Rowley Law

Estate Planning 101

“Estate planning is an essential part of an individual’s personal finances. This is true no matter how wealthy a person is.”

Estate planning is a process in which a person details how their money and other assets should be managed during life and after their death.

WMUR’s recent article, “Money Matters: Importance of estate planning,” starts with some basics. An estate includes all of the property that you own.  It is the outright ownership or ownership you share with someone else, like your home, bank accounts, investments and heirlooms. Managing these assets through all of your life events is the objective. Even if you’re incapacitated, you have a plan in place so your finances are supervised. Along those lines, is determining the type of medical care you want to receive, if you can’t communicate those wishes. This is done with a healthcare directive.

Here are a few other items that you need to consider with the help of a qualified estate planning attorney:

Financial plan. You should have a firm grasp of your finances and your family situation.

Will. The key document that all plans should contain. A will spells out the property you wish to leave to family, friends, and organizations. You should also name a personal representative to manage the probate process.

Guardianship. Your will should also designate guardians for your minor children, so you can say who will rear your children, if you and your spouse both die.

Directives. This includes durable powers of attorney for finances and health care. You can name individuals who you trust to take handle your finances and make health care decisions, if you’re unable to do so. Without these documents in place, the court will appoint someone to manage your finances. This could be someone who is unfamiliar with you and your situation.

Trusts. A trust lets funds be managed by a person or group for the benefit of others, pursuant to the instructions in the trust document. Blended families, families that include children with special needs, and situations where control over the funds for an extended period is needed, are all potential scenarios for a trust.

Beneficiary Designations. Life insurance proceeds and retirement accounts will pass via beneficiary designations, so these should be current and aligned with your estate plan.

Funeral plans. You can leave specific instructions about your final arrangements, such as being buried or cremated, as well as electing to donate your organs.

Creating an estate plan can give you peace of mind. Your family will also be relieved of the stress that comes with making choices when they don’t know your wishes. If you fail to create an estate plan and have no documents, the state will provide a plan for you.  However, it might something you would not like.

Review your plans periodically and work with a qualified estate planning attorney.

Reference: WMUR (June 1, 2017 “Money Matters: Importance of estate planning”

Finding the Right Estate Planning Attorney

“Losing a parent or grandparent can put into perspective the need for careful planning to avoid surprises, protect young children and spouses and properly execute the decedent’s wishes.”

The Norman Transcript’s recent article, “The right attorney is needed for wills and estate planning,” addresses how to find an attorney who will be a good match for your particular circumstances.

No one enjoys planning his or her estate. After all, who likes to think about not being here? Estate planning entails looking at your own mortality and possible incapacity. It’s not a simple task, regardless of your age. With estate planning, it seems that a person will get more serious about it when the crisis happens. At that point, it may be too late.

The daughter of a senior who develops dementia or another debilitating or life-threatening disease sees first-hand the true complexities of incapacity.  It helps the family to understand and appreciate the need and the value of health-care proxies, living wills and powers of attorney. These “life events” happen every day to many people. In order to address this reality of life, you need a plan.

The big question is, who’s going to be helping you?

Young generations will be quick to jump online or look at their phones. However, it is important to understand that estate planning is state-specific. Every state has specific requirements, timelines and deadlines. Your state’s laws will tell you just how estate planning documents must be written and how they need to be signed. A will or power of attorney form that you find online, may not satisfy your state’s requirements.

Remember that the law hasn’t caught up with technology. There is no way that you can execute your will on your smart phone.  In addition, many free or low-cost online legal service providers don’t provide state-specific advice or updated information.

When you talk with potential estate planning lawyers, make sure to ask questions to uncover their knowledge in this area of the law. You want an attorney who’s skilled and responsive to your needs, a good listener and a good communicator. There are general practitioners who take “whatever walks in the door,” which gives them a broad yet cursory level of experience with many types of law.

You want to work with an attorney who focuses on estate planning.  They will have a much deeper knowledge and extensive experience in this area of practice. Your estate planning attorney might not know how to defend a products liability claim. That’s OK, because he or she definitely will know how to create customized estate plans for their clients.

Interviews are critical and that means face-to-face encounters. You should also look at client references.  However, use caution when selecting an estate planning attorney based on a friend’s recommendation. Friends may not know anything in particular about an attorney’s skills and specialties. That can be dangerous because with estate planning, issues don’t come up until after death.

Reference: Norman Transcript (March 5, 2017) “The right attorney is needed for wills and estate planning”

To Trust or Not to Trust… That is The Question

“It's called a trust for a reason: You're counting on this stand-alone legal entity to do something you can't.”

A trust is a good idea to ensure that ownership of your assets will go to your heirs smoothly and privately. A trust can also have some tax advantages and can protect your assets from creditors. But it depends on the trust, says Yahoo Finance, in “How to Choose Between a Revocable and Irrevocable Trust.”

Irrevocable or Revocable Trust

Think about the amount of control you need over your assets, because this will dictate if you should have an irrevocable or revocable trust (provided that one of these is appropriate in your situation).

A revocable trust allows you to revoke and rewrite the terms of the trust. But an irrevocable trust does just the opposite. You—otherwise legally called the trustor, grantor, or settlor—create the irrevocable trust, then relinquish control to a trustee. There’s no do-over, and you can’t change the terms of the trust or fire the trustee without getting the approval from the beneficiaries. The amount of control as the grantor over the trust equates to the benefits. The more control you have, the fewer immediate benefits.  However, the less control you have, the greater the potential benefits in the future.

If your goal is to reduce estate taxes, which has been the traditional rationale for a trust,  recent changes to tax law state that the exemption on estate taxes is now $10.98 million for married couples. This eliminates the tax reduction rationale for many people. There’s no tax savings by pouring assets into a revocable trust. And this trust doesn’t protect assets from creditors like an irrevocable trust will do.

The main reason for a revocable trust is to accept assets when you can no longer manage your own affairs. When you move assets to a revocable trust, you give instructions on how they should be used upon your death. This usually occurs without going through probate and usually with some level of privacy for your living heirs. When you pass, a properly set up revocable trust will become an irrevocable trust, with a trustee managing it. As a result, a revocable trust can become somewhat of a substitute for a will and will give some privacy to the family.

Incapacity

A revocable trust is useful for setting up plans to handle your assets and income if you become incapacitated. The trust will contain a provision for the continued management of the assets without a formal court order. But you might also be able to achieve the same planning goals by using a general durable power of attorney. Talk with an experienced estate planning attorney to be sure.

Irrevocable trusts are only for those who are super sure. The main irrevocable trust advantages (tax advantages) are primarily for the very well-off. Those advantages can be complex. For everyone else, the advantages of irrevocable trusts are in addressing special circumstances, like guaranteeing for the continued support of a disabled dependent or ensuring the protection of assets from professional liability.

An irrevocable trust can protect assets from creditors, but you need to place the assets in the trust before you have credit problems. Trusts are also used as generation-skipping tools (transferring wealth to your grandchildren), protecting assets in divorce and to provide for your next of kin in a responsible way.

Reference: Yahoo Finance (January 23, 2017) “How to Choose Between a Revocable and Irrevocable Trust”

Unfunded Trusts

Getting a trust is only the first step to making it effective. You also need to put your assets in it.

One of the most common estate planning mistakes is known as an “unfunded” trust. It happens when people have trust documents drawn up and executed, but they do not transfer any of their assets into the trust.

The trust is essentially empty. When the person passes away, it has nothing to do in some cases.

There are no assets for the trustee to manage and distribute to the trust beneficiaries, as directed by the trust.

What happens after the trust settlor passes away with an unfunded trust varies, as the NWI Times discussed in "Estate Planning: Unfunded Trust."

In the best case scenario, the deceased did create a will providing that any assets in the estate be placed into the trust. This is called a pour over will.

As long as no one challenges the estate, then a probate judge will allow assets to be transferred to the trust and everything should proceed normally from there. However, things can get very messy, if there is no will or a non-pour over will.

Under those circumstances, getting assets into the trust can be very difficult, if not impossible.

The best thing to do is to avoid this problem.

After getting a trust, make sure that you fund it.

If you do not know how to transfer assets into the trust, then ask your estate planning attorney. The attorney who helped you get the trust can help you fund it.

Reference: NWI Times (May 7, 2017) "Estate Planning: Unfunded Trust."

Charitable Giving 101

“For most people, giving to charities is a pretty simple matter: Write a check or donate cash, goods, other assets or time.”

Roughly $400 billion was donated by Americans to charitable causes last year. That’s about 2% of the U.S. gross domestic product. These donations came in many forms, like personal checks and distributions from trusts.

According to Morningstar’s recent article, “7 Tips for Better Charitable Giving,” creating a long-term charitable or philanthropic plan means careful consideration with your family, as well as professionals. You want to develop the right giving strategies that address estate, tax, and investing issues. Here are a few ideas to make certain that your money is donated wisely.

Make a Plan. Some donors feel they should leave large, one-time gifts to colleges, hospitals, or other charitable institutions. Others divide their donations among multiple causes over a period of time. Start with a "goals analysis" of your charitable strategy and implement a basic financial plan. Write down your charitable priorities and look at which have the most immediate need and where a donation can do the most good.

Research Your Causes. Look at how much the charity spends donor funds on marketing and administrative expenses.  It is important to see the percentage of donations that actually goes to the programs. Some charities have very high administrative costs, while others run lean operations.

Determine the Timing. Some people  choose to leave some of their estate to specific causes after they die and others donate while they're still alive. How might this impact your retirement income?  You should also consider whether you want to make ongoing contributions or a lump sum.

Work with Professionals. An experienced estate planning attorney can help you with your charitable-giving strategy. An attorney will analyze how your donations impact your estate and heirs, potential tax benefits during your lifetime and the types of donations you can make. Your charitable giving should be a component of your overall estate planning strategy.

There are many ways to donate, depending on when you want to give and how. Work with your attorney to develop a plan that makes sense from a tax and philanthropic perspective.

Reference: Morningstar (July 29, 2017) “7 Tips for Better Charitable Giving”