Patinelli & Chang, LLP

Wills v. Trusts: What’s Right for You?

“While we are young, many of us neglect to consider what will happen to our family and property after we pass away. Youth gives us the illusion of invulnerability, but the truth is that tomorrow is not promised to anyone.”

It’s a good idea to take the time and make the effort to create an estate plan to take care of your estate — no matter if it’s a condo apartment and a housecat or a big house and lots of money in the bank — just in case something unexpected occurs tomorrow. That’s the advice from AZ Big Media in the article “The pros and cons of wills vs. trusts.”

Estate planning is the area of the law that focuses on the disposition of assets and expenses, when a person dies. The goal is to take care of the “business side” of life while you are living, so your family and loved ones don’t have to pick up the pieces after you are gone. It’s much more expensive, time-consuming and stressful for the survivors to do this after death, than it is if you plan in advance.

You have likely heard the words “trust” and “will” as part of estate planning. What are the differences between the two, and how do you know which one you need?

A will is the most commonly used legal document for leaving instructions about your property after you die. It is also used to name an executor — the person who will be in charge of your assets, their distribution, paying taxes and any estate expenses after you die. The will is very important, if you have minor children. This is how you will name guardians to raise your children, if something unexpected occurs to you and your partner, spouse or co-parent. The will is also the document you use to name the person who you would like to care for your pets, if you have any.

Burial instructions are not included in wills, since the will is not usually read for weeks or sometimes months after a person passes. It’s also not the right way to distribute funds that have been taken care of through the use of beneficiary designations or joint ownership on accounts or assets.

Another document used in estate planning is a trust. There are many different types of trusts, from revocable trusts, which you control as long as you are alive, and irrevocable trusts, which are controlled by trustees. There are too many to name in one article, but if there is something that needs to be accomplished in an estate plan, there’s a good chance there is a special trust designed to do it. An estate planning attorney will be able to tell you if you need a trust, and what purpose it will serve.

Trusts can be used by anyone with assets or property.

A will can be a very simple document. It requires proper formats and formalities to ensure that it is valid. If you try to do this on your own, your heirs will be the ones to find out if you have done it properly.  If it is not done correctly, the court will deem it invalid and your estate will be “intestate,” that is, without a will.

Many people believe that they should put all their assets into a trust to avoid probate. In some cases, this may be useful. However, there are many states where probate is not an onerous process, and this is not the reason for setting up trusts.

A trust won’t eliminate taxes completely, nor will it eliminate the need for any estate administration. However, it may make passing certain assets to another person or another generation easier. Your estate planning attorney will be able to guide you through this process.

Whether you use a will or a trust, or as is most common, a combination of the two, you need an estate plan that includes other documents, including power of attorney and health care power of attorney. These two particular documents are used while you are living, so that someone you name can make financial decisions (power of attorney) and medical health decisions (health care power of attorney) if you should become incapacitated, through illness or injury.

Speak with an estate planning attorney. Every person’s situation is a little different, and an estate planning attorney will create an estate plan that works for you and protects your family.

Reference: AZ Big Media (March 21, 2019) “The pros and cons of wills vs. trusts”

There’s A Reason Why There are Laws about Wills and Estates

“A man executes a will leaving his property to three people. Later, he executes a new will removing one of the heirs. Finally, he executes a third will, leaving his property to the original three people but doesn't get the will witnessed. Which will is in control?”

If this question sounds like something from a lawyer’s bar exam, that would be about right. It sounds like the first will should be in control, since his intentions were made clear in the first will, even if it was not executed correctly. This was explained by nwi.com in the article “Estate Planning: Will formalities are important.” However, there are many different factors that go into determining which of these three wills should be the one that the court accepts. This is a good illustration of why a will should be prepared with the help of an estate planning attorney.

First, is the third will valid? If there were no witnesses, it seems very clear that it is not. Except for very unusual circumstances, a will is only valid if it is in writing, signed by the person who is its “creator,” which is the “testator,” and witnessed by not one but two witnesses.

The next question is, how about that second will? Is it valid? Was the second will revoked, when the third was created, even though it was not properly executed?

There are two basic ways to revoke a will: physical destruction or written instrument. If the will was not destroyed, then the revocation of the second is considered to have occurred by the creation of the third will. Most wills contain a recital revoking all previous wills and codicils, which serves as a written revocation.

However, there’s a problem. Because the third will is most likely void, then it could not have revoked the second will. Will revocations also need to be witnessed, and since the third will was not witnessed, the recital contained in the third will revoking the prior wills is also void.

It, therefore, seems that the second will is valid in this situation. We say it seems, because there may be other factors that might also make the second will invalid: we don’t have all the facts.

The lesson from this article is that when it comes to wills, trusts and estate plans, the formalities really do matter. Procedures and formalities are considered more important than intent.

Another story that illustrates that point comes from an attorney who was involved in an estate matter where the person who made the will tried to take out several beneficiaries, by taking a razor blade to the document and physically removing their names from the will. The estate battle began after he died. The intention was clear—to remove the beneficiaries from the will. However, because the proper formalities were not followed, the beneficiaries were not properly removed from the will and they received their bequests after all.

If you have a will and estate plan and you wish to make changes to it, sit down with an estate planning attorney to discuss the changes you want to make, and have the documents properly revised, following all the required steps. Don’t try to do this yourself: your wishes may not be followed otherwise.

Reference: nwi.com (March 10, 2019) “Estate Planning: Will formalities are important”

Here’s What You Need to Know About Estate Planning

“Don't have an up-to-date estate plan? You're not alone. More than 70% of Americans don't, including more than half of all baby boomers. That's why we're sharing our best tips for creating one.”

Most Americans don’t have an estate plan. That’s not a good thing for their heirs, minor children or business partners. In the hopes of encouraging baby boomers to step up and get this right, Country Living offers the basics in its article “Everything Baby Boomers Need to Know About Estate Planning.”

The first and most fundamental fact: everyone needs an estate plan. Whether you are wealthy or just getting by, older or a young parent, you need to have an estate plan.

Estate planning doesn’t have to be scary or complicated. Many people feel that creating a will and other related documents will be overwhelming.  However, it doesn’t have to be. An experienced estate planning attorney will help, by teaching you what your particular situation requires. It won’t take as long as you think and the time and expense you save your heirs, make having a professional do this for you well worth the money spent.

You can make a difference with your estate plan. Many people use their estate plans to give to a charity or cause, that is important to them. Many use a charitable gift in their will, known as a “bequest,” to leave money behind—often the biggest donation they make. It’s a way to build a legacy and know that you’ve contributed to making the world—or a small corner of it—a better place.

If your family includes minor children, you need a will that names a legal guardian, if something should happen and you and their other parent are no longer able to care for them. You don’t want someone else making this decision. You can also appoint someone who will be in charge of finances for your children.

If you have “furry kids,” aka pets, you can also choose a guardian for them. Many pets end up in animal shelters, because no one in the family can take care of them and no provisions have been made for their care. You can also establish a pet trust, so money for their care is provided.

Do it early and often. Creating your will is just the first step. They need to be updated, as your circumstances and laws change. Many people update wills after a trigger event, such as marriage, birth, death or divorce.  However, laws and assets change and your will needs to be updated, especially after major tax law changes.

The will is just the beginning of an estate plan. There are several basic documents that will protect you while you are alive and after you have passed. They include the durable financial power of attorney, which determines who can make financial decisions on your behalf, if you are ill and cannot do so.

You also want an advance healthcare directive, which includes a healthcare power of attorney. That’s a person who can make healthcare decisions on your behalf should you be unable. You also want to have a living will to explain what you want, with regards to staying alive through artificial means.

Finally, accounts where you have named a beneficiary should be reviewed periodically. The beneficiary designations appear in accounts like IRAs, 401(k)s, bank and investment accounts, to name a few. The designation supersedes anything in your will, so make sure you know what these are and update them as life changes.

Reference: Country Living (Aug. 17, 2018) “Everything Baby Boomers Need to Know About Estate Planning”

Does Your Estate Plan Have All the Right Stuff?

“Many people think estate planning means deciding what happens to your things when you die. For that reason, many young families do not consider estate planning to be a priority. However, it may be one of the most important things young parents can do!”

A last will and testament is the document which parents need, to legally nominate guardians to rear their children if orphaned. It clearly delineates who should take care of the children and who should manage the money available to care for the children, as noted in The Daily Sentinel’s article titled “What is missing from your estate plan?”

While some people name one person to rear the children and handle the money, it’s a good idea to separate the two roles.

Without these instructions in a will, those left behind can have very different ideas about where the children should live and who should care for them. If the two parent’s families have very strong opinions, suddenly both families have hard choices to make about what will happen to the children.

No parent wants to leave a legacy of court battles and family division.  However, that’s what is likely to happen without a will.

There are other issues that estate plans address while you are alive.  It is also necessary to plan for incapacity. A living will, also known as an “advance directive,” is important because it helps pre-answer questions, regarding what treatment and care you would want if unable to speak for yourself. Do you want to be kept alive by artificial means? You do not want your loved ones making this decision during a time of great emotional stress, so this is an important document to have in your estate plan.

Finally, your estate plan should include a medical durable power of attorney to deal with all other medical decisions other than end of life. Without it, if you are not near death but not able to share your opinions about your care, your family and your medical providers are placed in a difficult position. In contrast, those who care enough about their family designate an agent and ensure that their wishes are made legally binding.

The big question everyone must face is “When should I start working on my estate plan?” If the answer is “Later,” then the real answer is “No time soon.” For young parents, that puts your minor children in a bad position, where a court may make the decision about who will rear them and how their lives will go on after you are gone.

Don’t make your family have to go through more than they would have to anyway. Speak with an estate planning attorney to create your estate plan, including these very important documents.

Resource: The Daily Sentinel (Aug. 12, 2018) “What is missing from your estate plan?”

Wills, Trusts, Estates: What’s What?

“First, why is a trust better than a will? Can I serve as the trustee? Where do my kids get a copy of the trust after I die?”

It is important to understand that every person’s situation is different.  Therefore, trusts aren’t necessarily “better” than wills. They are different types of estate planning tools with different features and are used to accomplish different things, says nwitimes.com in “Estate Planning: Distinct differences between wills and trusts.”

A will is a document that provides instructions regarding your final affairs: what to do with your property after death.  It also enables you to nominate the person you would choose to carry out your wishes—your executor—and if you have minor children, who you want to rear them—a guardian.

The will is not used for anything during your lifetime and becomes effective when you die. In most cases, it needs to be presented to a court. The presenting of the will to a court and the appointment of a personal representative is known as probate.

Trusts are different. A trust is a legal entity that can own property and provide certain benefits to the beneficiary. Think of a trust as a box in which you place certain assets. You don’t own the assets—but you do own the box.

In most cases, the creator of a revocable living trust is also the beneficiary and the trustee. There’s no difference in how you address property transactions, other than how you transact business. To sell a home, the deed is signed by the trustee, rather than the individual, because the trust owns the home. 

The biggest difference? Certain trusts are effective during the lifetime of the person. Some trusts only become active when the person passes: a testamentary trust. Most trusts have powers, once they are set up. The will only becomes active, when a person passes away.

People like trusts because they think that trusts will help them avoid the probate process.  However, trusts can also offer confidentiality and some protection, albeit limited, from creditors.

Trusts are not filed anywhere or recorded, so your children will probably only get a copy of the trust from you, while you are alive or from your estate planning attorney, who should maintain a copy.

An estate planning attorney will be able to discuss the different types of trusts, what functions they serve and whether your situation requires the use of a trust. With or without a trust, everyone should have a will, power of attorney and a healthcare directive. An estate planning attorney can make sure that you and your family have everything appropriate for your unique needs.

Reference: nwitimes.com (Jan 21, 2018) “Estate Planning: Distinct differences between wills and trusts”

Why You Need to Update Your Estate Plan

“Got a dusty old binder with your will and estate plan? Even if you had your paperwork set up a few years ago, your documents are all now out of date, thanks to new tax laws that went into effect at the turn of the year.”

Are you still coming to terms with the impact of the new tax laws? If you have not already reviewed your estate plan with your estate planning attorney, you still have time to review it and make necessary changes. Many of the provisions end in 2026. Unless you can predict with great accuracy when you will pass, you need to update your estate plan, according to Reuter’s article “Your estate plan needs an update even if it is new.”

Even though the exemption for the federal estate tax has doubled to $22 million for couples, one of the important parts of estate planning has to do with your financial well-being, while you are alive: power of attorney forms and healthcare proxies, in case you are unable to make decisions on your own.

You also should make sure that your beneficiary designations are up-to-date, especially on life insurance policies and 401(k)s from previous employers.

The central focus of estate planning is keeping control over your assets, even after you die. You might want your responsible younger daughter to be in charge of your estate and not your older son. You may also want to skip a generation and ensure that your wealth passes to grandchildren and not your children at all.

If your family includes a special needs individual, you’ll want to make sure you have made provisions for their future with a Special Needs Trust (SNT).

Many families who find themselves dealing with Alzheimer’s disease, drug or alcohol addition or troubled marriages, use trusts in their estate planning to protect their loved ones and control the distribution of assets.

Trusts are also used for families who wish to keep their assets private and out of probate, where information about the family’s assets are public documents. Property that is not jointly owned or set to transfer directly to a beneficiary, can end up being part of the probate process.

Finally, even with the doubling of the estate tax limit, charitable giving still has a role to play in estate planning. By leaving a substantial IRA to charity through a trust, you can avoid the taxes heirs would pay when they liquidate the account. You can also give appreciated stock to a charity through a donor advised fund and bypass capital gains taxes.

Talk with your estate planning attorney about reviewing your estate plan, in light of the new tax laws.

Reference: Reuters (Jan. 18, 2018) “Your estate plan needs an update, even if it is new”

Check Asset Titles

If you do not hold title to your assets in a way that compliments your estate plan, then your estate can face difficulties.

It is a common misunderstanding in estate law that the provisions in a will are the ultimate factor in determining what happens to their assets, after they pass away. For some assets, that makes sense. For example, if your will directs that your niece receives your fine china, then she will inherit them. Other assets do not necessarily work in the same way.

Houses, cars, retirement accounts and bank accounts can all be owned and transferred outside of the control of your will. Daily Local News discusses this in "Asset titling can change the estate plan."

For example, you might own a home with your second wife as joint tenants with rights of survivorship. If you have a child from a previous marriage, you might want that child to get the house or your half of the ownership after you pass away. It does not matter if you express that in your will. When you pass away, the second wife will immediately become the sole owner of the home. That is how such joint ownership works.

This type of problem is avoidable. An estate planning attorney can work with you to create an estate plan that coordinates the proper titling of your assets to carry out your distribution objectives.

Reference: Daily Local News (June 26, 2018) "Asset titling can change the estate plan."

What to Do When You Cannot Find a Will

If one of your parents passes away and you do not think that they have a will or cannot find it, then you should know what to do.

Many Americans pass away, without ever having created a will. Many others have created wills, but they do not tell their families about them.  As a result, the families cannot find those wills, when they are needed. These are very common occurrences that often give children, whose parents have passed away, a lot of headaches.

Fortunately, things do not have to be too difficult. There are a few steps people need to take if they find themselves in this situation, as Forbes discusses in "Your Parent Didn't Have a Will: What Should You Do Now?"

Those steps include:

·         First check to see if your parent had a safety deposit box. Your parent might have created a will and put it in their safety deposit box. It is very common for people to leave their wills there. It can be difficult to gain access to these boxes, but it is possible.

·         Search around the house for a will. Check any place your parent put any important financial or legal information. You might find a will stuffed away in some old file folder at the back of a drawer.

·         While you are doing this, gather all of the information that you can find about your parent's finances. This information will help you later, so you might as well get it while you are searching for the will.

·         Hire an estate attorney to help you. The attorney can assist with the probate process and make things much easier on you.

Reference: Forbes (June 4, 2018) "Your Parent Didn't Have a Will: What Should You Do Now?"

Coordinate Your Estate Plan

One way that people often make mistakes in their estate plans, is not making sure that all the various ways that assets can transfer to other people after death have been properly coordinated.

After someone passes away, there are several different ways their assets can be passed on to another person. Some assets might have to go through probate, but other assets will be passed on automatically as a matter of law. Depending on the planning the deceased has done, assets could be passed on through the instructions in a trust.

It is important that all the different ways assets can pass down, do not contradict one another for an estate plan to be effective. A will can be created that says the contents of a bank account should be divided between three children, but that provision could be overridden, if that bank account says it should be transferred on death to only one of the children. This scenario was the subject of a recent reader question to the NWI Times in "Estate Planning: Catching up on reader's questions."

This is actually a common problem. When people open bank accounts, they make them transferable on death at the bank's urging. Then they do something different with the account, when they create their will. This leads to problems. The person who gets the bank account through the transfer on death, is under no legal obligation to heed the wishes stated in the will.

For this reason, it is important to periodically review your estate plan and all your beneficiary designations on financial accounts, to make sure that everything still matches up and works according to your wishes.

Reference: NWI Times (May 27, 2018) "Estate Planning: Catching up on reader's questions."

Planned Giving

One of the ways that you can leave a good legacy behind, is to provide money to charity in your estate plan.

Your worth is likely more than the sum total of your assets. You have worth that does not have any direct monetary value. Your capacity to like and love your friends and family cannot be given a monetary value, for example. However, in estate planning, it can often seem like the only thing you will have left at the time you pass away, are assets that have monetary value and need to be given to other people.

You cannot give away your capacity to love after death. However, that does not mean your other value has to be left out of your estate plan completely. You can use your estate plan for planned charitable giving, as the Nashua Telegraph discusses in "Planning to give and leaving a lasting legacy."

Planned giving is simply making provisions in your estate plan that a certain amount of money or a percentage of your estate's assets should be given to charity. It is a popular option for people. It is popular not only with the wealthy, but also with people of more modest means who want to leave something behind for good causes.

There are several different ways you can make charitable donations a part of your estate. Some are as simple as a few lines written into a will and others are for more complicated, including setting up special trusts for the purpose. An estate planning attorney can help you choose the best way to do so.

Reference: Nashua Telegraph (May 20, 2018) "Planning to give and leaving a lasting legacy."