1) Lack of Healthcare and Disability Planning. The majority of deaths occur in hospitals or other institutions. Patients may be incapacitated to the point where they can no longer communicate their healthcare wishes. Advance Directives and a Healthcare Power of Attorney can identify healthcare proxy decision-makers, specify wishes for end-of-life care, and provide a formal plan to control financial and property matters.
2) No will or estate plan. Without proper planning, your estate may be tied up in probate court for months or years after your death, at a great emotional and financial cost to your family.
3) Lack of attention to digital assets. Without a plan for digital assets and social media, you may lose critical documents, photos, memories, and family records.
4) Lack of attention to your children’s possible future divorces or lawsuits. It’s not fun to think about, but if your children divorce or are sued at some point in the future, their inheritance may be decimated and end up in the hands of those you never intended. A trust can help protect your legacy and your children’s inheritance.
5) Lack of attention to the conscious transfer of family values. Comprehensive estate planning can include family meetings, a family mission statement, and custom planning for children.
6) IRA funds wasted. Retirement account beneficiaries often receive these account funds in a lump sum, creating the potential for a huge and unexpected tax bill. A standalone retirement trust (sometimes called an IRA trust) can protect these funds while still providing for your beneficiaries.
7) Chaotic record-keeping. Good planning is essential to make sure your heirs do not spend months or years trying to make sense of what you left behind. A comprehensive estate plan provides you with a framework for maintaining your vital legal and financial records.
8) Surviving spouse creditors and predators. If your surviving spouse remarries and then divorces, your estate could end up in the hands of people you never intended. Likewise, if your surviving spouse is victimized by financial predators – something increasingly common as the population ages – your family may discover too late that your legacy is gone. A trust can ensure family money stays in and benefits the family.
9) Family feuds over sentimental items. This problem can be avoided with a Personal Property Memorandum, which can account for tangible items like artwork, family heirlooms, and jewelry. In addition to the financial assets, your plan should include careful consideration of important family items.
10) HIPAA privacy lockout. If incapacity leaves you unable to communicate, family members—even your spouse—may not be able to access your medical records because of HIPAA privacy rules. Executing a HIPAA authorization ensures access to medical information.
11) Outdated Estate Plan. You may have a will and estate plan already. Does it reflect your current circumstances, goals, and needs? A comprehensive review by an estate planner ensures that your estate plan reflects your current situation, desires, and needs.
During the home buying process, you worked with a lot of individuals: your realtor, the seller’s realtor, the title company, the loan officer, and the home inspector. Now that you have finalized the purchase of your house, there is one more expert you need to call: your estate planning attorney.
Aligning Your Ownership with Existing Estate Planning
First, your attorney can help you review the new documents associated with your home purchase in conjunction with your existing estate plan to ensure that everything aligns and works towards your overall estate planning objectives. If your existing estate plans include a trust that owns all of your assets, it is crucial that your new home is titled in the name of the trust and not in your name individually (or jointly if married).
General Review/Update of Your Estate Plan
Since you have engaged in a new life changing event, now is the perfect time to review your existing plan. This is a great opportunity to make sure that the individuals you have appointed in the crucial roles of guardian, executor, agent, or trustee are still able to carry out those duties when the need arises. With the passage of time, these individuals may have moved away, died, or otherwise undergone a life change themselves that makes them a less than desirable candidate to act on your behalf.
While you are reviewing your estate plans, it is also important that you review the dispositive language. Do you still want to have your assets divided the same way? Have the needs of your beneficiaries changed over the years? To ensure that you are protecting and providing for your beneficiaries, you need to make sure that the provisions are set up for the best individualized protection.
Lastly, if the purchase of your new home is in a different state, you will definitely want to visit an estate planning attorney. By changing states, the documents you previously have prepared may not adequately protect you and your family. Each state has unique laws regarding trusts and estates, you will need to make sure that any documents you are currently relying on are enforceable in your new state. Unenforceable or not-optimized documents can be just as bad as having no estate planning documents at all.
Give us a call.
Buying a new home is a great new adventure. Give us a call so we can make sure that you are embarking on this new chapter in your life fully protected.
Consider this story. Beth’s divorce from her husband was recently finalized. Her most valuable assets are her retirement plan at work and her life insurance policy. She updated the beneficiary designations on both to be her two minor children. She did not want her ex-husband to receive the money.
Beth passes away one year after her divorce. Her children are still minors, so the retirement plan and insurance company require an adult to be appointed to receive the inheritance Beth left behind. Who does the court presumptively look to serve as the caretaker of this money? Beth’s ex-husband who is now the only living parent of the children. (In some states, this caretaker of the money is called a guardian, whereas in others it is the conservator. The title does not matter as much as the role, which is to manage the funds on behalf of a minor, since the minor is not legally able to handle significant assets or money.)
Sadly, stories like Beth’s are all too familiar for the loved ones of divorced people who do not make effective use of the estate planning tools. Naming a beneficiary for retirement benefits or life insurance, or having a will can be a good start. However, the complexities of relationships, post-divorce, often render these basic tools inadequate. Luckily, there is a way to protect and control your children’s inheritance fully.
Enter the Trust
A trust allows you to coordinate and control your estate in a way that no other tool can. For those who are not yet familiar, a trust is a legal arrangement for managing your property while you are alive and quickly passing it at your death. There are a few key players in the trust. First, there is the person who created the trust, often called the Trustmaker, Grantor, or Settlor (this is you). Second, there’s the Trustee who manages the assets owned by the trust (usually you during your life and then anyone you select when you are no longer able to manage the assets). Finally, the Beneficiaries are the people who receive the benefit of the trust (usually you during your life, and then typically children or anyone else you choose).
How a Trust Protects Your Children’s Inheritance after a Divorce
A trust protects your children’s inheritance in a few distinct ways:
- Since you select the Trustee, you can choose someone other than your ex-spouse to manage the assets. In fact, you can even state that the ex-spouse can never be a Trustee, if you wish. If Beth had a trust, she could have named her brother to be Trustee after her death. Her brother (rather than her ex-husband) would then be in charge of the children’s inheritance.
- Since you select the Beneficiaries, you can determine how the trust assets can be used for them. You may have long-term goals for your beneficiaries, such as college, purchasing a first home, or starting a business. When you share your intent, your Trustee can invest the assets appropriately and ensure your legacy is used the way you want, rather than the assets being potentially wasted or used in a thoughtless way. If Beth had a trust, she could have instructed how she wanted the inheritance used, rather than leaving it to the whims of a court and her ex-husband.
- A fully funded trust avoids probate, so your children do not have to deal with the cost, publicity, and delay that is all-too-common in probate cases. Although “plain” beneficiary designations, like the one that Beth used, also avoid probate, they may still open the door for a guardianship or conservatorship court case, especially when your children are minors. A fully funded trust avoids these guardianship and conservatorship cases. This means more money for your intended beneficiaries and less for the lawyers and courts.
If you are divorced, it is essential to make sure your plan works precisely the way you want. Every situation is unique, but we are here to help design a plan that achieves your goals and works for your family. Give us a call today.