Archive for Wills and Trusts

RULES OF THUMB FOR ESTATE PLANNING Recommended by Paul Ferraresi

I found this great article on estate needs by Russell W. Hall in the Bellaire Buzz, July 2017

To save you a phone call, I’m going to share my rules of thumb.

College students don’t need wills; they just need to give their parents a medical power of attorney. Free ones are available at

College grads need a will and business and medical powers of attorney. Use a real lawyer, one that explains beneficiary designations. The first day on the job, HR is going to have the new hire designate beneficiaries that may control life insurance and retirement benefits for the rest of the employee’s life. Get it right.

Newlyweds need new will and powers of attorney. If children are even remotely possible, include contingent trusts. Update all beneficiaries according to the attorney’s instructions. Never designate minor children as contingent beneficiaries.

How much are you worth dead? If as much as $1 million per child, it’s time for new wills, with lifetime generation-skipping transfer tax planned trusts for descendants.

Are you married and worth $5 million? Add tax-planned trusts for the surviving spouse. If not, and one spouse is not a U.S. citizen, do it anyway.

Are you asset rich, but cash poor? This happens to entrepreneurs and real estate investors. Children cannot eat real estate. An irrevocable life insurance trust might be the ticket to add liquidity. For normal people, it’s overkill.

Do you have more money than you need? Give it away. This is where the family limited partnership comes in. If you own the general partner, typically a limited liability company, you can maintain control even while you give the kids the other 99 percent. Five million dollars in assets is a reasonable minimum to form a family limited partnership.

Finally when disability is imminent, or at least feared, consider a revocable intervivos trust, so-called living trust. Asset management is easier than with powers of attorney.

Power of Attorney by Paul E. Ferraresi

Powers of Attorney (POA) have become useful for disability planning. This tool is useful when someone cannot manage their own finances.

Unfortunately, most people do not keep their POA up to date. Yes, someone that they have granted the “power” to may have died, or, they themselves become mentally incompetent.

Another issue is that when one may become mentally incompetent, then, the POA tool is ended. To correct this make sure you have a “Durable Power of Attorney” (DPOA).

Keep in mind each state has its own rules and regulations on DPOA so check it out before proceeding.

As a backup and in conjunction with a DPOA, consider establishing a Revocable Living Trust for the management of all your assets.

As always we are here to guide you in all your financial planning needs.

Picking An Executor

If you make a Will, you get to pick your own executor. After you die, the executor’s job is to probate your Will, collect assets, pay debts, and distribute the remainder to the beneficiaries. The job is typically done within a year or two, depending when the final income tax return is filed.

It’s a tough job, but not an impossible one. Few executors can do it all, but they’re allowed to hire help. The executor usually uses an attorney for probate, and often a C.P.A. for tax returns and an accounting for the beneficiaries.

Most people name their spouse as executor. If the kids are old enough, they name the kids as alternates, one at a time, in birth order. If the kids are too young, they name family friends or close relatives as alternates.

Medicaid and other government-benefit recipients should not be named executor or trustee if that might destroy eligibility. If you don’t know any responsible, qualified adults, you can name a corporate executor. They charge more, but can be worth it, either as sole executor, or as a co-executor with a spouse or child.

A named executor is not required to serve. It’s okay to name your 70-year old father, because he’s allowed to step aside for someone younger. Most Wills allow compensation. Most executors refuse it. Testators tend not to name anyone who needs the money.

These are just a few things to consider. Each state has different rules so get legal help before doing anything.

Mortgage Due At Death

If you have a Will and you die then your estate must pass through probate (the term probate is “To prove valid, authentic”). Now, if you do not have a Will, you actually do have one and it is called the State Statute. Your assets do not go where you think they should. None the less, without a Will your estate still has to go through probate. (Settling a Will is very time consuming and costly. We always recommend that if your asset base is over $100,000 then you should use a Living Trust).

When you die your estate goes through probate. Your estate administrator must inform your mortgage lender of your death. Even if the mortgage is signed by both spouses, the lender has 4 months to decide whether to honor the mortgage or call it in for full payment.

From 1982 to 2012 interest rates dropped and very few loans were called in. With increasing interest rates on the rise, expect more mortgages to be called in by banks. Protect yourself by having adequate life insurance or liquid cash to pay off the loan should it be called. Better still, set up a Living Trust to hold all your assets and the loan call could be averted.

Beneficiary Designation Exasperation

The husband and wife were reviewing her annuity with their financial advisor. “You need to designate a beneficiary,” says the advisor. “I thought she did,” the husband responds. “I’ll send you a beneficiary designation form and help you submit,” the advisor concludes, and moves on to the next topic.

Later, the husband pulls the annuity contract. It includes the wife’s application, complete with her beneficiary designation. The employee who processed the original application is still on the job, years later. She reviewed the file, and explains that she messed up and had looked at the wrong paperwork when logging the contract. The company had the right paperwork, but didn’t look for it until challenged.

Beneficiary designations matter, and everyone should keep a copy with their Will. Better yet, insist on a written confirmation, to prove your designation was accepted and recorded and matches the instructions you provided. Data entry and record retention are the weak links in beneficiary designation, and they fail too often.

Does anyone remember Washington Mutual? The FDIC bought all of their assets, then sold them to Chase. Did Chase get any account agreements? No, all the assets and records were reduced to electronic notation and more than one family found itself in probate litigation because the records were lost.

Electronic notations are not written instruments. If you expect your beneficiary designation to be honored, leave a written copy.

Double check the designation that’s actually recorded. If you designate a trustee, but confirmation says “my estate,” the asset is going through probate. Don’t assume the professionals know what they’re doing. IRAs are long-term investments, yet some custodians destroy the paperwork after three years. If you don’t leave a written copy, your family’s not getting one from the custodian.

It’s all so haphazard. Why not just let everything run through probate? Think again. If you don’t designate a beneficiary, the account may designate one for you. Especially for employment benefits, where efficient administration is the highest priority, it’s common that the plan defines default beneficiaries. Thought that account was going to probate? Your family may discover it’s going to the kids in equal shares, including the one you disinherited.