Being asked by a loved one to serve as Trustee for their Trust upon their death can be quite an honor, but it’s also a significant responsibility—and the role is not for everyone. Indeed, serving as a Trustee entails a broad array of duties, and you are both ethically and legally required to execute those duties or face potential liability.

Before you say yes, be sure you understand what it means to be a Trustee.

In the end, your responsibility as a Trustee will vary greatly depending on the size of the estate, the type of assets covered by the Trust, the type of Trust, how many beneficiaries there are, and the document’s terms. In light of this, you should carefully review the specifics of the Trust you would be managing before deciding to serve.

And remember, you don’t have to take the job.

Yet, depending on who nominated you, declining to serve may not be an easy or practical option. On the other hand, you might enjoy the opportunity to serve so long as you understand what’s expected.

To that end, this article offers a brief overview of what serving as a Trustee typically entails. If you are asked to serve as Trustee, feel free to contact us to support you in evaluating whether you can effectively carry out all the duties or if you should politely decline.

A Trustee’s Primary Responsibilities

Although every Trust is different, serving as a Trustee comes with a few core requirements: managing assets held in the name of the Trust, accounting for those assets, and following the terms of the Trust regarding distributions of income and/or principal to the beneficiaries of the Trust. 

Remember, a Trust is simply an agreement between the grantor and the distribution of assets. The Trust agreement directs distribution to a Trustee to hold and manage the assets “inside the Trust” for the benefit of the beneficiaries.

As a Trustee, you will be acting as a “fiduciary,” meaning that you must act in the best interests of the beneficiaries of the Trust. And if you fail to abide by your duties as a fiduciary, you can face legal liability. For this reason, if you are named as Trustee, you should hire us to review the Trust Agreement and provide an analysis of the specific duties and responsibilities required of you before you agree to serve. 

Regardless of the terms of the Trust or the assets it holds or will hold, some of your key responsibilities as Trustee include the following:

• Identifying and gathering the Trust assets
• Determining what the Trust’s terms require in terms of management and distribution of the assets
• Hiring and overseeing an accounting firm to file income and estate taxes for the Trust
• Communicating regularly with beneficiaries
• Being scrupulously honest, highly organized, and keeping detailed records of all transactions
• Closing the Trust when the Trust terms specify

No Experience Necessary

It’s important to point out that being a Trustee does NOT require you to be an expert in the law, finance, taxes, or any other field related to Trust administration. Trustees are not only allowed to seek outside support from professionals in these areas, but they’re also highly encouraged to do so, and the Trust estate will pay for you to hire these professionals.

So even though serving as a Trustee may seem daunting, you won’t have to handle the job alone. And you are also able to be paid to serve as a Trustee of a Trust.

That said, many Trustees, particularly close family members, often choose to forgo any payment beyond what’s required to cover the Trust expenses, if that’s possible. But how you are compensated will depend on your personal circumstances, your relationship with the Trust’s creator and beneficiaries, the language in the Trust, and the nature of the assets in the Trust.

We Can Help

Because serving as a Trustee involves such serious responsibility, you should meet with us, as your Personal Family Lawyer®, to help decide whether to accept the role. We can offer you a clear, unbiased assessment of what’s required of you based on the Trust’s terms, assets, and beneficiaries.

And if you choose to serve, it’s even more critical to have an experienced lawyer in estate planning to assist you with the Trust’s administration. As your Personal Family Lawyer®, we can guide you step-by-step throughout the entire process, ensuring you properly fulfill all of the Trust creator’s wishes without exposing the beneficiaries—or yourself—to any unnecessary risks. Contact us today to learn more.

This article is a service of Marsala Law Firm, Personal Family Lawyer®. We do not just draft documents; we ensure you make informed and empowered decisions about life and death, for yourself and the people you love. That’s why we offer a Family Wealth Planning Session™, during which you will get more financially organized than you’ve ever been before and make all the best choices for the people you love. You can begin by calling our office today to schedule a Family Wealth Planning Session and mention this article to find out how to get this $750 session at no charge. 

You’ve probably heard you need a trust to keep your family out of court and maybe out of conflict in the event of your death or incapacity. And, if you haven’t, you are hearing it now. If you own any “probatable” assets in your name at the time of your incapacity or death, your family must go to court to access them. If you aren’t sure if your assets are “probatable” contact us to discuss.

But you may need clarification about whether you need a revocable living or irrevocable trust. More and more, we are seeing people come our way asking for a irrevocable trust, and so this article is designed to help you learn the difference and then get into an “eyes wide open” conversation about the right kind of trust for you and your loved ones. 

What Is A Trust? 

A trust is an agreement between the grantor of the trust (that’s you) with a trustee (someone named by you) to hold title to assets for the benefit of your beneficiaries (whoever you name). When we break it down in its simplest form, it’s that straightforward. It’s an agreement.

Now, the terms of that “agreement,” called a “trust agreement,” can vary significantly, and that’s where we come in as we’ll work with you to clarify the terms that you want between yourself and the trustee for the benefit of the people you name as beneficiaries.

With a revocable living trust (RLT), during your lifetime, you will be the “grantor,” the “trustee,” and the “beneficiary.” So, for all intents and purposes under the law, nothing really happens when you retitle your assets in the name of your RLT, so long as you are living and have the capacity (meaning you can make decisions for yourself).

With an RLT, once you become incapacitated (which is determined as per the instructions in the trust document) or in the event of your death, the trust becomes irrevocable, and the person or persons you’ve named as successor trustee steps in to control the assets held in the name of the trust for the benefit of the beneficiaries named in the trust. If you are still living but incapacitated, you would be the beneficiary still. If you have died, then your named heirs would be the beneficiaries. At that point, the trust may distribute outright to your beneficiaries or be held in continuing trust — protected from creditors, future divorces, future lawsuits, and even estate taxes (if the trust is drafted properly) — if your trust terms provide for continuing protection.

You could indicate in the trust agreement that you want your beneficiaries to “control the trust” but that you want the trustee to continue to hold title to the assets, thereby protecting the assets, while giving the beneficiaries nearly full control and use of the assets. This is a bit tricky, so don’t try it at home without support. But, if you want to provide this kind of benefit and protection to the people you love, be sure to talk with us about building a Lifetime Asset Protection Trust into your plan. It’s highly worth it if you’ll pass on anything more than what your children will immediately spend upon your death.

We support you in making these decisions in our Family Wealth Planning Session™ process before ever drafting a single legal document for you. But before we talk about that, let’s clarify what a irrevocable trust is and where it might fit into your plan.

A irrevocable trust is the same as a revocable trust — an agreement between a grantor and a trustee to hold the property for a beneficiary. Still, if the trust agreement is irrevocable, or once it becomes irrevocable, it cannot be changed. There are some exceptions to this, but for the most part, that is the case. If you put your assets into a irrevocable trust, you cannot then take them out of the trust and return them to yourself because the gift to the trustee to hold the assets for the beneficiary is irrevocable.

A irrevocable trust can remove assets from your name and protect them from future lawsuits or future growth in your estate, which removes them from your estate for estate tax purposes. We will recommend irrevocable trusts when we are preparing your estate for the potentiality that you may need long-term nursing care that you would like covered by Medi-Cal without decimating your family’s inheritance, or on the other end of the spectrum, if you have an estate that could be subject to the estate tax or that could be at significant risk of lawsuits.

When you meet with us for a Family Wealth Planning Session™, we’ll look at your assets, family dynamics, personal desires, and how the law will apply to all of it. Then, together, we will decide on the right plan for you — whether to include a trust or not, whether that trust should be revocable or not, and if it is revocable, when it should be irrevocable, and how long it should last for the people you love.

Never choose a type of trust without working with a lawyer who understands you, your family, your assets, and your goals. Never use a life insurance professional or financial advisor to choose the type of trust or draft your trust for you. Too many variables could leave your family with a big mess. We’ll guide you to make the right decisions during life and be there for your family when you can’t be. And we’ll integrate the proper insurance, financial, and tax professionals into your planning at the right time to ensure everything we create works for you and the people you love. 

When you meet with us, your Personal Family Lawyer®, we will learn about you, your family dynamics, your assets and your risks and liabilities, needs and desires to support you in the empowering decision-making process of creating an estate plan that works for you and the people you love. Contact us today to get started.

This article is a service of Marsala Law Firm, Personal Family Lawyer®. We do not just draft documents; we ensure you make informed and empowered decisions about life and death, for yourself and the people you love. That’s why we offer a Family Wealth Planning Session™, during which you will get more financially organized than you’ve ever been before and make all the best choices for the people you love. You can begin by calling our office today to schedule a Family Wealth Planning Session and mention this article to find out how to get this $750 session at no charge. 

What Happens To Your Debt When You Die?

Maybe you’ve wondered about your own debt or perhaps your parent’s debt—what happens to that debt when you (or they) die? Well, it depends, and that’s part of the reason you want to ensure your estate plan is well prepared. How you handle your debt can greatly impact the people you love.

In some cases, you could inadvertently leave a reality in which your surviving heirs—your kids, parents, or others—are responsible for your debt. Alternatively, if you structure your affairs properly, your debt could die right along with you.

According to the Federal Trade Commission, an individual’s debt does not disappear once that person dies. Rather, the debt must either be paid out of the deceased’s estate or by a co-creditor. And that could be bad news for you or the people you love. 

What exactly happens to this debt can vary. One of the purposes of the court process known as probate is to provide a time period for creditors to make a claim against the deceased’s estate, in which case debts would be paid before beneficiaries receive their inheritance. But if there is nothing in the probate estate and all assets are held outside of the probate estate, then what?

Well, that’s where we come in, and why it’s so important to get your affairs in order, even if you have a lot more debt than assets. Your “estate” isn’t just what you own, it includes what you owe, too. And with good planning, we can help you align it all in exactly the way you want.

Debt After Death

When an individual dies, someone will handle his or her affairs, and this person is known as an executor. The executor can either be someone of the individual’s choice, if he or she planned in advance, or someone appointed by the court in the absence of planning. The executor opens the probate process, during which the court recognizes any will that’s in place and formally appoints the executor to administer the deceased’s estate and distribute any outstanding assets to their loved ones.

During this process, the estate’s assets are used to pay any outstanding debt. This usually includes all of an individual’s assets, although it does not include assets with beneficiary designations, such as 401(k) plans and insurance policies.  The estate does not own these assets, and they pass directly to the named beneficiaries. Given these factors, if an individual’s assets are subject to probate and the person has outstanding debt, their beneficiaries will receive a smaller share of anything left to them in the estate plan.

How Unsecured Debts Are Handled After Death

Typically, unsecured debts, such as credit card debts, are the last form of debt the estate repays. In most cases, the estate first repays any outstanding secured debts, including car and mortgage loans. Following this, the estate repays the legal and administrative fees associated with executing the deceased’s will. From there, the estate repays any outstanding unsecured debt, including credit card balances. Usually, if the estate lacks the assets to repay these debts, creditors have no choice but to accept the loss. 

However, in some states, probate laws may dictate how the deceased’s creditors can clear these debts in other ways, such as by forcing the sale of the deceased’s property. It’s worth noting that there is a time limit for creditors to claim against an estate after the deceased dies, and this time frame varies between states.

Avoiding Probate

There are several things you can do to avoid probate. Perhaps the most common involves establishing a revocable living trust. Since the trust, not the estate, owns the assets, assets held by a properly funded and maintained trust do not have to go through the probate process.

Despite this, creating a living trust does not guarantee an individual’s assets will receive protection from creditors if that person has debt. What it does mean is that his or her heirs may have more flexibility compared to probate. In other words, by creating a living trust, your trustee may be able to negotiate with creditors more easily to reduce any outstanding debt. In theory, creditors may still sue to repay the debt in full. However, since this could involve significant costs, creditors may prefer to settle instead. 

When Do Surviving Family Members Pay The Deceased’s Debts?

Most of the time, it’s unnecessary for surviving family members to pay the deceased’s debt with their own money. Instead, as noted above, payment of the debts are either paid out of the deceased’s estate, or if there is no estate, the debts are extinguished. However, there are some exceptions to this, including the following:

• Co-signing loans or credit cards: If someone cosigns a loan or credit card with the deceased, that individual is responsible for clearing any outstanding debt associated with that account.
• Having jointly owned property: If an individual has jointly owned property or bank accounts with the deceased, that person is responsible for clearing any outstanding balances associated with these assets.
• Community property: In some states, including California, Arizona, Nevada, Louisiana, Idaho, Texas, Washington, New Mexico, and Wisconsin, the surviving spouse is required to clear any outstanding debt associated with community property. Community property is any property jointly owned by a married couple.
• State laws: Some states require surviving family members, or the estate more generally, to clear any debts associated with the deceased’s healthcare costs. Additionally, if the estate’s executor failed to follow a state’s probate laws, it might be necessary for him or her to pay fines for doing so.

What To Do When Someone Dies With Debt

When someone dies with outstanding debt, it’s important to take swift action to handle their affairs and negotiate their debts. Below are some steps to follow when faced with this scenario:

01 – Understand Your Rights

Since probate laws vary between states, it’s a good idea to thoroughly research the probate process in our state, or hire a lawyer to handle the estate for or with you. Many states require creditors to make claims within a specific period, while also requiring surviving family members to publicly declare the deceased’s death before creditors can collect any outstanding debt. It’s also against the law for creditors to use offensive or unfair tactics to collect outstanding credit debt from surviving family members. It’s generally a good idea to ask creditors for proof of any outstanding debt before paying.

02 – Collect Documents

Collecting documents can be fairly straightforward, particularly if the deceased left all their vital financial papers in a single location. If the surviving family members cannot locate these documents, they can request the deceased’s credit report, which lists any accounts in the deceased’s name. As your Personal Family Lawyer®, we can do this for you, as part of our post-death support services.

03 – Cease Additional Spending

This is essential to prevent any debts in the deceased’s name from increasing further, even if there is another person authorized to make payments. Ceasing additional spending. including canceling any recurring subscriptions, also helps prevent unnecessary complications when negotiating with creditors.

04 – Inform Creditors

Proactively contact the deceased’s creditors to look into options for negotiating the debt, and notify credit bureaus of the death. To complete this process, it’s useful to have several copies of the death certificate to share with insurance companies and creditors. Afterwards, ask to close all accounts in the deceased’s name, and request the credit bureaus freeze the deceased’s credit, preventing others from unlawfully getting credit in his or her name.

05 – Close The Estate

Once all debt has been paid off, forgiven, or extinguished, the executor can officially close the estate. The process for doing this varies based on how assets and debts were held, so do not go into this part alone. Contact us to find out how we can support you. 

We Can Help Ensure Your Family Doesn’t Get Stuck With Your Debt

Effective estate planning involves taking care of your affairs, and this includes ensuring your debts will be handled in such a way that your family isn’t left with a big mess or inadvertently forced into court. Consider scheduling a Family Wealth Planning Session with us, your Personal Family Lawyer® to determine how we can help protect your assets and prevent creditors from reducing the gifts you want to leave your loved ones after death. Contact us today to learn more.

This article is a service of Marsala Law Firm, Personal Family Lawyer®. We do not just draft documents; we ensure you make informed and empowered decisions about life and death, for yourself and the people you love. That’s why we offer a Family Wealth Planning Session™, during which you will get more financially organized than you’ve ever been before and make all the best choices for the people you love. You can begin by calling our office today to schedule a Family Wealth Planning Session and mention this article to find out how to get this $750 session at no charge. 

Although the end of the year can be a hectic time, it’s also the deadline for your family to implement a number of key tax-savings strategies. By taking action now, you can significantly reduce your tax bill due in April, but with just a few weeks left in 2022, you better act fast.

While there are dozens of potential tax breaks you may qualify for, here are 4 of the leading moves you can make to save big on your 2022 tax return. However, there may be other opportunities for saving, so meet with us, your Personal Family Lawyer® to make certain you haven’t missed a single one.

01 – Maximize retirement account contributions

By maximizing your contributions to tax-deferred retirement accounts, such as IRAs and 401(k)s, you can not only save for retirement, but also reduce your taxable income for 2022.

In 2022, you can contribute up to $6,000 to an IRA and up to $20,500 to a 401(k) if you’re under 50, and up to $7,000 to an IRA and $27,000 to a 401(k) for those 50 and older. If you don’t have the cash available to fund the maximum amount, try to contribute at least any amount that will be matched by your employer, since that’s basically free money, and you lose it if you don’t use it.

That said, the ability to deduct your traditional IRA contributions from your taxes comes with certain limitations. These limitations are based on factors, such as whether or not you or your spouse is covered by a retirement plan at work and your adjusted gross income (AGI), so make sure you know how your family is affected by these limits when taking deductions. On the other hand, Roth IRA contributions are not tax deductible, since they are made after taxes are taken out, but withdrawals from a Roth in retirement are tax-free.

Additionally, consider maxing out contributions to your Health Savings Account (HSA). Contributions to HSAs for 2022 are capped at $3,650 for individuals and $7,300 for families, with an additional catch-up contribution of $1,000 allowed for those age 55 and older.

You have until December 31, 2022 to contribute to a 401(k) plan and until April 18, 2023 to contribute to an IRA or HSA for the 2022 tax year.

02 – Defer income if you’ll make less next year

If you’re expecting to make significantly more income this year than in 2023, try to defer as much income into next year as possible. However, this strategy only makes sense if you’ll be in the same or a lower tax bracket next year.

This might mean asking your boss to delay paying a year-end bonus until after Jan. 1, 2023, or if you’re self-employed, waiting to invoice certain clients until the new year. On the other hand, if you think you’ll be in a higher tax bracket in 2023, you may want to do the opposite and accelerate income into 2022 to take advantage of a lower tax bracket. 

Meet with us, your Personal Family Lawyer® to find out what’s best for your situation.

03 – Use “loss harvesting” to offset capital gains

With the stock and crypto markets down this year, it can be the ideal time to use a strategy called “loss harvesting,” which means selling taxable investment assets, such as stocks, mutual funds, and bonds, at a loss to offset any capital gains you may have realized earlier in the year. Capital losses offset capital gains dollar for dollar.

If your losses exceed your gains, you can write off up to $3,000 of collective losses against other income. Any losses in excess of $3,000 can be carried over into the next year. In fact, you can carry over such losses year after year over your lifetime.

Note that the loss harvesting strategy does not apply to tax-advantaged accounts, such as 401(k)s, IRAs, and 529 plans. Additionally, the IRS “wash-sale” rule prohibits using this tax write-off for buying a “substantially identical” asset within a 30-day window before or after the sale that generated the loss. 

Given the restrictions, you should always consult your CPA or financial advisor before employing loss harvesting to ensure it doesn’t backfire on you. And if you’d like us to meet with you and your CPA or financial advisor, we offer that service to the clients in our top-tier support plans, so be sure to ask about that if you’d love help getting all of your legal, insurance, financial, and tax systems organized and coordinated before the end of this year. 

04 – Watch your required minimum distributions (RMDs)—or ensure your parents are watching theirs—if you or they are over age 72

If you have an employer-sponsored retirement plan, including a 401(k), 403(b), traditional IRA, SEP IRA, or SIMPLE IRA, you must start taking required minimum distributions (RMDs) by April 1st of the year that follows the year you turn 72. After that, annual withdrawals must be made by December 31st each year to avoid a serious penalty.

If you fail to take the proper RMD, you may face a 50% excise tax on the amount you should have withdrawn based on your age, life expectancy, and your account balance at the beginning of the year. That said, if you do make a mistake, you may be able to avoid the penalty by requesting a waiver from the IRS. You can request a waiver if your failure to take the RMD is due to a reasonable error, and you take steps to make the required distribution. To request a waiver, submit Form 5329 to the IRS, with a statement explaining the error and the steps you are taking to correct it.

Note that in 2022 the IRS updated its uniform lifetime table to calculate RMDs to account for longer life expectancies. As a result, your RMDs for this year may be slightly lower compared to previous years. To determine your RMD, refer to the IRS RMD worksheet, or use an RMD calculator.

Maximize Your 2022 Tax Savings

Implementing these—and other—year-end tax-saving strategies could save your family thousands of dollars on your 2022 tax bill. But if you don’t act soon, some of these opportunities may vanish for good, so meet with us, your Personal Family Lawyer® today to schedule your appointment and lock in your savings. This article is a service of Marsala Law Firm, Personal Family Lawyer®. We do not just draft documents; we ensure you make informed and empowered decisions about life and death, for yourself and the people you love. That’s why we offer a Family Wealth Planning Session™, during which you will get more financially organized than you’ve ever been before and make all the best choices for the people you love. You can begin by calling our office today to schedule a Family Wealth Planning Session and mention this article to find out how to get this $750 session at no charge.

If you have a sale of real estate or assets coming up that will result in you owing capital gains tax, you may want to give us a call to discuss whether to set up a Charitable Remainder Trust (CRT) first. Think of it this way: would you rather pay taxes and send your hard-earned money to the government, or use that same money to provide yourself with a lifetime of income and support your favorite charity at the same time?

CRTs offer a number of benefits to everyone involved. These trusts allow you to contribute to your most beloved charities, while also generating  a valuable extra source of income for the beneficiaries, which can assist with retirement, paying off taxes, or be used for additional estate planning purposes. Such trusts aren’t for everyone, so call us to see if a CRT fits in with your planning goals.

HOW A CRT WORKS

A CRT is what’s called a “split-interest” trust, meaning it provides financial benefits to both the charity and the non-charitable beneficiary. The non-charitable beneficiary can be your spouse, child, another heir, or even you.

Here’s how these unique trusts work: when you set up a CRT, you name a trustee, an income beneficiary (or beneficiaries), and a charitable beneficiary. Then, you’ll contribute your appreciated asset to the CRT, and the trustee will sell, manage, and invest the asset(s) to produce income that’s paid to the non-charitable beneficiary.

Normally, the sale of these assets would generate capital gains taxes. But instead, you get a charitable deduction for the donation when you donate the assets to the CRT, and the CRT doesn’t pay capital gains tax upon sale of the appreciated assets. Sounds like a win/win, right?

After sale of the appreciated assets, the cash generated is invested by the trustee, and the non-charitable beneficiary receives income from the trust, which is paid out either annually, semiannually, quarterly, or monthly, depending on how the trust is set up. And if income is not paid out, it can accumulate in the trust and not be subject to income tax, further growing in value. Then, at the end of the non-charitable beneficiary’s life, whatever assets “remain” (hence the name “remainder” trust), pass to the charity or charities named in the trust.

The trustee can be yourself, a charity, another person, or even a third-party entity. Since the trustee (if it’s not you) is not only responsible for seeing that your wishes are properly carried out, but also for managing the trust assets in accordance with complex state and federal laws, it’s vital that the trustee you select has experience with financial management, and ideally, with trust administration.

You can use the following types of assets to fund a charitable remainder trust:

• Publicly traded securities
• Some types of closely held stock (Note that CRTs cannot hold S-Corp stock)
• Real estate
• Certain other complex assets

If you have assets you think might be useful for funding a CRT, contact us your Personal Family Lawyer® to see if a CRT might be a good fit for your estate planning goals.

MAIN TYPES OF CRTS

There are two main types of charitable remainder trusts, both of which are based on your options for how the trust income is paid out. 

CHARITABLE REMAINDER ANNUITY TRUSTS (CRATS)

The beneficiary can receive an annual fixed payment using a Charitable Remainder Annuity Trust. With this option, the income payments from the trust will not change, regardless of the trust’s investment performance. With this type of trust, additional contributions to the trust are not allowed.

CHARITABLE REMAINDER UNITRUST TRUSTS (CRUTS)

With a Charitable Remainder Unitrust, the beneficiary is paid a fixed percentage of the trust’s assets, and the payouts fluctuate depending on the trust’s investment performance and value. Unlike with CRATS, additional contributions can be made with this type of trust.

TAX BENEFITS OF CRTS

Since CRTs are used primarily to reduce taxes, they come with some significant tax breaks. As mentioned earlier, you can take a partial income tax deduction within the year the trust was created for the value of your donation. The partial tax deduction you receive is based on the trust’s type and term, the projected income payments to the charitable beneficiaries, and interest rates set by the IRS, which are determined based on the growth rate of trust assets. 

That said, your deduction is limited to 30% of your adjusted gross income. And if the donation exceeds that limit, you can carry over any excess into subsequent tax returns for up to five years.

Again, profits from appreciated assets sold by the trustee aren’t subject to capital gains taxes while they’re in the trust. Plus, when the trust assets finally pass to the charity, that donation won’t be subject to estate taxes either. Such hefty tax breaks can seriously add up, so if you have the means to set such a trust up, they can be quite beneficial for all parties involved, so if you think such a trust might be right for you, definitely meet with us to discuss your options

It’s important to note that the beneficiaries will pay income tax on income from the CRT at the time it’s distributed. Whether that tax is capital gains or ordinary income depends on where the income came from—distributions of principal are tax free.

DON’T GO IT ALONE

CRTs come with very specific and complex requirements surrounding their creation, operation, and the responsibilities of the trustee, so if you are considering setting up a CRT, it’s vital that you consult with a lawyer experienced with such trusts. To this end, if you have highly appreciated assets you’d like to sell while minimizing tax impact, maximizing income, and benefiting charity, call us so we can determine the best way to achieve your charitable objectives, while maximizing your tax-saving and other financial benefits. Contact us today to learn more.

This article is a service of Marsala Law Firm, Personal Family Lawyer®. We do not just draft documents; we ensure you make informed and empowered decisions about life and death, for yourself and the people you love. That’s why we offer a Family Wealth Planning Session™, during which you will get more financially organized than you’ve ever been before and make all the best choices for the people you love. You can begin by calling our office today to schedule a Family Wealth Planning Session and mention this article to find out how to get this $750 session at no charge. 

August is “National Make-A-Will Month,” and if you have already prepared your will, congratulations—too few Americans have taken this key first step in the estate planning process. In fact, only 33% of Americans have created their will, according to Caring.com’s 2022 Wills and Estate Planning Study. 

Yet, while having a will is important—and all adults over age 18 should have this document in place—for all but a few people, creating a will is just one small part of an effective estate plan that works to keep your loved ones out of court and out of conflict. With this in mind, this series discusses exactly what having a will in place will—and will not—do for you and your loved ones in terms of estate planning.

Last week, in part one, we looked at the different things having a will in place allows you to do. Here, in part two, we detail all of the things that your will does not do, along with identifying the specific estate planning tools and strategies that you should have in place to make up for the potential blind spots that exist in an estate plan that consists of only a will. 

If you have yet to create your will, or you haven’t reviewed your existing will recently, contact us, your Personal Family Lawyer® to get this vital first step in your estate planning handled right away.

What A Will Won’t Do

While a will is a necessary part of most estate plans, your will is typically a very small part of a comprehensive estate plan. To demonstrate, here are the things you should not expect your will to accomplish:

1. Keep your family out of court: Following your death, in order for assets in your will to be transferred to your beneficiaries, the will must pass through the court process known as probate. During probate, the court oversees the will’s administration, ensuring your assets are distributed according to your wishes, with automatic supervision to handle any disputes. 

Like most court proceedings, probate can be time-consuming, costly, and open to the public. Moreover, during probate, there’s also the chance that one of your family members might contest your will, especially if you have disinherited someone or plan to leave significantly more money to one relative than the others. Even if those contests don’t succeed, such court fights will only increase the time, expense, and strife your family has to endure. 

Bottom line: If your estate plan consists of a will alone, you are guaranteeing your family will have to go to court if you become incapacitated or when you die. Fortunately, it’s easy to ensure your loved ones can avoid probate using different types of trusts, so meet with us, your Personal Family Lawyer® to spare your family this unnecessary ordeal.

 2. Pass on certain types of assets: Since a will only covers assets solely owned in your name, there are several types of assets that your will has no effect on, including the following:

• Assets with a right of survivorship: Property held in joint tenancy, tenancy by the entirety, and community property with the right of survivorship, bypass your will. These types of assets automatically pass to the surviving co-owner(s) when you die.
• Assets with a designated beneficiary: When you die, assets with a designated beneficiary pass directly to the individual, organization, or institution you designated as beneficiary, without the need for any additional planning. Common assets with beneficiary designations include retirement accounts, IRAs, 401(k)s, and pensions; life insurance or annuity proceeds; payable-on-death bank accounts; and transfer-on-death property, such as bonds, stocks, vehicles, and real estate. 
• Assets held in a trust: Assets held by a trust automatically pass to the named beneficiary upon your death or incapacity, so these assets cannot be passed in your will. This includes assets held by both revocable living trusts and irrevocable trusts.

3. Pass ownership of a pet and money for its care: Because animals are considered personal property under the law, you cannot name a pet as a beneficiary in your will. If you do, whatever money you leave it would go to your residuary beneficiary, who would have no obligation to care for your pet.

It’s also not a good idea to use your will to leave your pet and money for its care to a future caregiver. That’s because the person you name as beneficiary would have no legal obligation to use the funds to care for your pet. In fact, this person could legally keep all of the money and drop off your pet at a shelter.

The best way to ensure your pet gets the care it deserves following your death is by creating a pet trust. As your Personal Family Lawyer®, we will help you set up, fund, and maintain such a trust, so your furry family member will be properly cared for when you’re gone.

4. Leave funds for the care of a person with special needs: There are a number of unique considerations that must be taken into account when planning for the care of an individual with special needs. In fact, you can easily disqualify someone with special needs for much-needed government benefits if you don’t use the proper planning strategies. For this reason, a will should never be used to pass on money for the care of a person with special needs.

If you want to provide for the care of your child or another loved one with special needs, you must create a special needs trust. However, such trusts are complicated, and the laws governing them can vary greatly between states.

Given such complexities, you should always work with an experienced estate planning lawyer like us to create a special needs trust. As your Personal Family Lawyer®, we can make certain that upon your death, the individual would have the financial means they need to live a full life, without jeopardizing their access to government benefits.

5. Reduce estate taxes: If your family has significant wealth, you may wish to use estate planning to reduce your estate tax liability. However a will is useless for this purpose. To reduce or postpone your estate taxes, you will need to set up special types of trusts. If you are looking to reduce your estate tax liability, consult with us, your Personal Family Lawyer® to discuss your options.

6. Protect you from incapacity: Because a will only goes into effect when you die, it offers no protection if you become incapacitated and are no longer able to make decisions about your financial, legal, and healthcare needs. If you do become incapacitated, your family will have to petition the court to appoint a guardian to handle your affairs, which can be costly, time-consuming, and traumatic for your loved ones.

And there’s always the possibility that the court could appoint a relative as a guardian that you’d never want making such critical decisions on your behalf. Or the court might select a professional guardian, putting a total stranger in control of your life, which leaves you open to potential fraud and abuse by crooked guardians.

However, using a trust, you can include provisions that appoint someone of your choosing—not the court’s—to handle your assets if you are unable to do so. When combined with a well-prepared medical power of attorney and living will, a trust can keep your family out of court and out of conflict in the event of your incapacity, while ensuring your wishes regarding your medical treatment and end-of-life care are carried out exactly as you intended.

Get Professional Support With Your Estate Planning

Although creating a will may seem fairly simple, you should always consult with an experienced estate planning lawyer like us to ensure the document is properly created, executed, and maintained. And as we’ve seen here, there are many scenarios in which a will won’t be the right estate planning solution, nor would a will keep your family and assets out of court.

Meet with us your Personal Family Lawyer® for a Family Wealth Planning Session, which is the first step in our Life & Legacy Planning process. During this process, we’ll walk you through an analysis of your assets, what’s most important to you, and what will happen to your loved ones when you die or if you become incapacitated. From there, we’ll work together to put in place the right combination of estate planning solutions to fit with your asset profile, family dynamics, budget, as well as your overall goals and desires. 

As a Personal Family Lawyer® firm, we see estate planning as far more than simply planning for your death and passing on your “estate” and assets to your loved ones—it’s about planning for a life you love and a legacy worth leaving by the choices you make today—and this is why we call our services Life & Legacy Planning. Contact us today to schedule your visit to ensure that your loved ones will be protected and provided for no matter what happens to you.

This article is a service of Marsala Law Firm, Personal Family Lawyer®. We do not just draft documents; we ensure you make informed and empowered decisions about life and death, for yourself and the people you love. That’s why we offer a Family Wealth Planning Session™, during which you will get more financially organized than you’ve ever been before and make all the best choices for the people you love. You can begin by calling our office today to schedule a Family Wealth Planning Session and mention this article to find out how to get this $750 session at no charge.

August is “National Make-A-Will Month,” and if you have already prepared your will, congratulations—too few Americans have taken this key first step in the estate planning process. In fact, only 33% of Americans have created their will, according to Caring.com’s 2022 Wills and Estate Planning Study. 

Yet, while having a will is important—and all adults over age 18 should have this document in place—for all but a few people, creating a will is just one small part of an effective estate plan that works to keep your loved ones out of court and out of conflict. With this in mind, here we look at exactly what having a will in place will—and will not—do for you and your loved ones in terms of estate planning.

If you have yet to create your will, or you haven’t reviewed your existing will recently, contact us, your Personal Family Lawyer® to get this vital first step in your estate planning handled right away.

What A Will Does

A will is a legal document that outlines your final wishes in regards to how your assets are distributed to your surviving family members. Here are some of the things having a will in place allows you to do:

1. Choose how assets are divided upon your death: A will’s primary purpose is to allow you to designate how you want your assets divided among your surviving loved ones upon your death. If you die without a will, state law governs how your assets are distributed, which may or may not be in line with your wishes.

However, as we’ll discuss more below, a will only allows you to provide for the distribution of certain types of assets—namely, a will only covers assets owned solely in your name. Other types of assets, such as those with a beneficiary designation and assets co-owned by you with others, are not affected by your will.

2. Name an executor: In your will, you can name the person, or persons, you want to serve as your executor, sometimes called a “personal representative.” Following your death, your executor is responsible for wrapping up your final affairs. This includes numerous responsibilities, including filing your will with the local probate court, locating and managing all of your assets, paying off any debts you have outstanding, filing and paying your final income taxes, and finally, distributing your remaining assets to your named beneficiaries.

3. Name guardians for your minor children: If you are the parent of minor children, it is possible to name legal guardians for them in your will. However, naming guardians for your children in your will alone is seriously risky, and doing so may even leave your kids vulnerable to being taken into the care of strangers if something happens to you. And this is true even if you’ve worked with another lawyer to create your will, because most lawyers haven’t studied and been trained on  what’s necessary for ensuring the well-being and care of minor children.

Fortunately, whether you’ve named guardians for your kids in your will or have yet to take any action at all, you’ve come to the right place. As your Personal Family Lawyer® firm, we have been trained by the author of the best-selling book, Wear Clean Underwear!: A Fast, Fun, Friendly, and Essential Guide to Legal Planning for Busy Parents, on legal planning for the unique needs of families with minor children. 

As a result of this training, we offer a comprehensive system known as the Kids Protection Plan®, which is included with every estate plan we prepare for families with young children. While you should meet with us to put the full Kids Protection Plan® in place as soon as possible, protecting your children is such a critical and urgent issue, we’ve created a totally free website, where you can get your plan started right now.

⇒ If you’ve yet to take any action at all, visit this 100% FREE website, where you can take the first steps to create legal documents naming long-term guardians for your children to ensure that should anything happen to you prior to creating your estate plan, your kids would be cared for by the people you would want in the way you would want. Get started here now: https://marsalalawfirm.kidsprotectionplan.com/

After you’ve completed those initial actions, schedule a Family Wealth Planning Session with us, so we can put the full Kids Protection Plan® in place, and determine if there is anything else your family might need to ensure the well-being and care of your children.

⇒ If you have already named long-term guardians in your will—either on your own or with a lawyer—we can review your existing legal documents to see whether you have made any of the six common mistakes that could leave your kids at risk. From there, we will revise your plan to ensure your children are fully protected.

4. Serve as a backup for a living trust: Because it can be difficult to transfer the legal title to every single one of your assets into a revocable living trust before your death, most trusts are combined with what’s known as a “pour-over” will. This type of will serves as a backup to a living trust, so all assets not held by the trust upon your death are transferred, or “poured,” into your trust through the probate process.

A Small—But Important—First Step

As you can see here, having a will in place only gives you a limited amount of power over the distribution of certain assets, but that doesn’t mean you should go without one. Without a will, you would have no say in who inherits your assets when you die, and everything you own could even go to the state.

But worse than that, your surviving loved ones will be the ones who have to clean up the mess you’ve left behind. And they will have to handle all of this while grieving your death. Instead, you should see your will as an important first step in the estate planning process—one that works best when integrated with a variety of other legal vehicles, such as trusts, powers of attorney, and advance healthcare directives.

Next week, in part two, we’ll detail all of the things that your will does not do, and then we’ll outline the different estate planning tools that you should have in place to make up for these potential blind spots in your estate plan. Until then, if you need to get your estate planning started or you would like us to review your existing estate plan (even one created by another lawyer) to see if you are missing anything, contact us, your Personal Family Lawyer®.  

This article is a service of Marsala Law Firm, Personal Family Lawyer®. We do not just draft documents; we ensure you make informed and empowered decisions about life and death, for yourself and the people you love. That’s why we offer a Family Wealth Planning Session™, during which you will get more financially organized than you’ve ever been before and make all the best choices for the people you love. You can begin by calling our office today to schedule a Family Wealth Planning Session and mention this article to find out how to get this $750 session at no charge.

If you have started to save for your child or grandchild’s college education, it’s worth considering whether to use a 529 plan, an education savings account, or an irrevocable trust. 

Last week, in part one of this series, we discussed 529 plans and education savings accounts, which are both popular options for saving for college education. One of the main reasons for their popularity is their tax-saving advantages. The money you contribute to a 529 account grows on a tax-deferred basis, and withdrawals are tax-free, provided they are used for qualified education expenses, such as tuition, room and board, and other education-related fees. 

That said, one of the downsides of 529 plans is that they come with strict limits on how you can use the funds (for education-related expenses only), and they also have a limited range of options for how you can invest your funds, primarily in various mutual funds. For these reasons, 529 plans and ESAs aren’t always the best fit for some families looking to save for their loved ones’ education.

Education Trusts

As we noted in part one, one alternative way to save for your offspring’s higher education is by using an irrevocable trust. Although there isn’t any income tax deferral on income earned by the assets held by these trusts, it is possible to structure a trust, so your beneficiaries could qualify for financial aid that they may otherwise be ineligible for with a 529 plan. Depending on your situation, qualifying for financial aid may prove even more valuable than savings on the income taxes owed on income earned by the trust.

Here in part two, we’ll further discuss how these trusts work and why they may be an attractive alternative to 529 plans, if you are looking to save for your loved ones’ education—whether that education is college or some other form of learning.

The Benefits Of Education Trusts

In addition to the issue of qualifying for financial aid, another benefit of such trusts is that you can not only save for a single child’s or grandchild’s education, you can also structure your trust to provide a pool of funds for the education of all family members. Moreover, when creating the trust, “education” can be broadly defined to include any type of learning institution or organization, such as trade schools, educational workshops, community colleges, and private academies, to name just a few options. 

Furthermore, you can provide that the trust can pay for alternative education, such as travel, retreats, business building programs, and other nontraditional educational experiences, which may prove even more valuable than college. Bottom line: when you set aside money to educate your family with an education trust, you get to decide exactly how your beneficiaries can use the funds by what is most in alignment with your family values. And as part of creating your education trust, we will work with you to create a written set of guidelines for the trustee, who will be the person making decisions regarding distributions to the beneficiaries. 

Trust Creation Options

In terms of how the trust is set up, you can create an education trust that is built into your revocable living trust or will, and as such, it would not get registered and funded until your death. Or you can create an education trust that exists and is funded during and throughout your lifetime. In either case, the disbursements from the trust are designated for a beneficiary or a pool of beneficiaries’ education.

While you can stipulate how and when the funds are to be distributed inside the terms of the trust agreement itself, we would almost always provide the trustee with broad distribution authority and discretion (to maximize the asset protection benefits of the trust), and create a separate writing to provide guidelines on distributions, and then give a trusted person, or group of people, the right to remove and replace the trustee with someone else should your first choice not work out for any reason.

If a single trust is established for multiple beneficiaries, you can require the assets to be distributed in a number of ways. You can stipulate that the funds are divided equally among the beneficiaries, disburse the funds in a set amount, by percentage, or you can leave the decision as to how much each beneficiary receives to the trustee’s discretion.   

Tax Implications

Education trusts typically aren’t set up as tax-saving vehicles, as is the case with a traditional 529 plan, which does provide tax savings. That said, as we noted earlier, 529 plans have much more restrictive rules for how their funds can be used. Moreover, you could save on taxes with a trust if it is drafted in a way that allows the trust’s income to be taxed at your beneficiary’s tax rate, which could be significantly lower than your personal tax rate.  

If you establish an irrevocable trust for education purposes, make sure you consider all of the tax impacts on income earned by the trust. For example, the trust would be taxed on income not distributed by year’s end, but you can have the trust drafted to pay out all income to the beneficiary or include other provisions that cause the trust to be taxed to the beneficiary (even if income is retained).

That income would be taxed at trust tax rates, which could be higher than the beneficiary’s rate—and possibly even higher than your personal tax rate—so it’s important you are clear about whether income should be distributed before year’s end for each year the trust earns income. 

If the education trust is irrevocable, meaning that the gift cannot be taken back, and the amount contributed each year is less than the annual gift tax exemption ($16,000 in 2022), then no gift-tax return is required to be filed. Conversely, if the gift to the trust exceeds that amount, then you will need to file a gift-tax return, reporting the gift and using up part of your lifetime exemption of $12.06 million if single and $24.12 million if married filing jointly.

Since there are so many variables involved and different ways to set up an education trust, it’s vital to reach out to us, your Personal Family Lawyer®, so we can walk you step-by-step through all of your options—and help you determine what’s best for your unique situation.

Potential Problems To Keep In Mind

One alternative to these plans (both 529 plans and education trusts) is to use money that has been saved for other purposes, such as funds you have saved for your retirement. However, it’s important to point out that using your retirement funds can affect your child’s eligibility for various need-based financial aid programs. To this end, retirement funds withdrawn to pay college expenses are reported on the Free Application for Federal Student Aid (FAFSA) as additional income.

Consequently, when using retirement funds, the expected family contribution used from FAFSA will be higher, which will therefore reduce your child’s chances of qualifying for financial assistance. Consult with us if you choose to tap into your retirement savings to fund college expenses, so we can ensure it’s done right and will have the maximum benefit for everyone involved.

Don’t Do-It-Yourself

To ensure you get the most benefit from your savings, don’t try to make these decisions on your own. As your Personal Family Lawyer®, we will work with you to determine the best way to set aside financial resources for the people you love, whether that’s using a 529 plan, an education trust, or some other option. Contact us today to learn more.

This article is a service of Marsala Law Firm, Personal Family Lawyer®. We do not just draft documents; we ensure you make informed and empowered decisions about life and death, for yourself and the people you love. That’s why we offer a Family Wealth Planning Session™, during which you will get more financially organized than you’ve ever been before and make all the best choices for the people you love. You can begin by calling our office today to schedule a Family Wealth Planning Session and mention this article to find out how to get this $750 session at no charge.

If you have started to save for your child or grandchild’s college education, it’s worth considering whether to use a 529 plan, an education savings account, or an Irrevocable Trust. 

Here’s what we think you should consider as you decide: 

First, consider whether you want your offspring to have broader options than just the traditional college experience. 

Since the start of the pandemic, college enrollments have declined by over one million students over the past two years, and with college tuition getting more and more expensive, many students are considering alternatives to the traditional higher education path.

Gap years, travel, trade programs, and online training are replacing the traditional college education path for many, and if you want that to be an option for your children or grandchildren, you should be aware that the traditional college savings plans may not be the right fit for your family.

Instead, consider whether it may make more sense to create an educational trust for your family, in which all of your children and grandchildren can benefit. More on that below in the section on education trusts.

Second, consider the financial aid consequences of how you are saving for college.

If you think your child or grandchild may need or want to qualify for financial aid, beyond student loans, the way you save for their education may significantly impact their ability to qualify. If your offspring will need financial assistance to pay for their education, it’s vital that the way in which you choose to save will not negatively impact their qualification for such assistance.

Third, consider the income tax consequences of how you are saving for college.

When you set aside money, unless you are saving for retirement in a qualified retirement plan, the income earned on that money is subject to income taxes. However, with various types of college savings plans, you can defer or avoid income taxes altogether. 

529 Plans & Education Savings Accounts (ESAs)

Since 1996, 529 plans, which are named for Section 529 of the Internal Revenue Code, have been one of the most popular options for covering college costs. Congress expanded these plans to cover K–12 education in 2017, and it also changed the program to pay up to $10,000 in student loan debt in 2019.

One reason 529 plans are so popular is due to their tax-saving advantages. The money you contribute to a 529 account grows on a tax-deferred basis, and withdrawals are tax-free, provided they are used for qualified education expenses, such as tuition, room and board, and other education-related fees. And many states also provide a tax deduction or credit for 529 contributions.

Another appealing feature of 529 plans is their relatively high contribution limits. There is no limit on how much you can contribute each year, although if you contribute more than $16,000 (the amount of the gift tax exemption limit  in 2022), you can trigger federal gift taxes and the requirement to file a gift tax return. If you plan to make a contribution close to or above $16,000, contact us for guidance.

Finally, with many 529 plans, you can set up an automatic transfer to add money directly from your bank account to your 529 account. Plus, many 529 plans allow automatic contributions as low as $25 per month.

Before you automatically save for your offspring’s future education using a 529 plan, keep in mind that to avoid paying taxes, plus a 10% penalty, the money must be used for eligible expenses only. Eligible expenses include tuition and fees, room and board, books, as well as  computers and other items if they are required for classwork.

If your child decides not to go to college, you will pay income taxes, plus the 10% penalty in order to withdraw the funds and use them for something else. The other downside to saving for your child’s education in a 529 plan is that your investment options may be significantly limited to only a small selection of mutual funds.  

Education Trusts

While 529 plans are quite popular, there is another way to save for your child or grandchild’s education through the use of an irrevocable trust. While there isn’t any income tax deferral on income earned by the assets held by these trusts, it is possible to structure a trust, so your beneficiaries could qualify for financial aid that they may otherwise be ineligible for with a 529 plan. If qualifying for financial aid would be even more valuable than savings on the income taxes owed on income earned by the trust, contact us to discuss setting up an educational trust for your family.

Next week, in part two, we’ll go into more detail about educational trusts. For now, take into consideration what matters most to you when it comes to saving for college: tax savings, financial aid considerations, or a variety of investment and education options. Then, contact us if you’d like to consider the educational trust option as part of your legal and financial decisions for the people you love.

This article is a service of Marsala, Personal Family Lawyer®. We do not just draft documents; we ensure you make informed and empowered decisions about life and death, for yourself and the people you love. That’s why we offer a Family Wealth Planning Session™, during which you will get more financially organized than you’ve ever been before and make all the best choices for the people you love. You can begin by calling our office today to schedule a Family Wealth Planning Session and mention this article to find out how to get this $750 session at no charge.