Monday, August 24, 2015

How To Choose The Right Trustee For Your Estate

No one enjoys thinking about their own mortality, but we all want our families to be well-cared for after we’re gone. Many people set up trusts to help provide for loved ones and favorite causes after they pass away. A trust can help manage the wealth you wish to transfer and ensures the efficient distribution of assets—such as property or a sum of money—over a set period of time.

Yet a trust is only as strong as the trustee overseeing it. Choosing the right trustee is vital to ensuring that your beneficiaries enjoy the legacy you intend to leave behind. Rick Friedman, senior vice president and financial advisor at RBC Wealth Management, offers some important considerations.

The Role of a Trustee

A trustee is a person or financial institution that administers a trust for the benefit of named beneficiaries. Their duties can range widely and may include paying bills and taxes, overseeing property, and making sure investments are managed properly. Above all, says Friedman, a trustee “has a legal fiduciary duty to manage a trust on a beneficiary’s behalf,” by always acting in the beneficiary’s best interests, as outlined by the trust.

A trustee’s role is significant, especially when you consider  trusts are commonly used when the trust is intended to provide for children or family members with special needs, who could require extensive assistance with overseeing their property, health, education and financial affairs. Trusts can also be used as a way to ensure that a spendthrift beneficiary is not given a single lump sum of money that could be mismanaged.

estate planning docs

The Traits of a Trustee

The job of a trustee is neither easy nor quick. Overseeing a trust could mean years of active engagement with the estate’s beneficiaries. For this reason, Friedman insists, it is essential to put careful consideration into who you choose.

While a trustee does not need advanced legal or financial knowledge, he or she does need to be someone you trust implicitly. Proximity to the beneficiaries is another important consideration to ensure duties can be performed swiftly and without undue travel expense.

“Above all,” says Friedman, “you want someone who is of sound mind—and body,” so be sure the person you choose has the energy and mental acuity to take on all responsibilities.

The Trustee’s Commitment

Managing a trust is a heavy responsibility and requires a candid conversation with the potential trustee. A trustee needs to know up front what is being asked of him or her. What is the estimated time commitment? What are the daily, weekly and monthly duties? How long will this person be expected to administer the trust?

It’s not uncommon for a person—no matter how close a friend or family member—to balk when asked to be a trustee due to the potential time and energy administering a trust can demand.

“What you see as an honor that you are bestowing on someone, they may actually see as a headache,” Friedman notes. Depending on what you’re asking them to oversee, it could be a huge responsibility that may weigh heavily in their lives for a long time.

Friedman also emphasizes the importance of periodically reevaluating your chosen trustee because circumstances can change. Was it a friend you have grown apart from, or a parent who may now be too old to take everything on? If so, it may be time to consider a new trustee.

Hiring a Trust Company

Because of the potential difficulty in finding a qualified person who is willing to undertake administering a trust, some people hire a trust company to manage their estate.

“One of the best reasons to choose a trust company is that they are unemotional,” says Friedman. A professional company is completely detached from the situation and will not be swayed, for example, by family members tearfully asking for more money. “There are definitely fewer family feuds when trust companies are involved,” Friedman says.

Trust companies can also bring expertise and experience that a non-professional trustee can rarely match.

The potential downside to hiring a company, notes Friedman, is that trust companies charge a fee—which varies and is usually a percentage of the estate—whereas a friend or family trustee will often not charge for their services.

Flexible Trust Language

Finally, Friedman emphasizes the importance of having language in your will that allows you to assign new trustees. “You want to have some flexibility in your trust language so that you can alter trustees if something changes,” he says. Friedman uses the economic downturn of 2008 when some people lost faith in their banks and wanted to change financial institutions, as an example of the importance of being able to change trustees.

Which is why Friedman says it is important to be somewhat flexible.

“After all, you want a little leeway in your trust language because everything changes—except death, of course.”

Source: Forbes

Monday, August 17, 2015

Review your estate plan against this 14-point checklist

Many Americans have estate plans in place — but unfortunately, many are incomplete and the most important subjects aren’t even addressed. 

I compiled a 14-point checklist to help create a sound estate plan, but first, if you don’t have an attorney who specializes in elder law, I strongly recommend that you get one. Start by visiting The National Academy of Elder Law Attorneys website and click on the red “Find an Attorney” button. To search for a local attorney, try the American Bar Association Lawyer Referral Directory.

And if you need a financial adviser, here are a few tips for finding a competent, honest financial adviser willing to work for a reasonable fee. To find a certified financial planner, use the CFP Board’s search tool. To consider a fee-only adviser that charges by the hour, try The National Association of Personal Financial Advisors. 

Now, your estate plan should include:
A will provides instructions for distributing assets to your family and other beneficiaries.. You will also appoint someone to be an executor to pay final expenses, taxes, etc. and then distribute the remaining assets. If you have minor children, a will is also a way to designate a guardian for them. A will doesn’t take effect until you die and it cannot provide for management of your assets if you become incapacitated. That’s why it is necessary to have other estate planning documents in place which become effective if you should be unable to act.
  • A durable power of attorney designating who will handle your business affairs and health-care decisions if you are disabled or unable to act.
A power of attorney is a legal document in which you name another person to act on your behalf. You can give this person/agent broad or limited powers. You should choose this person carefully because he or she will be able to sell, invest and spend or distribute your assets. A traditional power of attorney terminates upon your disability or death. A durable power of attorney continues during incapacity and terminates upon your death.
  • A power of attorney for health care (living will).
A health-care power of attorney authorizes the person you designate to make medical decisions for you in the event you are unable to do so yourself. This document, coupled with a living will are necessary to avoid family conflicts and even court intervention should you become unable to make your own health care decisions.

A living will provides your wishes regarding the use of life-sustaining measures in the event of a terminal illness. It says what you want done and what you don’t want done but doesn’t give any individual the legal authority to speak for you. That is why it is usually coupled with a health-care power of attorney.
  • A revocable living trust to transfer, manage and distribute assets while you are alive and that will avoid probate after your death.
There are many different kinds of trusts, which are usually put in place to minimize estate taxes. Each trust has benefits and should be discussed with your attorney. There are marital trusts, charitable trusts, generation-skipping trusts, bypass trusts, testamentary trusts, qualified terminable interest property trusts, and so on.

A revocable living trust is a trust often used in estate plans. By transferring assets into a revocable living trust, you can manage your financial affairs during your lifetime and provide management if you become incapacitated. A revocable living trust lets trust assets avoid probate, keeps personal information private, and can designate the disposition of trust assets to future generations.
  • A form where you can list all your assets and where they are located.
  • A do not resuscitate, or DNR, medical order written by a doctor. It instructs health-care providers not to do cardiopulmonary resuscitation (CPR) if a patient’s breathing stops or if the patient’s heart stops beating. Some feel this is an important document while others don't.
  • A legacy letter. This is a document designed to pass “ethical values” from one generation to the next. Traditional wills involve what you want your loved ones to have. Ethical wills involve what you want your loved ones to know.
  • A discussion with your attorney involving whom you want to inherit various assets.
  • A decision as to whom you want making medical decisions if you are unable to act yourself.
  • A list of how you want your assets distributed. Have this discussion with your attorney and/or spouse or appropriate family member, trustee, etc.
  • A decision as to whether you want to name a guardian for your minor children, if any.
  • A discussion with your accountant/CPA and attorney as to the tax consequences of your estate plan.
  • Check your digital footprints. Most people aren’t aware of the full extent of their digital presence and a review of the steps necessary to protect online information after your death or if you are no longer able to act is warranted.
  • Letters to your spouse/family. Consider writing a letter to your spouse or family regarding your wishes should you need to be removed from life support. This letter will make their doing so a great deal easier if you reiterate that this is your wish with a personal, not formal, request.
Source: MarketWatch

Wednesday, August 12, 2015

5 Tips For Handing Down Your Wealth

You’ve spent a lifetime building your estate. Now it’s time to decide how it will be distributed. Handing down your wealth is not as simple as writing a check or naming a beneficiary; you want to make the best decisions to preserve your financial legacy. Thomas Brockley, senior vice president and branch director at RBC Wealth Management, shares some tips on how to maximize your giving and ensure your wishes are followed.

1. Explore Charitable Remainder Trusts

When donating to charity, structure your gift carefully to help your recipient receive the most from your bequest, Brockley advised. If you’re donating highly appreciated assets, such as stocks, you may wish to work with the charity and your financial advisor to set up a charitable remainder trust.

With a charitable remainder trust, the stock is removed from your taxable estate and held in a trust while you’re alive, then transferred to the charity when you pass away, he said. During your lifetime, you’ll get an income stream and receive an income-tax deduction for the value of the gift in the year it was given.

While a charitable remainder trust is ideal for highly appreciated assets such as stocks and real estate, you also can fund the trust with cash.

adult hands key to child

2. Keep It In The Family

If you’re passing a family business to the next generation, you may want to consider a life insurance trust, Brockley said. Whether your estate includes prime Manhattan real estate, a family dairy farm or a chain of retail stores, a number of taxes and fees will need to be paid—such as insurance premiums, mortgage payments, property taxes, utilities and accounting fees—while your estate is still being settled. A life insurance trust will provide the funds for your heirs to pay those bills.

For real estate bequests (if you are passing down a family vacation home, for example), consider establishing an irrevocable personal residence trust. Assets placed in such a trust count against the federal $5.43 million gift tax exclusion. The value of the property increases outside your estate and estate taxes are based on the value of the property at the time it was placed in the trust. Adding life insurance in the trust will ensure your heirs receive funds to pay the immediate bills and taxes on the property.

3. Set Guidelines

An old accounting maxim says, “Trust, but verify.” In this case, the wording could be changed to, “Create a trust, but specify.”

To set guidelines on how and when an inheritance will be spent, you can set up trusts for your children and grandchildren—as opposed to making direct monetary bequests. Careful wording in the trust will help further ensure your heirs don’t fritter away the estate you spent years building. Language in the trust can clearly spell out what the money can be spent on (college) and cannot be spent on (a new Porsche, Botox or trip to Tahiti), Brockley said.

“You probably don’t want a grandchild at age 19 to get a million dollars to spend however they want to,” he warned.

He’s seen it happen. One young client spent $50,000 of a quarter-million dollar inheritance in just a couple of weeks, he said. The client bought a car, wrecked it the next day and then bought another one.

4. Consider A Corporate Trust Manager

Choosing the right trustee is also key. A family member may be your best option for a smaller estate, but if the estate is larger than $500,000, you might be better off hiring a corporate trust manager, Brockley advised. That corporate trust manager will ensure that requests for funds are only approved if they fit within the trust parameters.

“You could have nieces and nephews going to their uncle and saying ‘I know I was only supposed to get X but I need more,’” Brockley said. “If the uncle says no, you have one less guest at the Christmas table. The corporate trustee can say, ‘Here are the rules and that’s it.’”

5. Check Names

Finally, it may sound basic, but periodically check the beneficiaries on your accounts to make sure your estate goes to the right people, said Brockley. That’s an easy step that people often ignore.

“A young person’s first insurance policy might name their mother as beneficiary,” he said. “Now they’re married and have two kids. You have $100,000 of insurance going to the mother. The mother can’t give all the proceeds to the daughter-in-law because of gifting limits.”

With the right plan in place, your estate will be passed along according to your wishes, and your loved ones and favorite causes will all benefit.

Source: Forbes

Wednesday, August 5, 2015

The Widow's Guide To Estate Planning And Wealth Transfer

Drawing up a will can be an emotionally taxing process. But it’s one that becomes especially difficult when a spouse is left to cope with the task after their partner passes away. Suddenly, what was once a joint decision made with a lifelong partner becomes a task a widow must face alone.

Cinda J. Collins, senior vice president and financial advisor at RBC Wealth Management, knows this all too well. Despite having two years to prepare for her husband Bob’s passing when he was diagnosed with acute myeloid leukemia, Collins found the financial and emotional implications of settling his estate after he was gone were often overwhelming.

To help other widows cope with the process, Collins, along with Deborah Johnston, senior vice president and financial advisor at RBC Wealth Management, offer some advice on how couples can approach estate planning together, as well as what a surviving spouse should do in the unfortunate event their partner passes.

senior woman with financial planner

Start With A Professionally Drafted Will

To be as prepared as possible in the event of a spouse’s passing, Collins emphasizes the importance of speaking to an estate attorney as a couple, to ensure all affairs are in order. This way, if a spouse passes unexpectedly, the surviving partner will have less to tackle.

“A widow gets bombarded with all the things she’ll have to do, so it’s essential to have everything as organized and up-to-date as possible,” Collins says. Johnston agrees. “No matter what your net worth … just to have a professionally drafted will is a big step in the right direction.”

After contacting an estate attorney, a couple will likely be provided with an information packet outlining all the topics to consider and documents to bring to the initial meeting.

“If they have life insurance, they should bring that policy and a net-worth statement helps a lot that tells how different properties are titled,” Collins says.

In addition, couples with young children should consider guardianship before sitting down with an attorney. “It’s going to be more cost effective and make the meeting more meaningful,” Collins says.

If a spouse dies without a will in place, the consequences can be far reaching. “You really do a disservice to your family. They are already grieving, and then everything is tied up in courts and someone else is interpreting what is going to happen to your family’s assets and it’s out of your hands,” Collins says.

Remember, even with a will, the probate period can be arduous. While it varies from state to state, Johnson says the process for settling an estate once a will enters probate takes an average of six to nine months.

Open A Bank Account in Your Name

One of the biggest surprises for widows, says Collins, is that joint accounts are frozen when a spouse passes away. “It was a big issue for me personally because, like many couples, we had all of our investments, prepayments and home equity line of credit [paid out of] our joint account, which was frozen for 60 days.”

Thankfully, Collins had a separate account in her own name that she used to handle immediate expenses. She also had the foresight to put her joint account in a trust before her husband’s passing, which stipulated in the event of his death, the assets would transfer to Collins, allowing her access to the funds within 24 hours.
 “If someone was strictly to have a bank account, they’re going to have to go somewhere else because the bank doesn’t free up those assets until they have a death certificate and the necessary documents to say who is going to be the owner of this money,” Collins says.

Update Beneficiaries And Titles Of Ownership

To avoid a long, and potentially expensive, probate process, it’s essential for widows to update beneficiaries in cases where the spouse was a named heir, says Johnston. They should also ensure the beneficiaries in the will match those listed on the assets themselves.

For example, if the will states that the grandchild will inherit the funds from a life insurance policy, but the actual policy states that the child is the beneficiary, then it is the child and not the grandchild who will inherit the funds. Beneficiaries listed on assets such as insurance policies, 401(k)s and IRAs take precedence over designations in a will.

“It’s a process. You don’t just have a beneficiary and never readdress it,” Collins says. “Whatever the beneficiary is with the institution where you have that account – that’s where it’s going and not where your estate documents may say. It can create cause for emotional duress and confusion for family members,” she warns.

After the passing of a spouse, it’s also a good idea to ensure all titles for assets are updated, says Johnston. She recommends changing titles on anything with ownership attached, including bank accounts, cars and boats. The titles need to reflect the correct owner for sales, borrowing money against them and more.

“So many times we see people get the documents in place, but don’t do the final step of retitling things and renaming beneficiaries,” Collins says.

Have A Good Support System

The complexities of estate planning make it important to rely on experts for help. Estate lawyers, accountants and financial advisors are invaluable resources who can help ensure the estate planning process runs smoothly.

Just as it’s important to rely on experts for technical support in the estate planning process, Collins suggests a bereaved spouse also turn to a third-party expert—like a grief counselor or clergy—for emotional support.

“Remember, family and friends are grieving too, so it’s good to have someone else to help you stay focused and organized,” says Collins. She also suggests that the recently bereaved may find it beneficial to bring a friend to any estate-related meetings. “In a state of grieving, it can be very easy to forget things. Bring someone along with you who can take notes and remind you of things you should be doing.”

Source: Forbes

Monday, August 3, 2015

The Million-Dollar Guide To Estate Planning

Estate planning is essential for everyone, no matter how simple or small the estate. But once your estate edges close to $1 million, the complexities increase.

Unless your estate is valued at more than $5.43 million—or $10.86 million for a married couple—you’re exempt from federal estate taxes. But some states impose estate and/or inheritance taxes at a lower threshold, with most around $1 million to $2 million, although the cutoff is only $675,000 in New Jersey.

A comprehensive estate plan can help to maximize what your heirs receive and ensure that your wishes are followed.

Understanding Wills Vs. Trusts

Most people start their estate plan with a will, said Bill Ringham, senior manager of Wealth Strategies at RBC Wealth Management. That’s because wills are relatively easy and inexpensive to create. But for more complicated estates—as those that exceed $1 million often are—a will may not be the only solution to consider.

Wills are a matter of public record, which means anyone can find out the value of your estate and who your beneficiaries are, Ringham said. “A very public figure such as a politician, entertainer or professional athlete might not want people to know what they’re leaving in their estate,” he said. “Or, someone might not want people to know exactly how much is being directed to their children and how much is being directed to charity.

For a more private resolution after death, many people with larger estates choose to put their assets in revocable trusts, also called living trusts. You transfer assets into the trust and those assets are managed by a trustee—often that trustee is you—for your benefit while you’re still alive. As the name implies, the trust can be modified during your lifetime. When you pass away, the trust can specify that assets be distributed to your beneficiaries, or a successor trustee can be named to manage and control the trust for your heirs.

A revocable trust can include real estate, cash and non-retirement/non-qualified investments accounts, non-qualified annuities, and tangible personal property such as cars. Retirement accounts such as 401(k)s and
-deferred IRAs cannot be placed in a revocable trust. There is no minimum amount for establishing a revocable trust, but such trusts become more attractive as an estate becomes more complex and exceeds $1 million, Ringham said.

“With a trust, no one can see where you’ve left your money,” Ringham said.

Family Estate planning document

 Trusts often take less time to settle than wills, since wills must also go through probate. Administering an estate with most assets in a revocable trust could take six to nine months, Ringham said. Probating a will, especially in several states, could add three months to the typical timeline for a trust, he said. Cost varies by state.

“Many of our clients, especially northerners, have homes in more than one state—a primary home in New York, a home in Florida, another home in California,” said Barry Zischang, an RBC Wealth Management consultant. “Going through probate in three states will be expensive and a lot more work. By having individual homes titled in a trust, you can avoid that.”

Setting up the initial trust document isn’t necessarily more difficult than setting up a will, but trusts do require some additional work, Ringham said. After you set up the trust, you have to change the title in all applicable assets from your name to the name of the trust. If you don’t, the title of the accounts takes precedence over your will or the trust and it may take longer for funds to be released to your heirs.

Give While You’re Alive

While planning for the distribution of your assets after you pass, you can also start giving them away during your lifetime. Since the rules vary by state and each family situation is different, it’s important to consult an experienced financial advisor regarding tax implications that may apply

You can give $14,000 per year ($28,000 per year for married couples) to a child, grandchild or anyone else you choose without it counting as a gift under the federal gift-tax exclusion. That’s especially appealing if your estate has grown past the level of being exempt from state or federal taxes.

“[For] every dollar that you move out of your estate, your heirs save [approximately] 40 cents in taxes,” Ringham said.

If you give more than that $14,000, it counts as a taxable gift and taxes are imposed not on the recipient, but on you as the giver, Zischang said. You don’t have to pay those taxes, but you do have to file a gift tax return and the gift counts against your individual estate exemption of $5.43 million, he added.

However, there are two unique instances where you can exceed that $14,000 individual annual limit with no tax consequences.

“You may pay somebody’s tuition at an educational institution in unlimited amounts and that is not considered a gift,” Zischang said. But the payment must be for tuition only—not for books or room and board. And you must pay the money directly to the educational institution—not to the child, grandchild, other recipient or their parents.

The other exception is paying medical bills. “If your child or grandchild goes to the hospital and gets a bill for $100,000 they can’t pay, you can pay the hospital or other provider directly and that is not considered a gift either,” Zischang said. You could even help pay for health insurance as long as you write the check directly to the insurance provider, he added.

Irrevocable Trusts

As your assets grow beyond the $5.43 million federal estate tax threshold, you may want to set up an irrevocable trust. Assets placed into an irrevocable trust are removed from your estate, which can make it an especially attractive option for any assets you expect to increase in value, such as stocks and real estate, Ringham said. The assets you put into an irrevocable trust still count against the $5.43 million gift exclusion, but any growth or appreciation occurs outside your estate.

There are some downsides: An irrevocable trust can’t be terminated or modified except under special circumstances. Ringham also pointed out that you will have to draft and file separate tax returns for the irrevocable trust.

A well-thought-out estate plan is crucial to ensuring that your wishes will be followed after you’re gone. With the right tools and the help of an experienced estate planner, even a large estate can be handed down to your heirs in exactly the way you intend.

Source: Forbes