Oct 14
What Are Revocable Living Trusts?
All trusts are a type of legal contract between three parties:
- The Grantor, also known as settlor, trustmaker, or trustor, is the person who forms the trust.
- The Trustee is the “manager” of the trust, whose job is to carefully follow the terms of the trust.
- The Beneficiaries are the individuals who may receive income or principal from the trust.
When a revocable living trust is formed, one person typically serves in all three roles as grantor, trustee, and beneficiary, during his or her lifetime.
Creating the Trust:
The first step is to create the trust document which provides instructions for the trustee concerning how the assets should be managed and distributed. This document looks similar to a last will and testament but contains additional provisions concerning the management of property during the grantor’s life and the ultimate distribution of assets over time. The trust document would answer the questions of what, to whom, how, and when the assets should be distributed.
Revocable:
A revocable living trust can be changed or modified at any time by the grantor of the trust so long as he or she has capacity. From the grantor’s perspective, the trust assets continue to be completely available for his or her use.
Successor Trustees:
Although the grantor often serves as the initial trustee, successor trustees should be named in the event the grantor dies, becomes incapacitated, or is unable to serve. This list of trustees allows the trust to pass seamlessly and the terms of the trust to be carried out.
Funding the Trust:
Once the trust is formed, the next step involves the transfer of the grantor’s assets into the trust. For example, the grantor’s bank accounts are re-titled in the trust, the grantor’s house is deeded into the trust, and the grantor’s life insurance beneficiary is changed to the trust. By transferring all of the grantor’s assets into the trust, no assets will be held in his or her name alone. Accordingly, by removing the assets from the grantor’s name, a probate process, along with the consequent delay, hassle, and expense, is avoided.
Pour-Over Will:
A pour-over will serves to transfer into the trust any assets that someone might still own in his or her name alone at the time of death. The objective is to be sure that this will does not have to be probated. In other words, the grantor of the trust wants to be sure that all of his or her assets have already been transferred to the trust. However, it is always possible for someone to pass away without having transferred everything into his or her trust, and it is good practice to have the pour-over will as a back-up or safeguard.
By utilizing and fully funding a trust, the grantor’s estate avoids the various problems associated with probate. Moreover, the assets can be held and distributed in the exact manner desired by the grantor. The result is that the grantor’s wishes for his or her estate are given effect more efficiently.
A trust can greatly benefit a client and his or her family, but an in-depth understanding of the trust’s operation and benefits should be understood. If you believe a trust or other estate plan may benefit you, please contact one of Clark, Mize & Linville, Chartered’s attorneys to discuss your situation.
Written by: Joshua C. Howard
Related Practice Area: Wills, Trusts and Estate Planning
Jun 09
Protecting Assets Against Your Children’s Creditors
Assets can be left to beneficiaries in any number of various ways, and the grantors are able to choose the “what, whom, how, and when.” In discussing the options, it is often best to start by describing the two ends of the spectrum:
- Outright and Free of Trust – At one end of the spectrum is to leave the entire inheritance all at once, in one fell swoop. This is sometimes referred to as the “cash on the barrelhead” approach. The beneficiaries are free to do with the assets as they please – spend them, invest them, etc. The advantages of this approach are, of course, simplicity and accessibility.
- Held Back in Trust – The other end of the spectrum is to not leave the beneficiaries the entire inheritance all at once, but rather continue the trust, with the assets retained, to be held, managed, and distributed to the beneficiaries, over an extended period of time. The advantage of this approach is reducing the risk of loss of the trust assets due to the following reasons:
- Mismanagement. More than a few dollars are lost each day via fear, greed, ignorance, inattention, waste, mistrust, bad judgment, and lack of common sense. A continued trust with professional money management can greatly reduce these risks.
- Taxes. The IRS takes different bites at different times – income taxes, estate taxes, sales taxes, etc. – but they all add up to a significant amount of a person’s assets. Income and estate taxes may be reduced, simply because the continued trust is another entity – separate and apart from the beneficiaries.
- Divorce. Assets acquired during the course of a marriage – including inherited assets – are generally considered to be part of the “marital estate” and are therefore subject to division in a divorce proceeding. Assets in a continued trust are not reachable by a divorcing spouse.
- Lawsuits. Lawsuits are increasingly common and can cause someone to lose a substantial part of their net worth. Ongoing trust assets are similarly not reachable by lawsuit claimants.
- Bankruptcy. This is the ultimate depletion of wealth – a person losing all of his or her non-exempt assets due to the inability to pay off debts. Assets held back in a trust are generally not subject to a bankruptcy.
Assuming one opts for the continued trust approach, the next issue is to decide upon the terms and conditions for the continuation. The trust assets could be held for a period of time or for a beneficiary’s lifetime. Distributions of income and principal could be either discretionary or mandatory. Additional rights of a beneficiary to demand a withdrawal, remove a trustee, or re-write the trust can also be structured into a trust. There are almost limitless options in this arena that should be discussed with knowledgeable estate planning counsel.
Written by: Joshua C. Howard
Related Practice Area: Wills, Trusts and Estate Planning
Apr 23
Real Estate Sales
Realtors, brokers, and auctioneers play important roles in marketing and selling real estate. In some instances, however, sellers already have buyers lined up or choose to sell on their own. Our attorneys can assist in these situations. Some sellers and buyers ask for our assistance in negotiating the price and terms of the sale. Others ask us to prepare the real estate contract once the deal has been reached and then review deeds, title insurance policies, and documents prior to closing.
We can provide a checklist of terms to clients who chose to negotiate the terms of the sale on their own. Our attorneys then use this information to prepare the real estate contract to best protect our clients’ interests. The basic information needed to prepare a residential real estate contract includes the following:
- Seller and buyer contact information
- Legal description of property
- Personal property included, if any
- Purchase price
- Earnest money
- Closing date
- Loan and appraisal contingencies
- Termite, radon, and whole-house inspections
- Division of closing costs, such as title insurance, loan costs, and deed recording
- Title company
- Seller warranties
- Other contingencies
In preparing real estate contracts for farmland, additional items must be considered, including:
- Mineral and water rights
- Tenant rights and possession
- FSA and NRCS payments
- Allocation of taxes
When the parties agree to seller financing, our attorneys can prepare the installment sale documents or the necessary promissory note and mortgage, depending on which method would best meet the parties’ needs. We can also incorporate 1031 like-kind exchange provisions in the real estate contract to avoid paying income tax.
If you would like more information about selling your home, farmland, commercial and other properties, please contact one of our lawyers to assist with the transaction.
Written by: Joshua C. Howard
Related Practice Area: Real Estate Law , Agricultural Law
Mar 09
How Can I Protect Assets From Nursing Home Expenses?
A common question from clients who anticipate needing long-term care is: can I protect my assets, such as a family farm or business, from being sold to pay for my long-term care expenses?
One possible method of doing just that is a Medicaid Asset Protection Trust (“MAPT”), which is a specialized irrevocable trust that can be used in Medicaid planning situations. The fundamental purpose of creating a MAPT is preventing assets from being considered “countable resources” on the grantor’s Medicaid assistance application.
Once a grantor creates a MAPT, the next step is transferring specific assets to the trust to be protected. The MAPT – not grantor – will be the owner of those assets, and five years later, the assets would not be countable when determining Medicaid eligibility. The MAPT also protects the assets against creditors of the grantor and beneficiaries.
During the life of the grantor, the MAPT remains intact. The income from the MAPT can be distributed either to the grantor or to the eventual beneficiaries. Upon the death of the grantor, the assets can then be distributed to the grantor’s children or other beneficiaries in the manner desired by the grantor. The grantor has great flexibility in structuring how the assets are ultimately transferred.
The MAPT is irrevocable meaning that the grantor must give up the power to revoke or amend the MAPT. Typically, when a grantor gives away property the beneficiaries receive an unfavorable “carryover basis.” The MAPT is designed, however to allow the assets to receive a “stepped up” income basis upon the death of the grantor, which can greatly reduce the amount of income tax eventually paid by the family. In establishing the MAPT, the grantor can also decide who will be taxed on the income each year.
Assets can certainly be given outright, not involving a MAPT. Outright gifts have the advantages of being simple with minimal costs. So, why complicate things with a trust? The short answer is that gift transaction costs are only part of what needs to be considered. Many important benefits that can result from gifting in trust are forfeited by outright gifting. These benefits are why some individuals choose to utilize MAPTs in Medicaid planning.
If you believe that you or your family could be benefited by establishing a MAPT, please contact Clark Mize & Linville’s attorneys who specialize in trusts and estate planning.
Written by: Joshua C. Howard
Jessica L. Stoppel
Related Practice Area: Elder Law
Wills, Trusts and Estate Planning
Oct 29
Probate is a court process that allows for assets to be distributed either pursuant to intestacy or the decedent’s will. When a probate administration is necessary at someone’s death, the named executor or administrator must go through formal court processes in order to transfer the assets. The fiduciary must file various pleadings, such as a petition, order, notice, and inventory, in order for the court to act. Published notice in the local paper as well as court hearings are usually required.
One advantage of probate is that assets are generally distributed in a responsible manner to the right people, in part due to the rigid process and court supervision. Despite its common use, probate has a number of disadvantages:
- Delay – A supervised or simplified probate estate in Kansas cannot be closed until six months have passed after date of death. Although the length of probate processes vary, the average administration takes nine months or more.
- Hassle – Probate administrations are often a hassle in part because executors and administrators typically have not served in such a capacity previously. They are often learning on the job.
- Expense – Due to the necessary processes, estate assets are often diminished three to five percent due to probate costs.
- Lack of Privacy – Probate proceedings are a matter of public record. Accordingly, if someone dies and probate is necessary, his or her assets and beneficiaries are opened up to anyone who cares to see.
- Boundary Lines – Probate proceedings are only valid in the county where the administration occurs. If someone dies owning assets in more than one county or more than one state, then multiple probate administrations may be necessary. The previously mentioned disadvantages would be multiplied in this case.
- Lack of Organization – When a probate administration occurs, the person who knew the most about the assets (the decedent) is gone. Accordingly, probate proceedings often involve an investigative process for the heirs and lack organization overall.
If you are interested in avoiding probate for your estate or navigating a probate estate for a loved one as efficiently as possible, please contact one of Clark, Mize & Linville, Chartered’s attorneys.
Written by: Joshua C. Howard
Related Practice Area: Wills, Trusts and Estate Planning and Probate and Estate Settlement
Sep 08
Although there is often overlap between elder law and estate planning, the two are not the same. Elder law attorneys help individuals and their families navigate the important, and sometimes challenging, questions they must answer in order to have a plan for their later years of life. Elder law can encompass many practice areas, such as:
- Estate planning, including planning for the management of one’s estate during life and its disposition on death through the use of trusts, wills and other planning documents;
- Long-term care and Medicaid planning, including avoiding spousal impoverishment with a marital division of assets;
- Asset preservation and asset transfers;
- Access to Social Security, Medicare, and health benefits or insurance;
- Access to veterans’ benefits, including pensions and aid and attendance;
- Guardianships and conservatorships;
- Probate and estate administration;
- Caring (and providing) for children—or clients—with disabilities, including drafting special needs trusts;
- Long-term care placements in nursing home and care communities along with nursing home rights; and
- Elder abuse and fraud cases.
When you consider longer lifespans and the baby boomer generation becoming senior citizens, the U.S. will become much “older” over the next few decades. In fact, by year 2030 seniors are projected to outnumber children for the first time in U.S. history. An elder law attorney can provide their clients with assurance that, if long term care is needed, the care will be provided without totally derailing the clients’ other objectives, such as providing for a spouse or disabled child or leaving a legacy for the next generation.
By: Jessica L. Stoppel
Jul 27
Assets can be left to beneficiaries in any number of various ways, and the grantors are able to choose the “what, whom, how, and when.” In discussing the options, it is often best to start by describing the two ends of the spectrum:
1. Outright and Free of Trust – At one end of the spectrum is to leave the entire inheritance all at once, in one fell swoop. This is sometimes referred to as the “cash on the barrelhead” approach. The beneficiaries are free to do with the assets as they please – spend them, invest them, etc. The advantages of this approach are, of course, simplicity and accessibility.
2. Held Back in Trust – The other end of the spectrum is to not leave the beneficiaries the entire inheritance all at once, but rather continue the trust, with the assets retained, to be held, managed, and distributed to the beneficiaries, over an extended period of time. The advantage of this approach is reducing the risk of loss of the trust assets due to the following reasons:
a. Mismanagement. More than a few dollars are lost each day via fear, greed, ignorance, inattention, waste, mistrust, bad judgment, and lack of common sense. A continued trust with professional money management can greatly reduce these risks.
b. Taxes. The IRS takes different bites at different times – income taxes, estate taxes, sales taxes, etc. – but they all add up to a significant amount of a person’s assets. Income and estate taxes may be reduced, simply because the continued trust is another entity – separate and apart from the beneficiaries.
c. Divorce. Assets acquired during the course of a marriage – including inherited assets – are generally considered to be part of the “marital estate” and are therefore subject to division in a divorce proceeding. Assets in a continued trust are not reachable by a divorcing spouse.
d. Lawsuits. Lawsuits are increasingly common and can cause someone to lose a substantial part of their net worth. Ongoing trust assets are similarly not reachable by lawsuit claimants.
e. Bankruptcy. This is the ultimate depletion of wealth – a person losing all of his or her non-exempt assets due to the inability to pay off debts. Assets held back in a trust are generally not subject to a bankruptcy.
Assuming one opts for the continued trust approach, the next issue is to decide upon the terms and conditions for the continuation. The trust assets could be held for a period of time or for a beneficiary’s lifetime. Distributions of income and principal could be either discretionary or mandatory. Additional rights of a beneficiary to demand a withdrawal, remove a trustee, or re-write the trust can also be structured into a trust. There are almost limitless options in this arena that should be discussed with knowledgeable estate planning counsel.
Written by: Joshua C. Howard
Related Practice Area: Wills, Trusts and Estate Planning
Jun 04
Normally, when you sell real estate for more than you paid for it, you pay tax on the gain at the time of sale, even if you plan on reinvesting the proceeds in another property. The payment of tax on the gain, however, may not be necessary if you instead choose to exchange your property for a similar property. Such exchanges, called like-kind exchanges, allow you to postpone paying tax on the gain until a later time.
Requirements
These exchanges must meet the formal requirements found in Section 1031 of the Internal Revenue Code, which is why they are sometimes referred to as 1031 exchanges. The main requirements are as follows:
- You must exchange your real estate, not sell it, for another one.
- You must hold both the property traded and the property received for business or investment purposes.
- The properties must be of similar nature, character, or class, regardless of quality or grade. For example, improved real estate can be traded for unimproved real estate.
- The properties must not be held primarily for sale, such as inventory.
Benefit
Section 1031 allows you to postpone paying tax on the gain if you reinvest the proceeds in a similar property. At the time of transfer, taxable gain and the consequent capital gains tax is deferred until a later sale.
Deferred-Exchange Example
If you purchased a tract of farmland for $100,000, and 15 years later you sold it for $150,000, you would typically have to pay capital gains tax on the $50,000 of built-in gain. Instead, if you structured the sale as part of a 1031 like-kind exchange and purchased new farmland or pasture for $175,000, no tax would be paid. Your new basis in the purchased property would be $125,000 – your $100,000 basis from the previous property plus the additional $25,000 cash paid.
The attorneys at Clark, Mize & Linville, Chartered can help you thoroughly understand like-kind exchanges and choose whether a “simultaneous” exchange, traditional “deferred” exchange, or a “reverse” exchange will best meet your needs. Even though the structure of like-kind exchanges can be complex, the benefit of the tax deferral often makes the process worthwhile.
Written by: Joshua C. Howard
Related Practice Areas: Business Formation and Governance and Real Estate Law
Jan 02
Clark, Mize & Linville, Chartered is proud to announce that Jessica L. Stoppel has become a shareholder in the firm. Please join us in congratulating her on this achievement!
Jessica concentrates her practice in the areas of estate planning, elder law, long-term care & Medicaid planning, probate & trust administration, real estate, and business law. She attended Kansas State University where she graduated Magna Cum Laude with a B.S. degree in marketing and leadership studies, and she is a graduate of the University of Denver Sturm College of Law. Prior to joining the firm in 2015, she practiced at Davis & McCann, PA in Dodge City, Kansas.
Jessica is active in the Salina community. She is a member Salina Professional Business Network, Salina Area Young Professionals, and Noon Network AMBUCS. She also volunteers her time by serving on several not-for-profit boards and committees. Jessica is a member of the National Academy of Elder Law Attorneys and is an officer of the Kansas chapter of NAELA.
Jessica and her husband, Blake, reside in Salina with their two young children, Colt and Chloe.
Aug 15
Clark, Mize & Linville, Chartered, 129 S. 8th Street, Salina, is pleased to announce that it has four attorneys named to the 2020 Edition of The Best Lawyers in America© publication. Since it was first published in 1983, Best Lawyers® has become universally regarded as the definitive guide to legal excellence. Best Lawyers lists are compiled based on an exhaustive peer-review evaluation. Lawyers are reviewed on the basis of professional expertise, and undergo an authentication process to make sure they are in current practice and in good standing. Lawyers are not required or allowed to pay a fee to be listed; therefore inclusion in Best Lawyers is considered a singular honor. The following attorneys were named:
Peter L. Peterson has been included since the publication’s inception in 1983 and currently is listed in the practice areas of Trusts and Estates, Non-Profit/Charities Law, Tax Law, and Employee Benefits (ERISA) Law. Previously, Mr. Peterson was selected as the 2013 Best Lawyers in America Lawyer of the Year in the Wichita/Salina Area for the practice area of Trusts and Estates.
Eric N. Anderson has been listed since 2013 in the practice areas of Business Organizations (including LLCs and Partnerships) and Trusts and Estates.
Dustin J. Denning has been listed since 2018 in the practice areas of Medical Malpractice – Defendants and Personal Injury Litigation – Defendants.
Peter S. Johnston has been listed since 2016 in the practice areas of Medical Malpractice – Defendants, Personal Injury Litigation – Defendants, and Insurance Law.
