Trust and Wills

What you should have discussed with your attorney before you messed up your will, trust and estate plan.

Many clients do not get proper advice from attorneys who are not skilled in this area; and clients do not recognize the problems involved in designing these documents to protect the financial security of their family.

The following will be a series of questions that have been asked of me over the last thirty years in this field that seem to be common as there are many misunderstandings in this area.

Category 1: Wills

Is it true that Wills are not subject to probate?
Despite many people's misunderstandings, a will still forces you to go to Probate if, you have a certain amount of assets in your name alone. Different states will dictate what that amount is. Some people have told me if their estate is under $600,000 or $1,000,000 there is no probate. That is confusing tax law with probate law and is not correct.
 
Is it true a Trust or Will should be reviewed annually?
Generally it is unlikely the family situation would change much in the next few years; the review of a Will or Trust on an annual basis is not necessary. Some of the main changes that may occur in changing a will or trust involve substantial increase in wealth; a changing of Trustees or Executors; minor children becoming adult; desires to disinherit certain family members.
 
If I do not have a Will does my estate go to the state?
Generally if you have any distant relative alive, the estate will not go the state. But by not having a will, there may be a costly surety bond that the family will have to absorb and it is very likely that your assets may not be going to whom you desire.By drawing up a proper will you can prevent these problems.

Category 2: Living Trust

Is a Living Trust better than a Will?
Yes, a Living Trust has far more advantages than a Will. The main purpose of drafting a Will is to avoid the state dictating who gets your money. A Trust provides a number of the following advantages if properly drafted: a Trust can avoid probate; allow you to have full control of your assets; protect your assets in the event you become disabled; protect assets that go to your children from law suits, creditors and marital claims; it can also result in substantial tax savings for income tax planning purposes after death and estate planning purposes.
 
When do I need a Living Trust?
Generally, when an estate is over $250,000 and that includes your house, life insurance and retirement accounts.

Category 3: Attorneys

My real estate attorney offered to draw up a Will or Trust for me. Isn't it true that all attorneys know how to draft these documents?
Quite frankly, the drafting of Trusts and Wills is a very specialized field. Apparently, a number of years ago, former Chief Justice Burger attempted to draft his Will and caused a lot of problems because he was not familiar with a lot of the laws. Because of the specialties involved quite frankly a Will should be drafted by an attorney who either specializes in this area or spends a lot of time of his or her practice doing so. A properly drafted Will can save a lot of problems for the family in the future and very often you have one shot with the Will or Trust because after death it can't be changed. Therefore a lot of problems after death can be resolved if the documents are drafted properly in the beginning.

Category 4: Second Marriage and Divorce

I am recently divorced and I have been told that it is important that I get a will drafted as soon as possible. Is this true?
Believe it or not, getting a will drafted upon the granting of a divorce is not necessarily the most important thing to do. Under most states, after a divorce, the former spouse is automatically cut out of the will. More importantly, make sure that all of your beneficiary designations are changed for your insurance, annuities or other types of retirement programs. Even if you do a new will, these assets pass directly to a beneficiary and are not affected by your new will.

The other thing to be aware of, is that a will is not necessary the best document in the event of a divorce. A trust is a far superior document to set up, as it will allow you to better control your assets after death, so that you can dictate who will control money for children from a prior marriage. A will may not prevent a former spouse from getting control over your assets for your children. A properly drafted trust could better protect the children and protect you in the event you become incapacitated.

Category 5: Family Business

I own a family business and currently all I have is a will. Is that adequate?
Most wills will provide that assets either go to a spouse or equal shares to children or a combination of both. By merely drafting a will, you may be ignoring the tax issues connected with the business or who takes control of the business at death. A properly drafted will may not be the best way to go if you own a family business.

A better way to go would be to structure a Family Business Succession Plan, which may involve a specially drafted living trust, other types of planning trusts, along with possibly a Buy/Sell Agreement. Failure to do so may prevent the business from continuing. As a matter of fact, most family businesses do not continue when the senior person dies, because improper planning was done. Improper planning in this area could end up in a huge financial drain to the family when the main business owner dies.

Category 6: Disabled Beneficiaries

I have a disabled child and I am concerned about leaving them assets, what should I do?
Many parents face this same concern and there are special trusts that are called Supplemental Special Needs Trusts in which you can provide for disabled children or other beneficiaries and still allow them to qualify for state and government benefits. It is very important that this trust be drafted properly and coordinated with you estate plan.

Category 7: Life Insurance

What are the pitfalls in a beneficiary designation for life insurance?
One of the biggest mistakes I see with life insurance is that parents will designate a minor child as a secondary beneficiary. This can cause all types of problems because insurance company will not issue a check to a beneficiary under the age of 18. Insurance companies will require you to go through a court proceeding to collect the insurance until the child reaches age 18 in most states and would therefore have control of those funds. A better planning technique with insurance is to designate some form of a trust as the beneficiary so that the insurance is protected for the minor children and will provide long-term protection even after the child reaches ages of maturity.
 
Is life insurance subject to tax?
It is generally not subject to income tax, but is subject to estate tax.

Category 8: Retirement Accounts

What are the pitfalls of designating a beneficiary for an IRA, 401K, Annuity or other such retirement plans?
All the money in these accounts very often is deferred income or is pre-taxed dollars. There are a number of tax selections, which can be examined when incorporating the beneficiary of these plans. Failure to really analyze these plan designations properly could result in substantial tax disadvantages to the family. It is very important that the attorney you work with not only have estate-planning skills, but also have a tax background to understand some of those tax selections.
 
I have a lot of joint properties, life insurance and retirement plans. Isn't it true that these plans are distributed at my death under my will?
It is absolutely false as all of these programs are contractual in nature and will pass either to a surviving joint tenant or to the beneficiary of the plan. It is very important that the beneficiary of these programs be properly coordinated with your estate plan or could result in disaster for one's estate plan trust or will.

Category 9: Inheritance

I am going to be inheriting substantial sums of money from my parents. Will this affect my estate plan?
It may very well have substantial tax effect on the assets you obtain. It is very important that your attorney discuss with you not only your current assets but where it is estimated your assets will go in the next several years, along with any potential inheritance.

Category 10: Estate Planning

I have minimum assets and do not believe I need estate planning. Am I correct in this assumption?
I often tell clients that those who need estate planning make up the white pages of a phone directory. Almost everybody has certain estate planning needs. Many people have the misconception that estate planning only deals with large dollar amounts. Estate planning actually deals with a lot of personal needs such as a second marriage situation; minor children; disabled children; how to deal with a small business that is owned at death. Almost everybody needs some type of estate plan. It may involved just setting up a will, but in many cases you will find that you have a lot more assets such as retirement assets, life insurance and residential real estate and it is very important that these assets be properly protected, either in the event of your disability or in the event of death. Proper legal draftsmanship by a qualified professional can save a lot of heartache and mess for the family in the future.
Contact attorney Rick Kuenster at 847-949-6600