Attorney & Mediator
Attorney & Mediator

Linda Wasielewski

Estate Planning and Administration: You have been appointed as Successor Trustee, what are your duties?

 

When it comes to revocable trusts, the grantor (mom or dad) often nominates a family member to succeed him or her as trustee (son or daughter).  Ordinarily, a family member (child) will say “yes” to this request and think nothing about it until the time comes to act.

If you are the successor trustee while mom and/or dad is still alive and incapacitated, there are some very important issues to consider and remember.

There is a tendency to treat the matter casually.  After all, this is just mom or dad, and you are just writing checks for them, right?  Wrong.  When you take on the duties of being a trustee, you are a fiduciary in the same sense that a bank is for you.  This means detailed record keeping, to the penny.

Never transfer money from the trust into your own personal account.  Write checks directly from the trust account to the creditors or vendors.  Keep track on a leger as to what the expenditures are for, and save the receipts.  While this seems unnecessarily complicated, it won’t down the line if someone challenges your expenditures of mom or dad’s money.

Save all of the paperwork, either in paper form or as PDFs.  Do not rely upon electronic bank statements as those are removed after a period of time from the account.  Financial institutions only have those transactions on-line for 6 months to a year.  After that, you will have to pay to have the items reproduced.

When purchasing items for mom or dad, do not mix their items in with your own at the store.  Have their items rung up separately so there is a separate receipt.  Using a check or credit card is best.  Don’t use cash.  You want to make a paper trail that shows all expenditures.

Do not “loan” yourself money out of the trust account.  This is true even if in prior years when they were not incapacitated, mom or dad advanced/loaned you money regularly.  You are now acting as the bank, not the son or daughter.

If you do not understand what it is that you are supposed to do, get help.  Call an attorney and make a 30 minute appointment.  The advice you receive will be invaluable in moving forward.

During mom or dad’s incapacity, you will still have to file income tax returns for them on an annual basis.  After their death, you will have to file income tax returns for the trust.  Do not rely upon your own best guess as to how this is done.  Hire an accountant to complete this task for you so that it is done correctly.

Why be so careful?  First, it is your legal duty to do so.  Next, it is not uncommon for other family members (your siblings) to ignore the financial implications of mom or dad’s incapacity.  They will be overjoyed that you are doing this and that they do not have to.  No news, will be good news.

Things will change, however, after mom or dad pass away.  Then they will want to know where all of the money went.  How could there be so little left?  They remember when there were several hundred thousand dollars in mom or dad’s trust.  How could it be gone?  They will ask, “what did you do with it?”

This is when all of the documentation so carefully maintained will come in the handiest.  You will be in a position to stop all of the complaining by giving each sibling a copy of the accountings for each of the years you have handled the trust.

Without this information, you will be open to charges of breach of fiduciary duty that can be filed in Probate court.  Without documentation, you may end up on the hook for repayment of some of the money into the trust for division among the siblings as their “inheritance”.

A little extra advise, time and effort now, will save you many headaches and heartaches in the future.

ESTATE PLANNING: Another Important Family Discussion – Long Term Illness and Care

Some families talk and others don’t.  Sometimes, it is the kids who don’t want mom or dad to talk about estate planning issues – they cannot face the fact that some day mom and dad won’t be here.  Other times, it is the parents who cannot discuss the future.

Either way, there are certain issues that need to be addressed. One of them is long term care.

We are living longer.  That is both the good news and the bad.  We all would like to live to a ripe old age and be healthy until we draw our last breath.  Unfortunately, that is not the case for many of us.

What is your plan for getting older?  Where will you live when you can no longer live alone?  What is the plan for a long-term illness?

In many families, the unspoken plan is for one of the family members to care for mom and/or dad until their dying days.  For some families, this is a realistic plan as there are children who are able and willing to care for mom and/or dad in this way.

There are other families in which mom and dad state that they are never going into a nursing home, yet, there is no plan for care.  This must be addressed by the family.

If you do not want to go to an assisted living facility or later to a nursing home, are there family members who will actually care for you?  Have you discussed this with your children?  Or are you assuming that because you cared for your parents, your children will care for you?

Do your children work full-time?  That could impact their ability to care for you.  Caring for aging parents often comes at the same time that families are putting children through college.  Quitting work to care for a parent may not be realistic or possible.

If you do not expect family to care for you, are you acquainted with the costs of assisted care?  Of nursing home care?  Assisted living can cost $3,000 to $4,000 per month.  This is a cost that is not covered by Medicare or Medicaid.  It is direct pay.  Could you afford $36,000 to $48,000 per year for assisted living?

If your health deteriorates, you may need nursing home care.  Medicare pays only for a limited number of days after discharge from a hospital.  Thereafter, it is the patient’s responsibility to cover the costs. If you have long term care insurance, the cost may be covered.  If not, you will quickly spend your accumulated savings.

If you are a couple, there is some ability to save a portion of the marital estate for the benefit of the non-institutionalized spouse.  Currently, in Michigan, that community spouse may keep the marital home, an automobile and approximately $123,000.  The balance must be spent down prior to qualifying for Medicaid.

These financial issues are why it is necessary to have a plan.  Have a conversation with your family to see where everyone stands on this issue.  Then develop a strategy.

ESTATE PLANNING: After a Divorce – The Last Step

While the last thing that an individual who has gone through a divorce wants to do is contact another lawyer, a divorce should trigger a need for new estate planning documents.

First, you do not want your former spouse named as your Personal Representative or Trustee.  Also, you will not want to name him/her as the primary beneficiary of your estate.

Next, your assets are now different from what they were prior to the divorce.  You will need to re-think your gifts to your family and friends.  This means a new Will or Trust.

If you have minor children, it is more important than ever to name a Guardian (who would step in only if your spouse were deceased) and a Conservator to handle the money for your children.  While you cannot eliminate your former spouse from having custody of your children if you die, you do not have to leave him/her in charge of the money for the children.

You will want to name different agents for your Durable Power of Attorney (for financial and legal affairs).  You do not want your former spouse as the individual paying your bills and having access to your checking and savings accounts.  You will need to name someone you trust and you should name a back-up individual, just in case.

Also, you will want to execute a new Patient Advocate Designation (Health Care Directive).  Again, you do not want your former spouse as the individual with the power to direct your medical care or to “pull the plug”.  You will need to name individuals you trust to handle your medical decision making if you are unable to do so.

The last thing a recently divorced individual wants is more legal bills or contact with the legal system.  It is, however, very important as your last step in the divorce process.

ESTATE PLANNING: Revocable Trusts – How Old are your Documents? Review and Revise Now!

For those who have revocable trusts, they often feel that they are all set.  They got them done years ago but haven’t looked at them since.  Should they be reviewed and revised?  Yes.  When? Now.

Years ago, the estate tax was the reason for couples executing revocable trusts.  Each person received credit for $600,000 to pass along during his/her lifetime or at death without any estate tax being due.  The problem was that if your spouse received all the assets upon the death of the first spouse, that $600,000 credit was lost [“use it or lose it”].  The surviving spouse ended up with only his or her $600,000 credit and often larger estates would be taxed when they passed on to the children at the death of the second spouse.

At that time, the revocable trust was used to avoid such a scenario.  With the trust, the first $600,000, or credit amount, was put into a Family Trust.  Since it wasn’t a transfer to a spouse, it could use the $600,000 credit.  The Family Trust or Credit Shelter Trust was available to the surviving spouse in the event that he or she needed it; however, it was usually the amount that ended up being passed along to the children.   The remainder of the estate was passed to the surviving spouse in the Marital Trust.  The Marital Trust was not taxed at the death of the first spouse, but was added to the surviving spouse’ net worth.  Then when the surviving spouse passed away, there was the opportunity to take another $600,000 credit.  Thereby gaining the advantage of both credit amounts, worth $1.2 Million.

Many trusts were written this way over the years and they have remained this way.  The problem today is that with the last tax reform passed in late 2017, we each now receive a $5 Million credit.  Therefore, unless a couple has assets of $10 Million, there is no need for the above complicated tax planning.

Additionally, as written, these Trusts would now require that the first $5 Million be kept in the Family or Credit Shelter Trust.  There would essentially be nothing to fund the Marital Trust and nothing to absolutely pass along to the surviving spouse without restrictions.

For the average individual, these trusts today are unnecessarily complicated and unneeded.  If this is the language of your Trust, it is time to see an estate planning attorney to have your Trust amended.  The complex portions will be deleted and more simplified language inserted.  Additionally, there have been many changes in the laws over the years, including a new Probate Code and a Trust Code in Michigan.

If your trust documents are this old, it is probable that there are additional changes that need to be made.  If you have trust provisions for your minor children and they are now in their 30’s, it is time to have the documents reflect the reality of your circumstances and theirs.  Many of the individuals that you may have named as Successor Trustees may no longer be appropriate (if even alive).

The best practice is to get these Trusts updated at once.  Take advantage of the opportunity to simplify the documents and have them reflect your real-life circumstances and preferences.

 

 

ESTATE PLANNING: Should You Leave Money for Mom and Dad?

Initially, this may strike you as a strange suggestion.  After all, in the usual course of events, our parents die before we do.  We inherit from them, not the other way around.

Also complicating this is the fact that many of us have spouses and children that we would leave our estates for.  So, why consider leaving money to our parents?

Many older people are financially set.  They have a good income from Social Security, pensions and investments.  They have planned carefully and will be able as they move forward to rely upon themselves for their financial well-being.

Other elderly people are not so fortunate.  Times have changed, and they didn’t plan for the changes that would come.  They may have thought that if they owned their home (mortgage paid off) and they had no debt, they could manage on Social Security alone.  They may have only a few thousand in the bank for the rainy-day emergency.

As your parents age, will they be looking to you for assistance?  If they cannot live alone, can they afford assisted care?  Or would they anticipate moving in with you?  What would they do if you were to pass away?

In large families, there may be other siblings to shoulder the responsibility.  If there are fewer, or if you are an only child, there may be no one to assist them.  This may be a reason to include them in your estate planning.  If you can afford to do so, you may wish to leave them money if they are still alive at the time of your death.  This could provide the cushion they would need to make it through.

This is not a planning idea that is for everyone or for every family.  It is a consideration when you are doing your planning.  Who would help Mom and Dad if you were not here?

ESTATE PLANNING – Leave a trail of breadcrumbs

The most important thing that you can do to assist your loved ones in the event of incapacity or death is not having your estate plan documents in order (which is very necessary) but instead is getting organized and leaving the information in a place and in a manner that can be used when the time comes.

A Durable Power of Attorney will not be very effective is assisting you during incapacity if no one know where your assets are or what bills need to be paid.

Your Will or Trust will be difficult to administer if your Personal Representative or Trustee cannot find the assets.

Leave a trail of breadcrumbs!  In other words, get organized and let them know where the information is.

What do you need to do?

Financial:

Make a listing of all financial accounts, with institution and account number.

Streamline bill paying by setting up automatic payments wherever possible.

Leave the contact information for any financial advisors, attorneys, and accountants.

Legal

Update your beneficiary designations.

Make a listing of all insurance policies, including medical and long-term care.

Update your estate planning documents so that they are current and relevant.  Leave them in a location that is known to your family.

Medical:

Make a list of all doctors and medications you are currently taking

Have a medical directive and discuss your wishes with your family

Bills

Make a listing of all bills, the account numbers, passwords, usernames, etc., and how they are paid: automatic withdrawal from checking, or from savings?  Automatic billing to a credit card?

Estate Planning: After the documents are signed – additional next steps – LEAVE A ROADMAP

In addition to leaving a spread sheet of information concerning all of your bills, I encourage clients to also print out a copy of the statements from their asset accounts. This is easily done when quarterly reports are received, either by mail, or via electronic format.

There should be a copy of your bank savings and checking account statements, your retirement account statements (401K, IRA, Roth), annuity statements, investment statements. It is less important to update these than it is to have the account information with your estate planning documents. This will give your agent (under your Durable Power of Attorney) or your Personal Representative (under your Last Will and Testament) a road map to your assets with the institution, account number and broker or agent.

Additionally, include a copy of all of your real property. Often times, clients have parcels of property in a different area of the state or in another state that their agents are not aware of. Make certain that this information is readily available.

In this way, your agent or Personal Representative will know exactly what you own, where it is located and the value of the property involved. It is only when an agent has this information that they can effectively do the job that you have requested.

Estate Planning: After the documents are signed – the next steps

So you have signed your Will or Trust, your Durable Power of Attorney and Patient Advocate Designation.  Are you all done?  Not yet.

First, have you made and given copies of the Power of Attorney and Patient Advocate Designation to your agents?  This is an important step.  They must sign the acceptances; further, they will need a copy of the document if they are to act on your behalf.

Next, have you checked beneficiary designations?  These override the provisions in your Will.  This can alter the distribution that you anticipated.  Make certain that these are consistent with your overall plan.  Also, make certain that there are not beneficiaries that were listed long ago that are inappropriate for today.  This includes IRAs, 401Ks, life insurance and bank accounts.

Another very important step concerns the availability of information for your agents.  If you were incapacitated, how would your agent under your Durable Power of Attorney know which bills to pay and when?  Today, with on-line banking, we do not receive statements in the mail.

Make a spread sheet of all of your bills and how they are paid.  List whether they are automatic debits from savings or checking, or automatically charged to one of your credit cards.  Are there monthly bills that are not automatic?  Are there bills that you must do on-line to pay?  If so, the account number, user name and password are critical for your agent to access the account.  These should be listed and left in a secure location.

Tell you agent where this information is kept so that in an emergency, it can be readily accessed.

If this information is on your computer, does your agent have the password to open your computer programs?

While this may seem time consuming, it is important to have all of this information in one location: account numbers, when bills are due, how they are paid, user name, passwords.  In this way, your agent can assist you effectively if you are incapacitated.

Estate Planning: 529 Plans for Children & Grandchildren

Summer is passing by at lightning speed and it’s getting closer to “back to school” time. So, it is probably a good time to think about options available for your children’s or grandchildren’s college education.

The 529 Plan is a college funding plan, sponsored by the state. It permits you to make cash contributions to this investment account and the earnings are not taxed federally so long as the withdrawal is made for qualified higher education expenses. Those would include tuition, books, supplies, computer equipment, and some room and board.

You may make gifts of up to $14,000 per recipient (or $28,000 for married couples) per year without triggering gift taxes without using any of your lifetime exemption. Additionally, 529 Plans permit you to “bunch” five (5) years’ worth of annual gifts into a single year. Therefore, you may gift $70,000 per recipient ($140,000 for married couples) in the first year. Once you do this, you may not make another contribution to the plan until year #6.

There are a few disadvantages. One is that the contribution must be cash. You cannot gift stocks or real estate. Additionally, the money will be counted if the student is seeking financial aid.

If the child or grandchild decides to forego college, the beneficiary can be changed to another child or grandchild.

While a 529 Plan may not be ideal for everyone, it merits a closer look when you are planning for your child or grandchild’s future.

Probate Matters: You are not Responsible for the Deceased’s Debts

woman-on-phone

When someone dies, they just as often leave debts as they do assets.  The family is concerned that they will be responsible for the debts of the deceased family member.

They will receive calls from bill collectors who try to shake them down for the money – threatening lawsuits and liens.  After all, that is their job, to get as much money on the outstanding bill as they can.

Generally speaking, a spouse or child is not responsible for the debts of their deceased spouse or parent.

You are only responsible for the debt if you co-signed for the loan or obligation.  This could be true on a mortgage or a credit card that is in both names.  If you have not co-signed, you are not responsible for the debt.

Sometimes a family will find that the assets of an estate are less than the debts that the deceased had.  In such a case, the only ones who will be benefitted by opening a probate estate are the creditors.  They will divide up the assets that are left.  In such a case, you as a family member do not have an obligation to open up a probate estate.  If the creditors want to open an estate to get paid, they may do so.  It is not up to you to do it for them.

The estate of a decedent consists of the property that he or she had in his or her own name alone at the time of death.  Therefore, the jointly owned property such as bank accounts or real estate (unless it has a mortgage) will simply pass to the family members outside of the probate court process.  All that will be left will be the assets in the deceased’s name and lots of debts.

If your parents have died, before you start paying bills, evaluate whether the debts of the estate are greater than the assets available.  If you are uncertain, call a Probate attorney and sit down for an evaluation of the estate and whether you should pay the claims.

Do not be bullied by creditors and bill collectors.  Call an attorney first – you may save thousands of dollars.