Wednesday, May 30, 2007

Fund the Trust or the Trust Fails

If you have a revocable trust (sometimes called an inter vivos trust or living trust)one of the key steps is the proper funding of that trust. This entails the transfer and assignment of your assets to your trust. For example, you will need to change the ownership and title on your bank accounts and brokerage accounts to the name of the trust. Any real estate that you own should also be transferred to your trust.

So what if you don't get something transferred or forget about something? Depending on the laws of your state and the particular type of asset, it may be necessary to have your entire estate go through the probate administration process. Obviously, this negates one of the primary benefits of using a trust in the first place.

In summary, after you execute your trust document, it is just as important to make the necessary changes in the ownership status of your assets. Consult with your attorney to make sure the proper changes are made.

Thursday, May 17, 2007

Organize Your Information for Smooth Transition

A recent story on MSNBC.com provides good advice about the need to organize your financial information for your loved ones. Dealing with the stress of the loss of a loved family member is difficult enough, but leaving a financial mess for them further compounds their stress level.

Communication is important in making your estate plans and letting your key contacts know where the information is located and keeping it easy to pull everything together, along with a list and contact information for your advisors, such as your attorney, accountant, insurance agent and financial advisor.

The article also noted that a recent survey indicated that 70% of the population does not have a will, and that many parents with young kids -- who critically need an estate plan -- continue to put off getting a will completed. Planning for that scenario is important.

Wednesday, May 16, 2007

Choosing a Trustee/Executor

When you are drafting your estate plan, one of the items that you'll have to decide is who will be the executor or trustee. The person or entity you choose has several certain important decisions and obligations. For example, they will decide whether certain tax elections are made in your estate, whether an allowance is paid to the surviving spouse, where the funds are invested and when distributions are made.

Naming more than one individual as a personal representative may be a solution that avoids any potential deadlock, but it also creates some complexity in the administration of the estate. Naming only one child as the personal representative also creates a potential source of disgruntlement from the other kids. Meanwhile, naming a corporate trustee avoids many of the issues...at a cost.

If you have any potential concerns about how your kids will handle the administration issues, leave the power to a third party alone to decide these questions, or provide for a mechanism for the kids to handle the dispute (mediation, random, etc.

Tuesday, May 15, 2007

And my Treasured Toaster Goes to...

When it comes to money and stocks, it can be fairly easy to divide up your wealth. Giving a percentage of your cash or portfolio to your beneficiaries is straight forward as it doesn't matter which fraction they receive as those types of assets are fungible. However, when you only have one family photo album or one grandfather clock, these assets are typically not able to be easily divided and quite often can lead to bitter disputes over what mom and dad would've wanted. A recent case involving a bitter dispute between siblings is reminding me that these fights happen all too frequently despite easily being able to be avoided.

To avoid those types of fights, planning ahead enables you to potentially resolve the fight with limited "bloodshed". Iowa Code section 633.276 (2007) provides that an individual can leave a signed and dated list to dispose of certain types of personal property. Thus you can determine who gets grandma's wedding ring, mom's fine china, dad's shotgun, etc. This type of list does not need to be notarized or witnessed, but just signed and dated. As this is such a basic procedure not even involving the services of an attorney, there is no excuse for not making a list of your property items. Isn't it worth doing everything possible to preserve family relationships?

Thursday, May 03, 2007

Attorney-in-Fact But Not an Attorney

A common document executed in the estate planning process is a Power of Attorney document. That document confers authority to another person, or persons, to act on your behalf either because you are unable or just want that person to handle certain matters for you. For example, you are in a car accident and can't handle payment of your bills, cash checks, etc., someone can handle those affairs for you. That person's title is the "attorney-in-fact" even though they are not typically an actual attorney in the ordinary sense. You can limit the authority of what the attorney in fact may do, or you can give them broad general powers to do generally anything necessary.

There is a also a Medical Power of Attorney in which you appoint someone to handle your medical and personal decisions, such as what medical treatment you receive or what facility you are placed at. This power only comes into play if you are unable to communicate your wishes.

These aren't required documents to have, but they are strongly recommended. If you don't have such documents in place, there are alternate ways to address these issues, but none are simpler and potentially could become divisive in certain family situations.