Paul O. Dillon, Attorney at Law

The Team Behind a Successful Estate Plan

Most advisors stick with their areas of knowledge. The estate planning attorney drafts the necessary documents, your CPA files tax returns and the investment advisor fine tunes assets. However, coordinating these professional silos is critical to ensuring your estate plan works, says a recent article from Forbes, “Your Estate Plan Must Be Coordinated To Work.”

Communication needs to extend past advisors to key loved ones and people you name in roles, such as agents, trustees and executors. Many people find these discussions awkward. However, preparing heirs and fiduciaries for their roles and setting expectations is a crucial step to avoid issues during transition periods. Some of the most significant estate planning problems arise when the baton is passed, such as if you fall and become incapacitated. You need to be sure your agents know what is expected of them and when they will be called upon to perform their respective tasks.

Coordinating advisor actions will save time and expense in the long run. Your estate planning attorney, CPA, trust officer, wealth advisor and insurance broker should know what each other is doing on your behalf. Many people shy away from doing this because of concerns about cost. However, not doing it can lead to much larger expenses.

You want to foster coordination and collaboration, in a controlled and cost-effective manner. One way to do this is to have advisors prepare a summary of key points, facts and decisions following your meetings, so you can circulate it to other advisors. This way they all know what is being done and can share their knowledge and experience if they think something is wrong or won’t work as planned.

One example of what can happen when advisors are not coordinated is paying bills from incorrect accounts. For instance, if you incur legal fees for the estate plan but pay them from a trust account or business entity, a creditor could argue this is a personal benefit from a trust you are not a beneficiary of, or you’ve violated the business purpose of an entity, which could expose all trust or entity assets.

Your estate planning attorney should know how your assets are titled, which are owned jointly, or other designations used to avoid the terms of your will and/or any trusts. Beneficiary designations, wills and titles must be planned and coordinated to avoid derailing your estate plan.

If you die and an asset is owned in your name only, the asset will go through probate and be distributed according to the terms of your will. If you are incapacitated, your agent, under your financial Power of Attorney, must act concerning the asset to help pay bills.

Many people opt to have assets held in a joint name so that on death, the asset will pass to the named joint owner without going through the will and probate. If the person named as the joint owner is not the same as the POA, you may have created a logistical nightmare. How will the POA pay bills if the joint owner does not cooperate?

Coordinating professional advisers is as important as coordinating family members. There are many different agents and positions to be appointed. People often sign a financial POA with their estate planning attorney, and no one looks closely at any conflicting appointments.

The same kind of issues occur with health care agents. There are several different health care documents, and you’ll want to coordinate them to eliminate the possibility of conflicting appointments. The key to achieving this is diligence, communication and follow-up.

Reference: Forbes (Oct. 31, 2023) “Your Estate Plan Must Be Coordinated To Work”

How Estate Planning Conveys Your Wishes

When musical legend Prince died, it took six years in court to determine who would inherit his worldly possessions because he didn’t have an estate plan. While most of us aren’t dealing with a Prince-sized estate, no family needs to go through the turmoil and expense of fighting over a loved one’s estate. That’s where estate planning comes in, as explained by the article “Let your dying wishes be known by estate planning—before it’s too late” from Star Tribune.

The biggest step is getting started.

Estate planning involves taking inventory of all your assets and liabilities and deciding how you want survivors to deal with these upon your passing. The main legal methods used are wills and trusts. However, a comprehensive estate plan also includes health care directives, or living wills, along with powers of attorney for financial and health care decisions.

Your estate plan should include funeral plans. However, these must be available immediately after your death, so loved ones can follow your wishes. If they are in your will, they may not come to light for weeks after your funeral has already taken place.

Prepaying for your funeral may not be possible for everyone. However, finances aside, it’s best to have all these estate planning angles covered in advance. Have a conversation with your family, so they understand your wishes and goals.

Probate is the legal process dictating what happens to assets when you die. Who makes these decisions depends upon whether you have a will. If you have no will, a court-appointed representative deals with your estate according to state laws. Property is gathered, inventoried, debts are paid and what’s left over is distributed to heirs.

In most states, estates pass to spouses. If there is no surviving spouse, children receive any inheritance or obligation in equal shares. If there are no children, assets might go to parents, siblings, nieces, nephews, or other relatives. Every state has different laws, so consult with an estate planning attorney to learn what your state will do in the absence of a will.

In blended families, this can become more complex, since stepchildren have no legal right to inherit.

If there are no heirs or no relatives that can be identified, assets are then deposited with a county treasurer until claimed.

When there is a will, a person you name in the will to manage your affairs, the executor, will oversee managing the estate. However, a probate court must first deem the will valid and approve the named executor.

The probate process varies by jurisdiction, with some being more time-consuming and costly than others. For this reason, many families rely on the use of revocable trusts. It takes a little more work at the start of the estate planning process but streamlines distribution and protects heirs.

The will contains specific instructions for real estate, personal property and any other assets without a beneficiary designation. Most retirement savings accounts and life insurance policies have a beneficiary named and the assets go directly to the heir, bypassing probate.

Think of a trust like a Ziploc bag—during your lifetime, it is easily opened, and assets can be moved in and out as you wish, including changing who will receive what. When you die, the bag becomes an irrevocable trust, and the trustee deals with everything contained in the trust as per the trust's instructions.

A well-planned estate brings peace of mind to parents, who know they have done right by themselves and their family. It also fosters conversations about admittedly difficult topics, helping most families prepare for one of life’s eventualities.

Reference: Star Tribune (Oct. 30, 2023) “Let your dying wishes be known by estate planning—before it’s too late”

Estate Planning in Seven Steps

From defining financial objectives and understanding legal issues to safeguarding assets and establishing directives, every step in the creation of an estate plan is a brushstroke in the painting of your personal legacy. A recent article from Market Business News, “Crafting Your Legacy: 7 Steps in the Estate Planning Process,” describes the process of creating what is essentially a testament to protect loved ones.

Create an inventory of assets. You’ll need to be meticulous about this to ensure that all your assets are accounted for. This includes properties, investment accounts, items of value and sentimental possessions. It should include detailed descriptions and appraisals. This forms the foundation of your estate plan.

Consider your family’s needs after your death. Anticipate your family’s financial, practical, and emotional needs. Consider things like educational expenses, healthcare costs, ongoing support for basics, and, depending on your situation, recreational activities. Address this concern in your estate plan, so your family will have a secure foundation after your passing.

Select beneficiaries. This is simple in some cases and more complicated in others. You may have a traditional family or one including non-family members who are like family to you. Are there charitable concerns you want to address?

How do you want your estate divided? Be specific to avoid confusion and ensure that assets are distributed according to your intentions. Language needs to be specific and clear, with no room for ambiguity.

Store documents properly. Safeguard estate planning documents, which include your will, Power of Attorney, Health Care Power of Attorney, Living Will and others, in a secure location, like a fire and water-proof home safe. Do not put them in a bank safe deposit box, as the bank may seal the box upon your death and not allow representatives to access the box’s contents. Talk with your estate planning attorney about their recommendations.

Update your estate plan on a regular basis. Life changes, and so should your estate plan. It should be reviewed every three to five years or whenever there is a life event, including marriage, divorce, birth, or changes in your financial situation. Keeping an estate plan updated ensures that it remains relevant to your life.

Seek help from an experienced estate planning attorney. An estate planning attorney will help you navigate the complexities of legal documentation, tax implications and probate. You’ll want to be sure that your estate plan aligns with state laws. The knowledge of an estate planning attorney will provide you with peace of mind, knowing you’ve done the right thing to protect your family and ensure your legacy.

Reference: Market Business News (Oct. 28, 2023) “Crafting Your Legacy: 7 Steps in the Estate Planning Process”

Do You Need a Trust Fund or a Will? Or Both?

Understanding the difference between a will and a trust fund, including their advantages and disadvantages, is important for effective estate planning. A trust fund is a legal entity holding and managing assets for another person or organization, explains a recent article from SmartAsset, “Trust Fund vs. Will: Which Is More Essential For Estate Planning?” A will is a legal document directing the distribution of assets after death. Both have a role to play in estate planning.

A trust fund is a legal arrangement where a trustee holds and manages assets for the benefit of another party, known as the beneficiary. There can be multiple beneficiaries, and organizations may be beneficiaries in addition to individuals. The trust can hold cash, investments, real estate, or other property types. The trust document details the rules and guidelines for the trustee to follow while managing the assets. This gives the grantor—the person who created the trust—a lot of control over how the assets are used during life or after their death.

Different types of trusts serve various purposes, depending on the grantor’s financial and family situation. A family with a developmentally disabled member may use a Special Needs Trust to ensure long-term security and care for their child. A wealthy family planning for estate tax liabilities may use an irrevocable trust to remove assets from their taxable estate.

A will is a legal document used to express an individual's wishes for the distribution of their property after death. The will is only effective after the testator, or the person creating the will, has died. Unlike a trust, nothing in the will is enforceable during the person’s lifetime. The will is overseen and executed through probate, a judicial procedure. Prepared correctly, a will can speed up access to beneficiaries and ensure that the decedent’s wishes are followed.

Creating a will includes naming an executor to carry out the terms of the will, identifying beneficiaries, and signing the document in the presence of witnesses. Wills are state-specific, meaning the laws of each state govern how a will needs to be prepared and the requirements for witnesses. A local estate planning attorney should be used ensure that the will aligns with state law.

When the will goes through probate, it becomes part of the public record, and anyone wishing to review it in its entirety may do so. For many individuals, the lack of privacy is a reason to place assets in trusts, which remain private.

Whether you use trusts, a will, or both, ensure that you’ve titled assets correctly, so beneficiaries can have access while minimizing estate taxes. An experienced estate planning attorney can help you to create an estate plan that is best suited for you and your family’s needs.

Reference: SmartAsset (Oct. 10, 2023) “Trust Fund vs. Will: Which Is More Essential For Estate Planning?”

What are Primary Testamentary Estate Planning Documents?

The primary estate planning document holds the decedent’s instructions for the estate. While estate plans have multiple documents, only one is intended to be the primary instructions. Here’s an example—someone using a trust as their primary planning instrument would still need to have a last will and testament to address any property not funded into the trust.

A recent article from The News-Enterprise, “Make a choice about primary testamentary planning documents,” explains that other means of transferring assets are not included as primary planning instruments. The document is needed, even if all property passes through joint ownership or beneficiary accounts.

Suppose that the co-owner of a joint account or beneficiary is deceased. In that case, the primary planning instrument is needed to determine who will receive the property, in what way and who is responsible for managing the distribution of estate assets.

Primary planning documents include testamentary documents used to determine estate planning after death. Some documents, like trusts, may be effective during life and after death, but others, like power of attorney, are limited to lifetime use only.

The three general categories of testamentary planning documents are irrevocable trusts, revocable trusts and wills.

When set up correctly and barring unusual situations or family disagreements, irrevocable trusts are typically the easiest to use after death, although they can be complex to set up. Irrevocable trusts are the strictest form of planning instruments because of the strong asset protection they provide.

Depending upon provisions within the irrevocable trust, it may be possible for the grantor to change beneficiaries, or the terms of the trust may be set in stone upon execution. These same provisions will determine the tax consequences, if any, after death.

Irrevocable trusts are generally the fastest to resolve after death because of their creditor protection. The trustee does not have to wait for creditor claims and can almost immediately begin taking steps to liquidate or transfer assets to beneficiaries and file any taxes.

Revocable trusts are usually the next fastest category. However, unlike irrevocable trusts, they don’t offer creditor protection. Trustees must either open a probate case to collect creditor claims and bar future claims, or they should gather all bills and pay them before distributing the entire estate.

The third and most common primary planning instrument is a will. Unlike trusts, wills are not independent legal entities, so they do not directly own property but direct where property will go after death. They must go through probate court, and the court action usually must be open for at least six months, although this may vary by jurisdiction.

An estate planning attorney can help you more fully understand the different parts of an estate plan and determine which ones best suit your own estate planning goals.

Reference: The News-Enterprise (Oct. 7, 2023) “Make a choice about primary testamentary planning documents”

How Does an Inheritance Trust Work?

Don’t let the term “inheritance trust” intimidate you. It’s basically a way to safeguard assets, while managing their distribution efficiently. Trusts are also used to provide potential tax benefits, which can add significantly to a family’s financial security, according to a recent article from yahoo! finance, “How to Keep Money in the Family With an Inheritance Trust.” An estate planning attorney can guide you in establishing an inheritance trust, securing assets and protecting your family’s financial health.

An inheritance or a family or testamentary trust is a legal arrangement to manage and protect assets for the benefit of heirs or beneficiaries after the grantor’s passing. Its key function is to ensure an efficient and controlled distribution of assets. These can be financial, real estate, or personal property of value.

Many types of trusts offer different levels of control, tax benefits and asset protection. For instance, a revocable trust lets the person who set up the trust or the trustee maintain control over the assets while living and make changes as they want to the terms of the trust.

In an irrevocable trust, the terms can’t be changed easily, which offers greater protection against creditors or legal disputes.

There’s also something called a “Generation Skipping Trust,” designed to transfer wealth directly to outright beneficiaries, typically grandchildren, to avoid repeated estate taxes on a family’s assets.

The inheritance trust provides a strong shield of protection for assets. By placing assets in a trust, they are safeguarded from creditors, lawsuits and even certain tax liabilities. This layer of protection ensures that assets go directly to beneficiaries without the risk of erosion by unexpected challenges.

Another reason for a trust—control of the distribution of assets. You establish the specific conditions and timelines for when and how assets are to be passed on to heirs. You may want to wait until they have reached a certain age, protect against reckless spending, or have the trust used solely for the long-term care of a loved one.

Inheritance trusts are also used to minimize estate taxes. Working with an experienced estate planning attorney, you can plan for assets within the trust to potentially reduce the tax burden on your estate, allowing heirs to inherit more of the family’s earned wealth.

Trusts provide privacy. Unlike wills, trusts don’t become public documents. Trusts bypass the probate process, which can become a protracted and expensive public court proceeding. By placing assets in trust, the transfer of wealth is prompt and confidential.

For blended families or those with complex dynamics, inheritance trusts can help prevent disputes and ensure that assets are distributed according to your specific directions. For instance, if you want to leave assets to your children but protect them from their spouses in case of divorce, a trust can be created to address this issue. You might also wish your wealth to be distributed directly to grandchildren, not a son or daughter-in-law.

Start by working with an experienced estate planning attorney to create a comprehensive estate plan. This includes drafting a will, establishing trusts and assigning beneficiaries. Communicate with heirs, so they understand your intentions and expectations. Regularly review and update your plan every three to five years to be sure that it remains current and aligned with your goals.

Reference: yahoo! finance (Oct. 3, 2023) “How to Keep Money in the Family With an Inheritance Trust”

Estate Planning Myths Debunked

Estate planning is intimidating to people who think it’s only for the wealthy or don’t want to consider their own mortality. However, not addressing estate planning can cause families to suffer everything from the expense of estate battles to fractured families. A recent article from Forbes, “10 Estate Planning Myths You Shouldn’t Believe,” addresses the most common myths.

Estate planning is for the wealthy. Many articles focus on strategies to avoid paying the federal estate tax, which is only an issue if your estate is worth more than $12.92 million. However, estate planning is also about three things: planning for your finances to be taken care of if you’re incapacitated, making sure your health care decisions are carried out the way you want even if you aren’t able to communicate your wishes and making sure that your children and other heirs are cared for when you die. Estate planning is for anyone who may become seriously ill or die, which means everyone.

You’re too young for estate planning. The news is filled with stories of celebrities who die unexpectedly before creating a will. We never know when we may need estate planning.

If you die without a will, the state will get your assets. If you die without a will, each state applies intestacy laws to determine who inherits your property. You or your family may not like how the law distributes property. However, there won’t be anything they can do about it. Even if you don’t care about your property, if you have minor children, you need a will to determine who would be the guardian of your children if both parents die. Otherwise, the court will decide for you.

You don’t have to worry about probate if you have a will. This is wishful thinking, as probate can be long and expensive, especially if more than one court decides about your assets. While a will gives the court guidance on your wishes, it doesn’t avoid probate entirely. A will becomes public information that can be easily contested in court. If you own property in more than one state, each property may have to go through probate in its respective state.

You can draft these documents without an attorney. Yes, there are many forms online, and your hospital may have forms available for Health Care Proxy. However, you may be creating more problems than you solve by doing so. There are nuances in health care decisions not addressed by standard forms. Wills and trusts need the guidance of an experienced estate planning attorney to ensure that the documents align with state laws and accurately reflect your wishes.

No one needs an estate planning lawyer. There may be complicating issues in your life you are unaware of. An experienced estate planning attorney needs to review any estate planning documents to prevent problems for you and your family. Estate planning practitioners are accustomed to families coming for help after a do-it-yourself estate plan has gone wrong.

To avoid probate, you need a trust. Jointly owned property generally passes to the other owner without going through probate, as do assets with beneficiary designations, including life insurance, annuities and retirement plans, like 401(k)s and IRAs. Each state has its own rules for titling property to facilitate the transfer when a joint owner dies.

Trusts avoid estate taxes. If you’re worried about having a taxable estate, talk with an experienced estate planning attorney. Certain trusts can be part of a strategy to reduce and sometimes eliminate estate taxes.

You don’t have to worry about the estate tax. You may not need to worry about the federal estate tax, but some states have their own estate tax with far lower thresholds. Add in the value of your home, life insurance proceeds and retirement accounts. Then, talk with an estate planning attorney.

You’ll have to pay a gift tax if you give someone more than $17,000 annually. If you give an individual more than $17,000 in a single year, you reduce your federal lifetime gift and estate tax exclusion amount. You must start paying a gift tax only after you use up the entire exclusion. You still have to file a gift tax return and keep track of how much you’ve reduced your lifetime exclusion amount, so to avoid the hassle, you may want to stay within the $17,000 annual amount.

There are many misconceptions about estate planning, all of which can be cleared up with an appointment with an experienced estate planning attorney. This is one part of your life where a skilled professional can make a big difference for you and your family.

Reference: Forbes (Oct. 2, 2023) “10 Estate Planning Myths You Shouldn’t Believe”

Do I Have to Pay Taxes on Trusts?

Dealing with trusts and the tax implications for those who create them, and their beneficiaries can seem confusing. Nevertheless, with the help of an experienced estate planning attorney, those issues can be managed, according to a recent article, “5 Taxes You Might Owe If You Have a Trust,” from Yahoo! Finance.

Trusts are legal entities used for various estate planning and financial purposes. There are three key roles: the grantor, or the person establishing the trust; the trustee, who manages the trust assets; and the beneficiary, the person or persons who receive assets from the trust.

Trusts work by transferring ownership of assets from the grantor to the trust. By separating the legal ownership, specific instructions in the trust documents can be created regarding using and distributing the assets. The trustee’s job is to manage and administer the trust according to the grantor’s wishes, as written in the trust document.

Trusts offer control, privacy, and tax benefits, so they are widely used in estate planning.

There are two primary types of trusts: revocable and irrevocable. Revocable trusts are adjustable trusts that allow the grantor to make changes or even cancel during their lifetime. They avoid the probate process, which can be time-consuming and expensive, especially if assets are owned in different states. However, the revocable trust doesn’t offer as many tax benefits as the irrevocable trust.

Think of irrevocable trusts as a “locked box.” Once assets are placed in the trust, the trust can’t be changed or ended without the beneficiary’s consent. In some states, irrevocable trusts can be “decanted” or moved into another irrevocable trust, requiring the help of an experienced estate planning attorney. However, irrevocable trusts are not treated as part of the grantor’s taxable estate, making them an ideal strategy for reducing tax liabilities and shielding assets from creditors.

Trust distributions are the assets or income passed from the trust to beneficiaries. They can be in the form of cash, stocks, real estate, or other assets. For instance, if a trust owns a rental property, the monthly rental property generated by the property could be distributed to the trust’s beneficiaries.

Do beneficiaries pay taxes on distributions from the principal of the trust? Not generally. If you receive a distribution from the trust principal, it is not usually considered taxable. However, the trust itself may owe taxes on any income it generates, including interest, dividends, or rental income. The trust typically pays these before distributions are made to beneficiaries.

It gets a little complicated when beneficiaries receive distributions of trust income. In many cases, the income is taxable to the beneficiaries at their own individual tax rates. This can create a sizable tax wallop if you are in your peak earnings years.

There are ways to plan to minimize the tax consequences strategically. One approach is to structure trust distribution with a Charitable Remainder Trust, where income goes to a charity for a set number of years, and the remaining assets are then distributed to beneficiaries. An estate planning attorney will be a valuable resource, so grantors can achieve their goals and beneficiaries aren’t subject to overly burdensome taxes.

Reference: Yahoo! Finance (Sep. 27, 2023) “5 Taxes You Might Owe If You Have a Trust”

Have Estate Plan Checkup before Heading to Warmer Winter

“Snowbirds” spend their winters somewhere warm, which usually means they own assets in more than one state. For them, special attention is needed to certain decisions in their estate planning documents, including Wills, Trusts, Power of Attorney, and Advanced Medical Directives, according to a recent article from Coeur d’Alene/Post Falls Press, “Headed South for the winter? Your estate plan may need some attention.”

If you live in multiple states at different times of the year or own assets like real estate in more than one state, your estate planning documents and overall estate planning strategy need to take this into account. Many people aren’t aware of the need for planning to avoid having their estate go through probate in every state where they own property.

Even if you don’t mind the idea of your estate being administered through probate, a formal court-controlled process, you probably don’t want your loved ones to go through this process in multiple states, which takes time and can be costly.

Another issue for Snowbirds concerns the Power of Attorney documents. Which state these are prepared in and which state’s laws govern the use of these POA documents is more complex than most people expect. There’s no one-size-fits-all answer, so having this discussion with your estate planning attorney before you travel for the season is critical. Don’t assume you have it all set up and can efficiently deal with it once you arrive at your winter home. The law is a little more complicated than that.

Any time you leave your home state for an extended period, you should bring copies of important legal documents. For most people, this includes your Financial Power of Attorney, Health Care Power of Attorney, Last Will and Testament, Living Trust, or any other Trusts you may have, Living Will, and a Physician’s Orders for Scope of Treatment Form. This last document is known by different names in different jurisdictions, which is another reason to review these documents with your estate planning attorney.

Will copies of these documents be accepted? This is another question to ask your estate planning attorney. In some cases, a copy will be sufficient for any purpose, while in others, the originals will be needed, regardless of how far away you are from them.

Estate planning documents should be in a safe and secure location, like a fireproof safe or your estate planning attorney’s office. If you are traveling, a set of copies should always travel with you.

Before you head to the airport or pack up for your winter sojourn, call your estate planning attorney to be sure your estate planning documents are all in order. Hopefully, you won’t need any of them, but if you do, you’ll be glad to be prepared.

Reference: Coeur d’Alene/Post Falls Press (Sep. 13, 2023) “Headed South for the winter? Your estate plan may need some attention”

How can You Make Changes to Estate Plan?

It’s rare for a person to put their estate plan together once and never change it. A recent article from Coeur d’Alene/Post Falls Press asks a good question: “Can you amend your estate plan by writing the changes on your existing documents?”

Effectively and legally changing your will or trust so the changes are enforced per your wishes is best done with an experienced estate planning attorney. People often hand-write edits and changes to the original documents, thinking this is the simple way to amend their wishes. Most attorneys have tales of family members coming into their offices with a handwritten addendum added to the front or back of a will or trust document, which has been written and attached after the document has been signed and executed.

These approaches are problematic, as they are never done in a way that meets the requirements for a legally valid amendment to a will or trust.

A legally enforceable change to a will is accomplished in one of two ways. One is to replace the entire document with a new will document, which should include explicit language stating all prior wills are revoked and replaced, or by adding a new document called a codicil to the old will document. The codicil must make clear exactly what part of the old document is being changed, and typically, it reaffirms the unchanged terms of the old will.

Changes to a trust are accomplished in most states in one of two ways. The first is by replacing the prior trust document with an entirely new trust document, although the name and creation date of the trust must remain the same, and it is explicitly not a revocation of the trust. This is called a trust restatement. The second way to change a trust is using a trust amendment, similar to adding a codicil of a will. A Trust Amendment is a new document added to the existing trust document. It states which part or parts of the original trust document are being changed.

Every state has specific technical requirements for a will codicil or trust amendment/restatement, which must be followed to enforce the changes legally. Just writing on the documents will never meet those requirements and will almost always lead to major disputes among family members and other interested parties.

Handwritten or holographic wills are legal in some states. However, those states have very specific requirements, and wills still need to go through probate. There are many ways to create major problems trying to use this method and only a few ways to do it right.

The good news is an experienced estate planning attorney can help with any modifications, large or small, to make your estate planning documents accurately reflect your wishes.

Reference: Coeur d’Alene/Post Falls Press (Aug. 16, 2023) “Can you amend your estate plan by writing the changes on your existing documents?”