Jordan S. Simon

Cheat Sheet / Updated 10-28-2024

An estate plan, including a last will and testament, protects your family and finances after you die. Your first step in estate planning is to write a comprehensive will that moves smoothly through the probate process. Make sure you're aware of current estate taxes that may influence your planning and how insurance factors into your estate plan. Various types of trusts are available; do some research to find out whether setting up a trust is the way to go and consider some special circumstances that may arise and how they can affect your estate planning.

Article / Updated 10-06-2023

Probate is the method by which your estate is legally transferred after you die. When estate planning and writing your last will and testament, keep these tips in mind to help the probate process run smoothly. You can be both specific and general in your last will and testament — it's up to you. You can parcel out individual items to people by name and also let your beneficiaries decide how to divide up your worldly goods. State law does have something to say about the language of your will, however. Your state has a number of will statutes that may override a provision of your will if you say something that's against the law. Certain parts of your will "self-adjust" to changes in your estate and your family. For example, even if you don't update your will after a child is born or if you adopt a child, your will covers the child just the same so that the child isn't accidentally cut out of an inheritance. You can get around much of the time-consuming, inconvenient, and costly process called probate by creating trusts and using, such as joint tenancy with right of survivorship and payable on death accounts. If you own real estate property in another state, like a time share by the shore, you may need to worry about going through probate in that state, too. If you're just beginning to plan an estate or write a last will and testament, you should start by figuring out what all encompasses your estate. It's important to know before sitting down to write whether you have one piece of fine art or an entire gallery of work by the masters, to know whether you want to leave all your Beanie Babies to one person, or whether you want a say in where each one ends up, to decide to let your beneficiaries decide who gets what or to not. You might need to do further research in state laws or hire an estate attorney. All of these things might be overwhelming, but you need to start somewhere. To get you started, though, read the rest of this Cheat Sheet and maybe check out Wills & Trusts Kit For Dummies.

Article / Updated 07-05-2021

A trust agreement is a document that spells out the rules that you want to be followed for property held in trust for your beneficiaries. Common objectives for trusts are to reduce the estate tax liability, protect property in your estate, and avoid probate. Think of a trust as a special place in which ordinary property from your estate goes in and, as the result of some type of transformation that occurs, takes on a sort of new identity and often is bestowed with superpowers: immunity from estate taxes, resistance to probate, and so on. What you should know before setting up a trust Suppose that you want to set up a trust. Just like with a cooking recipe or building something in your garage workshop, you need to make sure you have everything you need before you start. To cook up a trust, you need these seven basic ingredients: Person setting up the trust. The person is commonly known as the trustor, though you may sometimes see the terms settlor or grantor. Objective of the trust. You use different types of trusts to achieve a variety of specific estate-planning objectives. You can use some trusts for a single estate-planning objective, while others help you achieve more than one goal. Specific kind of trust. Trusts come in many different varieties. Regardless, when you’re setting up a trust, you need to decide what type of trust you want and make sure that you follow all the rules for that particular type of trust to make sure that it’s proper and legal, and carries out your intentions. Property. After you place property into a trust, that property is formally known as trust property. Beneficiary. Just like with other aspects of your estate plan (your will, for example), a trust’s beneficiary (or, if more than one, beneficiaries) benefits from the trust in some way, usually because the person or institution will eventually receive some or all of the property that was placed into trust. Trustee. The person in charge of the trust is known as the trustee. The trustee needs to understand the rules for the type of trust he or she is managing to make sure everything in the trust stays in working order. Rules. Finally, some of the rules that must be followed are inherently part of the type of trust used, while other rules depend on what is specified in the trust agreement. You will find still more rules in state and federal law.

Article / Updated 06-01-2017

Estate planning often involves setting up a revocable trust or irrevocable trust. Each one of those trusts begins with an intervivos trust — a trust you set up that goes into effect while you're still alive. You then decide if the intervivos trust is revocable, meaning that you can change your mind, or irrevocable, meaning sorry, what's done is done. Credit: ©iStockphoto.com/alexskopje Irrevocable trusts are the easier of the two to understand. After you place property into an irrevocable trust, you can't retrieve the property. For all intents and purposes, that property now belongs to the trust, not to you! With a revocable trust, however, you can place property into the trust and at some point in the future, undo the transfer by removing the property and terminating the trust. Very often, if you die or become incompetent, the provisions of a revocable trust call for the trust to become an irrevocable trust. For example, you can terminate a revocable burial trust at any time, usually before death or incompetency. But if the burial trust still exists when you die or become incompetent, the trust becomes irrevocable and the money is used for your burial expenses. You most likely have gift tax consequences when you establish an intervivos irrevocable trust, so make sure your accountant is "in the loop," along with your attorney. Also, certain transfers within certain time periods prior to your death can be included in your estate as "gifts in contemplation of death" under both state and federal statutes. So watch out for possible death tax implications! How revocable and irrevocable trusts affect estate taxes The most significant distinctions between revocable and irrevocable trusts are the estate tax considerations. Property that you place in an irrevocable trust is no longer considered part of your estate, meaning that the property typically isn't included in your estate's value when it comes to determining if you owe death taxes and, if so, how much. However, you still own property that you place into a revocable trust, and therefore that property is still subject to death taxes. If you can change your mind about the trust and retrieve the property from the trust at any time while you're still alive, the property is really yours and should be considered part of your estate. So if you only get a break on estate taxes with an irrevocable trust, why would anyone want to use a revocable trust without the estate tax break? Estate tax savings is only one of the reasons you may consider including a trust in your estate planning. If your estate's value is nowhere near the federal estate tax exemption, then you really don't need to be concerned about federal estate-tax-saving tactics. Your motivation for setting up a trust may have more to do with estate protection or helping out a charity, but you also may want a safety valve that allows you to pull money out of a trust if circumstances change in some way. Make sure to work with your accountant to understand any and all tax implications — gift, federal estate, and state inheritance or estate — for property transfers to both irrevocable and revocable trusts. He or she can help you set up the right provisions and avoid unpleasant tax-related surprises from the government because of some provision of the tax code you didn't know about. A closer look at revocable trusts Estate-planning advisers often point to revocable trusts, especially living trusts, as the "perfect way to totally avoid probate." Put all your property into revocable trusts and you can have control over that property, the pitch goes, and because none of your property is now in your probate estate (that's, it's all held in trust) your estate doesn't have to go through the probate process because your probate estate is "empty!" The pitch continues: By avoiding probate, you avert probate costs, put off the lack of privacy, and bypass other disadvantages of the probate process. Not so fast! True, you can avoid probate costs, but do you really think setting up and maintaining trusts is free? No way! Your costs to establish a revocable trust will vary, depending on attorney fees and other costs, and be prepared to pay to have your trust managed. You also need to make sure that everything you own is held in trust form. If you fail to include any part of your estate in your trust(s), then you have a probate estate that's subject to the probate process. So every time you buy a new home, open a new brokerage account, or make any changes to your estate's inventory, you need to make sure that you transfer that property into your trust(s). Remember that probate isn't always bad. The probate court ensures that the property in your probate estate is disposed of properly with no secret maneuverings and supervises your probate estate. With the probate court's supervision, part or all of your estate that's held in trust or other nonprobate form (joint tenancy with right of survivorship, for example) can be in for problems if someone close to you in a position of authority is unethical. All the beneficiary problems may get eventually get resolved, but quite possibly because of prolonged, costly legal battles.

Article / Updated 03-26-2016

Joint tenancy means that you share ownership of property. Property held in joint tenancy isn’t part of the probate process; creditors don’t have access to property held as joint tenants. If the court can prove that you transferred title of property to joint tenants to hide from creditors, your creditors may still make a claim against part of your joint tenancy property. The key feature of joint tenancy is that when you die, the other co-owner receives your share of the property by right of survivorship. If you have a will, the property transfers outside of your will. If you don’t have a will, the property transfers outside of intestate succession laws. The surviving joint tenant(s) receive(s) the property. Why should you consider joint tenancy as a will substitute? As an alternative to probate, joint tenancy provides you with several advantages: Cost savings. The formation and eventual termination of joint tenancy is inexpensive, unlike other forms of will substitutes, such as a living trust that an attorney should review and prepare. Clear title transfer. Because joint tenancy is based on right of survivorship, joint tenancy allows for a clear transfer of title to the surviving joint tenant. Creditors claim reductions. One of the main steps in the probate process is the payment of valid creditors’ claims. Convenient and fast. You can easily create and dissolve ownership as you refine your estate plan. Furthermore, by not having to deal with complex legal documents — wills, trusts, and living trusts — you can use joint tenancy without worrying about the legality and hassles of the wording in these documents. Private. If you value your privacy, even after you’ve died, joint tenancy offers you a better alternative than probate, where your will and estate become part of the public record. So far, so good with joint tenancy. The concept seems straightforward and the advantages sound pretty good. So why hold property any other way? Well, you know the old saying: If it sounds too good to be true, it must be an estate-planning concept! Holding property as joint tenants has significant limitations and disadvantages that you need to be aware of, including: Forced disposition. The surviving joint tenant(s) receive(s) your share of the property. Period! You can’t decide to leave a portion of that property to your joint tenant and another portion to someone else. Lack of control in property transfer. The right of survivorship feature may not control the final transfer of property under joint tenancy. The death of the next-to-last joint tenant leaves the property to the surviving joint tenant as sole property; no right of survivorship exists when you own something by yourself. Undesirable property transfers. After the next-to-last joint tenant has died, the surviving joint tenant can dispose of the property in any way he or she wants, even if the disposal is contrary to the intentions of any other joint tenants who have died earlier. Exposure to other joint tenant’s creditors. If your joint tenant loses a court battle and has a large judgment against him, the property you hold as joint tenants can potentially be subject to the judgment resulting in a forced sale of the property. Numerous tax disadvantages. The savings in income tax may be more than offset by the increase in estate tax.

Article / Updated 03-26-2016

The federal tax system includes a gift tax, generation skipping transfer tax (GSTT), and estate (death) tax that work together to make as much of your estate as possible disappear. The laws and rules for these three federal taxes created some confusing relationships among them. Your estate-planning team — particularly your accountant and your attorney — can help you make sense of the odd relationships among these taxes: The gift tax: The federal gift tax is imposed on taxable gifts that you give to others. If you try to avoid estate taxes by giving away a significant portion of your estate while you’re still alive, the government applies a tax on those gifts. The sort-of-good news is that you have a variety of exemptions and allowances to work with in your gift giving to help you minimize the actual tax bite or even escape the tax bite completely in some cases. Also, even if you make taxable gifts, you may not ever have to write a check for the amount you owe n gift taxes because you can credit the amount of gift tax you owe against any down-the-road estate tax after you die. The generation skipping transfer tax, or GSTT: The GSTT closes a loophole that the upper class has used to reduce estate taxes. Members of very wealthy families can use a variety of tactics to help shelter family wealth from a tax bite. For many years, wealthy people directly transferred some of their property to members of lower generations — for example, to grandchildren rather than children. The GSTT closes generation skipping loophole (at least, GSTT proponents position and explain the tax that way) by adding an additional tax — and at pretty hefty rates — to property transfers that can be classified as generation skipping to make up for the amount of tax that you’re trying not to pay. The good news, though, is that you have a sizable exemption amount to work with, and you can work with your attorney and accountant to minimize the GSTT bite. The estate (death) tax: Good news! The federal estate tax is scheduled to go away in 2010. You still need to worry about the federal estate tax, no matter how big (or small) your estate is. The death of the estate tax may only be for a single year. Unless Congress explicitly acts to extend the federal estate tax repeal (meaning that 2010 has no estate tax), the estate tax comes back in 2011. And to make matters worse, the amount of your estate that is exempt from estate taxes — in 2009, that amount is $3.5 million after rising steadily throughout the decade — goes back down to the 2002-2003 amount of $1 million.

Article / Updated 03-26-2016

Before you can plan how to distribute your assets after your death, you need to understand what your estate is. In the most casual sense, your estate is your stuff or all your possessions. In addition to understanding what your estate is, you also need to know what your estate is worth. First you make a list of positive balance items such as: Cash, checking and savings accounts Certificates of deposit (CDs) Stocks, bonds, and mutual funds Retirement savings in your Individual Retirement Account (IRA), 401(k), and other special accounts Household furniture (including antiques) Clothes Vehicles Life insurance Annuities Business interests Jewelry, baseball card collection, autographed first edition of Catcher in the Rye You calculate your estate’s value as follows: Add up the value of all of the positive balance items in your estate. What’s that, you say? You don’t own a house or any other real estate, so you think that you don’t have an estate? Not so fast! In a legal sense, all kinds of items are considered to be your property. Subtract the total value of all of the negative balance items, such as the outstanding balance of the mortgage you owe on your house or a vacation home, the outstanding balances on your credit card accounts, taxes you owe to the government, or any IOUs to people that you haven’t paid off yet Determining your estate’s value can be more complicated than creating two columns on a sheet of paper or in your computer’s spreadsheet program and doing basic arithmetic. If you are a farmer, for example, you need to figure out the value of your crops or livestock. If you own a small one-person business, you need to calculate what your business is worth. Your estate may also include other items that you don’t have in your possession, such as: Any future payments you expect to receive, such as an insurance settlement or the remaining 18 annual payments from that $35 million lottery jackpot that you won a couple of years ago Future inheritances A loan you made to your sister to help get her business started (that she plans to repay to you when her enterprise starts turning a profit

Article / Updated 03-26-2016

One common way to get around estate taxes on your life insurance is to create an irrevocable life insurance trust. You transfer the ownership of your life insurance policy to the trust, effectively taking advantage of a loophole to get around estate taxes. Beware of the life insurance tax trap! Various forms of life insurance are likely to be an important part of your estate planning, from protecting your estate to creating cash that goes to one or more of your beneficiaries. However, the tax laws dictate that the death benefit from your life insurance policy gets added into the rest of your estate when calculating your estate’s value and the amount of estate tax you owe. As a result, you must look ahead to various tips and tricks to help get around this tax trap! If you think an irrevocable life insurance trust makes sense in your situation, you need to be aware of the following: As the name implies, your life insurance trust must be irrevocable, otherwise goodbye, estate tax break! With a revocable trust, you can change your mind about the trust, or the property in the trust (or whatever is left over) transfers back to you. In order to qualify for the estate tax break, the trust has to be irrevocable. After the trust owns the life insurance policy, you can never get it back or make any changes! You can’t be the trustee of an irrevocable life insurance trust that contains your own life insurance policy, even though you don’t own the policy (the trust does). You need to act now! The IRS also says that if you set up an irrevocable life insurance trust but die within three years of the transfer of the life insurance policy, then the IRS acts as if the trust never existed and you still owned and controlled the policy. And then, you lose the estate tax break. Another estate tax saving strategy for your life insurance policy, instead of an irrevocable life insurance trust, is to transfer ownership of the policy to someone else. The secret recipe is for the IRS to agree that you didn’t own and control the policy, which means you get an estate tax break! But note that the same three-year period for the gift inclusion will apply. If you don’t own and control your life insurance policy because it’s owned by an irrevocable life insurance trust, how can you pay your premiums to keep the policy in effect? You can, of course, have someone else pay the premiums for you — your spouse or the beneficiary of the policy, for example. Or you can set up a Crummey trust to take care of the payments. Crummey trusts are very complicated and best explained by your estate planning attorney doing a John Madden drawing of a football play, showing how money transfers back and forth, how the gift tax annual exclusion applies, and all kinds of pretty complicated rules and restrictions. But if you and your estate planning team decide that an irrevocable life insurance trust makes sense for you and your beneficiaries, ask whether a Crummey trust makes sense, too.

Article / Updated 03-26-2016

A trust that makes annual payments to a beneficiary while you’re still alive is an intervivos trust. If you set up a trust to become effective and start making payments after your death, you’ve set up a testamentary trust. Unlike a testamentary trust, an intervivos trust generally doesn’t have to go through probate, but the probate court still has jurisdiction over an intervivos trust if any controversy or problems arise, just as it does for a testamentary trust. If your primary objective in creating a trust is to provide an economic benefit (cash payments, transfer of real property that is currently in your estate, and so on) to specific people or institutions, some type of intervivos trust makes sense. Here are some benefits of an intervivos trust: Payments and other types of property transfers may begin while you’re still alive. You know what your estate is worth and how much is available to fund such a trust. You have a higher degree of control with an intervivos trust than with a testamentary trust. When you set up an intervivos trust, you can initially fund the trust with certain property from your estate, add more property throughout your lifetime, and even make arrangements for additional property to be added to the trust upon your death. If you aren’t particularly concerned about providing economic benefit to a trust beneficiary while you’re still alive, you can still set up an intervivos trust, or you can hold off on creating the trust until after your death and instead, create a testamentary trust under your will. So how exactly do you set up a testamentary trust if you’re already dead? Actually, you lay the groundwork for a testamentary trust in your will while you’re still alive, which means the following: You include appropriate language to set up a testamentary trust that, just like everything else in your will, doesn’t actually “come alive” until your death. Your will goes through probate and must be in compliance with various will statutes Your testamentary trust also needs to be in compliance because it’s technically part of your will. Which is better for your estate plan: an intervivos trust or a testamentary trust? It all depends! Intervivos trusts, together with plain old gift giving, are a good way to reduce your estate’s value and reduce or negate the effect of federal estate taxes. On the other hand, suppose that you only want a trust to come alive if you die before a certain age and you want to make provisions for your minor children’s care, education, and so on. You can use a testamentary trust as part of your will. If you live long enough so that your children are no longer minors and are out on their own and don’t need to have money parceled out, you can revise your will and eliminate the testamentary trust provisions.

Article / Updated 03-26-2016

Although the simple will is right for just about everyone, you do have other options for your will. Other types of wills, along with the drawbacks of each, include: A joint will, is a single legal document that applies to two people (you and your spouse, for example). Some married couples mistakenly think that they’re required to have a joint will, or that a joint will is better for them than two simple wills. Joint wills are usually a bad idea because most courts treat a joint will as a contract that is irrevocable and can’t be changed after one party dies. Therefore, if your spouse dies first and you want to revise the contents of your joint will for estate planning or tax purposes, you probably can’t. A mutual will, is used to coordinate your estate planning with someone else, such as your brother. For example, suppose that you and your brother want to leave a substantial amount of money to be split among two charities. You can create mutual wills in which: No matter which one of you dies first, 75 percent of either your estate or that of your sibling goes to Charity No.1, with 20 percent going to Charity No.2 and 5 percent going to some other beneficiary. When the other one of you dies, 50 percent of that person’s estate will go to Charity No.2, with 30 percent going to Charity No. 1 and 20 percent designated for some other beneficiary. Basically, because you don’t have a crystal ball to tell you and your sibling which one of you will die first (and even if you did, would you really want to know?), you both have set things up so no matter what happens, Charity No.1 receives a larger amount of money first than Charity No.2 does. If you think a mutual will is particularly suitable for some unique aspect of your estate, ask your attorney and then proceed with caution. A holographic will is handwritten and signed by you. A handwritten will doesn’t require an attorney to be involved when you prepare this form of will. However, only some states recognize a holographic will as valid, which means that you may think you have a valid will, but in fact you don’t. A nuncupative will, is a spoken will. Even though creating a nuncupative will is extremely easy — all you have to do is talk and have someone present to listen — you have many complications and limitations. Some states only allow persons who are on their death bed to use a nuncupative will for a last-minute expression of what they want done with part of their estate. Some states only allow certain types of property or property only up to a certain dollar amount to be transferred with a nuncupative will. Don’t use any of the preceding nonstandard types and forms of wills except in extraordinary circumstances.