Estate Planning Updates

“Testate” Probate Versus “Intestate” Probate

Asset distribution is a central task of both “testate” probate and “intestate” probate. A testate probate is available when the decedent died having executed a valid last will and testament. Conversely, an “intestate” probate is the default when the decedent died without a valid last will and testament.

In most states, probate is required when someone dies leaving an asset or assets not titled to a trust or for which there is no surviving joint owner or no designated beneficiary. Consider such asset or assets “orphaned,” with no living owner. Consequently, probate is required in the state where the decedent was last a resident to find a new owner for any orphaned assets left behind.

How does “testate” probate work?

First, a petition is filed with the probate court, which reviews the last will and testament to ensure that it is the “last will” and testament and that it satisfies the particulars required under state law to be valid. Once accepted by the court, the court issues “letter testamentary” to the executor appointed under the last will. This document empowers the executor to begin paying just debts, taxes and expenses of the estate and, ultimately, to distribute and manage assets according to the terms of the last will.

Once filed with the probate court, the last will and testament and any related documents become part of the public record. Anyone can request and view these documents, including creditors, salespeople and even thieves. This is why vulnerable surviving spouses are contacted by third parties promoting their professional (and less that professional) services. Scammers also use court documents to identify potential victims.

Probate also requires the executor to notify people who are named in the last will, as well as lawful heirs not named in the last will. Each of these parties is also provided a copy of the last will. Consequently, state probate statutes provide for a period of time for disgruntled heirs to challenge the last will.

What happens if a person does not have a will, but they do have an estate?

Without a last will, “orphaned” assets still require probate before distribution. With no last will appointing an executor chosen by the decedent, the probate court appoints an estate administrator to fulfill that function. This person may be a professional administrator who never knew the decedent or the family of the decedent. There is no requirement for the probate court to appoint a family member to serve as the trust administrator.

The estate administrator follows the state laws of intestate succession.

The administrator of an “intestate” estate has the same responsibilities as the executor in a “testate” estate. However, since the decedent did not create a last will to provide instructions regarding the estate distribution, the intestate estate passes according to state law. In most states, this one-size-fits-all distribution formula is based on the degree of kinship to the decedent. If there is a surviving spouse and no children, then the spouse inherits everything. If there is a surviving spouse and children, then the spouse and children share the inheritance.

Failing to have a last will leaves the family open to many challenges.

Without a last will, the family has no control over how assets are distributed. A professional administrator will need to be paid for their services. If the estate is small, this will decrease any potential inheritance. A last will is also used to name guardians for minor children. Therefore, if there is no last will and no surviving spouse, minor children will be assigned a foster family until long-term placement can be made.

What if you want to avoid probate over your assets completely? Consider creating a fully-funded revocable living trust with a trustee of your own choosing to manage the trust assets privately and confidentially for your beneficiaries. An experienced estate planning attorney can help you select the right estate plan for your unique circumstances now and keep it up to date, since changes inevitably occur.

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Family Business Succession Checklist

Succession is one of the most vulnerable parts of a family business. Protecting a family business so it can survive the retirement, incapacity, or death from one generation of owners to the next requires advance planning for the business and family members.

How can a family protect itself and the family business?

Create and Document a Plan for Leadership Succession

Whether the owners are 34 or 74, a leadership succession plan is imperative. Car crashes and heart attacks can happen without advance warning. The more decisions that are made before a trigger event, the easier the transition will be. Roles and responsibilities should be clearly defined, and the document should be updated as often as needed.

Document and Memorialize Ownership

Informal agreements among family members do not survive litigation from inside or outside forces. Create a Buy-Sell Agreement between partners, or the owner and family members, for the near future or decades to come.

Establish the Type of Entity

What legal form should the business take? Should it be a Corporation, a Limited Liability Company, a Family Limited Partnership, or a Sole Proprietorship? It is important to have a clear understanding of the implications of the different types of entities and their impact on succession, taxation and estate planning.

Retirement Finances and Estate Plan

If the retirement of the owner will be funded by a large portion of the business equity, will the business have enough liquidity to continue operating? Planning for the financial transition years in advance gives all parties the best chance at a successful retirement and the continuation of a flourishing business.

Consider the Use of Trusts to Own Business Interests

Properly structured, trusts can eliminate the need for a court-appointed guardian or conservator and allow the named trustee to operate the business day to day, let alone maintain “good standing” with state and federal governments.

Knowledge Transfer and Process Documentation

A forensic accountant can untangle finances. However, knowledge of processes, vendors and clients needs to be documented and shared among senior officials. If only one person knows how things work, the enterprise is at grave risk. If the only person who has all of this information is a key employee and they leave, the family will be left to reverse engineer the entire business. They may not succeed.

Insurance. Business insurance is often viewed as too expensive, until it is needed. The increasing number of natural disasters and cyberattacks make insurance imperative for any kind of business. Local conditions need to be considered. If a location is near a waterway of any size, flood insurance could make the difference between closing down temporarily or permanently.

Estate Planning for All Shareholders

Family business estate plans are, by necessity, more complicated than a wage earner’s estate plan. If Family Member Partner A is married, will their spouse inherit their shares in the business upon the death of Partner A? What if Spouse A is disliked by other family members and they do not want to be in business with Spouse A? Or, what if Partner A divorces Spouse A, remarries and then dies shortly after remarriage to Spouse B—will Spouse B become an owner?

Conclusion

These are some of the issues addressed by a comprehensive business succession plan. Many owners avoid doing this completely, with the excuse that it is too time consuming. The real objection? A succession plan forces the family to confront business and emotional issues. If a business is to make a successful transition from one generation to the next, it does not occur by accident or luck, but by planning.

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The Importance of Regular Estate Plan Reviews

An estate plan needs to be reviewed on a regular basis to ensure compliance with changing laws, tax regulations and changes in your life and the lives of your loved ones. This is especially true when a major life event occurs happens, often referred to as a trigger event.

What Provisions are Commonly Changed in an Estate Plan Review?

The last five years have seen many changes in tax and estate law. Strategies used in the 1990s may no longer be as advantageous as when they were created. Some methods used to minimize taxes may no longer be needed. Without regular reviews, estate plans can become outdated and ineffective.

Changes to Trusts and Beneficiaries

Few people go through life with the same cadre of friends and colleagues at age 50, as they did during their thirties. For example, close friends when your children were minors and your business was small often change over time. If an estate plan is not reviewed on a regular basis, friends, former partners, or former friends may still have key roles as trustees or executors. If the relationships ended long ago, then an out-of-date estate plan can lead to complications and, in some cases, litigation.

Relationships within the family change as well. If a child marries a person who is not trustworthy, or a child has developed a substance addiction, trusts can be used to control how and when wealth is inherited. Sometimes it is essential to protect the inheritance for and perhaps from a child.

Other Changes Pointing to Review

Financial changes, for better or worse, require a review of an estate plan. The change may be dramatic, like a one-time sale of a business or a windfall inheritance, or something occurring over time, like a steady decrease in personal wealth due to long-term care costs. In either case, the estate plan needs to be reviewed to ensure that it still works. Your financial advisor and accountant are key resources.

How Long Does It Take to Do an Estate Plan Review?

If an estate plan is fairly simple, with a couple owning a primary residence, retirement accounts and having a few adult children, the review process may be straightforward and require only minor updates. However, when there are children from multiple marriages, significant assets or a family owned business, the process may take longer. Like anything else, the actual answer is it depends.

Health Issues and Reviewing an Estate Plan

Receiving a diagnosis of a serious or terminal illness, when death changes from an abstract event to a reality, is the time to review all estate planning documents. Is the advance health care directive, HIPAA Authorization, general durable power of attorney, last will and revocable living trust all ship-shape? Are the right people named to serve as your decision-makers for health and financial matters? This is also the time to speak with family members about their assigned roles and expectations.

There is no legal requirement for estate plans to be reviewed on a regular basis. However, failing to do so can unnecessarily put surviving spouses and family members in demanding situations. Every two years or whenever there is a substantial change in life or in law, an estate plan should be reviewed.

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The Benefits of Beneficiaries

What is a Beneficiary?

Just like the word itself suggests, a “beneficiary” is a person or entity receiving the benefit of an asset. A beneficiary can be a spouse, child, grandchild or really anyone. In addition, a beneficiary does not need to be flesh-and-blood. For example, your favorite charity can be a beneficiary. One beneficiary everyone wants to avoid, however, is the IRS!

How is a Beneficiary Created?

A beneficiary is designated when the person or legal entity is named in a legal document to inherit specific assets or assets, generally upon the death of the owner. These legal documents are commonly a last will and testament or a revocable living trust. Assets can alternatively pass directly independent of any such legal documents. Certain assets pass by contract through beneficiary designations, like those provided for life insurance death benefits or the proceeds from a retirement plan like a 401(k), 403(b), or IRA. The non-probate transfer laws of many states allow assets to pass directly to a beneficiary by a designation applied to the asset itself, whether pay on death or transfer on death. Other assets pass by operation of law to a beneficiary, like when a joint owner of an asset dies and there is a surviving joint owner.

Who Can Be a Beneficiary?

Minors may not be direct beneficiaries. If the intention is to provide financial support for the minor, an “inheritance trust” can be created to administer and distribute trust assets for the benefit of the minor child. The terms of the trust can be tailored to meet the objectives of the trust creator (i.e., owner of the trust assets) and the needs of the beneficiary. Whether the inheritance trust is created under a last will (known as a “testamentary trust) or under a revocable living trust, a trustee will follow the trust instructions and ensure that the terms of the trust are followed.

Every asset passing by contract should have both a primary and contingent beneficiary. If the primary beneficiary dies before the owner, the contingent beneficiary receives the asset on the owner’s death. Identify beneficiaries as clearly as possible, using proper legal names and Social Security numbers. Problems occur when the identity is unclear, for instance when multiple people in a family have the same or similar names.

Why Updating Beneficiaries is as Important as Updating Estate Plan

When an asset is arranged to pass by contract, operation of law, or by non-probate transfer laws, the beneficiary arrangements supersede the control of the owner’s last will or revocable living trust, unless the last will or revocable living trust is itself the beneficiary. Consequently, when the asset owner fails to update the beneficiary arrangement, unintended consequences then follow. This can lead to litigation and even family feuds lasting for generations. Beneficiary arrangements must be updated to avoid this problem, especially when there are births, deaths, marriages and divorces in the family.

What Happens When No Beneficiary is Named?

When an asset has no beneficiary designated or there is no surviving beneficiary, then the asset becomes subject to probate. If there is no last will directing disposition of any assets subject to probate, then decedent owner has died intestate. As a result, the probate court applies the state laws of intestate succession to determine the beneficiary or beneficiaries of such assets. These laws apply by default and presume that people want to leave assets to their relatives based on how closely they are related. However, this is not always what the decedent would have wanted.

If no beneficiary is named for a retirement plan or life insurance policy, the custodian may have a process for assigning a “default” beneficiary, who may not be the person you want.

There may be further tax consequences if no beneficiary is named on tax-deferred retirement accounts.

Family Members with Special Needs Should Not Be Direct Beneficiaries

Means-tested public benefits are subject to strict asset limitations to become or remain eligible. Family members who are receiving or may become eligible to receive them such benefits may not own or have access to assets exceeding those eligibility limits. To preserve access to benefits and to enjoy the benefits of an inheritance, a special needs trust is required to administer the inheritance of the beneficiary with special needs.

The Benefits of Beneficiaries Require Care and Planning

Failing to maintain beneficiary designations is one of the most common and most easily avoided errors in estate planning. Once an inventory of accounts and assets has been created, an annual update is simple and quick.

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Multiple Marriages and Blended Families Create Unique Situations

Planning for incapacity and death in a blended family requires a more complex approach than for traditional families. By its very nature, the blended family has more fault lines. As parents and stepparents age, planning needs to take this fact of modern life into consideration.

Clarifying Roles and Making Decisions About Responsibilities

Roles and responsibilities should ideally be assigned in advance, based on skills and availability. This is not the time to make up for past slights. All of the stepsiblings should be considered in light of their abilities to manage finances, follow instructions for health care decisions and communicate with all step-siblings. Dividing along biological lines may not be the right solution. This needs to be discussed and resolved.

Someone needs to be appointed as the primary decision-maker (known as an agent or attorney in fact) under a health care power of attorney (or proxy) and a financial power of attorney. If a revocable living trust is created, someone will be named to serve as a trustee. Commonly, the person appointed as trustee also serves as an executor under a last will and testament. All children need to know what their tasks require and who has been chosen for which role. Appointing successors for each of these roles is a smart and practical move.

Incapacity Can Be More Challenging than Death

If one spouse becomes incapacitated, usually the well spouse steps in to make medical decisions, manage finances, provide care for the spouse and run the household. If the relationship with stepchildren is good, the well spouse may be able to continue as the primary family contact.

Unfortunately, in many cases, the family dynamic deteriorates when one parent becomes incapacitated. The well spouse may attempt to limit access of children to visit their ailing parent, claiming their parent is not well enough to see them. Assets may be moved to hide them from biological children. If Medicaid planning is done without any involvement from the children, it may appear that assets are being secreted away. Communication between aging parents and stepsiblings needs to address these issues in advance, especially if there are issues within the family.

Managing Expectations for Inheritances

To avoid children being disinherited, trusts can be structured to distribute wealth in a deliberate manner. One strategy is to place assets in a trust for the surviving spouse, so when the second spouse passes, assets will be transferred either to an individual trust for each of the stepsiblings or directly to the stepsiblings as beneficiaries. If all assets from the first spouse pass to the surviving spouse, there is no means of protecting the assets for the biological children of the first spouse and litigation may ensue.

Family Meetings with Professional Advisors

To avoid the potential issues as described above, a series of family meetings where all parents and all stepsiblings are present should be scheduled. Video meetings make it possible to include everyone, regardless of where they live. Incapacity planning, finances, end of life wishes and even funeral arrangements should all be discussed. Expectations should be set for inheritances at this time—it is best for stepsiblings to know what the future holds to eliminate surprises.

Distributing Personal Items to Prevent Family Fights

The biggest fights are often over sentimental items with the least value. To preclude post-mortem quarrels at a time when emotions are running high, a written memorandum disposing of tangible personal property (whether a ceramic frog collection or an heirloom Civil War sword) can be written to clarify which items should pass to which child. The laws of most states provide for this approach, especially when the memorandum is incorporated by reference in a last will and testament. Explaining the decisions may be helpful to keep arguments at a minimum. Alternatively, some parents give sentimental items away while they are living, gifting with warm hands. Both the giver and the recipient can share the sense of passing family belongings to the next generation.

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Special Planning Considerations for Alzheimer’s and Dementia

If you receive an Alzheimer’s or dementia diagnosis, planning for the future must begin as soon as possible.

Preparing for incapacity must be done while you still have legal capacity: the ability to express your own wishes and understand the implications of documents that are created to enforce and protect them. Once you become incapacitated, you may not sign legal documents. In the absence of proper incapacity legal planning in advance, a court process will then be required to appoint financial and health care decision-makers for you. This process can be lengthy and expensive. It also will expose your private personal, health and financial circumstances to the public record.

What Documents are Needed for a Person with Dementia?

Through a general durable power of attorney (POA) you can appoint a trusted individual as the agent (also known as the attorney in fact) to manage your financial and legal matters. While a POA can give limited powers, in cases of Alzheimer’s or dementia, broader powers should be given to the agent. Why? Your appointed will most likely need such authority to conduct all and any financial and legal matters on your behalf. A complete list of all assets, including bank accounts, pension and retirement plans, investment accounts, real property and digital assets should be created and provided to the agent appointed under your POA.

If you have executed a last will and testament, then it should be reviewed without delay. Make sure that it still reflects your wishes, especially when it comes to the executor you have appointed and to the distributions you want made to your beneficiaries. If you have any minor children, you should also make sure that the guardians you have nominated are still willing to serve.

What Healthcare-Focused Documents Should Be Prepared?

While executing your POA, remember to execute a healthcare power of attorney as the agent. In some states, this document is also known as a health care proxy. The individual who you appoint as the agent will be authorized to make your fundamental health care decisions if you are incapacitated. The same individual is sometimes appointed to serve as agent for financial and health care decisions. However, this is not always the case. Each situation is different. You know the strengths (and weaknesses) of the pool of candidates for these important roles.

A living will, also known as an advance health care directive, documents your wishes when it comes to end-of-life care. It must address some hard questions concerning medical treatment: do you want your life extended through any artificial means? Would you want to donate your brain or other organs for scientific research?

You should execute a HIPAA release form, so doctors and attorneys may speak with your financial and health care agents, family members and caregivers as issues arise. In addition, those you authorize will also be able to obtain access to your medical records. This access is essential and is very practical for uses ranging from obtaining second opinions to pursuing potential malpractice claims. The HIPPA release form is also needed to interface with the health insurance provider. The right to speak with medical providers based on being a spouse or descendent should not be assumed.

Trusts are Commonly Used to Manage Assets for Incapacity Planning

You can create a fully-funded revocable living trust to address the management of your assets while you are living and to distribute your assets postmortem according to your instructions. As long as you have capacity, you are in charge as the original trust and beneficiary. You can even make any changes you desire. Upon your incapacity, the trust becomes irrevocable and continues to provide for you. Only upon your death does your trust become irrevocable, since it carries out your distribution instructions. The successor trustee you appoint can be the same person appointed as the agent under your POA, the executor under your last will and even your health care agent.

Planning for Final Arrangements

It is wise to discuss whether you want to be buried or cremated. You should also provide guidance regarding what, if any, kind of funeral service you would like and any other related arrangements. The more decisions you can make now, the fewer your loved ones will need to decide later on when grieving your loss.

Incapacity Planning for Alzheimer’s or Dementia

Planning for incapacity can be part of the process of coming to terms with an Alzheimer’s or dementia diagnosis, both for you and your loved ones. Memorializing your wishes helps keep you in control of the process, since your wishes are expressed and documented. You and your loved ones will be empowered to move forward with a plan in place.

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Choosing and Preparing Guardians

It may be the most dreaded thing for parents to contemplate. Who would raise their children, if both parents died?

The most important advice: if you do not have a last will nominating a guardian for your minor children, get it done immediately. Without a last will, the court will decide who will raise your children. Family members are not always selected, and the children find themselves in foster care, if a custody battle between family members erupts.

Who is Best Suited to be Guardian?

A knee-jerk reaction is to name grandparents. However, this is usually not realistic. Will they be able to care for active young children—or live long enough to see them through adolescence?

Good candidates are often siblings or close friends who are parents with shared values. It would be ideal to have the children remain in familiar surroundings. However, if this is not possible, then a loving home with adults who can provide stability and support is better than a second choice in your hometown.

Have a successor guardian and even a third alternate successor nominated in your last will. If your first choice is unwilling or unable to serve, having a second and third choice avoids having the court make the decision.

The Guardian and the Fiduciary

While the guardian provides custodial care, the fiduciary oversees the inheritance of your minor children. In some cases, one person (or a couple) can serve in both roles. However, this is not always the case. Someone who is an excellent caregiver with poor financial skills will do better with the support of a separately appointed fiduciary. Be certain that both individuals can work together.

What is the Fiduciary Responsible for?

A fiduciary is required by law to put the needs of beneficiaries above their own. Parents who own their homes and have one or more life insurance policies need a fiduciary who can manage several hundred thousand or even a million dollars over a period of two or three decades, depending on the age of the children.

While children are legally permitted to inherit wealth when they come of age, most 18-year-olds are not ready. Because many newly minted young adults do not have the financial experience and maturity to inherit in a single lump sum, trusts are often created to control the inheritance, until they are old enough to manage a significant amount of money. Some parents choose to stage distribution of the inheritance in fractional shares upon attaining certain ages. For example, they may have one-third distributed at age 25, then one-half at age 30, and the balance at age 35. In addition, trusts can also include “incentives” to encourage positive behaviors, like graduation from vocational training or college.

What Happens to the Family Home?

If the plan is to have guardians live in the family home with the minor children, the home could be held in trust for the benefit of the children. Will it be sold or kept in the family? Either way, a plan for maintaining the home and its eventual disposition can also be included in your last will.

How Can You Instruct the Guardian and the Fiduciary?

Documents should be created to address the family’s unique circumstances, with as much detail as possible. In addition to a last will and trusts, write a “letter of instruction” to the guardian to explain the personalities, preferred foods, best friends, bedtime habits, etc., of your minor children. You can revise this letter from time to time, as appropriate.

Final Words

Most parents live long enough to see their children grow up and have children of their own. However, bad things do happen. Having an estate plan to prepare for the worst-case scenario does not make it more or less likely to occur. However, it can help you protect everyone you love and everything you have.

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How to Protect Your Minor Children

The need to protect each minor child begins the moment he or she is welcomed into the family. Planning for the future of your minor child is an essential responsibility that only you can exercise. Without an estate plan, the entire life of your orphaned minor child would be turned upside down. It will be filled with probate court proceedings, lawyers and a traumatic life enmeshed in court proceedings regarding guardianship and finances.

Who will raise your children? Name a guardian in your last will.

If the parents do not have a last will and do not nominate a guardian, the court will decide who will raise the children. In that case, a favorite grandparent, aunt or uncle is not an automatic choice. Anyone can apply to be a guardian and the court will decide. In the case of a divorce, the court may or may not name the ex-spouse, depending upon the circumstances.

A last will is an easy way for parents to identify their preferred guardian for their children.

Deciding who should be their guardian.

The guardian should share your family’s values and views on raising children. If possible, it would be ideal if they could care for the children without needing to move to a new school district or community. If the house is left to the guardian, this is more likely to occur. Grandparents are not always physically able to care for or keep up with active young children. Therefore, it is important to be realistic about the age and lifestyle of any guardian candidate when making this decision.

How to protect the minor child’s inheritance?

A second person who is financially sophisticated and trustworthy may be named to oversee the child’s finances. The life insurance proceeds left by parents often total hundreds of thousands of dollars. There will also likely be retirement accounts and additional monies, if the family home is sold.

Nominating one person to be the guardian and the financial guardian could make caring for the child easier. However, if there is no one person suited to both tasks, then two individuals may be needed. Try to select people who will be able to work together for the benefit of the child for an extended period of time.

Specify how the funds are to be used while the child is a minor and consider how much discretion you want to give to the financial fiduciary. If there is enough money, set aside a certain percentage for college.

Unless you want your child to receive a full inheritance upon reaching legal adulthood (age 18 in most states), a trust can be used to hold assets and distribute them at certain ages or milestones.

How can you try to make the child’s life a little easier?

A letter of instructions will help your child and their guardian. It will not be legally binding, but would be valuable in its own right. Include your wishes for your child and their future, as well as day-to-day details about their preferences for food, activities, bedtime rituals and religious upbringing. Revise the letter on the child’s birthday to keep it up to date. Share the letter with their potential guardian, unless you see their potential guardian on a regular basis, and they know your child very well.

These are difficult issues to consider when creating your estate plan, but tackling them will provide a better future for your minor child, if tragedy strikes.

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Fundamentals of Probate, Trusts and Estate Administration

The ultimate goal of estate planning is to distribute property and minimize tax liability. How these goals are accomplished depends upon many different factors: estate size, types of property owned, the state of residence and the number of heirs, to name but a few.

Probate and Non-Probate Assets

When the person uses a last will and testament, they are planning on their estate to pass through probate, a court-supervised process. This process begins with the validation of the will by the court and the court’s approval of the executor nominated in the will. There are court fees, and court appearances are usually required.

The executor is in charge of managing the estate. Some of the tasks include creating an inventory of assets and liabilities, filing the decedent’s last tax return, obtaining an EIN for the estate, filing the estate tax return, paying creditors, distributing assets, securing the home and notifying heirs of the decedent’s death.

During the process of probate, the will becomes part of the public record. Anyone, from disgruntled relatives to creditors and thieves, may view the will’s contents and inventory.

Probate is often confused with estate administration. Even if most or all assets have been taken out of the estate to avoid probate, there are still some administrative tasks, including filing the decedent’s last tax returns for state and federal taxes and, if necessary, filing an estate tax return.

Depending upon the jurisdiction and the complexity of the estate, probate may take a few months or several years.

What is Trust Administration?

Many people chose to place their assets in trusts to avoid having their estate pass through probate and exposure to the public record. Trust administration refers to the actions taken by the trustee: the person appointed in the trust to be in charge of managing assets. If the trust was created to distribute assets after death, the trustee follows instructions for property distribution to beneficiaries. Trust administration responsibilities vary greatly. One trust might instruct the trustee to make sure beneficiaries reach certain milestones before receiving all or part of their inheritance. Another trust may direct a percentage of the inheritance to be released at certain ages. Still other trusts continue to administer the inheritance for multiple generations.

Trusts are preferred by many because of privacy. Information about assets is solely between the trustee and the beneficiary. No information appears in the public record and the court is not involved. The use of trusts may minimize the likelihood of lawsuits brought by heirs and creditors.

Trusts are also used in cases where incapacity is a concern, although they must be created before the person becomes incapacitated. They can also be used to minimize elder financial abuse, since the only person who can access the trust is the trustee.

Some Assets Pass Through Beneficiary Designations

Even without a trust, many assets do not pass through probate. Accounts with beneficiary designations, including pensions, retirement accounts, insurance policies and financial accounts with TOD ownership, (Transfer on Death), joint bank accounts and any account bearing a beneficiary designation are transferred directly to the beneficiary, after proof of death and identity has been accepted by the financial institution.

Whether passed through probate, trusts, or beneficiary designations, a well-organized estate plan and communications between the appropriate family members will make the process of distributing assets post-mortem an easier process.

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What Happens if You Neglect to Fund a Trust?

If a trust is not funded, the assets intended to be protected and directed by the trust enjoy none of the benefits intended by the estate plan. The assets instead become part of the probate estate, as if the trust was never created.

How Is a Trust Supposed to Work?

A trust is a legal entity created to serve several functions. A “funded” trust allows assets to be passed directly without probate and determines how and when the assets will be distributed for its intended beneficiaries. Some trusts are simple, created solely to pass a single piece of property to an heir. Others are extremely complex, controlling assets for multiple generations.

The grantor (also known as the trustmaker, trustor, or settlor) is the person who establishes the trust. The beneficiary is the person who receives the trust income and may even receive its principal. The trustee is the person, persons, or institution appointed to control and manage the trust for the beneficiaries.

The Unfunded Trust Owns Nothing, Therefore It Serves No Purpose.

In some cases, the estate will pay significant estate taxes as the result of an unfunded trust. Court costs will be incurred, as the asset goes through probate, shrinking the estate. Heirs will find their inheritance diminished, and the time to receive assets may increase from a few weeks to a few years.

What Has to Happen to Fund the Trust?

Funding the trust requires front-end paperwork done now to avoid back-end administration later at the most inopportune time – incapacity or death. It takes time, dedication and often, persistence. The trust is funded when assets are retitled: the named owner of record for each asset must be the trust itself and no longer the name of the grantor as an individual.

For example, home ownership is documented by a deed or a title. John Doe, the owner of the home, must sign a deed transferring his ownership to his trust from “John Doe, a single person” to “John Doe, Trustee of the John Doe Trust.” The same goes for investment accounts and other assets. Expect financial institutions, whether investment firms or life insurance companies, to have their own required “in-house” forms, when retitling these assets.

Complex assets require more effort. Promissory notes, business ownership (shares in a closely-held private business) and intellectual property are examples of assets needing professional assistance for retitling. If there is real estate owned in multiple states, properly retitling the real estate to a trust may avoid otherwise necessary “ancillary” probate in each state where real estate is owned. Multi-state probate is an expensive and time-consuming process.

The Successful Estate Plan Includes Completely Funded Trusts

A comprehensive estate plan often includes a last will and testament, general durable power of attorney, medical power of attorney, advance directive and various types of trusts. If there is no last will, assets without a surviving joint owner or designated beneficiary are distributed pursuant to the provisions of the state’s law of intestacy. If there is a last will but the trusts have not been funded, the entire estate will be subject to probate.

Many people find retitling assets a tedious undertaking, and neglect it. Others procrastinate until it is too late. Retitling assets is the final task of completing an estate plan, and is too important to skip.

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