Is it time to update your estate plan?
Estate plans are almost magical. They allow you to maintain control of your assets, yet protect you should you become incapacitated. They take care of your family and pets. And, if carefully crafted, they reduce fees, taxes, stress, and time delays. Estate plans can even keep your family and financial affairs private. But one thing estate plans can’t do is update themselves.
Estate plans are written to reflect your situation at a specific point in time. While they have some flexibility, the bottom line is that our lives continually change and unfold in ways we might not have ever anticipated. Your plan needs to reflect those changes. Neglected estate plans not only jeopardize your estate planning wishes but may also negatively impact your loved ones, not to mention yourselves.
If anything in the following five categories has occurred in your life since you signed your estate planning documents, call us now to schedule a meeting. We’ll get you in ASAP to update your estate plan and make sure you and your family are properly protected.
Marriage, Divorce, Death
Marriage, remarriage, divorce, and death all require substantial changes to an estate plan. Think of all the roles a spouse plays in our lives. We’ll need to evaluate beneficiaries, trustees, successor trustees, executors/personal representatives, and agents under powers of attorney.
Change in Financial Status
A substantial change in financial status – positive or negative – generally requires an estate plan update. These changes can be the result of launching, winding down, or selling a business; business and professional success; filing bankruptcy; suffering medical crisis; retiring; receiving an inheritance; or, even winning the lottery.
Birth, Adoption, or Death of a Child or Grandchild
The birth or adoption of a child or grandchild may call for the creation of gifting trusts, 529 education plans, gifting plans, and UGMA / UTMA (Uniform Gifts to Minors Act / Uniform Transfers to Minors Act) accounts. We’ll also need to reevaluate beneficiaries, trustees, successor trustees, executors/personal representatives, and agents under powers of attorney.
Change in Circumstances
Circumstances change. It’s a fact of life – and when you’re the beneficiary or fiduciary of an estate plan, those changes may warrant revisions to the plan. Common examples include:
- Children and grandchildren attain adulthood and are able to serve in trusted helper roles
- Relationships change and different trusted helpers need to be named
- Beneficiaries or trusted helpers develop overspending or drug / gambling habits
- Guardians, executors, or trustees are no longer able (or no longer wish) to serve in their preassigned roles
- Beneficiaries become disabled and need a special needs trust to receive government benefits
- Guardians for minor children divorce, move to a new state, or are, otherwise, no longer appropriate to serve
- Changes in Venue
- Moving from one state to another always warrants estate plan review as state’s laws differ. Changes may be needed to ensure that you’re taking full advantage of – and not being penalized by – your new state’s laws. This is also true when purchasing a second home outside of your state.
Estate Plans Are Created to Help, Not Hurt, You
If you’re uncertain whether your current plan meets your present needs or life circumstances, reach out to the Socius Law Firm today at 508-870-5759. We offer a variety of will- and trust-based plans tailored to your specific estate planning goals and objectives.Read More
Contrary to what you may have heard most of your life, a Will alone may not be the best plan for you and your family. And although a Will-based estate plan is well-intentioned, it often results in an unexpected and unfortunate outcome.
Losing Control with a Will-Based Estate Plan
To understand how a will-based estate plan can go wrong, consider the following scenario:
Michael and Sara had been married for 16 years and lived in Massachusetts with their 10-year old son, Ben. The couple saved and invested wisely for their retirement with assets in excess of $1 million. They also had simple “I Love You” Wills prepared, which left everything to the surviving spouse, with ultimate distribution to their son. Unfortunately, after leaving Ben with a babysitter to attend a friend’s gathering, Michael and Sara were killed in a car accident.
With basic Wills alone in place, the unexpected outcome for this family is described below:
• The night of the accident, Ben was placed into the care of the Department of Children and Families until the authorities could locate the closest family member and run the necessary background checks. Unfortunately, this was Ben’s grandmother, who was in Florida. It took nearly two days until Ben was temporarily placed with his grandmother.
• Michael and Sara’s Wills were required to go through Probate Court. The Probate process – not the family – had control over how the Wills were interpreted, how much it would cost, and how long it would take.
• The Probate process tied up their assets for nearly 18 months so Ben and his guardian did not have access to any of the funds. In addition, probate was expensive, resulting in many thousands of dollars of legal fees, court costs and other unnecessary expenses.
• As part of the Probate process, the Court set up a guardianship for Ben and appointed Michael’s sister (as she was named as legal guardian in the Wills). The Court also appointed a third-party conservator to manage Ben’s inheritance. The Court (not Ben’s guardian) controlled the inheritance until Ben reached the age of 18.
• Then when Ben turned 18, he received a lump sum payment in excess of several million dollars for all the remaining assets (as opposed to inheriting at a later age, which his parents would have preferred).
• Because the couple’s assets were in excess of $1 million, the family owed a sizeable Estate Tax to the Commonwealth of Massachusetts.
If you are surprised by some of this, you’re not alone. Most people are not aware of how little control they actually have with a Will. All of the above could have been easily avoided with more advanced, trust-based planning.
Taking Control with Trust-based Planning
(1) One of the biggest benefits of trust-based planning is that it avoids Probate Court. Your assets are distributed according to your Trust – “to whom you want, the way you want, and when you want.” You maintain control without Probate Court interference.
(2) Trust-based planning usually involves no court costs, only legal fees if an attorney is needed to assist with the administration of the Trust. In addition, the timing can be just weeks versus a lengthy Probate process of 12-18 months.
(3) A properly drafted Revocable Living Trust includes provisions to minimize or eliminate Federal and Massachusetts Estate Taxes.
(4) A Revocable Living Trust also provides Asset Protection. For example, in the case of Ben, Ben’s inheritance would have been protected from third-party creditors as well as future situations (e.g., an ex-spouse should Ben marry and divorce one day; or self-protection in the event Ben develops a gambling problem or drug addiction).
(4) One additional consideration that is not addressed in the above scenario, although very important when evaluating wills vs. trusts, is “Incapacity.” A Will provides NO protection if you become mentally or physically incapacitated. As a result, many people end up under the control of the courts before they die.
For more detail on wills vs. trusts, check out our guide “Comparison of Estate Planning Options.”
Kids Safeguard Planning
In the tragic scenario described above, a 10-year old boy who had just lost his parents was placed with the Department of Children and Families for two days until he could be reunited with a family member. During traumatic times, children are always better off with familiar friends or family members as opposed to strangers, no matter how safe and capable. If you are a parent of minor children, your advanced planning needs to include a Kids Safeguard Plan to ensure your children will always be taken care of by the people you want, in the way you want, and never put in a situation you wouldn’t like. A Will alone is simply not enough.
Thinking about the future or what will happen to your property after your passing is extremely difficult. It’s something you need to do – regardless of your age, marital status, or wealth – if you want to keep control of your assets (your estate) and of decisions about your children when something happens to you. It’s important to plan now and understand why a will-based estate plan might not be enough for you.Read More
Most people have some type of retirement account—whether a 401(k), IRA or pension—so proper estate planning for these assets is essential. When planning for retirement accounts, there are three considerations to take into account to ensure your account is distributed in a manner that is consistent with your overall estate planning goals.
Naming a Beneficiary
When it comes to retirement accounts, most people choose to name their spouse as the primary beneficiary and then designate children or other individuals as contingent beneficiaries. While this approach will typically avoid the Probate court, it will not offer any preservation or protection for the inherited accounts.
A smarter approach is to place your retirement account in a trust, which can provide ongoing benefits to your spouse, children or other named beneficiaries.
Benefits of a Trust
In most cases, leaving your retirement account to your beneficiaries via a trust provides an increased level of protection and flexibility.
A trust that is specifically designed to receive retirement account balances allows the account to continue growing, on a tax-deferred basis, for as long as possible. It also protects the inherited balance from the beneficiary’s creditors and allows for distribution in accordance with the deceased account holder’s wishes.
Retirement accounts are treated as “income in respect of a decedent,” and as a result, any amounts withdrawn from non-Roth accounts are subject to income tax at the beneficiary’s ordinary income tax rate.
Given the income tax treatment of inherited retirement accounts, retirement trusts must be carefully drafted. If set up incorrectly, a trust could require the entire inherited account balance to be paid out within five years of the account owner’s death. In such as case, long-term, tax-deferred growth of the funds would be lost, and beneficiaries would be faced with a substantial (and unexpected) income tax bill. Additionally, the funds would be subject to the claims of any of the beneficiaries’ bankruptcy or judgment creditors.
Get started on planning for your retirement accounts with the Socius Law Firm. We will review your retirement plan’s documentation, ensure that beneficiary designation forms are written correctly and, if needed, help to properly set up a retirement trust.Read More