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Avoiding-Probate

Avoiding Probate with a Trust

Avoiding Probate with a Trust. Privacy is just one of the benefits of having a trust created as part of an estate plan. That’s because assets that are placed in a trust are no longer in the person’s name, and as a result do not need to go through probate when the person dies. An article from The Daily Sentinel asks, “When is a trust worth the cost and effort?” The article explains why a trust can be so advantageous, even when the assets are not necessarily large.

Let’s say a person owns a piece of property. They can put the property in a trust, by signing a deed that will transfer the title to the trust. That property is now owned by the trust and can only be transferred when the trustee signs a deed. Because the trust is the owner of the property, there’s no need to involve probate or the court when the original owner dies.

Establishing a trust is even more useful for those who own property in more than one state. If you own property in a state, the property must go through probate to be distributed from your estate to another person’s ownership. Therefore, if you own property in three states, your executor will need to manage three probate processes.

Privacy is often a problem when estates pass from one generation to the next. In most states, heirs and family members must be notified that you have died and that your estate is being probated. The probate process often requires the executor, or personal representative, to create a list of assets that are shared with certain family members. When the will is probated, that information is available to the public through the courts.

Family members who were not included in the will but were close enough kin to be notified of your death and your assets, may not respond well to being left out. This can create problems for the executor and heirs.

Having greater control over how and when assets are distributed is another benefit of using a trust rather than a will. Not all young adults are prepared or capable of managing large inheritances. With a trust, the inheritance can be distributed in portions: a third at age 28, a third at age 38, and a fourth at age 45, for instance. This kind of control is not always necessary, but when it is, a trust can provide the comfort of knowing that your children are less likely to be irresponsible about an inheritance.

There are other circumstances when a trust is necessary. If the family includes a member who has special needs and is receiving government benefits, an inheritance could make them ineligible for those benefits. In this circumstance, a special needs trust is created to serve their needs.

Another type of trust growing in popularity is the pet trust. Check with a local estate planning lawyer to learn if your state allows this type of trust. A pet trust allows you to set aside a certain amount of money that is only to be used for your pet’s care, by a person you name to be their caretaker. In many instances, any money left in the trust after the pet passes can be donated to a charitable organization, usually one that cares for animals.

Finally, trusts can be drafted that are permanent, or “irrevocable,” or that can be changed by the person who wants to create it, a “revocable” trust. Once an irrevocable trust is created, it cannot be changed. Trusts should be created with the help of an experienced trusts and estate planning attorney, who will know how to create the trust and what type of trust will best suit your needs. this will help avoiding probate without a trust.

Reference: The Daily Sentinel (Jan. 23, 2020) “When is a trust worth the cost and effort?”

For more information, go to:  Probate in Florida

  Probate- Florida Courts

And read one of our previous blogs at:  How does a Probate Proceeding Work?

 

Creating an Estate Plan Should Be a New Year’s Resolution

Many people think of estate planning as a way to save on taxes as their hard-earned assets are passed from one generation to the next. That’s certainly a part of estate planning, but there are many other aspects of estate planning that focus on protecting the person and their family. They are detailed in the article “An estate planning checklist should be a top New Year’s resolution” from the Houston Business Journal. Your’e never too young or too old to plan for your future!

Now is a good time to start a New Year’s resolution off right, by putting an estate plan in place. For those who have an estate plan, it’s a good time to revisit living documents that need to be updated to reflect changes in a person’s life, family dynamics, changes in exemption limits and the recently passed SECURE Act.

Here are the top four items to make sure that your estate plan is ready for 2020.

Take a look at your financial situation. No matter how modest or massive your assets, just about everyone has an estate that’s worth protecting. Most people have something they want to pass along to their children or grandchildren. An estate plan simply formalizes these wishes and minimizes the chances that the family will fight over how assets are distributed.

Many people meet with their team at least once a year to get a clear picture of their financial status. This allows the estate planning attorney to review any changes that may impact how the estate is structured, including tailoring gifting strategies to reduce the tax burden.

Put your wishes on paper, and your affairs in order. Without a will, there’s no way for anyone to know what your wishes are and how you’d want your assets passed to others. A will spells out who gets what and avoids having the estate administered by state laws. A living will is also needed to establish medical power of attorney and state wishes about life support and what medical care you may or may not want to receive. That can include everything from blood transfusions, palliative care, diagnostic tests or the use of a respirator. A financial POA is needed to give someone the legal authority to make decisions on your behalf, if you become incapacitated.

With these estate planning documents, you relieve family members of the burden of guessing what you might have wanted, especially during emergency situations when emotions are running high.

Asset estate and gift tax exemptions for 2020. The exemption for 2020 has increased to $1.58 million. This eliminates federal estate taxes on amounts under that limit that are gifted to family members during a person’s lifetime or left to them upon a person’s death. This is a significant increase from prior years. In 1997, the exemption was $600,000. It rose to $5.49 million in 2018, and as a result of the Tax Cuts and Jobs Act, was $11.4 million in 2019.

Understand the “claw back.” The exemption amount will increase every year until 2025. There was some uncertainty about what would happen if someone uses their $11.58 million exemption in 2020 and then dies in 2026, when the number could revert back to the $5 million range. Would the IRS say that the person used more of their exemption than they were entitled to? The agency recently issued final regulations that will protect individuals who take advantage of these exemption limits through 2025. Gifts will be sheltered by the increasing exemption limits when the gifts are actually made.

Continuing changes in the tax laws are examples of why an annual review of an estate plan is necessary. The one thing we can all be certain of is change, and keeping estate plans up to date makes sure that the family benefits from all available changes to the law.

Reference: Houston Business Journal (Jan. 1, 2020) “An estate planning checklist should be a top New Year’s resolution”

Read about Estate Planning and New Year’s Resolutions

 5 Estate Planning Documents Every Family Should Have

You can also check out one of our previous blogs: Am I Too Young to Start Thinking About Estate planning?

 

 

Life Insurance Is a Good Estate Planning Tool but Needs to Be Done Carefully

With proper planning and the help of a seasoned estate planning or probate attorney, insurance money can pay expenses, like estate tax and avoid the need to liquidate other assets, says FEDweek’s recent article entitled “Errors to Avoid in Using Life Insurance for Estate Planning.”

As an example, let’s say that Reggie passes away and leaves a large estate to his daughter Veronica. There’s a big estate tax that’s due. However, the majority of Reggie’s assets are tied up in real estate and an IRA. In light of this, Veronica might not want to proceed directly into a forced sale of the real estate. However, if she taps the inherited IRA to raise cash, she’ll be required to pay income tax on the withdrawal and forfeit a very worthwhile opportunity for extended tax deferral.

If Reggie plans ahead, he could purchase insurance on his own life. The proceeds could be used to pay the estate tax bill. As a result, Veronica can retain the real estate, while taking only minimum required distributions (RMDs) from the inherited IRA.

If the insurance policy is owned by Veronica or by a trust, the proceeds probably won’t be included in Reggie’s estate and won’t increase her estate taxes.

Along these same lines, here are some common life insurance errors to avoid:

Designating your estate as beneficiary. When you make this move, it puts the insurance policy proceeds into your estate, exposing it to estate tax and your creditors. Your executor will also have to deal with more paperwork, if your estate is the beneficiary. Instead, name the appropriate people or charities.

Designating just a single beneficiary. You should name at least two “backup” beneficiaries. This will decrease any confusion, if the primary beneficiary predeceases you.

Throwing the copy of your life insurance policy in the “file and forget” drawer. You should review your policies at least once every few years. If the beneficiary is an ex-spouse or someone who’s passed away, make the appropriate changes and get a confirmation from the insurance company in writing.

Failing to carry adequate insurance. If you have a youngster, it undoubtedly requires hundreds of thousands of dollars to pay all her expenses, such as college bills, in the event of your untimely death.

Talk to a qualified and experienced estate planning attorney about the particulars of your situation.

Reference: FEDweek (Dec. 12, 2019) “Errors to Avoid in Using Life Insurance for Estate Planning”

How to Avoid Taxation on Life Insurance Proceeds

Read one of our previous blogs about How Life Insurance can Help your Estate Plan

 

revocable trust

When Do I Need a Revocable Trust?

A will is a legal document that states how your property should be distributed when you die.  It also names guardians for any minor children. Whatever the size of your estate, without a will, there’s no guarantee that your assets will be distributed, according to your wishes. For those with substantial assets, more complicated situations, or concerns of diminished capacity in later years, a revocable trust might also be considered, in addition to a will.

Forbes’ recent article, “Revocable Trusts And Why Should You Consider One,” explains that a revocable trust, also called a “living trust” or an inter vivos trust, is created during your lifetime. On the other hand, a “testamentary trust” is created at death through a will. A revocable trust, like a will, details dispositive provisions upon death, successor and co-trustees, and other instructions. Upon the grantor’s passing, the revocable trust functions in a similar manner to a will.

A revocable trust is a flexible vehicle with few restrictions during your lifetime.  you usually designate yourself as the trustee and maintain control over the trust’s assets. You can move assets into or out of the trust, by retitling them. This movement has no income or estate tax consequences, nor is it a problem to distribute income or assets from the trust to fund your current lifestyle.

A living trust has some advantages over having your entire estate flow through probate. The primary advantages of having the majority of your assets avoid probate, is the ease of asset transfer and the lower costs. Another advantage of a trust is privacy, because a probated will is a public document that anyone can view.

Even with a revocable trust, you still need a will. A “pour over will” controls the decedent’s assets that haven’t been titled to the revocable trust, intentionally or by oversight. These assets may include personal property. This pour-over will generally names the revocable trust—which at death becomes irrevocable—as the beneficiary.

Another reason for creating a revocable trust is the possibility of future diminished legal capacity, when it may be better for another person, like a spouse or child, to help with your financial affairs. A co-trustee can pay bills and otherwise control the trust’s assets. This can also give you financial protection, by obviating the need for a court-ordered guardianship.

Talk to an experienced estate planning attorney about the best options for your situation to protect your estate and provide the peace of mind that your family will receive what you intended for them to inherit, with the least possible costs and stress.

Reference: Forbes (March 11, 2019) “Revocable Trusts And Why Should You Consider One”

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