Category: The Wealth Advisor

Along with warmer weather and lazy days spent at a pool, summertime also often includes a family gathering, such as a Fourth of July barbecue, a family vacation, a reunion, or time spent at a family cabin or lake house. Whatever the form, in our always-on-the-go society, getting the whole family together is a rare occurrence. Consider taking advantage of this time together to discuss your estate and financial wishes with your family by including a family meeting in your family gathering.

What Should You Talk About in a Family Meeting?

Although there is no right or wrong answer to this question, a family meeting could cover the following topics:

• Who you have appointed as your trusted decision makers. You can let your family members know who you have selected to be your executor or personal representative, successor trustee, and agents under financial and medical power of attorneys. You may also consider explaining the reasons why you have chosen these people to act in these roles.
  
• What your end-of-life wishes are. People sometimes select a healthcare agent to act on their behalf but then never discuss with that agent their end-of-life wishes. This puts the agent in the uncomfortable position of trying to guess what the person would have wanted or being presented for the first time with the person’s wishes in an advance directive or living will in a moment of crisis. Expressing your end-of-life wishes in a family meeting helps ensure that everyone is on the same page when the time comes for decisions to be made on your behalf.
  
• What specific tangible personal property family members want. A family meeting can be a great opportunity for family members to express their hope of receiving certain items of tangible personal property, such as furniture, jewelry, art, and vehicles. We are often surprised to learn the items that family members have emotional attachments to. For example, your daughter may wish to have the platter you always used to serve the Thanksgiving turkey. The family meeting is a great forum to express these wishes.
  
• Who will receive certain tangible personal property and why. Along with family members expressing their wishes to receive certain items of tangible personal property, a family meeting is the perfect opportunity for you to express who you wish to receive certain pieces of tangible personal property and why. Particularly if multiple people want the same item (such as Grandma’s wedding ring), a family meeting can be a great time to discuss who should receive the item and why. Family members are more likely to respect your wishes if you make them known, and future disputes can be avoided. You can even pass on some of the items at the family gathering so you can witness the joy that the gift brings your loved one.

Use the Family Meeting to Create a Family History

The topics discussed in a family meeting do not have to be limited to issues related to your estate and financial plans. A family meeting is also a great time to reminisce about favorite family memories. Hearing family members share their favorite memories and seeing the sparks of recollection in others is a lot of fun and can be the best part of a family meeting.

Because family legacy is about more than just money and property, we recommend video recording or having someone take notes about the memories shared so the information will be kept for future reference for all family members. A family history like this is often the most cherished family possession.

Invite Your Trusted Advisor to Conduct the Family Meeting

If you are hesitant about having a family meeting because you do not feel that you have the skill set or an adequate level of knowledge to explain the sometimes complicated legal or financial concepts involved in your plans, consider asking your trusted advisor to conduct the family meeting. After all, it is one thing to understand a concept when it is explained to you and quite another to try and explain the concept to someone else.

You may also feel uncertain about how your family will react to the estate and financial plans you have made. Having your advisor, an unrelated and objective party, there to explain your plans and their benefits and answer any questions or concerns that your family members may have can remove some of the emotional upset and criticism that could emerge.

Summertime is a common time for families to get together. Take advantage of this time to discuss your estate and financial wishes with your family in a family meeting. Communicating your plans to your family now, while you are alive and able to answer any questions or concerns family members may have, greatly increases the likelihood of your plan working as it was designed. We would be happy to help you organize a family meeting or even conduct it for you, so please give us a call if you would like to include a family meeting as part of your family’s summer gathering.

The month of May means not only the end of the school year and the beginning of summer but also the beginning of the busiest moving season of the year. That’s why May is National Moving Month. There is a lot to think about when moving: along with organizing and packing up all of your belongings, there is also starting and stopping utilities, mail forwarding, updating voter registration, and so on. While the ever-growing number of items on your moving to-do list may be overwhelming, it is important not to overlook two essential items that should be added to your moving checklist: (1) locating your important documents and (2) meeting with your advisor team.

Locating Your Important Documents

In all of the chaos of moving boxes and packing tape, it is easy for things to get lost in the shuffle or even thrown out during a move. Yet certain important documents, such as birth certificates, social security cards, passports, financial statements and estate planning documents, should not be packed up and put on the moving truck along with your dishes and shoes. Keep these important documents safe and accessible during your move and ensure that they do not get thrown out by accident.

One idea is to purchase a portable file box with an attached lid and a secure latch. You might consider purchasing a brightly colored one so that it is easily identifiable. Then, place this file box in a secure and easily accessible location. If you are moving locally, a logical place might be at a family member’s or friend’s home. If you are moving a longer distance, that place might be the trunk of your car.

It is also wise to have electronic backup copies of all of your important documents. This could take the form of taking pictures of your documents and saving them to your smartphone, a password-protected removable flash or external hard drive, or storing them in the cloud. Then you will at least have a copy of these important documents in case you cannot locate the original.

By adding this simple step to your moving checklist, you will save yourself a lot of time and headache when, for example, you are not having to run around searching through unpacked boxes for your children’s birth certificates so that you can register them for their new school.

Meeting with Your Advisor Team

Along with contacting the moving company, it is also a good idea to reach out to your team of advisors during a move. For example, one of the pressing questions associated with a move is how much it will cost. Although the final calculation of cost will depend on factors such as the size of your home, the distance you are moving, and your willingness to take on DIY projects, your financial advisor can help you set a moving budget that aligns with your long-term financial goals.

If you are moving to a new state, it is also advisable to contact your estate planning attorney. In general, a will or trust created in one state should be valid in your new home state. However, some documents, such as a financial or medical power of attorney, can be state-specific. Because estate planning laws vary by state, it is highly recommended that you have your estate planning documents reviewed to ensure their validity in your new state. Your attorney can review your documents or connect you with an attorney in your new state who can review them for you.

If you are married, your out-of-state move may have additional estate planning implications if you are moving to or from a community property state. Currently, there are nine community property states: Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin. In these states, there is a presumption that property acquired during the marriage is owned equally. On the other hand, property acquired by gift or inheritance or that is brought into the marriage by one spouse is separate property. Moving from a community property state to a noncommunity property state (i.e., a common law state) or from a common law state to a community property state raises questions about whether community property remains or becomes community property. For example, if a couple acquires a home in California during their marriage and then moves to Nebraska and purchases a new home in Nebraska with the proceeds from the sale of their home in California, is the new Nebraska home community property? Your estate planning attorney can help answer these questions for you and advise you about the steps you should take to preserve certain tax benefits that may be available to you.

There is a lot to think about when moving, but locating and safekeeping your important documents and meeting with your adviser team are two essential items that should be added to that moving checklist. If you are moving soon, please reach out to us so that we can help ensure your move goes smoothly.

We all plan for “just-in-case” scenarios. When packing for our week-long vacation, we throw in a rain jacket even though the weather forecast is sunny—just in case. When planning for the future, it is also important to consider what will happen just in case one of your loved ones becomes disabled.

We tend to think that disability is something that affects other people. But approximately 61 million adults in the United States live with a disability—that is one in four adults. And more than one in four twenty-year-olds will become disabled before reaching retirement age. Disability is unpredictable, and accidents or serious physical or mental conditions, such as cancer or mental illness, can happen to anyone at any age. 

As helpful as it would be when planning, no one has a crystal ball to see into the future. We do not know when we will pass away, and we do not know what position a beneficiary will be in at the time of our death. So even if you do not currently have a loved one who is disabled, it is critical not to overlook the question of what will happen if your loved one becomes disabled at a future time.

If a loved one becomes disabled, they may need to rely on financial assistance from government programs such as Medicaid or Social Security Disability Insurance. Unfortunately, a monetary gift or inheritance from you may disqualify this loved one from receiving these public benefits. In this situation, your well-meaning gift could become more of a curse than a blessing.

Standby Supplemental Needs Trust

To avoid the possibility that a disabled loved one will lose government benefits because they have too much money, you may want to consider setting up a standby supplemental needs trust as part of your estate plan. The terms of a supplemental needs trust provide that the trust’s money and property are only available to supplement the government benefits a beneficiary may be receiving. Therefore, the trust’s money and property are not included as available resources when determining a beneficiary’s eligibility for government needs-based benefits. A “standby” supplemental needs trust does just what its name implies: the supplemental needs trust is not created automatically but is on standby and comes into existence only if a beneficiary is disabled at the time of your death or, depending on the applicable state’s eligibility rules, becomes disabled at a later date but before the trust has been fully distributed. If the disabled beneficiary is receiving public assistance at the time of your death, the inheritance the beneficiary receives from you in a supplemental needs trust will not disqualify them from the public assistance benefits they are receiving but instead can be used to supplement the benefits they are receiving from the government and enhance the beneficiary’s life.

Since no one knows what the future holds, nearly every estate plan could benefit from including standby supplemental needs trust provisions. If the standby supplemental needs trust is not needed at the time of your death, then the trust will not come into existence. But it does not hurt to include it—just in case.

February 21 is the day on which we celebrate several US presidents who made noteworthy contributions to our country. As with any discussion that involves politics, a discussion about US presidents risks generating a variety of opinions about which reasonable minds can disagree. However, politics is not the focus of this month’s newsletter. Instead, our aim is to examine a few of the important lessons we can learn from the estate planning of some of our country’s most famous political leaders.

George Washington

Washington was arguably the most universally beloved and revered US president. Volumes have been written about this man and what he accomplished during his life. One significant achievement that few people know about is the care Washington took to ensure that his final affairs were in order and that those who relied on him were cared for to the best of his ability. Washington’s last will and testament, widely available online in its entirety, shows that he thought carefully about his final affairs and those who depended upon him; he also remembered many individuals by making very thoughtful decisions and gifts of items of personal property or specific bequests.

It is worth mentioning that Washington had a rather nontraditional family situation and had to carefully consider how his estate should be distributed among his loved ones. At age twenty-six, Washington married a widow, Martha Custis, who had two children of her own from her previous marriage, whom they raised together. After his stepson, John Custis, died during the war from an infection, Martha and George Washington raised John’s two youngest children as their own. As a result of his blended family, Washington carefully crafted the language of his will to provide very specific bequests to each of his surviving family members to ensure that they were well cared for long after he was gone.

Washington provides an excellent example in the level of thought and care with which he crafted his estate planning. Even if we do not have the wealth that Washington died with, we can still be very deliberate and thoughtful when it comes to how much, and to whom, we leave our wealth and meaningful items of personal property. By spending sufficient time and effort to think about and memorialize how we want to leave our possessions to our loved ones, we can leave a real legacy that has the potential to benefit generations.

Thomas Jefferson

While equally as famous as George Washington, Thomas Jefferson’s financial situation was far less favorable than Washington’s upon his death. Despite being a brilliant intellectual and the principal author of the Declaration of Independence, Jefferson nevertheless struggled to manage his financial affairs during life. In addition, he was saddled with both debts inherited from his family and that he had assumed by cosigning on a loan for a friend who died prematurely. When Jefferson passed away, he still had significant debts that his family had to repay. Because Jefferson had valuable real property but very little liquid cash with which to pay his debts, his executor ultimately had to sell the family land at depressed market prices to raise enough cash to pay his debts. The unfortunate result of these circumstances was that very little of Jefferson’s property was able to be passed down within the family.

Many families today face similar problems with illiquid or insolvent estates. This issue arises most often when a business or farm owner has significant wealth tied up in their business or land but little cash in reserve to settle debts or pay transfer taxes at death. This can cause the families left behind to feel intense pressure to sell the business or the land at significantly less than they might otherwise be able to sell it for under better conditions to raise the cash necessary in order to pay the debts or taxes that will shortly come due.

Life insurance is an important estate planning tool often used to provide sufficient cash to pay a deceased individual’s debts or transfer taxes. With the proper type and amount of life insurance, and by using certain estate planning tools such as irrevocable life insurance trusts, an individual can prevent a “land rich, cash poor” situation like that experienced by Thomas Jefferson’s family.

Abraham Lincoln

Another well-known and beloved US president — a lawyer, no less — very surprisingly died without a will or any other type of estate planning in place. Lincoln, like so many of us, quite possibly believed that he had many more years to address this important task. His tragic murder at the hands of a political malcontent plunged Lincoln’s family into a confusing and completely unfamiliar situation as they attempted to settle his affairs with no knowledge of where to begin. His oldest son, Robert, reached out to US Supreme Court Justice David Davis to take charge of Lincoln’s affairs. Justice Davis generously stepped away from his duties on the court to assist the Lincoln family with the local court process for settling Lincoln’s estate. His estate was divided between his wife and his living sons, most likely according to the default laws of the jurisdiction. However, it remains unclear whether this is how Lincoln would have wanted to see his property divided.

A key lesson is that no one knows when they will pass away. Even someone as important and well-versed in the law as Abraham Lincoln was caught unprepared for his untimely demise, sadly leaving others to guess what his wishes would have been with respect to his property. The family undoubtedly experienced significant distress and frustration as a result of not having a clear understanding or plan in place for handling Lincoln’s final affairs. Had Lincoln put some basic planning such as a will or a trust in place prior to his death, perhaps he could have helped ease his family through a very challenging time when he was no longer available to them.

Learning from These Presidents

There is a great deal more that could be discussed and learned from the experiences of these and other US presidents as it relates to estate planning. We hope these lessons will help you think about your own estate planning and what you might want to do differently going forward. Give us a call if this newsletter has prompted you to consider any changes you may need to make in your own planning. We would be more than happy to visit with you and discuss your thoughts. Until then, Happy President’s Day!

Not only is January the first month of a new year, but it is also a time when many celebrate Hunt for Happiness Week (January 16-22, 2022). Happiness is something that humanity, in large part, has spent a tremendous amount of effort pursuing throughout history. Continue reading →

Imagine the following scenario: For years, you have worked with a valued professional advisor who has become a close friend, maybe even closer than some of your family members. You know her family, attend church with her and know her to be a model citizen who contributes significant value to your community. Continue reading →

In the words of George R. R. Martin’s fictional characters from the noble house Stark, “Winter is coming.” 

Along with this change of seasons comes a change in driving conditions in much of North America—slippery roads, rain, snow, less sunlight during the morning and evening commutes, and a variety of other hazards. Unfortunately, with an increase in such hazards comes an increase in the likelihood of being involved in a motor vehicle accident. But few of us have ever really considered what should be done if we are actually involved in a fender bender.

While certainly no two car accidents are the same, there are some general guidelines that you should follow as soon as possible after an accident.

First, check yourself and your passengers for any injuries. Ask everyone if they are okay before anything else. If it becomes apparent that someone, including yourself, is injured, call 911 and report the accident and the fact that there may be injuries so emergency dispatchers can send appropriate first responder help. When safety and health are at risk, your first priority should be ensuring that everyone involved can get the medical help they need as quickly as possible. If you are injured and cannot make the 911 call yourself, ask anyone you can communicate with to get medical help.

Next, if you and all involved appear to be safe and uninjured and you are not at risk of further danger from nearby traffic, find a safe location to move your vehicles to. If the accident involves someone else, exchange contact and insurance information with the other driver. This will ensure that you can get in touch with the other party to the accident if your insurance company or the police need to get involved to resolve any issues that arise or process insurance claims. 

Also, even when accidents result in what appears to be only minor damage, it is still advisable in most cases to have the local police respond before the other driver leaves the scene. When it is time to file a claim with your insurance company (or respond to claims from the other driver about damages you may have caused), it is important to have a police report detailing the damages and who law enforcement determines was at fault. This will help you avoid being unfairly stuck with the liability for repairs or medical injuries that arise later (such as back and neck injuries).

Additionally, it is important to contact your car insurance company as soon as possible. You may want to contact them even before getting out of the car. The insurance company can provide you with crucial advice and guidance at a very stressful time to make sure that you do not make mistakes in dealing with the other driver that could have significant consequences when it comes to liability. Many people mistakenly believe that it is better not to report minor accidents to your insurer in an effort to prevent their premiums from increasing. However, this can be a dangerous approach. Failing to report an accident and allowing the insurance company to immediately get involved to mitigate possible claims for damages could lead to much larger claims against you personally and could result in your insurance company refusing to cover such claims due to your failure to report in a timely manner.

How Car Accidents Can Impact Your Estate Planning

Healthcare decision-making. In the event of an accident where you become unable to speak or make decisions for yourself as the result of an injury, you will need to have someone who can speak to doctors and medical providers on your behalf. If you have planned in advance, a medical power of attorney will allow someone you have chosen previously (your healthcare agent) to speak with doctors and arrange for treatment until you regain consciousness. If you do not have a medical power of attorney in place, decision-making authority could be unclear and might result in delays in receiving certain types of medical treatment. Thus, it is important that you not only have a medical power of attorney in place and signed, but also that you inform those closest to you about where to obtain a copy of it should you need to be rushed to a hospital in the event of an accident. 

Adequate insurance coverage. Many people do not realize that carrying adequate insurance coverage is one of the most effective ways to protect themselves from lawsuits that would place their savings and property at risk. Ensuring that you carry adequate car insurance is one of the simplest ways to ward off a lawsuit. Beyond increasing your insurance limits on your car insurance, you may also want to discuss with your insurance broker whether it would make sense for you to purchase an umbrella insurance policy. Umbrella policies act as a form of backup insurance to your car insurance policy. Essentially, if you are involved in a car accident where the damages you caused exceed the limits of your car insurance policy, an umbrella insurance policy can step in and cover such excess liability. With both policies in place, you are providing a large enough pool of insurance money that your insurance companies will have a much greater ability to settle any lawsuit against you as a result of the car accident before it ends up in court where the plaintiff could seek payment from you directly.

As part of your estate planning, you should meet with your insurance advisor to discuss the limits of your car insurance and any umbrella policy that you may already have (or intend to purchase) and the types of protections that they provide. Adequate insurance can go a long way toward protecting your accounts and property from loss to a lawsuit as a result of a car accident.

Be Careful of Fraudulent Transfers

After a car accident where there are significant property damages and medical injuries, it can be tempting to take steps to protect what you own if you fear that a lawsuit may result from the accident. But it is important to resist the temptation to begin transferring your property and accounts to friends or family in an effort to hide what you own. In many states, taking such steps after an accident has occurred in which you are liable is considered to be a fraudulent transfer that can be ignored by the courts. In other words, even though you may have made an otherwise legal gift or transfer of your accounts and property to someone else, the courts are likely to allow the party in a successful lawsuit against you to go after and seize the property that you have transferred to someone else in an effort to avoid having it used to pay the judgement against you. Furthermore, you could be liable for additional damages for causing the prevailing party in the lawsuit to expend extra effort and expense to pursue the fraudulently transferred property.

No, Revocable Trusts Do Not Protect Your Property from Lawsuits

Another very common misconception is that if you create a revocable living trust for estate planning purposes, you have also protected your assets from lawsuits and creditors. Unfortunately, this is simply not the case. While it is possible to design a revocable living trust that will protect your assets after you have died from the creditors and lawsuits of your named beneficiaries of your trust (usually your loved ones), revocable trusts in general offer no protection against your own creditors or lawsuits filed against you. This is because you have complete control over the property placed in your revocable trust. And because you retain the power to revoke the trust, a judge can order you to revoke the trust and use the trust property to pay your creditors and lawsuit judgements. 

That being said, there are certain types of irrevocable trusts and other asset protection strategies that, if designed properly, can greatly enhance the level of protection you can obtain for your property. However, you should explore these with the assistance of an experienced asset protection and estate planning attorney to ensure proper creation and implementation.

When it comes to protecting your accounts and property, the time for taking the necessary steps is well before an accident occurs. Doing so will help you maximize the amount of asset protection that is available to you through purchasing insurance or designing estate planning features that have a much better chance of warding off successful lawsuits in the event of an accident. 

We hope that we have given you some things to consider and encouraged you to revisit some aspects of your estate planning. Protecting your hard-earned accounts and property is a worthwhile investment of time and effort. But remember, the time to do so is before an accident occurs. If you are not sure where to start, give us a call. We would be happy to help you take the next step in preparing for the perils that winter can bring.

Estate Planning Awareness Week is October 18–24, 2021. To that end, this month’s newsletter is geared toward helping you become aware of and better understand common estate planning myths. Left unaddressed, these myths can create serious trouble for your loved ones, often leading to intrafamily conflict, permanently damaged relationships, and lengthy and expensive court battles.

Myth #1: I did my estate plan a couple of years ago. I’m good!

If you have worked on your estate plan with an experienced estate planning attorney within the last few years, then you are way ahead of most people, and you should give yourself a pat on the back. Way to go!

However, life moves quickly, and even a couple of years can make a significant impact on the effectiveness of your estate plan to help you achieve your goals:

• Children can get married and have children of their own. 
• People who you have named in your estate planning documents can move out of state, making them unable to handle those responsibilities when called upon.
• Your relationships with your chosen fiduciaries or beneficiaries can change or become complicated.
• Your beneficiaries can develop harmful addictions, marry financially exploitative spouses, or run into financial difficulties of their own.
• Your spouse could die or you could get divorced.
• The amount and types of property that you own can change.
• Changes in the law can cause your estate plan to have unintended tax or other consequences. 

Any one of the above circumstances may be a good reason to meet with your estate planning lawyer again to determine whether changes should be made to your estate plan. In many cases, even a quick phone call to discuss any changes with your lawyer is advisable.

It is also essential to understand that some estate planning documents like your power of attorney or healthcare directive can, over time, become less effective from the perspective of certain financial institutions, business entities, or healthcare providers. If your circumstances change, it can be beneficial to review, update, and reexecute your estate planning documents. This will keep these documents relevant and effective when they need to be used.

Beyond the considerations above, a well-rounded estate plan requires a number of steps to ensure that the estate plan will work effectively when needed.

First, if you have a trust, have you funded it? Funding your trust means you have coordinated the ownership and beneficiary designations of your accounts and property to work with the trust. For real estate, a deed must have been recorded with the proper government recorder’s office. Most bank and brokerage accounts should be titled in the name of the trust if you want your trustee to control those accounts should something happen to you.

Second, have you checked the beneficiary designations on your retirement accounts and insurance policies to make sure they name the correct people or your trust? Life insurance policies should usually name the trust as beneficiary. Retirement plans may name a trust as a beneficiary, but be careful! Naming a trust as the beneficiary of an individual retirement account or 401(k) has significant tax consequences and may not be advisable in many situations. Speak with your tax advisor before changing the beneficiary designations on your retirement accounts.

Third, have you shared copies of your medical power of attorney and healthcare directive with your doctor and local hospital? Doing so can alleviate family members’ worries about digging through your documents should you have a healthcare issue in the future.

Fourth, in many states, a financial power of attorney document that names an agent to act on your behalf must be accompanied by a signed acceptance document from the agent before it can be used. Has this step been taken? If not, your estate plan may not be complete.

Fifth, writing things down does not guarantee that misunderstandings will not arise among your loved ones or beneficiaries. In addition to the important work of documenting your wishes, you should talk with your loved ones to help them understand the kind of plan you have put in place as well as the roles you want them to fulfill. Having open, honest communication with those individuals involved in your estate plan will minimize the chances for miscommunication and hurt feelings.

Myth #2: Avoiding taxes is the only reason to create an estate plan.

It can be easy to dismiss the need for an estate plan considering today’s historically high estate tax exemption ($11.7 million per person in 2021). Most Americans do not need to worry about estate taxes. However, tax avoidance is only one of many goals of estate planning, and in many cases it is not the most important goal. For example, planning for the orderly passing of your treasured heirlooms to avoid family discord may be far more important than tax planning in the long run. Alternatively, you may have children who are struggling financially or with substance abuse challenges, are in a rocky marriage, or work in high-liability professions. As a result, it may be crucial for you to ensure that whatever inheritance is left to those children is protected from loss to lawsuits, creditors, or divorcing spouses.

Myth #3: My spouse will get everything when I die.

This is another myth that is partially true but can lead to unfortunate conflicts and misunderstandings among family members. Under most state laws, if you are married and pass away, your spouse will inherit your property. Default laws that exist to divide up a deceased person’s property if they have never made a will or a trust (called intestacy laws) typically allow the surviving spouse to inherit 100 percent of the deceased spouse’s property. But in many states, if the surviving spouse is not the biological parent of one or more of the deceased spouse’s children, then those children will typically have a right to some percentage of their deceased parent’s property. In many states, that can be as much as 50 percent. As a result, your spouse could get a very unpleasant surprise shortly after the funeral from your children from another relationship when they demand their share of the estate.

Myth #4: A will avoids probate.

An all-too-common misconception is that having a will helps you avoid probate. This is simply not true—in fact, the opposite is true. For a will to be effective after your death, it must be submitted to the court to prove its validity. Only after the probate court has verified that the will is valid can the individual named in the will (the executor or personal representative) distribute the decedent’s money and property during the probate process. People often confuse the benefits of a will with those of a trust. Trusts can avoid probate, but only if the trustmaker names the trust as owner of the accounts and property during the trustmaker’s life or as the beneficiary of the accounts and property upon the trustmaker’s death.

What You Can Do to Be Prepared

Understanding these myths can help you identify those areas of your estate plan that may need attention. Taking these essential steps to ensure that your estate plan is complete is crucial to its success. As your estate planning professionals, we are here to help you think through these challenges, avoid mistakes, and complete the necessary paperwork. Give us a call today so we can help you take these important steps in your estate planning.

When selecting a successor trustee for a trust, it is common for the individual who creates the trust (the trustmaker) to choose one person to serve as a successor trustee at a time. Some attorneys routinely recommend that only a single successor trustee be appointed to avoid the potential for conflicts between co-trustees during trust administration. This can be a prudent approach and works well in many situations. This is particularly true when the appointed trustee diligently keeps the beneficiaries of the trust informed about the trust administration and carefully fulfils the trustee’s responsibilities under both the law and the provisions of the trust document.

However, many trustmakers are reluctant to place the entire responsibility for trust administration on only one person. As a result, it is increasingly common for a trustmaker to nominate two or more family members or friends to serve as successor co-trustees. In some cases, it may even be beneficial to divide the trustee responsibilities between a professional trustee and a family member trustee. For example, a professional trustee might be given the responsibility for trust investments or accounting and tax matters, and the family member trustee may be asked to handle certain distribution responsibilities, such as the timing and amount of distributions to a minor beneficiary. While this co-trustee approach can have some drawbacks, it also has benefits that may be worth considering.

Advantages and Disadvantages of a Co-trustee Approach

Choosing multiple individuals to serve as co-trustees offers the following advantages:

• Co-trustees can provide checks and balances to guard against potential abuses of authority.
• Sharing or separating the responsibilities of trust administration among co-trustees can expedite the efficient administration of a trust.
• Depending on the terms of the trust, a particular co-trustee may be able to respond quickly to an emergency situation if no other co-trustees are available.
• Trust beneficiaries may be more likely to accept the actions and decisions of unified co-trustees as opposed to the decisions of a single trustee.
• Administrative responsibilities can be allocated among the co-trustees based on each co-trustee’s unique strengths and skills or in a fair and equitable manner.

However, there are also disadvantages to consider:

• Disagreements between co-trustees can lead to conflicts or stalemates.
• Delays can result if the trust requires that all co-trustees be present and act together to conduct trust business.
• Financial institutions, individuals, and businesses may be reluctant to take direction from fewer than all co-trustees, even if the trust document authorizes a single co-trustee to act.
• Compensating multiple co-trustees for their time spent handling trust business can result in potentially higher costs.

What Is the Right Approach for You?

Before you decide whom to name as a successor trustee, you should discuss these advantages and disadvantages with your attorney and other professional advisors well before there is a health event that could lead to your incapacity (the inability to make your own decisions) or death. Doing so will help you identify some of the potential pitfalls and complications that can arise with regard to your successor trustee choice. These discussions may also help you realize that you need to make changes to your estate planning documents, either to add another family member or a professional fiduciary as successor co-trustee or to remove certain individuals listed as a co-trustee because of the potential for conflicts. Of course, we welcome the opportunity to meet with you to discuss ideas and make any necessary updates to your estate documents so that they better match your intent.

As you prepare for these discussions with your attorney and other professional advisors, it may be helpful for you to consider some of the following questions before ultimately deciding whom to name as your successor trustee:

How well does the individual I want to name as trustee work with others? 

Does your potential successor trustee have the temperament to delicately handle requests, questions, and perhaps even emotional outbursts from the trust beneficiaries while administering the trust? Do they handle conflict well, or do they have a tendency to escalate conflict when they encounter it? How might serving with a co-trustee mitigate or exacerbate this temperament?

Does the person you plan to name as trustee have sufficient time and flexibility for their duties?

Being a trustee requires a certain level of flexibility and availability. If your chosen trustee is a busy professional or a busy parent with little extra time to spend handling the trustee’s many tasks, would it make sense to nominate multiple co-trustees to share those responsibilities? On the other hand, would naming multiple trustees create frustration if the co-trustees are all required to be present to handle certain financial or administrative tasks? Sometimes, the need for flexibility calls for fewer, not additional, trustees.

If co-trustees are named, should they have authority to act independently? 

While having multiple co-trustees can provide important checks and balances, should they nevertheless be given independent authority to act on behalf of the trust? Granting such authority may decrease the hassle of needing to have all co-trustees present but still provide the ability to spread responsibilities among the various co-trustees, thereby decreasing the workload of each co-trustee.

If multiple co-trustees are chosen, what method might be used to resolve a stalemate in trustee decisions?  

Even co-trustees who normally get along can sometimes disagree so strongly that a stalemate occurs. In such a case, what might be an appropriate way to resolve the impasse? Should another family member be named to break the tie? What about a trusted professional advisor, a mediator, or a trust protector? Or should differences like these only be resolved by a court? Often, leaving such decisions to a court can encourage disagreeing co-trustees to resolve the dispute on their own in an effort to avoid the expense and delay of going to court. 

You might also request that your attorney include language in your trust that permits a dissenting co-trustee to abstain from participating in a decision, thereby limiting the dissenting co-trustee’s liability for any harm that might result from the other co-trustees’ decision. This approach allows the business of the trust to move forward, even over the objection of a co-trustee. However, the dissenting co-trustee would have the comfort of knowing that the overruling co-trustees would ultimately be the only ones responsible for those particular actions.

Conclusion

Whether you nominate a single successor trustee or multiple co-trustees, carefully considering the pros and cons of each approach can help ensure that your wishes for the handling of your estate and trust will be honored. Contact us today so we can review your current successor trustee selections or create an estate plan with the right people in charge to assist you when needed.

If you have not had a chance to nominate your favorite Bloomington business for the Herald Times Best of BTown there is still time.

Best of BTown is broken up into a “nominations” round that runs now through June 15, 2021. The top 5 nominated business then move onto the final voting round. Final voting begins July 7^th.

If you believe we have earned your vote please “nominate” us in the law firm category. A link to the nominations page is here (click on the words below and it will link you to the nominations page):

Nominate Like Law Group

We are in the “Services” category. You will then need to scroll down to “Law Firm” and type in Like Law Group LLC.  I hope that we have earned your trust and you are willing to take a few minutes to nominate us.  While you are at it nominate your other favorite businesses in town as well.

Now, on to this month’s article.

How to Responsibly Leave an Inheritance to Your Grandchildren

Estate planning attorneys frequently hear from their clients, “I’d like to leave something to my grandchildren. What’s the best way to do that?” 

Naturally, grandparents love their grandchildren and want them to succeed in life. And when grandparents are in the twilight of their lives, their hearts often turn to the younger generation with a desire to give them whatever advantages they can, especially if they were unable to give their own children those same advantages when their children were younger.

For most grandparents, the best way to provide for their grandchildren is to leave their accounts and property to the grandchildren’s parents to ensure the financial stability of that family unit, thereby indirectly benefiting the grandchildren. In fact, default inheritance laws in nearly every state reflect this common desire to provide first for children and then for the grandchildren in the event that an adult child predeceases the grandparent. From a practical perspective, the grandchildren’s parents are often in the best position to know how to use the money for the benefit of their children and can spend or invest it appropriately on their behalf.

In some cases, however, it makes better sense for grandparents to leave property to their grandchildren—for example, if the grandparents have reason to believe that their own children would not responsibly use the money intended for the benefit of the grandchildren, or if the grandchildren’s parents are independently wealthy and distributing the property to them would unnecessarily expose the property to estate tax in their estates. In some cases, although the intent of grandparents may have been to leave everything to their adult children, an inheritance may flow to grandchildren unintentionally because of an accident or illness that prematurely takes the life of an adult child. In any of these situations, it is important to consider the possibilities and the options for leaving an inheritance to grandchildren. Failing to do so can have long-lasting consequences and, in many cases, do more harm than good.

The Trouble with Outright Gifts

Perhaps the simplest way to leave an inheritance to your grandchildren is to name them as beneficiaries in your will or trust to receive a specific amount of money or a percentage of your total accounts and property. If all of the grandchildren who will receive such gifts are physically and emotionally stable, financially prudent, and have reached adulthood, this strategy may work just fine and reduce the administrative burden of managing and distributing your accounts and property to the beneficiaries or heirs.

However, depending on when you pass away, if any of the named grandchildren are minors, you could create additional hassles by leaving a gift directly to them. The executor of your estate or the trustee of your trust may have to establish certain types of custodial accounts to hold that gift for the minor child until they have reached the age of majority (either age eighteen or twenty-one depending on the state). In some states, and depending upon how much money is involved, establishing a court-controlled conservatorship over the property may be required. In other cases, setting up an account using the Uniform Transfers to Minors Act laws of the state may be all that is necessary. In either of these cases, however, once the child reaches the age of majority, you may not be able to control how that money is used by the grandchild. It could be spent on fast cars and fancy clothes rather than on an education, starting a business, or a down payment on a home as you might have imagined. In a worst-case scenario, a grandchild might even unwisely invest it with a spouse who later divorces them, or with an unscrupulous business partner who preys upon inexperienced individuals who have come into a sum of money.

By being aware of these risks, you can take steps today to make sure that any of your property that ends up in the hands of your grandchildren is protected from not only your grandchildren’s own poor spending choices but also the claims of a divorcing spouse, an unethical business partner, or an opportunistic lawsuit filed by a stranger against your grandchild.

Using Trusts for Gifting to Grandchildren

A trust offers one of the most flexible methods for leaving an inheritance to grandchildren. When you leave an inheritance to grandchildren via a trust, you can ensure that the money and property are used appropriately and at appropriate times. There are a variety of ways to use trusts in your estate planning. You can add provisions to your will or revocable living trust that instruct the executor or trustee to hold any property that is payable to a grandchild in a separate trust share rather than making a direct distribution of the accounts or property to them. You can specify in those trust terms how the money is to be used or distributed and when. These can be very important provisions to include in your trust even if you are planning to leave your accounts and property only to your children. As mentioned, it is possible for your child to pass away before you do in an accident or from illness. And if your child has children of their own and you want your child’s share to go to their children, it can be crucial to have a trustee protect and manage it until it can be distributed to the grandchildren at a more appropriate time.

Another way to use trusts is to create the trust during your lifetime, name yourself as the trustee, and transfer some of your property into the trust for the benefit of your grandchildren. From a tax perspective, you can make gifts to this trust using the annual gift tax exemption (currently, $15,000 per beneficiary of the trust per year) to shelter the gifts from transfer taxes. Gifting in this way during life allows you to have confidence that the trust is set up appropriately and enables you to enjoy watching your grandchildren actually benefit from the trust. You can also feel confident that once you pass away, your grandchildren and even your great-grandchildren will continue to benefit from the property in the trust, if that is your goal.

Health and Education Exclusion Trusts

Beyond the traditional use of trusts in your estate planning, you can also design special trusts to provide additional tax benefits if your estate is large enough to potentially be subject to the generation-skipping transfer (GST) tax. A health and education exclusion trust (HEET) is one of these special types of trusts. A HEET is designed to make use of certain tax code provisions that exclude from lifetime gifts any amounts paid directly to healthcare and education institutions on behalf of someone. A HEET can be designed to name, as beneficiaries, any number of your grandchildren or succeeding generations, if desired. The funds in the trust can then be used to pay for health and education expenses directly on behalf of the beneficiaries without being subjected to gift taxes in the future. Furthermore, the distributions to the beneficiaries will be exempt from the GST tax. This benefit is obtained by naming a charitable institution as an additional beneficiary of the trust. As long as the trustee makes regular and reasonably substantial distributions to the charitable beneficiary from the trust, the distributions to the other beneficiaries will be GST tax-exempt.

A HEET is worth considering if (1) you would like to help your grandchildren and succeeding generations with their education and medical expenses, (2) you have used up your GST tax exemption amount through gifting or other estate planning strategies, and (3) you want to benefit a charitable organization as part of your estate planning.

Generation-Skipping Transfer Taxes

Although we have mentioned GST taxes in passing, it is important to remember that whenever you are including grandchildren in your estate planning, you should seek advice from your attorney or accountant with regard to this unique form of taxation. For most people with modest accounts and property, the GST tax is not a significant issue. However, if what you own is valued at more than the current estate tax exemption amount, the GST tax is something that you should be aware of and plan around, particularly if you anticipate that any amount of your property will eventually be distributed to your grandchildren. You should also be aware of the GST tax if you are creating trusts specifically for your grandchildren and their descendants. You may need to take certain steps upon creation of such trusts to ensure that the trust is GST tax-exempt. Your tax professional can provide you with important guidance on this point.

Keeping Parents in the Loop

Grandparents often overlook bringing parents into the conversation when planning for their grandchildren. Consequently, some grandparents have been unpleasantly surprised at the negative reactions from their own children or in-laws when they make generous gifts to their grandchildren. Depending on a family’s parenting philosophy, the grandchildren’s parents may resent an unexpected, large sum of money or payment for certain expenses. Instead of seeing it as a boon, a parent could see it as a grandparent interfering in the character development of their children, robbing them of important opportunities to become financially independent, learn important life lessons about sacrifice and hard work, such as qualifying for merit-based scholarships, and the value of money in general. Speaking beforehand with your grandchildren’s parents about how you can best support the development of your grandchildren into responsible adults can go a long way toward ensuring that your gifts will be appreciated and truly beneficial.

Conclusion

Whether you want to specifically and intentionally include your grandchildren in your estate planning or just want to make sure that they are carefully accounted for in the event that they unexpectedly inherit your property, it is critical to examine your estate planning with your attorney to make sure that your plan reflects your wishes and your family’s values. Beyond making sure your property gets to the right people at the right time, careful planning with the help of your tax professionals can also ensure that significant tax savings are preserved, thereby keeping more money in the hands of your family and out of the hands of the government.