The Petrosewicz Law Firm Estate Planning Blog

What Is a Pour-Over Will?

If the goal of estate planning is to avoid probate, it seems counterintuitive that one would sign a will, but the pour-over will is an essential part of some estate plans, reports the Times Herald-Record’s article “Pour-over will a safety net for a living trust.”

If a person dies with assets in their name alone, those assets go through probate. The pour-over will names the trust as the beneficiary of probate assets, so the trust controls who receives the inheritance. The pour-over will works as a backup plan to the trust, and it also revokes past wills and codicils.

Living trusts became more widely used after a 1991 AARP study concluded that families should be using trusts rather than wills, and that wills were obsolete. Trusts were suddenly not just for the wealthy. Middle class people started using trusts rather than wills, to save time and money and avoid estate battles among family members. Trusts also served to keep financial and personal affairs private. Wills that are probated are public documents that anyone can review.

Even a simple probate lasts about a year, before beneficiaries receive inheritances. A trust can be settled in months. Regarding the cost of probate, it is estimated that between 2—4% of the cost of settling an estate can be saved by using a trust instead of a will.

When a will is probated, family members receive a notice, which allows them to contest the will. When assets are in a trust, there is no notification. This avoids delay, costs and the aggravation of a will contest.

Wills are not a bad thing, and they do serve a purpose. However, this specific legal document comes with certain legal requirements.

The will was actually invented more than 500 years ago, by King Henry VIII of England. Many people still think that wills are the best estate planning document, but they may be unaware of the government oversight and potential complications when a will is probated.

There are other ways to avoid probate on death. First, when a beneficiary is added to assets like bank accounts, IRAs, life insurance policies, or stock funds, those assets transfer directly to the beneficiary upon the death of the owner. Second, when an asset is owned JTWROS, or as “joint tenants with the right of survivorship,” the ownership interest transfers to the surviving owners.

Speak with an experienced estate planning attorney to talk about how probate may impact your heirs and see if they believe the use of a trust and a pour-over will would make the most sense for your family.

The Petrosewicz Law Firm can assist you with your estate planning and trust needs.  Contact us today at (281) 344-9455 or [email protected].  

Reference: Times Herald-Record (Sep. 13, 2019) “Pour-over will a safety net for a living trust.”

Can a Trust Be Amended?

A son has contacted an elder law estate planning attorney now that mom is in a nursing home and he’s unsure about many of the planning issues, as reported by the Daily Republic. The article, “Amending trust easier if parents can make informed decision,” describes the family’s situation.

There is one point to consider from the start. If the son had been involved in the planning from the start, in a family meeting with the attorney and discussions with his parents, he might have less uncertainty about the plan and the details.

As for the details: the parents are in their 90s, with some savings, a few annuities, a CD and a checking account. They also have five acres of land, which has their home and a duplex on it and 12 additional acres, with a rental property on it. Everything they own has been placed in a family trust. The son wants to be able to pay her bills and was told that he needs to have a power of attorney and to be named trustee to their trust.

He reports that his parents are good with this idea, but he has a number of concerns. If they are sued, will he be personally liable? Would the power of attorney give him the ability to handle their finances and the real estate in the trust?

If his parents have a revocable or living trust, there are provisions that allow one or more persons to become the successor trustees, in the event that the parent becomes incapacitated or dies.

What happens when they die, as they each leave each other their share of the assets? The son would become the trustee, when the last parent passes.

Usually the power of attorney is created when the trust is created, so that someone has the ability to take control of finances for the person. See if the trust has any of these provisions—the son may already be legally positioned to act on his parents’ behalf. The trust should also show whether the successor trustee would be empowered to sell the real estate.

Trusts can be drafted in any way the client wants it written, and the successor trustee receives only the powers that are given in the document.

As for the liability, the trustee is not liable to a buyer during the sale of a property. There are exceptions, so he would need to speak with an estate planning attorney to help with the sale.

More specifically, assuming the trust does not name the son as a successor trustee and also does not give the son power of attorney, the bigger question is are the parents mentally competent to make important decisions about these documents?

Given the age of these parents, an attorney will be concerned, rightfully so, about their competency and if they can freely make an informed decision, or if the son might be exercising improper influence on them to turn over their assets to him.

There are a few different steps that can be taken. One is for the son, if he believes that his parents are mentally competent, to make an appointment for them with an estate planning attorney, without the son being present in the meeting, in order to determine their capacity and wishes. If the attorney is not sure about the influence of the son, he or she may want to refer the parents for a second opinion with another attorney.

If the parents are found not competent, then the son may need to become their conservator, which requires a court proceeding.

Planning in advance and discussing these issues are best done with an experienced estate planning attorney, long before the issues become more complicated and expensive to deal with.

The Petrosewicz Law Firm can assist you with your estate planning and trust needs.  Contact us today at (281) 344-9455 or [email protected].  

Reference: Daily Republic (Aug. 10, 2019) “Amending trust easier if parents can make informed decision”

Will a Spendthrift Trust Keep Your Kids Out of Trouble?

It sounds like a spendthrift trust would be all about keeping your children from buying expensive sportscars or jewelry with their inheritance, but that’s not the only reason for this trust, says Kiplinger in “How to Keep Your Heirs from Blowing Their Inheritance.” They’re also useful if there’s a divorce, substance abuse or when the kids just don’t know how to handle money.

We all want the best for our kids, and if we’ve been fortunate, we are happy to leave them with a nice inheritance that makes for a better life. However, regardless of how old they are, we know our children best and what they are capable of. Some adults are simply not prepared to handle a significant inheritance. They may have never learned how to manage money or may be involved with a significant other who you fear may not have their best interests in mind. If there’s a problem with drug or alcohol use, or if they are not ready for the responsibility that comes with a big inheritance, there are steps you can take to help them.

Don’t feel bad if your children aren’t ready for an inheritance. How many stories do we read about lottery winners who go through all their winnings and end up filing for bankruptcy?

An inheritance of any size needs to be managed with care.

A spendthrift trust protects heirs, by providing a trustee with the authority to control how the beneficiary can use the funds. A trust becomes a spendthrift trust, when the estate planning attorney who creates it uses specific language indicating that the trust qualifies as such, and by including limitations to the beneficiary’s control of the funds.

A spendthrift trust also protects assets from creditors, because the heir does not own the assets. The trust owns the assets. This also protects the assets from divorces, lawsuits and bankruptcies. It’s a good way to keep the money out of the hands of manipulative partners, family members and friends.

Once the money is paid from the trust, the protections are gone. However, while the money is in the trust, it enjoys protection.

The trustee in a spendthrift trust has a level of control that is granted by you, the grantor of the trust. You can stipulate that the trustee is to make a set payment to the beneficiary every month, or that the trustee decides how much money the beneficiary receives, including everything from the amount, the date and what circumstances are required for the money to be distributed.

For instance, if the money is to be used to pay college tuition, the trustee can write a check for tuition payments every semester, or they can put conditions on the heir’s academic performance and only pay the tuition, if those conditions are met. If there’s a drug issue, the payments can be made contingent on clean drug tests.

For a spendthrift trust, carefully consider who might be able to take on this task. Be realistic about the family dynamics. A professional firm, bank, or investment company may be a better, less emotionally involved trustee than an aunt or uncle.

Speak with an estate planning attorney to determine whether a spendthrift trust is appropriate for your situation. Expect to need to share some personal details to ensure that your attorney fully understands exactly why this kind of trust is needed, and to name an effective trustee. Remember that you are not punishing your heirs, you’re protecting them.

The Petrosewicz Law Firm can assist you with your estate planning and trust needs.  Contact us today at (281) 344-9455 or [email protected].  

Reference: Kiplinger (June 5, 2019) “How to Keep Your Heirs from Blowing Their Inheritance.”

Should My Estate Plan Include a Trust?

There are as many types of trusts, as there are reasons to have trusts. They all have benefits and drawbacks. What type of trust is best for you? The answer is best discussed in person with an estate planning attorney. However, an article from U.S. News & World Report titled “8 Things to Know About Trusts,” gives a good overview.

Revocable or Irrevocable? Revocable trusts are usually established for a person (the grantor) during their lifetime, and then pass assets to the named beneficiaries, when the grantor dies. The revocable trust allows for a fair amount of flexibility during the grantor’s lifetime. An irrevocable trust is harder to change, and in some cases cannot be changed or amended. Some states do allow the option of “decanting” trusts, that is, pouring over assets from one trust to another. You’ll want to work with an experienced estate planning attorney to be sure trusts are set up correctly and achieve the goals you want.

Trusts can protect assets. Irrevocable trusts are often used, when a grantor must go into a nursing home and the goal is to protect assets. However, this means that the grantor no longer has access to the money and has fundamentally given it away to the trust. Putting assets into an irrevocable trust is commonly done to preserve assets, when a person needs to become eligible for Medicaid.  The trust must be created and funded five years before applying for benefits. Irrevocable trusts can also be used to obtain veteran’s benefits, if they are asset-based. VA benefits have a three-year look-back period, as compared to Medicaid’s five-year look-back period.

Trusts can’t own retirement accounts. Trusts can own non-retirement bank accounts, life insurance policies, property and securities. However, retirement accounts become taxable immediately, if they are owned by a trust.

Trusts help avoid probate after the grantor’s death. Most people think of trusts for this purpose. Assets in a trust do not pass through probate, which is the process of settling an estate through the courts. Having someone named as a trustee, a trusted family member, friend or a financial institution, means that the assets can be managed for the beneficiaries, if they are not deemed able to manage the assets. Another good part about trusts: you can direct how and when the funds are to be distributed.

Trusts offer privacy. When a will is filed in the courthouse, it becomes part of the public record. Trusts are not, and that keeps assets and distribution plans private. A grantor could put real estate and other personal property into a trust and title of ownership would remain private.

Tax savings. Before the federal estate tax exemptions became so high, people would put assets into trusts to avoid taxation. However, state taxes may still be avoided, if the assets don’t reach state tax levels. You can also transfer funds into an irrevocable trust to transfer it to others, without making it become part of a taxable estate. This is something to discuss in detail with an estate planning attorney.

Irrevocable Trusts can be expensive. If you are considering an irrevocable trust as a means of controlling the cost of an estate, this is not the solution you are looking for. Trusts require careful administration, annual tax filings and other fees. You may also lose the advantage of long-term capital gains by putting assets into trusts, since they are taxed upon withdrawal, and usually based upon current market value. The marginal rates for trust income of all kinds apply at much lower levels, so that the highest marginal taxes will be paid on very low levels of income.

Work with an experienced trusts and estates lawyer. Trusts and their administration can be complex. Seek the help of a trusts and estates attorney, who will be able to factor in tax liability and the impact of the trusts on the rest of your estate plan. Remember that every state has its own laws about trusts. Finally, an estate plan needs to be updated every few years. For example, trusts that were set up for a far lower federal estate tax exemption several years ago are now out of date, and may not work to achieve their intended goal. The laws changes, and the role of trusts also changes.

The Petrosewicz Law Firm can assist you with your estate planning and trust needs.  Contact us today at (281) 344-9455 or [email protected].  

Reference: U.S. News & World Report (March 29, 2019) “8 Things to Know About Trusts”

When Should You Have Your Estate Plan Done?

But don’t pat yourself too much — you’re not done yet. A will is not a static instrument, says The Item in its recent article “Don’t wait until high noon.” If laws change, which happens regularly, or your life changes, you need to review your will and be aware of any significant changes that may have an impact on your will and its goals.

Marriage, divorce, birth, adoption and death are some of the key trigger events in life that call for a review of your will. Some of these events seem very obvious, but others aren’t. That is when problems can arise. For instance, if a widow or widower remarries, the will needs to be updated to clarify how the new spouse and the children from prior marriages are to be provided for.

Welcoming a new child into the family is an event to celebrate, whether by birth or adoption. The will needs to add the new child. However, there’s another step that may be even more important. A will is used to name a guardian for the child, so the parents may name a person to rear their child in their absence. If a guardian is not named, then the court will select someone who might have not been the parent’s first (or even second) choice.

The death of an executor, beneficiary, guardian or trustee named in the will also means that the will needs to be updated. If the person who has died is a beneficiary, their name needs to be removed.  You may want to reconsider how assets are distributed. For executors, guardians or trustees, remember to add a secondary person for each role.

What if you inherit an unexpected fortune? You’ll definitely need to review your will, since your estate tax liability may have changed. Even if you don’t owe federal estate taxes, there may be state estate taxes to plan for. If you suffer a large financial loss, you’ll need to review your will, since the generous gift you had planned on leaving to a nonprofit. may no longer be available.

Some changes to wills occur because people change their minds about how they want to distribute their assets, or who they want to handle their post-mortem responsibilities. If you have a falling out with an executor, for instance, that change needs to be made in a timely manner.

If you have not reviewed the beneficiaries who are named on your life insurance policies and retirement accounts, and any other accounts where beneficiaries are named, you’ll want to do that too. If your will says cousin Andrew gets your life insurance policy proceeds, but his sister Stella is the one named as the beneficiary, then only Stella receives the proceeds. The named beneficiary is a contract that cannot be challenged or changed, regardless of what your will says.

If you don’t yet have a will, now is the time to make an appointment to meet with an estate planning attorney in your community. Remember that estate laws are set by the state of your residence, so an experienced estate planning attorney in your area is your best source.

The Petrosewicz Law Firm can assist you with your estate planning and trust needs.  Contact us today at (281) 344-9455 or [email protected].  

Reference: The Item (Feb. 15, 2019) “Don’t wait until high noon”

Using Trusts to Maintain Control of Inheritances

Trusts, like estate plans, are not just for the wealthy. They are used to provide control, in how assets of any size are passed to another person. Leaving an inheritance to a beneficiary in a trust, according to the article from Times Herald-Record titled “Leaving inheritances to trusts puts you in control,” can protect the inheritance and the asset from being mishandled.

For many parents, the inheritance equation is simple. They leave their estate to their children “per stirpes,” which in Latin translates to “by roots.” In other words, the assets are left to children according to the roots of the family tree. The assets go to the children, but if they predecease you, the assets go to their children. The assets remain in the family. If the child dies after the parent, they leave the inheritance to their spouse.

An alternative is to create inheritance trusts for children. They may spend the money as they wish, but any remaining assets go to their children (your grandchildren) and not to the surviving spouse of your child. The grandchildren won’t gain access to the money, until you so provide. However, someone older, a trustee, may spend the money on them for their health, education and general welfare. The inheritance trust also protects the assets from any divorces, lawsuits or creditors.

This is also a good way for parents who are concerned about the impact of their wealth on their children, to maintain some degree of control. One strategy is a graduated payment plan. A certain amount of money is given to the child at certain ages, often 20% when they reach 35, half of the remainder at age 40 and the balance at age 45. Until distributions are made to the heirs, a trustee may use the money for the person’s benefit at the trustee’s discretion.

The main concern is that money not be wasted by spendthrift heirs. In that situation, a spendthrift trust restricts payments to or for the beneficiary and may only be used at the trustee’s discretion. A lavish lifestyle won’t be funded by the trust.

If money is being left to a disabled individual who receives government benefits, like Medicaid or Supplemental Security Income (SSI), you may need a Special Needs Trust. The trustee can pay for services or items for the beneficiary directly, without affecting government benefits. The beneficiary may not receive any money directly.

An estate planning attorney will be able to review your family’s situation and determine which type of trust would be best for your family.

The Petrosewicz Law Firm can assist you with your estate planning and trust needs.  Contact us today at (281) 344-9455 or [email protected].  

Reference: Times Herald-Record (Feb. 16, 2019) “Leaving inheritances to trusts puts you in control”

Does Anyone Really Need a Trust?

The simplest definition of a trust is a three-party fiduciary relationship between the person who created the trust and the fiduciary for the benefit of a third party. The person who created the trust is known as the “Settlor” or “Trustor.” The fiduciary, known as the “Trustee,” is the person or organization with the authority to handle the asset(s). The trustee owes the duty of good faith and trust to the third party, known as the “Beneficiary.”

That is accurately described by the Pittsburgh Post-Gazette in the article titled “Do I need a trust?”

Trusts are created by the preparation of a trust document by an estate planning attorney. The trust can be made to take effect while the Trustor is alive — referred to as inter vivos — or after the person’s death — testamentary.

The document can be irrevocable, meaning it can never be changed, or revocable, which means it can change from one type of trust to another, under certain circumstances.

Whether you even need a trust, has nothing to do with your level of assets. People work with estate planning attorneys to create trusts for many different reasons. Here are a few:

• Consolidating assets during lifetime and for ease of management upon disability or death.
• Avoiding probate so assets can be transferred with privacy.
• Protecting a beneficiary with cognitive or physical disabilities.
• Setting forth the rules of use for a jointly shared asset, like a family vacation home.
• Tax planning reasons, especially when IRAs valued at more than $250,000 are being transferred to the next generation.
• Planning for death, disability, divorce or bankruptcy.

There is considerable misinformation about trusts and how they are used. Let’s debunk a few myths:

An irrevocable trust means I can’t ever change anything. Ever. Even with an irrevocable trust, the settlor typically reserves options to control trust assets. It depends upon how the trust is prepared. That may include, depending upon the state, the right to receive distributions of principal and income, the right to distribute money from the trust to third parties at any time and the right to buy and sell real estate owned by the trust, among others. Depending upon where you live, you may be able to “decant” a trust into another trust. Ask your estate planning attorney, if this is an option.

I don’t have enough assets to need a trust. This is not necessarily so. Many of today’s retirees have six figure retirement accounts, while their parents and grandparents didn’t usually have that much saved. They had pensions, which were controlled by their employers. Today’s worker owns more assets with complex tax issues.

You don’t have to be a descendent of an ancient Roman family to need a trust. You must just have enough factors that makes it worthwhile. Talk with your estate planning attorney to find out if you need a trust. While you’re at it, make sure your estate plan is up to date. If you don’t have an estate plan, there’s no time like the present to tackle this necessary personal responsibility.

The Petrosewicz Law Firm can assist you with your estate planning and trust needs.  Contact us today at (281) 344-9455 or [email protected].  

Reference: Pittsburgh Post-Gazette (Jan. 28, 2019) “Do I need a trust?”

Is Your Estate Plan Ready for the Worst Possible Scenarios?

Once you’ve gotten a clear understanding of the basics needed for an effective estate plan, it’s time to turn your attention to how a trust may or may not work for your estate, reports The Daily Sentinel in the article “Are you prepared for threats to your estate?” As the title indicates, this article looks at how trusts are used within estate planning to address problems.

Your will ensures that assets go to the people you want to receive them. However, a traditional will may not anticipate circumstances in which these assets are transferred. It’s often up to the personal representative to make sure assets are distributed as soon as possible to heirs. Circumstances often arise that cause delays.

In comparison, the proper use of a trust helps ensure that your assets are distributed to the person(s) you want, when you want. The goal of a well-drafted trust is to protect you, your estate and the beneficiaries from unwanted outcomes.

Here’s an example: what if one of your children is facing bankruptcy when you die? Will your assets be available to help them get back on their feet, or will they be completely used up to pay off their debts? If you have a trust in place, there will be a legal layer of protection between your child and their creditors.

Here are a few other ways trusts can protect your legacy and your family:

• If your spouse predeceases you and you are incapacitated from a stroke, a fall or other illness, a trust can be used to ensure that your assets are used to take care of your needs.
• Seniors, especially those who have lost a spouse, tend to be vulnerable to scams, from people they know, and strangers who connect with them through telephone or email. A trust can place another set of eyes on the funds and requires a second (or even third) person to release funds.
• If children have issues, like the example above, or other problems, like divorces, opioid addictions or other problems, a trust can protect your estate from being consumed for all the wrong reasons. In many situations, sadly, your family members need to be protected against themselves.

Every family is different, and every family has its own challenges. However, if your situation includes serious challenges, you’ll want to sit down with a local estate planning attorney and talk about how your estate plan can protect your family.

When there are difficult situations in the family, you will want to be completely honest and above board with the attorney. He will only be able to help you, if he knows exactly what you are anticipating.

Not every family’s situation can be solved, and not every family needs to have property placed in trust.  However, this is an option that an informed legal consumer needs to know about, when they are starting to work on their estate plan.

One last thought: if your family situation is so overwhelming that you feel like doing nothing, think again. If you don’t have an estate plan in place, a family with challenges will not suddenly rise to the occasion. Your decades of work may be squandered, adult children may have to spend more money in the court system than you would have wanted, and your legacy may evaporate. Speak with an attorney today and start the process to protect yourself, your loved ones, and yes, your legacy.

The Petrosewicz Law Firm can assist you with your estate planning and trust needs.  Contact us today at (281) 344-9455 or [email protected].  

Reference: The Daily Sentinel (Dec. 1, 2018) “Are you prepared for threats to your estate?”

Changing a Special Needs Trustee

Special needs trusts offer substantial benefits for those people who have them.

They allow a beneficiary to have access to income, while remaining eligible for government benefits.

However, in exchange for that benefit, the trusts are very restricted. They must be created in hyper-specific ways and the beneficiary's ability to control the assets in the trust is limited.

Technically, the beneficiary cannot distribute or manage the trust assets.

That means a third-party trustee is needed.

If the trustee is not up to the job or intentionally mishandles the trust, it can be difficult for the beneficiary to change the trustee, as the Wills, Trusts & Estates Prof Blog discusses in "Can the Beneficiary of a Special Needs Trust Change the Trustee?"

A beneficiary of a special needs trust can petition a court to have the trustee removed and another appointed. However, this can be a difficult process and many people with special needs are not able to handle the complex legal issues of filing a petition with the court, let alone arguing for a trustee change.

This could potentially stick a beneficiary with a bad trustee and no recourse.

It is, therefore, important that special needs trusts be drafted with this problem in mind.

Trustees must be chosen carefully and, in cases where the beneficiary is of diminished capacity, it should be clear on who else can petition to change the trustee.

The Petrosewicz Law Firm can assist you with special needs planning.  Contact us today at (281) 344-9455 or [email protected]. 

Reference: Wills, Trusts & Estates Prof Blog (Sep. 27, 2017) "Can the Beneficiary of a Special Needs Trust Change the Trustee?"