Category Archives: Estate Planning

5 Estate Planning Tips for Newlyweds

From the moment a couple says “I do”, their legal and financial connection takes on new meaning.

Below are tips that wise couples can use to do basic financial and estate planning.

1.  Review your insurance.  Newly married couples should review a few types of insurance, which include:
Many couples marry early in their careers with the majority of their earnings years ahead of them. Both spouses also often make substantial contributions to the household finances. If something were to happen to either one, the surviving spouse could be left in a difficult financial situation. Therefore, it makes sense for couples to assess whether they have a need for life insurance now that they depend on one another. It could also be a good time to buy a policy while healthy and still in a lower age bracket. 
Newly married couples should also take a look at automobile insurance. If each person maintained their own car insurance policy prior to the marriage, they could save money if they merge into one policy. The savings from pricing a new car insurance policy could be put to better use on some of the other items on this list. 
The couple might also want to consider insurance for their shiny new rings. Most homeowners insurance policies will let you add personal property, but it is a good idea to shop and compare prices. Sometimes a separate jewelry insurance policy will be cheaper than adding it on to the homeowners insurance policy. 
2. Draft wills. Most newlywed couples enter the marriage without an estate plan or a will. Even if you do come to the marriage with a will, it is important to update that will to include your new spouse. Drafting wills is an important piece of financial planning and can help couples make important decisions such as determining who should be nominated as personal representative or executor and how the assets should be distributed. Comprehensive estate planning would also cover arrangements for children, such as naming guardians and establishing trusts to delay inheritance until an age of maturity. You could even make plans for your pets. 
Drafting wills does not have to be a time-consuming hassle. When you work with an attorney that understands pressures facing young (and even not so young) couples, you can save time and money while receiving quality advice relevant to you. 
3.  Prepare powers of attorney and health care directives.  Along with wills, an estate plan should include power of attorney forms and health care directives. These forms designate who you want to act when you are not able. A power of attorney is used to make financial decisions whereas a health care directive is used to make medical decisions. When completing these forms, newlyweds should identify who should act as back up if they cannot act for each other. They should also have a conversation about health care goals, wishes, and beliefs. In addition, signing a Declaration for a Desire for Natural Death is a part of this process – this helps you make decisions if someone is on life support. Getting these forms completed, along with wills, is the foundation of a sound estate plan.
4. Beneficiary designations. With all the commotion of preparing for the wedding and starting life as newlyweds, it can be easy to forget to update beneficiary designations. For many people, though, this is one of the most common ways in which assets pass to the surviving spouse. Each spouse should review their financial accounts – including 401ks, IRAs, brokerage accounts, and bank accounts – and update the beneficiary as needed. If the couple wants to ensure all assets pass to the other spouse if one of them should die, they should designate each other as the primary beneficiary on all their financial accounts. This is especially important because beneficiary designations will take precedence over the will. A good estate planning attorney will be sure to walk you through this process while preparing your estate plan.
5. Re-title real estate. If either spouse owned a house or other real estate before the marriage, they should consider whether they want that property to be jointly owned by them. For example, if one of the spouses owned a home that the couple will now be living in, they probably want the home to be owned by both of them. They can do this by executing a deed placing the property into joint tenancy with right of survivorship or, in North Carolina, as Tenants by the Entirety (which gives you both some creditor protection). This way, both spouses will have rights to the property and the surviving spouse will automatically inherit the property if one of them should die.
The five quick tips outlined above are a good starting point for a newly married couple to kick start their financial and estate planning. Establishing a relationship with a local estate planning attorney can be a valuable way to start good financial habits. 

5 Really Good Reasons for Having a Revocable Trust (in no particular order)

The idea of going through probate leads many to consider a Revocable Trust. Revocable Trusts have been promoted a lot recently because Revocable Trusts and the assets titled in the trusts name or payable to the trust do avoid the probate process.  However, there’s more to Revocable Trusts. Think of a Revocable Trust as a bucket – you can put your assets in that bucket or take them out at any time. You are usually your own Trustee (thought there are exceptions) and you are in charge of your bucket. Below are the top reasons why you should have a Revocable Trust.

Reason #1: Safeguarding Property for Certain Recipients

This is probably one of the most important reasons for having a Revocable Trust.  When most of us think about estate planning, we think about giving our property to our spouse, our children, and other loved ones after we die.  But sometimes our intended beneficiaries aren’t able to handle an inheritance.

Minor children are the usual suspects here.  Many states don’t allow minor children to own property. Instead, the state appoints a guardian to hold the property until they reach majority age (usually age 18).  This person is called the Guardian of a Minor’s Estate and the funds must be principal guaranteed (think little to no growth) and turned over to that minor at age 18 in North Carolina. The principal typically cannot be used to support the minor without the court’s permission.

Minor children aren’t the only ones who might waste their inheritance.  Most experts agree that no one under the age of 25 should be given an inheritance outright because they generally are not mature enough to handle large sums of money. Of course, there are many other people over age 25 with poor spending habits, marriage problems, bankruptcy, and the like that could interfere with judgement. Then there are those who are just too frail and incapacitated to manage property on their own.  Giving a large sum of money or property to any of these people is rarely a good idea.

This is when a trust becomes a vital part of estate planning.  A trust allows you to give your hard-earned money and property to those you care about while protecting it for them at the same time.

Here’s a typical example to see how it works.  Let’s say that you have a 20-year old daughter who is a sophomore in college.  If you and your spouse both die, you’d probably want your daughter to get all your property, including the equity in your home, your life insurance, retirement plans, etc.  If you reduce all your property to cash, it could easily amount to a good sum of money.  For illustration purposes, let’s assume it’s $500,000.  Having the executor of your estate write a check to your 20-year old daughter for $500,000 is probably not a good idea.  Instead, it would be far better to create a trust for the benefit of your daughter with someone you trust – say a friend, family relative, attorney, or your local bank or professional trust company – serving as trustee.  The trustee would then hold the money and invest it for your daughter’s benefit while the assets are in the trust.  In the meantime, the trustee would use the money to pay for your daughter’s schooling, her general living expenses, and any other expenses you might specify in the trust instrument or at the Trustee’s discretion- including a down payment on a home or a new business.  Then, when your daughter reaches the age or ages specified in your trust instrument, the trust would give her a right to withdraw a certain fraction of the funds- say 1/3 at 25, up to another 1/3 at 30 and the remainder at 35. Because your daughter will probably be finished with her schooling at that time and already embarking on a career of her own, she’ll probably be mature enough to make good decisions regarding her inheritance.  Also, she can choose to leave some or all the funds in the trust, providing those funds with a liability protection unlike something she could give herself (think creditors, bad marriage, etc.).

Reason #2: Handling Property upon Disability

A major concern that many of us have today is about living too long.  We might worry about our parents living in their own home, their bills being paid and whether someone will walk off with their money.  Oftentimes, we are incapable of helping them because all of their property is in their own name.  Without prior planning, the only option we have is to file an application with the probate court to have a guardian appointed for them.  Therefore, their personal and financial affairs will have to be exhibited before strangers, and they will be forced to suffer the indignity and humiliation of being declared incompetent.

It doesn’t have to be that way.  Many people avoid that result by putting certain properties (particularly checking and savings accounts) in joint name with a son or daughter.  That enables the son or daughter to pay their bills, but it doesn’t provide a lot of help with other financial matters.  It also creates more problems when the parent dies because those accounts usually pass automatically to the son or daughter and excludes other children.

A better solution is a durable power of attorney.  A durable power of attorney allows you to designate the people you want to help you with your financial affairs.  But as good as a durable power of attorney is, it does have shortcomings.  First, your attorney-in-fact may find some financial institutions difficult to work with.  Second, it may not give your attorney-in-fact all the powers needed to manage your affairs.  For instance, if you were making gifts to family members on a regular basis, your attorney-in-fact would not be able to continue making those gifts unless that was specifically stated in the document.
A much better solution is a Revocable Trust.  A Revocable Trust allows your successor trustee to take over whenever you resign or become incapacitated. There is generally no interruption in the management of your property, and there is no court supervision, avoiding delays and avoiding legal and court fees.  Revocable Trusts also enjoy a greater level of acceptance throughout the legal and financial community, and almost all states provide a broad range of statutory powers regarding the management of trust property.  While it is true that a Revocable Trust isn’t effective unless your property is in the trust, a well written durable power of attorney will enable your attorney-in-fact to transfer property into your trust if you can’t do it on your own.

Reason #3: Avoiding Probate

Property in your Revocable Trust will not go through probate when you die because the trust instrument spells out who gets the property. It’s a lot like life insurance, annuities, 401(k) plans, IRAs, and company retirement plans. Those properties do not go through probate because they each have a designated beneficiary.  Jointly-owned property, with rights of survivorship and tenants by the entirety, doesn’t go through probate, either. It passes automatically to the surviving joint owner.

This doesn’t mean that your successor trustee is free to distribute the trust property immediately.  Just because your property is in trust doesn’t mean that your outstanding debts don’t need to be paid.  Likewise, the federal government still collects its estate taxes; your state government wants its inheritance taxes if applicable; and the probate court wants some fees even though most of your property may avoid probate.  There probably will be trustee’s fees and attorney’s fees as well.  In view of all these expenses, the successor trustee may be able to make some advanced distributions from the trust, but enough money has to be retained in the trust to pay all the debts and expenses.

Still, a reasonably efficient successor trustee will be able to determine fairly quickly just how much the potential debts and expenses will be, and he or she will then be able to make advanced distributions accordingly.  In the final analysis, most Revocable Trusts are able to distribute property more quickly and with much less cost than is possible through probate.
This doesn’t mean everyone should avoid probate. Most states have a simplified probate for estates valued at less than $20,000.  If you’re in that situation, then a simplified probate is probably right for you.  However, if your probate estate is valued at more than $20,000, then you should look at a Revocable Trust, particularly if any of the other reasons for a Revocable Trust apply to you.  In the end, it doesn’t take much to make up for the few dollars it takes to establish a Revocable Trust.

Reason #4: Avoiding a Will Contest

A will is far more likely to be contested than a Revocable Trust.  That’s because a will goes into effect only when a person dies, whereas a Revocable Trust goes into effect as soon as the trust instrument is signed and generally lasts for some time after the owner’s death.  If you’re going to contest a will, all you need to do is prove that the testator was either incompetent or under undue influence at the precise moment the will was signed.  To contest a Revocable Trust, you have to prove that the grantor was incompetent or under undue influence not only when the trust instrument was signed, but also when each property was transferred to the trust, when each investment decision was made, and when each and every distribution was made to the owner or anyone else.  That is nearly impossible to do.

However, contesting a will costs nothing.  All a disgruntled family member has to do is object when the will is presented for probate, then hire an attorney on a contingency fee basis, and wait for the final outcome.  A disgruntled family member has nothing to lose.  On the other hand, contesting a Revocable Trust generally involves a substantial commitment of time and money.  Whereas a will contest is heard in probate court, a Revocable Trust contest is heard in civil court where there are substantial filing fees and formal procedures that have to be followed.

Some people argue that will contests are seldom successful, so why bother with a Revocable Trust?  The answer is threefold:  First, a will contest puts a screeching halt to the settlement of an estate. Most will contests take a minimum of two or more years to complete and, during that period, no distributions will be made to anyone.  Second, defending a will contest involves lots of attorney time that results in large attorneys’ fees.  Even unsuccessful will contests end up costing $50,000 or more in attorney’s fees.  And, those fees come out of the estate, which means that much less for the beneficiaries.  Third, many will contests are settled before they ever get to court. In that case, the estate will be further diminished by the amount of the settlement that is eventually reached. In the final breakdown, will contests are time consuming and expensive.  The best way to avoid them is through a Revocable Trust.

Reason #5: Privacy

The concept of probate is disliked by most because it is a public process.  Just about anyone can go into probate court when a person dies and look at the estate file.  You can read the will, find out who the relatives and beneficiaries are, look at the claims of creditors and the list of assets, and find the phone numbers and addresses of estate beneficiaries.  Devious sales people often go through estate files to locate grieving heirs to prey on. Unhappy heirs, even friends and neighbors, often like to poke their noses into an estate file to see what’s there.  With the advent of the internet, they often don’t have to go to the probate court to take a look.

Revocable Trusts can avert all of that.  They are private and don’t get filed with the probate court, so no one gets to look at them unless the grantor or the trustee allows it.  Most individuals know whether they will have a problem with a family member or some other person regarding their estate. In those cases, privacy becomes a very important concern and one that should properly be addressed with a Revocable Trust.

If one or more of these reasons apply to you, then you should consult a professional to see whether a Revocable Trust makes sense in your overall estate planning.