Simplicity and thoroughness are always the most important considerations when considering needed changes to estate planning documents. Where possible, an amendment to an existing document may be the simplest way to make needed changes—which is often the case for a Will or Trust. Other times, a new document is the best approach—which is quite frequently the case for power of attorney documents. When meeting with a client that needs a change to their estate planning documents (due to life changes, family changes, changed goals, etc.), my commitment is always to implement changes efficiently and in the most cost-effective manner. Of course, being thorough and accurate are also central priorities. In the end, a careful review of existing documents and a thorough understanding of needed changes provide the framework for how best to revise an estate plan.
A beneficiary deed transfers real estate to a named beneficiary upon the death of the property owner. In other words, when a property owner dies, their real estate can go to a desired family member (or someone else) without going through probate. A beneficiary deed can be a particularly desirable tool because it is relatively inexpensive to put in place, it feels “simple” and it does not need to be connected to a Will or Trust. While every situation varies, preparing and recording a beneficiary deed often makes the most sense when real estate is the main asset owned or when there is only one intended beneficiary. Of course, there are instances where a beneficiary deed is not advisable. Often, this might be in a situation with numerous intended beneficiaries or where the property owner ultimately desires the property to simply be sold.
A Will is one of the most basic elements of estate planning. In a word, yes—you do indeed need a Will. Good estate planning often involves much more than that (think powers of attorney, beneficiary designations, perhaps a living trust) but a Will is nearly always a basic and central part of an effective estate plan. A Will directs where your property goes when you die—while also including administrative designations, procedural directions and other important legal provisions. Additionally, for a parent of a minor child, a Will typically includes a nomination of someone to serve as a successor guardian. Of course, every situation is different and every person is different—and every estate plan is different. However, in nearly every instance, you do need a Will.
When you create a trust, you typically name yourself (or perhaps you and your spouse) as the trustee(s) of your trust. The trustee manages the trust assets and makes determinations about investments and distributions. Of course, when you pass away, you will no longer be the trustee of your trust. So, who manages trust assets? Who makes determination regarding investments and distributions? A well-drafted trust agreement will provide detail and direction on these fronts, but someone must still be in charge (the trustee). When determining who to nominate for this central role, the following characteristics are important to consider:
Financial Competence. Skill at managing trust assets, keeping accurate records and properly handling finances will go a long way toward smooth and proper trust administration.
Strong Communication. The trustee will be interacting with beneficiaries. A strong ability to be clear, friendly and accurate is important.
Local. All things the same, a trustee based locally is generally better than one located out of town. Of course, this can vary depending on individual circumstances.
Familiarity. Familiarity with your goals and wishes can be helpful in situations where the trustee has some discretion in distributions.
The selection of the right trustee can make a major difference in the smooth and competent administration of a trust. While there is no perfect formula for selecting the right person (or trust company), ample consideration given to these qualities can be a good starting point.
Nearly any type of business venture (no matter how big or small) should be accompanied by the creation of a business entity. The term “business entity” refers to a limited liability company (LLC), a limited liability partnership (LLP), a corporation or other similar organization. In many cases, an LLC is the easiest and most flexible type of business form. So why is this so important? Operating as a unique business entity (as opposed to running a business in your own name) generally offers protection from personal liability. In other words, if the company faces some type of liability (contract, lawsuit, etc.) that liability does not extend to the individual owners of the company. The owner will not be personally liable for the debts and liabilities of the company. Of course, there are numerous important legal and procedural nuances to comply with to assure the viability of such limited liability. Additionally, a number of important tax issues interplay with any decision regarding a business entity. However, in the end, some type of business entity is nearly always strongly recommended for any type of business.
Determining which documents and tools best fit your goals and needs is central to having an effective estate plan. Do I need a trust? What’s the difference between a will and trust? Do I need both? Do I need either one? These are common questions. While there are deeper layers of detail and nuance that of course merit consideration, a simple explanation could go as follows:
A Will designates where your property goes but has to go through probate to do so. Probate is often costly and time-consuming. A Will does not offer much in the way of control and direction as to how property and money is used after you die. However, a Will is effective at making basic designations about property and in some circumstances, it is really all that is needed.
A trust avoids probate altogether and gives you wide-ranging control over how trust property is used. It is effective at addressing unknown variables in the future. It can be an especially effective tool when named beneficiaries are young or you do not want them to get their whole share of the trust at one time. A trust is also tremendously effective in planning for education, living expenses and other needs of beneficiaries. A trust’s administration after you die is also very private, is not generally intertwined with any type of court proceeding and it is usually a much more streamlined process when compared to probate.
Ultimately, the determination of what documents would make up an effective estate plan is highly dependent on your unique personal and family circumstances together with your goals and concerns.
When undertaking any type of estate planning, the question of “who?” becomes nearly as important as the questions of “what?” Designating the right person (or people) to manage financial and other affairs is tremendously important. When a trust is in place, the individual “in charge” of the trust is called the “trustee.” The trustee’s role is central in the management and administration of the trust. While the written terms contained in the agreement bind the trustee to certain duties, action and limitations, a trustee will undoubtedly still be given significant decision-making authority. In particular, a trustee generally (i) has broad discretion in investing trust assets and (ii) has some significant discretion relating to trust distributions to the named beneficiaries. Accordingly, an appropriate trustee must have financial aptitude and strong organizational skills. Trustworthiness and integrity are also a must. Communication skills are similarly a major advantage as the trustee will likely be communicating with the beneficiaries. The selection of the right trustee requires careful consideration and a thoughtful determination of who would best fill this central role.
Good estate planning contemplates potential future life changes. If the right planning is in place, a Will or Trust will remain viable for a long time. Sometimes life throws curve-balls (sudden death of a loved one, divorce, dramatic financial changes) that necessitate some changes to an existing estate plan. Also, laws sometime change in a manner that make it desirable to revisit existing estate planning.
So how do I know if I need to review my documents? A review every few years is a good idea. If it has been 10 or so years, a review is a really good idea. Whether changes would be beneficial will ultimately depend mostly on personal preferences and goals, coupled with the effects of any changes in life or in the law. I offer a free review at any time for any existing client. I also offer a review for new clients at a very modest cost.
Do I really need a Will? What about a trust? What’s power of attorney and why would I want to grant that to someone? These basic questions about the need and value of estate planning are common. The preparation of a will, powers of attorney over health care decisions and financial decisions and a health care directive is absolutely essential for everyone, no matter their income or wealth status.
In short, these documents and this type of planning can be boiled down to taking care of those around you. In varying fashion, each of these documents helps make life easier, smoother and less expensive for your loved ones in the event of your death, diminished capacity or similar circumstances. Proper estate planning provides answers (and clear directions) to questions such as: Who will handle my legal and financial matters if I become incapacitated? Who will make medical decisions for me if I cannot? Within what parameters? What happens to my property when I die? Who gets my money, property and personal affects? Who administratively handles my property and how? The questions that are addressed by estate planning could go on for pages and pages. In the end, estate planning matters and when done properly, ought to be straightforward and affordable while squarely addressing your unique personal and family circumstances.
In the course of estate planning, it is not uncommon for a client to share their concern about potential liability and to wonder what can be done to help protect them from a lawsuit or some other type of financial liability. Does a trust shield your assets from liability in such circumstances?
A revocable living trust typically does not offer added liability protection. For a married couple, some types of joint trusts may provide a layer of protection in some instances. As a general principle, a revocable trust is simply not a tool for broader liability protection. What can be done?
There are variety of approaches and tools that can be utilized to protect a client from liability. Some types of irrevocable trusts can be used to reduce or shield liability. Separate business entities such as an LLC or corporation are effective in some situations to provide liability protection. Additional measures can also be considered such as insurance and titling. Liability considerations are top priority concerns in some situations and the use of the right tools, and the right approach is vital.