A well thought out and executed estate plan can provide peace of mind and financial security. Although mortality or the possibility of serious accidents or illnesses are not matters that anyone cares to dwell on, sometimes these events arise, so it is important to have an estate plan that effectively deals with such issues. Our Bernalillo County Estate Planning Lawyers have highlighted four types of mistakes and miscalculations that often derail effective estate planning.

Make the Family Business Part of a Personal Estate Plan:

When business succession strategies are not made part of an individual’s estate plan, this can cause huge problems for a family business when the business owner of a family business dies. Issues may arise in terms of how to divide the business or handle income between those kids that work in the business and those who do not participate. If the kids cannot agree on these issues, there may be no viable option but to sell the business at a significant discount. Sometimes purchasing life insurance might offer an option to cover estate tax liabilities and to equalize the distributions between kids based on whether they participate in operation and/or management of the family business.

Bypassing an Experienced Estate Planning Expert:

While some people attempt to use estate planning documents out of DIY books, this often results in the documents failing to accomplish the objectives that led to creation of the document. Along with issues that arise when the terms and legal implications of the documents are not thoroughly understood, there is a risk that the documents will be executed incorrectly or that follow-up steps necessary for implementation will be neglected. Even if a person decides to draft some of his or her own documents to save money, the best estate planning strategy in this situation is to have an experienced Bernalillo County Estate Planning Lawyer review your overall plan and individual documents.

Neglecting Review or Revision of Existing Documents:

Many estate plans fail to provide the protection intended because they have not been modified or revised based on changes in the law, family structure, economic conditions, and other factors.

Using Lump Sum vs. Incremental Disbursement:

When leaving funds directly to your children, the financial benefits from the funds may be undermined if the beneficiary has a drug addiction, gambling problem, poor money management skills, or similar traits. A living trust that provides for incremental distributions and asset management by a trustee can protect beneficiaries from creditors and their own financial mistakes.

Is It Time to Have Your Irrevocable Trust Reviewed by an Attorney?

The above information is designed solely to illustrate general principles of law, and does not constitute a specific legal opinion on individual cases. We suggest that you contact experienced legal counsel for a specific opinion tailored to your individual circumstances.

If you have questions about estate planning issues in New Mexico, our Bernalillo County Estate Planning Lawyers at Life Leaf Legal Group, PC offer a free consultation in our centrally located offices in Santa Fe and Albuquerque so that we can discuss your specific situation. Call us today to schedule your free consultation at (505) 856-3591 to learn about your rights and options.

Our Santa Fe Irrevocable Trust Attorneys at Life Leaf Legal previously have addressed the many benefits that an irrevocable trust brings to an estate plan, which include reduced tax liability, creditor protection, probate avoidance, and more. Nonetheless, an important reason that an estate plan should be periodically reviewed with an experienced living trust lawyer is that sometimes changes in circumstances or the law can neutralize the benefits of a trust so that it no longer makes economic sense.

When a trust has outlived its usefulness or been rendered obsolete by changes in the law or other factors, the best option may be to terminate the trust. Many people do not realize that even an irrevocable trust may be eliminated under the right circumstances. While the specifics of how to nullify an irrevocable trust will vary depending on the specific laws of the jurisdiction, this is an option that is available and may make sense for some individuals. We have provided an example of a situation in which it might make sense to eliminate an irrevocable trust.

A bypass trust provides a vehicle whereby assets in the amount of the federal gift and estate tax exemption of the first spouse to die are transferred into a trust. The surviving spouse maintains access to the earnings generated by the trust and even the principal when necessary. When the surviving spouse passes away, the trust assets bypass the surviving spouse’s estate and pass directly to the couple’s children. The primary purpose of this type of bypass trust is to preserve the first to die spouse’s estate tax exemption for the couple’s children.

While this strategy made sense if the bypass trust was created when the estate tax exemption was as low as $675,000 per individual in 2001 or even $2 million in 2008, Congress has since made the estate tax exemption of $5 million ($5.25 million adjusted for inflation in 2013) permanent and authorized each spouse to employ the unused exemption of the first to die spouse. In short, a married couple can now exempt $10.5 million from federal estate tax without resorting to use of a bypass trust. Even if your spouse passed away before the law authorized inheriting the unused estate tax exemption of a spouse, you may still not need your bypass trust if your assets are below $5.25 million.

If the assets in your trust do not exceed $10.5 million for a married couple or $5.25 million for a surviving spouse whose partner died prior to the law permitting use of a predeceased spouse’s estate tax exemption, the elimination of a bypass trust can result in a reduced tax obligation. When you pass away, assets in your trust have their tax basis stepped up based on current market value. The stepped up tax basis means that beneficiaries can sell the asset without showing any capital gain. Additionally, any income above $11,950 is taxed at the highest individual income tax rate.

Given the tax benefits of eliminating a bypass trust when an estate’s assets do not exceed the thresholds discussed above, you may benefit from seeking the advice of a Santa Fe Irrevocable Trust Lawyer about the merits of winding down the trust. There are provisions under state law that allow an irrevocable trust to be eliminated, such as where the trust is small or it is no longer economically beneficial to maintain the trust. It also may make sense to continue a trust if you live in a state with estate and gift taxes. The trustee can terminate the trust under the right circumstances, or sometimes a judge may do so if the trustee refuses to cooperate.

Undesirable Consequences of Failing to Draft a Will

The above information is designed solely to illustrate general principles of law, and does not constitute a specific legal opinion on individual cases. We suggest that you contact experienced legal counsel for a specific opinion tailored to your individual circumstances.

However, this is not a step that should be taken without legal advice because there may be offsetting benefits that merit maintaining a bypass trust. For example, the assets in the trust are protected from creditors within the trust. If you have questions about irrevocable trusts, our Santa Fe, NM Estate Planning Attorneys at Life Leaf Legal Group, PC offer a free consultation in our centrally located offices in Santa Fe and Albuquerque so that we can discuss your specific situation. Call us today to schedule your free consultation at (505) 856-3591 to learn about your rights and options.

While a living trust provides a preferable estate planning option for most people, a will is still a critical component of an effective estate plan. When a will is not included as part of an estate plan, it can cause serious problems for your loved ones after you die. Even with the use of an effectively drafted living trust, a will typically is an appropriate estate planning tool to cover property that an individual fails to transfer into the trust. Our Albuquerque Estate Planning Lawyers have provided examples of the types of problems that may arise when people neglect to make a will.

Kids May Receive Assets before Their Ready:

When an individual dies intestate and minor children are awarded property through a will, the property will be held in a court imposed guardianship until the child is an adult. When the child becomes a legal adult, the surviving child will receive the property in a lump sum distribution. If the beneficiary is not yet responsible or mature enough to properly manage the inheritance, the value of the property may be prematurely squandered. An individual can appoint a trustee to manage the assets for the beneficiaries so that the funds remain available for necessary expenditures rather than being wasted on inappropriate expenditures.

Assets May Go to the Wrong Individuals:

While the court will distribute the net assets to the beneficiaries designated in a will, the court will distribute assets according to intestate succession law when there is no will which creates a statutory priority for inheritance rather than distributing the property in conformity with the preferences of a decedent.

Estate Tax Liability May Fall on the Wrong Parties:

Because some assets are passed based on a beneficiary designation rather than through probate, the lack of a will means that assets may pass through intestate succession to a family member that inherited a retirement plan as the designated beneficiary. The estate taxes will be paid in probate court, so the wrong beneficiaries may end up responsible for paying estate taxes.

The Wrong Person May Administer the Estate:

If you designated someone in your will to administer your estate, the court will typically honor this selection. If no will exists, the court will follow preferences established by state law but many relatives may be considered. This means that the cost of selection as well as the fees charged by the personal representative will tend to be higher. Further, the person who ultimately manages administration of your estate may not be the individual you would have chosen.

Balancing Securing Financial Information with Access by Beneficiaries

The above information is designed solely to illustrate general principles of law, and does not constitute a specific legal opinion on individual cases. We suggest that you contact experienced legal counsel for a specific opinion tailored to your individual circumstances.

If you have questions about will administration, our Santa Fe, NM Estate Planning Attorneys at Life Leaf Legal Group, PC offer a free consultation in our centrally located offices in Santa Fe and Albuquerque so that we can discuss your specific situation. Call us today to schedule your free consultation at (505) 856-3591 to learn about your rights and options.

Many elderly individuals rely on Medicaid for nursing home care and other health care coverage. While Medicaid offers many a valuable resource to cover medical costs, proper planning is important to avoid adversely affecting one’s net worth, financial legacy, and eligibility for these important benefits. Our Santa Fe Medicare Planning Attorneys have provided answers to common questions about Medicaid planning.

What is involved in Medicaid planning?

Medicaid planning involves employing estate planning tools like living trusts to protect assets and income when one’s eligibility for Medicaid is considered. While Medicaid can pay for the considerable cost of nursing home care, Medicaid planning provides a means for an individual to avoid needing to spend down his assets to qualify for coverage.

What happens if my spouse needs Medicaid coverage to pay for nursing home care?

This issue impacts the lives of many elderly couples when either spouse requires the level of care available in a skilled nursing facility. Our Santa Fe Attorneys may be able to set up a trust to protect the assets that you need to continue living independently while also preserving your spouse’s financial eligibility for Medicaid.

How does Medicaid differ from Medicare?

Medicaid is a needs based program that has strict financial eligibility criteria based on minimal assets and low income. By contrast, Medicare is age based health insurance for those 65 and above.

Why do I need legal advice to obtain Medicaid coverage when it merely entails completing an application?

The process of completing the application and paperwork is something that many people do on their own. However, our estate planning lawyers work with our clients to develop an estate plan which will allow our clients to maximize the assets available to their spouse as well as the legacy left to beneficiaries.

Can the government force an applicant to sell the home that a spouse lives in to qualify for Medicaid benefits?

If your spouse needs to move into a skilled nursing facility, your residence generally will not be considered for purposes of determining financial eligibility. Even if you are not married and no spouse lives in your home, we may be able to implement a plan to protect your home from being considered for needs testing purposes. Proper Medicaid planning is important to ensure that the value of one’s home does not become available for means testing if one’s spouse passes away.

Is an Adult Child Liable for Debts of a Parent Who Passes Away?

The above information is provided to illustrate general principles of law and should not be interpreted as a specific legal opinion on an individual case. You should contact experienced legal counsel to get specific legal advice that is based upon your specific circumstances.

If you have questions about Medicaid planning for nursing home care in Santa Fe, our New Mexico Attorneys at Life Leaf Legal Group, PC offer a free consultation in our centrally located offices in Santa Fe and Albuquerque so that we can discuss your specific situation. Call us today to schedule your free consultation at (505) 856-3591 to learn about your rights and options.

While there are a number of estate planning options for those who wish to make charitable gifts, sometimes estate planning tools must address multiple objectives. Charitable lead trusts provide an effective tool for accomplishing the diverse goals of providing a gift to favored charities, leaving a legacy for family, and reducing tax liabilities. While there are a number of forms of charitable trusts that involve gifting the principle assets to the charity, this form of estate planning device provides a stream of income to the selected charitable organization while preserving the principle for one’s loved ones. We have provided answers to common questions about this form of estate planning device.

What is a charitable lead trust?

This form of estate planning tool involves transferring property into the trust which then provides annual or periodic payments to the designated charitable organizations for the duration of the trust. When the trust term expires, the property placed in the trust reverts back to the trust creator or specific parties designated by the party who set up the trust.

Does the fact that I may get the assets back mean that I forfeit tax benefits when using this type of trust?

Since the income payments that are paid out by the trust are distributed for charitable purposes, this form of trust can reduce estate tax, gift tax, and income tax obligations. Even if you have the assets in the trust revert to you when the trust term expires, you may receive a federal income tax deduction in the amount of the payments made from the trust during the tax year that the charitable lead trust is created. Although the income payments from the trust to the charitable organization may be spread over a period of years, you can take advantage of the income tax benefits at the time the trust is set up.

Can I set up a charitable lead trust without an attorney?

While there are non-attorney options for setting up this estate planning mechanism like using standardized forms or relying on computer programs, these approaches are unreliable. The advantage of working with an experienced estate planning lawyer is that you will receive advice tailored to your specific situation about whether this estate planning option is best suited for your purposes. Another benefit of using a proven New Mexico estate planning lawyer is that the trust agreement will be customized by a professional who also can assist you with follow-up steps like properly funding the trust.

Common Strategies for Making a Charitable Gift Part of an Estate

The above information is provided to illustrate general principles of law and should not be interpreted as a specific legal opinion on an individual case. You should contact experienced legal counsel to get specific legal advice that is based upon your specific circumstances.

If you have questions about charitable gifts or other estate planning issues, our New Mexico Attorneys at Life Leaf Legal Group, PC offer a free consultation in our centrally located offices in Santa Fe and Albuquerque so that we can discuss your specific situation. Call us today to schedule your free consultation at (505) 856-3591 to learn about your rights and options.

Although living trusts offer an effective estate planning option, some people are unaware of what information they need to make a preliminary determination about whether it is an appropriate estate planning tool to meet their needs. While the most effective approach to having one’s estate planning needs assessed is to seek legal advice from New Mexico Attorneys with experience in estate planning issues, we have provided some factors that may help you determine whether to consider a living trust.

Probate Is Not Necessary for Many Types of Assets:

One important consideration when evaluating your need for a living trust involves identifying the types of assets that you possess. While a key function of a living trust is to avoid probate, there are a fair number of assets that may not need to go through probate. Life insurance benefits, retirement accounts and residences held in joint tenancy will pass to the designated beneficiary or joint tenant (often a spouse or domestic partner) regardless of whether a decedent has a will or living trust. If these types of assets constitute the bulk of a person’s estate, it is possible that a living trust will not provide enough benefit to justify the cost. However, there are other benefits to a living trust besides probate avoidance so it is best to obtain legal counsel before deciding that your assets do not merit creation of this estate planning device.

Living Trusts Need Updating to Be Effective:

If you are considering a living trust, it is important to recognize that you must continue to transfer assets into the living trust so that it is effective. When assets are not transferred into the trust, they may proceed through probate so the value of the living trust might be diminished to some degree.

Small Estates May Not Merit a Living Trust:

Depending on the value of an estate, a living trust may not be necessary because an expedited probate option may be available. When the net assets of an estate amount to less than $50,000 in net value, probate may not be necessary. There is an expedited process that involves filing a small estate affidavit which is fast and efficient and may constitute a favorable alternative to a living trust for estates with a relatively modest net value.

Living Trusts May Not Offer the Right Mix of Benefits:

Many people do not want to surrender ownership and control of their assets so they are unwilling to consider an irrevocable living trust. While use of a revocable trust may permit you to change your beneficiaries or even terminate the trust, this continued control over your assets also comes with disadvantages. For example, the living trust will not provide the benefit of placing the assets beyond consideration for Medicaid eligibility because the settlor of the trust has not permanently relinquished control over the assets. A living trust does not make sense unless it can provide the right mix of benefits that an individual is seeking without adverse consequences that the person is unwilling to accept.

Why the Weak Economy Might Mean It Is Time to Update Your Estate Plan

The above information is designed solely to illustrate general principles of law, and does not constitute a specific legal opinion on individual cases. We suggest that you contact experienced legal counsel for a specific opinion tailored to your individual circumstances.

If you are trying to determine if a living trust provides a prudent estate planning option for someone in your situation, our New Mexico Attorneys at Life Leaf Legal Group, PC offer a free consultation in our centrally located offices in Santa Fe and Albuquerque so that we can discuss your specific situation. Call us today to schedule your free consultation at (505) 856-3591 to learn about your rights and options.

Our Santa Fe, NM Estate Planning Attorneys have previously addressed the importance of periodically reviewing an estate plan to ensure that there have not been relevant changes in the law or one’s situation that merit changes to an individual’s estate plan.  The types of events that should routinely trigger an evaluation of an estate plan include marriage, divorce, birth or adoption of a child, retirement, and similar major family changes. However, sometimes there are factors unrelated to changes in an individual’s family or personal financial situation or existing law that justify such an update.  One key event which merits revisiting one’s estate plan that is relevant for many people is the impact of a poor economy.  Our Santa Fe Estate Planning Law Firm has provided some examples of how the current state of the economy may make it prudent to revisit one’s estate plan.

Buyout Provisions for Closely Held Businesses:

Given that the recession followed by an extremely slow recovery may have adversely impacted the value of your business, it may be appropriate to revise the business buyout provisions to reflect the diminished value of the company.  If the business buyout provision was prepared when the company was worth $5 million, it can create serious problems if a partner leaves the business when it is worth only $3 million.  The partner leaving may need to be bought out based on the business being valued at the higher amount.

Wills:

When an individual decides how to distribute assets in his or her estate through a will, the decision is usually based in part on consideration of the relative value of the assets.  In a bad economy, some and perhaps most assets will decline in value but not necessarily to the same extent.  Further, certain investments may actually increase in value during a weak economy.  Because these changes in the value of your assets may impact the proportion of your estate given to beneficiaries based on the specific assets left to each, it may be appropriate to revise your will to reflect these different valuations.

Trusts with Milestones or Incentives:

Many people construct a trust so that distributions to their kids are based in some way on the kids’ earnings, such as matching their earnings from employment or investment.  These types of provisions are designed to motivate one’s kids to be industrious in pursuing their own financial success rather than simply relying on an inheritance that can be quickly depleted.  With 91 million Americans out of work, prolonged unemployment by one’s kids may reflect the state of the economy rather than any lack of effort.  If the incentive provisions in your trust are not artfully drafted, this can prevent your kids from receiving financial support during a time of critical need.

Estate Planning for the Sandwich Generation

The above information is provided to illustrate general principles of law and should not be interpreted as a specific legal opinion on an individual case. You should contact experienced legal counsel to get specific legal advice that is based upon your specific circumstances.

If you have questions about estate planning, our Santa Fe, NM Estate Planning Attorneys at Life Leaf Legal Group, PC offer a free consultation in our centrally located offices in Santa Fe and Albuquerque so that we can discuss your specific situation.  Call us today to schedule your free consultation at (505) 856-3591 to learn about your rights and options.

When most people leave a substantial amount of their assets to loved ones, they also may wish to support their preferred charitable organizations.  While it is possible to simply gift money to a non-profit organization, there are many other ways to support a charity that may provide additional benefits beyond those that result from just writing a check.  We have provided a few examples of types of gift giving that can be part of your estate plan along with a general description of some of the advantages associated with the particular method of providing a charitable gift.

Charitable Gift Annuities:

This form of gift involves transferring assets like money, real estate or other property to a charity.  The charity pays the trust maker (and up to one other party e.g. a spouse) income payments over the lifetime of the parties who are designated to receive income payments under the trust.  When the party or parties receiving income payments from the trust pass away, the charity keeps the assets placed in the trust.  This form of charitable gift device results in an immediate income deduction for a portion of the gift while the income payments (i.e. annuity payments) will have a portion that is taxed as ordinary income and another portion that is exempt from tax liability.  The selection of the type of assets gifted also needs to be evaluated with this type of gift because appreciated property will result in a portion of your lifetime payments being taxed as capital gain rates.

Life Estates:

If you have real property that you wish to gift to a charity, you might consider a life estate.  This approach allows you and some other person you designate (typically a spouse or child) to live on the property until the death of those who hold the life estate.  After those with the life estate die, the charity keeps the real estate.  This strategy often is used for making a charitable gift of a personal residence.  While there are multiple methods to accomplish this goal, an experienced Santa Fe Estate Planning Attorney can advise you regarding the best way to maximize the estate tax and income tax benefits of this approach given your unique situation.

Use of a Will, Trust or Beneficiary Designation:

Another approach to making such a gift is to use your will or living trust to provide the gift to the charitable organization.  If you wish to make a gift of your retirement account or life insurance proceeds, you can list the charity as a beneficiary on the account or policy.  If this strategy is used, the decedent may reduce or avoid estate tax liability.

Dynasty Trusts Can Protect Many Future
Generations of Loved Ones

The above information is provided to illustrate general principles of law and should not be interpreted as a specific legal opinion on an individual case. You should contact experienced legal counsel to get specific legal advice that is based upon your specific circumstances.

These are only a few examples of estate planning strategies that involve charitable gifts.  If you have questions about the best approach to make a charitable gift as part of your estate planning strategy, our New Mexico Estate Planning Attorneys at Life Leaf Legal Group, PC offer a free consultation in our centrally located offices in Santa Fe and Albuquerque so that we can discuss your specific situation.  Call us today to schedule your free consultation at (505) 856-3591 to learn about your rights and options.

Our New Mexico Attorneys frequently address the legal issues associated with passing one’s assets to beneficiaries when they die. There is a related issue that is not widely discussed but often asked about that focuses on the opposite side of the spectrum.  Many people ask about whether they can be liable for the debts of a loved one.  While creditors cannot generally enforce a debt owed by a decedent against his or her surviving family, this statement is a bit of an oversimplification, so we have provided a more nuanced answer to this question.

When a party passes away without a trust in place, the distribution of assets under a will require that financial obligations are satisfied before the remaining assets are distributed to beneficiaries under a will.  If an individual dies while owing financial obligations, the debts must be paid by the executor (referred to as the “personal representative” in NM) according to a particular order of preference as set forth below:

• Any unpaid income taxes or estate taxes have first priority
• Secured obligations like mortgage payments and car loans have second priority position.
• Unsecured debts like credit cards, hospital bills, and similar expenses have next priority.

After these financial obligations have been satisfied, the net estate is then distributed to the beneficiaries of the decedent.  If debts remain unpaid after all of the assets in the estate have been exhausted, these debts generally will remain unpaid because they cannot be enforced against the beneficiaries or other surviving family members.

There is an exception to the general rule that creditors of a decedent may not pursue family members or other beneficiaries if the net estate has a negative value.  There may be debts that were joint obligations, such as when a child is a joint credit cardholder.  In this situation, the passing of the decedent will not protect the surviving family member from creditors.

While there are strategies that can further protect an individual’s legacy from being taken by creditors with effective estate planning, including use of a trust or giving away assets while alive.  However, these creditor protection strategies must be structured properly to avoid claims that the transfers should be reversed because the gifts were solely intended to frustrate legitimate creditor claims.  A New Mexico Attorney who handles estate planning and probate issues can also advise you regarding ways to obtain creditor protection by using a living trust.

Estate Planning Strategies to Prevent Conflicts between Children

The above information is designed solely to illustrate general principles of law, and does not constitute a specific legal opinion on individual cases. We suggest that you contact experienced legal counsel for a specific opinion tailored to your individual circumstances.

If you have questions about creditor claims or other estate planning issues, our New Mexico Estate Planning Attorneys at Life Leaf Legal Group, PC offer a free consultation in our centrally located offices in Santa Fe and Albuquerque so that we can discuss your specific situation.  Call us today to schedule your free consultation at (505) 856-3591 to learn about your rights and options.

Although a key objective of constructing an estate plan is to provide an effective procedure for leaving one’s wealth to one’s loved ones, such as their kids, sometimes a more long-term view is appropriate. Many people wish for their financial legacy to help not just their children but also their grandchildren, great-grandchildren, and successive generations. Although a simple will can provide a means of leaving one’s estate to one’s children or other living beneficiaries, it is inadequate for ensuring that your legacy will continue to benefit future generations within your family.

A dynasty trust may constitute a more effective estate planning mechanism for ensuring that the legacy that you create benefits multiple future generations. This estate planning tool can be used to shield assets passed to your loved one’s from potential financial obligations of your beneficiaries that include ex-spouse property and support claims, personal injury judgments, creditor claims so that the funds continue to be available for successive generations. A dynasty trust cannot only protect assets from these types of claims but also reduce estate tax liability and prevent a family business from being sold so that future family members cannot continue to participate in the business.

Because the function of a dynasty trust is to ensure the availability of the assets for multiple generations, the law allows such trusts to be created for a very long duration of time. Since a dynasty trust cannot be accessed by creditors or others who are not designated beneficiaries, it can essentially last forever provided the funds are not exhausted. In most states, the dynasty trust cannot necessarily last forever in terms of protecting assets from creditors, but it can last hundreds of years. The long duration of a dynasty trust means that in practical terms the trust essentially lasts forever because few people actually plan hundreds of years in advance.

Beneficiary Characteristics to Consider When Deciding on a Trust

The above information is designed solely to illustrate general principles of law, and does not constitute a specific legal opinion on individual cases. We suggest that you contact experienced legal counsel for a specific opinion tailored to your individual circumstances.

If you have questions about asset protection of a dynasty trust, our New Mexico Estate Planning Attorneys at Life Leaf Legal Group, PC offer a free consultation in our centrally located offices in Santa Fe and Albuquerque so that we can discuss your specific situation. Call us today to schedule your free consultation at (505) 856-3591 to learn about your rights and options.