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What is a trust?

I recently met with a couple and they were looking at doing some estate planning.  I went through the different options with them, and they said that they understood what a Will is, and they understood that they wanted to help their family avoid probate court if they both died. They wanted to avoid the cost of a probate attorney and the court costs, and they wanted to make things as simple as possible.  They understood all of these very important things and yet they still said they did not know what a trust was and they needed me to help them understand it better.  I explained to them that a trust was an agreement between themselves about how their assets were going to be held and used during their lifetime and then also it was an agreement on how their assets will be distributed when they both die.  The trust would replace the Will and it would operate essentially as a contract between the married couple to ensure that their mutual estate plan gets carried out regardless of which spouse dies first.

 

The couple said that helped but they said they simply were having a hard time understanding it and they said it sounded like in a trust that the children might be able to get to their assets prior to death.  I explained that is not the case.  The children would not be beneficiaries of the trust and had no legal rights to anything in the trust until both spouses died.  This eased the couples mind and I told them that the reason that a trust agreement is generally better for married couples is that a Will offers no mutual planning and no protection for your family and your beneficiaries from remarriage by the surviving spouse and no protection from the surviving spouse simply changing of beneficiaries after the first spouse dies.

 

Most married couples don’t know that when you go to do a Will plan each of you has your own Will and when one of you dies the other spouse, the surviving spouse can go and change their Will at any time, including the day after your funeral.  I have seen it happen before that one spouse dies and the surviving spouse comes in very soon thereafter and wants to change their Will. A lot of times this happens in blended families which is when you are each entering into a marriage and at least one of you has children from a prior relationship.  If you have a blended family then you must understand that a Will offers no protection for the family of the spouse that dies first because the surviving spouse can remarry and/or change their Will at any time and disinherit anybody they choose.

 

The Trust plan is a joint plan that is signed by both spouses, and it allows the couple to agree that if one of them dies then the surviving spouse cannot disinherit the other spouse’s children or family.  That’s the type of protection that we like to offer for clients and they simply can’t get that protection in a Will. The Trust also helps you avoid probate and by avoiding probate that means that your family doesn’t have to hire a lawyer, and by not having to hire a lawyer to settle your estate that means that you don’t have to pay a lawyer up to 5% of your estate assets simply to settle your estate.  Most people don’t know that lawyers can charge up to 5% to settle your estate when you use a Will and that you can avoid that cost by using a Trust.  That is why the trust makes good sense for most married couples.  The Trust is simple, it saves you money and it protects your family no matter which spouse dies first.
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How do you do estate planning if you have a disabled child?

By Ben Humphries, of Kentucky Estate Planning Law Center, of Elizabethtown, KY

The worst thing I have heard this week came from a person who told me that their attorney told them that because one of their three children were disabled that they should leave everything to the other non-disabled children and nothing to that disabled child.  I was shocked and hurt that a fellow attorney would give such horrible advice.  What if, after the parent died, the disabled child needed something?  What if the disabled child lost those government benefits somehow?   Most parents would say that their healthy children can simply use the inheritance to take care of the disabled child.  What if the healthy children die before the parent or die soon after the parent?  Or, even worse, what if the healthy children become disabled as well?  

So, what should the attorney have said to the person?  The person should have been told about a special needs trust that can be used to hold the inheritance for the disabled child after the parent has passed away.  The beauty of a special needs trust is that the parent can leave money to their disabled child, to make sure the disabled child has everything they need and resources if they need to supplement their government benefits, plus the disabled child gets to keep their government benefits such as disability or Medicare.  This is what they call a win-win for everyone involved and also a no-brainer when it comes to doing the estate planning for the parent. 

Upon the death of the parent a share of the inheritance goes into the trust for the disabled child, and can be used for that disabled child (subject to certain limitations provided by the government) and upon the death of the disabled child the money can go to the parent’s other children or the children of the disabled child.  These special needs trusts provide generational planning and you can do this type of planning in a basic will or in a revocable or irrevocable trust.

In fact, we like to put a special needs trust in all of our wills and trusts because you never know if one of your children may become disabled due to an accident or illness and you can easily include this type of planning in your will or trust just in case that situation arises and the trust won’t be used unless it is needed.  Simply put, a special needs trust should be in every person’s tool box when considering estate planning, especially if they have disabled children.

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The Difference Between Revocable & Irrevocable Trusts

Every estate planning strategy will look different based on your individual circumstances and unique family needs. There are so many legal tools at your disposal, sometimes it’s difficult to decide on the best course of action. Of course, an experienced estate planning attorney will provide you with the appropriate guidance, so you can make informed choices. Two commonly used, but often misunderstood estate planning tools are revocable and irrevocable trusts. This post will provide some insight so that you can feel more prepared at your first consultation. 

Trusts

Trusts are incredibly useful tools in estate planning. A trust is a legal arrangement where a person (known as the settlor or grantor) transfers assets, such as property, investments, or cash, to a separate entity (the trust) managed by a trustee. The trustee holds and manages the assets for the benefit of one or more beneficiaries as designated by the grantor. They provide a lot of flexibility and have the added benefit of allowing your loved ones to avoid the time-consuming and costly process of probate.

Revocable Trusts

A revocable trust, also known as a living trust, allows you to maintain control over your assets during your lifetime while designating how they will be distributed after your passing. These are some of the key features and benefits of revocable trusts:

Flexibility: You have the ability to modify, amend, or revoke the trust at any time during your lifetime. This is ideal for those that need an estate plan that is adaptable to their changing needs and wishes over time. 

Probate Avoidance: When assets are held in a revocable trust, they can bypass the probate process after your passing, which allows for a more efficient distribution of your estate. Even with a will, probate can be expensive, and your family will have less control over your estate.

Privacy: The probate process is subject to public record. Many people opt for a trust to keep their assets private and away from public scrutiny. 

Irrevocable Trusts

Irrevocable trusts have many of the same benefits as revocable trusts. In contrast, irrevocable trusts cannot be easily modified or revoked once established. While this loss of control may initially seem daunting, they offer unique benefits for certain estate planning goals:

Asset Protection: By transferring assets into an irrevocable trust, you effectively remove them from your estate, which can provide protection against creditors, lawsuits, and potential estate taxes. This type of trust is commonly used for Medicaid planning or preserving wealth for future generations. This works especially well for those who want to create a nest egg for their children or grandchildren and ensure that the funds are protected from divorce proceedings or frivolous spending. 

Charitable Giving: If you want to donate assets to a charitable cause, an irrevocable trust can ensure that the funds or property are used as intended. This has some potential tax advantages as well as it reduces the overall size and tax value of your estate.

Working With The Right Team

Estate planning can be challenging when left to make all considerations alone, but finding a legal team that respects your estate planning goals and balances compassion with practicality, will make all the difference. Your attorney will help you determine which type of trust is best for your situation and can provide guidance and resources for your loved ones after your passing. 

You have the power to take control of your estate and make sure your legacy of hard work is preserved. At Kentucky Estate Planning Law Center, our team of legal professionals is dedicated to developing the right estate planning strategy for you and your family. For a free consultation, call (270) 982-2883.

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Trust Administration Tips for New Trustees

As a trustee, you play a vital role in the administration of a trust. Trust administration can be complex and time-sensitive, requiring a great deal of attention to detail and a thorough understanding of the trust. It’s important to be fully committed to staying on top of the administration process to make sure that all of your obligations and duties are being fulfilled as outlined within the trust. It can be a daunting task, but there are practical steps you can take to make the process run smoothly.

Understanding Your Responsibilities

A trust doesn’t spring into action on its own. Before accepting a role as trustee, it’s essential to fully understand the duties and time commitments required. As a fiduciary, you have not only a responsibility but a legal obligation to act in the best interest of the beneficiaries of the trust. This can include managing the assets of the trust, making distributions, and maintaining accurate records. Utilizing the legal expertise of an estate planning attorney can help you interpret the terms of the trust and your responsibilities as a trustee. 

Keeping Accurate Records

Staying organized is an important skill for anyone, but especially for a trustee. Maintaining accurate and extensive records of all income, expenses, and distributions or the trust is essential. Records should include details like transaction receipts, dates, dollar amounts, and any notes that may provide context for transactions. These records will not only help you with your duties as a trustee, but it can also protect you from potential liabilities in the event of a dispute.

Communication is Key

Although the beneficiaries are not involved with the administrative side of the trust, they should be kept in the loop about their assets. Having detailed records will also allow you to give reports on the trust and communicate any major developments as necessary. Transparency will help to prevent misunderstandings and potential disputes. If all the cards are laid out on the table, beneficiaries will not have to worry about the status of their assets.

Potential Struggles

Just like any contract, a trust has legal repercussions for failing to follow through on the terms. As a trustee, if your actions or negligence causes any losses suffered by the beneficiaries, you could be held personally liable. Depending on the severity of the mismanagement, it could be considered a breach of fiduciary duty and you could be sued by the beneficiaries or removed as a trustee. In some cases, you could also be ordered to pay damages.

As you can see, being a trustee is a huge responsibility, but you were probably named trustee because the grantor had faith that you were up for the task. The duties of a trustee should not be taken lightly, but with legal assistance, it can be made easier. An experienced estate planning attorney will be able to advise trustees and the grantor in the creation of the trust and understand all obligations so that they can be well-informed before taking on the role. If you have questions about trust administration or would like to begin the estate planning process, call (270) 982-2883 for a free consultation.

Revocable Trust

Revocable Trusts: Easiest Way to Not Pay Twice!

When you’re looking to reduce your probate tax and preserve as much of your estate as possible for your beneficiaries, a revocable trust can help you achieve both goals. Unlike their irrevocable counterpart, revocable trusts can be amended or revoked at any time and without anyone’s permission. You retain control of all trust assets for as long as you are competent and, after you pass, they can be distributed to beneficiaries according to the terms of the trust document.

Benefits of a revocable trust include: 

  • Avoid probate. A revocable trust permits assets to pass to heirs without going through probate, which can be costly and time-consuming. In most cases, a successor trustee takes over without court oversight.
  • Avoid ancillary probate. In the case of out-of-state property, shifting it into a revocable trust and registering the deed to the trust can avoid certain probate issues.
  • Protection in the event of incapacitation. If a grantor becomes incapacitated, a successor trustee can take over, and that trustee has a fiduciary responsibility to manage trust assets.

Another advantage that is often overlooked is the ability to avoid double taxation. More on that below.

Avoid Double Taxation

From an income tax perspective, revocable trusts are the simplest trust arrangement. Trust income is taxable during the lifetime of the creator, who retains full control over the trust’s terms and its assets. Taxpayer identification numbers of trusts will typically be the same as the creator’s Social Security numbers during their lifetime. The trust itself will not file a tax return, and all income, deductions, and credits will be reported on the creator’s personal income tax return. In other words, a revocable trust is technically invisible to the IRS and Kentucky state taxing authorities. 

Pay Close Attention to Trust Funding

Although revocable trusts can help you avoid double taxation, extra costs can arise if you don’t transfer all assets that may be subject to probate after you pass. If this happens, all property outside the trust becomes subject to probate. Your estate ends up in probate court and you technically pay twice: first, to set up the revocable living trust to avoid probate; and second, to have non-trust assets probated after your death. Being aware of this potential outcome can help you plan accordingly.

Questions About Revocable Trusts? Speak to a Kentucky Estate Planning Lawyer

While this guide is an excellent starting point for understanding revocable trusts, it doesn’t cover all of the details of setting one up, transferring assets, and managing it. An experienced estate planning attorney can help you understand the advantages (and disadvantages) of revocable trusts as estate planning vehicles, so you can make an informed decision. To schedule a no-obligation consultation, contact Kentucky Estate Planning Law Center today.

Probate

Your Guide to Administration of a Probate Estate

If your loved one died with an estate, and you were designated as the administer of that estate while it goes through probate, it is important to understand your legal rights and responsibilities. Probate is the process of settling an estate by distributing the assets to the beneficiaries according to the will. Although both processes can be overwhelming at first, with a little assistance, it becomes manageable. To help you navigate the probate and trust administration process, we have provided an overview of some of the most common tasks involved as well as tips for getting through the process as smoothly as possible.

How to Probate an Estate

The first step in administering an estate is to file a petition for probate with the local probate court. The court will notify any creditors with an interest in the estate. Creditors have six months from the time of notification to file claims seeking payment from the decedent’s estate. During this time, you should ensure that any outstanding bills are paid and that the estate has adequate funds to pay the claims after the claim period expires. Once the probate petition has been filed, the court will appoint an administrator for the estate who will be responsible for managing and distributing the assets of the estate to the beneficiaries according to the terms of the will. The administrator will also have the responsibility of notifying the beneficiaries of the decedent’s death and preparing any necessary tax forms.

Managing the Estate After the Creditors’ Claim Period Expires

Once the creditors’ claim period has expired, the administrator will be responsible for closing out the decedent’s accounts and paying any remaining debts associated with the estate. If the estate has no outstanding debts at the time of the decedent’s death, nothing will need to be paid and those assets can be distributed to the beneficiaries according to the terms of the will. The administrator is also responsible for making arrangements for the transfer of assets. Typically, this will involve placing real estate in the name of the heirs and selling any other major assets if necessary. Some assets may need to be sold for the benefit of the estate in order to cover expenses such as taxes and debts. The administrator will need to notify all interested parties before a property is sold in order to ensure that their interests are protected. After the property is sold, the proceeds will be deposited into an estate account and all expenses incurred during the administration of the estate will be deducted from the account before they are distributed to the beneficiary(ies). When the assets are to be distributed, the administrator will prepare a final report listing all of the assets that were transferred and the costs associated with the administration of the estate. This report will be presented to the court for approval before it is presented to the beneficiaries for their review.

While this guide is a great start to the probate process, it doesn’t cover all of the ins and outs of the probate process. In order to ensure that you are fully prepared for your role as an executor or administrator, it is highly recommended that you consult with an experienced estate planning attorney prior to starting the process. Kentucky Estate Planning Law Center is here to help make probate simple – contact us today for assistance in your own probate process.

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What’s the Big Deal With Going Through Probate Court?

If you’ve taken a look around a few estate planning websites, you’ve likely heard claims of how detrimental or painstaking probate court is. In fact, one of the most common reasons for creating an estate plan is to avoid probate. Very few of those websites, however, take the time to explain exactly why probate should be avoided and how to ensure that your estate stays out of probate. That’s something we’re seeking to remedy today by clearing up some misconceptions about avoiding probate and detailing the benefits of doing so.

Why Should I Avoid Probate?

To start, the probate process usually consists of verifying the decedent’s will, appointing an executor to the will, and then following the process of determining which assets should be distributed to the beneficiaries after paying the decedent’s debts. Depending on the size of the estate, this process could take a lengthy period of time. With more time and complexity comes more expenses in handling the probate of the estate, and this reason alone is enough to convince most to do their best to avoid probate. 

Keeping an estate out of probate also means that your assets will not become part of the public record. This may or may not be a significant selling point for you, but to some with large estates, keeping the details of their assets away from the public eye is essential – leading them to undergo the effort of ensuring that their estate will not need to go through probate.

Avoiding Probate Can Be Difficult

How difficult it is for you to avoid probate depends heavily on the size and complexity of your estate, but for some, will be automatic. If the total value of an estate in Kentucky is less than $30,000, it will not enter into probate and instead will enter into an expedited process. For those who want to avoid probate entirely, a trust is often used to transfer assets out of the control of the owner, and into the control of the trust. Legally, the individual no longer owns those items, and so they won’t be included in the value of their estate.

Some items are considered non-probate property, and also won’t be included in the valuation of the estate. This mainly includes jointly-owned property which is passed onto a partner automatically upon the death of the other, such as shared houses or bank accounts. In order to avoid probate, every asset which is considered probate property is transferred into a trust, effectively leaving no items (or less than the minimum required for probate) to be distributed in your will. 

With this process, avoiding probate is possible; however, it can become difficult for some to stay on top of transferring every necessary asset into the trust. This method poses a significant risk, as the costs of upkeeping a trust could be for naught if not kept up to date. If enough property is left out of the trust, the estate will be forced into probate regardless, which means that we’ve effectively cost ourselves more money by paying both to upkeep the trust and for the probate process. 

If you’re seeking to avoid probate, you’ll need the most experienced estate planning attorneys around. Look no further than Kentucky Estate Planning Law Center. Our team approach means that we’re able to create a comprehensive plan that will work for you, and we offer ongoing updates to your estate documents, ensuring that your plan is never out of date. To get started with your own estate plan, contact us today