October 19th-25th, 2020 is National Estate Planning Awareness Week, so if you’ve been thinking about creating an estate plan, but still haven’t checked it off your to-do list, now is the perfect time to get it done. Last week I wrote about the first big reason you might want to get your planning in place (sparing your family from a lengthy and costly court proceeding). Read on for the second big reason you should consider not putting off your planning any longer:
You have no control over who inherits your assets If you die without a plan, the court will decide who inherits your assets, and this can lead to all sorts of problems. Who is entitled to your property is determined by California’s intestate succession laws, which hinge largely upon whether you are married and if you have children.
Spouses and children are given top priority, followed by your other closest living family members. If you’re single with no children, your assets typically go to your parents and siblings, and then more distant relatives if you have no living parents or siblings. If no living relatives can be located, your assets go to the state.
But you can change all of this with a plan and ensure your assets pass the way you want.
It’s important to note that state intestacy laws only apply to blood relatives, so unmarried partners and/or close friends would get nothing. If you want someone outside of your family to inherit your property, having a plan is an absolute must.
If you’re married with children and die with no plan, it might seem like things would go fairly smoothly, but that’s not always the case. If you’re married but have children from a previous relationship, for example, the court could give everything to your spouse and leave your children out. In another instance, you might be estranged from your kids or not trust them with money, but without a plan, state law controls who gets your assets, not you.
Moreover, dying without a plan could also cause your surviving family members to get into an ugly court battle over who has the most right to your property. Or if you become incapacitated, your loved ones could even get into conflict over your medical care. You may think this would never happen to your loved ones, but we see families torn apart by it all the time, even when there’s little financial wealth involved.
You should create a plan that handles your assets and your care in the exact manner you wish, taking into account all of your family dynamics, so your death or incapacity won’t be any more painful or expensive for your family than it needs to be.
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In January, I wrote about how the deaths of NBA legend Kobe Bryant and his 13-year-old daughter, Brianna, demonstrated the vital need for estate planning for people of all ages. At the time, little was known about the planning strategies Kobe had in place to protect and preserve his estimated $600 million estate for his wife, Vanessa, and three surviving daughters, Natalia, 17, Bianka, 3, and Capri, 7 months.
Since then, court filings made by Kobe’s widow have shed light on both the successes and failures of Kobe’s estate planning efforts. On the positive side, Kobe created an extensive estate plan, which included the Kobe Bryant Trust to protect his assets, reduce estate-tax liability, and pass on his wealth to his family.
While the contents of the trust remain private (one of the many benefits of this type of estate planning!), the court documents do provide a summary of the trust’s terms. Upon Kobe’s death, the trust was set up to allow Vanessa and her daughters to draw from the principal and income of the trust’s assets during Vanessa’s lifetime, with the remainder going to their children upon Vanessa’s death.
However, while the trust lists Vanessa and his oldest daughters Natalia, Brianna (who died in the crash with her father), and Bianka as beneficiaries, his youngest daughter, Capri, who was born just six months before Kobe’s death, was not included in the document. Reportedly, Kobe and his lawyers simply never got around to amending the trust to add Capri before his untimely death at age 41.
A tragic oversight Seeking to fix this oversight, Vanessa Bryant and Kobe’s best friend Robert Pelinka, Jr.—who were named Co-Trustees—petitioned the Los Angeles probate court to modify the trust by adding Capri as a beneficiary with equal rights as her sisters. Unless the court agrees with the petition, Capri will be ineligible to inherit her share of the family estate held in the trust, which could amount to wealth and assets worth hundreds of millions of dollars.
According to the petition, the trust was created in 2003 after the birth of the couple’s first child, Natalia, and its intent was to provide for the support of Vanessa and all of the couple’s children following Kobe’s death. As evidence of this intent, the petition points out the fact that Kobe amended the trust to add daughters Brianna and Bianka after they were born.
Although it’s likely the court will agree to the trust’s modification to include Capri, the fact remains that Kobe and his legal team made a major error by not updating his plan immediately following her birth. This mistake has undoubtedly cost Vanessa not only hefty sums of money in legal fees and court costs, but it also eliminated the trust’s biggest benefits by failing to keep Kobe’s surviving family members out of court and conflict, as well as exposing many of the estate’s details to the public.
And the most unfortunate part of the whole situation is just how easily this oversight could have been avoided.
Stay up to date It’s a popular myth that estate planning is simply a matter of creating the proper documents, filing those documents away for safekeeping, and only revisiting them upon the creator’s incapacity or death. However, this is far from the truth. Indeed, this oversight by Kobe’s lawyers illustrates why most plans—even those created by multi-millionaires—fail to keep families out of court and out of conflict. And though Kobe’s family can easily absorb these costs, your family probably can’t without significant impact.
As Kobe’s case shows, even the most well-intentioned plan can prove ineffective if it’s not regularly updated. Estate planning is not a one-and-done type of deal—your plan must continuously evolve to keep pace with changes in your family structure, the legal landscape, your assets, and your life goals.
And unfortunately, this kind of thing happens all the time. In fact, outside of not creating any estate plan at all, one of the most common planning mistakes we encounter is when we get called by the loved ones of someone who has become incapacitated or died with a plan that no longer works because it was never updated. Unfortunately, by the time they contact us, it’s too late.
We recommend you review your plan at least every 3 years to make sure it’s up to date, and immediately modify your plan following events like births, deaths, divorce, and inheritances.
Dedicated to empowering your family, building your wealth and defining your legacy,
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If you or your parents have a retirement account, (or any investment accounts for that matter) now is a perfect time to get connected to how those accounts are invested. While you may have outsourced all of this to a broker, which is fine, I don’t believe you should ever allow your investments to be made without your clear understanding of exactly what you are investing in as well as how and whether your investments align with your plans for the future.
Some brokers and advisors believe this, too. Unfortunately, because it takes more time to ensure you understand your investments, many brokers and advisors would rather keep you in the dark. Now is not the time (or ever, really) for you to be okay with being in the dark about your investments.
Educate Yourself If you or your parents have a retirement account, and you are not intimately connected to how those assets are being invested, it’s time to get more involved.
Log in to your retirement account or pull your last statement and look. Many brokerages select investment funds for their clients’ portfolios based on rates of growth. They’ll offer investment options based on a few tiers of growth and risk, and very often you have no idea what your assets are actually invested in.
Labels like “slow-growth” or “conservative” or “high-growth” or “income” aren’t enough to tell you exactly where your money is invested. So, what you want to do now is look at your statement, which should contain the names of the funds chosen for you, and you can go from there to do your research. Look up each of the funds on sites like Yahoo Finance to see what you are investing in, and whether you understand these companies, believe in their future growth, and want to stay invested there.
Go through this process with your parents, too. The money they have invested in the stock market is part of your overall family wealth. If it’s not there to support them through their senior years, that financial responsibility will eventually fall to you. Having these conversations with them now can be difficult, but it’s important.
If you have a broker you work with, call them now, and ask to get on a video conference. Then, have them help you review each investment, why it’s been chosen, and whether there may be better or other options for you or your parents.
Here’s the key: make sure you understand it, and don’t hang up the phone until you do. If your broker is using words you don’t understand, keep asking questions until you do understand. If you need a referral to an advisor give us a call.
With everything that is happening in the world—and with the volatility of the stock market and our current reality —knowing your options is vital to preserving the full legacy you and your parents have worked hard to build.
Dedicated to empowering your family, building your wealth and defining your legacy,
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With all the media about “digital wills”
and “online estate planning” it could be tempting to think you can do your
estate planning yourself, online. And, maybe you can. But, if you do, you need
to know the potential pitfalls. Online estate planning could be a big trap for
the unwary and end up leaving your family worse off than if you had done
nothing at all.
First and foremost, before you do any of
your own online estate planning, it’s critical to understand your family
dynamics, the nature of your assets, and what the state of California would say
should happen to your assets if something happens to you. You see, if you don’t
do estate planning, the state does have a plan for your assets if you become
incapacitated or when you die. You need to know what that plan is, so you know whether
you want to change it.
But Don’t I Need a Will and Can’t I Just Do It Online? Here’s the funny thing about estate planning: the one legal document that everyone thinks they need most actually does the least.
Every adult does need SOME estate
planning. A will is always a good idea because it says who gets, and who oversees
distributing, what you have. However, if the default law would have given your
assets to the same people you would choose and authority to the person you
would name anyway, then an online will would probably do nothing valuable for
you at all.
Even a properly drafted will does not
keep your family out of court (a will must always be adjudicated by a judge).
And if drafted improperly, it could require the person you’ve named to handle
things for you to get a bond, which is like an insurance policy. These are
expensive and can be hard to get for an executor who has less than a stellar
credit score. If your named executor cannot get a bond, it would then mean the
court would appoint a court ordered executor, and that can be costly for your
estate. This is just one of the examples of how having a will prepared online,
can create more expense for the people you love. Unfortunately, all the online
will preparation solutions I’ve reviewed don’t even mention this risk.
So, yes, you can do your own will online,
but at what potential cost for the people you love?
The Problem with Online Wills DIY online estate plans (and even many estate plans created by lawyers) usually include three or four basic documents: a will, a financial power of attorney, an advance health care directive, and possibly a trust.
But, honestly, completing these documents
without counsel is simply not enough to guarantee your estate will be executed
as simply, affordably, and effectively as you would wish.
For instance—are you sure there isn’t
some missing consideration that could lead to turmoil as your family tries to
figure it out? Did you know that most family fights don’t even happen over
money, but over lack of clarity? Have you considered all your extended family,
including stepchildren and ex-spouses? What will be done with all the personal,
sentimental items you want to pass on to your children?
And there have been far too many
scenarios where seniors, even those who had some estate planning done, get
caught in the court system or even declared incompetent, and then have
court-appointed guardians named, who then drain their accounts. In many cases,
their assets are gutted before they can go to their kids. You don’t want that
to happen to you or your family and a do-it-yourself will makes that outcome
more likely, not less.
What about making sure your family knows
what you have and where it is? An online will won’t tell them that. There’s nearly
$10 billion being held in the California department of unclaimed property; much
of it because someone died and their family lost track of their assets.
So how can you be sure you’ve got
everything covered, legally?
With online wills and DIY estate planning
docs, you wouldn’t even know what questions to ask to uncover the potential
risks to the people you love, who deserve to receive what you’ve created in
your life, without a big mess.
Think about this: do you know anyone who has lost family relationships because, after a loved one died, the family ended up in an irrevocable fight? Maybe this has even happened in your own family. I see it all the time and the consequences—both, financial and emotional—can be devastating.
And, it’s all unnecessary.
Yes, even if there are attorneys on staff
at these online companies, they don’t get to know you and your family dynamics
enough to spot the real issues that could arise. They are, instead, focused on
a one-size-fits-all solution and easy answers to complex issues.
The Kind of Help Your Family Deserves Many lawyers who specialize in estate planning often base their work on template documents. Even if they are well-intentioned, they’re working with an old, traditional system that places the focus solely on providing documents. But the documents are only as good as the understanding a lawyer has about your family dynamics, the nature of your assets, how the law will apply to your situation, and how the documents can be written as simply as possible to achieve your wishes. You need much more than just a set of four or five filled-out template documents to address all those complexities.
Your plan should include an inventory of your
assets and guarantee they are all owned in a way that will keep your family out
of court and conflict while ensuring everyone named in your plan has what they
need and understands your choices. Most importantly, you should understand
your plan and ensure that it passes along more than just your money.
Do it yourself estate planning is risky.
While it may be better than nothing, it may also be worse. And it won’t be
until after you are gone that your loved ones find out that answer.
Dedicated to empowering your family, building your wealth and defining
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In many families, money matters are not
typical dinner table discussion, but I think it should be. This is especially
true when it comes to affluent parents. And, I hope this changes because one of
the most important things you can do is talk to your kids (and your parents)
According to the Spectrem Millionaire
Corner, a market research group, only 17% of affluent parents said they would
disclose their income or net worth to their kids by the time they turned 18. A
nearly equal amount, 18% said they would never disclose these numbers to their kids. 32% of the parents surveyed by Spectrem
said “it’s none of their business” when asked why they would not talk to their
kids about money.
But, that’s faulty thinking. The amount
of money generated by your family, and what will happen to it when you or your
parents become incapacitated or die is definitely “family” business. In fact,
whether your parents talk with you about it now, or you figure it all out after
they die, your parent’s money has a huge impact on you.
If your parents are not talking to you
about money, it could be because they are afraid that if you know how much
money there is, it will make you lazy, unmotivated, or change the course of
your life decisions in a negative manner. And, maybe you have the same fears of
talking about money with your own kids.
But the truth is that whether you know
exactly what’s there or not, you have a general sense of your family’s
financial situation and it’s already impacted your decisions in a myriad of
ways. And the best way for your family’s money to impact your decisions in a
positive manner is to have open conversation about it.
If you are a child of well-off parents
who are not talking to you about money, consider that your job is to learn to
communicate with your parents in a way that will have them trust you, and the
decisions you will make if you know just how much there is.
When money has come up in the past, have
you behaved immaturely? Have your actions or words caused your parents not to
trust you? If so, you can change that now. And consider the possibility that
your parents would love to see evidence of your maturity in this arena.
If you are a parent yourself, one of the most important wishes you have for your children is probably that they learn to handle money well. And as a parent myself, I know you want to influence them in the most positive way possible when it comes to money (and everything else, for that matter).
Consider how you would want your children
to approach you to have the money conversation, and how you can do exactly that
with your parents?
We all must learn about our family’s
money eventually. And if that doesn’t happen until after our parents die, it
can be a much bigger burden to deal with, and we can lose tremendous
opportunities for passing on more than just money.
As an prosperous parent, or the child of
prosperous parents, getting into conversations about money now is a huge
opportunity to pass on values, insights, stories and experiences that will be
lost if you wait until incapacity or death to start facing that topic.
I believe it’s one of the most valuable,
ongoing conversations I’m having with my children – and parents. And it’s one
of my favorite things to help my clients get going in their own families.
Don’t underestimate the power of these
conversations. Talking to your kids (or your parents) about money is one of
life’s real opportunities for your family to come together and use your whole
family wealth to create more connection from one generation to the next.
Dedicated to empowering your family, building your wealth and defining your legacy,
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Both wills and trusts are estate planning documents that can be used to pass your wealth and property to your loved ones upon your death. However, trusts come with some distinct advantages over wills that you should consider when creating your plan.
That said, when comparing the two planning tools, you won’t necessarily be choosing between one or the other—most plans include both. Indeed, a will is a foundational part of every person’s estate plan, but you may want to combine your will with a living trust to avoid the blind spots inherent in plans that rely solely on a will.
Here are four reasons you might want to consider adding a trust to your estate plan: 1. Avoidance of probate One of the primary advantages a living trust has over a will is that a living trust does not have to go through probate. Probate is the court process through which assets left in your will are distributed to your heirs upon your death.
During probate, the court oversees your will’s administration, ensuring your property is distributed according to your wishes, with automatic supervision to handle any disputes. Probate proceedings can drag out for months or even years, and your family will likely have to hire an attorney to represent them, which can result in costly legal fees that can drain your estate.
Bottom line: If your estate plan consists of a will alone, you are guaranteeing your family will have to go to court if you become incapacitated or when you die.
However, if your assets are titled properly in the name of your living trust, your family could avoid court altogether. In fact, assets held in a trust pass directly to your loved ones upon your death, without the need for any court intervention whatsoever. This can save your loved ones major time, money, and stress while dealing with the aftermath of your death.
2. Privacy Probate is not only costly and time consuming, it’s also public. Once in probate, your will becomes part of the public record. This means anyone who’s interested can see the contents of your estate, who your beneficiaries are, as well as what and how much your loved ones inherit, making them tempting targets for frauds and scammers.
Using a living trust, the distribution of your assets can happen in the privacy of our office, so the contents and terms of your trust will remain completely private. The only instance in which your trust would become open to the public is if someone challenges the document in court.
3.A plan for incapacity A will only governs the distribution of your assets upon your death. It offers zero protection if you become incapacitated and are unable to make decisions about your own medical, financial, and legal needs. If you become incapacitated with only a will in place, your family will have to petition the court to appoint a guardian to handle your affairs.
Like probate, guardianship proceedings can be extremely costly, time consuming, and emotional for your loved ones. And there’s always the possibility that the court could appoint a family member you’d never want making such critical decisions on your behalf. Or the court might even select a professional guardian, putting a total stranger in control of just about every aspect of your life.
With a living
trust, however, you can include provisions that appoint someone of your
choosing—not the court’s—to handle your assets if you’re unable to do so.
Combined with a well-drafted medical power of attorney and living will, a trust
can keep your family out of court and conflict in the event of your incapacity.
4. Enhanced control over asset distribution Another advantage a trust has over just having a will is the level of control they offer you when it comes to distributing assets to your heirs. By using a trust, you can specify when and how your heirs will receive your assets after your death.
For example, you could stipulate in the trust’s terms that the assets can only be distributed upon certain life events, such as the completion of college or purchase of a home. Or you might spread out distribution of assets over your beneficiary’s lifetime, releasing a percentage of the assets at different ages or life stages.
In this way, you can help prevent your beneficiaries from blowing through their inheritance all at once and offer incentives for them to demonstrate responsible behavior. Plus, if the assets are held in trust, they’re protected from the beneficiaries’ creditors, lawsuits, and divorce, which is something else wills don’t provide.
If, for some
reason, you do not want a living trust, you can use a testamentary trust to
establish trusts in your will. A testamentary trust will not keep your family
out of court, but it can allow you to control how and when your heirs receive
your assets after your death.
An informed decision The best way for you to determine whether your estate plan should include a living trust, a testamentary trust, or no trust at all is to meet with a trusted estate planning attorney. Sitting down with your Personal Family Attorney to discuss your family’s planning needs will empower you to feel 100% confident that you have the right combination of planning solutions in place for your family’s unique circumstances.
Dedicated to empowering your family,
building your wealth and defining your legacy,
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On January 1, 2020, the Setting Every Community Up for
Retirement Enhancement Act (SECURE Act) went into effect, and it could have big
implications for both your retirement and estate planning strategies—and not
all of them are positive.
Last week, I gave you a general overview of the SECURE Act’s most impactful
provisions. Under the new law, your heirs could end up paying far more in
income taxes than necessary when they inherit the assets in your retirement
account. Moreover, the assets your heirs inherit could also end up at risk from
creditors, lawsuits, or divorce. And this is true even for retirement assets
held in certain protective trusts designed to shield those assets from such
threats and maximize tax savings.
Here, we’ll cover the SECURE Act’s impact on your financial planning for retirement, offering strategies for maximizing your retirement account’s potential for growth, while minimizing tax liabilities and other risks that could arise in light of the legislation’s legal changes.
Tax-advantaged retirement planning
If your retirement account assets are held in a
traditional IRA, you received a tax deduction when you put funds into that
account, and now the investments in that account grow tax free as long as they
remain in the account. When you eventually withdraw funds from the account,
you’ll pay income taxes on that money based on your tax rate at the time.
If you withdraw those funds during retirement, your
tax rate will likely (but not always) be lower than it is now. The combination
of the upfront tax deduction on your initial investment with the likely lower
tax rate on your withdrawal is what makes traditional IRAs such an attractive
option for retirement planning.
Thanks to the SECURE Act, these retirement vehicles now come with even more
you were required to start taking distributions from retirement accounts at age
70 ½. But under the SECURE
Act, you are not required to start taking distributions until you reach 72,
giving you an additional year-and-a-half to grow your retirement savings
Act also eliminated the age restriction on contributions to traditional IRAs. Under prior law, those who
continued working could not contribute to a traditional IRA once they reached 70
½. Now you can continue making contributions to your IRA for as long as you
and/or your spouse are still working.
From a financial-planning perspective, you’ll want to consider the effect these new rules could have on the goal for your retirement account assets. For example, will you need the assets you’ve been accumulating in your retirement account for your own use during retirement, or do you plan to pass those assets to your heirs? From there, you’ll want to consider the potential income-tax consequences of each scenario.
Your retirement account assets are extremely valuable, and you’ll want to ensure those assets are well managed both for yourself and future generations, so you should discuss these issues with your financial advisor as soon as possible. If you don’t already have a financial advisor, we’ll be happy to recommend a few we trust most.
And if you meet with us for a Family Estate Planning Session (or for a review of your existing plan) to discuss your options from a legal perspective, we can integrate your financial advisor into our meeting. Together, we can look at the specific goals you’re trying to achieve and determine the best ways to use your retirement-account assets to benefit yourself and your heirs.
Here are some things we would consider with you and your financial advisor:
Converting to a ROTH IRA In light of the SECURE Act’s changes, you may want to consider converting your traditional IRA to a ROTH IRA. ROTH IRAs come with a potentially large tax bill up front, when you initially transition the account, but all earnings and future distributions from the account are tax free.
Life insurance trust options Given the new distribution requirements for inherited IRAs, we can also look at whether it makes sense to withdraw the funds from your retirement account now, pay the resulting tax, and invest the remainder in life insurance. From there, you can set up a life insurance trust to hold the policy’s balance for your heirs.
By directing the death benefits of that insurance into a trust, you can avoid burdening your beneficiaries with the SECURE Act’s new tax requirements for withdrawals of inherited retirement assets as well as provide extended asset protection for the funds held in trust.
Charitable trust options If you have charitable inclinations, we can consider using a charitable remainder trust (CRT). By naming the CRT as the beneficiary of your retirement account, when you pass away, the CRT would make monthly, quarterly, semi-annual, or annual distributions to your beneficiaries over their lifetime. Then, when the beneficiaries pass away, the remaining assets would be distributed to a charity of your choice.
The decision of whether to transition
your traditional IRA into a ROTH IRA now, or cash out and buy insurance, or use
a CRT to provide for your beneficiaries is a solvable “math problem.” Using the
specific facts of your life goals as the elements that go into solving the
problem, we can team up with your financial advisor to help you do the math and
solve the equation.
Adjusting your plan While the SECURE Act has
significantly altered the tax implications for retirement planning and estate
planning, as you can see, there are still plenty of tax-saving options
available for managing your retirement account assets. But these options are
only available if you plan for them.
If you don’t revise your plan to accommodate the SECURE Act’s new requirements,
your family will pay the maximum amount of income taxes and lose valuable
opportunities for asset-protection and wealth-creation as well. You’ve worked
too hard for these assets to see them lost, squandered, or not pass to your
heirs in the way you choose, so put this planning at the top of your new year’s
Dedicated to empowering your
family, building your wealth and defining your legacy,
On December 20, 2019, President Trump signed
the Setting Every Community Up for Retirement Enhancement Act (SECURE Act). The
SECURE Act, is effective as of January 1, 2020. The Act is the most impactful
legislation affecting retirement accounts in decades. The SECURE Act has
several positive changes: It increases the required beginning date (RBD) for
required minimum distributions (RMDs) from your individual retirement accounts
from 70 ½ to 72 years of age, and it eliminates the age restriction for contributions
to qualified retirement accounts. However, perhaps the most significant change
will affect the beneficiaries of your retirement accounts: The SECURE Act
requires most designated beneficiaries to withdraw the entire balance of an
inherited retirement account within ten years of the account owner’s death.
The SECURE Act does
provide a few exceptions to this new mandatory ten-year withdrawal rule: spouses, beneficiaries who are not more than ten years younger than the
account owner, the account owner’s children who have not reached the “age of
majority,” disabled individuals, and chronically ill individuals. However,
proper analysis of your estate planning goals and planning for your intended
beneficiaries’ circumstances are imperative to ensure your goals are
accomplished and your beneficiaries are properly planned for.
Under the old law, beneficiaries of inherited
retirement accounts could take distributions over their individual life
expectancy. Under the SECURE Act, the shorter ten-year time frame for taking
distributions will result in the acceleration of income tax due, possibly
causing your beneficiaries to be bumped into a higher income tax bracket, thus
receiving less of the funds contained in the retirement account than you may
have originally anticipated.
Your estate planning goals likely include more
than just tax considerations. You might be concerned with protecting a
beneficiary’s inheritance from their creditors, future lawsuits, or a divorcing
spouse. In order to protect your hard-earned retirement account and the ones
you love, it is critical to act now.
Your Revocable Living Trust (RLT) or Standalone Retirement Trust (SRT)
Depending on the value of your retirement
account, you may have addressed the distribution of your accounts in your RLT,
or you may have created an SRT that would handle your retirement accounts at
your death. Your trust may have included a “conduit” provision, and, under the
old law, the trustee would only distribute required minimum distributions (RMDs)
to the trust beneficiaries, allowing the continued “stretch” based upon their
age and life expectancy. A conduit trust
protected the account balance, and only RMDs–much smaller amounts–were
vulnerable to creditors and divorcing spouses. With the SECURE Act’s passage, a
conduit trust structure will no longer work because the trustee will be
required to distribute the entire account balance to a beneficiary within ten
years of your death. You many now need to consider the benefits of an
“accumulation trust,” an alternative trust structure through which the trustee
can take any required distributions and continue to hold them in a protected
trust for your beneficiaries.
For most Americans, a retirement account is
the largest asset they will own when they pass away. If you have not done so
already, it may be beneficial to create a trust to handle your retirement
accounts. While many accounts offer simple beneficiary designation forms that
allow you to name an individual or charity to receive funds when you pass away,
this form alone does not take into consideration your estate planning goals and
the unique circumstances of your beneficiary. A trust is a great tool to
address the mandatory ten-year withdrawal rule under the new Act, providing
continued protection of a beneficiary’s inheritance.
With the changes to the laws surrounding
retirement accounts, now is a great time to review and confirm your retirement
account information. Whichever estate planning strategy is appropriate for you,
it is important that your beneficiary designation is filled out correctly. If
your intention is for the retirement account to go into a trust for a
beneficiary, the trust must be properly named as the primary beneficiary. If
you want the primary beneficiary to be an individual, he or she must be named.
Ensure you have listed contingent beneficiaries as well.
If you have recently divorced or married, you
will need to ensure the appropriate changes are made because at your death, in
many cases, the plan administrator will distribute the account funds to the
beneficiary listed, regardless of your relationship with the beneficiary or
what your ultimate wishes might have been.
If you are a client, we’ll be reaching out
to you over the coming weeks if your plan is affected by the SECURE Act. If you
are not a client, and don’t have an ongoing relationship with a trusted
advisor, we’d be happy to review your plan to determine if it is affected by
the SECURE Act. And if you have yet to get an estate plan in place, there’s no
better time to get that process started. Let us know if we can help and happy
Dedicated to empowering your
family, building your wealth and defining your legacy,
https://calilaw.com/wp-content/uploads/2019/08/Baby-Boomers-91024.jpg6481152CaliLawhttps://www.calilaw.com/wp-content/uploads/2020/02/Cali-Law-Logo-A5-1-300x99.pngCaliLaw2020-01-09 23:25:572020-01-09 23:26:00SECURE Act: How It Will Affect You and the Beneficiaries of Your Retirement Accounts
In the first part of this series, we discussed a unique planning tool known as a Lifetime Asset Protection Trust. Here we explain the benefits of these trusts in further detail.
If you’re planning to leave your children an inheritance of any amount, you likely want to do everything you can to protect what you leave behind from being lost or squandered.
While most lawyers will advise you to distribute the assets you’re leaving to your kids outright at specific ages and stages, based on when you think they will be mature enough to handle an inheritance, there is a much better choice for safeguarding your family wealth.
A Lifetime Asset Protection Trust is a unique estate planning vehicle that’s specifically designed to protect your children’s inheritance from unfortunate life events such as divorce, debt, illness, and accidents. At the same time, you can give your children the ability to access and invest their inheritance, while retaining airtight asset protection for their entire lives.
Today, we’ll look at the Trustee’s role in the process and how these unique trusts can teach your kids to manage and grow their inheritance, so it can support your children to become wealth creators and enrich future generations.
Total discretion for the Trustee offers airtight asset protection Most trusts require the Trustee to distribute assets to beneficiaries in a structured way, such as at certain ages or stages. Other times, a Trustee is required to distribute assets only for specific purposes, such as for the beneficiary’s “health, education, maintenance, and support,” also known as the “HEMS” standard.
In contrast, a Lifetime Asset Protection Trust gives the Trustee full discretion on whether to make distributions or not. The Trust leaves the decision of whether to release trust assets totally up to the Trustee. The Trustee has full authority to determine how and when the assets should be released based on the beneficiary’s needs and the circumstances going on in his or her life at the time.
For example, if your child was in the process of getting divorced or in the middle of a lawsuit, the Trustee would refuse to distribute any funds. Therefore, the Trust assets remain shielded from a future ex-spouse or a potential judgment creditor, should your child be ordered to pay damages resulting from a lawsuit.
What’s more, because the Trustee controls access to the inheritance, those assets are not only protected from outside threats like ex-spouses and creditors, but from your child’s own poor judgment, as well. For example, if your child develops a substance abuse or gambling problem, the Trustee could withhold distributions until he or she receives the appropriate treatment.
A lifetime of guidance and support Given that distributions from a Lifetime Asset Protection Trust are 100% up to the Trustee, you may be concerned about the Trustee’s ability to know when to make distributions to your child and when to withhold them. Granting such power is vital for asset protection, but it also puts a lot of pressure on the Trustee, and you probably don’t want your named Trustee making these decisions in a vacuum.
To address this issue, you can write up guidelines to the Trustee,
providing the Trustee with direction about how you’d like the trust assets to
be used for your beneficiaries. This ensures the Trustee is aware of your
values and wishes when making distributions, rather than simply guessing what
you would’ve wanted, which often leads to problems down the road.
In fact, many of our clients add guidelines describing how they’d choose to
make distributions in up to 10 different scenarios. These scenarios might
involve the purchase of a home, a wedding, the start of a business, and/or travel.
An educational opportunity Beyond these benefits, a Lifetime Asset Protection Trust can also be set up to give
your child hands-on experience managing financial matters, like investing,
running a business, and charitable giving. And he or she will learn how to do
these things with support from the Trustee you’ve chosen to guide them.
This is accomplished by adding provisions to the trust that allow your child to
become a Co-Trustee at a predetermined age. Serving alongside the original
Trustee, your child will have the opportunity to invest and manage the trust
assets under the supervision and tutelage of a trusted mentor.
You can even allow your child to become Sole Trustee later in life, once he or
she has gained enough experience and is ready to take full control. As Sole
Trustee, your child would be able to resign and replace themselves with an
independent trustee, if necessary, for continued asset protection.
Future generations Regardless of whether or not your child becomes Co-Trustee or Sole Trustee,
a Lifetime Asset Protection Trust gives you the opportunity to turn your
child’s inheritance into a teaching tool.
Do you want to give your child the ability to leave trust assets to a surviving
spouse or a charity upon their death? Or would you prefer that the assets are
only distributed to his or her biological or adopted children? You might even
want your child to create their own Lifetime Asset Protection Trust for their
Dedicated to empowering your family, building your wealth and defining your legacy,
As a parent,
you’re likely hoping to leave your children an inheritance. But without taking
the proper precautions, the wealth you pass on is at serious risk of being
accidentally lost or squandered. In some instances, an inheritance can even
wind up doing your kids more harm than good.
Creating a will or a revocable living trust offers some protection, but in most
cases, you’ll be guided to distribute assets through your will or trust to your
children at specific ages and stages, such as one-third at age 25, half the
balance at 30, and the rest at 35.
If you’ve created estate planning documents, check to see if this is how your
will or trust leaves assets to your children. If so, you may not have been told
about another option that can give your children access, control, and airtight
asset protection for whatever assets they inherit from you.
Asset Protection Trust safeguards the inheritance from being lost to common
life events, such as divorce, serious illness, lawsuits, or even bankruptcy.
But that’s not all they do.
Indeed, the best part of these trusts is that they offer you—and your kids—the
best of both worlds: airtight asset protection AND use and control of the
inheritance. What’s more, you can even use the trust to incentivize your
children to invest and grow their inheritance.
Not all trusts are created equal Most lawyers will advise you to put the assets you’re leaving your kids in a
revocable living trust—and this is the right move. But most lawyers would
structure the trust to distribute those assets outright to your children at
certain ages or stages.
And if you’ve used an online do-it-yourself will or trust-preparation service
like LegalZoom®, Rocket Lawyer,® or any of the newer options frequently coming
online now, you will most likely be offered only two options: outright
distribution of the entire inheritance to your kids when you die, or partial
distributions when they reach specific ages and stages as described above.
Either of those options leaves their inheritance—and your hard-earned and
well-saved money—at risk. Indeed, once assets pass into your child’s name, all
the protection previously offered by your trust disappears.
For example, say your son racked up debt while in college, which can sometimes happen. If he were to receive one-third of his inheritance at age 25, creditors could take his inheritance if it’s paid to him in an outright distribution.
thing would be true if your daughter gets a divorce after receiving her
inheritance, only it would be her soon-to-be ex-spouse who would claim a right
to the funds in a divorce settlement. And despite what you may have heard about
an inheritance remaining separate property, once it’s in your child’s hands, outright and unprotected,
those assets are at risk.
There’s just no way to foresee what the future has in store for your kids—these kind of events happen to families every day. And that’s not even taking into consideration that your kids might simply blow through the money and spend it all on unnecessary luxuries.
Airtight asset protection—and easy access Lifetime Asset Protection Trusts are specifically designed to prevent your hard-earned assets from being wiped out by such risks. And at the same time, your children will still be able to use and invest the funds held in trust as needed.
For example, even though the assets are held in trust, your kids would be able to invest those funds in things like stocks, a business, or real estate, provided they do so in the name of the trust. Plus, if your child needs to pull money out to pay for college, a new home, or medical bills, they can do that by asking a Trustee—who’s chosen by you to oversee the money—for a distribution.
Or, as will cover next week, you may even allow your child to become Sole Trustee at some point in the future, allowing him or her to make decisions about the trust’s management.
Dedicated to empowering your family, building
your wealth and defining your legacy,