Irrevocable Funeral Trust helps Families with expenses

August 14, 2023

Yahoo Finance’s recent article, “Pros and Cons of an Irrevocable Funeral Trust,” explains that an irrevocable funeral trust is a legal entity that helps families with end-of-life costs, such as funeral and burial expenses.

With this trust, you’re establishing a formal trust fund, a separate legal entity that owns the money you contributed to it. The purpose is to hold your money until you die. It then releases the funds to pay for your funeral, burial and other end-of-life expenses.

As with all trust funds, the trust has a trustee who manages its money. Here, the trustee is determined by an insurance company or funeral services company through which you set up the trust. It will usually hold as its single asset a life insurance policy that you’ve purchased.

The trust fund owns this life insurance policy and is named as the sole beneficiary. When you die, the fund collects the policy’s payment and uses this money to pay for your end-of-life costs.

A funeral trust may also name a specific funeral home as the trust’s beneficiary. For example, a given funeral home may agree to a fixed price for a funeral and burial.

When you die, the trust pays out its funds to the funeral home to cover the costs of your funeral, burial and any associated services.

As with most trusts, you can establish both revocable and irrevocable funeral trusts.

With a revocable funeral trust, you maintain ownership and control of the money and can withdraw it anytime.

However, with an irrevocable funeral trust, you no longer own the money, so you can’t withdraw it.

While an irrevocable funeral trust helps families pay for potentially expensive end-of-life expenses, it locks up your money for good and can’t be amended. If you would like to learn more about funeral planning, please visit our previous posts.

Reference: Yahoo Finance (April 29, 2023) “Pros and Cons of an Irrevocable Funeral Trust”

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Estate Tax Exemptions available for Married Couples

August 1, 2023

Estate tax avoidance and mitigation are central considerations for financial security for surviving spouses. Estate tax exemptions are available for married couples to help ensure a surviving spouse is cared for. According to a recent article from The National Law Review, “Basic Estate Tax Planning for Married Couples: Opportunities For Use Of Estate Tax Exemptions,” the first spouse may leave property of unlimited value to the surviving spouse without incurring any estate tax upon the death of the first spouse. This unlimited marital deduction shields assets from estate taxes and helps support the surviving spouse. Assets can be distributed directly to the surviving spouse or through an indirect transfer to a qualifying trust for the surviving spouse’s benefit.

Most couples use trusts for asset protection, most commonly for the preservation of assets for children from a prior marriage and asset management help for the surviving spouse. The marital deduction is a valuable estate tax avoidance tool for married couples.

However, estate tax law is not generous for non-spouse beneficiaries. Legislation passed in 2013 allowed individuals to leave assets totaling $5 million in value (indexed to inflation since 2011) to non-spouse, non-charitable beneficiaries and then doubled this amount following the Tax Cuts and Jobs Act to $10 million. However, if additional legislation is not passed before the sunset date of January 1, 2026, this amount will be cut in half.

In 2013, Congress made the portability of a spouse’s estate tax exemption permanent. This allows the surviving spouse to capture and use the first decedent spouse’s remaining estate tax exemption and the surviving spouse’s own exemption. To capture this estate tax exemption, an estate tax return must be filed in a timely manner after the death of the first spouse.

If spouses have a total estate exceeding available exemptions, they may use what is known as the “Credit Shelter Trust Planning” or “Optimal Marital Deduction Planning.” A trust is established, funded with assets of the first spouse to die, to use the spouse’s estate tax exemption. Assets in the trust are available to the surviving spouse for life but are not included in the survivor’s taxable estate upon their death. The goal benefits the surviving spouse and reduces any estate tax to maximize benefits for the children and grandchildren.

Another frequently used tool is the “disclaimer” plan, which allows the survivor to move certain assets into a trust for the survivor’s benefit rather than receiving assets directly. For married couples with estates valued at less than their available estate tax exemptions, a disclaimer plan provides the “all to spouse” plan and the option to implement a tax-advantaged trust. All assets are left to the survivor; then, based on the value of the first spouse’s estate, the surviving spouse may choose to disclaim the first spouse’s assets and divert them to a tax-advantaged trust.

Married couples should take advantage of the estate tax exemptions available to them to help protect a surviving spouse financially. It must be noted that there is no “one-size-fits-all” plan for married couples who wish to care for their surviving spouse, children, and grandchildren. It’s important to understand the basic estate tax avoidance or mitigation tools to create an estate plan to consider the couple’s planning goals and values. An experienced estate planning attorney can create a comprehensive estate plan to suit each family’s needs. If you would like to learn more about the estate tax, please visit our previous posts.

Reference: The National Law Review (June 24, 2023) “Basic Estate Tax Planning for Married Couples: Opportunities For Use Of Estate Tax Exemptions”

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Be cautious using Portability in a Second Marriage Estate Plan

July 19, 2023

Be cautious using portability in a second marriage estate plan. Despite its advantages, portability isn’t always the solution, even as it’s been used to take the pressure off couples to focus on using as much estate and gift tax exclusion as possible after the first spouse’s death. According to a recent article from Wealth Management, “Portability and Second Marriages,” portability might be a mistake.

The couple and their estate planning attorney need to consider whether leaving the executor with the discretion to use portability is appropriate, and if it is, who the executor should be and how the estate tax burden should be allocated.

The problem with portability in nonstandard families is this: it allows the surviving spouse to use the DSUE (Deceased Spouse’s Unused Exemption) amount personally, instead of requiring it be used for the beneficiaries of the first spouse to die. It’s almost like leaving assets outright to the surviving spouse. In the case of a testate decedent, Treasury regulations provide that only the executor may make the portability elections. The executor should probably not be also a beneficiary and should not be responsible for making the portability election.

Let’s say the estate isn’t large enough to require an estate tax return filing. If the executor is a child from a prior marriage, they may not choose to incur the expense of filing an estate tax return solely to make the portability election for the second spouse. Instead of having the family involved in a disagreement over the need for a return or determining who will pay for its preparation, a better option is to have the estate plan direct whether an estate tax return should be filed to elect portability and if this is done, establish who is responsible for the cost of the preparation and filing.

In complex families with children from a prior marriage, a Qualified Terminable Interest Property (QTIP) trust is used for the surviving spouse, with the trust assets eventually passing to the client’s descendants. However, if the QTIP trust is combined with portability, the estate plan may not operate as intended.

Here’s an example. Ted marries Alba several years after his first wife, Janine dies. Ted has three children from his marriage to Janine. He bequeaths most of his estate to a QTIP trust for Alba and the remainder to his children, naming Alba his executor. At Ted’s death, Alba elects QTIP treatment for the trust and portability. She then makes gifts of her assets to her family using Ted’s DSUE amount. Alba dies with an estate equal to her basic exclusion amount, which she also leaves to her family. The QTIP trust pays estate tax, and Ted’s children receive no benefit from Ted’s exclusion amount.

Even if Alba didn’t make gifts to her family, assuming her estate was large enough to absorb most of her applicable exclusion amount (including the DSUE), the QTIP trust would have to contribute to pay the estate taxes attributed to it unless the estate plan waives reimbursement. Thus, the QTIP trust could bear most or all of the estate tax at the death of the second spouse, while the second spouse’s personal assets are sheltered in part by the deceased spouse’s DSUE amount.

In cases like this, the prudent course of action may be to use traditional credit shelter/marital deduction planning. If there’s a DSUE amount available, the estate plan could direct whether it will be used and how the tax burden on the QTIP trust is handled.

Be cautious using portability in a second marriage estate plan. An experienced estate planning attorney will look at the family’s situation holistically and evaluate which strategies are most appropriate to distribute the property per the parent’s wishes to minimize taxes and ensure that the estate plan achieves its goals. If you would like to read more about estate planning for second marriages, please visit our previous posts.

Reference: Wealth Management (June 21, 2023) “Portability and Second Marriages”

Dying Intestate can leave Family financially Crushed

July 11, 2023

Dying intestate can leave your family financially crushed. Dying intestate can mean either that you didn’t have a will or that you had one, but it was held to be unenforceable for some reason.

Intestate inheritance is governed by state law. Every state has its own set of statutes that stipulates who inherits and in what order. These laws are called the laws of succession or the laws of inheritance. The Uniform Probate Code is a template for inheritance laws, and many states have based their own code on the UPC.

Yahoo’s recent article, “What Happens If I Die Without a Valid Will?” explains that the probate courts govern intestate estates. An intestate estate goes through the same three-step process as a testate estate. Attorneys get paid first; debts, taxes, administrative fees and other legal liabilities are paid second, then the heirs receive their portions.

Most state probate codes distribute assets based on the closeness of relation to the deceased. The close relatives inherit before distant relatives in “tiers” of inheritance. Most states’ laws say that intestate succession will proceed in the following order:

Spouse
Legal descendants (i.e., children)
Parents of the decedent
Siblings of the decedent
Grandparents of the decedent
Nieces, nephews, aunts, uncles and first cousins.

As a general rule, any given category of an heir will inherit the entire estate, which is divided into pro-rata shares among all heirs; for example, if an individual died intestate with no spouse, children, or surviving parents, but two sisters and several aunts and uncles. The two sisters would each receive half of the estate, and the aunts and uncles would get nothing.

The big exception to this rule is spouses. In most cases, a spouse will automatically inherit all non-marital assets. However, the Uniform Probate Code does have exceptions for heirs, such as parents and descendants. This is important when it involves children to whom the surviving spouse is not related.

If someone dies intestate and they have no legal living heirs, their assets go to the state. Dying intestate can leave your family financially crushed. The simplest way to avoid this is by working with an estate planning attorney to craft a Will or Trust. If you would like to learn more about drafting a will, please visit our previous posts.

Reference: Yahoo (January 27, 2023) “What Happens If I Die Without a Valid Will?”

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Who is Authorized to Amend a Trust?

June 7, 2023

Procrastination is the most common mistake in estate planning when people don’t create a will and trusts and when documents are not updated. For one family, a revocable trust created when both parents are living presents some complex problems now, when the surviving wife wants to make changes but is suffering from serious health issues. So who is authorized to amend a trust?

As described in the article “Estate Planning: Who can amend the trust” from NWI Times, this scenario requires a careful review of the trust document, which should contain instructions about how it can be amended and who has the authority to do so. An estate planning attorney must review the trust to ensure it can be amended.

If the trust allows the surviving settlor to amend the trust, the authority to amend it may only be given to the surviving settlor. The mother may be permitted to amend the trust. However, it can’t be anyone acting on her behalf.

If the language in the trust makes the power to amend personal, a guardian or an attorney-in-fact likely won’t be able to amend the trust. Likewise, if the mother is incapacitated and cannot do this herself, the trust may not be amendable while she is ill or disabled.

However, if the trust allows the surviving settlor to amend the trust and the power is not personal, a legal representative, such as a guardian or an attorney-in-fact, may be able to amend the documents for her, if they have the authority to do so under the terms of the trust.

Anyone contemplating this amendment must be aware of any “self-dealing” issues. The legal representative will be restricted to making changes only for the benefit of the beneficiaries and should be mindful before attempting to amend the trust.

Suppose the authority to amend doesn’t exist or other restrictions make it impossible, depending on the state’s laws. In that case, it may be possible to docket the trust with the court and obtain a court order authorizing the trustee to depart from the terms of the trust or even amend the document.

Accomplishing this is far easier if all involved agree with the changes to be made. Unfortunately, if any interested parties object, it may lead to litigation.

Depending upon the desired change, entering into a family settlement agreement may be possible after the mother dies. If everyone is willing to sign off, an agreement can be written authorizing the trustee to deviate from the terms of the trust. This will also require the guidance of an estate planning attorney to ensure that the agreement follows the state’s laws.

If family members disagree with the change, the trustee can refuse to accept the settlement agreement to protect themselves from potential liability. It is wise to sit down with your estate planning attorney and ensure you and your loved ones are familiar with who is authorized to amend a trust. If you would like to learn more about trusts, please visit our previous posts.

Reference: NWI Times (May 7, 2023) “Estate Planning: Who can amend the trust”

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Lack of Will can be Devastating for families

June 6, 2023

According to a recent article, “The Confusing Fallout of Dying Without a Will,” from The Wall Street Journal, despite the consequences for their heirs and loved ones, millions of Americans still don’t have a will. The total wealth of American households has tripled over the past thirty years, according to the Congressional Budget Office. Still, more than half of Americans polled by Gallup said they didn’t have a will in 2021. Another survey showed that one in five Americans with investible assets of $1 million or more don’t have a will. The lack of a will can be devastating for families.

Dying without a will means the laws of your state will determine who gets your assets. In some cases, loved ones could end up with nothing. They could be evicted from the family home and even hit with massive tax bills.

This is especially problematic for unmarried couples. One example—after 18 years of living together, a couple had an appointment with an estate lawyer to create wills. However, the woman died in a horseback riding accident just before the appointment. Therefore, her partner had to get the woman’s sons, who lived overseas, to sign off, so he could be appointed her executor. The couple had agreed between themselves to let him have the home and SUV they’d purchased together. However, state law gave her sons her 50% interest. Therefore, he had to buy out her son’s interest to keep his home and car.

Dying without a will, or “intestate,” means you can’t name an executor to administer your estate, name a guardian for minor children, or distribute the property as you want.

Here’s what you need to know about having—or not having—a will:

State law governs property distribution. In some states, where there is a surviving spouse and children, the surviving spouse gets 100% of the estate, and the children get nothing. The surviving spouse gets 50% in other states, and the children divide the estate balance. For example, in Pennsylvania, if there are no children but there is a surviving parent, the surviving spouse gets the first $30,000, and the balance is split 50/50 with the parent. In Tennessee, a surviving spouse with two or more children receives a third of the estate, with the rest split between the children.

Check on all assets for beneficiary designations. Retirement accounts and life insurance policies typically pass to whoever is listed as the beneficiary. However, if you never named a beneficiary, the state’s laws will determine who receives the asset.

The lack of a will can be devastating for families. Ensure you have a basic will created at the very least. If you don’t have a will and want to be sure a partner gets these assets, you’ll need to speak with an experienced estate planning attorney to explore your options. For example, you might be able to use a transfer on death deed or a payable on death account. However, there may be better ways to accomplish this goal. If you would like to learn more about wills and probate, please visit our previous posts.

Reference: The Wall Street Journal (May 2, 2023) “The Confusing Fallout of Dying Without a Will”

Intricacies to Consider when using a SLAT

May 30, 2023

Making plans for the events of the future not only saves your family time and money but will also provide peace of mind to you and your beneficiaries, advises the article “Learn about options for estate planning and wealth transfer” from The Tennessean. One of the tools used in estate planning is the Spousal Lifetime Access Trust (SLAT), an especially useful trust now that lifetime exemptions are set to decrease at the end of 2025. There are a number of intricacies to consider when using a SLAT in your estate planning.

No federal estate taxes are owed for individuals with assets up to $12.92 million and married couples with $25.84 million in 2023. However, federal estate taxes are owed at a maximum rate of 40% for any wealth above these amounts.

This is of particular interest right now. The Tax Cut and Jobs Act of 2017 (TCJA) doubled the federal gift and estate tax exemption per spouse, allowing a married couple to exempt up to $25.84 million and individuals $12.92 million. However, this exemption amount will expire on December 31, 2025, decreasing by about half.

It’s a “use it or lose it” proposition right now, so taxpayers who want to take advantage of these historically high exemption levels should consider taking action before the expiration date. One way to do that is with a Spousal Lifetime Access Trust.

A SLAT is an irrevocable trust where one spouse gifts assets to the other beneficiary spouse. The beneficiary spouse may receive distributions during their lifetime, while the SLAT is removed from the gross estate and isn’t subject to estate taxes upon the beneficiary’s death. It’s a valuable estate planning tool, as it permits taxpayers to gift assets while retaining limited access to the funds through their spouse.

If a person gifts assets to an irrevocable trust, they can’t take the assets back or change the terms of the trust. Therefore, they’ve given up control over the asset. However, a SLAT provides indirect access through the spouse, who may receive income and principal distributions from the trust during their lifetime.

A SLAT needs to be properly drafted by an experienced estate planning attorney, and they do come with some risks. For example, if the beneficiary spouse passes away suddenly, the spouse may lose access to their SLAT payouts. If the couple divorces, the spouse may lose access to assets, unless the trust includes a provision stating that the trust benefits current and future spouses, which allows indirect access to be regained after remarrying. In addition, assets held in a SLAT don’t receive a step-up in cost basis upon the donor spouse’s death. This might lead to increased capital gains tax liability for remainder beneficiaries.

There are a number of intricacies to consider when using a SLAT as part of your estate plan. To ensure that the SLAT is appropriate, consult an experienced estate planning attorney. If you would like to learn more about trusts, please visit our previous posts.

Reference: The Tennessean (May 7, 2023) “Learn about options for estate planning and wealth transfer”

Protecting Assets in a Second Marriage can be a challenge

May 23, 2023

Protecting assets in a second marriage can be a challenge. Parents in second marriages may want to leave assets to their children and try to make sure that their stepchildren don’t inherit. However, if stepchildren inherit, it can create resentment leading to legal disputes that can cost the estate significantly in delay and attorney fees.

AOL’s recent article, “How to Protect Assets From Stepchildren,” says that taking specific estate planning steps will let you effectively protect your assets from stepchildren.

If a stepchild inherits some of your assets, your children may feel cheated out of their rightful inheritance. Therefore, they may contest any awards to stepchildren to protect their interests.

Your children will be recognized as heirs to your estate even without a will naming them as beneficiaries. Stepchildren don’t have the same rights.

In most cases, they won’t inherit from a deceased stepparent’s estate unless specifically listed as beneficiaries in the will. However, stepchildren still may receive assets from your estate if your spouse dies after you and leaves assets to their children. Preventing stepchildren from ever getting assets from your estate can be done. However, it requires definite action to exclude them as beneficiaries.

If your spouse from a second or later marriage dies first, you usually don’t have to do anything to prevent stepchildren from receiving assets you control.

Even after an intestate death that happens without a valid will, stepchildren typically aren’t recognized as having any right to assets in the estate. However, some states grant stepchildren some rights of inheritance. Ask an experienced estate planning attorney about this.

In addition, a will can name specific people, including stepchildren, and exclude them from receiving benefits from the estate.

Using a trust, you can ALSO prevent stepchildren from getting assets from your estate after you die.

This can help avoid conflicts and potential litigation from children upset because stepchildren received assets from the estate.

Protecting assets in a second marriage can be a challenge. Remember that if you fail to act, stepchildren can still benefit even at the expense of your children if, for example, you die before your spouse, who then names their children as beneficiaries of the estate. If you would like to learn more about remarriage protection, please visit our previous posts.

Reference: AOL (April 26, 2023) “How to Protect Assets From Stepchildren”

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Paper Documents You will always Need in your Planning

May 17, 2023

So much of our lives is digital now. From our phones to parts of our cars, many things that used to be tangible are now virtual. This can also include important documents involved in your planning. There are some paper documents that you will always need in your estate planning. Many important documents, such as a social security card or birth certificate, may be decades old. Therefore, if they get lost, you should know how to replace them. AARP’s recent article entitled, “You’ve Lost an Important Document. Now What?” breaks it down for you.

Passport. To avoid becoming a victim of identity theft, report a lost or stolen passport by calling 877-487-2778 or completing Form DS-64 online at travel.state.gov. You can also print the form at the website and mail it to the U.S. State Department. To get a replacement passport, you must submit a Form DS-11 in person at a passport office.

Birth certificate. Contact the vital records office in the state where you were born and order a replacement.

Marriage certificate. Contact the clerk of the county where the license was issued. This office will let you know the documents required, the cost and how the copy can be issued (online, by mail, or in person).

Social Security card. First, consider the need for a replacement because you rarely need the physical card. However, a replacement card should be obtained if you’re starting a new job or live in a state where you need it to apply for a Real ID. To obtain a new Social Security card, you’ll need a birth certificate, driver’s license, state-issued identification card, or a passport. You should then complete an application on the Social Security website (ssa.gov) and mail or take your application and original documents to your Social Security office (the website has information on locations). The replacement card is free.

Will. Laws relating to estate planning are different in each state. However, generally, if your will was accidentally lost or destroyed and not revoked, it will still be valid and represent your wishes. A copy of the will can be submitted to the court at your death. However, you must have left behind clear evidence that you didn’t revoke it—proof that it was accidentally destroyed or lost or testimony from an impartial third party stating that you didn’t plan to change it. Your heirs will also need evidence that it’s a true copy, which the original witnesses or attorney can confirm.

Car Title. The replacement process for the title to your vehicle varies by state. Contact your Department of Motor Vehicles. You may be able to submit a form, or you have to submit a photo ID, vehicle registration, or registration renewal notice.

While the convenience and portability of digital documents is helpful, there will always be paper documents you will need in your estate planning. Ensure you have a plan to protect your documents. Work closely with an experienced estate planning attorney to get it done. If you would like to learn more about essential estate planning documents, please visit our previous posts.

Reference: AARP (Feb. 14, 2023 ) “You’ve Lost an Important Document. Now What?”

Avoid Unintended Consequences with your Planning

May 11, 2023

The mistake can be as simple as signing a document without understanding its potential impact on property distribution, failing to have a last will and testament properly executed, or expecting a result different from what the will directs. Unfortunately, these unintended consequences are relatively common, says the article “Advice for avoiding unintended issues in estate planning” from The News-Enterprise. You can avoid unintended consequences with your planning by working with an estate planning attorney.

The most common mistake that leads to unintended consequences is leaving everything to a spouse in a blended family. Even if children don’t have a close relationship with their stepparent, they’re willing to get along for the sake of their biological parent. However, when the first spouse dies, the decedent’s beneficiaries are generally disinherited if the surviving spouse receives the entire estate.

If the family truly has blended and maintains close relationships, the surviving spouse may ensure that the decedent’s children receive a fair share of the estate. However, if the relationships are tenuous at best, and the surviving spouse changes their will so their biological children receive everything, the family is likely to fracture.

Using a revocable living trust as the primary planning tool is a safer option. An experienced estate planning attorney can create the trust to allow full flexibility during the lifetime of both spouses. Upon the first spouse’s death, part of the estate is still protected for the decedent’s intended beneficiaries.

This way, the surviving spouse has full use of marital assets but can only change beneficiaries for his or her portion of the estate, protecting both the surviving spouse and the decedent’s intended beneficiaries.

Another common mistake occurs when married couples execute their last will and testaments with different beneficiaries. For example, if they’ve named each other as the primary beneficiary, only the survivor will have property to leave to loved ones.

An alternative is to decide what the couple wants to happen to the estate as a whole, then include fractional shares to all beneficiaries, not just the one spouse’s beneficiaries. This protects everyone.

Many people assume that if they die without a will, their spouse will inherit everything. Unfortunately, this is not always the case, and a local estate planning attorney will be able to explain how your state’s laws work when there is no will. Children or other family members are often entitled to a share of the estate. This may not be terrible if the family is close. However, if there are estranged relationships, it can lead to the wrong people inheriting more than you’d want.

Failing to plan in case an heir becomes disabled can cause life-altering problems. If an heir develops a disability and receives government benefits, an inheritance could make them ineligible. The problem is that we don’t know what state of health and abilities our heirs will be in when we die, and few will want their estate to be used to reimburse the state for the cost of care. A few extra provisions in a professionally prepared estate plan can result in significant savings for all concerned.

Estate planning is about more than signing off on a handful of documents. It requires thoughtful consideration of goals and potential consequences. Can every single outcome be anticipated? Not every single one, but certainly enough to be worth the effort. You can avoid unintended consequences with your planning by working with an experienced estate planning attorney. If you would like to learn more about mistakes in your estate planning, please visit our previous posts.

Reference: The News-Enterprise (March 25, 2023) “Advice for avoiding unintended issues in estate planning”

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Category: Surviving Spouse

Irrevocable Funeral Trust helps Families with expenses

Estate Tax Exemptions available for Married Couples

Be cautious using Portability in a Second Marriage Estate Plan

Dying Intestate can leave Family financially Crushed

Who is Authorized to Amend a Trust?

Lack of Will can be Devastating for families

Intricacies to Consider when using a SLAT

Protecting Assets in a Second Marriage can be a challenge

Avoid Unintended Consequences with your Planning

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