Estate planning is the process of creating a customized asset transfer strategy which contemplates all contingencies. Having a sound plan in place ahead of time can provide peace of mind now, and save your loved ones from heartache and aggravation down the road.
There are several commonly implemented estate planning strategies. Determining which one is appropriate for you normally begins with a conversation like the one above.
Estate Planning with Wills
- Who’s in charge? A will states who’ll be the executor – the person in charge of the estate. It can also state who’ll be the guardians for minor children, or who’ll be the trustees if there’s provisions within the will to create a trust upon a person’s death.
- Who gets what? A will states who’ll get the family heirloom broach, or the condo in Naples, Florida. It may also describe how anything else remaining, called the residuary, is left to St. Jude’s Children’s Research Hospital.
Estate Planning with Trusts
Trusts can be created and funded while you are alive, or they can be created by will. The can be revocable, meaning they can completely unwound, or irrevocable, where they’re permanent – but there are some exceptions for unwinding an irrevocable trust too.
Four Ways Trust Planning is Distinguished from Wills:
- Wills take effect only upon death – there’s no plan for a disability
- Wills have to go through probate to settle – trusts do not
- Wills are typically single-generation planning
- Wills do nothing to protect your assets from a nursing home situation
There are many types of trusts. Here are some examples of ones which I prepare regularly for clients:
Revocable Living Trusts – This is a common estate planning took used to avoid the expense and delay of putting a will through probate. In this case, the trust creator wears all three hats of Grantor, Trustee and Beneficiary. All of your assets are retitled into the name of the trust while you are alive. Upon your death, the trust acts as a will to distribute your assets. The successor trustee whom you have appointed takes on a similar role of an executor in carry out your final wishes. There is no court involvement to validate the trust, transfer power to the successor trustee, or distribute assets. There are more up-front expenses in the creation trusts, but to some people, when applying a costs-benefits analysis to probate with wills down the road (2 probates for married couples), they find the investment of time and money well worth it.
Irrevocable Trusts – This trust planning is appropriate for persons seeking to remove assets from their names individually, while still enjoying their use and benefits during their lifetime. There are a several reasons for doing so, including reducing assets for estate tax purposes, and for protecting assets from a nursing home situation. That is, without long-term care insurance or a plan in place, your asset are subject to a claim for nursing home payments if you suddenly had to enter into a nursing home. There are stringent guidelines and timeframes for such trust planning. And unlike revocable trusts, irrevocable trusts require different actors to satisfy each role – not just one person wearing all three hats.
Irrevocable Life Insurance Trusts – These are irrevocable trusts that own a person’s life insurance policy. These trusts remain virtually unfunded while their creator is alive. Upon the creator’s death, the trusts are funded with the death benefit from the creator’s life insurance policy. The trustee then administers the trust pursuant to the creator’s instructions.
Martials Trusts – This tax planning strategy by way of wills is useful for spouses to protect against the ever-changing landscape of estate tax exemptions. This strategy is also useful in Brady Bunch or blended family scenarios, where a parent with children from a previous relationship seeks to allow the surviving spouse to enjoy the use and benefit of an asset during her lifetime, and then to pass to his children upon the surviving spouse’s death.
Trusts for Minors – Children and grandchildren are often contemplated in estate plans. A custodial arrangement is necessary for a minor child to receive an inheritance. Guidelines may be established for the systematic distribution of assets either by age or by merit.
Special Needs Trusts – Trust assets may be isolated so that a beneficiary with special needs will remain eligible to receive government benefits.
Spendthrift Trusts – Beneficiaries sometimes need protection from themselves or from known creditors. A third-party trustee can insulate a beneficiary against creditor claims or impulse spending.
Pet Trusts – Leona Helmsley famously left $12 million to her dog, Trouble. Lesser heeled persons may also provide both short and long-term provisions for the custody and support of their pets.
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Conte Legal is one of the areas leading estate planning and elder law firms. With locations in both Westchester County and New York, we are accessible and connected to the community.