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The Different Types of Trusts

The Different Types of Trusts

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It may seem that trusts only belong to wealthy people, but they are common and useful tools for estate planning of all sizes. They are used to manage and protect assets, control the distribution to beneficiaries, and continue family legacies. There are different types of trusts.

Types of Trusts

There are many types of trusts, but they all establish a financial arrangement between three parties: the settlor(s), the trustee(s), and the beneficiary(ies). The person creating the trust is known as the settlor. (In other states, the creator of the trust can be referred to as the trustor, grantor, or trustmaker.) Trusts can be created by more than one person or entity. The trustee manages the trust and disperses income or principal from the trust according to specific terms. The trust is for the benefit of one or more beneficiaries, which can be people or entities, such as charities.

Benefits of Trusts

Trusts provide many benefits. One of the key benefits is transferring assets from the owner to the trust fund, so assets do not have to go through a probate court before reaching the beneficiary. This allows the beneficiary to receive the assets faster and generally privately. Probate proceedings can last for months, unnecessarily delaying the dispersal of assets. Since court records can be viewed by the public, in many circumstances assets become public knowledge.

A person can establish a trust that they benefit from during their lifetime. Trusts can also be used to hold and disperse assets to beneficiaries who are minors, disabled, or otherwise unable to manage the assets. Some trusts are used to remove countable assets from a person who is planning to apply for Medicaid benefits. Assets intended for heirs may prevent them from qualifying for Medicaid coverage. Trusts created for this purpose are usually established at least five years before the settlor plans to apply for Medicaid.

Since estate taxes and gift taxes can eat into the number of assets a beneficiary receives, trusts provide a way to avoid or lessen these taxes. Trusts can protect assets from creditors, legal claims, and family disputes regarding how your assets should be dispersed. You may have additional reasons to create a trust for your assets.

Types of Trusts

There are two types of trusts:  living and testamentary. Trusts may be revocable or irrevocable. They can be funded during or after the settlor’s life, depending on the purpose of the trust. These common trusts are described as follows:

Living Trust

A living trust  or inter vivos trust  is set up while the settlor is still alive. The assets that are held in the living trust are typically available to the settlor during his or her lifetime. This type of trust is helpful if the settlor wants to have access to the assets but wants to give clear direction on how they will be distributed after death.

Testamentary Trust

A testamentary trust is a trust that is contained within an individual’s last will and testament. It is generally set up to benefit the settlor’ descendants. It goes into effect when the will is probated by a probate court judge.

Revocable Trust

A revocable trust is created while the settlor is still alive and wishes to continue to benefit from the assets that the trust will hold. Often the settlor, trustee, and beneficiary are the same person while that person is still alive. After the settlor dies, a successor trustee assumes management of the trust for the benefit of the beneficiaries designated in the trust. The settlor can change or terminate a revocable trust while her or she is still alive.

Irrevocable Trust

An irrevocable trust cannot be changed or terminated during the settlor’s lifetime. Because the assets held in an irrevocable trust are off limits to the settlor, this type of trust helps protect assets from creditors and taxes. It is often used when planning for Medicaid or government benefits. It may also be used to limit access to minors and adults with special needs to distribute funds at specific times or over their lifespan.

Trusts help individuals and businesses protect and direct their assets to beneficiaries while keeping those assets out of probate court. An experienced estate planning attorney can help you create the trust, or trusts, that will best suit your family’s needs and financial goals.

This article offers a summary of aspects of estate planning law. It is not legal advice, and it does not create an attorney-client relationship. For legal advice, Contact our Ruston, LA office by calling us at (318) 255-1760.

The Estate Planning Process

The Estate Planning Process

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An estate planning process is a multifaceted process that involves several documents spelling out a person’s wishes. During the process, you can name people to make financial decisions on your behalf when you are unable. You can designate beneficiaries for your assets. You can also express your wishes for what type of medical care you want if you are severely ill or injured and unable to communicate.

Since each person’s situation is unique, every estate plan is different. Here are the basic steps in the estate planning process to get you started. Working with an estate planning attorney will help you create and implement a plan that works for your specific needs.

Inventory Your Assets

We often don’t realize how many tangible and intangible assets we have until we start counting them. Before meeting with an estate planning attorney, create an inventory of everything you own that has significant monetary or family value.

Your tangible assets may include:

  • Real estate, both residential and commercial (unless owned by your company)
  • Vehicles, such as cars, motorcycles, or boats
  • Collectible items, such as artwork, antiques, coins, stamps, or trading cards
  • Jewelry and other valuable items

Your intangible assets may include:

  • Checking and savings accounts
  • Investments, such as mutual funds, stocks, bonds, or certificates of deposit
  • Retirement plans, such as a 401(k) or an IRA
  • Life insurance policies or health savings accounts
  • Ownership shares in a business

After you have created an inventory of your assets, determine each asset’s value. If you are unable to attach a dollar amount to an asset, you can determine its worth by how much your heirs will value it or have it appraised. By giving each asset a value, you will be able to evenly divide your assets among your heirs.

Determine Your Family’s Needs

One important aspect of estate planning is making sure your dependents’ needs will be met after you’re gone. Life insurance can be a good way to ensure the necessary funds to support your loved ones. Work with a financial advisor to be certain you have enough life insurance to cover your dependents’ needs.

If you have minor children, name a guardian and a backup guardian who can take care of your children if you and your spouse are both unable to care for them. In addition to naming guardians for your children, it is a good idea to express what’s most important to you. For example, you can share your values related to education, religion, and general child rearing.

Put It All in Writing

For your estate plan to be official, you need to put your desires into legal documents and sign them in the presence of a notary public and one or two witnesses. The requirements for a valid will vary from state to state. Here are some estate planning documents that may be part of your estate plan.

  • Will: A will is an estate planning document that everyone should have. You can use your will to name the person you want to manage your estate after you have passed away. You can also designate which beneficiaries should get which assets, appoint guardians for your minor children, and explain funeral and burial arrangements.
  • Trust: During the estate planning process, you may determine that you need a trust to manage some of your assets. Trusts are useful estate planning tools that can offer various asset protection benefits. An estate planning attorney can let you know if a trust can help you achieve your estate planning goals.
  • Durable Financial Power of Attorney: This document allows you to appoint a person you trust to manage your financial affairs if you are unable to manage them.
  • Advance Health Care Directive: With this document, you can express your wishes for end-of-life care and name a person you trust to make health care decisions on your behalf if you are unable to do so.
  • HIPAA form: This form is usually only about three pages long and includes a list of people whom health care providers may share your medical information with.

Review and Update Your Estate Plan

Too many people think that once they have signed their estate plans, they are through with the process. However, since changes in our lives are inevitable, changes to our estate plans are often necessary. You should review your estate plan every few years and consult with your estate planning attorney when you need to make changes.

 

This article offers a summary of aspects of estate planning law. It is not legal advice and does not create an attorney-client relationship. For legal advice, contact our Ruston, LA office by calling us at (318) 255-1760.

 

A Comparison of Elder Law and Estate Planning

A Comparison of Elder Law and Estate Planning

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You might wonder what estate planning and elder law are and how they differ as you plan for the future. Both financially and in terms of health care. Estate planning and elder law also have some similarities. A comparison of elder law and estate planning will be addressed below.

Even though these two types of law are for different stages in life, they are often handled at the same time. This is because many people wait till later in life to start their estate planning process. When an older person creates an estate plan, they may also need some elder law counseling. To better understand the two areas of the legal field, we will look at the solutions they provide. As well as the questions they answer, and how they can work together.

Estate Planning

The main goal of estate planning is to choose legal documents that will determine what will happen to you and your assets once you have passed away or become incapacitated. An estate planning attorney will help you make important decisions, such as:

  • Who makes medical and financial decisions if you are unable
  • Who is allowed access to your medical records
  • How assets are distributed after you are gone
  • Who cares for minor children if you become incapacitated or die
  • Who manages money for your minor children if you are no longer able
  • How to handle your funeral arrangements and burial

Durable Powers of Attorney

By using a general durable power of attorney document, you can name a person, or persons, to make financial decisions on your behalf either immediately or  if you are no longer able to do so. Expressing your end-of-life wishes requires designating a person to make healthcare decisions for you by completing a health care directive. By completing a Health Insurance Portability and Accountability Act (HIPAA) form, you will give your health care providers permission to share your medical records with the people listed on your HIPAA form.

Wills and Trusts

In your will, you can name the beneficiaries of your estate as well as a guardian to care for any minor children you may have at the time of your death. You can also name a person to manage the money you leave for their benefit. Some people create a trust, or trusts, to hold their assets during their lifetime and after death. They then sign a pour-over will that moves assets into their trust(s) upon death.

Elder Law

Whereas estate planning focuses mostly on what happens after a person dies, the area of elder law focuses on a person’s last years or months. This can include planning for long-term care and applying for government assistance, such as Medicaid, Medicare, and veterans’ benefits, if applicable. Using elder law tools and strategies, an elder law attorney can help you find ways to preserve your assets while preparing to apply for benefits.

Like estate planning, it is best to start the elder law planning process well in advance. To qualify for benefits, such as Medicaid, you may have to sell or transfer ownership of some assets years before applying for benefits. Gifting or transferring assets out of your name must be done according to government requirements, so applying for benefits can be a complicated process. Hiring a skilled attorney can make the difference between receiving benefits quickly or not at all.

Since seniors are at a greater risk for discrimination, neglect, and abuse, elder law attorneys can help seniors and their family members recognize when a senior’s rights are being violated and take legal action to counter and remedy the situation.

Tying Estate Planning and Elder Law Together

It is best to start your estate planning process as soon as possible. The decisions involved could come at any time due to an accident or an illness. Planning for end-of-life care and the benefits associated with it may come later in life, but preparing well in advance lets you legally reduce assets for an extended period to qualify for benefits, like Medicaid.

Even younger families just starting their estate planning process may look at elder law planning at the same time for senior family members’ needs. Some estate planning tools, such as trusts, are often used when helping a parent plan for Medicaid. Even other government benefits for long-term care expenses. An attorney experienced in both estate planning and elder law can advise you in these areas. They will help you navigate complicated processes.

This article offers a summary of aspects of estate planning law. It is not legal advice and does not create an attorney-client relationship. However, it is of upmost importance to know the comparison of elder law and estate planning. For legal advice, contact our Ruston, LA office at (318) 255-1760 to speak to one of our experienced estate attorneys.

The Role of the Executor

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The Role of the Executor

An executor is someone chosen to handle an estate’s assets and affairs after the death of the deceased because they believed you would be trustworthy to do so. Even though the decedent nominated you to be their executor, you will still need to be appointed to that role by their local probate court. The role of executor is an honorable role that comes with many responsibilities. Below is an overview of what the role entails.

Get a Death Certificate

The first thing you will want to do is get original copies of death certificates. You will need a death certificate to open and close financial accounts, file the decedent’s final tax return, and more. The number of originals you will need varies depending on the complexity of the estate. Some places will accept copies, and others will require the originals. The funeral home should be able to provide the death certificates.

Find the Will

You will need to find the decedent’s original will as well as any other estate planning documents. Read the documents so that you understand what you have to do. If you need help interpreting the documents, you must consult an attorney who is experienced in estate administration and probate. You will need to file the will with the local probate court and petition the court to appoint you as the executor of the estate.

Gather and Inventory Assets

After you have been appointed as the executor by the court, you will use the documents the court gives you to create an Employer Identification Number (EIN) for the estate. You will use this number to open a bank account, so the estate can receive funds and pay bills. Other actions you may need to take include:

  • Take possession of a safe deposit box and its contents
  • Locate and inventory any real estate deeds, mortgages, and leases
  • Appraise any real estate owned by the estate
  • End any recurring expenses, such as subscriptions, memberships, or services
  • Find and list all the decedent’s financial assets, including life insurance policies, retirement accounts, pensions, or social security benefits
  • Determine if the decedent was the beneficiary of any other deceased person’s estate
  • Collect debts owed to the estate
  • Evaluate the estate’s assets and liabilities and report this information to the beneficiaries and family members

This is just a partial list of what the role of executor entails. Each estate is different; therefore, each probate process is unique.

Pay Debts and File Taxes

As the executor, you will need to pay all the debts the estate owes. You may have to reject false claims against the estate and defend the estate in court, if necessary. You will also need to file a final tax return for the decedent and pay any taxes that are owed by the decedent and the estate.

Distribute Assets

After the estate’s debts and taxes have been paid, you can distribute the remaining assets according to the instructions in the decedent’s will or trust. The decedent have made specific bequests in their will or trust expressing that certain assets to be given to certain family members, friends, or charities.

Close the Probate Case

Throughout the probate process, you should document everything you do in your role as executor. After you have fulfilled your obligations as executor, you will petition the probate court to close out the probate process.

The probate process can be long and tedious, but resources are available, such as The American Bar Association’s Guide to Wills and Estates, that you can use to help guide you. However, you may want to hire an attorney experienced in estate administration and probate to help you with the process or handle everything for you.

With that being said, this article gave a summary of aspects of estate planning law. It is not legal advice and does not create an attorney-client relationship. For assistance, please contact our Ruston, LA office by calling us at (318) 255-1760.

Estate Planning: Six Mistakes to Avoid

Estate Planning: Six Mistakes to Avoid

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Estate planning: six mistakes to avoid. It can protect your assets, interests, and the people you love if you plan ahead. Sadly, many individuals make costly mistakes without proper advice and guidance from a qualified estate planning attorney. Beyond undermining your intent and diminishing your financial legacy, poor planning can create additional stress to your heirs in their time of grief.

Six common errors frequently happen during the estate planning process. These mistakes often occur because the complete financial picture was not fully considered. It is easiest to avoid estate planning mishaps by knowing what they are before you begin or looking for these errors when reviewing and updating your plan.

Financial Procrastination

Financial procrastination causes problems. While examining your mortality and making end-of-life preparations is not a particularly fun activity, try viewing it as helping and enhancing your loved ones’ future lives while creating a sense of peace during your own.

The need to protect your finances using wills, trusts, and power of attorney (POA) documents is not solely the domain of the elderly. Putting off the drafting of legal documents necessary to protect yourself and your inheritors can lead to disastrous outcomes.

By far, failing to create an estate plan is the most common mistake. Even if you do not have a lot of money, you need a will to protect any minor children you have by naming their guardians. Your will also ensures your asset distribution to heirs is carried out according to your intentions when you die and names a representative to handle debt obligations, final taxes, and other estate administrative duties. Dying without a will or “intestate” can lead to dire consequences.

Outdated wills, forms, and POAs create problems. If you made a will twenty years ago and have not reviewed and updated its contents, chances are many of the details no longer reflect current assets or beneficiaries. Estate planning is not a “set it and forget it” proposition. Reviewing estate planning documents and beneficiary forms every two years is generally adequate, barring a major life change such as divorce, birth, death, remarriage, or relocation to another state.

Beneficiaries without coordination can create expensive oversight. Beneficiary forms for retirement accounts like 401(k)s and IRAs, annuities, and life insurance policies may constitute a significant portion of your estate’s assets. These beneficiary forms are legally binding and will supersede the contents of your will. Failure to update beneficiary forms can lead to an ex-spouse receiving assets that preferably would go to your heirs. Routine checks of all beneficiary designations are best practices for estate planning.

Failing to title trust assets properly can lead to probate. While not everyone requires a trust, those who do must carefully retitle their assets into the name of the trust. Forgetting to add more recently purchased property or opening a new account requires you to title them into the trust to receive trust benefits. Whether real estate, cash, mutual funds, or stocks, if you fail to move the asset into the trust, they become subject to the probate court, possible tax consequences (depending on the trust type), and a public record of these assets.

Life insurance can trigger estate tax. Life insurance can provide heirs with liquidity without the sale of assets and tax consequences when handled correctly. However, if a wealthy individual dies while maintaining ownership of their life insurance policy, they may inadvertently create a tax event for their heirs. Although life insurance death benefits are not subject to state or federal income taxes, any “incident” of ownership by the decedent can create an inheritance tax.

An estate planning attorney can help shelter life insurance proceeds from high-value estates by gifting the policy to an Irrevocable Life Insurance Trust (ILIT) or draft a new trust to purchase a new policy where the trust is the owner and beneficiary. A policy owned by the trust does not create a taxable situation to death benefits. Your attorney’s careful structuring of this trust type is complex but can provide proper protection.

Joint ownership of assets with your children can lead to disastrous consequences. Naming your children as co-owners of assets, even digital, permits their creditors to access your money. The better way to address the situation is to give your adult child power of attorney and assign them as a beneficiary to a payable on death bank or brokerage account. This tactic permits them to access your funds if required during your lifetime. However, it keeps your assets from your child’s estate and away from their potential creditors.

Ultimately the biggest error you can make is not finding the right estate planning attorney to guide you. This specialized attorney receives training on avoiding probate, tax implications, and asset protection if you require long-term care. Proper planning with the right guidance will help you avoid costly estate planning mistakes and protect your family’s future financial well-being. If you have questions or would like to discuss your personal situation, please contact our Ruston, LA office by calling us at (318) 255-1760.