Posts Tagged ‘revocable living trust’

Revocable living trust and pour over will. Why do I need both?

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The Question. Why do we have a pour over will when we already have a revocable living trust in our estate plan? Isn’t that repetitive?

Let’s try to answer this age old question.

Quick clarification. Your Trust is the Boss. Your trust is your featured estate planning tool for moving your assets to the next generation. Your Pour over will (Called pour over because it names the trust as beneficiary) should be a smaller player in the whole scheme of things, but it is a necessary role player.

For those folks with one, after you develop your trust document …you add your assets into your trust. This is accomplished by changing the title of the property into the name of the trust or by setting the trust in as the beneficiary of a certain asset. (IE: life insurance). Then, when you die, the assets stay in the trust avoiding the need for a probate of the assets it holds on your behalf.

Here are a three reasons why a pour over will is still necessary….

  1. Guardians. A pour over will can do an important things that a living trust document cannot do. If you have minor children and want to name a guardian for them — someone to raise them if you and the other parent die before they reach adulthood — you must use a will to do that.

 

  1. Human Error. Lets face it. We all make mistakes. One big reason to write a pour over will is that a living trust covers only property you have transferred, in writing, to the trust. Almost no one transfers everything to a trust. And even if you do scrupulously try to transfer everything, there’s always the chance that you’ll acquire property shortly before you die and not have time to put it into your trust. If you don’t think to (or aren’t able to) transfer ownership of an asset to your living trust, it won’t pass under the terms of the trust document. Anything not transferred into your trust prior to your death could instead be subject to probate and distributed under your pour over will. In short, a pour over will acts as a safety net and sends a “forgotten asset” back into your trust.

 

  1. Satisfying the rules for paying a decedent’s last bills. The law says that an estate pays the last bills. The pour over will contains language that passes that statutory obligation from the Personal Representative of an empty estate to the trustee under the trust. This language, coupled with special language accepting the responsibility under the trust, make the bill paying process seamless.

 

Of course, there is more to all of this. The key for anyone with a trust is to seek counsel. Get your questions answered. Also know that a trust is a beautiful thing, but it never acts alone. It always needs the reliable sidekick called a pour over will in order to accomplish its mission.


Choosing an Attorney for Your Estate Planning

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A recent Caring.com article by Susan Kostal, Senior Editor of the Legal channel, tells us who to look for when searching for a Trust, Wills, and Estates Attorney.

The article is a great read for people wondering how to find a qualified Trust and Estates Attorney. Most of the advice in the article is good quality common sense stuff.

Ask Your Friends

According to the article: “If you’re unsure how to find the right lawyer, start by asking friends for recommendations. Who have they used — and liked? You can also ask other lawyers who they would use.”

Look the Attorney in the Eye

Attorney Philip Feldman, head of the trusts and estates practice at Coblentz Patch Duffy & Bass in San Francisco is quoted in the article.  Feldman states that “Clients need to get a sense of who their lawyer is going to be. It’s important to look someone in the eye. This should be one of the most personal professional relationships you’ll have.”

Cost Expectations

Even more excellent advice from Ms. Kostal regarding fees:  “An average flat fee for a basic revocable trust plan may run from $2,500 to $10,000, depending on the complexity of the trust and the size of the estate. Flat fees, however, aren’t necessarily a better deal than hourly rates. And the most expensive lawyer isn’t always the best.

Ask at the outset for the lawyer’s rate. It’s better to know upfront, so that neither of you wastes the other’s time if there’s a huge discrepancy between what an attorney charges and what you’re willing to pay. Generally, the more assets a person has, the more complicated his estate is likely to be, and the more it will cost to put together a thoughtful estate plan.”

We think the advice provided by the article is right on point and recommend that you take a few minutes to read it.

For more information on Trusts: Articles on Trusts and Estate Planning.

 


News Flash: Few People Actually Plan for Death or Incapacity

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Estate Planning Note:

AARP shared an article that reminds us how few of our neighbors have done Estate Planning.

See: http://www.aarp.org/…/info-2017/half-of-adults-do-not-have-…

The failure to plan for your death or incapacity can be painful for the family members left behind. This really rings true if you have underage kids or an asset like a family farm or other type of business that needs to be thoughtfully passed on to the next generation. The family assets can sometimes be tied up for years with fees and cost racking up.

With this in mind, this just might be the year to finally get this particular project done.

Have a great day.


Why did you put Latin in my Will and Trust?

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The legal phrases: “by representation”, “per stirpes”, “per capita”, “per capita at each generation” and “survivorship” are found in both wills and trusts. While they may appear to be gibberish, the phrases have meaning in the probate and trust world.  They each provide for a distinct rule used to distribute assets after a person dies.

It is very easy to become confused when one comes across this kind of mumbo jumbo. The phrases are a far cry from plain English. They are definitely “old-school”.  The reason for using this old-school terminology is history. The phrases are based on old English law which was developed centuries ago and then handed down through the ages.

As one would suspect, each legal phrase produces a different result when used to determine the people receiving your assets when you die. “By representation”, “per stirpes” and “per capita” are there to help determine how assets flow to your descendants. “Survivorship” is a short stop/ everything to the one in a named group who survives the decedent. I like to call that the “king of the raft” approach. This was game I played in my youth where we tried to be the last one standing on a raft in the lake.

This  photo  shows three simplified examples that compare three commonly seen approaches (Per stirpes, Per Capita, and Survivorship):

The “per stirpes” model is by far the most popular choice for the clients in our practice. The families we deal with seem to like the branch approach to distribution, where a child’s share works its way down to survivors that are the heirs of that child if he or she dies before they do. “Per capita” is less popular, but can be used if the grandchildren are thought to be on par with the surviving children. The “survivorship” model is used most often with older clients who have already spent down a great deal of their assets and want to leave smaller amounts to the surviving children immediately below them rather than spread the minimal assets among an extensive family tree of heirs.

The State of Wisconsin has a statute that covers this topic too. Wisconsin Statue Section 854.04: “Representation; per stirpes; modified per stirpes; per capita at each generation; per capita”, does a nice job of explaining the differences as well. It goes as far as to delineate between a per stirpes and a modified per stirpes approach. It also equates the phrase “by representation” to “per stirpes”. Finally, it also lays out “Per capita at each generation” and “Per capita”. Section 854.04, in its final paragraph, says: If the transfer is made under a governing instrument (Will or trust, normally) and the person who executed the governing instrument had an intent contrary to any provision in this section, then that provision is not applicable to the transfer. In short, your will or trust can override the statute. This is often the way to go. A will or trust can be drafted to modify the general rule so that the distribution plan can be modified to fit your family’s unique circumstances.

Use care to consider what happens when the beneficiary dies before the person whose estate is being divided. Most folks want the children of the predeceased beneficiary to take the share which their parent would have taken had he or she survived the decedent. If the plan for distribution isn’t spelled out that way, the assets could be divided equally among the surviving heirs and the children of a deceased heir might not receive the deceased heir’s share.

Be sure to get solid advice on this and other important planning topics from a qualified expert. Do not hesitate to ask about the options available to you when you do sit down to plan your estate.  That way you can be sure that your hard-earned assets will go to your loved ones in the way that you intend.


Trusts: How Do I Ascertain the Ascertainable?

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We draft revocable living trusts on a regular basis here at Shannon Law. The trust planning and development process normally involves three fairly lengthy meetings. We prefer to spend this much time on our estate planning projects because we feel that it is critical that clients have an ample opportunity to ask questions during the meetings and to make sure the final trust plan meets the needs of our clients.

We do tend to receive some questions on a regular basis during the meetings. One consistent question we receive when covering trusts concerns certain very common distribution language found in nearly every revocable living trust on the planet. The question is normally posed like this: What is this line saying that the trust will pay money out to beneficiaries for “support, maintenance, education, and health” really mean? Let us make an attempt to cover that.

The trust laws state that standards of distribution set forth in a trust must be “ascertainable.” In other words, the standards must be clearly measurable. Some of the commonly accepted “ascertainable” standards include support, maintenance, education, and health. Other “ascertainable” standards may include comfort, best interest, and emergency.

Here is a brief explanation of how some of these standards may be interpreted by a trustee and the courts:

Support and Maintenance. Support and maintenance incorporate more than bare necessities. These terms include a beneficiary’s normal living expenses, such as housing, clothing, food, and medical care, according to the beneficiary’s customary standard of living.

Best Interests. Under the less restrictive standard of best interests, the trustee may make distributions allowing a beneficiary to enjoy a high standard of living, covering such niceties as extensive travel, a luxury automobile, or expensive jewelry.

Education. Typically, the term education includes a college or tech school education, but may not necessarily include graduate-level or a professional education unless specified. A client wishing to provide for a grandchild’s pursuit of a medical degree, for example, should communicate those desires when the trust agreement is being drafted. Considerations like travel expenses to and from school and a reasonable allowance for related expenses also should be clarified in the trust document, if so desired.

Health. The term health includes all routine medical care, medication, surgery, and hospitalization, as well as nursing care and mental health expenses. This term is less restrictive than “medical care,” which may not cover expenses for treatment of ailments not universally accepted as medical problems, such as addictions or psychological problems.

Emergency. The term emergency may be determined by a court to be an ascertainable standard pertaining to unusual and unforeseen expenses, but may not be deemed an ascertainable standard by the IRS for tax purposes. To minimize confusion, the client may wish to specify the types of emergencies for which distributions are authorized, such as financial emergencies or those related only to health or maintenance.

While many factors determine the level of access beneficiaries will have to trust assets, understanding the difference between, and nuances of, the “ascertainable” standards named above will go a long way toward helping you communicate your wishes. Ultimately, choosing the provisions for distributions is a balancing act, with tax consequences on one side of the scale and the wishes of the grantor on the other side.

The above discussion is brief and does not do proper homage to the complexity of the standards mentioned. We encourage you, when working on your trust, to spend time discussing what this language means and make sure it meets your objectives. Seeking the counsel of a qualified estate planning attorney is the next step in ensuring beneficiaries are cared for according to your wishes.


Revocable Living Trusts: Are We Funded Yet?

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The Review

We recently had a new client present us with her revocable living trust so that we could review it for her. We took a good look.

The trust had a beautiful binder cover on it. It was drafted by a reputable attorney. It was carefully worded. It contained special language in it so that the trustee could take care of her if she became disabled. It contained language delaying large payments to minors until, one would hope, they reach an age when they are able to grasp money management. It also had a provision in it that would pay a residual distribution to a nice local non-profit group.

The trust looked great so far.

The Surprise

We then asked our client a critical two-part question that is a standard part of our trust review process.  What assets had she put into the trust so far and how is the trust to be funded upon her death?  She could not recall.

We then took a look at a few of her assets to see whether she changed titles and beneficiary designations into the name of the trust.

  • Life insurance? No. Still had her deceased spouse named as beneficiary.
  • Bank accounts? No. Still in her name, no trust as the owner or beneficiary.
  • Her vintage car? No.
  • Her farmette? Not a chance. It was still in her name.

We quickly realized that a very important step in trust planning was not accomplished. She had no assets in her trust.  No assets were set up to go into her trust outside of the probate process.  In short: She failed to properly fund the well-crafted trust she paid for.

Why It Matters

A revocable living trust can only control the assets that are put into it. Think of a revocable living trust as a legal container. The container is filled and then, at certain points along a timeline, its contents (some or all) can be distributed.

How Do I Fund These Things?

Trusts can be filled in various ways and at various points in time after they are drafted for a client. One way to accomplish this funding is through non-probate methods. Some examples of non-probate funding include taking actions, such as:

  • Deeding your house from you to the trust.
  • Transferring other assets outright to the trust using a bill of sale.
  • Placing the trust in as your beneficiary on accounts, policies and contracts.

These transfers all occur without the need for probate. The trust then administers the assets under its terms outside of probate. In short, the trust can help to avoid the delays and expenses of the probate process.

Finally, as a safety valve, the funding can occur after death and through probate via a last will that names the trust as beneficiary. This kind of will is commonly called a pour-over will. This is a probate method of funding. While it does cause the asset to make their way into the trust, it is only after the assets (if above $50,000 in Wisconsin) are probated.

The Fix

In our case, our client had a good trust prepared and a pour-over will. The trust was not filled with the assets in a manner that avoids probate. It appeared to be destined to remain empty until after a probate filled it. If the goal of her living trust is to avoid probate at death and court intervention at incapacity, then she should fund it now, while she is able to do so. If she fails to do so, the wording in the trust and the trust itself could be irrelevant when she becomes disabled or dies. If she relies on the pour-over will for the asset transfer, the money may not go to her minor grandchildren in the way intended under the trust, but instead to lawyers, court fees and other places that were unintended. The charity could have been out of luck if the residuary money was spent in the probate process.

If you have signed your living trust document but haven’t changed titles and beneficiary designations, you should get to it. Luckily, we caught the issue in our case. We made sure our client’s trust was properly funded.

Be sure and ask your attorney how to fund your revocable living trust. There is no doubt that you and your heirs will be glad you finished what was started.