Is It Common for Siblings to Fight Over Inheritance?

Unfortunately, siblings refusing to speak with other siblings about their late parent’s estate matters is a fairly common occurrence. A recent article from Morningstar, “My brother won’t tell me anything about our mother’s $1.6 million estate. Can I remove him as trustee?” provides a good example of how things can go wrong.

According to a letter to the publication from one brother, a mother was the second to die and the brother who knows about her will has not yet filed the will with the court. To make matters more complicated, he explains that the father had created a trust before he died in 2000, which was never funded. Medicaid paid for $150,000 in nursing home costs, and at the time of her death, the mother owned a 1.6-million-dollar property.

While the best resolution is almost always simply to have a direct conversation, this doesn’t seem likely to occur in this situation. The controlling brother may be doing precisely what is necessary. However, since the brother won’t tell the other brother what is happening, the only way forward may be to go to court.

If a trust was created, it’s entirely possible it was a Medicaid Asset Protection Trust (MAPT). This trust is created to remove assets from being countable for Medicaid purposes. If the trust wasn’t funded, the $1.6 million property may never have been retitled and placed in the trust. This is the second most common estate planning mistake seen by estate planning attorneys; the first is not having an estate plan.

If the trust was never funded, the family home is considered an asset by Medicaid and could be “clawed back” by Medicaid to cover the medical expenses. If the $150,000 were the father’s nursing home costs, the father’s estate would have owned this amount, which should have taken place after the father’s estate was settled. There is a statute of limitations, however, and depending on the rules of the father’s state, this may be a moot point.

Since the house was the primary residence of a well-spouse, it may not have been countable for Medicaid. If the father had no other assets, there may be no debt to Medicaid. It’s entirely possible all this was dealt with. However, the brother wasn’t told the details.

This leaves the question of what the brother is doing with the mother’s estate. If no will has been filed, it might be because the estate plan was designed to avoid probate. Assets held in trusts and passed through beneficiary designations don’t go through probate. If the house was placed in a trust, it would not go through probate either.

However, since the sibling is an heir, he has the right to an accounting report or a report from the brother as the trustee and executor. The report should contain information on how assets were owned, and distributions were made.

This is a lesson for parents who know their children don’t get along. If they don’t get along while you are living, don’t expect this to change after your death. If one is given power of attorney, serves as a trustee and executor, and the others are left out of any decision-making, your estate may shrink because of litigation, and the family may fracture. Talk with your estate planning attorney about naming a neutral person for all or some of these roles to avoid adding the stress of an estate battle to your family’s grief.

Reference: Morningstar (Aug. 3, 2024) “My brother won’t tell me anything about our mother’s $1.6 million estate. Can I remove him as trustee?”

Essential Estate Planning Considerations for Minor Children

Estate Planning for Minor Children

It is paramount for parents to have an estate plan that not only takes care of their personal and financial matters but also addresses the well-being of their minor child or children. Delving into estate planning considerations can be overwhelming, especially when young children are involved. This guide will provide you with a comprehensive understanding of estate planning for minors.

Estate Planning: Why Is It Essential for Parents with Young Children?

Estate planning for parents with young children involves setting up mechanisms to ensure that, in the event both parents pass away, their children will be cared for in the desired manner. Many parents overlook this critical aspect. However,ensuring their children have the protection and support they need is vital.

What Is a Trust and Why Is it Important for Minor Children?

A trust is a legal entity that holds and manages assets for the benefit of certain persons or entities, typically the minor child or children. A trust may be established to ensure that your child receives the inheritance at an appropriate age. The trustee is also responsible for managing the trust assets for the child’s benefit until they reach the age of majority.

Appointing a Guardian: Who Will Care for Your Children in the Event Both Parents Die?

Choosing a guardian for your child is one of the most critical decisions in an estate plan. The guardian is entrusted with raising your child if both parents die or become incapacitated. Young parents, especially, need to decide who they would trust to raise their children if both parents are not around. Appointing someone you trust and discussing your wishes with them beforehand is essential.

Power of Attorney: Who Makes Decisions on Your Behalf?

A power of attorney is a legal document that allows a person to act on your behalf if you become incapacitated. There are different types of power of attorney, such as financial power and medical power. The former deals with financial matters, while the latter allows someone to make medical decisions for you.

Special Needs Planning: What If One of Your Children has Special Needs?

If you have a child with special needs, specific considerations should be included in the estate plan. A special needs trust is a tool parents can use to ensure that the inheritance does not disqualify the child from receiving essential government benefits. Estate planning for special needs children requires meticulous attention to detail to safeguard their interests.

Life Insurance: Ensuring Financial Security for Your Children

Life insurance plays a crucial role in estate planning for parents with minor children. In the unfortunate event that one or both parents pass away, the life insurance proceeds can provide financial stability for the children. This ensures that they have the means for education, healthcare and other essential needs.

The Last Will and Testament: A Fundamental Estate Planning Document

A last will and testament primarily directs how your personal property should be distributed after your death. Parents need to stipulate their desires, especially regarding their children’s inheritance.

Beneficiary Designations: Make Sure That Assets Go Where You Want

Ensuring the correct beneficiary designation on assets, like retirement accounts, is vital when drafting an estate plan. Incorrect or outdated designations can result in unintended consequences, potentially sidelining the intended benefits for your minor children.

Trusts for Children from Previous Relationships

For parents with children from previous relationships, establishing a trust can ensure that all children, irrespective of their biological ties, are treated equitably. This ensures that the inheritance and trust assets are distributed according to the parent’s wishes.

In Conclusion: Key Takeaways

Establishing an estate plan is vital for parents with minor children.
Setting up a trust can protect a child’s inheritance until they reach a suitable age.
Appointing a trusted guardian ensures that your children are in safe hands should anything happen to both parents.
Power of attorney is essential for someone to make decisions on your behalf if you become incapacitated.
Parents with special needs children should consider setting up a special needs trust.
Life insurance is crucial for the financial security of your children.
Always ensure that beneficiary designations are updated and correct.
Trusts can be especially useful for parents with children from previous relationships.

To ensure that your estate plan aligns with your desires and the well-being of your minor child or children, consider consulting an estate planning attorney or law firm. They can guide you through the intricate details and help you make the best choices for your family’s future.

Estate Planning can Protect Beloved Pets

While pets are still legally considered possessions, they are also recognized as family members deserving of a safe and happy future, says a recent article from The Record-Courier, “Estate planning for pets.”

Estate planning for pets involves creating provisions for the pets’ care and well-being if their owner becomes incapacitated or after the owner’s passing. The goal of estate planning for pets is to be sure that they will receive the same level of care, attention and resources they enjoyed even if their owner is unable or alive to care for them.

Estate planning for pets involves more than securing funds for their care. It requires a complete plan to protect their future, from designating caregivers, addressing specific needs, habits, preferences, daily routines, and personality quirks, considering any legal or financial issues and planning for alternate solutions if the primary plan becomes unattainable.

The more details addressed in the estate plan for the pet, the better protected they will be.

Designating a guardian for the pet is usually the most important step. This is the person you want to care for the pet and probably bring the pet into their home. It is critical to have a detailed conversation with the potential guardian to ensure that they understand what they are being asked to do and ensure they can and are willing to follow your wishes.

You should have one or even two backup guardians, if the primary guardian becomes unable or unwilling to serve. The estate plan should also prepare for a situation where no designated people can care for the pet and provide an alternate solution, such as placing the pet in a no-kill shelter or charging the trustee with finding a good home.

Designation of sufficient funds is also necessary. Consider how long the pet is likely to live, the cost of veterinary care in your community, and any emergency care.

Different legal documents are used to prepare estate plans addressing care for a pet. A pet trust is a legally recognized document, with funds set aside for the pet’s care in the trust, managed by the trustee by the terms of the trust. You can also use provisions in your last will and testament, with a designated individual nominated to care for the pet. However, the trust is more enforceable, with the trustee having a fiduciary obligation to carry out the terms of the trust.

Estate planning with pets in mind is a responsible way to ensure that your beloved animal companions have a secure future even if you cannot provide it for them. Your estate planning attorney will be able to create a pet trust to alleviate any concerns about your pet’s future.

Reference: The Record-Courier (Oct. 21, 2023) “Estate planning for pets”

What is the Purpose of a Blind Trust?

One type of trust offers a layer of separation between the person who created the trust and how the investments held in the trust are managed. The trust’s beneficiaries are also unable to access information regarding the investments, says the article “What is a Blind Trust?” from U.S. News & World Report.

The roles involved in a blind trust are the settlor—the person who creates the trust, the trustee—the person who manages the trust—and beneficiaries—those who receive the assets in a trust.

Blind trusts, typically created to avoid conflicts of interest, are where the settlor gives an independent trustee complete discretion over the assets in the trust to manage, invest and maintain them as the trustee determines.

This is quite different from most trusts, where the owner of the trust knows about investments and how they are managed. Beneficiaries often have insight into the holdings and the knowledge that they will eventually inherit the assets. In a blind trust, neither the beneficiaries nor the trust’s creator knows how funds are being used or what assets are held.

Blind trusts can be revocable or irrevocable. If the trust is revocable (also known as a living trust), the settlor can dissolve the trust at any time.

If the trust is irrevocable, it remains intact until the beneficiaries inherit the entire assets, although there are some exceptions.

In some instances, irrevocable trusts are used to move assets out of an estate. Settlors lose control over the holdings and may not terminate the trust or change the terms.

Blind trusts can be used in estate planning if the settlor wants to limit the beneficiaries’ knowledge of the trust assets and their ability to interfere with the management of the trust.’

People who win massive lump sums in a lottery might use a blind trust because some states allow lottery winners to preserve their anonymity using this type of trust. They draft and sign a trust deed and appoint a trustee, then fund the trust by donating the winning ticket to the trust prior to claiming the prize. By remaining anonymous, winners have some protection from unscrupulous people who prey on lottery winners.

One drawback to a blind trust is the lack of knowledge about how investments are being handled. The blind trust also poses the issue of less accountability by the trustee, since beneficiaries have no right to inspect whether or not assets are being managed properly.

Do you need a blind trust? Speak with an experienced estate planning attorney to discuss whether or not your estate would benefit from a blind trust. If you want to separate yourself from investment decisions or would rather beneficiaries don’t know about the holdings, it might make sense. However, if you have no concerns about privacy or conflict of interests, other types of trusts may make more sense.

Reference: U.S. News & World Report (June 1, 2023) “What is a Blind Trust?”

Why Would I Put My Home in a Trust?

Putting property in a trust can make managing and distributing your assets — including your home — easier after your death. It can also have legal and tax benefits.

Bankrate’s recent article entitled, “How, and why, to put your home in a trust,” says that a real estate trust is a legal arrangement in which the owner of a home, known as the “grantor” or “settlor,” transfers ownership of the property to another entity or individual, known as the “trustee.” The trustee manages the property for the benefit of the grantor and any named beneficiaries of the grantor’s estate.

You can place your home into a trust by signing a deed that names the trustee as the property’s new owner. The deed must be recorded with the local county recording office, and then the trust is the legal owner of the property.

The home’s original owner will usually name him- or herself as the trustee, so they can maintain control of the property. However, the original owner can name someone else as the trustee. This can be helpful in case the original owner passes away. Trustees are frequently adult children of the homeowner, who will inherit the property upon the homeowner’s death.

Trusts are often used for tax, estate planning, or asset protection purposes, as — depending on the type of trust — the property can be protected from creditors and transferred directly to the beneficiaries without going through probate. Two primary types of trusts pertain to real estate: revocable and irrevocable.

Also called a living trust, a revocable trust can be changed or dissolved at any time by the grantor (creator) of the trust. A revocable trust lets a grantor control the property and make changes to the trust during their lifetime. The grantor retains the right to modify or dissolve the trust. The grantor can act as a trustee, manage the property, or appoint someone else.

A revocable/living trust states the original homeowner’s wishes upon death. When the grantor passes away, the property in the revocable trust is distributed to the grantor’s beneficiaries according to the terms of the trust agreement.

An irrevocable trust, as the name implies, is more permanent and can’t be terminated or modified by the grantor after it’s been created, unless the beneficiaries agree to the change.

Reference: Bankrate (February 21, 2023) “How, and why, to put your home in a trust”

Protecting Assets with a Trust vs. Limited Liability Company

While trusts and Limited Liability Companies (LLCs) are very different legal vehicles, they are both used by business owners to protect assets. Understanding their differences, strengths and weaknesses will help determine which is best for your situation, as explained by the article “Trust Vs. LLC 2023: What Is The Difference?” from Business Report.

A trust is a fiduciary agreement placing assets under the control of a third-party trustee to manage assets, so they may be managed and passed to beneficiaries. Trusts are commonly used when transferring family assets to avoid probate.

A family home could be placed in a trust to avoid estate taxes on the owner’s death, if the goal is to pass the home on to the children. The trustee manages the home as an asset until the transfer takes place.

There are several different types of trusts:

A revocable trust is controlled by the grantor, the person setting up the trust, as long as they are mentally competent. This flexibility allows the grantor to hold ownership interest, including real estate, in a separate vehicle without committing to the trust permanently.

The grantor cannot change an irrevocable trust, nor can the grantor be a trustee. Once the assets are placed in the irrevocable trust, the terms of the trust may not be changed, with extremely limited exceptions.

A testamentary trust is created after probate under the provisions of a last will and testament to protect business assets, rental property and other personal and business assets. Nevertheless, it only becomes active when the trust’s creator dies.

There are several roles in trusts. The grantor or settlor is the person who creates the trust. The trustee is the person who manages the assets in the trust and is in charge of any distribution. A successor trustee is a backup to the original trustee who manages assets, if the original trustee dies or becomes incapacitated. Finally, the beneficiaries are the people who receive assets when the terms of the trust are satisfied.

An LLC is a business entity commonly used for personal asset protection and business purposes. A multi-or single-member LLC could be created to own your home or business, to separate your personal property and business property, reduce potential legal liability and achieve a simplified management structure with liability protection.

The most significant advantage of a trust is avoiding the time-consuming process of probate, so beneficiaries may receive their inheritance faster. Assets in a trust may also prevent or reduce estate taxes. Trusts also keep your assets and filing documents private. Unlike a will, which becomes part of the public record and is available for anyone who asks, trust documents remain private.

LLCs and trusts are created on the state level. While LLCs are business entities designed for actively run businesses, trusts are essentially pass-through entities for inheritances and to pass dividends directly to beneficiaries while retaining control.

Your estate planning attorney will be able to judge whether you need a trust or an LLC. If you own a small business, it may already be an LLC. However, there are likely other asset protection vehicles your estate planning attorney can discuss with you.

Reference: Business Report (April 14, 2023) “Trust Vs. LLC 2023: What Is The Difference?”

Should You Agree to Being a Guardian?

Yes, it is an honor to be asked to be the guardian of someone’s children. However, you’ll want to understand the full responsibilities involved before agreeing to this life-changing role. A recent article from Kiplinger, “3 Key Things to Consider Before Agreeing to Be A Guardian in a Trust,” explains.

For parents, this is one of the most emotional decisions they have to make. Assuming a family member will step in is not a plan for your children. Naming a guardian in your will needs to be carefully and realistically thought out.

For instance, people often first think of their own parents. However, grandparents may not be able to care for a child for one or two decades. If the grandparent’s own future plan includes downsizing to a smaller home or moving to a 55+ community, they may not have the room for children. In a 55+ community, they may also not be permitted to have minor children as permanent residents.

What about siblings? A trusted aunt or uncle might be able to be a guardian. However, do they have children of their own, and will they be able to manage caring for your children as well as their own? You’ll also have to be comfortable with their parenting styles and values.

Other candidates may be a close friend of the family, who does not have children of their own. An “honorary” aunt or uncle who is willing to embark on raising your children might be a good choice. However, it requires careful thought and discussion.

Financial Considerations. What resources will be available to raise the children to adulthood? Do the parents have life insurance to pay for their needs, and if so, how much? Are there other assets available for the children? Will you be in charge of managing assets and children, or will someone else be in charge of finances? You’ll need to be very clear about the money.

Legal Arrangements. Is there a family trust? If so, who is the successor trustee of the trust? What are the terms of the trust? Most revocable trusts include language stating they must be used for the “health, education, maintenance, and support of beneficiaries.” However, sometimes there are conditions for use of the funds, or some funds are only available for milestones, like graduating college or getting married.

Lifestyle Choices. You’ll want to have a complete understanding of how the parents want their children to be raised. Do they want the children to remain in their current house, and has an estate plan been made to allow this to happen? Will the children stay in their current schools, religious institutions or stay in the neighborhood?

In frank terms, simply loving someone else’s children is not enough to take on the responsibility of being their guardian. Financial resources need to be discussed and lifestyle choices must be clarified. At the end of the discussion, all parties need to be completely satisfied and comfortable. This kind of preparedness provides tremendous peace of mind.

Reference: Kiplinger (Nov. 17, 2022) “3 Key Things to Consider Before Agreeing to Be A Guardian in a Trust”

Why are Trusts a Good Idea?

Estate planning attorneys know trusts are the Swiss Army knife of estate planning. Whatever the challenge is to be overcome, there is a trust to solve the problem. This includes everything from protecting assets from creditors to ensuring the right people inherit assets. There’s no hype about trusts, despite the title of this article, “Trusts—What Is The Hype?” from mondaq. Rather, there’s a world of benefits provided by trusts.

A trust protects assets from creditors. If the person who had the trust created, known as the “grantor,” is also the owner of the trust, it is best for the trust to be irrevocable. This means that it is not easily changed by the grantor. The trust also can’t be modified or terminated once it’s been set up.

This is the direct opposite of a revocable or living trust. With a revocable trust, the grantor has complete control of the trust, which comes with some downsides.

Once assets are transferred into an irrevocable trust, the grantor no longer has any ownership of the assets or the trust. Because the grantor is no longer in control of the asset, it’s generally not available to satisfy any claims by creditors.

However, this does not mean the grantor is free of any debts or claims in place before the trust was funded. Depending upon your state, there may be a significant look-back period. If this is the case, and if this is the reason for the trust to be created, it may void the trust and negate the protection otherwise provided by the trust.

Most people use trusts to protect assets for future generations, for a variety of reasons.

The “spendthrift” trust is created to protect heirs who may not be good at managing money or judging the character of the people they associate with. The spendthrift trust will protect against creditors, as well as protecting loved ones from losing assets in a divorce. The spouse may not be able to make a claim for a share of the trust property in a divorce settlement.

There are a few different trusts to be used in creating a spendthrift trust. However, the one thing they have in common is a “spendthrift clause.” This restricts the beneficiary’s ability to assign or transfer their interests in the trust and restricts the rights of creditors to reach the trust assets. However, the spendthrift clause will not avoid creditor claims, unless any interest in the trust assets is relinquished completely.

Greater protection against creditor claims may come from giving trustees more discretion over trust distribution. For instance, a trust may require a trustee to make distributions for a beneficiary’s support. Once those distributions are made, they are vulnerable to creditor claims. The court may also allow a creditor to reach the trust assets to satisfy support-related debts. Giving the trustee full and complete discretion over whether and when to make distributions will allow them to provide increased protection.

A trust requires the balance of having access to assets and preventing access from others. Your estate planning attorney will help determine which is best for your unique situation.

Reference: mondaq (Aug. 9, 2022) “Trusts—What Is The Hype?”

What’s a ‘Pot Trust’?

A pot trust is a type of trust that names the children as beneficiaries and the trustee is given discretion to decide how the trust assets should be spent. This trust lets the grantor create a single pool of assets to be used for the benefit of multiple children. A pot trust can offer more flexibility as to how trust assets are used if you plan to leave your entire estate to your children, says Yahoo Finance’s recent article entitled “How Does a Pot Trust Work?”

If you create a family pot trust for your three children and one of them experiences a medical emergency, the trustee would be able to authorize the use of trust funds or assets to cover those costs.

Flexibility is a key element of family pot trusts. Assets are distributed based on the children’s needs, rather than setting specific distribution rules as to who gets what. You might consider this type of trust over other types of trusts if:

You have two or more children;
At least one of those children is a minor; and
You plan to leave your entire estate to your children when you pass away.

Pot trusts can be created for children when you plan to leave all of your assets to them. Generally, a pot trust ends when the youngest included as a beneficiary reaches a certain age. As long as the trust is in place, the trustee can use his or her discretion to determine the way in which trust assets may be used to provide for the beneficiaries’ well-being. The aim is to satisfy the financial needs of individual children as they arise.

However, pot trusts don’t ensure an equal distribution of assets among multiple children. And a family pot trust can also put an increased burden on the trustee. In effect, the trustee has to take on a parental role for financial decision-making. That’s instead of adhering to predetermined directions from the trust grantor. And children may also not like at having to wait until the youngest child comes of age for the trust to terminate and assets to be distributed.

Setting up a pot trust isn’t that different from setting up any other type of trust. Ask an experienced estate planning attorney to help you.

Reference: Yahoo Finance (Aug. 30, 2021) “How Does a Pot Trust Work?”

Should I have a Charitable Trust in My Estate Plan?

Charitable trusts can be created to provide a reliable income stream to you and your beneficiaries for a set period of time, says Bankrate’s recent article entitled “What is a charitable trust?”

Establishing a charitable trust can be a critical component of your estate plan and a rewarding way to make an impact for a cause you care deeply about. There are a few kinds of charitable trusts to consider based on your situation and what you may be looking to accomplish.

Charitable lead trust. This is an irrevocable trust that is created to distribute an income stream to a designated charity or nonprofit organization for a set number of years. It can be established with a gift of cash or securities made to the trust. Depending on the structure, the donor can benefit from a stream of income during the life of the trust, deductions for gift and estate taxes, as well as current year income tax deductions when the assets are donated to the trust.

If the charitable lead trust is funded with a donation of cash, the donor can claim a deduction of up to 60% of their adjusted gross income (AGI), and any unused deductions can generally be carried over into subsequent tax years. The deduction limit for appreciated securities or other assets is limited to no more than 30% of AGI in the year of the donation.

At the expiration of the charitable lead trust, the assets that remain in the trust revert back to the donor, their heirs, or designated beneficiaries—not the charity.

Charitable remainder trust. This trust is different from a charitable lead trust. It’s an irrevocable trust that’s funded with cash or securities. A CRT gives the donor or other beneficiaries an income stream with the remaining assets in the trust reverting to the charity upon death or the expiration of the trust period. There are two types of CRTs:

A charitable remainder annuity trust or CRAT distributes a fixed amount as an annuity each year, and there are no additional contributions can be made to a CRAT.
A charitable remainder unitrust or CRUT distributes a fixed percentage of the value of the trust, which is recalculated every year. Additional contributions can be made to a CRUT.

Here are the steps when using a CRT:

Make a partially tax-deductible donation of cash, stocks, ETFs, mutual funds or non-publicly traded assets, such as real estate, to the trust. The amount of the tax deduction is a function of the type of CRT, the term of the trust, the projected annual payments (usually stated as a percentage) and the IRS interest rates that determine the projected growth in the asset that’s in effect at the time.
Receive an income stream for you or your beneficiaries based on how the trust is created. The minimum percentage is 5% based on current IRS rules. Payments can be made monthly, quarterly or annually.
After a designated time or after the death of the last remaining income beneficiary, the remaining assets in the CRT revert to the designated charity or charities.

There are a number of benefits of a charitable trust that make them attractive for estate planning and other purposes. It’s a tax-efficient way to donate to the charities or nonprofit organizations of your choosing. The charitable trust provides benefits to the charity and the donor. The trust also provides upfront income tax benefits to the donor, when the contribution to the trust is made.

Donating highly appreciated assets, such as stocks, ETFs, and mutual funds, to the charitable trust can help avoid paying capital gains taxes that would be due if these assets were sold outright. Donations to a charitable trust can also help to reduce the value of your estate and reduce estate taxes on larger estates.

However, charitable trusts do have some disadvantages. First, they’re irrevocable, so you can’t undo the trust if your situation changes, and you were to need the money or assets donated to the trust. When you establish and fund the trust, the money’s no longer under your control and the trust can’t be revoked.

A charitable trust may be a good option if you have a desire to create a legacy with some of your assets. Talk with an experienced estate planning attorney about your specific situation.

Reference: Bankrate (Dec. 14, 2021) “What is a charitable trust?”

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