1st Step In Elder Law Process – Where’s My Important Paperwork?

wheres my important paperwork indiana elder law jeff jinks law

Creating an estate plan typically begins with executing a Last Will and Testament; however, by the time your plan is complete, you will have created a variety of additional documents as well.

Because estate planning is such a highly personal endeavor, no two plans are exactly alike. The documents and strategies you incorporate into your plan will be designed to achieve your unique set of estate planning goals and objectives. Your plan might, for example, include documents such as a Living Will, a Healthcare Power of Attorney, life insurance policies, and a Letter of Instruction. By far though, one of the most popular additions to a well-rounded estate plan is a trust agreement.

Locating Documents

Regardless of which estate planning tools and documents you decide to include in your estate plan, keep in mind that it will be your loved ones who must ultimately locate and utilize most of them. In fact, one of the most common stumbling blocks to probating an estate is missing documents. Leaving important documents, such as your Will, in a safe deposit box results in a “chicken and egg” problem. Your loved ones will eventually need the documents to claim life insurance proceeds, transfer assets, and probate your Will. The only way for a loved one to gain access to the box is to show proof that he/she is the Executor of your estate; however, the Executor is appointed in a decedent’s Will — which is located inside the box under this scenario.  Instead of keeping important estate planning documents in a safety deposit box, keep an original set of documents at home in a fireproof safe and give your estate planning attorney another set of originals. Whether you choose to share copies with loved ones or not is your decision; however, you should always make sure your close loved ones have your estate planning attorney’s contact information so they can contact him/her if documents appear to be missing or they are not sure what documents exist.

Trust Basics

At its most basic, a trust is a fiduciary arrangement wherein a third party holds assets for one or more designated beneficiaries. All trusts share the same basic elements necessary for formation, including:

  • The Settlor – the creator of a trust is referred to as the “Settlor,” “Grantor,” or “Maker.”
  • The Trustee —  appointed by the Settlor, the Trustee may be a spouse, a close friend, or a professional. The Trustee is responsible for administering the trust and protecting the trust assets.
  • Beneficiary – a trust must designate at least one beneficiary to receive the benefits of the trust. A beneficiary can be an individual, an entity, or even an animal (the family pet).
  • The terms – the terms of a trust are created by the Settlor and direct the administration of the trust.
  • The assets – a trust must be funded to function. Almost any type of asset can be used to fund a trust, including real and personal property, financial accounts, or a life insurance policy.

Types of Trusts

For a trust to be a successful addition to your estate plan you need to create the right type of trust. The first consideration is whether you need a testamentary or living trust. A testamentary trust is created during your lifetime but does not activate until triggered by a provision in your Last Will and Testament.  A living trust, on the other hand, activates as soon as it is created. Living trusts can be further divided into revocable and irrevocable living trusts. If you create an irrevocable living trust you will not be able to modify or revoke that trust after it becomes active. Conversely, a revocable living trust can be modified or revoked by the Settlor anytime.

Trust Creation

A trust, of any type, is established by creating and executing a written document known as a “trust agreement.” The trust agreement sets forth the terms that are used to administer the trust. As long as a term is not unconscionable, impossible, or illegal, it must be followed by the Trustee during the administration of the trust. Terms will typically cover things such as:

  • A statement of the trust purpose
  • How the principal and interest are to be allocated
  • When distributions must be made to beneficiaries
  • Whether or not the Trustee has discretionary power to make distributions
  • How the trust assets are to be managed and invested
  • The process to be followed in the event a successor Trustee needs to be appointed
  • When the trust terminates

In addition, most Settlors create a “Schedule of Assets” that is attached to the trust agreement. This makes it easier for the Trustee to know what assets are owned by the trust at any given time. When assets are transferred in or out of the trust the schedule is adjusted accordingly.

Trustee Duties and Responsibilities

The primary function of a Trustee is to administer the trust according to the trust terms as created by the Settlor. Within that general job description are a wide range of duties and responsibilities, including, but not limited to, the following:

  • Protecting trust assets —  the Trustee is in a fiduciary role, meaning that he or she must use the utmost care when managing trust assets. Protecting the principal should always be at the forefront of a Trustee’s mind.
  • Investing trust funds – a Trustee must use the “Prudent Investor Standard” when investing trust assets. This requires the Trustee to consider the trust portfolio as a whole when making investment decisions and to use reasonable care, skill, and caution in an effort to avoid unnecessary risks.
  • Communicating trust business – the Trustee must keep beneficiaries informed of trust business.
  • Paying trust taxes – because a trust is a separate legal entity, trust taxes must be calculated, a tax return filed, and any tax obligation owed must be paid each year by the Trustee.
  • Distributing trust funds – the Trustee is responsible for making mandatory distributions to beneficiaries and may have the authority to make discretionary distributions.

Choosing Your Trustee

The success, or failure, of your trust will depend, to a great extent, on your Trustee. For this reason, you should choose your Trustee wisely. Your initial thought will likely be to appoint your spouse or maybe a close family member; however, doing so may cause family conflict and even result in litigation down the road. When the beneficiaries of a trust already have an established relationship with the Trustee it can make administration of the trust more difficult for the Trustee and lead to resentment on the part of the beneficiaries. Appointing a professional Trustee is often a better option.

The Relationship between a Trust and a Will

One of the many advantages to using a trust to distribute estate assets is that a trust bypasses the probate process whereas a Last Will and Testament is required to go through probate. Just because you have established a trust, however, does not mean you can do away with your Will. You may, however, choose to replace your current Will with a “Pour-Over Will.” As the name implies, a Pour-Over Will is a specific type of Will that directs assets left outside of your trust at the time of your death to “pour over” into the trust.

Whether you have assets that were overlooked when your trust was created, or that were recently purchased and not yet transferred into your trust, they will create an intestate estate in the absence of a Will. Executing a Pour Over Will prevents such an outcome.

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