strategies must be considered for snowbirds with homes in northern and southern regions or who own out-of-state rental property.

Some families will add an intended heir to the title (deed) of the real estate while the primary owners are still living. This is rarely recommended, since it can open the door to any number of problems. If the intended heir has a financial crisis, like a lawsuit, divorce, creditor issues, etc., the jointly owned property is an attachable asset.

Another solution people try is the “Pay on Death Deed.” This is a special type of deed where the recipient gets the real property on the death of the owner. This strategy has a few problems. However, the main one is that not all states allow these types of deeds to be used.

An experienced estate planning attorney will know whether or not your state allows the Pay-on-Death-Deed.

The best solution for most people owning property in multiple states is using a living trust.

The living trust provides the same directions as a last will and testament about who should receive what assets from your estate after your death, including real property. It also names a trustee, who manages the assets in the trust and distributes them after your death.

A key reason to use a living trust is the assets owned by the trust are outside of the probate estate. These assets pass to beneficiaries according to the terms of the trust and do not go through the probate process.

Once the living trust is established, the trust may hold title to any real property, regardless of where the property is located. The trustee does not have to deal with the courts in multiple states.

There is a tendency to think trusts are only used by the very wealthy. However, this is not true. Anyone who owns real property and doesn’t want it to go through one or more probate proceedings benefits from using a trust.

An experienced estate planning attorney can establish the trust and guide you through putting assets into the trust.

Reference: Coeur d’Alene/Post Falls Press “Why a trust is so useful for those who own real property in multiple states”

Why You Shouldn’t Leave Your Home to Your Children

For financial and sentimental reasons, many people want to leave their homes to their children.  However, there are many reasons making this a bad idea, says the article “Generational Wealth: 7 Reasons to NOT Leave the Family Home to Your Children” from yahoo! finance.

Homes are transferred to children in several ways. However, each has drawbacks, from tax liabilities to the risk of losing the family home entirely. Here are how homes are typically transferred:

• Trusts
• Gifts
• Inheritances
• Transfer on death deed
• Sales

A Probate Hold Up. If the home is left to the children in your will, it could get tangled up in the probate process. Probate could hold up the transfer of the home by months or even years. If the house is tied up in probate, who will take on the tasks of paying the mortgage, if there is one, maintaining the home and paying bills? Who will protect the house from vandalism, squatters, or thefts if it is vacant?

Capital Gains Taxes. If the house is left to the children and they decide to sell it, they may have to pay a capital gains tax if the home has appreciated since the owner’s death. If the home is gifted to the children before you die and they sell it at a future date, they’ll have to pay capital gains taxes based on the market value of the house when they received it and the sale price. Where will the money for these taxes come from?

More Taxes to Consider. If you place the home in a living trust and instruct it to be transferred to the children upon your death, you have not shielded it from estate taxes. If you do this to reduce assets to qualify for Medicaid, the living trust is still a countable asset in most states. Your estate planning attorney will know how this might impact your estate and your Medicaid accountability.

What if Your Children Lose the House? Gifting the home to your children, adding them to the deed while you are living, or even selling the home to them exposes the house to risk. The home may face foreclosure if any person on the deed has financial difficulties and can’t make the mortgage payments. If they go through a divorce, the house will be considered a marital asset. Your years of paying the mortgage and caring for the home will evaporate.

Do They Want the House? Parents who feel generous may assume their children want their home when they might not. They will see it as yet another piece of unfinished business left for them to manage when their own lives might be very busy with their own children and careers. If they grew up in the home and have fond memories of it, this will make selling it even harder.

Can They Afford the House? Not every child enjoys financial success. If they can’t afford a mortgage, property taxes, utility bills and the inevitable costs of home ownership, like replacing a roof, etc., home ownership may become a huge burden. If “forced” into possession via inheritance, they may have to sell it at a lower cost to get out from under the bills.

Will They Fight Over the House? Families experiencing grief are not in the best place to make big decisions and are vulnerable to spats that rise to legal disputes. If one child is living in the house and wants to keep it, will they be able to buy out the other’s shares of ownership? A discussion of what you all want to happen with the house and what is realistic needs to occur. This should be followed by a conversation with your estate planning attorney to have the plan made, whether it’s part of your will or another type of agreement.

Reference: yahoo! finance (Dec. 11, 2023) “Generational Wealth: 7 Reasons to NOT Leave the Family Home to Your Children”

Estate Planning for Millennials and Gen Zers

Estate planning is increasingly on the mind of younger adults, far from the stereotype of being only of interest to older, affluent couples nearing retirement or dealing with health concerns. These younger generations have unique attributes, including pragmatic financial views and humanitarian concerns, according to a recent article, “Six Estate Planning Tips for Younger Generations,” from Kiplinger. Here are tips to make this process easier for any generation.

Start with a basic will, which guides how assets and possessions are distributed after one’s passing. Prepared by an experienced estate planning attorney, the will should minimize potential disputes, include a clear delineation of assets and beneficiaries and name an executor to manage the estate and guardianship for any surviving dependents.

Appoint a power of attorney and draft medical directives. Power of Attorney and Medical Directives are basic documents that state your preferences during incapacity. A POA grants a named individual the legal authority to act on your behalf for legal and financial matters, if you cannot do so. Medical directives establish your wishes regarding medical treatment and end-of-life care. While taking care of these matters, you may also want to consider becoming an organ donor.

Determine who you want to be your children’s guardian. Naming a guardian of your minor children isn’t pleasant. However, it ensures that you and your partner make this decision, not the court.

Consider a living trust. Living trusts offer a strategic means of managing assets and helping to ensure that your surviving loved ones maintain control of your assets after you have passed. The trust, established with the help of an estate planning attorney, grants ownership of certain assets or properties into the trust, which becomes their owner. A trustee is named to manage and distribute these assets in accordance with your wishes. In some instances, it makes sense to hire a professional trustee, especially if the trust will need to be managed for decades.

By taking assets out of your estate and placing them into a trust, these assets won’t go through the probate process. Probate involves your executor filing your will with a court after you die. The court reviews the will to validate it and grants the named executor the power to execute your final instructions. Probate can be lengthy, expensive and emotionally charged for the family. Your will is entered into the public record, so anyone who wants to can see your will and know your final wishes.

Don’t forget your digital assets. Younger generations are more aware of the value and footprint of their digital assets. They often name a specific digital executor in their estate plans to ensure that their many accounts and digital assets are managed after their passing.

Seek professional advice and update documents. Despite a plethora of online sites and apps, estate planning documents require the skillful handling of an experienced estate planning attorney. Estate laws are state-specific, so wills and trust documents must be created with local laws in mind. Your estate plan documents, from wills to insurance policies, should be reviewed every three to five years. Every time there’s a significant change in your life, like getting married, buying a home, having a child, or getting divorced, this should also be done.

Reference: Kiplinger (Dec. 3, 2023) “Six Estate Planning Tips for Younger Generations”