What Is the Purpose of a Guardian?

October 18, 2022

The most frequently asked questions about guardianship concern when it’s needed, how the process works and is there a way to avoid it. The idea of guardianship may feel troubling if you’ve never known anyone who needed a guardian, says a recent article “Guardian process can be lengthy, difficult” from The News-Enterprise. What is the purpose of a guardian, exactly?

Simply put, guardianship is a court proceeding restricting or removing the right of a person to manage their own financial, legal and medical affairs.

Guardianship is not exclusive to elderly individuals, as it is often used to protect adults and older children with disabilities. The purpose of a guardian is mainly when the person is unable to manage their own finances, incapable of understanding the scope and consequences of making their own medical decisions or is at risk of exploitation due to diminished capacity.

The process for obtaining guardianship for another person is complicated and takes at least several months before a guardianship order is entered into the legal record.

The first step is for the person who seeks guardianship for another person to file a petition with the District Court in the county where the impaired person lives. The person who files the petition is known as the petitioner and the person who needs the guardianship is known as the respondent. The petitioner is usually a family member but may also be a concerned person or an institution, like a nursing facility.

The petition is often paired with a request for emergency guardianship pending a trial. If the court doesn’t order the emergency order immediately, a short trial may be needed to get an emergency order. The court then sets a trial date and issues an order for an evaluation.

Different states have different requirements, which is why the help of an experienced estate planning attorney is needed. In some states, reports from three independent team members are needed: a healthcare professional, which is typically the respondent’s primary care physician; a mental health professional and a social worker, often from Adult Protective Services.

Each person from the team must conduct an independent evaluation and submit a separate report to the court with their findings and a recommendation. In some states, the guardianship moves to a trial, while in other states the trial is held in front of a judge.

If the guardianship is granted, by trial or by the judge, a guardian is appointed to make decisions for the person and a conservator is named. The conservator is in charge of the person’s finances. Both the guardian and conservator are required to file reports with the court concerning their actions on behalf of the respondent throughout the duration of their roles.

How can guardianship be avoided? It’s far simpler and less costly for the family to work with an estate planning attorney to have Durable Powers of Attorney and Health Care Power of Attorney documents created in advance of any incapacity. Paired with fully funded revocable living trusts, the family can have complete control over their loved one without court intervention.

These documents cannot be prepared after a person is incapacitated, so a pro-active approach must be taken long before they are needed. Consult with an experienced estate planning attorney who will help you understand the purpose and expectations of a guardian. If you would like to learn more about guardianship, please visit our previous posts.

Reference: The News-Enterprise (Sep. 24, 2022) “Guardian process can be lengthy, difficult”

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Community Property Trust is Potential Tool

October 17, 2022

Where you live matters for estate planning, since laws regarding estate planning are state specific. The same is true for taxes, especially for married couples, says a recent article “How Community Property Trusts Can Benefit Married Couples” from Kiplinger. A community property trust is a potential tool to consider in your planning.

There are two different types of basic ownership law for married couples: common law and community property law. Variances can be found across states, but some general rules apply to all. If a state is not a community property state, it’s a common-law state.

Community property states have a tax advantage for assets when one spouse dies. But if you live in a common-law state, don’t worry: several states have now passed statutes allowing married couples living in a common-law state to establish a community property trust with a qualified trustee. They can gain a step-up in cost basis at each death, which previously was not allowed in common-law states.

First, let’s explain what community property means. Each member of the married couple owns one half of all the property of the couple, with full rights of ownership. All property acquired during a marriage is usually community property, with the exception of property from an inheritance or received as a gift. However, laws vary in the community property states regarding some ownership matters. For example, a spouse can identify some property as community property without the consent of the other spouse.

Under federal law, all community property (which includes both the decedent’s one-half interest in the community property and the surviving spouse’s one-half interest in the community property) gets a new basis at the death of the first spouse equal to its fair market value. The cost basis is stepped up, and assets can be sold without recognizing a capital gain.

Property in the name of the surviving spouse can receive a second step-up in basis. However, there’s no second step-up for assets placed into irrevocable trusts before the second death. This includes a trust set up to shelter assets under the lifetime estate tax exemption or to qualify assets for the unlimited marital deduction. This is often called “A-B” trust planning.

Under common law, married couples own assets together or individually. When the first spouse dies, assets in the decedent spouse’s name or in the name of a revocable trust are stepped-up. Assets owned jointly at death receive a step-up in basis on only half of the property. Assets in the surviving spouse’s name only are not stepped-up. However, when the surviving spouse dies, assets held in their name get another step-up in basis.

To date, five common-law states have passed community property trust statutes to empower a married couple to convert common-law property into community property. They include Alaska, Florida, Kentucky, South Dakota and Tennessee.

The community property trust allows married couples living in the resident state and others living in common-law states to obtain a stepped-up basis for all assets they own at the first death. Those who live in common-law states not permitting this trust solution can still execute a community property trust in a community property state. However, they will first need to appoint a qualified trustee in the state.

For this potential tool to work, a community property trust needs to be prepared properly by an experienced estate planning attorney, who will also be able to advise the couple whether there are any other means of achieving these and other tax planning goals. If you would like to learn more about community property, please visit our previous posts.

Reference: Kiplinger (Sep. 18, 2022) “How Community Property Trusts Can Benefit Married Couples”

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The Difference between Revocable and Irrevocable Trusts

October 13, 2022

A living trust can be revocable or irrevocable, says Yahoo Finance’s recent article entitled “Revocable vs. Irrevocable Trusts: Which Is Better?” And not everyone needs a trust. For some, a will may be enough. However, if you have substantial assets you plan to pass on to family members or to charity, a trust can make this much easier. There is a difference between revocable and irrevocable trusts.

There are many different types of trusts you can establish, and a revocable trust is a trust that can be changed or terminated at any time during the lifetime of the grantor (i.e., the person making the trust). This means you could:

Add or remove beneficiaries at any time
Transfer new assets into the trust or remove ones that are in it
Change the terms of the trust concerning how assets should be managed or distributed to beneficiaries; and
Terminate or end the trust completely.

When you die, a revocable trust automatically becomes irrevocable and no further changes can be made to its terms. An irrevocable trust is permanent. If you create an irrevocable trust during your lifetime, any assets you transfer to the trust must stay in the trust. You can’t add or remove beneficiaries or change the terms of the trust.

The big advantage of choosing a revocable trust is flexibility. A revocable trust allows you to make changes, and an irrevocable trust doesn’t. Revocable trusts can also allow your heirs to avoid probate when you die. However, a revocable trust doesn’t offer the same type of protection against creditors as an irrevocable trust. If you’re sued, creditors could still try to attach trust assets to satisfy a judgment. The assets in a revocable trust are part of your taxable estate and subject to federal estate taxes when you die.

In addition to protecting assets from creditors, irrevocable trusts can also help in managing estate tax obligations. The assets are owned by the trust (not you), so estate taxes are avoided. Holding assets in an irrevocable trust can also be useful if you’re trying to qualify for Medicaid to help pay for long-term care and want to avoid having to spend down assets.

But again, you can’t change this type of trust and you can’t act as your own trustee. Once the trust is set up and the assets are transferred, you no longer have control over them.

Speak with an experienced estate planning or probate attorney to help understand the difference between revocable and irrevocable trusts. If you would like to learn more about trusts, please visit our previous posts.

Reference: Yahoo Finance (Sep. 10, 2022) “Revocable vs. Irrevocable Trusts: Which Is Better?”

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A Life Estate can help Protect your Property

October 12, 2022

If you are concerned about your loved ones losing control of the family home, a life estate can help protect your property. A life estate is a type of property ownership that divides the control and ownership of a property. The person who creates the life estate for their home and assets is known as the “life tenant.” While a tenant retains control of the property, he or she shares ownership during their lifetime with the remainderman (the estate’s heir).

Quicken Loans’ recent article entitled “What Is A Life Estate And What Property Rights Does It Confer?” explains that while the life tenant lives, they’re in control of the property in all respects, except they can’t sell or encumber the property without the consent of the remaindermen. After the life tenant passes away, the remainderman inherits the property and avoids probate. This is a popular estate planning tool that automatically transfers ownership at the life tenant’s death to their heirs.

The life estate deed shows the terms of the life estate. Upon the death of the life tenant, the heir must only provide the death certificate to the county clerk to assume total ownership of the property.

Medicaid can play an essential role in many older adults’ lives, giving them the financial support needed for nursing facilities, home health care and more. However, the government considers your assets when calculating Medicaid eligibility. As a result, owning a home – or selling it and keeping the proceeds – could impact those benefits. When determining your eligibility for Medicaid, most states will use a five-year look-back period. This means they will total up all the assets you’ve held, sold, or transferred over the last five years. If the value of these assets passes above a certain threshold, you’ll likely be ineligible for Medicaid assistance.

However, a life estate can help protect elderly property owners by allowing them to avoid selling their home to pay for nursing home expenses. If your life estate deed was established more than five years before you first apply for benefits, the homeownership transfer would not count against you for Medicaid eligibility purposes.

To ensure you’re correctly navigating qualifying for Medicaid, it’s smart to discuss your situation with an attorney specializing in Medicaid issues. If you would like to learn more about life estates, please visit our previous posts.

Reference: Quicken Loans (Aug. 9, 2022) “What Is A Life Estate And What Property Rights Does It Confer?”

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A Pet Trust will keep your Animals Safe

October 11, 2022

For one woman in the middle of preparing for a no-contest divorce, the idea of a pet trust was a novel one. She was estranged from her sister and didn’t want her ex-husband to gain custody of her seven horses, three cats and five dogs if she died or became incapacitated. Who would care for her beloved animals? Creating a pet trust will keep your animals safe.

The solution, as described in the article “Create a Pet Estate Plan for Your Fur Family” from AARP, was to form a pet trust, a legally sanctioned arrangement providing for the care and maintenance of companion animals in the event of a person’s disability or death.

Creating a pet trust and establishing a long-term plan requires state-specific paperwork and funding mechanisms, which are different from leaving property and assets to human family members. An experienced estate planning attorney is needed to ensure that the protections in place will work.

Shelters nationally are seeing a big increase in animals being surrendered because of COVID or people who are simply not able to take care of their pets. Suddenly, a companion pet accustomed to being near its human owner 24/7 is left alone in a shelter cage.

When pet parents have not made plans for their pets, more often than not these pets end up in shelters. However, not all animal shelters are no-kill shelters. In 2021, data from Best Friends Animal Society shows an increase in the number of pets euthanized in shelters for the first time in five years.

For pet owners who can’t identify a caregiver for their companions, the best option may be to find an animal sanctuary or a shelter providing perpetual care.

The woman described above had a pet trust created and funded it with a long-term care and life insurance policy. The trust was designed with a board of three trustees to check and balance one another to determine how the money will be allocated and what will happen to her assets. Her horse property could be sold, or a long-term student or trainer could be brought in to run her barn.

It is not legally possible to leave money directly to an animal, so setting up a trust with one trustee or a board is the best way to ensure that care will be given until the animals themselves pass away.

The stand-alone pet trust (which is a living trust) exists from the moment it is created. A dedicated bank account may be set up in the name of the pet trust or it could be named as the beneficiary of a life insurance or retirement plan.

A pet trust can also be set up within a larger trust, like a drawer within a dresser. The trust won’t kick in until death. These plans prevent the type of delays typical with probate but is problematic if the person becomes incapacitated.

If a trust is created as part of another trust, there can still be delays in accessing the month, if the pet trust is getting money from the larger trust.

With costlier animals likes horses and exotic birds, any delay in funding could be catastrophic.

How long will your pet live? A parrot could live for 80 years, which would need an endowment to invest assets and earn income over decades. A long-living pet also needs a succession of caregivers, as a tortoise with a 150 year lifespan will outlive more than one caregiver. Speak with your estate planning attorney about creating a pet trust that will keep your animals safe. If you would like to learn more about pet trusts, please visit our previous posts.

Reference: AARP (Sep. 14, 2022) “Create a Pet Estate Plan for Your Fur Family”

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How to Manage Aging Parents Finances

October 5, 2022

A day will come when age begins to catch up with your parents and they will need help with their finances. This begs the question of how to manage your aging parents finances. Even if your parents don’t want to feel dependent, when you think they need your assistance, you can approach the issue with sensitivity and extend your support for the management of their finances, says Real Daily’s recent article entitled “5 Tips to Manage an Aging Parent’s Finances.” Here are some tips:

Start the conversation early. Your parents may not need your help with the handling of their financial matters right away. However, it is smart to begin the conversation early. Approach the issue of who will manage the financial responsibilities when they’re no longer able to do it. Parents should select a trusted family member by providing their advance written consent. This will let you to talk about your parents’ financial issues with financial advisors, doctors and Medicare representatives and carry out timely financial planning.
Create a list of all pertinent legal and financial documents. Prepare a list of your parents’ important contacts, bank account details and locations of any stored documents, like wills, property deeds, insurance policies and birth certificates. Make certain all information and documentation is accurate and up to date. If information needs to be modified because of a change of circumstances, this is time to apprise them of it and help them do what’s needed.
Consider executing a power of attorney. A competent adult can sign a power of attorney to authorize another person to make decisions on their behalf. A power of attorney for a specific purpose may cover medical, financial, or other decisions, and it may be designed to give limited or more sweeping powers. When your parents sign a power of attorney with you named as their attorney in fact, it will legally empower you to make key decisions when they can’t. An elder law attorney can help you draft an appropriate power of attorney according to your situation.
Document your actions and keep others in the know. Transparent communication will help you avoid misunderstandings or controversy within your family. Keep your parents, siblings and any other loved ones involved with your family informed about your actions. No matter how noble your intentions may be, if others are kept in the dark, it can raise questions about your motives. Managing the finances of aging parents is a lot of work, and you can ask for the support of family members or at least keep the lines of communication open.
Don’ comingle your finances with your parents’ plans. While it may look to be a convenient or cost-effective thing to do, it’s never a good idea to combine your parents’ finances with your own. Keep them separate. Using your parents’ money for your purposes or your own money to help them out is usually a slippery slope that should be avoided. Don’t forget about your own financial goals and retirement savings while you focus on helping your parents.

Take the time to sit down with your parents and their estate planning attorney to have an understanding of their existing planning and how to manage your aging parents finances. If you are interested in learning more about managing the finances or care of your elderly parents, please visit our previous posts.

Reference: Real Daily (Sep. 9, 2022) “5 Tips to Manage an Aging Parent’s Finances”

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How are a Living Will and Advance Directive Different?

October 4, 2022

A comprehensive estate plan contains far more than a last will and testament. It also contains a number of documents to communicate wishes for decisions to be made during life. These include a living will, an advance directive and a healthcare power of attorney, as explained in the article “What Is a Living Will and Do I Need One?” from healthline. It is a common mistake to think that a living will and an advance directive are the same. They are not. How are a living will and an advance directive different?

What is a living will? A living will is a document providing instructions for medical care, or in some circumstances, for the termination of medical support. They indicate wishes for the use or discontinuation of life-sustaining medical treatments. The living will is used if the individual becomes incapacitated and cannot communicate normally. Incapacitation is determined and certified by a medical professional. Living wills address such treatments as resuscitation, hydration, a feeding tube and pain management.

Each state has its own rules for creating a legally valid living will. The information required in most states is:

Legal name and any aliases or nicknames.
The current day, month and year.
A statement attesting to being of sound mind and body.
Healthcare instructions for events with no reasonable expectation for recovery or quality of life, which may include CPR, DNR (do not resuscitate) and do not intubate (DNI).
The name of your healthcare proxy, the person who you want to communicate and state your wishes and the name of an alternate healthcare proxy, if you have one.
Witness statements indicating you willingly and rationally signed this document (the number of witnesses varies by state).
Your legal signature.

An advance directive is not the same thing but can include a living will. The advance directive has two parts: the living will and the healthcare power of attorney. These documents don’t address finances, property distribution, guardianship of children or any non-medical matters. For those, you need a last will and testament.

The healthcare power of attorney is a document identifying the person named to make healthcare decisions for you. It’s sometimes called a durable medical power of attorney. The person you name to make decisions is called your healthcare proxy, healthcare agent, or healthcare surrogate. This document does not address end-of-life care, but instead grants legal permission to the person to make decisions for you.

The living will, advance directive and healthcare power of attorney work together to allow someone else to represent you during a medical crisis. These documents should be created by an experienced estate planning attorney and shared with the people you choose, so they may act on your behalf. Unfortunately, we never know when a medical crisis or accident will occur, so these documents are needed at any age and stage of life. An experienced estate planning attorney can help you better understand how a living will and an advance directive are different. If you would like to learn more about drafting a comprehensive estate plan, please visit our previous posts.

Reference: healthline (Sep. 1, 2022) “What Is a Living Will and Do I Need One?”

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IRAs can be used to make Charitable Bequests

October 3, 2022

While death is a certainty, some taxes aren’t. IRAs can be used to make charitable bequests, explains a thought-provoking article titled “Win an Income-Tax Trifecta With Charitable Donations” from The Wall Street Journal. For those who are philanthropically minded and tax-savvy, this is an idea worth consideration.

There are few better ways to leave funds to a charity than through traditional IRAs. The strategy is especially noteworthy now, given the growth in traditional IRA values over the last decade, even with the recent selloffs in bond and stock markets. At the end of 2022’s first quarter, traditional IRAs held about $11 trillion, more than double the $5 trillion in IRAs at the end of 2012.

With the demise of defined benefit pensions, traditional IRAs are now the largest financial account many people own, especially boomers. Therefore, it’s wise to know about applicable tax strategies.

The first advantage is tax efficiency. Donors of IRA assets at death win a three-way tax prize: no tax on the contributions going to the charity, no tax on annual growth and no tax on assets at death.

Compare this to donations of cash or investments, such as a stock held in a taxable account. For example, let’s say Jules wants to leave a total of $20,000 to several charities upon her death. She expects to have more than $20,000 in each of three accounts at this time. One account is cash, the other is a traditional IRA, holding stocks and funds, and the third is a taxable investment account holding stocks purchased decades ago.

A charitable bequest of assets from any of these three accounts will bring a federal estate-tax deduction. However, Jules’ estate will be smaller than the current estate tax exemption of about $12 million, so there are no federal estate taxes to consider.

Jules should focus on minimizing heirs’ income taxes on any assets she’s leaving them and donating traditional IRA assets is the way to go. If she leaves the IRA assets to heirs, they will have to empty the IRA within ten years and withdrawals will be taxable.

Giving IRA assets gets pretax dollars directly to the charities, which don’t pay taxes on the donation. A cash donation would be after tax dollars.

Donating the IRA assets to charity is also typically better than giving stock held in a taxable account. Because of the step-up provision, there is no capital gains on such investment assets held at death. If Jules bought the now $20,000 stock for $5,000, the step-up could save heirs capital gains tax on $15,000 when they sell the shares. If she donates the stock, heirs won’t get this valuable benefit.

Next, IRA donations allow for great flexibility. Circumstances in life change, so a will that is drawn up years before death could be changed over time, to give a bequest of a different size or to a different charity. It’s easier to make these changes with an IRA. One way is to set up a dedicated IRA naming one or more charities as beneficiaries and then moving assets from other IRAs into it via direct (and tax-free) transfers. Beneficiaries and the percentages can be easily changed, and the IRA owner can raise or lower the donation by transferring assets between IRAs.

If the IRA owner is 72 or older and has to take required minimum distributions, the owner can take out donations from different IRAs. Note the funds must go directly to the charity when making the donation. Speak with your estate planning attorney about how IRAs can be used to make charitable bequests. If you would like to learn more about charitable giving, please visit our previous posts.

Reference: The Wall Street Journal (Sep. 2, 2022) “Win an Income-Tax Trifecta With Charitable Donations”

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The Estate of The Union Season 3|Episode 10

The Estate of The Union Season 2 Episode 3 is out now!

September 30, 2022

The Estate of The Union Season 2, Episode 3 – Mis-Titled Assets Can Wreck Your Planning is out now!

Almost everyone thinks that once they have a Will or Living trust in place, they are set when the unthinkable happens. Unfortunately, that ain’t always so!

The way in which you take title to assets can affect your estate, taxes and perhaps the disposition of the asset if a couple divorces. In our latest edition of our Podcast, The Estate of the Union, Brad Wiewel explores what MUST happen behind the scenes to make the estate plan happen! It’s not just the documents, it’s aligning your assets with the plan – which is called “Funding.” And if this part gets screwed-up, it’s a train wreck that may happen the minute someone passes away or becomes incapacitated.

We’ve got sixteen other episodes posted and more to come. We hope you will enjoy them enough to share it with others. These are available on Apple, Spotify and other podcast outlets.

In each episode of The Estate of The Union podcast, host and lawyer Brad Wiewel will give valuable insights into the confusing world of estate planning, making an often daunting subject easier to understand. It is Estate Planning Made Simple! The Estate of The Union Season 2, Episode 3 – Mis-Titled Assets Can Wreck Your Planning can be found on Spotify, Apple podcasts, or anywhere you get your podcasts. If you would prefer to watch the video version, please visit our YouTube page. Please click on the link below to listen to the new installment of The Estate of The Union podcast. We hope you enjoy it.

Texas Trust Law focuses its practice exclusively in the area of wills, probate, estate planning, asset protection, and special needs planning. Brad Wiewel is Board Certified in Estate Planning and Probate Law by the Texas Board of Legal Specialization. We provide estate planning services, asset protection planning, business planning, and retirement exit strategies.

A Pot Trust can Provide Flexibility

September 29, 2022

A pot trust is a type of trust that names the children as beneficiaries and the trustee is given discretion to decide how the trust assets should be spent. This trust lets the grantor create a single pool of assets to be used for the benefit of multiple children. A pot trust can provide flexibility as to how trust assets are used if you plan to leave your entire estate to your children, says Yahoo Finance’s recent article entitled “How Does a Pot Trust Work?”

If you create a family pot trust for your three children and one of them experiences a medical emergency, the trustee would be able to authorize the use of trust funds or assets to cover those costs.

Flexibility is a key element of family pot trusts. Assets are distributed based on the children’s needs, rather than setting specific distribution rules as to who gets what. You might consider this type of trust over other types of trusts if:

You have two or more children;
At least one of those children is a minor; and
You plan to leave your entire estate to your children when you pass away.

Pot trusts can be created for children when you plan to leave all of your assets to them. Generally, a pot trust ends when the youngest included as a beneficiary reaches a certain age. As long as the trust is in place, the trustee can use his or her discretion to determine the way in which trust assets may be used to provide for the beneficiaries’ well-being. The aim is to satisfy the financial needs of individual children as they arise.

However, pot trusts don’t ensure an equal distribution of assets among multiple children. And a family pot trust can also put an increased burden on the trustee. In effect, the trustee has to take on a parental role for financial decision-making. That’s instead of adhering to predetermined directions from the trust grantor. And children may also not like at having to wait until the youngest child comes of age for the trust to terminate and assets to be distributed.

Setting up a pot trust isn’t that different from setting up any other type of trust and it can provide you with more flexibility as to how assets are managed. Ask an experienced estate planning attorney to help you. If you would like to learn more about pot trusts, please visit our previous posts.

Reference: Yahoo Finance (Aug. 30, 2021) “How Does a Pot Trust Work?”

Photo by Tima Miroshnichenko

Blog Articles

What Is the Purpose of a Guardian?

Community Property Trust is Potential Tool

The Difference between Revocable and Irrevocable Trusts

A Life Estate can help Protect your Property

A Pet Trust will keep your Animals Safe

How to Manage Aging Parents Finances

How are a Living Will and Advance Directive Different?

IRAs can be used to make Charitable Bequests

The Estate of The Union Season 2 Episode 3 is out now!

A Pot Trust can Provide Flexibility

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