One of the first questions clients often ask me is, what is the difference between a will and a trust, and why should I want one or the other? There are five key things a will can’t do – avoid the expense of probate, immediately transfer your assets to your heirs, protect you and your heir's privacy, avoid estate taxes, and provide incapacity protection. But a complete estate plan with a living trust can handle all of these things.
A Will Does Not Shield Your Heirs from the Expense of Probate
This often comes as a surprise to many people, but it’s true – wills do not avoid probate. If the gross value of your estate is over $150,000 in California, your heirs will have to go through the entire slow, expensive and public process of probate even if you have a will. And probate is expensive. Even a modest estate of $200,000 would incur $14,000 in attorney and executor fees.
A Will Won’t Immediately Transfer Your Assets to Your Heirs
While it is theoretically possible to conclude a probate matter in about 6 months, most estates take even longer. What this means is that your beneficiaries may need the money from the estate but they won’t have access to their inheritance until after the court is satisfied that all creditors have been notified, and the estate is in a position to be closed, and the assets distributed. A trust puts the successor trustee immediately in charge.
A Will Won’t Protect You or Your Heirs’ Privacy
Probate is a public court proceeding. One of the required documents for a probate case is a complete inventory detailing all of the assets, and all of the expenses and all of the income during the time of the probate case. The order for distributing all of the assets details exactly who gets what. In today’s world of identity theft, this information is a treasure trove from a scammers perspective.
A Will Can’t Protect Your Estate from Estate Taxes
Estate tax planning for high net worth individuals involves a number of different legal strategies, but none of them involve creating a simple will. The reason is that a will deals with what is in your estate, and in order to deal with estate taxes, we look at ways to move assets out of your estate.
A Will Provides No Incapacity or Disability Protection
A will only takes effect at a person’s death. But if you are unable to make medical or financial decisions, who will be able to make those decisions on your behalf? An executor under a will won’t be able to help you.
The One thing Only a Will Can Do
In California, the one thing a will can do, but a trust can’t, is nominate a guardian for your minor children. That is one reason why all of our estate plans that include a living trust also include a will. A will is always included as a backup document to a living trust.
Some of the most disturbing crimes against the elderly involve financial exploitation. While physical abuse is often easy to spot, financial abuse can be more difficult to detect, as victims often have no idea they’re being swindled until their money suddenly vanishes.
Most victims are more than 70 or 80 years old, and involve crimes like fraud, embezzlement, identity theft, along with welfare and insurance scams. If you’re caring for an elderly loved one, be on the lookout for the following red flags of financial abuse:
1. Unusual financial transactions or spending
The most obvious sign an elderly family member is being exploited is if there are sudden changes to their spending, banking, and/or financial practices. At the same time, the person may start behaving secretively, confused, or otherwise atypical about money matters. A few of the most frequent actions include:
● Someone who is normally meticulous about their finances suddenly starts seeing unpaid bills, non-sufficient funds warnings, and/or unexplained credit card charges.
● The elderly person starts opening, closing, or changing banking and investment accounts, especially without regard to penalties or fees.
● Someone with consistent spending patterns starts showing a sharp increase in spending and/or investing.
● The person’s account sees a suspicious increase in ATM use, withdrawals, and/or checks made out to unfamiliar recipients.
2. The appearance of a “new” person in their life
Because they’re often alone and isolated, seniors are particularly susceptible to being “befriended” by strangers who take advantage of their loneliness to exploit them. And it may not be a stranger—relatives who haven’t been around for years can suddenly start spending lots of time with the person.
This situation is particularly dangerous when the new acquaintance, caregiver, or relative spends time in the person’s home, where they have easy access to the person's accounts, financial statements, and personal documents.
One sign that something is amiss is if the senior acts unusual when it comes to the new caregiver or friend. They may seem nervous when that person is around, stop participating in their usual social events, or be reluctant to speak about the person with you. This is a red flag the new person may be trying to isolate or control them.
3. Unneeded goods, services, or subscriptions
Outside of loneliness, the elderly are often physically unable to handle household chores and maintenance like they used to. Given this, they’ll likely need service providers to take care of the work for them. But every new person they surround themselves with is a potential swindler.
Watch for unscrupulous door-to-door salesmen and home repair contractors, who stop by offering unsolicited products or services, especially related to home remediation issues. And they don’t have to physically present to perpetrate fraud—there are countless telemarketing and email scams that target unsuspecting seniors in order to make a quick buck or steal their identity.
One fairly common scam involves inviting the older person to a free lunch or dinner in exchange for listening to a “seminar” about a financial product or service. The elderly often feel obligated to “buy something” after getting what they thought was a free meal.
Make sure that another adult relative is present before signing any contracts, and always consult with us if you’re unfamiliar with a new investment or financial opportunity.
4. Changes to wills, trusts, titles, power of attorney, etc.
The worst cases of financial abuse of the elderly can even involve the person making changes to wills, trusts, and other estate planning documents. Other potentially harmful changes can involve deeds, refinanced mortgages, property titles, and/or adding someone to a joint account.
Pay especially close attention if the older person seeks to grant power of attorney to someone out of the ordinary, as this can open the door for massive theft of assets and potentially fatal changes in a senior’s caregiving services.
One major advantage to establishing a relationship with a lawyer during your early years is so we can get to know you while you’re young, healthy, and clear, and then monitor if anything goes awry in your later years.
One reason financial scams are so hard to detect is that the elderly—like all of us—are embarrassed to admit they’ve been swindled, or they may not want to get a new “friend” or relative in trouble by telling others about their suspicions.
However, anyone can fall prey to financial fraud, so it’s important the elderly know that you’ve hired us as your Personal Family Lawyer® to provide trusted advice and guidance for all financial and legal matters. We can help secure your family’s most valuable assets with robust legal protections to prevent fraud and scams of all kinds. Call us today to schedule a Family Wealth Planning Session to make the most empowered and informed decisions for yourself and the family members you love.
This is the check engine light on your estate plan. I’m going to give you ten quick and easy things everyone can check off on their estate plan.
Trusts avoid probate because they are funded with your assets, and yes, that includes your bank accounts. It is important that your successor trustee be able to instantly take on your responsibilities if you should become incapacitated or pass away. If you have assets outside the trust, that hinders their ability to carry out the job you’ve given them. If you’re wondering about adding your child to your bank account, read this first.
2. Real Estate
Have your purchased a new piece of property or refinanced? If you have, you may have a significant asset outside your trust and exposed to probate. Check your deed to see if it names you as trustees or if you’re holding title as something else - joint tenants for example. Talk to your estate panning attorney about any real property not in your trust.
3. Beneficiary Designations
Life insurance and retirement plans are controlled not by a will or trust, but by the beneficiary designations, typically using a form provided by the company. Most of the time these assets should not be placed in your trust, but there are exceptions for both life insurance and retirement plans. If you aren’t sure, check with your attorney.
4. Other Assets
In California it is typical to leave vehicles outside of the trust, but have a general assignment to the trust. Other assets such as business interests and individually held stock shares require specific steps to transfer into the trust.
5. Power of Attorney
Your financial decision maker should have a copy of the document. In addition, your banks should have a copy as well. Most financial institutions have a policy of rejecting Power of Attorney that are over 5 years old. If you just let your power of attorney sit in your trust binder, and 10 or 15 or 20 or more years later your agent dusts it off and brings it into a bank,
6. Health Care Directive
Just like the Power of Attorney should go to the bank, your Health Care Directive should go to your doctor. If there is an emergency, your family shouldn’t have to worry about finding your estate planning binder, digging out the Directive and bringing it to the emergency room. If you give it to them ahead of time, the hospital can just look in their records.
If you created your trust when you children were young, you probably named a trusted relative or friend as the trustee. Now that your children are grown, it is time to review whether that should be changed.
How you distribute your estate is unique to every family, and should be something that is reviewed regularly. Does your estate plan accurately reflect your current wishes of who gets what?
9. Financial Position
Some changes in financial situation can impact how your estate plan works. In some instances recent changes in federal estate tax law can allow estate planning attorneys to simplify your estate plan. If you’ve downsized and simplified, maybe your estate plan should be updated. By the same token, if your proverbial ship has come in, and your estate is significantly larger than it was when you created your estate plan originally, you should review your plan for the best tax and asset protection strategies.
10. Changes in Family Dynamics
Some plans are built around assumptions about how children will react, or particular assets that one or two children care about that the others don’t. You should review those assumptions regularly, and if they’ve changed, make sure your plan can either handle the change, or change your plan.
Your family is relying on having an effective estate plan to save them from legal headaches. Spend a few minutes each year to run through this quick checklist to make sure everything will work the way you want it to work.
Buying a second home can provide you with a place to relax, unwind, and escape from it all. It can also provide you with substantial savings if you take advantage of these tax benefits of buying a second home.
Mortgage interest paid on up to $1.1 million in debt on your first and second homes is fully deductible. Typically, this rule only applies if you treat your second home as a home and not a rental property. But some mortgage interest may still be deductible if you occasionally rent out your second home. To benefit from this deduction, you must use the property for 14 days or more than 10% of the number of days you rent it out a year, whichever is longer.
You can take up to $500,000 in profit from the sale of a home tax-free if it is your primary residence and you meet the two-year ownership and use requirement. Typically, you do not get the same tax benefit from the sale of a second home. But people have taken advantage of this rule by converting their second home to their primary residence before the sale, thus reaping the tax-free profit.
But in 2009, Congress added a few more restrictions to limit the amount of tax-free profit you can take from a second home. Now, a portion of the profit from the sale of a second home is taxable. The portion is determined by the ratio of the amount of time after 2008 you treated the residence as a second home or rental property and the amount of time you owned it.
Buying a second home can offer many benefits. But to maximize the value of your investment, work with a lawyer to make sure you are not overlooking any potential legal, insurance, financial, or tax problems or opportunities. You must meet other requirements—such as living in the home for two years before you sell it—to take advantage of some of these tax benefits. A Personal Family Lawyer® can help you ensure you meet the requirements, so you can reap all the benefits of owning a second home.