Estate planning is important for all of us, not just for the wealthy. That’s why Attorney Keith McManus, Esq appears every week on SHP Financial’s Retirement Road Map show to talk about estate planning and how to take advantage of the benefits of having a trust.
Listen to the audio clips below
Estate Planning: Simple Tips for Keeping Your Plan Up To Date
In this podcast interview, Keith discusses how estate planning is a critical part of the retirement planning process. As we kick off the new year, this is a perfect time to ensure that your plan is up to date.
Things change over time. That includes our lives, our family, and even the laws that apply to estates. This means the wills, trusts, and other estate documents that protect our families and secure our legacies may need to change, too.
Estate Planning for Blended Families
We're seeing more and more couples marry who have been married before and had children. Because each partner will want to make sure that their spouse is taken care of—and that their children are taken care of—estate planning is critical. Creating separate trusts is a good first step. Each spouse would fund a trust with her or his own assets, dictating the terms of what happens when the person dies. The next step is naming a trust as beneficiary of investment accounts and other assets. Your investment adviser and estate-planning attorney can help you evaluate your situation to be sure you have well-crafted trusts that are properly funded.
Naming a Trustee
Someone who has created a proper trust will name a trustee to manage the distribution of assets. The most common choice is a spouse or life partner, which keeps control in the immediate family. Some people will want to name their children as successor trustees or as executors. Still others will name a professional entity as trustee, which can be the best possible choice from an asset-protection standpoint. Having a disinterested, third-party trustee can protect your assets against divorces and lawsuits against individuals.
Protecting Your Beneficiaries
People sometimes think naming heirs as contingent beneficiaries on their bank or stock accounts or other assets is enough. This approach will pass assets on to their heirs without having to go through the probate process—but it will not protect the heirs or the assets from life events, such as divorce or incapacity. A properly developed trust will avoid probate and provide other protections that simply naming contingent beneficiaries cannot do, such as providing tax benefits and protecting assets from civil suits and the possible incapacity of heirs.
Updating your estate plan
Your financial planner has likely suggested that if it's been three to five years—or more—since you asked an attorney to review your estate plan, it's time to make an appointment. If there have been significant events in the lives of your family members, you should do it right away. Births, deaths, marriages, divorces, and other changes may alter the way you want your assets distributed. Updating your plan and your trust(s) now may save your heirs time, money, and heartache later.
Choosing an Executor or Trustee
An executor, or as it's called in Massachusetts, a personal representative, is the person who is responsible for executing a will-based estate (one that goes through probate court). But when you're setting up your estate plan, likely a trust-based plan, you'll need to name a successor trustee to manage the estate after your death or disability. You may want to leave your assets to your children but don't necessarily want them to fill the trustee role. You can name a professional trustee, known as a 672(c) trustee, an expert in estate and tax law who is unbiased and not related to your family. Consider naming not a specific person, but a professional trust company that's licensed and bonded. And make sure the trust you create provides for asset protection.
Get the right help to protect your assets
Your landscaper probably doesn't offer you medical advice, so think twice about taking estate-planning help from your financial advisor. We see clients whose financial advisors have told them that since they have named beneficiaries on their investment accounts, they don't need an estate plan. This short-sighted advice doesn't consider the many situations in which assets must go to heirs through the expensive and cumbersome probate process instead of passing directly to a Trust created as part of an estate plan. Protect your assets—and your heirs—by seeking advice and assistance from an attorney who is qualified to help you.
Your First Estate—Planning Meeting
People often wonder what will happen at their first appointment with an estate-planning attorney. The first things to know are that everything that happens will be confidential and that the attorney is on your side. The attorney works for the client's benefit. It can be a pleasant experience to get answers to your questions—such as "Why do I need a trust?"—and to know that when you make your wishes known, the attorney will put the pieces together and come up with a properly drafted estate plan that will avoid probate court and provide tax benefits.
Providing for Life Changes
Estate plans for married couples need to include both asset protection and divorce protection. In the case of an amicable divorce, the former couple wanted to keep the joint estate plan and trust they had created when they were married. In their meeting with an estate-planning attorney, they became convinced that they now needed separate plans and separate trusts. People who want to be assured that their assets flow to their own bloodline, and not to the heirs of a former spouse, need to include provisions in their trusts and estate plans.
Misconceptions about Trusts
"I'm all set. I have a trust." These words often hide the reality of a situation. For example, some people believe that having a trust guarantees them free nursing home care for the rest of their lives. Others think having a trust will protect them from lawsuits. You don't want to wait until there's an adverse life event to find out that your impressive-looking trust doesn't do what you think it will do. It's important to have your entire estate plan—including trusts—evaluated by your financial advisor and by an attorney who specializes in estate planning.
One Property—Multiple Owners
There are many possible pitfalls to owning property in your own name rather than in the name of a trust, LLC, or other legal entity. This is especially apparent when a parent dies and leaves a house to multiple children. One recent example is of a couple who left a summer house to their three children through their will. After the couple died, the adult children endured the lengthy, expensive probate process and family disharmony. Soon after, one of the siblings died, leaving two young children, whose names were then added to the deed after another probate process. This sort of expense and stress is not necessary with proper trust planning.
Evaluating Your Estate Plan
At any age, but especially if you're retired, it is crucial to have an estate plan that links with your financial plan. Financial planning is only part of the picture because it must connect to the legal documents for the best outcome. Examine your financial plan and trusts to determine if they are funded with assets. Review your estate plan every two to three years to ensure that changes in assets and other life changes have been considered.
Legal implications of real estate ownership
Interview on the Cape Cod Real Estate Show with Claudette Vickery. Your home may be among your most valuable assets. Advanced planning can harvest a variety of benefits for real estate. Often, people are unaware of the legal implications of how they own title to real estate. For example, without planning it is likely that the property will require probate court involvement upon the death of the owners. Taxation of real estate may be mitigated with proper planning and often involves the use of trusts.
November is a good time to talk about financial planning strategies with an eye to improving your financial situation before the end of the year. Andrew Garcia, who is of counsel for McManus Estate Planning, talks with Derek about reducing tax liability. We look at a client's portfolio with an eye to reducing taxes. One strategy is gifting. The federal government allows all of us to make a gift to another person of up to $15,000 a year—without having to report it to the IRS. (Gifts over $15,000 must be reported to the IRS, even though no one pays tax at the present time.)
How Real Estate Is Titled
If you own a property, it's important when you're building your estate plan, to see the benefits of how you're going to title that property. Who is going to own it? Are you going to own it? Or is it going to be owned with a life-estate deed or by a trust? Andrew Garcia, who is of counsel for McManus Estate Planning, talks with Derek about real estate. There can be huge pitfalls involved when property is not titled properly, one of which is disruption of family harmony. Without a living trust, a property can be tied up in litigation among surviving family members, which costs time as well as money. When planning is done correctly, things move smoothly.
Prepare for Estate Planning
Once you've decided to set up an estate plan, you'll want to prepare for your first appointment with your attorney, who wants to create a custom estate plan for you. Before the appointment, talk with your family members about what each of you would want to happen if you became incapacitated or died. These family conversations may be especially important for couples who marry later in life or have blended families. Another important consideration involves having the attorney know who the beneficiaries are for insurance policies, retirement accounts, and other assets to avoid unpleasant surprises in the future (such as a former spouse being the beneficiary because it wasn't changed after a divorce). Your estate planner and financial advisor can help you create a list of assets that will be needed to create your plan.
Does Your Financial Advisor Know Your Estate Plan?
If you've created a trust or estate plan with your attorney, you may want to share that information with your financial advisor. Not all financial planners will broach the subject of estate planning with a client, which does the client a disservice. When an estate-planning attorney creates a trust, there will be a plan for funding the trust. The financial advisor can then follow the plan to fund the trust properly with the assets managed by the financial advisor. Your attorney and financial planner can work together to be sure that all assets are included in the trust to ensure they pass easily to your heirs without a heavy estate-tax burden.
What Is Your "Why"?
Today's episode looks at a reason for creating an estate plan. A client, an older woman whose husband had died, came to him for an estate plan that would benefit her disabled son. Setting up a trust meant that when she recently died, her assets passed to her son probate-free and tax-free, and an independent professional trustee, not a relative, was in place to manage the assets for the son's benefit.
Protecting Assets from Nursing Home Costs
Investment advisers often make their money by selling mutual funds, annuities, and other investments, so they are not always the right people to turn to when seeking advice on the future funding of nursing home care. Part of your estate-planning process should be devoted to protecting your assets from being eroded by the cost of long-term care. Be sure to talk to your attorney as well as your financial adviser for advice on the right way to plan for your financial well-being throughout retirement.
Estate Planning Should Be Multigenerational
People try to do the right thing by setting up estate plans, but they don't always think through the possibilities. It may seem like a good idea to name your parent as a beneficiary of an insurance policy to care for your minor child in the event of your passing. But an aging parent might need care, and if there is no long-term care insurance or other assets to pay for it, the state would insist upon the use of the insurance funds. Consulting an estate-planning professional can help to ensure your assets are used the way you want them to be.
Gifts Can Benefit Your Estate
When you are creating or updating your estate plan, consider gifting assets. Among the benefits to you as donor are those related to taxes. The federal tax code allows for tax benefits, but gifting can be a risky move if you do it without consideration of all sides of the issue. To maximize the benefits to yourself, your estate, and the donee (the person to whom you are gifting an asset), consult both your financial adviser and the attorney who is helping you create your estate plan.
Have You Considered Appointing a Trust as a Contingent Beneficiary?
Your financial planner may be first rate at growing your assets. But to do the best job for you and your investments, that person also needs to consider your estate plan, including your beneficiaries. Naming minor children as beneficiaries carries substantial risks. It might lead to a conservatorship, which is a process that works itself out in the Probate Court system. There may be better ways for you to designate beneficiaries for these kinds of accounts.
A good financial planner will work together with your estate planning attorney. Ideally, all your advisors would be in communication and on board with your estate plan. Your investment planning is closely linked to the success of your estate plan. Many people who come to see us do not have estate plans that are linked to their financial plans, but this sort of coordination increases the chance all plans will succeed at their goals.
Estate Taxes: Massachusetts
In this segment, we discuss the example of a family that owned property in two states: Florida, which has no estate tax, and Massachusetts, which taxes estates with a net value exceeding one million dollars. They could save money for their estate by creating the right kind of trust plan. It's important to work with a financial planner and an estate-planning attorney who know the tax laws for the state in which property is held.
How Do You Own Your Assets?
Whether you own property jointly with a business partner or spouse, or as an individual with sole ownership, it's a good idea to evaluate the form of ownership that will save you and your heirs from undue tax liabilities and other legal considerations.
Does Life Insurance Fit Your Plan?
You don't have to be very wealthy to have an estate worth a million dollars. Someone who has, for example, a $300,000 house, an IRA worth $400,000, and not much else in assets would seem to be well below the threshold for an estate tax burden. But if you add a million-dollar life insurance policy, the heirs of the estate will be liable for Massachusetts and federal estate taxes unless the policy is owned by an irrevocable life insurance trust.
What a trust can do
Many people don't understand what a trust is and how it can benefit their heirs. Estate planning is important, especially if an estate tops a million dollars (which is a surprisingly easy mark to reach when you consider all property, cash, savings, and insurance payouts). You should work with your financial adviser and estate-planning attorney to set up a trust that will ensure probate avoidance; minimize capital gains and estate taxes (both of which can take a significant bite out of assets); and protect the assets for your heirs.
Act Now if You Have a High Net Worth
How often do you have an estate plan review? If you have a high net worth, and you're paying someone to manage your money, you have a right to expect more services, including an analysis of your estate's tax liability. Keeping in mind the expectation that tax laws will change after the end of this year, this is the time to ensure that you won't be leaving your heirs with a large tax bill along with your estate.
Don't Let Your Trust Sit Empty
In order to avoid probate court, you will want to be sure that all of your inheritable assets are placed in the trust. One of the biggest mistakes people make when planning their estates is neglecting to have their attorneys move their assets into the trust. You will also want to have your plan, and any trusts, reviewed on a regular basis by an estate-planning specialist.all of your assets.
What Is a Trust, and Why Do I Need One?
A trust is a legal instrument that can provide benefits to everyone, not just those of considerable wealth. Where a will needs to go through the probate process, which can take many months, assets placed in a trust pass to the beneficiaries without the time and expense of probate.