Many children and grandchildren are skipping the traditional bank and obtaining loans from parents or grandparents.  Unfortunately, we have all heard stories of families torn apart because of disagreements over money. So, what can you do to make sure your intra-family loans help, rather than hurt, your family?

As far as estate planning is concerned, money you lend to others is legally an asset. If you have lent money to a family member the presence of these assets in your estate can be problematic for your surviving family members. This is because your executor and successor trustee are under a legal requirement, known as fiduciary care, to collect the outstanding obligation, even if the other party is a family member.

If the amount of money that you have lent out is significant — and “significant” can be relative — it is important to let us know as we help you plan your estate. For example, if you wish to forgive the debt there are special terms that must be included in your trust or will for this to happen. On the other hand, you may want the debt to be paid out of the inheritance the borrower is otherwise receiving. In that case, the payment of the debt from the inheritance must be addressed in your estate planning documents.

A Brief Loan Primer

A loan is a legal and financial arrangement where money is borrowed and is expected to be paid back with interest. Generally, a loan involves a promissory note, which is a signed document by the borrower containing a written promise to repay a stated sum of money to the lender in accordance with a schedule, at a specified date, or on demand. In some cases collateral, like real estate or other property, is used to secure the loan. Collateral is something pledged as security for repayment of the loan. If the borrower quits making payments, then the collateral can be taken by the lender.

Lending as an Estate Planning Tool

When properly structured and well documented, loans can be a smart estate planning tool for many families. This is because lenders (usually grandparents or parents) can essentially give access to an inheritance without any immediate gift or estate tax problems, generate a better return on their cash than they could with bank deposits, and borrowers (usually children or grandchildren) can take out loans at interest rates lower than commercial rates and with better terms. In fact, the Internal Revenue Service allows borrowers who are related to one another to pay very low rates on intra-family loans. Furthermore, the total interest paid on these types of transactions over the life of the loan stays within the family. If structured and documented properly, intra-family loans may effectively transfer money within the family, for the purchase of a home, the financing of a business, or any other purpose.

Sometimes loans can be used in sophisticated estate tax planning strategies as a way to shift assets into special estate-tax saving trusts. One variant of this technique is sometimes called an installment sale to a grantor trust. Although this sophisticated strategy and others like it are usually only appropriate for those with a net worth of at least a few million dollars, other types of intra-family loans, perhaps for home improvement, an automobile purchase, or a business, can help families across the wealth spectrum.

There are several points to keep in mind regarding these types of loans: the loan must be well-documented, lenders should usually ask for collateral, the lender should make sure the borrower can repay the loan, and the income and estate tax implications should be examined thoroughly.

Deciding What You Want

While you were kind enough to help a member of your family by lending him or her money, do not let this become a legal dilemma in the event of your incapacity or after your death. Instead, use your estate plan to specifically express what you want to have happen regarding these assets. Before lending money, it is important to carefully consider how the loan should be structured, documented, and repaid . If you or someone you know has lent money and has questions about how this affects your estate plan, contact us today to discuss the options.

Confused about the differences between wills and trusts?  If so, you’re not alone. While it’s always wise to contact experts like us, it’s also important to understand the basics. Here’s a quick and simple reference guide:

What Revocable Living Trusts Can Do – That Wills Can’t

• Avoid a conservatorship and guardianship. A revocable living trust allows you to authorize your spouse, partner, child, or other trusted person to manage your assets should you become incapacitated and unable to manage your own affairs. Wills only become effective when you die, so they are useless in avoiding conservatorship and guardianship proceedings during your life.

• Bypass probate. Property in a revocable living trust does not pass through probate. Property that passes using a will guarantees probate. The probate process, designed to wrap up a person’s affairs after satisfying outstanding debts, is public and can be costly and time consuming – sometimes taking years to resolve.

• Maintain privacy after death. Wills are public documents; trusts are not. Anyone, including nosey neighbors, predators, and unscrupulous “charities” can discover the details of your estate if you have a will. Trusts allow you to maintain your family’s privacy after death. 

• Protect you from court challenges. Although court challenges to wills and trusts occur, attacking a trust is generally much harder than attacking a will because trust provisions are not made public.

What Wills Can Do – That Revocable Living Trusts Can’t                     

• Name guardians for children. Only a will – not a living trust or any other type of document – can be used to name guardians to care for minor children.

• Specify an executor or personal representative. Wills allow you to name an executor or personal representative – someone who will take responsibility to wrap up your estate after you die. This typically involves working with the probate court, protecting assets, paying your debts, and distributing what remains to beneficiaries. But, if there are no assets in your probate estate (because you have a fully funded revocable trust), this feature is not necessarily useful.

What Both Wills & Trusts Can Do:

• Allow revisions to your document. Both wills and trusts can be revised whenever your intentions or circumstances change so long as you have the legal capacity to execute them. 

WARNING: There is such as a thing as irrevocable trusts, which can only be changed under certain circumstances, using very specific methods.

• Name beneficiaries. Both wills and trusts are vehicles which allow you to name beneficiaries for your assets. 

• Wills simply describe assets and proclaim who gets what. Only assets in your individual name will be controlled by a will.

• While trusts act similarly, you must go one step further and “transfer” the property into the trust – commonly referred to as “funding.” Only assets in the name of your trust will be controlled by your trust.

• Provide asset protection. Trusts, and less commonly, wills, can be crafted to include protective sub-trusts which allow your beneficiaries access but keep the assets from being seized by their creditors such as divorcing spouses, car accident litigants, bankruptcy trustees, and business failure.

While some of the differences between wills and trusts are subtle; others are not. Together, we’ll take a look at your goals as well as your financial and family situation and design an estate plan tailored to your needs. Call us today and let’s get started.

Poor estate planning is a recipe for disaster. Look no further than Dickens’ Bleak House—or a telenovela—to witness the tragedy and melodrama inadequate estate planning can cause. While having your estate planning documents prepared is the first hurdle to overcoming these types of disasters, there are several threats that lurk around the corner that might derail your wishes.

Family Conflict

According to a TF Wealth survey of over 100 estate planning professionals, family conflict is the number one risk to a peaceful inheritance. If children are treated differently under the estate plan, there is often an assumption that a mistake was made in drafting the documents or that someone has exerted undue influence on the parent. While this may not be the case, without any guidance from you, family members can begin to think the worst of each other.

Sloppy or No Estate Planning

If you have not done any estate planning or if what you have done is ineffective, your estate will be subject to your state’s intestate laws. These laws predetermine who will inherit your assets and in what proportion. While these statutory schemes might work for some people, they will have adverse consequences for those who have been married multiple times, have children from prior relationships, or children who need additional asset protection. If you haven’t done any estate planning, you’re simply leaving your inheritance and your legacy in the hands of the government.

In order to ensure that your wishes are being carried out and safe from the ever present dangers, it is important that you know what a successful estate plan looks like.

No (or Little) Family Conflict

The goal here is for there to be no surprises. If you are choosing to treat children or other family members differently, be open and honest about it. It may be helpful to have a conversation about your wishes prior to your death so that those individuals understand why you have made those decisions. Even if you choose to not have such a conversation, it’s important to discuss your plan and reasons with your attorney, so that the plan can be drafted to carry out your wishes.

Eliminate (or Minimize) Costs and Taxes

Watching inheritance get whittled away by taxes and fees will only lead to frustration and hard feelings. When preparing your estate plan, your intent is to benefit your loved ones, not the government. Working with a qualified estate planning attorney can help ensure that your assets are being handled in such a way that the administrative costs of your passing and any income or estate tax are minimized or avoided.

A Chosen Representative

It is possible that, later in life, you may not be able to handle all of your affairs yourself and may require some assistance from a loved one, whether it be with your finances or healthcare. Look for someone you trust who understands you and your desires. Don’t necessarily rely on someone just because they are the most convenient. And, don’t rely on hope that everyone will know who you want to be in charge. You must ensure that you’ve granted proper authority using a power of attorney, a trust, and a will.

Ensure that Everyone Gets What You Want

Your assets may be, or may in some way, represent your legacy. Do some real soul-searching about how and what you want to share this with your family and friends. To ensure that your legacy is passed on in a meaningful way, consider including an explanation as to why someone is receiving a particular inheritance. If you have wishes as to how they use a gift of money, he or she may appreciate hearing the hopes and dreams you have for them and their future even though you are no longer with them.

Documents Are Up-to-Date

Life can change quickly. It is important that you review your estate planning documents with each life change (i.e. birth or death of a family member, purchase or sale of a major asset, change in health, etc.). It is also important that we stay in touch. Contact us when these major life changes occur and we will contact you when there are changes in the law. This will help ensure that your documents stay effective and your wishes are carried out.

So do the groundwork that a little planning requires. And leave the melodrama for entertainment. Give us a call today. We’re here to help.

The idea of implementing an estate plan might be one of the scariest things you have to confront as an adult. But estate planning does not have to make chills run down your spine. On the contrary, estate planning is empowering for both you and your family and allows you to live confidently knowing that things will be taken care of in the event of your passing or incapacity. Remember, estate planning is not just for the ultra-rich. If you own anything or have young children, you should have an estate plan. Read below to find out reasons why.

Benefits of Estate Planning

Proper estate planning accomplishes many things.  It puts your financial house in order. Parents designate a guardian for their minor or disabled children, so they’re raised by someone who shares your values and parenting style (rather than whoever some judge picks). Homeowners can make sure their property is transferred to a designated beneficiary in the event of untimely death. Business owners can ensure the enterprise they’ve worked so hard to build stays within the family.

Yet, according to WealthCounsel’s 2016 Estate Planning Literacy Survey, only 40 percent of Americans have a will and just 17 percent have a trust in place. This translates to a majority of American families not being adequately protected against the eventual certainty of death or the potential for legal incapacity.

When it comes to estate planning, knowledge is vital. Less than 50 percent of those surveyed by WealthCounsel understood that an estate plan can be used to address several concerns – financial or non-financial matters – including health decisions and guardianship, avoiding court and preempting family conflicts, as well as taking advantage of business and tax benefits.

Estate Planning Horror Stories

Legal disputes over estate plans and wills – or, usually, the lack of having these in place at all – are common. These conflicts can cause harm to family relationships and be financially burdensome. Disputes among the rich-and-famous often made headlines.

Some scary outcomes of inadequate or non-existent estate planning include:

• Prince, who died without a will, leaving lawsuits and hefty lawyer’s fees for his family;
• Whitney Houston, whose failure to update her will negatively affect her daughter Bobbi Kristina’s inheritance;
• James Gandolfini, who didn’t finish planning causing his estate to be hit with unnecessary and easily avoided death taxes;
• Michael Jackson, who set up trusts for his children but never funded them resulting in a multiple probate court battles; and
• Philip Seymour Hoffman, who never set up trusts for his kids causing their inheritances to be unnecessarily taxed.

These horror stories are not limited to wealthy celebrities. WealthCounsel’s survey found that more than one-third of respondents know someone who has experienced or have themselves suffered family disputes due to the failure of an existing estate plan or inadequate will. Additionally, more than half of those who have established an estate plan did so to reduce family conflict. Preserving family harmony is for everyone – not only for the wealthy or celebrities.

Attorneys: Your Guide to Not-So-Spooky Estate Planning

Estate planning can be confusing as each circumstance is unique and requires different tools to achieve the best possible outcome. Nearly 75 percent of those surveyed by WealthCounsel said estate planning was a confusing topic and valued professional guidance in learning more – so you’re not alone if you aren’t sure where to begin.

We’re here to help. An estate planning attorney is essential in determining the best way to structure your will, trust, and estate plan to fit your needs. If you or someone you know has questions about where to begin – contact us today.