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Enhancing Your Estate Planning: The Role of Your Trustee

The trustee you select when establishing a trust is a pivotal decision in your estate planning journey. In the case of a revocable living trust, which you create during your lifetime and can modify at will, you may initially act as the trustee, retaining full control over and benefit of the assets within it. However, have you considered what occurs if your health deteriorates or you find yourself incapacitated due to unforeseen circumstances? With today's increased life expectancies, the likelihood of facing health issues, such as dementia, in later years is on the rise. This can render managing your financial affairs impossible. Furthermore, planning for what transpires after your demise is equally crucial. Naming a successor trustee, as well as an alternate in case the first successor is unable or unwilling to serve, is essential. This ensures seamless management of the trust on your behalf in the event of your incapacity or passing.

Selecting a Trustee: A Matter of Trust

Certain qualities are essential when considering a trustee. Trustworthiness and responsibility are paramount, as are sound financial and investment decision-making abilities. The chosen trustee must also be dedicated to carrying out your wishes as expressed in your trust document. Depending on your circumstances, you may decide to have distinct trustees appointed for your incapacity and your passing. On the other hand, you might prefer the same trustee to serve in both situations.

Different Trustees for Different Scenarios

Incapacity:

During your lifetime, you are the primary beneficiary of your revocable living trust. In the event of incapacity, you may favor a family member, such as a spouse, child, or a close relative, to assume the role of trustee. Not only are they legally obliged to act in your best interests, but they also know you intimately, understand your needs, and are motivated by their love for you. They can ensure your affairs are managed in a manner that optimally benefits you. A family member serving as a trustee is entitled to reasonable compensation for their work, but they may forgo it. Importantly, because there typically are no other trust beneficiaries during your lifetime, the risk of the trustee displaying favoritism or partiality between beneficiaries is minimized.

It's advisable to consider naming the same person you've designated as your agent in a financial power of attorney to also serve as your trustee. While your trustee oversees the assets held in your trust, your agent under a financial power of attorney is generally authorized to manage non-trust assets, pay bills, enter into contracts, and engage in other financial transactions on your behalf. The person you appoint as your agent should meet the same criteria as those used in selecting a successor trustee: they should be honest, reliable, and capable.

At Your Passing:

After your demise, you are no longer the beneficiary of your trust; instead, your trust's beneficiaries, as designated in your trust document, receive distributions following your death. Naming your spouse or child as your successor trustee might prove challenging for them due to grief and distress. Additionally, family conflicts or disharmony can surface, especially if you have children from previous marriages or blended families. Appointing a professional trustee, a trusted friend, or a reliable business associate who can be relied on to act impartially can help avert family disputes.

The Same Trustee for Both Incapacity and Death:

Should the risk of family discord be minimal, you might choose to have the same person serve as your successor trustee during both your incapacity and following your death. This approach presents several benefits. It requires less preparation for either scenario as only one individual needs to familiarize themselves with your affairs. This approach ensures a smoother transition in the event of incapacity since the trustee is already in place, reducing stress.

We're Here to Help:

Determining your successor trustee is a pivotal decision in your estate planning process. We can provide guidance on whether to opt for the same trustee or different trustees in cases of incapacity or death, selecting multiple trustees, or appointing a professional trustee. Our goal is to assist you in reaching your objectives and minimizing potential conflicts within your family after your passing. Contact us today to schedule a consultation, allowing us to support you in making these vital decisions regarding your estate plan.

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Understanding the Contrast Between Transfer on Death and Payable on Death Designations

Incorporating payable-on-death (POD) or transfer-on-death (TOD) designations into your financial accounts can offer a convenient way to pass on your assets to chosen beneficiaries after your passing. Much like trusts, POD and TOD accounts bypass probate, offering a swift and cost-effective transfer process. However, these designations come with certain limitations when compared to traditional trusts. Delving into the differences between these options, their advantages and drawbacks, and seeking guidance from an estate planning attorney is essential for aligning them with your estate planning goals.

Differentiating POD and TOD (vs. Trusts)

The concepts of payable on death and transfer on death might evoke thoughts of somber subjects, but in estate planning, they are crucial terms to comprehend. When aiming to avoid probate—a time-consuming and expensive legal process for settling an estate—assets can be placed in trusts, which facilitate seamless transfers outside of probate. POD and TOD accounts offer an alternative means of evading probate:

Payable on Death (POD): A POD designation is linked to bank accounts like checking, savings, certificates of deposit (CDs), and money market accounts.

Transfer on Death (TOD): TOD pertains to investment accounts such as individual retirement accounts (IRAs), 401(k)s, brokerage accounts, and securities holdings.

Furthermore, while both POD and TOD designations transfer assets to beneficiaries, POD designations transfer assets to beneficiaries, while TOD designations transfer ownership of the account to beneficiaries.

While financial institutions may refer to POD accounts as Totten trusts, it's vital to distinguish that unlike a trust, POD and TOD accounts lack a trustee managing the assets. Instead, the assets directly transfer to beneficiaries. This means the transferred assets aren't shielded from beneficiary creditors or their financial choices.

POD and TOD: Benefits and Considerations

In jointly held accounts, POD or TOD designations activate only after both account holders pass away. For instance, in the case of spouses jointly owning a POD account, the surviving spouse assumes sole ownership upon the first spouse's death, with assets passing to named beneficiaries after the surviving spouse's passing.

The merits of POD and TOD accounts encompass:

Simplified Setup: Establishing these designations is straightforward and often free.

Expedited Transfers: Beneficiaries receive assets without waiting for probate, avoiding delays.

Immediate Access: Beneficiaries can access funds quickly with a death certificate and identification.

FDIC Insurance: Bank accounts enjoy FDIC insurance up to $250,000; multiple beneficiaries can provide additional coverage.

Flexibility: Designations can be altered or revoked, offering adaptability.

Power of Attorney: Durable power of attorney can be added, enabling a third party to manage the account.

Trust Compatibility: Trusts can also be designated as beneficiaries.

However, consider potential downsides:

Incapacity: POD or TOD designations don't cover incapacity situations.

Lack of Backup Beneficiaries: In case of predeceased beneficiaries, assets may be subject to probate.

Separate from Estate Plan: POD and TOD accounts exist outside your overall estate plan.

Limited Settlement Options: POD accounts can hinder estate settlement and payment of debts.

Selecting the Right Path for Your Estate Plan Crafting an estate plan is a personalized endeavor influenced by your values and family dynamics. When weighing options like POD, TOD, trusts, wills, or powers of attorney, it's imperative to consider each one's pros and cons. While converting accounts to POD or TOD may seem straightforward, additional factors like taxes and the best interests of heirs should guide your decision. Collaborating with an estate planning attorney offers valuable insights into integrating POD and TOD accounts within your overarching estate plan. Reach out to us today to commence your planning journey.

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Three Important Concerns Self-Employed Individuals Should Address in Estate Planning

Being self-employed comes with a unique set of challenges and responsibilities. As the owner and often the sole employee of your business, it's crucial to address key concerns to protect your financial future, safeguard your business endeavors, and limit personal liability. By working with an experienced estate planning team, you can develop a comprehensive plan tailored to your specific needs. Here are three important concerns that self-employed individuals should address in their estate planning:

Protecting Your Financial Future

As a self-employed individual, it's essential to take proactive steps to secure your financial future. This includes planning for retirement and obtaining the necessary insurance coverage. By working with a knowledgeable advisor team, you can explore retirement plan options and investment strategies that align with your goals and circumstances. Additionally, you can assess the types of insurance, such as disability, life, and business insurance, needed to protect your personal and professional life. An experienced advisor team will guide you in determining the appropriate coverage amounts to ensure comprehensive protection for yourself and your loved ones.

Safeguarding Your Business Endeavors

Given that your business activities likely support your financial needs, protecting your business is paramount. Collaboration with an experienced planning team can help address important considerations such as:

Continuity: What happens to your business if you become incapacitated? Can it continue without your direct involvement?

Retirement Planning: How will you fund your retirement? Will you need to sell a portion of your business or establish alternative income sources?

Succession Planning: What is the plan for your business when you decide to retire or pass away? How can you ensure a smooth transition of ownership and management? Working closely with estate planning professionals will enable you to develop strategies that safeguard your business endeavors and provide clarity for the future.

Limiting Personal Liability

As a self-employed individual, you face both business and personal liability risks. To minimize these risks, it's important to work with an experienced attorney and tax preparer to ensure your business is properly structured to limit personal liability. Adequate insurance coverage for both business and personal matters is crucial as well. Additionally, specialized trusts can be utilized to protect your assets and inheritance, ensuring they benefit your loved ones while minimizing the potential for diversion in case of unforeseen circumstances.

Addressing these three important concerns is vital for self-employed individuals seeking to protect their financial future, secure their business endeavors, and limit personal liability. Collaborating with an experienced estate planning team, including estate attorneys and advisors, will ensure a comprehensive plan tailored to your unique circumstances. By taking proactive steps and developing a strategic estate plan, you can alleviate the burden of uncertainty and enjoy peace of mind for yourself, your business, and your loved ones. Contact us today to schedule a meeting and embark on the journey toward a protected future.

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Want to Leave Your Retirement Account to Your Minor Child? Consider These Things First

When it comes to estate planning, one of the crucial aspects to consider is what will happen to your retirement account. Many individuals opt to name their children as beneficiaries of these accounts, assuming it will simplify the transfer of their wealth in the event of their passing. However, there are several factors that make this type of transfer more complex, especially when the designated beneficiary is a minor.

 Can a Minor Be Named as a Beneficiary?

 Certainly, you can name your minor child as the beneficiary of your retirement account or as a contingent beneficiary who would receive the account if the primary beneficiary predeceases you. However, if your child is a minor at the time of your passing and inherits the retirement account, a court might need to appoint a guardian or conservator to manage the funds on behalf of the child. This process can be time-consuming, expensive, and may result in the court appointing someone other than your preferred choice. To avoid this, it is advisable to proactively name a conservator or guardian for your minor child in your will.

 Under the Setting Every Community Up for Retirement Enhancement (SECURE) Act, most beneficiaries are required to receive the entire retirement account within ten years of the account owner's death. However, minor children of the account owner fall into a special category called eligible designated beneficiaries (EDBs). Their mandatory ten-year payout period does not begin until they turn twenty-one, meaning they must receive the full inherited retirement account by age thirty-one. During this time, they are obligated to take required minimum distributions (RMDs), which will typically be held in a protected account managed by their guardian or conservator, until they reach the age of majority in their state of residence (usually between eighteen and twenty-one years old). RMDs for EDBs are calculated based on the child's expected lifetime, and they must continue taking these distributions until the end of the calendar year in which they turn thirty-one, after which the retirement account must be fully distributed. It's important to note that the child will be subject to income taxes on any distributed amounts. This approach is generally favorable because the RMDs, up until the year the child turns thirty-one, can be made in smaller amounts due to the child's long life expectancy and lower tax bracket. However, the account must be emptied by the end of the calendar year in which the child turns thirty-one. Depending on the account size, this could mean the child receives a significant taxable income at a relatively young age. Additionally, one disadvantage of naming a minor child as the account beneficiary is that once they reach the age of majority, which could be as young as eighteen in some states, they will gain complete control over the funds and may choose to withdraw the entire balance immediately, regardless of their maturity level.

 Should You Name a Trust as the Beneficiary Instead?

 Another option to consider is creating a trust for your child and naming the trust as the beneficiary of your retirement account, with your child being the beneficiary of the trust. This approach can work for see-through trusts that meet specific criteria under the law, allowing the applicable trust beneficiaries to be treated as the beneficiary of your retirement account. There are two types of see-through trusts to consider: conduit trusts and accumulation trusts.

 Conduit Trust:

A conduit trust requires that all RMDs from the retirement account be distributed to the child or used for their benefit as soon as the trust receives them. The trust will provide asset protection and tax deferral for the remaining funds in the retirement account. Moreover, the trust's terms can ensure that once the child reaches the age of majority, they cannot immediately withdraw the entire remaining balance from the retirement account. The trustee may also have discretion to withdraw funds from the retirement account, in addition to the RMDs, which would then be distributed to or for the benefit of the child. However, these decisions regarding additional withdrawals would be made by the trustee, not the child. Although the remaining balance must still be fully distributed to the child by the end of the calendar year in which they turn thirty-one, a conduit trust offers asset protection, tax deferral, and additional time for the child to mature and learn responsible money management before receiving a potentially large sum.

 Accumulation Trust:

In contrast to a conduit trust, an accumulation trust grants the trustee discretion to decide whether to distribute the RMDs from the retirement account to the child or retain the funds in the trust. Consequently, the funds distributed from the retirement account to the trust can remain in the trust, potentially protected from claims by external creditors. An accumulation trust enables you to ensure that the funds are not distributed to your child earlier than necessary or desired, and that your child does not gain access to the entire amount in the retirement account as early as eighteen. However, the funds must still be fully withdrawn from the retirement account by the end of the calendar year in which your child turns thirty-one. Any funds retained by the trust instead of being distributed to the child will be subject to the higher tax rates applicable to trusts, rather than the likely lower rate applicable to your child.

 We Can Help

Each option has its own advantages and disadvantages, and the best choice for you and your child will depend on your specific circumstances and goals. The attorneys at Celaya Law can assist you in determining whether asset protection, tax minimization, or other objectives should be your priority. If you have already named your minor child as a beneficiary of your retirement account or established a trust as the beneficiary of your retirement plan for your children's benefit, it's crucial to review and update your beneficiary designations and trust as necessary. Recent changes in the rules governing these accounts can significantly impact the distribution timeline and may necessitate adjustments to your plan. Please contact us to schedule an appointment, and we will help you develop the best strategy for your retirement accounts and address any other estate planning concerns you may have.

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Estate Planning Tips for Single and Childless Individuals.

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Trusts and Lawsuit protection

Many people seek a Living Trust for a singular purpose: to protect their assets from a potential or pending lawsuit. The hope is that transferring assets from the person's name to that of the trust can block a creditor's ability to access them. This way of thinking is not totally correct.

 There are two forms in which a Living Trust can be written:  the first is as a Revocable Trust, and the second is as an Irrevocable Trust. Each produce distinct consequences in regards to asset protection as a result of a lawsuit.

 A Revocable Trust is one that can be revoked or revised in life, and it permits the original owner-- as trustee of the trust--to maintain total control over his or her assets, including the ability to sell them if desired. Since the owner continues to have this control not only over the assets, but over the dispositions of the trust holding them, the Revocable Trust provides little to no protection for these assets in the face of a lawsuit. While it can be considered a deterrent to creditors, it is a small one, and not advisable as a singular asset-protection tool.

 An Irrevocable Trust is one that cannot be revoked or revised. Its dispositions are firm and obligatory, eliminating completely the original owners control over the assets it holds. While this can provide a certain amount of protection from creditors (since the owner no longer controls the assets, but rather they are controlled and protected by the dispositions of the trust), it must be noted that a court has the power to revoke such a document created for the purpose of defrauding creditors. In other words, such a document will not be looked favorably upon by a judge if clearly created for the purpose of injuring a creditor's rightful claim to compensation. That coupled with the undesirability of losing control over one's assets also makes the Irrevocable Trust a poor asset-protection tool.

 Put succinctly, in the face of a potential or pending lawsuit it is not advisable to use a Living Trust as a primary asset-protection tool. There are other ways, however, to provide yourself with adequate protection. Here are a couple possible strategies:

  Having adequate     insurance

Setting up separate     business entities

Domestic Asset     Protection Trusts

Foreign Asset Protection     Trusts.

 For a more in depth discussion on these strategies, follow this link to a useful, WealthCounsel article: https://www.estateplanning.com/how-to-protect-yourself-from-lawsuits/

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How to choose a trustee FAQ's

Are you looking to start building your trust plan but have a few unanswered questions? We have answered a few general FAQ’s below that might help put your mind at ease a little about trustee’s.

Who should I choose as my trustee?

When you choose a trustee, you should consider first and foremost your trust in that person. They will be handling the administration of your estate to its respective inheritors--do you trust them to do this according to your instructions? Any person for which you can answer this question in the affirmative would be an appropriate choice. This person is typically a family member or a very close friend. It may be prudent to choose a beneficiary as trustee, as such may simplify the process and put the power of distribution in the hands of the beneficiaries. That being said, in many family situations it is wiser to place a third, uninterested party in that position. 

Take note that a trustee serves in a fiduciary role. This means that they are legally obligated to administer the trust according to the instructions written, and according to the best interest of the beneficiaries. Anyone who does not administer in such a manner can be held accountable before the court. 

What if you have children you aren't comfortable putting in that position, or what if they are still too young?

As mentioned above, a third party in the form of a trusted friend or family member can easily and effectively administer the trust to your beneficiaries without any interference on their part. 

What if I change my mind later?

Revocable living Trusts are just that--revocable. You as the grantor of your trust can choose to make changes at anytime during your life, including who your chosen successor trustee is. 

What if I want more than one person to serve?

One of the great benefits of a trust is the incredible amount of flexibility it offers to accommodate a nearly infinite amount of situations. In this case there are several options. You can—and should—build a list of succession. It is always important to have alternate successor trustees if your chosen trustee is unable or unwilling to act in their position. Building a list of succession allows you to include the names of more than one person, and provide for their intervention if required. You can also provide for more than one trustee to work together as co-successor trustees. 

How can I be sure my trustee will know what to do?

Although they are not required to do so, it is advisable that they seek assistance from an attorney. The process of administration can be complicated, and the failure to complete the often inconspicuous steps can lead to undesirable consequences for the beneficiaries. If possible, it is often a good idea to reconnect with the firm that originally drafted the trust. 

What should my successor trustee know now?

The most important things for your named Successor Trustee to know are first, that they have been named in that position; second, where they can access the trust when it is finally needed; and third, if applicable, the contact information of the firm that drafted the trust.

Let the trusted estate lawyers at Celaya Law help answer any additional questions you might have.

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Why Consider a Revocable Trust?

Sometimes even the most meticulous planners fall victim to unexpected circumstances. While a living will and trust can be an effective tool used to avoid probate, some people find themselves unable to keep these tools updated. With each large purchase, new family member, or boom in the family business, living wills and trusts need to adapt. A revocable trust can account for these inevitable changes in family/financial dynamic and help you and your family to avoid the lengthy process of probate. Yes, probate can still be necessary even if only a few of your assets are unaccounted for.

 One client we had here at Celaya Law had created their trust about five years before we met them and decided to refinance their home. The lender required the property be transferred out of their trust and into their individual name in order for the refinance to go through (some lenders require this) and the client forgot to transfer the property back into the trust. Unfortunately, the client passed away and the property had to go through probate because it was in the client’s individual name and not in their trust. We see this quite often as estate planning attorneys!

 Reach out now to an estate planning attorney at Celaya Law for help creating a revocable trust. We can make sure you don’t have to endure the problems of probate!