Estate planning may seem daunting, both from a legal and a personal standpoint. No one likes to think about what happens after they pass away, but it is nonetheless essential to be thorough and precise no matter which way you choose to protect your assets. In this brief article, the Arenson Law Group, PC team will share five estate planning pitfalls you should avoid.
Each tip we share comes from our estate planning attorney’s 30-plus years of experience helping clients protect their assets and distribute them as they wish upon their death. He continues to stay up to date with the latest laws and practices and provides advisory services to other attorneys in the Cedar Rapids area. If you have questions for him and his team, don’t hesitate to call our office at (319) 363-8199 for a free consultation.
Not Updating Your Plan Frequently
Even as we age, our life situations and the circumstances of our families change. Your children or grandchildren may move or get married. An existing beneficiary could pass away unexpectedly, or there could be a new descendant or friend you’d like to include in your will or trust.
Estate lawyers generally recommend that people take time to review their will or trust every three years, regardless of whether anything has changed in their lives. If your plan is current, chances are better that the probate court will respect your wishes. This may help reduce the duration of any necessary proceedings.
Not Having Backup Beneficiaries or Power of Attorney
A sole beneficiary leaves your estate more vulnerable to lengthy proceedings. If something happens to them, the risk to your finances and assets increases exponentially. Moreover, if they had power of attorney over your care, you won’t have anyone to make important financial and medical decisions for you if you can’t make them yourself.
As an important “insurance policy,” you should have multiple “backup” beneficiaries in your will for all items and assets, and the same is true for your trusts. Even if you have an only child or do not have many living family members, you can still speak with your dearest friends about their role in your estate.
Being Too Specific in a Will
Just as our families and circumstances change throughout our lives, so do our assets. We can dispose of things if they break or sell them to others. Likewise, you might sell certain financial products such as stocks or investments in other markets. If you name an item in your will and it does not exist, there may be legal consequences when the will enters probate.
As you plan your will, make sure you think long-term. Ask yourself: “what assets will I have decades from now that I want to pass down?” If you say no to an item, perhaps consider leaving it under the “residuary estate” category. And don’t neglect to update your will frequently.
Not Accounting for Taxes
Estate taxes can get expensive if your estate meets the monetary thresholds. Even if your estate does not meet the current generous federal threshold, state taxes may still apply. Your beneficiaries may also face gift or transfer taxes on expensive assets or large sums of monetary inheritance.
Specific estate planning tools, such as irrevocable trusts, may have tax incentives that allow your beneficiaries access to more of what was yours. Your attorney can go over these options with you.
Not Planning at All
If you do not have a will or living trust, your estate will go into intestacy after you die. In other words, it is up to a probate court to decide where and to whom your assets go. The court will choose someone to administer the estate, usually a surviving spouse, child, or sibling, and that administrator is responsible for paying final expenses and debts. Once the administrator finishes, they must find any additional descendants. The court will then divide the remainder of the deceased’s assets.
The procedure may seem simple, but intestacy can take a long time, cost substantial legal fees, and result in unwanted heated arguments between family members. By taking the time now to create a will or trust, you will have the peace of mind you need to avoid intestacy and ensure your wishes are respected.
Contact Our Cedar Rapids Estate Planning Attorneys
We never know what the future holds. Don’t wait to begin planning your estate now to secure your finances and support those you leave behind when you pass on. With the Cedar Rapids estate planning attorneys of Arenson Law Group, PC on your side, you’ll have additional peace of mind. For a free initial consultation, contact us today at (319) 363-8199.
A living trust is one of the most commonly used estate planning tools, but what distinguishes a trust from a will?
Rather than make a simple statement of what assets go to what parties, you fund the trust and choose a trustee to administer it according to your wishes. If you’re contemplating becoming the settlor (founder) of a living trust and want to know the advantages and disadvantages of this legal relationship, keep reading.
Pro 1: Flexibility
A living trust is the way to go if you’re seeking maximum flexibility.
Since you (and, later, your surviving trustees) will enforce the conditions of the trust, you can set aside funds that your descendants must use in a certain way. Commonly, settlors set aside funds that their beneficiaries can use for education, real estate purchases, or travel. You can also establish specific conditions that beneficiaries must meet to access the assets, like age or stage-of-life requirements. For example, you can allocate enough money to pay for a future grandchild’s first year of college or their first house after getting married. The trustee will release those funds to the grandchild once they enroll in college or after their wedding.
Depending on the type of trust you create, you may be able to change how your assets are managed while you are still alive. In a revocable living trust, you can submit amendments at any time. Irrevocable living trusts cannot change.
Pro 2: No Probate Necessary
Probate court can be a lengthy, bureaucratic, and overall painful experience for your descendants. Heated arguments between family members about who gets what only add to the stress.
However, if you have a living trust, the assets in the trust will not go through probate proceedings. Rather than an executor or court administering your estate, as they would with a will, your designated trustee handles the business of managing and distributing your assets to the beneficiaries you choose.
Pro 3: Privacy
The privacy advantages of a living trust stem from the fact that assets in the trust do not go through probate court proceedings. Probate is a very public process, and in addition to family members making challenges, so can creditors and con artists seeking to take pieces of your estate for themselves. Any asset distribution under a trust will happen quickly and be invisible to the public eye.
Con 1: Control
A trust is an independent entity. You can manage it while you are alive as both the settlor and the trustee, but despite the wishes and motivations you have recorded, the trustee you designate will control your estate after you die. It will ultimately be up to them to distribute your assets the way you intended. They will determine whether beneficiaries have met the conditions that make them eligible to receive assets for which you set conditions.
Con 2: Responsibility and Paperwork
You are responsible for funding the trust while you are alive. If you don’t put your assets into the trust, your beneficiaries will not have guaranteed access to them upon your death.
Further, remember that only the items in the trust bypass probate proceedings. As such, for best results, you may have to file or refile more paperwork than you would with a will. We advise our living trust clients to ensure their real estate, vehicles, accounts, and other financial products are in the name of the trust.
Con 3: Taxes
This disadvantage depends on the type of trust you use. With a revocable trust, you have more control while you are alive. However, the items you move into and out of the trust are still tied to your taxpayer ID number, and the federal and state government can still charge you income tax, and potentially estate tax, on them.
With irrevocable trusts, you completely transfer ownership of the items from you to the trust itself. There may be gift taxes relating to the transfer, but in the long term, they may not be subject to estate taxes if your estate exceeds the value threshold.
Contact an Estate Planning Attorney Today
At Arenson Law Group, PC, attorney James W. Radig and his team help clients leave the legacy they desire, whether through a trust or a will. We can answer your questions in a free consultation and help you determine which option is best for your situation. Call the Cedar Rapids estate planning lawyers of Arenson Law Group, PC today at (319) 363-8199 to get started.
Estate planning is a way of relieving everyone’s mind after you are gone. You can make all your property dispositions and bequests ahead of time and give yourself the flexibility to change your mind if you choose.
Estate planning laws are always changing, as the Iowa legislature recognizes that people want to maintain maximum control over their estates. Recently, changes were made in the law allowing settlors (the people who fund trusts) to determine who could manage their trusts.
Iowa’s Directed Trust Statute
Prior to July 1, 2020, Iowa courts would assign corporate trustees to manage family trusts after the death of the settlor. After the passage of the Directed Trust Statute, settlors could assign family members to specific roles within the trust. Of course, not all estates are large or complex enough to need these positions. If your estate includes multiple investments or a great deal of property, and you want to ensure it remains with the family through multiple generations, you need to consider including instructions for these positions when establishing your trust.
- Investment Trust Director. This person is responsible for advising the trustee about what parts of the estate to invest, when to buy and sell, and what assets can be sold or reserved.
- Distribution Trust Director. You may have laid out how you want your property distributed when you die, but family dynamics change, and you may not be privy to everyone’s needs when you write your will. A distribution director can help the trustee in distributing the estate with an eye to the immediate needs of your beneficiaries.
- Trust Protectors. If you intend your trust to last more than one lifetime, then you may want someone within the family to monitor the estate. If your beneficiaries include grandchildren or great-grandchildren yet unborn, you may consider assigning someone to monitor the growth of your estate to ensure that everyone will be taken care of down the line. The trust protector’s powers are defined by the trust code.
The Directed Trust Statute was created to help make sure that your wishes and your beneficiaries will be protected long after you’re gone. This protection is one reason that a carefully written trust is a key part of your estate plan. If you have pressing questions about your plans, contact our legal team today.
Benefits of a Living Trust
Living trusts are important to have in your estate plan for other reasons. In general, a revocable living trust gives you control over your assets even after your death. This control can be important when you have many beneficiaries or want your estate divided in particular ways.
- Distribution can be delayed or made conditional upon events. If you want to wait until a child graduates or resolves credit issues before you give them any of your assets, it can be done with a living trust. Minor children are more easily provided for since the trustee simply carries on with the trust distribution until they reach adulthood.
- Special situations can be provided for. Wills and intestacy cannot always include provisions for unforeseen circumstances, but a trustee can usually be appointed for every situation. For instance, if a settlor dies leaving a seriously impaired spouse, a will would simply give the spouse the inheritance. A trust could provide for a trustee, a guardian, and an income.
- Your heirs can avoid probate. There are pros and cons to this. The costs of setting up a living trust can be high, especially if you have a great deal of property. On the other hand, the benefits will be realized at the other end of the process when there is no probate to cope with. A trust will not spare your heirs all inheritance taxes but can avoid some of the highest ones.
- Trusts are much harder to challenge in court. Iowa courts give great weight to the language and intent of the trust, so unless there is clear evidence of a reason to do so. The courts seldom grant modifications to trusts after the settlor’s death.
When you are deciding how to distribute your estate after your death, a living trust is the most flexible of your alternatives. You should discuss your options carefully with your attorney before making any final decisions about your estate.
You should consult a knowledgeable attorney from Arenson Law Group, PC when considering how best to manage your estate. Our Cedar Rapids estate planning attorneys can help you decide the best way to plan your trust in accordance with Iowa statutes. Call us at (319) 363-8199 for a consultation about your estate plans, or contact us online, and we’ll be in touch right away. Let us help you put your mind at ease.