Trust Funding: The Forgotten Step to a Successful Estate Plan

Most estate plans now involve revocable trusts of every kind and description with the goal to avoid probate in the estate plan.  Although trusts have many other benefits, probate avoidance is the touchstone of revocable trusts.

When creating a trust, attorneys and their clients concentrate on the details of the estate plan and then the documents. But what about how the trust will be funded?

As part of trust creation, we discuss funding at our client meetings and provide a detailed memo of instructions for funding. Most clients want to do their own funding and plan on contacting their banks and financial institutions at some unspecified time after the documents are signed.  This can lead to an unfunded trust.

This was brought home to me recently. While meeting with a client to make some revisions in his trust created several years ago, I casually asking about the funding of the trust. To my horror, the client told me, “Oh, I haven’t done anything yet.” As calmly as I could, I emphasized the necessity of funding the trust. I went through all of his assets and gave him specific instructions. I asked that he confirm the transfers into the trust and complete a list of assets to attach to the trust.

I think he got the message, but it just reinforced the need for me to place greater emphasis on this critical aspect of estate planning.

Don’t Forget to Fund the Trust Continue reading »

Protecting Yourself, Your Business, and Your Loved Ones: Power of Attorney

It is just an average day, nothing seems out of place, until…the phone rings. It is the phone call that you never want to receive but dread receiving every day. Your spouse, child, or loved one is in the hospital and is unconscious. Arriving at the hospital you begin to feel the adrenaline running through your body. Then the doctor asks whether you have a power of attorney for health care decisions for your loved one. You answer “No” and now the doctor will not discuss with you what is happening.

Most individuals do not think of obtaining a power of attorney until they are married, until they have children, until a medical condition exists, or until it is too late. At these points in someone’s life, there is a belief that this document is necessary. Unfortunately, the inability to make your own decisions can happen at any time. Without a power of attorney, no one – not your spouse, parent, or adult child – has an automatic right to your medical records or can make medical or financial decisions. Your business partner has no automatic right to make business decisions on your behalf. When your child reaches the age of majority (which is 18 in Missouri), you can no longer automatically obtain their medical records or make decisions for them about their healthcare or financial needs.

If you do not have a power of attorney, anyone, including a parent, who wants to make healthcare or financial decisions on your behalf must file for a guardianship (for all care and placement decisions) and/or conservatorship (to manage assets) with the probate court. Continue reading »

If You Own Cryptocurrency, It’s Time to Update Your Estate Plan!

Traditional estate planning is daunting enough for the average individual, family, or small business owner, but now there is an additional curveball to deal with: cryptocurrency. More and more individuals and business owners are acquiring digital assets such as cryptocurrency, a digital asset that is generated online and can be traded.

Cryptocurrency and other digital assets were not considered in many older estate plans. If you currently have any cryptocurrency or plan to acquire any in the future, make sure you discuss it with your estate planning attorney and update your estate plan documents accordingly. It is imperative that your estate plan documents include language that covers your digital assets, just as it covers your more traditional assets. Your trust or will should specifically mention digital assets and cryptocurrency and how they should be distributed to your beneficiaries. The provisions in your will or trust can make a big difference in who will inherit the asset.

Cryptocurrency can be extremely difficult to discover after an owner’s death or incapacity. Make sure you leave your successor fiduciaries detailed instructions on how to access your cryptocurrency. Fiduciaries are the individuals, or in some cases, companies, you name in your estate plan to handle your assets in the event of your incapacity or death. A fiduciary can be a trustee, executor, personal representative, or attorney-in-fact. Failing to provide information on your digital assets can result in losing those assets entirely after your death or incapacity if no one knows you have such assets or where to find them. Continue reading »

Using LLCs to Hold Investment Properties: Asset Protection and Estate Planning

We recently discussed the benefits of putting real estate investment properties into LLCs in “Asset Protection and Estate Planning Perspective on the Importance of Holding Investment Properties in an LLC.”

More individuals and families are turning to rental properties as an investment strategy and are essentially small business owners. It is critical that you protect your personal assets from liability by setting up a legal entity to be the owner of the properties.

The best option for most of these types of small businesses is to form a Limited Liability Company (LLC). Continue reading »

Estate Planning Misconceptions of Small Business Owners

Estate planning is the process of making advance arrangements regarding your assets if you become incapacitated and determining asset distribution upon your death. It sounds simple, but many misconceptions about estate planning exist.

Misconception #1: I will avoid probate because I have a will.

A will only applies to your assets without named beneficiaries and does not help you avoid probate after your death. Assets held solely in your name without named beneficiaries must go through probate, a court-supervised process to inventory your assets, pay your debts, and distribute the remainder of your assets to your heirs or beneficiaries. Assets that pass-through probate are subject to court costs, attorney’s fees, and personal representative or executor fees. The process typically takes at least one year.

Misconception #2: My will alone determines how my assets will be distributed after my death.

Many people believe that their wills ultimately decide what happens to their assets after death. However, regardless of the terms of your will, your assets will pass to the joint owner or named beneficiary(ies) (a/k/a Payable On Death or Transfer On Death) on any bank account, life insurance policy, retirement plan (401k), or similar account with a named beneficiary designation.  A good estate plan ensures that such assets are distributed as you wish.

Misconception #3: My trust will allow my estate to avoid probate without being funded.

Merely creating the trust is not sufficient to avoid probate. It is important to meet with an estate planning attorney to discuss ways to avoid probate, such as creating a revocable living trust, and to make sure your plan is consistent with your wishes. Your attorney can also help ensure that the trust is properly funded, with your assets placed into the trust or with the trust named as the beneficiary of your assets.

Misconception #4: Estate planning only deals with my assets after my death. Continue reading »

A Divorce Decree Awarding Joint Legal Custody May Control Beyond Your Child’s 18th Birthday

Are you the divorced parent of a child with a developmental disability? Is your child approaching age 18? Does your divorce decree award you and your ex-spouse joint legal custody of your child? Are you thinking of filing for guardianship of your child? If you answer yes to all of these questions, then you may need to file a motion to modify your decree of dissolution instead of petitioning for guardianship in the probate court.

The case of In the Matter of S.J.M. presented just such a situation. In 2015, the Missouri Court of Appeals, Eastern District, held that the St. Charles County Probate Court erred as a matter of law when it entered a judgment of incapacity and appointed a sole guardian for an 18 year old individual with Down’s Syndrome where the parents’ 2007 decree of dissolution awarded them joint legal custody over their child. The Eastern District found the decree of dissolution was still in effect when the probate court rendered its judgment in 2014, and therefore the probate court produced inconsistent judgments. Continue reading »

Special Needs Trusts and Medicare Cost-Savings Programs Eligibility

The Qualified Medicare Beneficiary (QMB) program is a Medicare cost-savings program that helps low-income Medicare beneficiaries pay their monthly premiums, deductibles, copays, and coinsurance for Medicare Parts A (when applicable) and B. 

Medicare beneficiaries who qualify for the QMB program automatically qualify for the Medicare Part D Extra Help Program, which pays for 85% or more of the monthly premium, deductibles, and costs associated with the Medicare Part D Prescription Drug Program.

To be eligible for the QMB program, an individual must:

1. Be enrolled in Medicare Part A (hospital insurance);
2. Have monthly income less than 100% of the federal poverty level ($1,032 for single individuals or $1,392 for married couples); and
3. Have assets and resources less than $7,560 (for single individuals) or $11,340 (for married couples).

Note: Medicare allows for a standard deduction of $20 from monthly income before income is compared to the federal poverty level.

Assets and resources that do count in determining eligibility for the QMB program include checking accounts, savings accounts, and investments such as stocks, bonds, and mutual funds. Continue reading »

Tax Reform Expands Benefit of Tuition Savings, ABLE Programs

The Tax Cuts and Jobs Act of 2017 (TCJA) introduced a number of changes to the tax code for individual taxpayers. Major changes included lowering individual tax rates, increasing the standard deduction, and increasing the child tax credit.

The legislation also made significant, but often overlooked, changes to the tax treatment of contributions to qualified tuition savings and ABLE programs.

Qualified Tuition Programs (§ 529 Plans)

529 plans are tax-advantaged investment plans designed to encourage saving for the cost of education. 529 plans offer a number of tax benefits:

• Earnings. As 529 plans grow in value, earnings on investments are not subject to state or federal income tax, so savings grow tax-free.
• Contributions. In Missouri, owners of 529 plan accounts may deduct up to $8,000 ($16,000 if married filing jointly) of 529 plan contributions from Missouri state income tax.
• Withdrawals. Funds withdrawn to pay for qualifying educational expenses are not subject to state or federal income tax.

Prior to the TCJA, funds withdrawn from 529 plans could only be used for “qualified higher education expenses,” which included tuition, fees, books, supplies, and other equipment required for attendance at an institution of higher education, most often a college or university. Continue reading »

Death to Death Taxes: The Future of the Estate Tax Under the Proposed Tax Plan

“Death will no longer be a taxable event in America,” said U.S. Vice President Mike Pence during a speech to a Michigan crowd in late September 2017.  Among the many proposed tax revisions, the House (“Tax Cuts and Jobs Act” or “H.R.1”) and the Senate’s proposed bills have increased the credit against the estate, gift, and generation-skipping transfer tax. The House eventually repeals the estate and generation-skipping transfer tax; however, the Senate allows the estate tax and gift tax to remain intact.

Under current law,

• Property in an estate is generally subject to a top tax rate of 40% before it passes to the estate’s beneficiaries.
• Additionally, property that is transferred beyond one generation, whether by bequest or by gift, is subject to an additional generation-skipping transfer tax, also with a top tax rate of 40 percent.
• The first $5 million worth of transferred property is exempt from the estate, gift, and generation-skipping taxes, in any combination thereof. This amount is known as the basic exclusion amount and is indexed for inflation ($5.49 million for 2017).
• Transfers between spouses are excluded from these taxes, and when an individual dies without his or her assets exhausting the basic exclusion amount, any unused basic exclusion amount passes to his or her surviving spouse, with a top basic exclusion amount of $10.98 million for 2017.
• When a beneficiary receives property from an estate, the beneficiary generally takes a basis in that property equal to its fair-market value at the time the decedent dies, which is known as taking a step-up in basis. However, when a donee receives a gift from a living donor, that donee generally takes the donor’s basis in that property, which is known as taking a carryover basis.

As proposed in H.R.1 and the Senate Bill, Continue reading »

2017 Planning for the Future Newsletter for the Special Needs Community

Here’s the latest issue of “Planning for the Future,” a newsletter for the special needs community.

Inside this issue:

• It’s Official: ABLE Accounts Now Available in Missouri & Illinois
• Understanding the Special Needs Trust Fairness Act
• Medicaid Eligibility Expands for Elderly, Blind, Disabled
• Importance of Care Plans & Appointed Successor Guardianships
• Spotlight: I Can Go to College: The SUCCEED Program at University of Missouri–St. Louis