Living Trusts vs. Wills - Part 5 (final)
December 17, 2007 | 1 Comment
It seems that a lot of you have enjoyed the series on living trusts vs. wills from viewing the amount of traffic that these posts have seen. I hope that all of my subscribers will enjoy the final post in this series. Soon I’ll have the entire list up on the resources page so that you can have everything in one place and be able to go there and download the full list in word format if you’d like.
I want to add that this list isn’t a conclusive list but just some things that you should keep in mind when doing your estate planning. As an estate planning lawyer I highly believe that living trusts are among the most efficient and best estate planning instruments available. However, they are right for everyone. When making important estate planning decisions that will effect your family for decades make sure to talk to your lawyer.
Okay, with that out of the way. Here is the conclusion to the list.
Living Trusts vs. Wills - Part 5 (final)
19. Is a living trust expensive?
Not when compared to all the costs of court interference at incapacity and death. How much you pay will depend on how complicated your plan is.
20. How long does it take to get a living trust?
It should only take a few weeks to prepare the legal documents after you make the basic decisions.
21. Should I have an attorney do my trust?
Yes, but you need the right attorney. A local attorney who has considerable experience in living trusts will be able to give you valuable guidance and peace of mind that your trust is prepared properly. In some states, qualified paralegals can now also prepare trust documents; however, they cannot give you legal advice.
22. If I have a living trust, do I still need a will?
Yes, you need a “pour-over” will that acts as a safety net if you forget to transfer an asset to your trust. When you die, the will “catches” the forgotten asset and sends it into your trust. The asset may have to go through probate first, but it can then be distributed as part of your living trust plan.
23. Is a “living will” the same as a living trust?
No. A living trust is for financial affairs. A living will is for medical affairs; it lets others know how you feel about life support in terminal situations.
24. Are living trusts new?
No, they’ve been used successfully for hundreds of years.
25. Who should have a living trust?
Age, marital status and wealth don’t really matter. If you own titled assets and want your loved ones (spouse, children or parents) to avoid court interference at your death or incapacity, consider a living trust. You may also want to encourage other family members to have one so you won’t have to deal with the courts at their incapacity or death.
26. Summary of Living Trust Benefits
- Avoids probate at death, including multiple probates if you own property in other states
- Prevents court control of assets at incapacity
- Brings all your assets together under one plan
- Provides maximum privacy
- Quicker distribution of assets to beneficiaries
- Assets can remain in trust until you want beneficiaries to inherit
- Can reduce or eliminate estate taxes
- Inexpensive, easy to set up and maintain
- Can be changed or cancelled at any time
- Difficult to contest
- Prevents court control of minors’ inheritances
- Can protect dependents with special needs
- Prevents unintentional disinheriting and other problems of joint ownership
- Professional management with corporate trustee
- Peace of mind
Power to You : Write Your Will!
December 10, 2007 | Leave a Comment
Death and taxes: how to prepare for one while reducing the other. A tounge-in-cheek approach.
Power of an Attorney
Even a signing mistake can weaken your will’s validity, and it only takes one greedy nephew to tie it up in court for months and lop off up to eight percent of your estate in legal fees. Skip the sites and get a flesh-and-blood attorney to draft you an airtight document.
Power of Planning
According to David T. Phillips, author of Estate Planning Made Easy, leaving everything to your spouse could mean losing 25 percent of a $4 million estate to taxes. Shelter half of that in a Bypass Trust instead: Wifey gets paid, the kiddies get their tax-exempt cash.
Power of Persuasion
Unless you want your trust-fund baby living as an “artist” in a $3 million loft purchased with your retirement, set some rules. Whether it’s graduating college, getting married, or turning 30, any milestone can determine when they receive your hard-earned dough.
Power of Protection
Real estate is a great investment…till taxes are due. To pay off death taxes imposed on your home or business, jack up your life insurance policy (otherwise you’ll lose the assets just to pay the IRS). Just $12,000 in payments can cover an estate-tax bill of $1 million!
Excerpted from http://www.maxim.com/WriteYourWill/articles/6699.aspx
Can I use a do-it-yourself will kit or trust kit?
November 26, 2007 | Leave a Comment
I get this question all the time by potential estate planning clients calling both my Germantown and Olive Branch offices. Here is the short answer, yes but beware. (As a side note I had a friend once who told me that he’s never heard a lawyer simply say yes before. I told him that’s because in law school virtually every exam answer starts with either “yes, but” or “no, but”. Unfortunately there is almost no straight answer for anything when it comes to legal issues.)
A well-tailored estate plan ordinarily has many more elements than can be successfully addressed in a do-it-yourself estate planning kit, will kit or trust kit. While a do-it-yourself will or trust should be valid in both Tennessee and Mississippi if it is propertly executed and witnessed, the likelihood of ending up with a proper will or trust is about the same as if you attempted to fly and land a 747 by just reading the flight manual. Heck, you might get away with it, but the affects if you don’t are catastrophic. There is simply no substitute for the experience of a professional estate planning lawyer.
One probelm with the use of these cheap (and I truly mean “cheap” here, with all the bad connotations that come with that word) estate planning kits is that people simply fill in the blanks and think that what they have done constitutes an estate plan. What many people don’t understand is that a poprer estate plan or trust must actually be funded. An estate plan is not complete simply because a piece of paper was signed. Assets must be transfered properly or else the plan is worthless. Also, all types of assets that the person owns or controls that pass to beneficiaries independently of a will, such as retirement plans and life insurance, must be considered. The beneficiary designation forms for these assets will not be found in a kit.
In my years of experience I’ve found that people who believe that they need a “simple” estate plan are often surprised to find that they have failed to consider critical points, such as the possibility of simultaneous deaths and the significant benefits that trusts offer.
A do-it-yourself kit may pass muster from a basic legal standpoint if executed properly, but its success should not be measured by whether the resulting documents are legal, but by whether one’s objectives are accomplished.
Living Trusts vs. Wills, Part 2
November 20, 2007 | Leave a Comment
I’m continuing the series on Living Trusts versus Wills that I started last week. These are more questions that our Memphis area law firm estate planning lawyers answere frequently for our estate planning clients.
I’d love to hear your specific questions or comments that about Mississippi Law or Tennessee Law. If there is a particular topic that you would like to see covered please contact us and we’d be happy to address it.
4. Is it true that joint ownership with rights of survivorship avoids probate?
Not always. Joint ownership can just postpones probate. With most jointly owned assets, when one owner dies, full ownership does transfer to the surviving owner without probate. But if that owner dies without adding a new joint owner, or if both owners die at the same time, the asset must be probated before it can go to the heirs.
Be on the lookout for other problems though. For example, when you add a co-owner, you lose some control. Your chances of being named in a lawsuit and of losing the asset to a creditor are dramatically increased, even if you have done nothing yourself. There could be gift and/or income tax problems. And since a will does not control most jointly owned assets, you could end up accidentally disinheriting your family.
With some assets, particularly real estate, all owners must sign legal documents to sell or refinance. So if a co-owner becomes incapacitated, you could find yourself with a new “co-owner” — the court–even if the incapacitated owner is your spouse.
5. Why would the court get involved if someone is incapacitated?
If you can’t conduct normal business due to some type of mental or physical incapacity (Alzheimer’s, stroke, heart attack, etc.), only someone appointed by the court can sign for you - even if you have a will. (Remember, a will only becomes effective after you die.)
The court can be like a dreaded disease. Once it gets involved, it usually stays involved until you either recover or die. The court and it’s appointee, not your family, controls how your assets are used to care for you. This public process can be expensive, embarrassing, time consuming and difficult to end if you recover. Worse yet this process does not replace probate at death - by just having a will (or worse nothing at all) your family could have to go through the court system twice!
6. Does a durable power of attorney prevent the court’s involvement if you become incapacitated?
A durable power of attorney is a document that appoints someone and gives them the authority to manage your financial affairs if you are unable to do so. A major probelm here in Memphis and in Mississippi however that we lawyers come across is that many financial institutions will not honor one unless it is on their form. And, if accepted, it may work too well — giving someone a “blank check” to do whatever he/she wants with your assets. A durable power of attorney can be very effective when used with a living trust, but risky when used alone.
Will Contests Featured on Dr. Phil Show Today
November 13, 2007 | Leave a Comment
The November 13, 2007 episode of the Dr. Phil show will be all about will contests and estate planning blunders. For all of you out there who wonder if people really fight over wills this should be your chance get an earful.
The teaser for the show identified four sisters who were bitterly embattled in a will contest for the $400,000 inheritance left by an aunt. It seems that the aunt went away to stay with one of the sisters immediately before passing away, and during that time the original will was changed (this is a called a codicil to a will) in a way so that the sister and her kids received quite a large proportion of the estate.
This brings up an interesting question that each and every one of you should be thinking about when doing your estate planning here in Tennessee and Mississippi. Are you sure that your heirs will not be fighting over what you leave them in your will? Probably not.
This is another reason why almost everyone should seriously be considering having a Mississippi lawyer or Tennnessee Lawyer create a living trust for them. If a living trust had been in place for the Aunt all of the bickering, hurt feelings and very costly legal fees would have been avoided.
To find out more information about how the Ferrell Law Firm can help you with your Memphis living trust or Mississippi living trust give us a call today at 901-881-6352.
Celebrity Estate Planning Blowups
November 12, 2007 | 2 Comments
I received the following article courtesy of WealthCounsel. I’m including it here for all of my Tennessee and Mississippi Estate Planning clients who might find it interesting.
The Worst Estates of the Year
Life is short-sometimes tragically so-and an estate plan is never truly
finished. The year’s most notable estate blowups were all sadly avoidable, if
only they had left clear intentions for everyone on their list.
Anna Nicole Smith
A $500 million baby . . . maybe
Only 39 when she died in February of an accidental overdose, Anna Nicole
Smith had not updated her 2001 will that named her son, Daniel, who had died of
an accidental overdose several months earlier, as sole heir. Probate court
will most certainly award her modest assets of roughly $700,000 to her only
surviving child, daughter Dannielynn. As for her share of billionaire
ex-husband J. Howard Marshall II’s estate, the court will likely name her daughter
the rightful heir of close to $500 million.
But where that money ends up will depend on the man who controls it-either
Dannielynn’s biological father, Larry Birkhead, or her mother’s lawyer and
companion, Howard K. Stern, who is named as executor and is likely to be a
trustee. Dannielynn’s financial future would have been safer if her mother’s
will had spelled out full provisions for a trust, says James Ferrell, a
trusts-and-estates attorney in Memphis, Tennessee. Ferrell has handled many estate
disputes involving people who have omitted certain children from their
wills, but the Smith case is virtually unprecedented. In most states, if a
wealth holder wishes to prevent a biological child from inheriting assets, it
must be stated in the will. Otherwise laws of intestacy will assume the child
was omitted unintentionally.
Vital “Step 2″ of the Living Trust Process
November 12, 2007 | Leave a Comment
I’ve published posts on the overall scheme in regards to revocable living trusts (Part I and Part II), but the issue of funding your living trust is so important that it warrants a post of it’s own.
It’s essential to remember that setting up your living trust is a two-step process. Step #1 is having the document prepared and formally executing it. Step #2 is funding it. Too many clients complete Step #1 and think that the process is over when they are really only halfway done. If you do not complete Step #2 then your estate will have to go through probate, which would obviously be a shame since the main reason for setting up a living trust is to avoid probate.
In regards to your real estate, your attorney should prepare a “quitclaim deed to trust” for you to sign which will transfer ownership of your real estate to your living trust, thereby funding the trust with your real estate. This normally takes place at the same time that you execute the trust itself.
As far a bank and investments accounts go, you will usually just need to fill out and sign a one-page document. Again, just like with the real estate, you are changing the title to the account so that the records of the financial institution indicate that your trust is now, technically, the owner of the account.
Please note that anything that has a designated beneficiary (life insurance, qualified retirement accounts, annuities, etc.) are already set up to avoid probate, regardless of whether you have a living trust. But it is generally a good idea to name your trust as the beneficiary of these assets, especially if you are a married couple and your attorney has set up credit shelter planning in your trusts to address estate tax concerns or if you have set up trusts for children in your living trust. Be sure to check with your attorney. Again, remember that this would be a change of beneficiary, not a change of ownership. Closing one of these accounts out and opening a new one in the name of your trust might trigger unnecessary penalties and taxes.
Wills in Tennessee
November 8, 2007 | Leave a Comment
Courtesy of the Shelby County Tennnessee Probate Court, http://co4.shelbycountytn.gov/court_clerks/probate_court/wills.htm
What is a Will?
A will is a legal document by which you instruct what is to be done with your property after your death. It must be properly signed and properly witnessed. Any person who is of sound mind and is eighteen (18) years of age may make a will in Tennessee.
What Happens If You Do Not Have a Will?
If you die without executing a will, Tennessee law will govern how your property is distributed.
- If you are married and without children at your death, your estate will pass entirely to your surviving spouse.
- If you are married and have children, your estate will pass to your children and your surviving spouse.
- If you are unmarried but have children, your estate will pass entirely to your children.
- If you are unmarried and without children, your estate will pass to your parents if they survive you, otherwise to your brothers and sisters.
- Ultimately, if no family member is ascertained, the estate will pass to the State of Tennessee.
What Should Be Included In a Will?
Generally, your will should:
- appoint a Personal Representative (sometimes called an Executor or Executrix) to carry out the terms of your will and the laws that apply to all estates;
- provide for how you want your property to be distributed (include real estate, bank accounts, savings bonds, stock, furniture and personal items). You should consult an attorney about the advantages of setting up a trust to minimize taxes and control how and when your property is received by the beneficiary. Note: if you hold any property jointly with right of survivorship, the joint tenant will automatically assume your interest in the property, and therefore, the property should not be listed in your will as an asset of your estate;
- appoint a guardian for your minor or incompetent children to ensure their well-being;
- address any other personal concerns, such as funeral arrangements and the like.
Is a Handwritten Will Legal?
Yes. A handwritten will is legal in Tennessee, provided that the document is entirely in your own handwriting and is signed by you. This is known as a “Holographic Will.” Following your death, the authenticity of your handwriting must be proven by two (2) individuals.
A will is a very technical document. While a handwritten will may work well for you, there is a high likelihood that it may not work well for you. It is strongly recommended that such a document be prepared by an attorney who has experience in this area of law. If your will is invalidated at your death for whatever reason, Tennessee law will govern how your property is distributed as if you had died without a will.
How Do You Revoke Your Will?
Your will does not take effect until your death, therefore you may revoke it at any time. This may be accomplished by:
- physically destroying it;
- by signing a document expressly revoking your will; or
- by signing another will
If you get divorced after you sign your will, the will is automatically revoked as to any provision concerning your ex-spouse. If you marry and have children after signing your will, the entire will is automatically revoked. Therefore, it is important to remember that after these events occur, a new will must be drawn.
Other Related Considerations
Your may also want to consider consulting an attorney about devising a “Living Will” or a “Durable Power of Attorney for Health Care.”
A “Living Will” is a legal instrument that expresses your considered decision to refuse medical attention should you become terminally ill and unable to communicate your wishes.
A “Durable Power of Attorney for Health Care” allows you to appoint a person to make health care decisions for you should you be unable to do so for yourself.
Advance preparation of these instruments could spare you and your family considerable pain.
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Developed by Shelby County Government for the convenience of its citizens and the Web community.
Do You Really Need a Living Trust? (Step 1 - Part II)
November 7, 2007 | Leave a Comment
Now that we have a general idea of what a living trust is…do you really need one?
Many estate planning lawyers will tell you that essentially everyone would be better off with a trust instead of a will, but I disagree. You need to remember that there are some downsides to having a living trust. First, your legal fee will be higher. Even for simple trusts you’re probably looking at a four-figure fee instead of a three-figure fee for a will. Then there is some legwork involved in regards to “funding” the trust (or re-titling your assets), which is a step that you do not need to take with a will. This can be a significant time commitment if you have a bunch of accounts spread out among many different financial institutions.
So when is the higher cost and extra work warranted?
First, I would say that if you own real estate in another state (many of my clients have a condo in Florida or a cottage on the Cape) then the need for a living trust is nearly a given. The reason is that if you die without a trust then your family will have a “double probate” situation…a full-blown probate process in Connecticut and the other state. This is an administrative headache that you should try to avoid at all costs.
Second, if keeing your estate planning private is a priority then a living trust is the best way to go. Marilyn Monroe’s Will is all over the Internet for everyone to see because a will is a public document after you die. Literally, anyone can walk in off the street, go to the probate court and ask to see a copy of your will without giving a reason why. Trusts are private documents.
Finally, if you have a relatively small and straightforward estate then going through probate shouldn’t be a big deal, regardless of the bad press that the Connecticut probate court system has received over the last few years. If you have a large and complicated estate then you should at least consider setting up a living trust.
Please remember the following important facts about trusts: (1) even if you have a fully-funded trust, upon your death your successor trustee will still need to file a few documents with the probate court, including an estate tax return even if no tax is due, (2) a simple living trust, with no credit shelter planning, does not avoid estate tax, and (3) even if you have a trust the probate court will still be entitled to charge a probate fee based on your gross taxable estate, which most of my clients are unpleasantly surprised to hear. In other words, living trusts do not avoid probate court fees.
Hopefully this post and the previous one has given you a better idea of what trusts are and how they work. But you should not determine whether you need one or not until you sit down and discuss them with an estate planning attorney.
Do You Really Need a Living Trust (Step 1 -Part I)
November 6, 2007 | Leave a Comment
Based on a lot of e-mail messages I have been receiving recently, this is the post that a lot of readers have been looking forward to…some honest commentary on how vital it is for one to own a “Revocable Living Trust” (RLT). Public interest in RLT’s has been running high for the last several years. This interest has been fueled a great deal by some attorneys who convince every client that they absolutely have to own one. They create this concept of RLT’s as documents that can do accomplish everything for you short of slicing vegetables. This isn’t the case because every client is different and RLT’s simply are not for everyone.
First, we should start with a quick sketch of how RLT’s work. When you sign an RLT you essentially create a legal entity that is separate and apart from yourself, and it is a document that directs how and where the trust assets are distributed when you die, just like a will does. You then transfer ownership of your assets (bank accounts, investments, real estate, etc.) into the name of your RLT. So when you die and the Probate Court wants to know what you owned when you passed away so that it can go through the probate process, the answer is that, technically, you owned nothing…your RLT owned eveything. Therefore, no probate.
Here is a message well worth repeating: Planning with living trusts does not end when the trust documents are signed (which is the case with wills). Please notice that a vital step in this process is actually putting assets into your trust, which essentially means re-titling certain assets so that they are legally owned by your trust. Otherwise, you’ll end up going through probate and defeating the primary purpose of having a trust. In other words, there are two very important steps to this process. Skipping step #2 (funding the trust) is, hands down, the most common mistake made with living trusts…and it’s a big one!
Please note that it is extremely important to sign a “pour-over” will along with your trust. It is a very short and simple will which simply says that upon your death, anything that is not already owned by your trust is poured over into your trust. This ensures that all of your assets are distributed in accordance with the instructions in your trust. Ideally, everything will already be owned by your trust when you die. But just in case you forgot to re-title a particular asset or just didn’t get around to it, then the pour-over will finishes the job and gets that asset into your trust. The considerable downside is that the asset now must go through the probate process, which is precisely what you were trying to avoid when you set up the trust in the first place!
