More seniors than ever are carrying high debt into retirement. Managing high debt simultaneously with managing the cost of daily living and medical care on a fixed income is a recurring problem in many households. The amount of debt burden has skyrocketed over the past decade.  

 
The National Council on Aging commissioned the Survey of Consumer Finances to study debt and how it impacts seniors economic security. The key findings are listed below:

  • Percentage of households headed by an adult 65 or older with any debt increased from 41.5% in 1992 to 51.9% in 2010 and then to 60% in 2016.

Settling an estate, after the loss of a loved one while grieving, is a difficult process. For the weeks and months that follow the funeral, handling the estate of a deceased individual may quickly overwhelm survivors. The steps outlined below provide a guide to survivors through this tumultuous time.

 
Immediately upon the death of a loved one

After notifying family members and close friends, contact a funeral director. The funeral director is able to assist with funeral and burial arrangements, publish an obituary, order the death certificate, and transport your loved one’s remains to the funeral home.

The advantage of including a trust in your estate plan is that trusts usually avoid probate. The beneficial effect of that advantage is that your beneficiaries may gain access to the assets held in trust faster than those assets transferred via will. When used optimally a trust may minimize estate taxes. Trust can be arranged in many ways and can specify exactly how and when the assets pass to the beneficiaries. What follows are a brief description of the types of trust instruments that may be included in your estate plan.

 

Basic types of trusts

 

 

Marital or “A” trust

Provides immediate benefits to your surviving spouse. However, the assets in the trust are included in the taxable estate of the surviving spouse. The surviving spouse does not pay estate taxes on his or her spouse’s assets, until he or she passes.
 

Bypass or “B” trust

Bypasses the surviving spouse’s estate, providing federal estate tax exemption for each spouse, popularly referred to as a credit shelter trust.
 

Testamentary trust

Assets from the will are transferred into a testamentary trust upon death. The assets are subject to probate and transfer taxes and often continue to be subject to supervision by the Surrogate’s Court.
 

Irrevocable life insurance trust (ILIT)

Designed to exclude life insurance proceeds from the deceased person’s taxable estate while providing liquidity to the estate and/or the trusts’ beneficiaries. This type of trust is irrevocable.
 

Charitable lead trust

Estate assets pass to a charitable or religious organization and the remainder is given to your beneficiaries.
Charitable remainder trust For a period of time the trust provides an income stream to the beneficiary and then any remainder goes to a charity.
 

Generation-skipping trust

Using the generation-skipping tax exemption, a generation-skipping trust permits trust assets to be distributed to grandchildren or later generations without incurring either a generation-skipping tax or estate taxes on the subsequent death of your children.
 

Qualified Terminable Interest Property (QTIP) trust

Used to provide income to a surviving spouse. Upon the spouse’s death, the assets then go to additional beneficiaries named by the deceased. Often used in second marriage situations, as well as to maximize estate and generation-skipping tax or estate tax planning flexibility.
Grantor Retained Annuity Trust (GRAT) Irrevocable trust funded by gifts you make (grantor). It is designed to shift future appreciation on quickly appreciating assets to the next generation during your (grantor’s) lifetime.

 

Consult with a New York trusts and estates lawyer to include a trust as part of your estate plan. Be sure to read our next post, Understanding the Differences Between Revocable and Irrevocable Trusts, to learn about the types of trust instruments that may be included in your estate plan.  

Adding trust instruments to your estate plan can help a surviving spouse and other beneficiaries have access to assets while the rest of the estate is wound up. Especially if there are young children or children with special needs ensuring continuity of financial security to survivors is at the forefront of individuals making end of life decisions. There are many types of trust instruments, such as a marital “A” trust or a bypass “B” trust. These trusts can also be revocable and irrevocable.

 
Revocable or living trusts

A revocable trust permits the passing of assets outside of probate, the legal proceeding that winds up and settles the estate of the deceased person. Also known as a living trust, you (the grantor) are able to retain control of the assets during your (the grantor’s) lifetime. A living trust is flexible. They can be dissolved at any time should you wish to change the beneficiary or you yourself need access to the trust assets for any reason. Once you (the grantor) dies, the living trust becomes irrevocable. A living or revocable trust is subject to estate taxes, unlike an irrevocable trust. Lastly, you are able to name yourself the trustee or co-trustee and retain complete ownership and control over all of the trust assets during your lifetime.

This is the last post in our in-depth series of trusts and why and how to include them in your estate plan. For prior topics, click here. We were last discussing common mistakes we see in the establishment of trust instruments. Our last post examined failing to fund the trust. The next topics surround beneficiary designations and policy titling.

No. 3 – Unintended beneficiaries of retirement accounts and life insurance policies

Trust funds include life insurance proceeds and other accounts and policies payable to beneficiaries. If those accounts and policies do not properly designate your trust as a primary or contingent beneficiary, then those funds will pass to the beneficiary directly, disregarding any of your instructions from the trust document. The result of the distribution may be that your beneficiary receives more or less than you attended or sooner than necessary, defeating the purpose of the establishment of the trust.

We’ve been examining adding a revocable (a/k/a living or inter vivos) trust or irrevocable trust to your estate plan. Trust instruments are an important part of your estate plan, particularly if you have a spouse and young children you wish to provide for upon your death. When mistakes are made, in establishing or setting-up a trust, the errors are borne by your survivors.

 
When problems arise in trusts they tend to involve issues with trust funding, policy titling, and beneficiary designations. When neglected these issues have their way of creeping into the lives of your loved one and will require significant amounts of money and time being spent that could have otherwise been avoided. What follows is a primer on the top 4 scenarios your survivors will need to get through to correct any problems associated with trust funding, policy titling, and beneficiary designation.

 
No. 1 – Avoiding probate

On August 15, 2019, the U.S. Food and Drug Administration (FDA) rolled out thirteen (13) proposed warnings in full-color utilizing graphics for rotation on cigarette packages, meant to encourage people to stop smoking or taking up the habit.

 
According to the U.S. Centers for Disease Control and Prevention, (CDC) the leading cause of preventable death in the U.S. is smoking.

  • Nearly 480,000 people die in the U.S. each year from smoking-related illnesses.

In July, the Trump Administration announced by Executive Order that the United States intends to change how patients with kidney disease are managed in the United States. Instead of receiving dialysis at an outpatient dialysis treatment center, patients will be moved to in-home dialysis treatment. Additionally, by 2025 the Trump Administration has set a goal that 80% of end-stage kidney disease patients should receive home dialysis. This initiative will affect older adults since half of the 125,000 People diagnosed with kidney failure each year are 65 and older.  

 
According to the National Kidney Foundation,

  • 10% of the population worldwide is affected by chronic kidney disease (CKD), and millions die each year because they do not have access to affordable treatment.

There are a range of situations that could prompt a parent to disinherit a child. For example, some children completely ignore their parents. An extreme example is when an adult child tries to commit his parent to a mental institution. A more common example are situations where an adult child physically or financially abuses a parent. But what if you don’t have children? Some nieces and nephews of the will maker are just as awful as some of the wayward children described above. How do you disinherit any close family members and ensure that a will contest will be resolved as you wished?

  1.   Hire legal counsel to draft your will or trust document. If you want to make sure that a family member will be disinherited as you wish in your will, especially if the disinherited person is your child, hire an attorney to draft your will or trust document. Do not rely on a handwritten or internet will. If they were difficult to manage while you were alive, they will be doubly difficult to control once you are dead. An errant child or nephew may try to challenge your will, even if they lose, to force the other children or family members to pay them off. Hate has a funny way of applying both ways.
  2.   Provide details and instructions as to why you are disinheriting your child or family member to your executor. An executor of a will is responsible for submitting the will to probate and will be required to represent your wishes and defend you in court if your will is challenged. Leaving a written explanation as to why you were disinheriting your child or other family member will both explain and corroborate your decision. Demonstrating that your decision to disinherit a family member was a thoughtful process and not simply a rash act will ensure that your actual wishes are followed if challenged. Especially if the family member you are seeking to disinherit is combative with your other children or family members. Remove all doubt that another child or family member pressured you to disinherit the other family member.

It is not uncommon in our region for people to own real property outside of New York State. Increasingly, people own other home or investment properties out of state and even out of the country. A will generally disposes of all of an individual’s assets. The rules are different however if the asset is real property. There are three rules to keep in mind and carefully consider when dealing with assets outside of New York as part of your estate planning process.

Consider the following rules when drafting or revising your will:

  1.   If the out of state asset is real property it is vital to develop your estate plan in conjunction with the law in that locality. Real estate assets are governed by the laws of the country or state in which they are situated. This means that the law of the other locality will determine if the New York will is recognized as valid there with respect to the real property.
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