How to Liquidate Assets after a Loved One’s Death

February 2, 2024

The loss of a loved one is a difficult time, often compounded by the necessity of addressing estate settlement and the liquidation of assets. In this guide, we’ll explore the key steps involved in liquidating assets after death, focusing on estate settlement processes and related legal considerations.

Understanding the Role of the Executor in Estate Settlement

The estate executor, appointed either by a will or a court, plays a pivotal role in the estate settlement process. They’re responsible for gathering and appraising the deceased’s assets, paying debts and taxes and distributing the remaining assets to the beneficiaries.

Executor’s Responsibilities:

Inventory assets.
Appraise the estate’s value.
Pay off debts and taxes.
Distribute assets to beneficiaries.

Probate: What Does It Entail?

Probate is the legal process through which a deceased person’s will is validated and their estate is administered. This process ensures that debts are paid, and assets are distributed according to the will or state law.

Key Aspects of Probate:

Validating the will
Settling debts
Distributing assets as per the will or law

How to Liquidate Assets: A Step-by-Step Guide

Liquidating assets involves converting the decedent’s properties into cash. This could include selling real estate, stocks, or personal items.

Steps for Liquidation:

Appraise Asset Values:

The first step in liquidating assets involves accurately appraising their value. This process is crucial to ensure that the assets are sold for their true worth and to prevent underselling.
Appraisals should be conducted by qualified professionals specializing in the asset type being appraised. For instance, real estate should be appraised by a licensed real estate appraiser, while valuables like jewelry, art, or antiques may require an appraiser with expertise in those specific areas.
Accurate appraisals not only provide a clear idea of the estate’s total value, which is necessary for both estate settlement and tax purposes, but also guide the pricing strategy when these assets are put up for sale.

Find Buyers or Auctions for Sale:

Once the assets have been appraised, the next step is to find the most suitable method to sell them, which could involve direct sales to buyers or utilizing auctions.
For unique or high-value items like artwork, jewelry, or collectibles, auctions can effectively reach specialized buyers willing to pay a premium. Auction houses or online auction platforms can be used, depending on the nature of the asset.
For more common assets like real estate or vehicles, finding buyers directly through real estate agents, online marketplaces, or advertising in relevant media might be more efficient.
The choice between direct sale and auction often depends on the asset type, the time available for sale and the desired balance between obtaining the best price and selling the asset quickly.

Complete the Sales and Gather Proceeds:

Completing the sales involves several steps, from negotiating terms to finalizing transactions and transferring ownership. This process must be handled carefully to ensure legal compliance and the protection of all parties’ interests.
It is essential to have clear, written agreements detailing the terms of the sale, especially in private sales. These agreements should outline payment terms, transfer of ownership and any warranties or guarantees.
Once the sale is complete, the proceeds must be collected and managed properly. This might involve depositing funds into estate accounts and keeping detailed records for estate settlement purposes.
The executor or estate administrator is responsible for ensuring that the proceeds from these sales are used according to the estate’s requirements, such as paying off debts, covering estate expenses, or being distributed to beneficiaries as per the will or state laws.

Each step requires careful consideration and planning to ensure that the estate’s assets are liquidated efficiently and for their maximum value, contributing to a smoother estate settlement process.

The Importance of Beneficiary Designations

Beneficiary designations on accounts like retirement plans and life insurance policies supersede wills. It’s crucial to ensure that these designations are up to date.

Benefits of Designations:

Speed up asset distribution
Avoid probate for certain assets.

Dealing with Debt and Creditors

The executor must settle any outstanding debts of the deceased before distributing assets. Creditors typically have a set period to make claims against the estate.

Managing Debts:

Identify all outstanding debts
Notify creditors of the death
Pay debts from estate funds.

Real Property: Special Considerations in Liquidation

Selling real estate involves additional steps, like property appraisal, preparation for sale and understanding market conditions.

Real Estate Liquidation:

Appraise property value
Prepare property for sale
Sell through a realtor or auction.

Transfer on Death Accounts and Joint Ownership

Assets in accounts designated as “transfer on death” or jointly owned can bypass probate and pass directly to the designated beneficiary or surviving owner.

Advantages of TOD and Joint Accounts:

Avoid probate
Immediate transfer of assets.

Tax Implications in Estate Settlement

The executor must consider estate, inheritance and income taxes due from the estate or the beneficiaries.

Tax Considerations:

File estate tax returns. if necessary.
Handle inheritance tax for beneficiaries.
Manage income tax obligations.

Challenges in Estates Without a Will

If the person dies without a will (intestate), the probate court will appoint an administrator to distribute assets according to state laws.

Intestate Estate Distribution:

Follow state law for asset distribution
Court-appointed administrator’s role.

Estate Planning: Preventing Future Complications

A well-structured estate plan, including a will, trust and beneficiary designations, can simplify the asset liquidation process.

Estate Planning Benefits:

Clear instructions for asset distribution
Potential to avoid or simplify probate
Reduced confusion and disputes among heirs.

Summary: Key Takeaways

Executor’s Role: Understand the responsibilities and legal obligations.
Probate Process: Be aware of the steps and legal requirements.
Liquidating Assets: Know how to appraise and sell different types of assets.
Dealing with Debt: Prioritize settling debts before distributing assets.
Beneficiary Designations: Ensure that they are current to avoid probate complications.
Tax Considerations: Be mindful of estate and inheritance tax implications.
Estate Planning: Encourage proactive planning to ease future estate settlement.

Navigating the intricate process of estate planning and settlement requires expertise and foresight. An estate planning attorney can provide invaluable assistance, helping you to understand and manage complex legal and financial aspects, such as will drafting, trust management, estate taxes and beneficiary designations. Hiring a seasoned estate planning attorney ensures that your estate is managed and distributed according to your wishes, potentially saving your beneficiaries time, money and legal hassles. An attorney can also help update your estate plan in response to life changes, ensuring that it always reflects your current wishes and circumstances. Don’t leave the future of your estate to chance. Book a consultation with an estate planning attorney today to secure peace of mind for you and your loved ones.

What Questions Should You Ask an Estate Planning Attorney?

January 31, 2024

To protect assets and health during life and facilitate a smooth transition of assets to loved ones after your death, an estate plan needs to address many different issues. This includes the laws of asset distribution in your state of residence, potential transfer taxes and costs and strategies required to expedite and simplify succession issues. A recent article from mondaq, “Four Questions To Ask Your Estate Planning Attorney,” explains key points to cover with your estate planning attorney.

How do assets pass after death? Some assets pass through the will, but not all. It depends upon where you live, where your assets are situated, what kind of assets they are and how they are titled. State law governs how assets are conveyed after death, so consulting with an estate planning attorney in your estate is critical to creating a successful plan.

If you live in a community property state, your property will pass to the surviving spouse, who is deemed to own one-half of the community property. In these states, one cannot leave more than half of their property through a will, as you only own half.

There may be rules in your area restricting asset transfers. Some states have forced heirship rules, which require a certain percentage of assets to be distributed to a spouse or children, while others have “elective share” rights for surviving spouses. This allows the spouse to elect to take a sizable portion of their deceased spouse’s assets.

What legal documents make up an estate plan? There are two categories of estate planning documents: those used during your lifetime and those used after you die. During your lifetime, you’ll need a healthcare proxy to permit another person to make medical decisions for you. A Power of Attorney allows an agent to make financial and legal decisions on your behalf. Without these documents, your family may need to apply to the court for guardianship, which is an arduous process.

Everyone needs a will and/or trust to transfer assets after death. Lacking a legally enforceable document directing the disposition of assets, they will pass according to the laws of your jurisdiction, which may not follow your wishes. Using a trust to distribute assets combined with a “pour over will” is another approach to minimize court involvement. A pour-over will provides direction for any assets not already in a living trust to be placed into the trust when you die, thus removing assets from your probate estate and allowing them to be distributed according to the terms of the will.

What tax planning needs to be done? Federal, state, inheritance and income taxes vary by state and are subject to change. Consult with an estate planning attorney about what the tax rules are for you and how to accomplish goals in a tax-minded manner. For instance, right now (for 2024), the federal exemption for estate and gift taxes is $13.610 million per person, but this will be cut in half on January 1, 2026, so it may be wise for you to make gifts now. Some states have their own estate taxes, and a few have inheritance taxes, which apply to heirs regardless of where they live.

Have there been any recent changes to the law impacting my estate plan? Changes occur frequently on federal and state levels, making regular updates to estate plans critical to their effectiveness. Your estate plan may not reflect recent tax changes if it is over three to five years old. In addition to tax laws, other laws may significantly impact an estate plan. Regular meetings to review your estate plan with an experienced estate planning attorney could also prevent your will from being declared invalid by the court, when your estate will be treated as if there was no will and the state’s laws will determine how your assets are distributed.

Reference: mondaq (Dec. 18, 2023) “Four Questions To Ask Your Estate Planning Attorney”

Taxes that Affect an Estate

January 29, 2024

Identifying the Taxes that Affect an Estate

Estate tax and inheritance tax significantly impact an estate’s value. Estate tax is levied on the estate’s total value at death before distribution to beneficiaries. In contrast, inheritance tax is imposed on the beneficiaries based on the value of assets received. Understanding these taxes is critical for effective estate planning.

What Is Inheritance Tax?

Inheritance tax varies by state and is paid by the recipient of the inheritance. States like Iowa, Kentucky, Maryland, Nebraska, New Jersey and Pennsylvania have specific exemptions and tax rates based on the beneficiary’s relationship with the deceased and the inheritance size.

Federal Estate Tax Explained

For 2024, the federal estate tax exemption is $13.61 million per individual, with estates exceeding this threshold taxed at up to 40%. Estates valued below this limit are exempt from federal estate taxes. High-net-worth individuals benefit significantly from these exemptions but must consider state-level estate taxes, which can vary.

Impact of Tax Rates on Estate Value

Estate tax rates range from 18% to 40%, meaning that taxes can diminish a substantial portion of an estate’s value. Effective estate planning, including trusts and lifetime gifting strategies, can minimize the estate’s taxable value.

Capital Gains Tax: An Important Consideration for Estates

Capital gains tax applies to profits made from selling inherited property or investments. If inherited assets appreciate and are then sold, the beneficiary may owe capital gains tax on the profits.

Minimizing Estate Taxes: Strategies and Tips

Strategies to minimize estate taxes include using both spouses’ estate tax exemptions, spending down assets, gifting and setting up trusts. These methods can reduce the estate’s taxable value, thus lowering the tax liability.

Estate Tax vs. Inheritance Tax: Understanding the Differences

The Estate pays estate tax based on its total value exceeding federal or state thresholds. Inheritance tax is paid by the beneficiary based on the inherited amount and their degree of kinship or lack thereof to the decedent. The key difference is who bears the tax burden – the estate or the inheritor.

How Estate Planning Can Mitigate Tax Impact

Proper estate planning can significantly mitigate the impact of taxes on an estate. An estate planning attorney can help explore various strategies, ensuring compliance with tax laws and maximizing available deductions and exemptions.

Conclusion: Navigating Taxes in Estate Planning

Navigating the complexities of taxes that affect an estate is essential for ensuring a smooth transfer of wealth. Individuals can effectively manage their estate’s tax burden by understanding and planning for both federal and state estate and inheritance taxes.

For personalized advice and to develop a comprehensive estate plan that navigates these tax considerations, schedule a consultation with our experienced estate planning attorneys today.

Navigating Business Succession: A Comprehensive Approach to Business and Exit Planning

January 26, 2024

As business owners focus on day-to-day operations and growth, the thought of leaving or selling their business often takes a backseat. However, as Frank Fantozzi, a certified exit planning adviser, emphasizes, “for most owners, the business is their largest asset.” This makes succession planning an exit strategy and a crucial part of overall business planning.

The Importance of Early Succession Planning in Business Strategy

Succession planning should be an integral part of a business’s foundation. Delaying this process can lead to complications, especially when unforeseen circumstances like the “5Ds” – death, disability, divorce, disagreement and distress – arise. Early planning ensures that the business remains stable, and its value is maximized, regardless of market conditions.

Core Elements of Business Succession Planning

Strategic Business Planning and Succession

Aligning business goals with a succession plan is vital. This alignment helps identify potential successors early and integrate their development into the business’s growth strategy. As Fantozzi notes, understanding where the business is and where it needs to go is crucial in this process.

Owner Readiness and Transition

Owners must prepare both emotionally and financially for their exit. This preparation involves assessing personal financial needs post-exit and ensuring that the business can meet these needs. Fantozzi points out the importance of understanding one’s cost of living without the business and preparing accordingly.

Business Valuation and Market Readiness

Regular business valuation is key in succession planning. It’s not just about the company’s size but being the best in its class. Fantozzi suggests that achieving ‘Best in Class’ status can significantly impact the value received for the business.

Succession Planning as a Tool for Business Growth and Stability

Effective succession planning is not just about preparing for an exit; it’s a growth strategy. It ensures leadership continuity, maintains business values and can be a selling point to investors and clients seeking stability in their partnerships.

Legal and Financial Considerations in Succession Planning

Succession planning involves various legal and financial considerations. These include the transfer structure, tax implications and ensuring legal compliance. Professional advisors play a crucial role in navigating these complexities.

Challenges and Solutions in Succession Planning

Choosing the right successor, especially in family businesses, can be challenging. Solutions include establishing clear criteria for succession, involving external advisors for unbiased perspectives and considering non-family executives, where appropriate.

Conclusion

Succession planning is a dynamic and ongoing element of business planning. It requires regular review and adjustment as the business and its environment evolve. As Fantozzi concludes, “Your exit strategy connects the dots between business success and a life well lived.” Business owners are encouraged to view succession planning as a vital part of their life cycle, ensuring a legacy that endures and thrives beyond their tenure.

What Does the Executor of an Estate Do?

January 24, 2024

Being named the executor of an estate usually means you’ve lost someone close to you, and it’s a challenging time. The article “What to do when you’re the executor of an estate” from Bankrate explains what you’ll need to do and outlines the steps to stay on track.

The executor is the personal representative of a deceased person’s estate until the probate process is completed and all assets have been distributed. One of the key tasks is distributing assets according to the terms of the decedent’s will.

You can say no if you are not able or willing to serve as the executor. A secondary executor may be named in the will, or the probate judge can name a replacement. However, this task is doable if you set up a detailed checklist and work with an estate planning attorney.

Obtain the death certificate. The funeral home issues these; you’ll need them to notify banks, investment firms, life insurance companies, the Social Security Administration, the Department of Veterans Affairs and others. You’ll also need them for filing final tax returns. You’ll also need to notify Social Security to turn off payments going directly into the person’s bank account.

Locate the will and any trust documents. Hopefully, the person who notified you of the death will know where these documents are. Depending on the state where the decedent was domiciled, the last will needs to be filed within a few days to a month to a year after the death. If there are trusts, the trust documents name the trustees in charge of distributing assets owned by the trusts. Trust assets can be distributed immediately by the trustees without court approval.

Seek professional advice. After reviewing the will and trust documents, you’ll better understand how complex the estate is. You may want to consult with an estate planning attorney, CPA, appraiser, or other professionals whose expertise can help you avoid any mistakes. Trying to do it yourself could leave you personally responsible for mistakes, and the process may take far longer.

File “letters testamentary.” If the estate goes through probate, the court will legally confirm your appointment as executor with letters testamentary, sometimes referred to as surrogate certificates. These are legal documents proving your authority to act on behalf of the estate, pay bills, file tax returns, manage and distribute assets, deal with beneficiaries and open or close bank accounts.

Locate and protect assets. In the best scenario, the executor is given a complete list of assets and related information. This would include wills, trusts and paperwork related to insurance, investment accounts, prearranged funeral plans, bank accounts, real property, artwork, business interests and partnerships. A complete list of digital accounts is also needed.

Pay bills and taxes. The estate is responsible for paying debts, including income and estate taxes. If the debts exceed assets, beneficiaries are not responsible for paying them. The executor opens an estate bank account, which pays bills for the estate. Before paying debts, the executor must confirm the estate’s ability to pay. If a list of monthly bills, income and debts were not left for the executor, they’ll need to figure this out.

Don’t rush. It’s common for the executor to want to get the tasks done, distribute any inheritance to beneficiaries and have done with the process. However, if you rush and miss some important tasks, you could be found personally liable. It can take six months to a year to work through an estate. Keep careful records of all transactions and a copy of everything sent and received from creditors, beneficiaries, financial institutions, the IRS, the Social Security Administration and others.

Having an estate planning attorney can help. An attorney can also mediate between the executor and beneficiaries if things take a turn for the worse.

Reference: Bankrate (Nov. 17, 2023) “What to do when you’re the executor of an estate”

Trust Protectors: Safeguarding the Future of Special Needs Trusts

January 22, 2024

Serving as the trustee of a special needs trust (SNT) can be particularly challenging because it often requires long-term financial management of the trust, while maintaining a good relationship with the beneficiary. Furthermore, because trustees wield great financial power over the trust assets, oversight of their investment and distribution decisions is helpful. Trust protectors can add an additional layer of protection to oversee the management of a trust, supervise the trustee’s actions and remove and replace the trustee when needed. This article delves into why appointing a trust protector is a vital decision that can significantly impact the management of a SNT and guard the beneficiary’s rights.

The Case of Senator Feinstein: A Cautionary Tale

U.S. Sen. Dianne Feinstein’s lawsuit against the trustees of her late husband Richard Blum’s trust, as related in The Hill’s article, “Feinstein accuses trustees of husband’s estate of financial abuse”, highlights one reason why a trust protector may be helpful. Before her death in September 2023, Feinstein accused the trustees of withholding funds and breaching their fiduciary duties.

Through three separate lawsuits, Feinstein claimed that the trustees breached their fiduciary duties to honor the terms of the trust by not making the anticipated distributions of $5 million that were supposed to be placed into her trust in quarterly installments. She argued that the trustees’ inaction in their administration of the trust was intended to benefit Blum’s daughters at her expense, who were slated to receive $22 million each from the trust without Feinstein’s distribution.

For the late Sen. Feinstein, a trust protector may have provided the needed control over the trust assets to leverage the distribution intended by her late husband, who was the settlor. In the context of a special needs trust, where disabled beneficiaries may not be able to supervise their trustees, the role of a trust protector becomes even more critical in managing the trust.

What is a Trust Protector?

Special Needs Alliance explains in the article “Trust Protectors for Special Needs Trusts” that a trust protector is a person appointed to oversee the actions of the trustee and ensure that a trust is administered in line with the settlor’s intentions. Suppose a trustee performs in a manner that is unsatisfactory or even mismanages the trust assets. In that case, the trust protector can be empowered by the trust document to replace that person with a successor trustee. This role is particularly important in special needs trusts, where beneficiaries might not fully understand or be able to manage their financial affairs due to the nature of their disabilities.

How Does a Trust Protector Oversee the Trustee?

A trust protector works alongside the trustee, providing an extra layer of oversight in managing the trust assets according to the instructions in the trust document. They can resolve disputes, guide trustees and ensure that the trust’s administration aligns with the settlor’s intent. Trust protectors are granted various powers, including the ability to review trustee actions, including distribution decisions, replace the trustee and amend trust terms to adapt to changing laws and beneficiary needs. Their primary responsibility is to act in the best interests of the beneficiaries.

How Do Grantors Choose the Right Trust Protector?

Naming a trust protector involves considering their expertise, impartiality and understanding of the beneficiary’s needs. A third party, such as an attorney, accountant, or other professional, can often serve in this role. Family members who may be too challenged by the role of trustee also make a good choice for the trust protector. Selecting a family member who has a good relationship with the beneficiary, understands the nature of their disability and can serve as a good mediator between the trustee and beneficiary is a wise choice.

What Role Do Trust Protectors Play in Special Needs Trusts?

In special needs trusts, trust protectors play a vital role in ensuring that the trust caters to the unique needs of the beneficiary, considering their disability and inability to manage financial affairs. Their role can vary based on the trust agreement terms and state laws. The trust protector can review financial decisions or investments and sometimes force large distributions for purchases, like a house or car, based on the impact on the beneficiary. They can also help the beneficiary understand financial statements and tax documents provided by the trustee.

Is a Trust Protector Also Important to Consider for General Estate Planning?

Incorporating a trust protector into any trust adds an extra layer of protection and adaptability, ensuring that the trust remains effective and relevant over time. Only a few states have specific laws authorizing and regulating trust protectors. Therefore, it’s essential to work with an experienced estate planning attorney to carefully draft the trust to define the role and anticipate potential issues in exercising the power of the trustee or trust protector.

The Future of Trust Protectors in Estate Planning

As laws and family dynamics evolve, the role of trust protectors is becoming increasingly important in estate planning, offering flexibility and protection for beneficiaries.

Conclusion

Trust protectors offer an essential safeguard in trust administration, especially for special needs trusts. Their oversight ensures that the trust remains effective, adaptable and true to the settlor’s intentions, providing peace of mind for both settlors and beneficiaries.

Trust protectors provide essential oversight and adaptability.
They ensure that the trust’s administration aligns with the settlor’s intent.
Their role is crucial in special needs trusts for beneficiaries who cannot manage their affairs.
Trust protectors are becoming increasingly important in modern estate planning.

How Does a Living Trust Protect Your Legacy

January 19, 2024

Want to leave assets of any kind to loved ones? You’ll need to plan ahead. There are a number of options used to pass wealth to the next generation, including a last will and testament. This is a legal document designating someone to be in charge of your estate after you die and telling them how you want your assets to be divided.

Another means of passing assets along is explained in the recent article from The Motley Fool, “3 Reasons to Seriously Consider Using a Living Trust to Pass Inheritance to Your Family.” A living trust is a legal entity created while you are living to hold assets and designates someone to manage and disburse them based on specific directions in the trust document. You don’t have to be wealthy to have a trust.

While these two instruments sound similar, they have unique elements, making one better than another in certain situations. For many people, a living trust can benefit the individual making the trust (the grantor) and their families. Here are a few to consider.

Maintaining privacy. Wills must go through probate, a court-supervised process to review the decedent’s assets, approve their executor and rule on the will’s validity. Because the will is under the court’s review, it becomes public information. In most jurisdictions, anyone who wants to see your will can. They can also see who received what assets.

If you have concerns about maintaining your privacy or the privacy of your heirs, it may be worthwhile to create a trust. This will keep your assets and your heir’s receipt of assets private. The only people who know what’s in a trust are the grantor, the trustee who manages the trust and the beneficiaries.

Avoiding long delays. Since a trust doesn’t go through probate, it may be possible for the trustee to make distributions of assets much faster. The executor typically needs to file the will for probate and wait for the process to be concluded. Only then can they carry out the directions of a will.

When assets are in a trust, the trustee can implement the terms of the trust more quickly. This can significantly help loved ones, especially if they have paid for long-term care, hospital bills, funeral expenses, etc. If they were relying on an inheritance to cover these costs, the faster the trust can reimburse them, the better.

Managing assets if you become incapacitated. One of the biggest advantages of having a trust over a will is its value during your lifetime. A will doesn’t take effect until you die. On the other hand, a living trust with a successor trustee allows the successor to manage the trust if you become incapacitated and cannot serve as the primary trustee.

Whether you have a trust or not, you will want to name a Power of Attorney who will manage your financial and legal affairs if you cannot do so. However, financial institutions can be challenging when dealing with a POA.

Changing the trustee does not impact the trust’s status as a separate legal entity. The successor trustee steps in, and financial institutions will generally be on notice as long as the initial trust documents specify who the successor trustee will be.

Talk with your estate planning attorney about using a living trust as part of your estate plan. It may be wise to use a combination of a will and a trust to achieve your desired outcome. Do remember estate planning is not just for what happens after you die but for preparing to care for yourself and your family while you are living. A living trust could serve you and your family well, during life and after death.

Reference: The Motley Fool (Oct. 31, 2023) “3 Reasons to Seriously Consider Using a Living Trust to Pass Inheritance to Your Family”

Why a Trust Works for Multi-State Property Owners

January 17, 2024

If you own real estate when you die, it is most likely your estate will be required to go through probate. This can take months to years and becomes expensive, as explained in the article “Why a trust is so useful for those who own real property in multiple states” from Coeur d’Alene/Post Falls Press. However, here’s the thing to be aware of: if you own property in more than one state, your estate must go through the probate process in every state where you own property.

A few strategies must be considered for snowbirds with homes in northern and southern regions or who own out-of-state rental property.

Some families will add an intended heir to the title (deed) of the real estate while the primary owners are still living. This is rarely recommended, since it can open the door to any number of problems. If the intended heir has a financial crisis, like a lawsuit, divorce, creditor issues, etc., the jointly owned property is an attachable asset.

Another solution people try is the “Pay on Death Deed.” This is a special type of deed where the recipient gets the real property on the death of the owner. This strategy has a few problems. However, the main one is that not all states allow these types of deeds to be used.

An experienced estate planning attorney will know whether or not your state allows the Pay-on-Death-Deed.

The best solution for most people owning property in multiple states is using a living trust.

The living trust provides the same directions as a last will and testament about who should receive what assets from your estate after your death, including real property. It also names a trustee, who manages the assets in the trust and distributes them after your death.

A key reason to use a living trust is the assets owned by the trust are outside of the probate estate. These assets pass to beneficiaries according to the terms of the trust and do not go through the probate process.

Once the living trust is established, the trust may hold title to any real property, regardless of where the property is located. The trustee does not have to deal with the courts in multiple states.

There is a tendency to think trusts are only used by the very wealthy. However, this is not true. Anyone who owns real property and doesn’t want it to go through one or more probate proceedings benefits from using a trust.

An experienced estate planning attorney can establish the trust and guide you through putting assets into the trust.

Reference: Coeur d’Alene/Post Falls Press “Why a trust is so useful for those who own real property in multiple states”

Do Heirs Pay Credit Card Debt?

January 15, 2024

When you consider the average credit card balance in 2023 was $6,365, chances are many Americans will leave an unpaid credit card balance if they die suddenly. A recent article from yahoo! finance asks and answers the question, “What happens to credit card debt when you die?”

Many people think death leads to debt forgiveness. However, this isn’t the case. Some forms of debt, like federal student loans, may be discharged if the borrower dies. However, this is the exception and not the rule.

Credit card debt doesn’t evaporate when the cardholder goes away. It generally must be paid by the estate, which means the amount of debt will reduce your loved one’s inheritance. In some cases, credit card debt might mean they don’t receive an inheritance at all.

Outstanding credit card debt is paid by your estate, which means your individual assets owned at the time of death, including real estate, bank accounts, or any other valuables acquired during your life.

Upon death, your will is submitted to the court for probate, the legal process of reviewing the transfer of assets. It ensures that all debts and taxes are paid before issuing the remaining assets to your designated heirs.

If you have a will, you likely have an executor—the person you named responsible for carrying out your wishes. They are responsible for settling any outstanding debts of the estate. If there’s no will, the court will appoint an administrator or a personal representative to manage the assets.

In most cases, your heirs won’t have to pay off your credit card debt with their own funds. However, you may be surprised to learn there are exceptions:

Married people living in community property states. In a community property state, the deceased spouse is responsible for repaying credit card debt incurred by their spouse. In 2023, those states include Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin.
Credit cards with joint owners. If you had a joint credit card shared with a partner or relative, the surviving joint owner is responsible for the full outstanding balance. Only joint users are responsible for repaying credit card debt. If your partner was an authorized user and not an owner, they aren’t legally responsible for the debt.

Debt collectors may try to collect from family members, even though the family members are not responsible for paying credit card debts. The debt collector may not state or imply that the family member is personally responsible for the debt, unless they are the spouse in a community property state or a joint account owner.

If a debt collector claims you personally owe money, request a debt validation letter showing your legal responsibility for the debt. Otherwise, you have no legal obligation to pay for it yourself.

When someone dies, their estate is responsible for paying debts, including credit card debt. However, debt is repaid in a certain order. In general, unsecured debt like credit card balances are the lowest priority and paid last.

Some accounts are exempt from debt payment:

Money in a 401(k) or IRA with a designated beneficiary goes directly to the beneficiary and is exempt from any debt repayment.
Life insurance death benefits go directly to the named beneficiary and go directly to the beneficiaries.

If a loved one has died and they had credit cards, stop using any of their cards, even if you are an authorized user or joint owner. Review the deceased’s credit report to learn what accounts are open in their name and the balance on each account. Notify credit card issuers and alert credit bureaus—Equifax, Experian, and TransUnion. You may need to submit a written notification, a copy of the death certificate and proof of your being an authorized person to act on behalf of the estate.

Talk with an estate planning attorney to find out how your state’s laws treat the outstanding debt of a deceased person, as these laws vary by state.

Reference: yahoo! finance (Nov. 9, 2023) “What happens to credit card debt when you die?”

Estate Planning for Children: Ensuring a Secure Future

January 13, 2024

Estate planning is a critical process for any parent concerned about the future well-being of their children. In today’s uncertain world, having a robust plan is not just a wise decision but a necessary step in safeguarding your children’s future. Drawing inspiration from Allen J. Falke’s insightful article, “To Protect Your Kids, Consider These Estate Planning Steps” (Kiplinger), this guide aims to provide a comprehensive yet easy-to-understand approach to estate planning specifically tailored for parents.

The Foundation of Estate Planning for Parents

The first step in estate planning for children involves appointing a guardian. This decision ensures that, in the event of the parents’ untimely demise, the children will be cared for by someone they trust and are comfortable with. Furthermore, establishing a trust is essential for managing the assets and finances of underage children. Trusts provide a legal framework to hold assets and ensure they are used for the child’s benefit, covering expenses like education, health, and general support.

Types of Trusts and Trust Management

Parents have options regarding the type of trust they want to set up. Revocable trusts offer flexibility as they can be altered during the parent’s lifetime, while testamentary trusts are created as part of a will and go into effect after death. Selecting the right trustee is equally important. This individual or entity will be responsible for managing the trust’s assets. To avoid conflicts of interest, the trustee should be financially astute and trustworthy, and ideally not the child’s guardian.

Financial Provisions for Children

Life insurance is a cornerstone of financial planning for children. Young families, in particular, might find level premium term policies to be an affordable option. These policies ensure a fixed premium and provide a safety net for the children. Additionally, setting up a 529 account for education savings is a smart move. These accounts offer tax benefits and can be a great way to save for college expenses, easing the financial burden when the time comes.

Legal Considerations as Children Mature

When a child turns 18, parents lose certain legal rights over them. This milestone calls for the young adult to have their own estate planning documents. A healthcare proxy, HIPAA disclosure form, and durable power of attorney are essential to ensure parents can make decisions on their child’s behalf if incapacitated. This step is crucial for maintaining a degree of oversight and care for children as they enter adulthood.

Special Circumstances in Estate Planning

For families with children with special needs, setting up a special needs trust is imperative. This type of trust allows the child to continue receiving government benefits while also benefiting from the trust’s distributions. Grandparents can also play a significant role in estate planning by setting up trusts or 529 plans for their grandchildren, adding an extra layer of security for their future.

Regular Review and Adaptation

Estate planning is not a one-time task. It requires regular review and adaptation to align with the family’s changing circumstances and needs. Wills, powers of attorney, and trusts should be updated to reflect significant life changes like births, marriages, or financial shifts.

Conclusion

Estate planning for children is a fundamental responsibility of parenthood. It ensures that children are cared for and financially secure, regardless of the future. By following these guidelines and regularly reviewing their estate plans, parents can have peace of mind knowing that their children’s futures are well protected.

Reference: “To Protect Your Kids, Consider These Estate Planning Steps” (Kiplinger), Allen J. Falke’s

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