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
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
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
May 10
New business ventures can be structured in many different forms, including as a sole proprietorship, partnership, or corporations. With that being said, limited liability companies (“LLCs”) have become one of the most common forms in Kansas. An LLC can limit the liability of the owners, so they are not liable for the debts of the entity. Members of an LLC are generally only at risk to the extent of their investment in the LLC, and their other personal assets are protected.
One of the biggest advantages of LLCs is that they can be a bit more simple and flexible than corporations. Some formalities, such as annual minutes, are not required of all LLCs unlike other entities in Kansas. The members of the LLC often actively participate in the management of the business. The use of an LLC is a good choice for many business types with a limited number of owners.
Although LLCs can be used in myriad different contexts, a common usage is for rental real estate. In this case, once the LLC is properly established, the rental real estate can be transferred into the LLC. If an accident subsequently occurred on the real estate premises, the liability may be limited to the assets of the LLC and not reach the other assets of the owner.
To form an LLC, Articles of Organization must be prepared and filed with the Kansas Secretary of State. Next, internal documents controlling the LLC are prepared including an operating agreement, organizational minutes, and a membership certificate. LLCs in most cases also receive a taxpayer identification number that is used for tax purposes.
LLCs are most commonly taxed as partnerships for federal tax purposes. Accordingly, LLCs are not subject to two layers of tax. Instead, income or loss from the LLC flows from the LLC to the members and is reported on the member’s individual tax returns. LLCs with only a single member are a bit different, however, and are treated as sole proprietorships, which means that the single-member LLC’s income is reported directly on the member’s tax return.
An often overlooked benefit of LLCs is that they can provide for ongoing and centralized management of assets. For example, some families create LLCs to allow for inherited or family assets to remain jointly owned with a management structure in place.
Please contact the lawyers at Clark, Mize & Linville, Chartered to discuss the formation of a limited liability company to protect your assets.
Written by: Joshua C. Howard
Related Practice Area: Business Formation and Governance
Nov 09
When an out-of-state individual dies owning Kansas real estate, Kansas probate proceedings are necessary to transfer the real estate. Depending on the facts and circumstances involving the assets, beneficiaries, and planning, the necessary probate proceedings may take a number of different forms.
If less than six months have passed since the date of death, then a full administration in Kansas would be necessary. If, however, a probate administration has already been started in the decedent’s state of residence and more than six months have passed, an expedited ancillary administration in Kansas can be used to transfer the real estate. Accordingly, if the immediate sale or use of the Kansas property is not required, the most efficient method of transferring it often is waiting six months.
In order to begin this process, an “authenticated” (referred to as “exemplified” in some states) copy of the will and order admitting the will to probate is required. The next step is the preparation of the petition, order for hearing, and published and actual notice in Kansas. At the hearing, the Court would enter a journal entry transferring all the Kansas property to the beneficiaries. Once initiated, this process takes approximately a month and a half.
If the decedent owned additional real estate in other Kansas counties, authenticated pleadings from the first Kansas court would then need to be filed with the courts in the other counties to ensure clear title. Under the expedited probate process, the title in the properties would vest directly in the beneficiaries. Therefore, if the beneficiaries wished to sell the properties, they could do so in their own names following the completion of the probate matters.
While these procedures can be used for any Kansas property owned at death by a non-resident, they are most common for the transfer of family farmland and mineral interests. The attorneys at Clark, Mize & Linville, Chartered have assisted numerous families and out-of-state attorneys with these probate actions.
Written by: Joshua C. Howard
Related Practice Area: Probate and Estate Settlement
Apr 27
Estate planning is the process of planning for the eventual distribution of assets upon death. Although there are many different reasons to plan an estate, the following general goals are applicable to everyone:
- People want to give what they want. They want the flexibility to decide what to give.
- People want to give their property to whom they want. They do not like being told that they must include or exclude certain proposed beneficiaries.
- People want to distribute their property how they want. They want the freedom to choose the manner in which they make distributions of their property.
- People want to distribute their property when they want. They want the flexibility to make decisions for themselves based on the circumstances existing at the time.
- People want to accomplish these goals as conveniently as possible and at the lowest possible cost. People generally do not want the asset transfer process to be more difficult than necessary. Nor do they want to pay any more in taxes than is minimally necessary. Thus, the goal is to develop an estate plan that streamlines the transfer process and maximizes the value of property passing to the decedent’s family.
The role of an estate planning attorney is to help the client accomplish their goals. An experienced attorney has various tools at his or her disposal, and an estate can be transferred at death using the following methods:
- Last Will and Testament – The benefit of a will is that the testator can direct how he or she would like the assets to be distributed. Within a will, guardians for minor children can be named and language can be included to provide for children until they are old enough to manage assets. Wills, however, require a probate administration for transferring assets.
- Joint Tenancy – This type of ownership is one of the most common forms. The benefit of joint tenancy is that assets are transferred automatically to the joint owner upon the first death. However, the assets are then held in the survivor’s name alone and are subject to probate. Also, joint tenancy often does not work well outside of a marriage relationship.
- Transfer-on-Death and Beneficiary Designations – These types of designations can be used for various assets, including bank accounts, investment accounts, retirement accounts, life insurance, and real estate. Naming beneficiaries allows for assets to be distributed without the need for probate. Unfortunately, these designations sometimes lack the flexibility that is often necessary in estate plans.
- Revocable Living Trusts – Trusts are a time-honored method of avoiding probate. A properly established and funded trust provides all the benefits of avoiding probate and at the same time allows the necessary flexibility to leave assets in the desired manner. For example, trusts can be used to hold assets until children become older and protects assets from the beneficiaries’ creditors.
None of these tools are right in every circumstance. The estate planning attorneys at Clark, Mize & Linville, Chartered would welcome the opportunity to discuss your individual circumstances with you to tailor a plan to meet your needs.
Written by: Joshua C. Howard
Related Practice Area: Wills, Trusts and Estate Planning
