2024-06-24 by Sue Hunt
Having an estate plan is a great way to ensure you and your loved ones are protected today and in the future. When creating an estate plan, we look at what is going on in your life at that time. But because life is full of changes, it is important to make sure your plan can change to accommodate whatever life throws your way. Sometimes, we can make your first estate plan flexible to account for potential life changes. Other times, we must change or add to the tools we use to ensure that your ever-evolving wishes will be carried out the way you want.
Life is constantly changing. The following are some important events that may require you to reevaluate your estate plan:
It is important to know when you create your first estate plan that you are not locked into this plan for the rest of your life. The following are common changes we can make to your estate plan to ensure that we adequately address your evolving concerns and wishes.
A will (sometimes referred to as a last will and testament) is a tool that allows you to leave your money and property to anyone you choose. It names a trusted decision maker (a personal representative or executor) to wind up your affairs at your death, lists how your money and property will be distributed, and appoints a guardian to care for your minor children. If you rely on a will as your primary estate planning tool, the probate court will oversee the entire administration process at your death. A will may adequately meet some clients' needs.
On the other hand, a revocable living trust is a tool in which a trustee is appointed to hold title to and manage the accounts and property that you transfer to your trust for one or more beneficiaries. Typically, you will serve as the initial trustee and be the primary beneficiary. If you are incapacitated (unable to manage your affairs), the backup trustee will step in and manage the trust for your benefit with little interruption and with less potential for costly court involvement. Upon your death, the backup trustee manages and distributes the money and property according to your instructions in the trust document, again without court involvement.
If your wealth has grown or you have new loved ones to provide for, you may find the privacy, expediency, and potential cost-savings associated with a revocable living trust more appropriate for your situation.
At some point, you may decide that you need life insurance—or more of it—to provide for your loved ones sufficiently. If the value of your life insurance is especially high, you may want to consider adding protections for the funds in your estate plan, as well as engaging in estate tax planning. Both goals can be accomplished by using an irrevocable life insurance trust (ILIT). Once you create the ILIT, you fund it either by transferring ownership of an existing life insurance policy into the trust or by having the trust purchase a new life insurance policy. Once the trust owns a policy, you then make cash gifts to the trust to pay for the insurance premiums. These gifts can count against your annual gift tax exclusion, so you likely will not owe taxes at the point of these transfers. Upon your death, the trust receives the death benefit of the policy, and the trustee holds and distributes the money according to your instructions in the trust document. This tool allows you to remove the value of the life insurance policy and the death benefit from your taxable estate while allowing you to control what will happen to the death benefit. An ILIT can also be helpful if you want to name beneficiaries for the trust who differ from the beneficiaries you name in other estate planning tools.
If you have been contributing to your retirement account over the years, the balance has ideally increased. If you want to provide for minor children or loved ones who are not good at managing money, you may want to name a trust as the beneficiary of your retirement account as opposed to naming your loved ones directly. Naming an individual directly as a beneficiary will allow them to inherit the account without restrictions or protections.
A standalone retirement trust (SRT) is a special type of trust that is separate and distinct from your revocable living trust. It is designed to be the beneficiary of your retirement accounts so that the trust becomes the owner of the account after your death. The SRT is only meant to hold retirement accounts. When the SRT is created as an accumulation trust, the trust can protect the inherited retirement account from the beneficiary's creditors as well as guardianship or probate proceedings. An accumulation trust requires that any withdrawals taken from the retirement account be held in the trust (not given directly to the trust beneficiaries) and distributed to the beneficiaries according to the instructions you lay out in the trust agreement. There are, of course, drawbacks to an accumulation trust. One such drawback is that because income is held in the trust and not automatically distributed to beneficiaries, the income is taxed at the trust income tax rate, which is often higher than the individual beneficiary's tax rate. Most people, however, find that the benefits outweigh this potential burden. An SRT ensures that the inherited retirement account remains in the family and out of the hands of a child-in-law, former child-in-law, or creditor. It can also enable proper planning for disabled or special needs beneficiaries.
This type of trust can also be easier for your backup trustee to administer because they only have to worry about one type of asset: retirement accounts. An SRT can also be helpful if you want to name beneficiaries different from those you have named in other estate planning tools.
As you accumulate more wealth or become more philanthropically inclined, you may wish to include separate tools to benefit a cause that is near and dear to your heart. Depending on your unique tax situation, using tools such as a charitable remainder or charitable lead trust can allow you to use your accounts or property that are increasing in value to benefit the charity while offering you some potential tax deductions.
A charitable remainder trust (CRT) is a tool designed to potentially reduce both your taxable income during life and estate tax exposure when you die by transferring cash or property out of your name (in other words, you will no longer be the owner). As part of this strategy, you will fund the trust with the money or property of your choosing. The property will then be sold, and the sales proceeds will be invested in a way that will produce a stream of income. The CRT is designed so that when it sells the property, the CRT will not have to pay capital gains tax on the sale of the stocks or real estate. Once the stream of income from the CRT is initiated, you will receive either a set amount of money per year or a fixed percentage of the value of the trust (depending on how the trust is worded) for a term of years. When the term is over, the remaining amount in the trust will be distributed to the charity you have chosen.
A charitable lead trust (CLT) operates in much the same way as the CRT. The major difference is that the charity, rather than you as the trustmaker, receives the income stream for a term of years. Once the term has passed, the individuals you have named in the trust agreement will receive the remainder. This can be an excellent way to benefit a charity while still providing for your loved ones. Also, you may receive a deduction for the value of the charitable gifts that are made periodically over the term. These deductions may offset the gift or estate tax that may be owed when the remaining amount is given to your beneficiaries.
If you have not reviewed your estate plan since having or adopting children, you should consider incorporating some additional tools into your estate plan. Some states recognize a separate document that nominates a guardian for your minor child should you be unable to care for them, even if you are still alive. You can also reference this document in your last will and testament. Some people prefer using this separate document because it is easier to change the document than it is to change your will if you want to choose a different guardian or backup guardian for your minor child.
Another tool recognized in some states is a document that grants temporary guardianship (referred to as temporary power of attorney in some states) over your minor child. This can be used if you are traveling without your child or are in a situation where you are unable to quickly respond to your child's emergency. This document gives a designated individual the authority to make decisions on behalf of the minor child (with the exception of agreeing to the marriage or adoption of the child). This document is usually only effective for six months to a year but can last for a longer or shorter period, depending on your state's law. You still maintain the ability to make decisions for your child, but you empower another person to have this authority in the event you cannot address the situation immediately.
We are committed to making sure that your wishes are carried out in the way that you want. For us to do our job, we must ensure that your wishes are properly documented and that any relevant changes in your circumstances are accounted for in your estate plan. If you need an estate plan review or update, give us a call.
2024-04-04 by Sue Hunt
An intrafamily loan is a financial arrangement between family members—one who is lending and another who is borrowing. An intrafamily loan may be used to help a family member who needs money for a number of reasons:
Lending to a child or grandchild can be satisfying. Your loved ones can benefit from flexible repayment terms and interest rates while learning financial responsibility. This can be beneficial if the child or grandchild would otherwise have difficulty obtaining a loan through more traditional methods. It also gives you an opportunity to add to your investment income.
How you give or loan money to family members has potential tax implications. The right method depends on your family circumstances.
An intrafamily loan might be beneficial in estate planning for wealth transfers between generations while minimizing estate tax implications. Further, by using an intrafamily loan to provide money to a family member rather than making a gift, you can maintain control over the principal amount and how it is used.
Intrafamily loans are valuable tools for preserving wealth and offer the following advantages:
Under current tax law, gift and estate taxes are not imposed on gifts up to $13.61 million for individuals and $27.22 million for married couples in 2024. While many people's net worth is not that high, intrafamily loans may be a great option for high-net-worth families.
If the family member receiving the loan invests the money and the investment returns on the borrowed funds exceed the interest rate charged, the excess growth is passed to your family member without being subject to gift or estate taxes. This strategy preserves your lifetime estate tax exemption amount as long as all of the formalities of issuing a loan are observed. However, the initial loan amount (the principal) and interest owed to you will still be included in your taxable estate because the principal and interest are legally required to be paid to you. However, as previously mentioned, the growth in the investment will not be included in your taxable estate.
You might also consider loaning the money to a trust for the benefit of your family member as part of your planning strategy. As opposed to the strategy of loaning funds directly to your family member, the loan would be made to the trust. If the rate of return from investing the loan proceeds exceeds the loan's interest rate, the excess is considered a tax-free transfer to the trust.
With intrafamily loans, you have the flexibility to set the interest rate at a level lower than commercial lenders, as long as the rate is not below the Applicable Federal Rate (AFR) (read below for further discussion on the AFR). The cost savings for the borrower can be significant. Further, if the AFR is high when you initially make the loan, it may be easier to reissue the note from you to take advantage of any future lower interest rates than it would be to refinance a note from a third-party lender.
Intrafamily loans can play a crucial role in transferring a family business from one generation to the next. By providing financing to family members who wish to take over the family business, for example, you can ensure a smoother transition and help sustain the family legacy.
Determining the interest rate for your intrafamily loan is crucial to avoid unnecessary tax consequences. The Internal Revenue Service (IRS) publishes AFRs monthly, broken down into three tiers for short-term, mid-term, and long-term rates. Rates can be fixed or variable and structured to the advantage of both parties. The minimum AFR rate must be charged for loans over $10,000 regardless of a loved one's credit rating, and it is usually lower than most commercial lenders. If the interest rate for your intrafamily loan is below the AFR, the IRS may require you to pay income tax on the income you should have received under the applicable AFR even though the borrower did not pay you that amount (called imputed interest). Also, the amount of interest you did not collect but should have may also be considered a taxable gift to the borrower, potentially reducing the amount of gift and estate tax exemption available to you.
Since the IRS generally assumes that wealth transfers between family members are gifts, it is essential to have the proper documents showing that the transfer is intended to be a loan. You and your family member must sign a promissory note that adheres to the state-specific rules to properly document the loan transaction.
A comprehensive written promissory note is crucial. It helps avoid unnecessary tax consequences and clearly communicates the terms of the loan between family members to avoid misunderstandings and conflicts.
Every financial decision has the power to strain family relationships. When trying to determine if an intrafamily loan is right for your situation, ask the following questions:
You must carefully consider the decision to gift versus use intrafamily loans, including the income, estate, and gift tax implications. The tax rules regarding intrafamily loans are complex and may result in unintended consequences if the loan is not done correctly. If you already have an intrafamily loan in place, it is important to properly document it in your estate plan to ensure that everything will proceed smoothly if you pass away before the loan has been paid back. We are happy to meet with you and your tax advisor to make sure that this strategy is right for you and your family.
2025-04-02 by Sue Hunt
Approximately three-fourths of Americans do not have a basic will.[1] Many of the same people also have children under the age of 18, which underscores a major misunderstanding about estate plans: They can accomplish much more than just handling financial assets (money, accounts, and property).
One of the most important estate plan functions for parents of minor children is the ability to provide specific guidance about how their children will be cared for and who will care for them in case something happens to the parents.
To account for all emergency contingencies concerning you and your children, your estate plan should form a comprehensive safety net that addresses your children's care needs and protects them from the unthinkable.
Three Tools You Need If You Have Minor Children
As parents, we instinctively strive to shield our children from harm and set them up for success, now and in the future.
While we cannot predict the future, we can prepare for it. Estate planning is a crucial step in this preparation, especially when minor children are involved. It is not only about distributing your money and property after your death; it is also about establishing ways to care for your children if you no longer can.
Your death or incapacity (inability to manage your affairs) from a sudden illness or accident is a situation that you would likely rather not think about but must consider in preparing for worst-case scenarios that could lead to a court deciding who cares for your child.
Data on parental mortality is sobering: More than 4 percent of minor children have lost at least one parent.[2] If you wait too long to create your estate plan, it could be too late. More than any other reason, Americans cite procrastination as the reason they do not have an estate plan.[3] Procrastinating on creating your estate plan could mean it will not be there when you—and your children—need it.
To safeguard your children's future, three estate planning tools are particularly important: a will, a power of attorney for minors, and a standalone nomination of guardian.
Last Will and Testament
A last will and testament (also known as a will) is a cornerstone of any estate plan, but it takes on added importance when you have minor children. Your will outlines your wishes regarding the distribution of your money and property after your death. It also allows you to do the following:
Power of Attorney for Minors
A power of attorney for minors, sometimes called a designation of standby guardian or something similar depending on the state, is a legal document that empowers a chosen individual (your agent or attorney-in-fact) to act for your minor child on your behalf. This person steps in to make decisions regarding your child's care if you become incapacitated or unavailable.
The power of attorney can grant the agent broad authority to handle various aspects of your child's life, including the following:
Although the power of attorney grants the agent significant authority, there are limits to what it permits. The agent cannot consent to the child's marriage or adoption. In addition, many state laws impose expiration dates on these documents (e.g., six months, one year), so it is important to review and update them regularly to ensure that they remain valid.
Revocable Living Trust
In addition to a power of attorney, nomination of guardian, and will, the parents of minor children might consider a revocable living trust that holds their accounts and property during their lifetime and distributes them after their death.
You (the parent) maintain control of the accounts and property in the trust while you are alive as the current trustee. You can change the trust's terms as needed because you are the trustmaker, and this type of trust is revocable. A revocable living trust can help avoid probate and give your children faster access to the resources they need. You can also specify how and when your children receive their inheritance, name a successor trustee to continue management of the trust if you suffer incapacity, and provide financial support for the guardian, further synergizing your estate plan.
How These Tools Work Together—and What Can Happen If You Do Not Plan
These three estate planning tools are not interchangeable; they are complementary and designed to work together to address immediate and long-term needs in a range of potential scenarios.
Imagine a scenario where both parents are in a car accident. One parent dies, and the other is severely injured and temporarily incapacitated. The agent named in the temporary power of attorney or delegation of standby guardian immediately steps in to temporarily care for the children.
If the injured parent passes away, the designated guardian (who may be the same person as the agent under the temporary power of attorney) named in the will or standalone document can provide the children with a stable permanent home. The will can be structured so that the children's inheritance is managed through a trust that specifies how and when their inheritances should be spent and distributed.
Failure to have any one of these estate planning tools can lead to complications and unintended consequences for your minor children. For example:
Other Planning Tools and Tips for Parents
Parents should understand that they can only nominate a guardian for their child, not legally appoint one; the court has the final authority to decide, though it gives significant weight to the parents' nomination.
If there is evidence that your chosen guardian is unfit or unable to provide proper care, the court may appoint a different guardian in the child's best interest, even if it goes against your wishes. There is also the chance that a family member could contest your guardianship choice or your first choice of guardian is unavailable.
These outcomes are unlikely, but since they could undermine your wishes, there are additional steps you can take to minimize the risk and strengthen your case.
Fitting Together the Pieces of Your Estate Plan
Each part of an estate plan has a role to play, but they work best when considered as parts of a larger plan that addresses big issues such as the well-being of your minor children.
A will, temporary power of attorney, and standalone guardian document are not interchangeable; they are complementary. Incorporating all three into your plan, alongside other strategies such as a revocable living trust and a letter of intent, addresses the immediate and long-term needs of your minor children in any eventuality.
If you have minor children, estate planning is a necessity. Do not leave your children's future to chance. Consult with us to create a multipoint plan that protects you and your family.
[1] Victoria Lurie, 2025 Wills and Estate Planning Study, Caring (Feb. 18, 2025), https://www.caring.com/caregivers/estate-planning/wills-survey.
[2] George M. Hayward, New 2021 Data Visualization Shows Parent Mortality: 44.2% Had Lost at Least One Parent, U.S. Census Bureau (Mar. 21, 2023), https://www.census.gov/library/stories/2023/03/losing-our-parents.html.
[3] Lurie, supra note 1.
2024-04-04 by Sue Hunt
Probate is the court-supervised process of either (a) carrying out the instructions laid out in the deceased's will or (b) applying state law to distribute a deceased's accounts and property to their family members if the deceased did not have a will. The main purpose of the probate process is to distribute the deceased's money and property in accordance with the will or state law. Not all wills, and not all accounts and property, need to go through probate court. And just because a will is filed with the probate court does not mean a probate needs to be opened. But whether or not probate is necessary, most state laws require that a will be filed when the creator of the will (testator) passes away.
Estates, wills, and probate are distinct, yet interrelated, estate planning concepts.
Assuming that a decedent does have a will, here is how probate typically proceeds:
The length of a probate can vary depending on many factors, including the size of the estate, state laws, and whether the will is deemed invalid or contested.
In some cases, avoiding probate altogether can cut down on the amount of time it takes to wind up a deceased person's affairs. There are also other reasons to avoid probate, such as keeping probate filings out of the public record and saving money on court costs and filing fees.
Beneficiary designations, joint ownership, trusts, and affidavits are common ways to avoid probate, but only if they are done correctly. Here are some examples of these probate-avoidance tools in action:
Filing a will with the probate court and opening probate are separate actions. A will can be filed whether or not probate is needed. Remember that probate is needed only under certain circumstances, such as when the decedent passed away while owning probate assets. Further, not only can a will be filed with the court when a probate is not needed, some state laws actually require it. Some state laws require the person who has possession of a decedent's will to file it with the court within a reasonable time or a specified time after the date of the decedent's death. The consequences for failing to file a will vary by state but may include being held in contempt of court or payment of fines. Additionally, the person in possession of a will might also be subject to litigation by heirs who stand to benefit from the estate under the terms of the will. The latter also applies if the will-holder files a will but does not file for probate. Failing to file for probate (when probate is necessary) prevents inheritances from being properly distributed.
These legal consequences are usually imposed only on a will-holder who willfully refuses to file a will. If someone you love has passed away and you have their will in your possession, we recommend that you work with an experienced probate attorney who can assist you in determining whether a probate must be opened and whether the will needs to be filed.
Probate avoidance may be one of your goals when creating an estate plan. You should also consider implementing tools in your estate plan to minimize issues that may arise if your estate does require probate.
Your will may have been written years ago and might not reflect current circumstances. You could have acquired significant new accounts or property, experienced a birth or death in the family, left instructions that are vague or generic, or chosen an executor who is no longer fit to serve. An outdated or unclear will can spell trouble when it is time to probate your estate, making it important to identify—and address—issues that could lead to problems, including will contests and disputes.
It is recommended that you update and review your estate plan every three to five years or whenever there is a significant life change or a change in federal or state law. You cannot be too careful when stating your final wishes. For help drafting an airtight will that avoids possible complications, please contact us.
2024-06-24 by Sue Hunt
When most people think about creating an estate plan, they usually focus on what will happen when they die. They typically do not consider what their wishes would be if they were alive but unable to manage their own affairs (in other words, if they are alive but incapacitated). In many cases, failing to plan for incapacity can result in families having to seek court involvement to manage a loved one's affairs. It does not matter who you are, how old you are, or how much you have—having a proper plan in place to address your incapacity or death is necessary for everyone. Recently, comedian and late night talk show host Jay Leno had to seek court involvement to handle his and his wife's estate planning needs due to his wife's incapacity.
A conservator is a court-appointed person who manages the financial affairs for a person who is unable to manage their affairs themselves (also known as the ward). The conservator is responsible for managing the ward's money and property and any other financial or legal matters that may arise. They are also required to periodically file information with the court to prove that they are abiding by their duties. To have a conservator appointed, an interested person must petition the court, attend a hearing, and be appointed by a judge. This can be very time-consuming, and there are court and attorney costs that must be paid along the way.
In January 2024, Jay Leno petitioned the court to be appointed as the conservator of the estate of his wife, Mavis Leno, so that he could have an estate plan prepared on her behalf and for her benefit. Unfortunately, Mrs. Leno has been diagnosed with dementia and has impaired memory.[1] Her impairment has made it impossible for her to create her own estate plan or participate in the couple's joint planning. According to court documents, Mr. Leno wanted to set up a living trust and other estate planning documents to ensure that his wife would have "managed assets sufficient to provide for her care" if he were to die before her.[2] Right now, Mr. Leno is managing the couple's finances, but he wanted to prepare for a time when he is no longer able to do so.
On April 9, 2024, the court granted Mr. Leno's petition. According to the court documents, the judge determined that a conservatorship was necessary and that Mr. Leno was "suitable and qualified" to be appointed as such. During the proceedings, the judge found "clear and convincing evidence that a Conservatorship of the Estate is necessary and appropriate."[3]
Although there was a favorable outcome in this particular case, it still took several months for Mr. Leno to be appointed by the court. In addition to the initial filings and court appearances, there will likely be ongoing court filing requirements to ensure that Mrs. Leno's money is being managed appropriately. Had they prepared an estate plan ahead of time, much of this time and hassle would likely have been avoided.
While many people may dismiss the Lenos' experience as something that applies only to the rich and famous, the truth is that you could find yourself in the same situation (although with a smaller amount of money and property at play) if you are not careful. Let's use this opportunity to learn from their mistakes.
We can help you and your loved ones regardless of where you find yourself in the estate planning process. Whether you are looking to proactively plan to ensure that your wishes are carried out during all phases of your life, or if you need assistance with a loved one who can no longer manage their own affairs, give us a call.
[1] Nardine Saad & Meg James, Jay Leno Clarifies Why He Set Up Conservatorship Amid Wife Mavis' Dementia Battle, L.A. Times (Jan. 30, 2024), https://www.latimes.com/entertainment-arts/tv/story/2024-01-30/jay-leno-conservatorship-mavis-leno-dementia-will.
[2] Id.
[3] Alli Rosenbloom, Jay Leno Granted Conservatorship of Wife Mavis Leno's Estate, CNN (Apr. 10, 2024), https://www.cnn.com/2024/04/09/entertainment/jay-leno-granted-conservatorship-of-wife-mavis-lenos-estate/index.html.
