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We know there are some concepts around estate planning that can be complicated, confusing or simply not well understood. We’re here to change that once and for all.

What is probate?

Probate is an orderly administration of your affairs supervised by the court. Probate is a function of state law and varies from state to state. If you own real property in more than one state it is probable your estate will be subject to probate in numerous jurisdictions, each imposing their own probate fees.

Probate comes from the Latin word “to prove”. A will must be presented to the probate court and proven to be a valid document. In addition to “proving the will” the probate process also includes:
Officially confirming the personal representative named in the will or appointing a representative, if necessary.
Notifying the court of a deceased person’s death and informing all involved parties (all potential heirs whether named in the will or not) that probate has started.
Taking an inventory of all property and appraising its value.
Paying the deceased person’s debts and taxes.
Preparing a final accounting to the court.
Distributing the remainder of the deceased’s property to the heirs.
Closing the estate.

The disadvantages of probate

We here at Estate Guru Professional want you and your clients to be able to avoid probate and the headaches associated with it. We’ve listed some of those headaches below:

Time Consuming: The probate process can take a few months or as long as several years to complete. The average probate takes about 9-12 months. In complex situations probate lasting 18 months to two years is not unusual.

Costly: Attorney’s fees to probate an estate can run into thousands of dollars. In addition, the executor, inheritance tax referee, and other officers of the court must be compensated. All related probate fees must be paid before any of the decedent’s assets are distributed to the family.

Loss of Control: The probate court controls the entire process. Someone “on the outside” will tell your beneficiaries who gets what and when.

Lack of Privacy: All probate transactions are a matter of public record. Anyone can find out the size, contents and beneficiaries of your estate. This can be embarrassing and frustrating for your family, create disputes, and expose your family to unscrupulous solicitors.

Probate is time consuming, inconvenient, and expensive. Even at best, probate is an unpleasant, emotionally trying experience. At worst, it can be a nightmare.

Revocable Trusts vs. Irrevocable Trusts

A trust is considered revocable if the grantor can modify or dissolve it during their lifetime. The grantor usually acts as the trustee of their revocable trust. Since there is no change in the grantor’s beneficial enjoyment or legal access to assets placed in a revocable trust, there are no income tax advantages nor protection from legitimate creditors as a result of creating a revocable trust.
An irrevocable trust is just the opposite. The grantor relinquishes all control over the trust after it is created and funded with property and/or money. This can be preferable for tax purposes and protection from creditors. The grantor cannot legally act as trustee, and can never take property or money back unless he names himself as a beneficiary and sets terms for distributions to himself as part of the terms contained in the original trust document.

At the present time, the online platform does not create irrevocable trusts.

Note: Technically, for married individuals who create a living trust that includes A/B provisions, they have an irrevocable trust inside their revocable living trust, as the B portion of the A/B trust established at the death of the first spouse is irrevocable.

What is the role of the successor trustee?

The individual named as the trustee stands in a “fiduciary” role with respect to the beneficiaries of the trust, both the current beneficiaries and any “remaindermen” named to receive trust assets upon the death of those entitled to income or principal now. As a fiduciary, the trustee is held to a very high standard, meaning they must pay even more attention to the trust investments and disbursements than they would for their own accounts.

As grantor, your client should make sure that their trustee is familiar with the trust and its provisions. The trustee should know who else is named as a trustee, who the successor trustees are, the order in which they are slated to act, and if they will be acting alone or with someone else. In addition the trustee should know where trust assets, insurance policies (medical, life, disability, long term care,etc) and other important papers are located. Filling out the assets tab with such information is crucial in helping the trustee act in their role.

Using the “People” tab in the online platform, you can share all the necessary documents information with the successor trustee with a simple click of a mouse.

Specifically the trustee acts as the legal owner of trust assets, and is responsible for handling any of the assets held in trust, tax filings for the trust, and distributing the assets according to the terms of the trust.

What is the role of the guardian?

The role of the guardian will essentially be the role that your client has now as a parent – caring for the children, acting in their best interests, and providing for them physically, emotionally, psychologically, spiritually, and culturally.

When considering who could take custody of children, there are a number of questions to address:

– Are they willing to serve as guardian of your children?
– Do they have the maturity and stability to parent your children?
– Do they have the time and energy to take on the task of raising your children?
– Is their age or health a consideration?
– Do they know and love (or at least care about) your children?
– Do your children like them?
– Will they love your children and provide the support, comfort and nurture that your children will need?
– Will they make it possible for your children to visit their grandparents or other relatives or close family friends?
– How far away do they live?
– Do they have room for your children, or will they need extra funds to allow them to add on or buy a larger house?
– Will they need to buy a larger vehicle?
– Are their values and financial lifestyle comparable to yours?
– If your children are homeschooled, how will this be handled?
– Will one parent have to quit work in order to take care of your children?
– Do they share your religious beliefs and practices?

Understanding Power of Attorney

Powers of Attorney are essential documents for every client. Irrespective of wealth or marital or family status every individual 18 years of age or older should execute both a financial and healthcare power of attorney.

Financial power of attorney names someone to make financial decisions for an individual when they are not able to do so for themselves.

Healthcare powers of attorney name someone to make healthcare decisions when they are not able to do so for themselves.

If something happens rendering your client incapable of making financial and medical decisions for themself, without a valid power of attorney, their loved ones will be required to go to court and have a judge officially name a conservator to make those decisions on their behalf. This process is both time consuming and costly. More importantly, it can be avoided altogether by executing two simple documents – a financial power of attorney and a healthcare power of attorney.

Upon death powers of attorney are null and void.

Income Taxes and Revocable Trusts

There is no impact whatsoever on your income taxes because a revocable living trust has been established. For income tax purposes the grantor of a living trust is treated as the owner of assets placed in the living trust irrespective of who is named as the trustee.

There is no need to obtain a separate tax ID number or file a separate tax return for a revocable living trust.

One can use their personal Social Security Number as the tax ID number of their revocable living trust.

Estate Taxes and Revocable Trusts

A living trust DOES NOT provide any estate tax advantages. It’s primary purpose is to keep assets out of probate.

The current thresholds required to trigger a federal estate tax are very high – nearly $11 million for single individuals and by including A/B provisions in your living trust, almost $22 million for married couples. As a result, few individuals have significant enough wealth to worry about triggering a federal estate tax liability.

The online platform will automatically create the A/B Provisions designed to save on estate taxes by leaving some property to irrevocable “B” trust , but allowing the surviving spouse to use it (and any income it produces) during their lifetime. That way, the surviving spouse does not legally own the property, and it won’t be subject to estate tax at their death.

Some states also impose taxes on property transferred because of death. Given the extremely high federal exemptions, it is more likely that one will trigger death taxes at the state level than they will pay a federal estate tax.

Revocable Trusts vs Testamentary Trusts

The basic difference between a testamentary vs. a living trust is when the trust is set up. A testamentary trust is established created when or as a result of the grantor’s death whereas a living trust is established while the grantor is still alive.

A testamentary trust is part of a person’s will. As a result it cannot come into existence until the will is probated. Testamentary trusts are seldom used since avoiding probate is an essential component of a properly structured plan.

Both a living trust and a testamentary trust are revocable during the grantor’s lifetime. Both types of trusts become irrevocable once the grantor dies.

Note: Technically, for married individuals who create a living trust that includes A/B Provisions, they have a testamentary trust inside their living trust, as the B Portion of the A/B trust is not established until the death of the first spouse. In this case, the testamentary trust is not created by a will so no probate is required.

Understanding AB Provisions

A/B provisions only apply to married individuals. The A/B provisions are dormant, until the death of one of the grantors there is only one trust – the couples revocable living trust.
It is at death that the living trust splits into two trusts – trust “A” and trust “B”
Without being disrespectful – here is an easy way to remember which trust is for which spouse. Trust “A” is for the spouse who is still Alive, breathing Air, or Above ground. Trust “B” is for the spouse who is Buried, Below ground, or Bit the dust.

Trust “A” is revocable and under the total control of the surviving spouse. Trust “B” is irrevocable and cannot be modified by the surviving spouse.

The large personal exemption means that most couples do not need A/B provisions within their trust for estate tax purposes. However, an A/B provisions may still be useful if:
You’re not legally married. Ability to use high exemptions is available only to couples whose marriages are recognized by the federal government. So if you and your partner are unmarried, you will not be able to use your partner’s unused personal exemption.
You want to make sure your children receive your property. Especially if you’re in a second marriage, you might want to arrange things so that your surviving spouse can use your property after your death, but that it goes to your children after the second spouse’s death.
You may owe state estate tax. Some states impose their own taxes on property transferred at death; these taxes are in addition to the federal estate tax. Exemptions in these states are generally lower than the federal exemption. So if you live in one of these states, your estate may owe state estate or death tax, even if it does not owe federal estate tax.
A/B provisions trusts offer significant benefits, but they have drawbacks:
Restrictions on the surviving spouse’s use of the property. The surviving spouse has only limited rights to use trust property in the irrevocable “B” trust.
Cost. When one spouse dies, the survivor will need to hire a lawyer or accountant to determine how to best divide the couple’s assets between the irrevocable “B” trust and the surviving spouse’s revocable living “A” trust. How the property is divided can have important income tax consequences.
Trust tax returns. The surviving spouse must get a taxpayer ID number for the irrevocable “B” trust and file an annual trust income tax return.
Record keeping. The surviving spouse must keep separate records for the irrevocable “B” trust property.