What If a Beneficiary Dies Before Receiving an Inheritance?

February 27, 2025

Estate plans are designed to distribute assets according to the wishes of the deceased. So what if a beneficiary dies before receiving an inheritance? Complications arise when a named beneficiary dies before receiving their inheritance. Depending on the terms of the will, the existence of a contingent beneficiary and state probate laws, the inheritance may be reassigned, redirected, or absorbed back into the estate.

Factors that Determine What Happens to Inheritance

Many well-prepared estate plans account for the possibility of a beneficiary predeceasing the testator (the person creating the will). These plans typically include contingent beneficiaries, who receive the inheritance if the primary beneficiary is no longer alive.

1. Does the Will or Trust Have a Contingency Plan?

For example, if a will states:
“I leave my home to my son, John, but if he predeceases me, the home shall pass to my granddaughter, Sarah.”

In this case, Sarah, the contingent beneficiary, would inherit the home. The inheritance may follow default legal rules if no contingent beneficiary is named.

2. The Role of Anti-Lapse Laws

Many states have anti-lapse statutes that automatically redirect an inheritance to the deceased beneficiary’s descendants if no alternate beneficiary is named. These laws prevent an inheritance from becoming part of the residual estate.

For instance, if a father leaves an inheritance to his son, but the son dies before him, an anti-lapse statute may ensure the son’s children receive the inheritance instead. However, these laws typically apply only to direct family members, such as children or siblings, and may not cover more distant relatives or unrelated beneficiaries.

3. How Trusts Handle a Beneficiary’s Death

If an inheritance is placed in a trust, the trust document will govern what happens when a beneficiary dies. Many trusts name successor beneficiaries to take over the deceased beneficiary’s share.

For example, in a revocable living trust, assets may be divided among multiple children, with instructions that if one child dies, their share passes to their own children (the grantor’s grandchildren). If no successor beneficiary is named, the assets may be distributed according to the trust’s default terms or state law.

4. What Happens If No Contingent Beneficiary Exists?

If a deceased beneficiary was the sole heir and no contingent beneficiary is named, the inheritance may return to the estate’s residual beneficiaries – those who inherit any remaining assets after specific bequests are made. If no such beneficiaries exist, assets are typically distributed according to intestacy laws, which vary by state.

Under intestacy laws, assets are generally distributed to the deceased’s closest living relatives, such as spouses, children, or siblings. The estate may eventually escheat to the state if no heirs can be located.

5. Special Considerations for Spouses and Joint Ownership

Jointly Owned Property with Survivorship Rights: This property type automatically transfers to the surviving co-owner if one owner dies. This often applies to real estate, bank accounts, or investments held as joint tenants.
Community Property Laws: In certain states, these laws may influence how a deceased spouse’s assets are distributed. If the deceased beneficiary was a spouse, their estate share may follow marital property laws.

Steps Executors Should Take If a Beneficiary Dies

If a named beneficiary passes away before receiving their inheritance, the estate executor must:

Review the will or trust to determine if a contingent beneficiary is named.
Check state anti-lapse laws to see if the deceased beneficiary’s children or heirs inherit their share.
Identify residual beneficiaries if no direct heirs are listed.
Distribute the inheritance accordingly, either to another named beneficiary or through intestate succession.
Consult a probate attorney if the estate’s distribution remains unclear or disputed.

How to Prevent Issues in Your Estate Plan

To avoid complications when a beneficiary dies before receiving their inheritance, consider these estate planning best practices:

Regularly update your will or trust to reflect changes in family dynamics.
Name contingent beneficiaries for all major assets to ensure a clear inheritance path.
Use a trust to create structured distributions that automatically account for beneficiary changes.
Review state laws to understand how anti-lapse statutes and intestacy rules may impact estate distribution.

Ensuring a Smooth Transition

An estate plan should be flexible enough to adapt to life’s uncertainties, including the unexpected passing of a beneficiary. By including clear contingencies and understanding inheritance laws, you can ensure that assets pass efficiently to the intended heirs without unnecessary legal challenges. If you would like to learn more about beneficiaries, please visit our previous posts.

Reference: SmartAsset (June 21, 2023) “What Happens to an Inheritance If a Beneficiary Has Died?”

Photo by August de Richelieu

Estate Planning for Americans Living outside the U.S.

February 24, 2025

There are many nuances to estate planning for Americans living outside of the U.S. While the current federal estate tax levels are extremely high, there are different rules in other countries, and a clear understanding is needed, as reported in the Tax Management International Journal/Bloomberg Tax article, “Americans Living Overseas Need Cross-Border Estate Planning.”

At the very least, expatriates will want to understand the federal estate tax and how it works with state-level taxes and how European taxes work, which are very different than the American model.

The current 2025 federal estate tax exemption is $13.99 million per individual, and estates below this threshold don’t pay federal taxes. The exemption will likely remain at elevated levels in the foreseeable future. Estates exceeding this level are taxed at rates up to 40%. However, most high-net-worth individuals have strategic estate planning to minimize their tax liability. Lifetime gifting, charitable donations and trusts shelter assets and pass wealth on to future generations.

Several states have their estate taxes, which are typically far lower than the federal level. Oregon, Rhode Island and Massachusetts have the lowest exclusions at $2 million or less. New York State’s estate tax exclusion is $7.16 million. However, there’s a so-called “cliff tax” if the estate value exceeds the exemption even slightly. In most states, the estate tax ranges from 0.8% to 20%. Your estate planning attorney will know what your state’s exemptions are.

Inheritance taxes are levied only by a few states, including Iowa, Nebraska, Kentucky, Maryland, New Jersey and Pennsylvania. Maryland, known as a corporate haven for its low business taxes, imposes both estate and inheritance taxes. These taxes are based on the value of the inheritance and the relationship to the decedent.

In Europe, U.S. citizens are subject to more inheritance taxes, where exemptions tend to be lower, and rates are far higher than in the U.S. If you live overseas, you’ll need to consider the cost of your exposure to two tax systems. U.S. federal estate taxes apply wherever you live, in or outside of the U.S., and European inheritance taxes are based on where the decedent lived.

Estate planning for expats requires a multi-national approach. Find out if your country has a U.S. Estate and Gift Tax Treaty, which may allow credits to offset taxes paid in one country against those owned in another.

American citizens may gift up to $19,000 per person every year tax-free. Some European countries have a similar situation where lifetime gifting is based on the relationship between the grantor and the recipient.

Trusts recognized in the U.S. may not be recognized in other countries, so be sure the structure works in both the U.S. and your country of residence to avoid unexpected taxes.

The will you created in the U.S. may not be in compliance with another country and could lead to problems in estate administration.

Estate planning for Americans living outside of the U.S. can be complicated and difficult. Speak with an experienced estate planning attorney who can help you navigate the estate taxes and estate planning needs for living outside of the U.S. You’ll need to plan strategically to navigate American and your adopted nation’s estate tax structures. If you would like to learn more about planning for those outside the U.S, please visit our previous posts.

Reference: Tax Management International Journal/Bloomberg Tax (Jan. 28, 2025) “Americans Living Overseas Need Cross-Border Estate Planning”

Image by Mircea Iancu

Post-Nuptial Agreement can help Couples avoid Conflicts

February 19, 2025

Marriage later in life—often called a “gray marriage”—is becoming increasingly common as people remarry after divorce or the loss of a spouse. While love and companionship are at the heart of these unions, financial and legal complexities should not be overlooked. A post-nuptial agreement can help couples align their financial goals, protect assets and avoid potential conflicts, ensuring long-term security for both partners.

What Is a Postnuptial Agreement?

A postnuptial agreement is a legally binding contract created between spouses after marriage (as opposed to a prenuptial agreement, which the parties create before marriage). It outlines how to handle assets, debts and financial responsibilities during the marriage and in the event of divorce or death. Unlike a prenuptial agreement signed before marriage, a post-nuptial agreement allows couples to adjust their financial arrangements as circumstances evolve.

Why Postnuptial Agreements Matter in Later Life

For couples in a gray marriage, a post-nuptial agreement can clarify financial rights, protect inheritances for children from previous relationships and establish expectations regarding healthcare and estate planning.

Protecting Retirement Assets

Many older couples enter marriage with substantial retirement savings, real estate and other financial assets. Without explicit agreements, these assets may be subject to division in the event of divorce, potentially jeopardizing retirement security. A post-nuptial agreement can specify how these funds will be managed and allocated.

Ensuring Inheritance for Children and Heirs

In second or later marriages, spouses may have children from prior relationships. A post-nuptial agreement can ensure that specific assets or family heirlooms remain designated for biological children or grandchildren rather than automatically passing them to the surviving spouse. This arrangement helps prevent inheritance disputes and aligns estate planning goals.

Managing Debt Responsibility

Later-in-life marriages often involve individuals who have accumulated debts, including mortgages, business obligations, or personal loans. A post-nuptial agreement can clarify which debts are jointly shared and which remain the responsibility of the original borrower, preventing unexpected financial burdens.

Addressing Healthcare and Long-Term Care Costs

As couples age, medical expenses and long-term care costs become increasingly relevant. A post-nuptial agreement can outline how these costs will be covered, whether through shared finances, separate assets, or long-term care insurance. It can also specify healthcare decision-making responsibilities, if one spouse becomes incapacitated.

Clarifying Financial Expectations and Support

Some spouses in gray marriages may choose to keep their finances separate, while others prefer joint accounts. A post-nuptial agreement can establish clear expectations about how expenses, investments and financial support will be handled, reducing the likelihood of misunderstandings.

How to Create a Post-Nuptial Agreement

Couples should begin by discussing their financial goals, individual assets and any concerns about estate planning or debt. It’s important to be transparent about existing financial obligations and expectations for the future.

Work with an Attorney

A post-nuptial agreement should be drafted with an experienced attorney who understands family law and estate planning. Each spouse should have their own legal counsel to ensure that the agreement is fair and enforceable.

Ensure Full Disclosure

For a post-nuptial agreement to be legally valid, both spouses must fully disclose their assets, debts and financial interests. Any attempt to hide financial information could lead to the agreement being challenged in court.

Review and Update as Needed

As financial circumstances change, reviewing and updating the agreement periodically is important. Major life events like retirement, health changes, or new financial goals may warrant revisions.

Are Post-Nuptial Agreements Legally Enforceable?

Post-nuptial agreements are legally recognized in most states. However, courts will assess them based on fairness, financial disclosure and whether both spouses entered into the agreement voluntarily. If an agreement is unfair or was signed under duress, a court may choose not to enforce it.

Strengthening a Marriage through Financial Clarity

A post-nuptial agreement is not just about protecting assets – it can also help couples avoid conflicts and strengthen a marriage by fostering open communication and reducing financial uncertainty. By addressing financial concerns proactively, couples in gray marriages can focus on building a secure and fulfilling future together. If you would like to learn more about post-nuptial agreements, please visit our previous posts.

Reference: AARP (Nov. 15, 2024) “The Marriage Agreement Every Gray Couple Should Sign (and It’s Not a Prenup)”

Image by Alisa Dyson

Understanding Gift Tax Rules can help Tax-Efficient Giving

February 12, 2025

Many people give financial gifts to family members, friends, or charities, whether for milestone events, education, or estate planning purposes. While gifting is a generous act, certain gifts may trigger tax obligations. Understanding federal gift tax rules, annual exclusions and lifetime exemptions can help individuals structure their giving in the most tax-efficient manner.

What Is the Gift Tax?

The gift tax is a federal tax imposed on transfers of money or property made without receiving something of equal value in return. The person making the gift, not the recipient, is responsible for paying any applicable gift tax. However, most gifts fall within exemption limits, meaning few individuals owe taxes on their generosity.

How the Gift Tax Exclusion Works

As of 2025, individuals can give up to $19,000 per recipient per year without triggering gift tax reporting requirements. Married couples can combine their exclusions, allowing them to gift $38,000 per recipient tax-free.

For example, if a parent gives their child $19,000 in 2025, the gift is below the annual exclusion and does not need to be reported to the Internal Revenue Service (IRS). However, if the gift is $26,000, the excess $7,000 must be reported, though it may not necessarily result in tax owed.

Lifetime Gift Tax Exemption

In addition to the annual exclusion, individuals have a lifetime gift tax exemption, which allows them to give away a set amount over their lifetime without incurring taxes. In 2025, this exemption is $13.99 million per person (or $27.98 million for married couples).

If a gift exceeds the annual exclusion, the excess amount is deducted from the lifetime exemption. Only gifts that surpass this exemption trigger actual gift tax liability. Most people will never reach this limit, meaning they can give substantial amounts tax-free.

What Types of Gifts are Tax-Exempt?

Certain types of financial gifts are automatically exempt from gift tax rules, including:

Payments for Medical Expenses: Direct payments to medical providers for someone else’s healthcare are not considered taxable gifts.
Educational Tuition Payments: Direct tuition payments to a school or university (not including room and board) are exempt from gift tax.
Gifts to Spouses: Unlimited tax-free transfers can be made to a U.S. citizen spouse. Gifts to a non-citizen spouse have a lower annual exclusion limit ($190,000 in 2025).
Charitable Contributions: Donations to IRS-recognized charities are tax-deductible and do not count toward the gift tax exemption.

Reporting Large Gifts to the IRS

If a financial gift exceeds the annual exclusion, the giver must file IRS Form 709: U.S. Gift (and Generation-Skipping Transfer) Tax Return. Filing does not necessarily mean taxes are owed—it simply records the amount deducted from the lifetime exemption.

For example, if an individual gifts $30,000 to a child in 2025, the excess $11,000 is reported on Form 709. However, it is deducted from their $13.99 million lifetime exemption, leaving them with $13.979 million remaining. Taxes are only due if lifetime gifts surpass the exemption limit.

Tax Planning Strategies for Gifting

To maximize the benefits of financial gifts while minimizing tax exposure, consider these strategies:

Spread gifts over multiple years to take advantage of the annual exclusion each year.
Leverage direct tuition or medical payments to help loved ones without using up gift tax exclusions.
Utilize trusts for structured wealth transfers, such as irrevocable trusts for minor children or special needs beneficiaries.
Coordinate with an estate plan to gradually minimize estate tax liability by gifting assets.

The Role of an Estate Lawyer in Gifting Strategies

An estate planning attorney can help structure financial gifts to align with long-term wealth transfer goals while minimizing potential tax liabilities. Whether incorporating gifting into an estate plan or establishing trusts for heirs, professional guidance ensures compliance with IRS regulations.

Financial gifting allows individuals to share wealth, support loved ones and reduce potential estate taxes. By understanding gift tax rules and planning strategically, you can help structure tax-efficient giving that benefit both the giver and the recipient. If you would like to learn more about the gift tax, please visit our previous posts.

Reference: Kiplinger (Jan. 14th, 2025) “What is the Gift Tax Exclusion for 2024 and 2025?”

Photo by Kim Stiver

Financial Blunders Grandparents Should Avoid with Grandchildren

February 5, 2025

Grandparents often find immense joy in supporting their grandchildren, whether by funding education, contributing to major milestones, or simply providing for day-to-day needs. While these gestures can create lasting memories, an article from the AARP explains that financial missteps can lead to unintended consequences. Grandparents can balance generosity with financial security by understanding potential pitfalls and adopting thoughtful strategies. There are some common financial blunders grandparents should avoid with grandchildren.

Overextending Finances and Other Common Financial Mistakes Grandparents Make

One of the most common errors grandparents make is giving more than they can afford. This often happens out of a desire to help with significant expenses, like college tuition or housing. While the intention is noble, overcommitting financially can jeopardize retirement savings and long-term stability. Grandparents must evaluate their financial capacity before making significant commitments. Consulting with a financial advisor can clarify how much they can comfortably give without endangering their financial health.

Co-Signing Loans

Co-signing a loan for a grandchild, whether for a car, education, or personal use, can have serious implications. If the grandchild is unable to make payments, the financial burden falls on the grandparent, potentially damaging their credit score or creating unexpected debt. It’s essential to understand the risks before co-signing any financial agreement. Alternatives, such as contributing smaller amounts directly toward the loan, can provide support without the same level of risk.

Giving Unequally Among Grandchildren

Favoritism, whether intentional or perceived, can strain family relationships. For instance, funding one grandchild’s college tuition while offering no support to others can lead to resentment or conflict. To avoid these issues, grandparents should strive for fairness, considering equitable ways to help all grandchildren. Transparency about financial decisions and the reasoning behind them can also reduce misunderstandings.

Ignoring Tax Implications

Generous gifts can sometimes lead to unintended tax consequences. In 2025, the IRS allows individuals to gift up to $19,000 annually per recipient without triggering gift tax reporting requirements. Exceeding this threshold may require filing a gift tax return or result in tax liabilities. Grandparents should understand these limits and plan their giving accordingly. Contributions to 529 college savings plans or medical expenses paid directly to providers are additional tax-efficient options.

Failing to Prioritize Estate Planning

Large gifts made without considering overall estate planning goals can disrupt long-term plans or unintentionally disinherit certain heirs. Without proper documentation, disputes can arise among family members. Grandparents should incorporate financial gifts into their broader estate plans. Working with an estate planning attorney ensures that gifts align with their goals and minimize potential conflicts.

To avoid financial missteps, grandparents can adopt these thoughtful strategies:

Set clear boundaries and determine how much you can give without compromising your financial security.
Plan equitable contributions to ensure fairness among grandchildren, while considering individual needs.
Focus on education by contributing to tax-advantaged accounts, like 529 plans.
Pay for specific expenses directly to avoid triggering gift tax complications.
Work with financial and legal professionals to develop a giving strategy that aligns with long-term goals.

The Importance of Communication

Open communication with family members is key to avoiding misunderstandings or conflicts. Discuss your intentions and limitations with both your children and grandchildren, ensuring that everyone understands your approach to financial support. These conversations can strengthen family bonds and provide clarity about your financial role.

Balancing Generosity with Stability

Supporting grandchildren financially can be one of the most fulfilling aspects of grandparenting. Grandparents can avoid financial blunders with grandchildren by implementing thoughtful strategies that can provide meaningful assistance, while safeguarding their financial future. A balanced approach ensures that your generosity strengthens family ties without creating financial or relational strain. If you would like to learn more about estate planning for older couples, please visit our previous posts.

Reference: AARP (Nov. 11, 2024) “The 5 Worst Mistakes Grandparents Can Make with Money”

Image by Marjon Besteman

Navigating Probate for Out-of-State Properties can be Complex

January 29, 2025

Navigating probate for out-of-state properties can be complex. Property outside the deceased’s home state requires additional steps, often involving separate probate processes, known as ancillary probate. This process can be complex and time-consuming for beneficiaries, so knowing how to avoid and manage it is essential.

Understanding Ancillary Probate

Ancillary probate is a secondary process required when a decedent owns real estate in a different state from where they resided. Each state has its own probate rules, and ancillary probate ensures that local laws govern property transfer within that state. This process involves additional court proceedings, paperwork and, often, hiring an attorney licensed in that state.

The necessity of ancillary probate can complicate estate settlement, leading to delays and added legal fees. However, understanding how this process works and planning accordingly can help streamline property transfer and reduce administrative burden for beneficiaries.

Drawbacks of Out-of-State Probate

Out-of-state probate can be particularly burdensome for estate executors and beneficiaries. Key challenges include:

Time and Expense: Ancillary probate can take months or even years to resolve, especially if multiple properties are involved. This can delay property transfers and increase expenses, from court costs to attorney fees in each state.
State-Specific Rules: Each state has probate requirements, and navigating unfamiliar regulations can be difficult. These complexities often necessitate hiring local legal assistance, further increasing costs.
Potential for Disputes: With multiple jurisdictions involved, disputes are more likely to arise, complicating property transfers and causing additional delays.

Recognizing these challenges early can help estate planners and executors find ways to avoid or mitigate the effects of ancillary probate.

Solutions to Avoid Ancillary Probate

Once you realize that you’re at risk of ancillary probate, the next step is implementing strategies to avoid it. Thankfully, there are several ways that you can keep your property out of ancillary probate.

Transfer Property Ownership with a Revocable Living Trust

One of the most effective ways to avoid ancillary probate is to transfer real estate ownership into a revocable living trust. By placing property into a trust, the owner maintains control over the asset during their lifetime. Upon their passing, the trust facilitates the property’s transfer directly to beneficiaries, bypassing the need for probate altogether. Trusts are also adaptable, allowing the owner to make changes as needed during their lifetime.

Establish Joint Tenancy with Right of Survivorship

Another strategy for avoiding ancillary probate is establishing joint tenancy with the right of survivorship (JTWROS) on out-of-state properties. In a JTWROS arrangement, property ownership automatically passes to the surviving joint owner, eliminating the need for probate. This method benefits spouses or relatives wishing to simplify property transfer upon death. However, it’s important to remember that JTWROS does not allow flexibility in asset distribution, since ownership automatically transfers to the surviving owner.

Use a Transfer on Death (TOD) Deed

A Transfer on Death (TOD) deed is another probate-avoidance tool available in some states. This type of deed allows property owners to name a beneficiary who will inherit the property upon death. The TOD deed doesn’t impact ownership during the owner’s lifetime and can be changed or revoked as desired. Upon the owner’s passing, the TOD deed transfers the property directly to the named beneficiary, bypassing probate. However, it’s crucial to check if this option is available, as not all states permit TOD deeds.

Consider Selling the Property Before Death

Sometimes, selling out-of-state property before death can eliminate the need for ancillary probate. By liquidating the asset, the estate avoids probate proceedings in that state, simplifying asset distribution for beneficiaries. While this may not be the best solution for all situations, it’s a viable option for those who want to reduce the probate burden on their loved ones. It’s worth consulting an estate planning professional to weigh the financial implications of selling versus retaining the property.

Navigating probate for out-of-state properties can be complex, especially for executors unfamiliar with ancillary probate processes. If you would like to learn more about probate, please visit our previous posts.

Reference: Nolo (June 4, 2024) “Ancillary Probate: How to Avoid Probate in Another State”

Image by Simon Hill

Self-Employed must take a Proactive Approach to Estate Planning

January 16, 2025

Freelancers and the self-employed must take a proactive approach to estate planning. These types of jobs operate without the safety nets provided by traditional employment. This independence brings freedom. However, it also adds complexity to financial and estate planning. From managing irregular income to protecting business assets, creating an estate plan ensures that your hard work is preserved and distributed according to your wishes.

Unlike salaried employees, freelancers often lack access to employer-sponsored benefits, such as life insurance, retirement plans, or disability coverage. Their business assets and personal finances are frequently intertwined, making careful planning essential to avoid unnecessary complications for heirs.

A well-crafted estate plan for freelancers addresses:

Transfer of business assets or intellectual property.
Continuity of income for dependents.
Minimization of taxes and legal hurdles.

Freelancers and the self-employed must create a plan that considers their unique financial circumstances and provides long-term security for loved ones.

Freelancers often rely on their business as their primary source of income. Without a plan, the value of that business could be lost upon their death. Key steps include:

Appointing a Successor: Identify someone to take over the business or handle its sale.
Creating a Buy-Sell Agreement: Outline how ownership interests will be transferred for partnerships or joint ventures.
Documenting Procedures: Maintain clear records and instructions to help successors understand ongoing operations or intellectual property management.

Freelancers often experience fluctuations in income, which can complicate traditional estate planning strategies. To account for this:

Establish a rainy-day fund to provide a financial buffer for your estate.
Work with an estate planning attorney to identify flexible asset protection strategies.
Consider annuities or investments that provide steady income streams for beneficiaries.

Unlike traditional employees, freelancers must set up their own retirement savings plans. Options include:

SEP IRAs or Solo 401(k)s: Tax-advantaged accounts tailored for self-employed individuals.
Roth IRAs: Flexible savings accounts that grow tax-free, offering greater liquidity for heirs.

Ensuring that retirement savings are properly designated to beneficiaries avoids complications later.

The self-employed often own valuable digital assets like intellectual property, domain names, or online portfolios. These assets must be included in your estate plan to ensure seamless transfer. Create an inventory of:

Login credentials for key accounts.
Ownership documentation for websites or digital products.
Instructions for transferring or licensing intellectual property.

Many self-employed generate income from intellectual property, such as writing, artwork, or designs. An estate plan should specify how copyrights, patents, or trademarks are managed after death. This may include:

Assigning ownership to heirs or beneficiaries.
Creating trusts to manage royalty payments.
Licensing or selling rights to preserve income streams.

The first step to creating an estate plan is drafting a will that distributes assets, business interests and personal property according to your wishes. Without one, state laws determine asset distribution, which can result in unintended consequences. However, there’s much more to an estate plan than just making a will.

Establish Powers of Attorney

Freelancers should designate a trusted person to handle financial and healthcare decisions, if they become incapacitated. Powers of attorney ensure continuity in managing personal and business affairs during emergencies.

Consider a Living Trust

A living trust can help freelancers avoid probate and ensure that assets are distributed efficiently. Trusts are beneficial for managing complex assets, like intellectual property or business income.

Secure Life Insurance

Life insurance provides a safety net for freelancers with dependents by replacing lost income and covering future expenses. Policies should be aligned with your estate plan to ensure that benefits are directed appropriately.

Reach Out to an Estate Planning Attorney

Freelancers should consult estate planning attorneys and financial/tax advisors to create a plan that addresses their unique circumstances. Regular reviews ensure that the plan evolves alongside income, assets, or family structure changes.

Freelancers and the self-employed must take a proactive approach to estate planning. You can ensure your hard-earned legacy benefits your loved ones by addressing business continuity, income fluctuations and digital assets. An estate plan tailored to your needs secures your financial future and provides peace of mind, knowing that your assets and values will be protected. If you would like to learn more about planning for the self-employed, please visit our previous posts.

Reference: American College of Trust and Estate Counsel (ACTEC) (Oct. 19, 2023) “Estate Planning for Freelancers and the Gig Economy”

Photo by Kampus Production

A Trust Only Works if it is Properly Funded

January 9, 2025

A revocable trust is a powerful estate planning tool that helps individuals manage their assets during their lifetime and distribute them efficiently after their death. However, a trust only works if it is properly funded. The American College of Trust and Estate Counsel explains that many individuals make the mistake of setting up a trust but fail to transfer assets into it. This leaves their estates vulnerable to probate, taxes and disputes. To fully benefit from your trust, you must ensure that it is appropriately funded with all intended assets.

What It Mean to Fund a Trust

Funding a trust involves transferring ownership of assets from your name into the trust’s name. This step gives the trust legal control over the assets, allowing them to be managed and distributed according to the terms of the trust. Without this transfer, your assets may remain subject to probate, and your trust could become an ineffective document.

Key asset types that can and should be transferred into a trust include:

Real estate properties
Bank and investment accounts
Tangible personal property, such as valuable jewelry, artwork, or collectibles
Business interests and intellectual property
Life insurance policies (with the trust named as the beneficiary)

By funding your trust, you ensure that these assets are managed seamlessly during your lifetime and distributed efficiently upon your death.

Why Trust Funding is Essential

Failing to fund a trust undermines its primary purpose. If assets remain outside of the trust, they may become subject to probate—the often lengthy and costly legal process of settling an estate. This can delay the distribution of assets to your heirs and increase the likelihood of disputes among family members.

A funded trust also provides benefits that unfunded trusts cannot, including:

Privacy: Unlike wills, which become public records through probate, trusts keep the details of your estate private.
Control: Funding the trust ensures assets are distributed according to your wishes without interference from courts or state laws.
Continuity: In the event of incapacity, the trust enables a successor trustee to manage your assets without court intervention.

How to Fund a Trust

Properly funding a trust requires transferring ownership of assets into the trust and ensuring that documentation is updated to reflect the change. Each asset type requires specific steps:

Real Estate

To transfer real estate, you must execute a deed transferring ownership to the trust. This often involves recording the new deed with the local land records office. Consult an estate lawyer to ensure that the transfer complies with state laws and doesn’t inadvertently trigger taxes or other issues.

Bank and Investment Accounts

Banks and financial institutions typically require documentation to retitle accounts in the name of the trust. This might involve filling out specific forms or providing a copy of the trust agreement. Failing to update account ownership could result in these assets being excluded from the trust’s control.

Tangible Personal Property

A written assignment can transfer tangible personal property to the trust, such as art, heirlooms and jewelry. The assignment lists the items being transferred and formally declares their inclusion in the trust.

Life Insurance and Retirement Accounts

While retirement accounts, like IRAs and 401(k)s, are not typically retitled to a trust for tax reasons, you can name the trust as a beneficiary. For life insurance policies, updating the beneficiary designation to the trust ensures that proceeds are directed according to the trust’s terms.

Business Interests

If you own a business, transferring shares or interests into the trust allows the trustee to manage them as needed. This requires amending operating agreements, stock certificates, or partnership documents to reflect the transfer.

Common Pitfalls to Avoid

Even with good intentions, individuals often make mistakes when funding their trusts. Common errors include:

Leaving assets out of the trust: Forgetting to transfer all intended assets undermines the trust’s effectiveness.
Failing to update beneficiary designations: Beneficiary forms conflicting with trust terms can create legal disputes.
Not reviewing the trust regularly: As assets change over time, it’s essential to revisit and update the trust to include new acquisitions.

An estate lawyer can guide you through the process and help ensure that all assets are correctly transferred and documented. Remember, a trust only works if it is properly funded. It is a living document that requires ongoing attention. Regularly reviewing and updating the trust ensures it remains aligned with your goals and includes all current assets. Properly funding your trust provides security for your loved ones, avoids unnecessary legal complications and ensures that your legacy is preserved. If you would like to learn more about funding a trust, please visit our previous posts.

References: American College of Trust and Estate Counsel (ACTEC) (Aug. 31, 2023) “Funding Your Revocable Trust and Other Critical Steps” and American College of Trust and Estate Counsel (ACTEC) (Sep 21, 2023) “Tangible Personal Property in Estate Planning”

Image by Michal Jarmoluk

Pour-Over Will is a Safety Net for Assets not in a Revocable Trust

December 2, 2024

Estate planning can sometimes feel daunting, especially when it comes to ensuring that your assets go to the right people without hassle. The pour-over will, especially when paired with a revocable trust, can provide peace of mind. A pour-over will is like a safety net for assets that are not in a revocable trust.

This type of will allows any remaining assets you hadn’t transferred to your trust during your lifetime to “pour over” into the trust when you pass away. This ensures that everything is gathered into one place—the trust you created—so it can be distributed according to your wishes.

Even though pour-over will still need to go through probate, they streamline the process by consolidating everything into your trust, making it easier for the appointed trustee to handle everything in one place. According to Investopedia, pour-over wills cover any assets left outside the trust at death.

A revocable or living trust is a legal arrangement you create while alive. It allows you to transfer your assets into the trust’s ownership, and you can continue to control these assets, making adjustments or even dissolving the trust if you choose. This type of trust is often used to help avoid the probate process for assets placed within it.

When you set up a pour-over will alongside a revocable trust, the will is a backup for any assets that might not make it into the trust before you pass away. Let’s say, for instance, you acquire a new property but forget to transfer it to your trust. A pour-over will ensure that property eventually lands in your trust, keeping your wishes intact.

While the assets already placed in a revocable trust bypass probate, any assets that transfer via a pour-over will still go through this legal process. However, since the pour-over will usually contain fewer assets or smaller items, the probate process can be more straightforward and less expensive than it might be for a standard will covering all your assets. Probate rules vary by state, but having a pour-over will simplify things since it consolidates your assets into your trust, making it easier to administer your estate.

Not everyone needs a pour-over will. However, it’s a valuable tool in certain circumstances. Here are some situations where this combination might make sense:

You Have a Complex or Changing Asset Portfolio: If you often acquire new assets , it can be easy to overlook transferring something to your trust. A pour-over will capture anything not moved to the trust, ensuring that nothing gets left behind in the probate process.
You Want Flexibility and Control During Your Lifetime: A revocable trust allows you to control your assets and adjust as your needs change. Pairing this with a pour-over will ensure that any missed items are still distributed according to your intentions.
You’re Concerned About Privacy for Your Beneficiaries: Probate records are typically public, so any details in a standard will might be open to view. However, funneling your assets into a trust through a pour-over will add privacy.

A pour-over will pair with a revocable trust can offer several benefits:

Simplicity: Consolidating everything into a single trust makes it easier for your beneficiaries and trustee to manage your estate.
Reduced Legal Complications: This setup can help avoid disputes over assets, since everything is eventually directed to the trust where your wishes are clear.
Peace of Mind: Knowing that your assets will end up in the right hands, even if you forget to transfer something to your trust, can provide significant reassurance.

While a pour-over will is like a safety net for assets that are not in a revocable trust, be aware of a few drawbacks. Assets undergoing a pour-over must still undergo probate, meaning they aren’t entirely shielded from court proceedings. However, this may be a minor inconvenience if the peace of mind it provides outweighs the potential cost of probate.

A pour-over will also slow down the distribution of assets since probate can take time. This is worth considering for families or beneficiaries needing a quicker transition.

Setting up a pour-over will and revocable trust usually involves some paperwork and the help of an estate planning attorney. An attorney can guide you through drafting both documents, ensuring that your assets are accounted for and that any remaining assets will flow smoothly into your trust upon your passing.

Are you thinking about a pour-over will and revocable trust? It’s never too early to start planning. If you would like to learn more about trusts, please visit our previous posts.

Reference: Investopedia (April 1, 2024) “Pour-Over Will Definition and How It Works With a Trust”

Photo by Lukas

Creating a Comprehensive Estate Plan for Cryptocurrency is Essential

November 18, 2024

Creating a comprehensive estate plan for cryptocurrency is essential. Cryptocurrency is no longer just for tech enthusiasts. With the growing popularity of Bitcoin, Ethereum and other digital currencies, estate planning now involves accounting for these unique assets. Cryptocurrency brings new challenges, unlike traditional investments, such as real estate or bank accounts. There’s no customer service to help recover your funds, and if you don’t have the proper protection in place, your digital wealth could be lost forever.

One of the main differences with cryptocurrency is how it’s stored. Digital wallets protect your crypto holdings, and private keys control access to those wallets. A common phrase in the crypto world is “Not my key, not my coin,” which means that you don’t have access to the funds if you don’t have the private key.

If you don’t create a secure plan to transfer these keys to your beneficiaries, your cryptocurrency could be lost forever after your passing. Imagine losing a loved one and knowing they invested in Bitcoin without knowing where to find it or how to access it. There are no bank statements or account numbers to check, and without a clear estate plan, their digital wealth may disappear for good.

According to ACTEC, you must establish a secure plan for transferring these digital assets. One option is to use a third-party custodian to manage and store your cryptocurrency’s private keys. This minimizes the risk of losing your digital wealth through theft or mismanagement.

Some people prefer to store their private keys on physical items like a metal plate or a secure USB drive. While this method gives you direct control, keeping these items safe and ensuring that your heirs know where to find them is crucial. If these physical keys are lost, so is your crypto.

Another approach is to transfer your cryptocurrency into a corporate entity. This can simplify managing and passing down your crypto holdings, reducing the burden on your heirs to figure out how to handle the technical aspects of private keys.

Cryptocurrency is decentralized, which means there’s no central authority or institution to recover your assets if things go wrong. If you don’t create a clear plan for your crypto, it can easily be lost forever, leaving your family with nothing.

Creating a comprehensive estate plan for cryptocurrency is essential. This plan should clearly outline where your private keys are stored, how to access them and who will manage them after you’re gone.

If you’ve named a fiduciary, such as an executor or trustee, to manage your cryptocurrency, they may face unique difficulties. Cryptocurrencies are known for their volatility, with values fluctuating rapidly. Most fiduciaries are tasked with preserving the value of assets, and managing such volatile investments can be particularly challenging.

There’s also the issue of security. Fiduciaries may not be equipped to handle cryptocurrency’s technical requirements. They could accidentally lose access to these assets if unfamiliar with how digital wallets and private keys work. Selecting a fiduciary who understands these complexities or can seek help from those experienced in cryptocurrency management is essential.

Regarding taxes, the IRS treats cryptocurrency like any other property. You’ll owe capital gains tax if you sell your cryptocurrency for more than you paid. If you’ve held the cryptocurrency for over a year, you’ll pay long-term capital gains tax, which generally has a lower rate.

Cryptocurrency also plays a role in estate and gift taxes. Timing is essential here. If you transfer your crypto during a market downturn, you could lower the tax burden on your estate. Once the value goes back up, your heirs will benefit from the appreciation without the estate being taxed on the total amount.

Without a detailed estate plan, your cryptocurrency could be lost, mismanaged, or subject to excessive taxes. As digital assets become more common, it’s essential to account for them in your estate plan, just like any other investment. Estate planning lawyers can help you navigate these digital challenges and ensure that your cryptocurrency is adequately passed down to your heirs.

Don’t wait until it’s too late to secure your cryptocurrency. Speak with an estate planning lawyer today to create a solid plan for passing down your digital wealth. If you would like to learn more about managing cryptocurrency in your estate planning, please visit our previous posts.

Key Takeaways:

Protect your cryptocurrency: Digital wealth could be lost forever without proper estate planning.
Secure transfer of assets: Create a clear plan to ensure that your loved ones can access your cryptocurrency after your passing.
Reduce tax burden: Plan strategically to minimize capital gains and transfer taxes on your cryptocurrency.
Choose the right fiduciary: Select someone knowledgeable about cryptocurrency to manage your digital assets securely.

Reference: The American College of Trust and Estate Counsel (ACTEC) (Sep. 8, 2022) “Understanding Cryptocurrency in Estate Planning”

Image by Photospirit

Category: Financial Planning

What If a Beneficiary Dies Before Receiving an Inheritance?

Estate Planning for Americans Living outside the U.S.

Post-Nuptial Agreement can help Couples avoid Conflicts

Understanding Gift Tax Rules can help Tax-Efficient Giving

Financial Blunders Grandparents Should Avoid with Grandchildren

Navigating Probate for Out-of-State Properties can be Complex

Self-Employed must take a Proactive Approach to Estate Planning

A Trust Only Works if it is Properly Funded

Pour-Over Will is a Safety Net for Assets not in a Revocable Trust

Creating a Comprehensive Estate Plan for Cryptocurrency is Essential

Categories

View Blog Archives

Watch the

Estate Of The Union

Join Our

eNewsletter and Blog Digest List

Listen to the

Estate Of The Union

Texas Trust Law

Quick Links

Connect With Us