Understanding Your Revocable Living Trust

These days many people choose a revocable living trust instead of relying on a will or joint ownership in their estate plan. They like the cost and time savings, plus the added control over assets that a living trust can provide.
For example, when properly prepared, a living trust can avoid the public, costly and time-consuming court processes at death (probate) and incapacity (conservatorship or guardianship). It can let you provide for your spouse without disinheriting your children, which can be important in second marriages. It can save estate taxes. And it can protect inheritances for children and grandchildren from the courts, creditors, spouses, divorce proceedings, and irresponsible spending.
Still, many people make a big mistake that sends their assets right into the court system: they don’t fund their trusts.
What is “funding” my trust?
Funding your trust is the process of transferring your assets from you to your trust. To do this, you physically change the titles of your assets from your individual name (or joint names, if married) to the name of your trust. You will also change most beneficiary designations to your trust.
Who controls the assets in my trust?
The trustee you name will control the assets in your trust. Most likely, you have named yourself as trustee, so you will still have complete control. One of the key benefits of a revocable living trust is that you can continue to buy and sell assets just as you do now. You can also remove assets from your living trust should you ever decide to do so.
Why is funding my trust so important?
If you have signed your living trust document but haven’t changed titles and beneficiary designations, you will not avoid probate. Your living trust can only control the assets you put into it. You may have a great trust, but until you fund it (transfer your assets to it by changing titles), it doesn’t control anything. If your goal in having a living trust is to avoid probate at death and court intervention at incapacity, then you must fund it now, while you are able to do so.
What happens if I forget to transfer an asset?
Along with your trust, your attorney will prepare a “pour over will” that acts like a safety net. When you die, the will “catches” any forgotten asset and sends it to your trust. The asset will probably go through probate first, but then it can be distributed according to the instructions in your trust.
Who is responsible for funding my trust?
You are ultimately responsible for making sure all of your appropriate assets are transferred to your trust.
Won’t my attorney do this?
Typically, you will transfer some assets and your attorney will handle some. Most attorneys will transfer your real estate, then provide you with instructions and sample letters for your other assets. Ideally, your attorney should review each asset with you, explain the procedure, and help you decide who will be responsible for transferring each asset. Once you understand the process, you may decide to transfer many of your assets yourself and save on legal fees.
How difficult is the funding process?
It’s not difficult, but it will take some time. Because living trusts are now so widely used, you should meet with little or no resistance when transferring your assets. For some assets, a short assignment document will be used. Others will require written instructions from you. Most can be handled by mail or telephone.
Some institutions will want to see proof that your trust exists. To satisfy them, your attorney will prepare what is often called a certificate of trust. This is a shortened version of your trust that verifies your trust’s existence, explains the powers given to the trustee and identifies the trustees, but it does not reveal any information about your assets, your beneficiaries and their inheritances.
While the process isn’t difficult, it’s easy to get sidetracked or procrastinate. Just make funding your trust a priority and keep going until you’re finished. Make a list of your assets, their values and locations, then start with the most valuable ones and work your way down. Remember why you are doing this, and look forward to the peace of mind you’ll have when the funding of your trust is complete.
Which assets should I put in my trust?
The general idea is that all of your assets should be in your trust. However, as we’ll explain, there are a few assets you may not want in, or that cannot be put into, your trust. Also, your attorney may have a valid reason (like avoiding a potential lawsuit) for leaving a certain asset out of your trust.
Generally, assets you want in your trust include real estate, bank/saving accounts, investments, business interests and notes payable to you. You will also want to change most beneficiary designations to your trust so those assets will flow into your trust and be part of your overall plan. IRAs, retirement plans and other exceptions are addressed later.
Will putting real estate in my trust cause any inconveniences?
In most cases, you will notice little difference. You may even find it easy to transfer real estate you own to your living trust, and to purchase new real estate in the name of your trust. Refinancing may not be as easy. Some lending institutions require you to conduct the business in your personal name and then transfer the property to your trust. While this can be annoying, it is a minor inconvenience that is easily satisfied.
Because your living trust is revocable, transferring real estate to your trust should not disturb your current mortgage in any way. Even if the mortgage contains a “due on sale or transfer” clause, retitling the property in the name of your trust should not activate the clause. There should be no effect on your property taxes because the transfer does not cause your property to be reappraised. Also, having your home in your trust will have no effect on your being able to use the capital gains tax exemption when you sell it.
Also, having your trust as the owner on your homeowner, liability and title insurance may make it easier for a successor trustee to conduct business for you. Check with your agent.
What about out-of-state property?
If you own property in another state, transferring it to your living trust will prevent a conservatorship and/or probate in that state. Your attorney can contact a title company or an attorney in that state to handle the transfer for you.

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TEN EASY STEPS TO ESTATE PLANNING FOR EVERYONE

TEN SIMPLE STEPS TO ESTATE PLANNING –

We get it: Nobody wants to contemplate his or her own mortality. And you may even feel that, in the context of death, questions about who gets which of your assets seem trivial. That might explain why numerous recent studies have found that only between 35% and 45% of Americans have a will.

But the fact is your loved ones will have to address those questions when you’re gone. And by executing a will and signing a couple other basic documents you can save them loads of aggravation and unnecessary expense — and grant them the ability to focus on their loss.

So to make this relatively painless, we’ll break it down into ten steps.

  1. Understand why you need a will.A will lets you tell the world whom you want to get your assets. Die without one — which is known as dying “intestate” — and the state decides who gets what without regard to your wishes or your heirs’ needs. The laws about this process vary by state, but if you die and leave a spouse and kids, your assets will generally be split between your surviving mate and children. If you’re single with no children, then the state is likely to decide who among your blood relatives will inherit your estate.

Finally, making a will is especially important for people with young children, because wills are the best way to nominate guardianship of minors.

  1. Take inventory and pick your team.Start by creating a comprehensive list of your assets, including investments, retirement savings, insurance policies, real estate or business interests, and collectible and sentimental items.

Then spend some time thinking about the following questions:

  • Whom do you want to inherit your assets?
    • Whom do you want to name as guardians for your children in the event that you and their other parent dies?
    • Whom do you want responsible for executing your will?
    • Whom do you want handling your financial affairs if you’re ever incapacitated?
    • Whom do you want making medical decisions for you if you become unable to make them yourself?
  1. Draft your will.If your finances and wishes are simple, you may find that you can craft a quick and inexpensive will using a Web-based legal document service such as LegalZoom.comor Nolo.com. Otherwise, you’ll want to hire an attorney to draw up a will and other documents for you. The cost of having an attorney draw up a basic estate plan can range from $500 to $2,000, and more if you determine together that you should create a trust. (More on that below.)
  2. Name an executor.A will also allows you to name your executor, the person who will be in charge of distributing your property, filing tax returns on behalf of your estate, and processing claims from creditors. Your executor can be a friend or relative, or a professional like an accountant or lawyer, but it should be someone you trust and who is willing and able to take on the responsibility.

If you name a professional, the executor will be paid from assets in your estate. You should negotiate the amount or rate in advance; compensation can range from hourly fees to a percentage of your assets paid annually.

  1. Assign power of attorney.No one is immune from the loss of mental clarity that may come with aging or from a health crisis. Granting someone you trust the power of attorney allows that person — known as your “agent” or “attorney in fact” — to pay bills, manage investments, or make key financial decisions if you are unable to do so. Your agent is empowered to sign your name and is obligated to be your fiduciary — meaning they must act in your best financial interest at all times and in accordance with your wishes.

There are different kinds of powers of attorney. “Durable” power of attorney goes into effect immediately. Instead, most people building an estate plan will want what’s often called a “springing” power of attorney, which only goes into effect under circumstances that you specify, the most typical being when you become incapacitated.

  1. Create a living will.A living will (also known as an advance medical directive) is a statement of your wishes for the kind of life-sustaining medical intervention you want, or don’t want, in the event that you become terminally ill and unable to communicate.

Most states have statutes that define when a living will goes into effect, and that sometimes restrict the medical interventions. Your condition and the terms of your directive also will be subject to interpretation. But a patient’s wishes are taken very seriously, so an advance medical directive is one of the best ways to have a say in your medical care when you can’t otherwise express yourself.

  1. Assign healthcare power of attorney. You increase your chances that your directives will be enforced if you have a trusted health-care agent — sometimes called a health-care proxy — advocating on your behalf. You can name such an agent by signing what’s known as a durable power of attorney for healthcare. Your health-care agent should be able to do three key things: understand important medical information regarding your treatment, handle the stress of making tough decisions, and keep your best interests and wishes in mind when making those decisions.
  2. Update your will.Review your will about once every year. You’ll also want to update it after a major life change such a birth, death, or marriage, or if you buy some real estate or receive an inheritance. When you do this, also make sure your beneficiary designations on financial accounts, insurance policies and other assets are up-to-date and coordinated with your will.
  3. Communicate with your heirs.Inheritance can be a loaded issue, so be sure to discuss your plans and expectations with your family and friends. The sooner and more distinctly you outline your intentions, the less chance there will be for disagreements when you’re gone.
  4. Decide if you need a trust. Contrary to popular belief, trusts aren’t just for rich people. (Though if you do have significant assets, or young children, you’ll definitely want to think seriously about creating one.)

A trust is a legal structure that lets you put conditions on how and when your assets will be distributed upon your death. Placing assets into a trust may allow you to reduce your estate and gift taxes and to distribute assets to your heirs without the cost, delay and publicity of probate court, which administers wills. Some also offer greater protection of your assets from creditors and lawsuits. If these benefits sound appealing — and they should — you can learn more about trusts on the next stage of the road to wealth.

 

 

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ESTATE PLANNING 101: TO PROBATE OR NOT TO PROBATE? IT’S ALL IN THE PLANNING.

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Estate Planning 101

Probate court proceedings (during which a deceased person’s assets are transferred to the people who inherit them) can be long, costly, and confusing. It’s no wonder so many people take steps to spare their families the hassle. Different states, however, offer different ways to avoid probate. Here are your options in Texas.

  1. Living trusts

In Texas, you can make a living trust to avoid probate for virtually any asset you own — real estate, bank accounts, vehicles, and so on. You need to create a trust document (it’s similar to a will), naming someone to take over as trustee after your death (called a successor trustee). Then — and this is crucial — you must transfer ownership of your property to yourself as the trustee of the trust. Once all that’s done, the property will be controlled by the terms of the trust.  At your death, your named successor trustee will be able to transfer it to the trust beneficiaries without probate court proceedings.

  1. Joint ownership

If you own property jointly with someone else, and this ownership includes the “right of survivorship,” then the surviving owner automatically owns the property when the other owner dies. No probate will be necessary to transfer the property, although of course it will take some paperwork to show that title to the property is held solely by the surviving owner.

In Texas, two forms of joint ownership have the right of survivorship:

Joint tenancy. Property owned in joint tenancy automatically passes to the surviving owners when one owner dies. (The survivor must, however, live at least five days longer than the deceased co-owner. Tex. Estates Code sec. 121.152.) No probate is necessary. Joint tenancy often works well when couples (married or not) acquire real estate, vehicles, bank accounts or other valuable property together. In Texas, each owner, called a joint tenant, must own an equal share. To establish joint tenancy, owners must sign a joint tenancy agreement.

Survivorship community property. Married couples can sign an agreement to own property together as “survivorship community property.” Owning property this way avoid probate when one spouse dies and the other becomes sole owner. (Tex. Estates Code sec. 112.051 and following.)

  1. Payable-on-death designations for bank accounts

In Texas, you can add a “payable-on-death” (POD) designation to bank accounts such as savings accounts or certificates of deposit. You still control all the money in the account — your POD beneficiary has no rights to the money, and you can spend it all if you want. At your death, the beneficiary can claim the money directly from the bank, without probate court proceedings.

Transfer-on-death registration for securities- Texas does not let you register stocks and bonds in transfer-on-death (TOD) form.

 

  1. Transfer-on-death deeds for real estate

 

Texas allows you to leave real estate with transfer-on-death deeds. These deeds are sometimes called beneficiary deeds. You sign and record the deed now, but it doesn’t take effect until your death. You can revoke the deed or sell the property at any time; the beneficiary you name on the deed has no rights until your death.

 

As the laws change, and as your family situation changes, (marriage, divorce, birth of a child, death of a named agent), it is crucial that you have an estate planning attorney review your current documents to make sure your goals for your hard-earned assets are fulfilled in the event the unthinkable happens.

 

This article does not constitute legal advice.  Please seek the advice of a competent lawyer in your state.  Margie Connolly is a practicing attorney in Sugar Land, TX.  To schedule a free consultation, call 281-433-9488, or visit www.mmconnollylaw.com

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Your Right to Choose or Refuse Medical Treatment

All adults have the right to be informed, before medical treatment, of certain things:
1. The proposed treatment
2. The possible outcomes and risks of the proposed treatment
3. The risks of refusing treatment
4. Other possible methods of treatment
This is called “Informed Consent.”
But, what happens if you are unable to consent or to understand the nature of the proposed treatment due to a physical or mental impairment?
A MEDICAL POWER OF ATTORNEY allows you to appoint or name an “agent” (usually a relative or trusted friend) to make informed health care decisions on your behalf if you are unable to do so. This person can speak for you ONLY if you are unable. This document MAY give them the authority to make “end of life” decisions, such as discontinuing life support, but only in the absence of an ADVANCE DIRECTIVE.
An ADVANCE DIRECTIVE is a document which allows you to decide, for yourself, and while you are able, your preference as to artificial life support, in the event you are diagnosed as terminal. This document states your wishes as to continuing or discontinuing artificial life support, and saves your family from the agonizing decision, and/ or litigation.
Contact an Estate Planning Attorney for more information.

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To Probate, or Not to Probate….

Last-Will-Test

Probate court proceedings (during which a deceased person’s assets are transferred to the people who inherit them) can be long, costly, and confusing. In addition to dealing with the loss of a loved one, the added stress of probate proceedings leads good planners to find other ways to transfer the assets.

There are several ways to avoid probate in Texas.

  1.  Living trusts You can make a living trust to avoid probate for virtually any asset you own — real estate, bank accounts, vehicles, and so on. You need to create a trust document (it’s similar to a will), naming someone to take over as trustee after your death (called a successor trustee). Then — and this is crucial — you must transfer ownership of your property to yourself as the trustee of the trust. Once all that’s done, the property will be controlled by the terms of the trust. At your death, your successor trustee will be able to transfer it to the trust beneficiaries without probate court proceedings.
  2. Transfer-on-death deeds for real estateBeginning September 1, 2015, Texas allows you to leave real estate with transfer-on-death deeds. These deeds are sometimes called beneficiary deeds. You sign and record the deed now,but it doesn’t take effect until your death. You can revoke the deed or sell the property at any time; the beneficiary you name on the deed has no rights until your death.
  3.  Joint ownership If you own property jointly with someone else, and this ownership includes the “right of survivorship,” then the surviving owner automatically owns the property when the other owner dies. No probate will be necessary to transfer the property, although of course it will take some paperwork to show that title to the property is held solely by the surviving owner.

    4. Special provisions for small estates.  Probate can be avoided with the use of an affidavit of heirship or a small estate affidavit, if the bulk of the estate includes the decedent’s homestead and other assets of less than $50,000.00 value.

Consult an estate planning attorney for more information.

This document does not constitute legal advice. It is to be used for descriptive purposes only. Please seek the advice of a competent lawyer in your state.

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Irrevocable Living Trusts as a Solution to Long-term Care Costs

If you, or a family member, does not qualify for long term care insurance, but discover the need for long term or nursing home care for the individual, how can you protect your family’s assets from being depleted by paying for long term care?

If you want to shield your estate from the costs of a nursing home or other potential creditor, you may form and fund an irrevocable trust with those assets or property.   This involves naming someone else to act as trustee of the property. Ownership of the property is transferred to the Trust, and the Trustee is obligated to protect and preserve the assets, per instructions contained in the Trust, and to pay out income from the Trust to Beneficiaries you designate in the Trust. Because you no longer own the assets, they cannot be used to pay costs of nursing home care, and cannot be attached by creditors to satisfy your debts.

The catch is, for this type of protection, the trust must be irrevocable – you can’t change your mind and take your property back after you move it into the trust’s ownership. Your ownership of your property is severed so a nursing home can’t expect you to use these assets to pay for your care — they’re not yours any longer.

Moving your property into such a trust allows you to qualify for Medicaid. When you make the transfer of property, you effectively deplete your estate of disposable assets. This doesn’t have to leave you bereft — the trust can provide you with income produced from the assets it holds. (*Also subject to Medicaid Limits.) But – trust income can be paid as reimbursement of family members, for payments made by them for your care.

The other catch is that Medicaid has a five-year “look back” period that can put you in a bit of a bind if you’ve moved your countable assets into an irrevocable trust and can’t get them back. You cannot qualify for Medicaid for five (5) years after you transfer your property into the trust. If you transfer assets, then need long-term care four years and 11 months later, you’re within this look-back period — and you may not be looking at just a month of ineligibility until you reach five years. How long you’re ineligible depends on the value of the property you placed in trust and the average monthly cost of nursing home care in your state. If the average monthly cost is $5,000, the government divides the value of your transferred property by this number. If you moved $100,000 in assets, this comes out to 20, so you’d be ineligible for Medicaid for 20 months — almost two years. Meanwhile, you can’t get your property back to pay for your care during this time.

Bottom line – It’s a good idea to consult with a lawyer to explore all your options before you take such a permanent step.

This document does not constitute legal advice. It is to be used for descriptive purposes only. Please seek the advice of a competent lawyer in your state.

 

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Families with Special Needs Children

Planning for the transition to adulthood and beyond.

Do you know a family with a special needs child? As the child grows into the teenage years and adulthood, many parents are concerned about how they will protect the child from financial, physical, and legal harm as they turn 18 years old and “age-up” into legal adulthood.

There are several different paths that can be taken to protect the young adult,  taking into account the child’s own needs and capabilities, and the family’s resources. Some of the protections include:

  • Guardianship – parents or adult siblings may need to maintain decision-making responsibility.
  • Alternatives to guardianship, including “Supported Decision Making Plans.”
  • Special Needs Trust – to protect SSI or Medicaid benefits while allowing for funding for future needs and protection of family assets.
  • Powers of Attorney – Durable and Medical.
  • Designation of guardians or substitute guardians in case of future disability.

Families are advised to begin the planning for their child’s future early, at least by age 17 ½ , in order to prevent gaps in the child’s legal protections.

This article does not constitute legal advice. It is to be used for descriptive purposes only. Please seek the advice of a competent lawyer in your state.

 

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