Elder Estate Planning

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Having an estate plan is important in order to control how your assets- including personal property, real estate, financial investments, bank accounts, and retirement accounts- will be distributed, to whom they will be distributed, and when they will be distributed. It is important to review and update an estate plan every few years, as circumstances and assets change over time. If you pass away without a will, trust, or other provision for the distribution of your assets, they will be distributed according to specific state law.

The foundational documents in an estate plan usually consist of wills and trusts. There are several different types of trusts that can be specialized according to your assets and wishes. Stone & Sallus LLP can assist in the individualized preparation of your estate plan.

What is a Will?

A will is a legal document that describes how the decedent’s assets will be distributed after death. To illustrate, a person may leave everything to his or her spouse, divide the estate equally among children, or leave specific items to individuals or charities. A person can change or revoke a will at any time, and should routinely review it to ensure it is still aligned with his or her intentions. Without a will, property is divided according to intestate succession rules under state law.

A will names an executor to carry out the wishes of the testator (deceased), who will also pay taxes, creditors, and distribute assets. Probate is the legal process that establishes the validity of the will and administers distribution of the assets. The probate process differs by state, and is often lengthy and expensive.

Individuals can create a “pour-over” will that is used in combination with a revocable living trust. Under the terms of a “pour-over” will, all property that passes through the will at your death is transferred to- or poured into- your trust. Then the trust assets are distributed to the trust beneficiaries that you named while you were alive.

What is a Trust?

There are several different types of trusts, each fulfilling a different purpose. A revocable living trust is an estate planning tool made during your lifetime that is used to determine how your assets will be distributed upon death, and the term “revocable” means that you can change the trust terms at any time as your circumstances or wishes change. The individual who forms the trust is known as the grantor, and can also serve as the trustee during life, controlling and managing the assets of the trust. The grantor transfers ownership of property and assets to the trust. The grantor also names a successor trustee to manage the trust for beneficiaries upon death or incapacity.

The grantor can specify what happens if he or she becomes mentally incapacitated during life, and can no longer manage affairs pertaining to the trust, at which time the successor trustee would take over.

Upon death of the grantor, the revocable trust becomes irrevocable because the grantor can no longer make changes to it, and the named successor trustee steps in to take over management and distribution of trust assets. The benefit of living trusts is that they do not go through the probate process, which means a faster distribution of assets.  

Other types of trusts include the following, which have estate tax implications.

  • Marital Trusts – can be established by one spouse for the benefit of the other. When the first spouse passes away, assets in the trust, along with any income the assets generate, are passed on to the surviving spouse.
  • Bypass Trusts- a type of irrevocable trust that transfers assets directly from one spouse to another at the time of the first spouse’s death. The surviving spouse, however, doesn’t hold the assets directly. The trustee manages them instead, which allows those assets to be excluded from the spouse’s estate.
  • Charitable Trusts- allows an individual to earmark certain assets for a specific charity.
  • Generation-Skipping Trust – allows an individual to pass assets to grandchildren (rather than children)
  • Life Insurance Trusts – an irrevocable trust that an individual designates specifically to hold life insurance proceeds. An individual designates the trust as the beneficiary of the life insurance policy, and upon death, the policy proceeds are paid into the trust.
  • Special Needs Trusts – designed to help financially provide for a special needs dependent – such as a child, sibling or parent – without compromising their ability to receive government benefits based on their disability.
  • Spendthrift Trusts- allows an individual to specify when and how principal trust assets can be accessed by the trust beneficiaries, which prevents them from being misused.
  • Testamentary Trust – established through a will, and once the individual passes away, the trust becomes irrevocable. This ensures the beneficiaries can only access the trust assets at a predetermined time.
  • Totten Trust – this is a payable-on-death account, which allows an individual to put money into a bank account. Upon death, the money is passed to the named beneficiary of the account.

Choosing the Right Estate Plan for You

Wills and trusts are both estate planning documents with the purpose of passing assets to beneficiaries upon death. There are distinctions between the two, that are worthy to note.

A will is typically easier and less expensive to prepare than a trust, and is oftentimes a good option for a person with small assets. However, wills are subject to probate, which is the legal process of validating a will and distributing assets. The probate process is very expensive and time-consuming. Court files are open to the public and the court.

A trust involves having a trust document written, property and assets transferred into the trust, and fees for managing the trust. However, a trust is a good option to avoid a potentially lengthy and contested probate process. For any property not included in a trust, a person can have a “pour-over” will, which details how to distribute that property. There are many types of trusts. Trusts can allow the grantor to provide a safeguard over an inheritance from creditors, and can administer assets for minor beneficiaries without court intervention. They may enable beneficiaries with disabilities to maintain needs-based governmental benefits. Trusts may also reduce estate taxes.

Probate Litigation

Probate litigation includes the contesting of documents based upon incapacity, undue influence, menace, forgery, and/or fraud of the individual signing the will or trust, disagreements about trustee or executor appointment, or disagreements about interpretations of will or trust documents. It can also involve contesting actions of fiduciaries – trustees pertaining to trusts, and executors pertaining to wills – for breach of fiduciary duties.

The individual bringing the probate action must have legal “standing,” which is the ability to bring a lawsuit in court based upon their connection to the action challenged.

No-contest clauses are provisions added in estate plans that attempt to deter disgruntled beneficiaries from challenging the estate if they are unhappy with the outcome. These provisions, governed by state laws, are aimed to decrease the amount of litigation surrounding will and/or trust contests. They penalize a beneficiary who contests the instrument in a court action, typically by revoking amounts otherwise passed to the beneficiary under the estate plan document.

In probate court, there are no jury trials. Judges are the decisionmakers in all disputes, and can exercise their discretion over matters according to state laws.

Some courts refer contested probate cases to mediation, wherein mediators (generally retired judges) act as a neutral third party to assist the parties involved in reaching a resolution. The goal of mediation is to reach a compromise prior to taking the case to trial. This reduces litigation-related costs, and allows the parties to come to an agreement. Mediation is not binding on the parties.