Patinelli & Chang, LLP

Small Estates Can Benefit from Living Trusts

Many people think that if they do not have very many assets, then they cannot benefit from getting a living trust.  However, they are often wrong.

One of the problems with learning about estate planning on the Internet is that many things are often written generally. Many articles that discuss the benefits of various estate planning tools are not written with individual state laws in mind.

You might read on the Internet that probate can be expensive, so it is best to avoid it by creating a living trust. However, if you do not have a large or complicated estate, then there is not much benefit to paying more for a trust. Your estate will be fine, if it goes through probate.

In general, there is nothing wrong with that advice.

It is often true. It depends on the state in which you live and what is meant by having a large or complex estate.

The Los Angeles Times recently discussed this in "Why setting up a living trust may be wise, especially in California."

The probate process is very different, depending on your state of residency.

In some states, it is very expensive and time-consuming. In other states, probate is generally inexpensive and painless for estates under a certain size.  However, that particular size varies between states.

Advice about whether you should get a living trust to avoid probate may be good advice in California but less so in Michigan.

To make sure you get the best advice, you should visit an estate planning attorney in your state who can give you advice based on the expected size of your estate and your state's probate laws.

Reference: Los Angeles Times (Jan. 7, 2018) "Why setting up a living trust may be wise, especially in California."

Living Trusts Are Cheaper Than Wills

If you are looking to save money on your estate plan, then you might think that you should get a will  since they are cheaper to get than a trust. However, trusts are actually cheaper overall.

Estate planning can be expensive for some people. Estate planning attorneys do not always come cheap and not everyone thinks they can afford to hire one.

In most cases, a will is less expensive to get than a trust.  This is because trusts normally require more of the attorney's time to draft. This leads many people to get wills to save time and money.

The problem with is that a will is more expensive overall than a trust, as the Times Herald-Record explained in "Trusts will cost you less at settlement time."

When someone passes away, someone must then administer either the will or the trust to make sure that property is distributed as the deceased directed.

Using a will requires going to probate court and having an executor, who can charge for the service, go through the process of administering the estate.

On the other hand, using a trust means that a trustee, who can also charge for the service, is required to distribute everything.

The trustee normally does not have to go to court, which makes it a much faster process. The speed means that the trustee may charge much less overall.

In the end, the trustee may be a lot cheaper than any money that might have been saved by getting a will instead of a trust.

When getting an estate plan created, it is important to use the instruments that work best for your situation. Do not be afraid to get a trust because of the initial expense.

It just may be cheaper in the long run.

Reference: Times Herald-Record (August 2, 2017) "Trusts will cost you less at settlement time."

Estate Planning Basic for Musicians

The news that Prince passed away without an estate plan and the difficulties caused to his estate have prompted other musicians to consider getting an estate plan.

Many artists have been horrified about all of the news surrounding Prince’s estate. They have read about all the claims by his would-be heirs and how large the estate tax bill is expected to be. That has prompted many of them to consider getting estate plans of their own for the first time.

Estate planning for musicians is slightly different than it is for other people, but the basics are the same.

Recently, Billboard listed the basics for estate planning musicians in “Avoiding The Prince Syndrome: A Primer On Estate Planning,” including:

• Hire a good estate attorney and a good music attorney – You do not want to plan a complicated estate on your own, so get competent help.
• Create a will – This should be a basic document that details to whom your property should go if it is not covered elsewhere in your estate plan.
• Consider getting a trust – This can be used to keep your estate out of the public eye and as a vehicle for managing your assets after you pass away.
• Get Powers of Attorney – These documents will allow a trusted person to handle your affairs if you become incapacitated and cannot do so.
• Organize your financial accounts – Make sure that all of your bank accounts and retirement accounts have designated beneficiaries.
• Appraise intellectual property rights – Get professionally estimated values for any copyrights that you hold.
• Create an outline – An outline of what you have and what is supposed to happen to it will assist your estate in handling everything after you pass away.

Reference: Billboard (Aug. 8, 2016) “Avoiding The Prince Syndrome: A Primer On Estate Planning,”

State Attorney General Cautions against Living Trust Mills

If you are about to sign a living will prepared for you by someone who told you that you needed one during a free seminar where they provide breakfast or dinner, the Minnesota Attorney General has some advice for you.

The Minnesota Attorney General recently issued a very stark warning for consumers about living trust mills. They are a scam designed for a company to get its foot in the door and later sell you expensive, unnecessary insurance policies and annuities.

A living trust mill is a company that provides a form, one size fits all trusts. Consumers are often sold on the products by being offered a free dinner where a speaker proceeds to tell attendees that horrible things will happen after they pass away if they do not have a living trust. The Attorney General advises that consumers do not sign the living trust documents.

Consumer Affairs reported on this warning in "Consumers cautioned about 'living trust mills'."

It is important to note that not all living trusts are bad or a scam. They can be extremely useful estate planning documents that help distribute assets of your estate and keep your estate out of probate.

That noted, before getting a living trust it is advisable to see an estate planning attorney who can help you understand if a trust is your best estate planning choice or whether another option would be better.

If a trust is your best option, then the attorney can also draft it for you. Instead of a fill in the blank form document, the attorney can create a custom trust and ensure that it does what you want it to do.

Reference: Consumer Affairs (April 22, 2016) "Consumers cautioned about 'living trust mills'."

What to Put in Your Living Trust

If you get a trust as part of your estate plan, then you need to fund that trust with your assets. However, you should not automatically put all of your assets in the trust.

When you create an "irrevocable trust" for your estate plan, then you have only just begun the process. An irrevocable trust, like a "revocable trust," is worthless until you transfer assets into it. However, you do not need to put all of your assets in the irrevocable trust. In some cases it is better to leave certain assets out of the irrevocable trust.

Recently, Market Watch listed some considerations about what assets to put in an irrevocable trust in "What you should know before placing assets in a trust."

The considerations include:

• Taxes – Assets in the irrevocable trust will be taxed differently than if you held them personally. Your irrevocable trust will not receive any of your personal tax deductions or credits.
• Rate of Return – An important consideration is whether you can get a better return for your investments by holding them in an irrevocable trust than if you held them personally. While inflation is low at the moment, you need to get a better return than the U.S. target inflation rate of 2%, which is often easier to do in an irrevocable trust.
• Usability – It does you little good to have assets if you cannot access them when you need them. Placing assets in an irrevocable trust can make it more difficult to spend them in an emergency.
• Safety – As always you need to make sure that the risk/reward ratio of your investment portfolio is appropriate for your age.
• Transfer Rules – It is important to understand the Medicaid transfer rules in your state if you are considering transferring assets to any trust and you might need long term care in the near future. Ask an elder law attorney if you are uncertain about these rules.

An irrevocable trust may have its benefits, but it must not be confused with a revocable trust. Contact an experienced estate planning attorney to learn more.

Reference: Market Watch (Feb. 25, 2016) "What you should know before placing assets in a trust."

Preventing Estate Challenges with a No Contest Clause

One of the problems for estate planners is trying to craft a plan that does not give anyone a reason to challenge it. This can be difficult at times, but using a no contest clause can help.

It is a simple fact of estate law that people who receive inheritances are not always satisfied with what they receive. This is especially true if someone has received less than another person. For example, if one sibling receives a smaller inheritance than other siblings.

Traditionally, there was not much that could be done to prevent these people from challenging an estate. However, today estate planners are utilizing "no contest clauses" in an attempt to prevent these challenges as discussed by the Wills, Trusts & Estates Prof Blog in "New Case In Virginia Sheds Light On No Contest Clauses."

A no contest clause is a statement in a will or trust. Typically the clause provides that if someone is a beneficiary of that will or trust and challenges the validity of the document, then the challenger will be cut out of the will or trust and receive nothing. This obviously creates a strong disincentive for heirs and beneficiaries not to launch legal challenges to inherit more than an estate plan already gives them. Of course, the clauses do not prevent challenges from people who receive nothing from the will or trust.

Generally, courts will uphold no contest clauses but the clauses will be strictly interpreted. The court will not go outside of the plain meaning of the clause to disinherit challengers. In many states, an exception to enforcement of the clauses exists by law. If a court believes that a challenge was made in good faith, then the no contest clause will not be enforced.

Reference: Wills, Trusts & Estates Prof Blog (Feb. 24, 2016) "New Case In Virginia Sheds Light On No Contest Clauses."