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Wills, Trusts & Dying Intestate: How They Differ

Most people understand that having some sort of an estate plan is a good thing. However, many of us don’t take the steps to have an estate plan prepared because we don’t understand the nuances between wills and trusts – and dying without either.

Here’s what will generally happen if you die, intestate (without a will or trust), with a will, and with a trust. For this example, we’re assuming you have children, but no spouse:

If you should die intestate, your estate will go through probate and all the world will know what you owned, what you owed, and who got what. Your mortgage company, car loan company, and credit card companies will all seek payment on balances you owed at the time of your death.

After that, state law will decide who gets what and when.

For example, your state’s intestate statute may mandate divvying up proceeds equally among your children.
Your older children will get their shares immediately if they’ve attained adulthood.
But, the court will appoint a guardian of its choosing to manage the money for your minor children until they become adults and possibly a separate guardian to raise your minor children.
Shockingly, that guardian can charge a lot of money to manage the money for your minor children and be a total stranger – as can the guardian who raises your minor children.
If you die without a valid will, the court, not you, will decide the futures of your minor children.

Keep in mind that since your death has been published to alert valid creditors, it’s possible for predators (fake creditors) to come forth and make demands for payment – even if they’re not owed anything.

The bottom line? Dying intestate allows state law and the court to make all the decisions on your behalf – regardless of what your intent might have been. Publicity is guaranteed.

If you die with a valid will, your assets will still go through the probate process. However, after creditors have been satisfied, the remaining assets go to whom you’ve identified in your will.

If you want to leave money to your children and name a guardian for the minor ones, the court will usually abide by your wishes.
The same holds true if you specified that you wanted to give assets to a charity, your Aunt Betty, or your neighbor.
Keep in mind that predatory creditors are still an issue as your death has been publicized. Even with a will, probate is a public process.

The bottom line? While a court oversees the process, having a will allows you to tell the court exactly how you want your estate to be handled. But, a public probate is still guaranteed.

If you’ve created a trust, you’ve taken control of your estate plan and your assets. Trust assets are not subject to the probate process and one of the most important benefits of trusts is that they are private. Although notices to creditors may be published, most of the other details (your assets, who is receiving what, etc.) remain private, helping your family minimize the risk of predators.

As part of the trust drafting process, you’ll have named a trustee to manage your estate, when you are no longer able to, and provide him or her with specific instructions on how your assets should be dispersed and when.

One word of caution – trusts must be funded in order to bypass probate.
Funding means that your assets have been retitled in the name of your trust.
Think of your trust as a bushel basket. You must put the apples into the basket just as you must put your assets into the trust for either to have value.

Even if you have a trust prepared, you still need a will to pour any assets inadvertently or intentionally left out of your trust and to name guardians for minor children. However, this type of will is much shorter and less complicated than one that is responsible for disposing of all of your assets to your beneficiaries.

The bottom line? Trusts allow you to maintain control of your assets through your chosen trustee, avoid probate, and leave specific instructions so that your children are taken care of – without receiving a lump sum of money at an age where they are more likely to squander it or have it seized from them.

Don’t let the will versus trust controversy slow you down. Call our office today so we can answer any questions you may have and put together an estate plan that works for you and your family whether it be a will, trust, or both.

Four Reasons Why Estate Planning Isn’t Just for the Top 1 Percent

There is a common misconception that estate plans are only for the ultra-rich – the top 1 percent, 10%, 20%, or some other arbitrary determination of “enough” money. In reality, nothing could be further from the truth. People at all income and wealth levels can benefit from a comprehensive estate plan. Sadly, many have not sat down to put their legal house in order.

According to a 2016 Gallup News Poll more than half of all Americans do not have a will, let alone a comprehensive estate plan. These same results were identified by WealthCounsel in its Estate Planning Awareness Survey. Gallup noted that 44 percent of people surveyed in 2016 had a will place, compared to 51 percent in 2005 and 48 percent in 1990. Also, over the years, there appears to be a trend of fewer people even thinking about estate planning.

When it comes to estate planning, the sooner you start the better. Below are four reasons why everyone – no matter what income or wealth level – can benefit from a comprehensive estate plan:

Forward Thinking Family Goals: Proper estate planning can accomplish many things. The first step is to ask what your goals are. They may include caring for a minor child, an elderly parent, a disabled relative, or distributing real and personal property to individuals who will appreciate and maintain these assets prudently. Understanding what your family wants and needs are for the future is a great starting point for any estate plan. If you can sit down and spend time planning your vacation, you can do the same for your estate. Your future self, and your loved ones, will thank you.
Financial Confidence Now and After You Are Gone: One immediate benefit of having a finished estate plan in place is that you will likely feel in control of your finances, possibly for the first time ever. Many people experience a new sense of discipline in maintaining their finances which can help with saving for retirement, a big purchase, or other goal. In addition to the personal benefit of financial control, an estate plan allows you to dictate exactly how and when your heirs receive an inheritance. This is particularly important for minor heir or those who need additional guidance to manage their inheritance, like a disabled child.
Identify Risks: An important aspect of a good estate plan is to mitigate against future and current risks. One example is becoming disabled and unable to support your family. Another is the possibility of dying early. Through an estate plan you can chose who will be in control of your personal assets, instead of the court appointing a legal guardian who will cost money and be a distraction for your family. While contemplating these types of risks is never fun, preparing ahead of time ensures your loved ones will be prepared if an unfortunate tragedy occurs.
To Maintain Your Privacy: In the absence of an fully funded, trust-based estate plan, a list one’s assets are available for public view upon death. This occurs when a probate court needs to step in. Probate is the legal process by which a court administers the deceased person’s estate. A solid estate plan should generally avoid the need for involvement by the probate court, so your family’s privacy can be maintained.

The Bottom Line: Seek Professional Advice

There are numerous benefits to working with a professional team when it comes to estate planning. Estate planning attorneys, financial advisor, insurance agents, and others have a broader and deeper knowledge of money management, financial implications, and the law. When you work with a qualified team to implement an estate plan you can rest easy knowing your family will be taken care of no matter what happens in the future.

We at GP Schoemakers, PLLC are here to help. Call today and find out how to better protect your family.

Wills vs. Trusts: A Quick & Simple Reference Guide

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 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 cannot be changed without legal action.
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, are 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 trustee, 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 or contact us today and let’s get started.

The Pros and Cons of Probate

In estate planning circles, the word “probate” often comes with a starkly negative connotation. Indeed, for many people — especially those with larger estates — financial planners recommend trying to keep property out of probate whenever possible. That being said, the probate system was ultimately established to protect the property of the deceased and his/her heirs, and in a few cases it may even work to an advantage. Let’s look briefly at the pros and cons of going through probate.

The Pros

For some estates, especially those in which no will was left, the system works to make sure all assets are distributed according to state law. Here are some potential advantages of probating an estate:

It provides a trustworthy procedure for redistributing the property of the deceased if no will was left.
It validates and enforces the intentions of the deceased if a will exists.
It ensures taxes and claimed debts are paid on the estate, so there’s a finality to the deceased person’s affairs, rather than an uncertain, lingering feeling for the beneficiaries.
If the deceased was in debt, probate gives only a brief window for creditors to file a claim, which can result in more debt forgiveness.
Probate can be advantageous for distributing smaller estates in which estate planning was unaffordable.

The Cons

While probate is intended to work fairly to facilitate the transfer of property after someone dies, consider bypassing the process for these reasons:

Probate is a matter of public record, which means personal family and financial information become public knowledge.
There may be considerable costs, including court, attorney, and executor fees, all of which get deducted from the value of the estate.
Probate can be time-consuming, holding up distribution of the assets for months, and sometimes, years.
Probate can be complicated and stressful for your executor and your beneficiaries.

Bottom line: While probate is a default mechanism that ultimately works to enforce fair distribution of even small estates, it can create undue cost and delays. For that reason, many people prefer to use strategies to keep their property out of probate when they die.

A skilled estate planning attorney can develop a strategy to help you avoid probate and make life easier for the next generation. For more information about your options, call or contact us today to schedule a consultation.

Michael Jackson’s Estate Pulled Into Seemingly Endless Probate Court Battles

Michael Jackson, the “King of Pop,” had always been a controversial superstar. Over the years, he became the father of three children, Prince Michael Jackson II, Paris-Michael Katherine Jackson, and Michael Joseph Jackson, Jr.

While Jackson created a trust to care for his children and other family and friends, he never actually funded it. The result? Embarrassing and seemingly endless probate court battles between family members, the executors, and the IRS.

4 Essential Purposes of a Trust

A trust is a fiduciary arrangement which allows a third party (known as a trustee) to hold assets on behalf of beneficiaries. There are four primary benefits of trusts:

Avoiding probate. Funded trusts are not subject to probate. However, unfunded or underfunded trusts, just like wills, generally must go through probate.

Maintaining privacy. Probate is a matter of public record. However, since trusts aren’t subject to probate, privacy is maintained.

Mitigating the chance of litigation. Since trusts are not subject to the probate process, they are not a matter of public record. Therefore, fewer people know estate plan details – mitigating the chance of litigation.

Providing asset protection. Assets passed to loved ones in trust can be drafted to provide legal protection so assets cannot be easily seized by predators and creditors.

While these are arguably the most essential purposes, trusts can also affect what you pay in estate taxes as well.

Sadly, Jackson could not take advantage of any of these benefits. Although he created a “pour-over” will, which was intended to put his assets into a trust after his death, the “pour-over” will, like any other will, still had to be probated.

The probate, along with naming his attorney and a music executive as his executors (instead of family members), fueled a fire that could have been avoided with more mindful planning. Given the size of Jackson’s estate, it’s no surprise that everyone wanted a piece of the pie.

Don’t Burden Your Family!

Losing a loved one is difficult enough without having to endure legal battles afterward. In Jackson’s situation, a proper estate plan could have reduced litigation and legal fees, and helped provide privacy for his survivors. His situation, although it deals with hundreds of millions of dollars, applies to anyone who has assets worth protecting. In other words, it likely applies to everyone!

There are many types of trusts and estate planning tools available to ensure that you don’t burden your family after your death. We’ll show you how to best provide for and protect your loved ones by creating the type of estate plan which is tailored to fit your needs.

Skyrocketing Probate Fees – Another Reason to Avoid Probate Court

As of July 1, 2015, Connecticut probate courts earned the dubious distinction of charging the highest probate fees in the U.S.. Amazingly, the Connecticut legislature voted to completely cut general fund support for the state’s probate courts for the next two fiscal years, thereby creating a $32 million deficit. In order to cover the shortfall, the fees charged for settling a deceased person’s estate in Connecticut were significantly increased and the $12,500 cap on probate fees was eliminated. To make matters worse, these changes apply retroactively to all deaths dating back to January 1, 2015. As a result, it is estimated that a handful of Connecticut estates will owe in excess of $1 million in probate fees and at least a dozen will owe in excess of $100,000.

Which Other States Also Charge High Probate Fees?

Connecticut’s new fee structure assesses a 0.5 percent fee on estates worth more than $2 million and most probate court filing fees were also increased from $150 to $225. While both North Carolina and New Jersey assess probate fees of 0.4 percent, North Carolina’s fee is capped at $6,000 but New Jersey does not have a cap. In Maryland the probate fee for an estate valued between $2 million and $5 million is $2,500 and for estates valued over $5 million the fee is $2,500 plus .02 percent of the excess over $5 million.

How Can Your Loved Ones Avoid Paying Probate Court Fees?

Even if you don’t live in a state that charges high probate fees now, budget shortfalls and fee changes could occur at any time. Also, in most situations it’s easy to keep your estate out of probate court and avoid all of the fees and costs associated with it:

Gift your estate while you’re still alive. While it really isn’t practical to give all of your assets away during your lifetime, it is possible to gift assets into a special type of trust or a family business entity of which you can be a beneficiary or stakeholder.

Own property jointly with others. If an asset such as a home is owned by two people as joint tenants with rights of survivorship and one of the owners dies, the surviving owner will become the sole owner of the home outside of probate.

Use beneficiary designations. By design life insurance and retirement accounts (such as IRAs, 401(k)s and annuities) avoid probate through the designation of a beneficiary. In addition, you can name a beneficiary for your bank accounts using a payable on death account and for your investment accounts using a transfer on death account.

Create and fund a revocable living trust. When you create a revocable living trust and transfer the title of your assets into the name of the trust, you will no longer hold title to your assets in your individual name. Instead, your assets will be converted into property under the control of the Trustee (which can be you while you’re alive and a spouse, child, friend or bank after you die). After you die, the property held in the trust will pass to the beneficiaries you name in the trust agreement outside of probate.

Final Thoughts on Avoiding Probate Court

While probate is easy to avoid using any of the methods described above, there are pros and cons that need to be considered for each method. Please contact our office if you are interested in determining the best way for your estate to avoid probate court and all of the fees and costs associated with it.

Year End Estate Planning Tip #4 – Check the Privacy of Your Estate Plan

With the end of the year fast approaching, now is the time to fine tune your estate plan before you get caught up in the chaos of the holiday season. One area of planning that many people overlook is ensuring that their final wishes remain private.

Will Your Final Wishes Become a Public Court Record?

Let’s face it, planning for what happens if you become mentally incapacitated or die is an extremely personal matter. Why? Because this type of planning deals with all of the intimate details of your life, including any skeletons in the closet, who you consider to be your real family, what you own, and who you owe.

When you’re sitting across the table from your estate planning attorney, you’ll need to “spill the beans” and let your attorney know your true feelings and ultimate goals. And then once you have done this, there it is – all of the intimate details of your life written down in black and white in your estate planning documents, quite possibly for the whole world to see.

The good news is that because of the attorney-client privilege, no one can see your estate planning documents unless you give them permission. But this will only work while you’re alive. After you die and your will is filed for probate, it becomes a public court record that anyone can read (recent celebrity examples include actors James Gandolfini and Philip Seymour Hoffman). It is also possible for your revocable trust to become a public court record that anyone can read (celebrity examples include Farrah Fawcett and Michael Jackson).

Or what happens if you don’t have any estate plan at all? NFL quarterback Steve McNair’s public probate court proceedings are a prime example of how the public can learn the dirty little secrets about a deceased person – two illegitimate children and possibly others, multiple girlfriends – and all about the deceased person’s property and its value – cash, investments, businesses, and multiple homes valued near $20 million. If you don’t have a personalized estate plan, your family could be stuck with the state’s default plan. We’ve never had a client who wanted their personal plan to be exactly like the state’s default plan, so we strongly advise you to meet with an experienced estate planning attorney now to make sure that doesn’t happen to your family.

What Can You Do to Keep Your Estate Plan Private?

If privacy and discretion are important to you, then these goals should be, and certainly can be, carried over into your estate plan.

If you already have an estate plan, check with your estate planning attorney to determine how private your plan will be after you die and make any necessary adjustments.

On the other hand, if you’re currently working on your estate plan, make sure your estate planning attorney is aware of how important privacy and discretion are to you so that these goals can be incorporated into your estate plan from the beginning.

Call or contact to find out more about how to get your estate plan started today.

Does Your Revocable Living Trust Reduce Your Estate Tax Bill?

Many people believe that once they set up and fund a revocable living trust, property held in the trust will avoid estate taxes after they die. In reality, this may or may not be true depending on your choice of beneficiaries and the terms written into your trust agreement.

Single Trustmakers and Estate Taxes

If you’re single and you create and fund a revocable living trust, all of your assets held in the trust will be subject to estate taxes after you die if your beneficiaries are individuals. In other words, if your beneficiaries are your children, your brothers and sisters, or your nieces and nephews, then the property they inherit through the trust will be included in your taxable estate.

On the other hand, if you’re single and you create and fund a revocable living trust and name one or more charitable organizations and no individuals as the beneficiaries, then the property distributed to the charities through the trust will pass free from estate taxes.

What if you’re single and you name both individuals and charities as beneficiaries of your trust after you die? The portion of the trust property passing to the individual beneficiaries will be subject to estate taxes and the portion passing to the charities will be distributed free from estate taxes.

Married Trustmakers and Estate Taxes

If you’re married and you create and fund a revocable living trust and all of the assets held in your trust pass to your spouse after you die, then the property passing to your spouse through the trust will not be subject to estate taxes. This is true if the assets pass outright to your spouse or through the traditional “AB Trust” estate tax planning since the AB Trust strategy is designed to delay estate taxes until after both you and your spouse are gone.

On the other hand, if you’re married and you create and fund a revocable living trust and you name both your spouse and your children as the beneficiaries after you die, the portion of the trust passing to your spouse will be exempt from estate taxes and the portion passing to your children will be subject to estate taxes. If you include one or more charitable organizations as beneficiaries, then the portion passing to the charities will be distributed free from estate taxes.

Do You Need a Revocable Living Trust?

If a revocable living trust in and of itself does nothing to reduce your estate tax bill, then why should you consider setting one up? For three reasons:

To avoid probate – Assets held in your revocable living trust at the time of your death will avoid probate. Depending on your state of residence at the time of your death, this could save thousands of dollars in legal fees and court costs.
To plan for mental incapacity – If you become incapacitated, the disability trustee you name in your revocable living trust will be able to manage the trust assets for your benefit without the need for a court-supervised guardianship. Like avoiding probate, removing the need for a court-supervised guardianship could save thousands of dollars in legal fees and court costs, depending on your state of residence.
To keep your final wishes private – A revocable living trust is a private agreement that remains private after you die.

Final Thoughts on Revocable Living Trusts and Estate Taxes

For many people a revocable living trust is the ideal way to organize their final affairs. For married couples, aside from offering the benefits listed above, their revocable living trusts can be drafted to include AB Trust planning which will delay the payment of estate taxes until after both spouses die. For single people, while a revocable living trust will provide them with the benefits listed above, they will need to take additional steps such as gifting strategies and charitable planning to minimize their estate tax bill.