Benefits of a Trust

A trust is a contract, or a relationship, between the person who makes the trust (Grantor) and the person who manages the trust (Trustee).  These are often the same person, initially.  I make a trust (Grantor), and I manage the trust while I’m alive and competent (Trustee).  The Trustee manages the assets that are in the trust for the benefit of the beneficiaries, who are people the Grantor chooses to receive assets that are in the trust.  (I, as Trustee, manage assets in the trust such as investments, insurance, real property, etc., for the benefit of my children who are my chosen beneficiaries.)

Why have a trust?

The premier reason for a trust, in my opinion, is to maintain control from the grave.  For example, if you have assets such as a house and retirement plan, and if you have a minor-age child when you die, your child will inherit everything–value of your house, retirement, assets—when he or she turns 18.  It is likely that an 18 year-old person will mismanage (likely deplete) that amount of money.  If you had died with a trust, however, the trust could have reserved money for college, would distribute money at certain staggered intervals (my clients typically choose a portion distributed to the child at 25, then 30 and then 35).

Benefits of a trust

Beyond “control from the grave” for the benefit of children, however, are other important benefits to a trust.

  1. Trusts do not have airtight privacy control but, as private contracts, are typically private.  This is the opposite of probate and guardianship proceedings, which are both public matters.  With a trust, you can avoid both probate and guardianship.
  2. Avoid probate if you own property in other states (ancillary probate). For snowbirds and others who own homes and other property in another state, if the property is held by (deeded or titled to) a trust, then you do not have to have ancillary probate.  If you died owning a condo in Florida, you would have to hire a Florida attorney to probate your Florida property, unless the condo was held by the trust.
  3. A trust can serve as ‘contingent beneficiary.’ If you have a life insurance policy and name the trust as the beneficiary, then at your death the payout is to the trust which then manages that money according to the terms you set.  If the payout goes directly to a child, the money could be depleted, or attached by creditors (your child’s divorcing spouse, or a victim of car accident your child/beneficiary caused, etc.).
  4. Protect assets from surviving spouse. Assets in a trust are not part of a probate estate, which means that they are not subject to a surviving spouse’s right under law to elect against the will.  A trust reduces the chances that a surviving spouse can change the deceased’s estate plan after death, which can be important in blended families.
  5. Protect assets from creditors of Grantor’s estate. Assets in a trust are not part of a probate estate, and creditors generally cannot get to those assets.  If I died with creditors wanting to get to my estate’s assets, the creditors would not be able to get to assets in my trust.  Of course, there are some exceptions to this.
  6. Control the disposition of your assets. This benefit is similar to what I describe in the “Why Have a Trust?” paragraph above, but goes deeper.  You can determine the terms of the trust.  You can decide on whatever terms you want, except those terms that are against public policy (“nothing to my daughter if she marries someone outside of her race,” or “at my death dump the waste from my chemical company into the nearest river”).  Some terms my clients have chosen include distributions to a beneficiary with addiction issues conditioned on passing drug tests, certain incentive distributions for a beneficiary pursuing higher education or receiving certain grades, etc.  You can leave assets to a disabled beneficiary without jeopardizing that beneficiary’s government benefits (typically Medicaid and SSI).  You can provide funds for the down payment of beneficiary’s first house or a car upon graduating from college.  A trust can do most everything for a beneficiary that you would want to do if you were alive.

Trusts do cost substantially more than wills.  The cost of will plans is in the hundreds of dollars, where the cost of trust plans often starts at about $1,200.  However, probating an estate (with only a will) will likely cost more than having a trust plan prepared.

A trust is not for everyone.  I highly recommend trusts for people with minor age children, blended families, and for those who wish to maintain control over the disposition of their assets after they die.

To find out if a trust is for you, email me at julie@juliemillslaw.com.

Advertisements

Disabled loved ones? Avoid this inheritance mistake

A real-life fact pattern with a client was that Grandma and Grandpa wanted to provide something in their wills to provide for their two grandsons who are disabled.  They decided they were going to leave them the farm.  The thought was not that their grandsons would live on and run the farm, but that it would be sold after their deaths and the proceeds would go to their grandsons who were both disabled.  Grandma and Grandpa had very good intentions, particularly since just the land alone had a fair market value of close to $10,000 an acre.  Great, right?  No.

This blog post is for families that include a loved one with a disability.  It is for parents, certainly, but also for extended family who choose to provide a bequest (personal property) or devise (real property, such as house and land) for a disabled family member.  The good intentions of family members in leaving money or property to a person with a disability might do more harm than good.

First, it is almost never recommended to leave an inheritance to a person with a disability unless there is a special needs trust for that person in place (I include Ohio’s “wholly discretionary trust” when I use the term “special needs trust”).  People with disabilities often receive benefits such as Medicaid, or Social Security Income, that could be jeopardized.

Second, the need for such a trust to be in place is the subject of this blog post—the critical mistake I’ve encountered with clients is that they have a special needs trust plan, but it has a certain type of special needs trust that only takes effect at death, called a testamentary trust.  There are trusts that are in existence now and are not funded until death, but that is not a testamentary trust.  To the contrary, with a testamentary trust, the trust itself actually comes into existence at death.  (Most of the situations that I have seen involve testamentary “supplemental services” trusts.)  If testamentary special needs trusts are valid and enforceable, what is the problem?  The problem is the real-life scenario in the top paragraph.

The last of the Grandma-Grandpa unit dies and leaves the 10-acre farmhouse and farm to disabled grandsons “Johnny and Joey.”  However, Johnny and Joey’s parents are still alive, and have a testamentary supplemental services trust (special needs trust), where the special needs trust does not come into existence until Johnny and Joey’s parents die.  In this scenario, there is no special needs trust in existence now, when it is needed.

Except in rare circumstances, I prepare stand-alone special needs trusts that are in existence immediately after they are executed (signed and witnessed).  If the boys’ parents or grandparents had a trust prepared that was already in existence, Grandma and Grandpa’s inheritance could have been left to the boys’ trusts, as well as  inheritances from others.  Because parents might not be the only people who choose to leave an inheritance for a person with a disability, their testamentary special needs trust is not the recommended choice in special needs planning.

If you have questions or would like to begin estate planning with a disabled loved-one in mind, email me at julie@juliemillslaw.com.

When should I update my estate plan?

An estate plan consists of a last will and testament, possibly a trust, along with additional documents necessary for situations involving incapacity or death.  Additional documents can include a financial power of attorney, advance directives (living will for end-of-life decision making, and a healthcare power of attorney), and a funeral declaration, among other documents.

You should review your estate plan every five years to see that it still reflects your wishes.  However, if any of the following occur, then you should review your estate plan sooner:

Marriage: if you get married, or particularly if you get re-married, you need to review your estate plan.  If you are married and die without a will, state laws of “intestacy” (dying without a will) might not result in a distribution of your assets as you would want.  Furthermore, divorce and re-marriage do not automatically remove your ex-spouse from existing documents.

Children (birth, adoption or marriage):  the critical reason for reviewing an estate plan after you add a child to the family is to name a guardian who will care for your child should you (and your spouse, if married) die.  This is not a decision that should be left to a judge you do not know.  Another reason is to direct assets to provide for your child if you are gone.

Divorce: many states have laws that treat ex-spouses as having “predeceased” their divorced spouse in certain situations with some estate planning methods.  It is best to not assume that such a law will pertain to your documents. Part of your divorce or dissolution journey should include an estate plan that removes your ex from your documents.

Death of a spouse: if a spouse dies, you want to be certain that you have successors listed in estate planning documents, and you want to update deeds and titles to property.  For example, if you have a financial power of attorney and your spouse is the only person you named to serve as agent, you will need to update this document with the names of others.  If you owned property jointly with your spouse, you will need to remove your spouse’s name if you intend to convey that property (you’ll need to have a new deed prepared to your home).

Change in assets:  when you acquire assets, you should ensure that your estate plan addresses where those assets will go upon your death.  If you have 8 acres that your two children will inherit and plan to divide equally, and then acquire 5 more acres, who will inherit the 5 acres if you do not specify it in your estate plan?

Relocation:  most estate plan documents are valid in other states if you move, as long as the documents were executed properly in the state where you lived when they were prepared.  There are special considerations in some instances, however, when you move.  For example, if you move from a community property state to a common law property state, or vice versa, then you should definitely have your current estate plan reviewed by an attorney in your new state.  Additionally, bond might be required for out of state executors and others, so you might consider choosing in-state people to serve in these fiduciary roles.

Change in status of guardian, trustee or executor:  did the person you named as the guardian of your child die?  Move to Europe?  Become incapacitated?  The same consideration is valid for an executor or trustee.  If yes, consider reviewing your documents to remove them and replace with alternatives.  Perhaps after you named your cousin to serve as the guardian of your three children, she has had four children—would she be able to care for seven children?  After you named your brother to serve as guardian of your child, he started a career where he travels more than he is home—would that be a suitable situation for your child?

Your estate plan reflects your wishes for the way everything will be handled at your death, and designates certain people to carry out those wishes.  Both the plan, and the people designated in the plan, should be current.

Contact me at julie@juliemillslaw.com to discuss reviewing and updating your estate plan.

Divorce: Do you need an attorney?

Do you need an attorney when getting a divorce?

Because I’m an attorney, stating “yes” might make me appear self-serving.  The short answer to whether you need an attorney if you are getting a divorce is “it depends” (the classic attorney answer).   I’ll narrow my answer further: “yes” you should have an attorney unless a few factors apply to your marriage.

Divorce is an overwhelming time.  Whether you initiate the divorce, want the divorce or not, people are generally filled with anxiety and fear over the divorce process, finances and their future, with good reason.  Add to that worrying about children if you have them, and this time is the worst time to be handling your own divorce, or making major life changes and decisions on your own.  For these reasons, I believe that the majority of divorcing people should have a divorce attorney.  If children are involved, having an attorney is critical.

Before discussing why you should have a divorce attorney, I want to discuss situations when you might not need one.  After all, many people have gone through a divorce without an attorney.  These factors might make representing yourself more of an option:

  • There are no children of the marriage;
  • There is no real estate and few assets from the marriage; and
  • Your marriage was short (5 years or less).

Negate all of the listed factors above, if:

  • There are children of the marriage;
  • There is real estate, significant assets including retirement plans and pensions;
  • Your spouse has retained counsel; and
  • Your divorce is contested.

There are so many reasons you should have an attorney that are often overlooked.  One overlooked reason is taxes.  Taking the income of one household and splitting it in two has many tax implications and can be very complicated.  Another reason is identifying assets.  Finding and dividing assets equitably requires the experience of a lawyer, unless you know how to divide a pension via a QDRO.  Custody and child support also require the experience of an attorney.

If you do decide to hire an attorney, bring your last tax return and retirement plan documents to the first meeting.  Bring a list of your assets and liabilities.  Know what services the attorney’s fee covers, as many do not include deed preparation or QDRO preparation.  Have questions prepared.

Divorce is very stressful.  I recommend hiring an attorney unless you are certain, after reading the factors listed, that you do not need one.

If you want to discuss your divorce, please contact me at julie@juliemillslaw.com.

Probate: What is it?

“Probate” is a court-supervised legal process that happens after someone dies.  The purpose of probate is to make sure that the debts and taxes of the person who died are paid, if possible, and that the deceased’s assets are distributed according to how he or she intended.

  1. Assets: generally, only the assets belonging solely to the person who died are probated. Other assets can often be transferred outside of probate, such as real property held in survivorship (your deed will say “survivorship”), many assets with beneficiary designations such as retirement accounts and life insurance and assets held in a trust.   These are just a few items on a long list.
  2. What starts the probate process? You file the deceased person’s will with your local county probate court.  Then, a timeline begins ticking where you file certain documents within certain timeframes, creditors have a certain deadline by which they need to respond if the deceased had debts, etc.
  3. Do I need an attorney? It depends. If real property (house, land) is involved then hiring an attorney is highly recommended.  If there are few assets, no real property, then perhaps an attorney might not be necessary.  The attorney’s fees are paid by the estate.
  4. How long will the probate process take? It typically takes about nine months but can take longer if certain taxes are owed or if there is a will contest.
  5. What will I have to do as the Executor? File the will with the probate court, gather and safeguard the deceased’s assets, have assets appraised, pay final bills, and distribute assets.

Contact me if you need guidance or representation through the probate process at julie@juliemillslaw.com.

Buying a house? Do your homework

Buyers engage in due diligence when purchasing commercial property, but is it necessary in residential transactions?  Do you need to do your homework beyond the information provided to you before buying a house?  Yes.

For most of us, our homes are our biggest asset.  Before purchasing the most valuable asset most of us will own, we should engage in thorough due diligence because broker forms do not provide enough protection, the forms tend to favor the seller, and because real estate problems can affect properties of all values.   In fact, buyers of lower-valued property (versus high-value investors) might not be as able to absorb unexpected costs or legal issues associated with the real estate problems.

Suggestions to include in your due diligence as a buyer:

  • Search for title issues such as liens and easements, survey to check for boundary lines and encroachments.
  • Ask if you are subject to a homeowners association and, if yes, read the bylaws. What are the restrictions?  Can you have a shed out back, a fence, an RV or boat parked in your driveway for more than 48 hours?  What is the annual fee?  Are you limited to two pets (common restriction)?  If you have a family member with a disability, be aware that some HOA restrictions might be subject to federal law, such as a HOA might have to permit a fence even if bylaws prohibit having one.
  • Talk to neighbors. Is there unwanted noise from local businesses, such as being able to hear cars in a restaurant drive-thru?  Are there train tracks nearby?  Do plows remove snow quickly or is the street the last to be plowed?  Do areas flood after a lot of rain?
  • Search crime and sexual predator statistics for the area. There have been a few occasions where buyers have moved in only to be surprised to learn that a neighbor has to register as a sex offender.
  • Know laws and ordinances about running a business from home.  Will your neighbor have clients coming and going from his home?  If a neighbor owns, for example, a plumbing business, can he park his vehicle fleet in his driveway and up and down the road?  Can she erect business signage in her front yard?  These issues with running a business from home might affect whether you feel safe allowing your children to play outside, and all could affect your property value.

A home is likely your largest asset.  Make sure you know exactly what you are getting.

Happy National “Everything You Think Is Wrong” Day!

March 15th is National #EverythingYouThinkIsWrongDay.  Let’s celebrate by reading some things that many people believe, but are wrong:

  1. “Living together for 6 years means we are married.” No, at least not in Ohio.  Common law marriages in Ohio are recognized only if they occurred prior to October of 1991.
  2. “Contracts must be in writing.” Oral contracts are enforceable in many situations.  Exceptions exist, including most contracts for real property.
  3. “The United States Supreme Court has the final say of all laws in the U.S.” The U.S. Supreme Court is the final decider of federal laws and controversies involving federal law.  State supreme courts have the final say over state law.
  4. “I can’t be arrested for public intoxication if I’m on private property.” You can be standing on your front porch, beer in hand, and if you are creating a disturbance you can be arrested for public intoxication.
  5. “I don’t have a will.” You might not have prepared a will, but every state has a plan for your asses should you die without having prepared your own will.
  6. “I don’t need a will because my spouse will get everything anyway.” Not likely true if you had a child together, or you have children from a previous relationship.
  7. “My donations to a nonprofit are tax deductible.” In order for donations made to a nonprofit to be tax deductible to you, the nonprofit must have tax exempt status from the IRS.  Most commonly this is 501(c)(3) status.
  8. “If I’m arrested I’m entitled to one phone call.” This is partly true.  You have a right to one call to an attorney.  Generally the police allow an arrestee to call family or a friend but it is not a right.
  9. “The First Amendment protects your free speech from everyone.” This is a very common myth.  The First Amendment only protects your right free speech against the government, and even that protection has limitations.  People getting fired from a private employer for what they (employees) say is permissible, despite a hundred Facebook commenters lamenting that this person’s right to free speech has been violated.
  10. “If the house is in just my name, my spouse can’t get it if we divorce.”  Not true, typically.  Things acquired during the marriage are subject to equitable division and distribution.  And, equitable doesn’t mean equal, it means fair according to the judge.