Does Your Trust Update Require an Amendment or Restatement?

If you have a revocable living trust, you may need to update it from time to time. In the process of your trust update, you may wonder if you need to amend it or if it needs to be completely restated. The answer to that question depends on what your goal is with the update.
 

Why a Trust Update Is Needed

A living trust can be changed at any time and for any reason. That’s the benefit of creating a revocable trust. There are several reasons you might need to amend or restate your trust, and they are usually centered around life events. These might include:
  • Death
  • Birth
  • Marriage
  • Divorce
  • Retirement
  • Changing beneficiaries
  • Adding or removing assets
  • Relocating to a new state
In addition, it’s smart practice to review your trust regularly to ensure that it continues to support your wishes. What you desire at 60 can be very different from what the 40-year-old version of you would have wanted.
 

When an Amendment Is the Best Bet

If your trust update only requires minor changes, an amendment is the correct choice. These minor adjustments can include changing assets or trustees. A trust amendment changes one or more provisions of a revocable trust without revoking it entirely.
Implementing numerous amendments over the years can make the trust confusing, requiring your trustee to go through additional documents to makes sense of multiple amendments. If it comes to that, it might be time to rework your trust to be clearer. That’s when a restatement is in order.
 

When a Trust Update Requires a Restatement

If you have multiple changes to make to your trust, a restatement could be the better option. Updates that fall into this category include removing a beneficiary or changing your asset distribution. Restating the trust means that you and your estate planning attorney will create a new document that states that the trust has not been revoked but is being restated (replaced by a new trust with the same name). Because your trust update is a restatement, you won’t have to move property out of it and then back into it (which you would have to do if you revoked the original trust).
In many instances, a restatement is preferable to an amendment because the restated trust supersedes any previous trusts and amendments. If, for instance, you removed a beneficiary, they would never know because they would not be listed in the amended trust, which will avoid any potential issues or hurt feelings.
Another reason to restate the trust is to take advantage of changes to the law.  For example, the popular “AB” trust format of the 1990’s was made almost completely obsolete by 2012 estate tax law changes, therefore almost all “AB” trusts should be restated.
Speak with your estate planning attorney if you have an older trust and need to make these adjustments.
 

Is It Time for a Trust Update?

For more than 30 years, Joel A. Harris has been protecting the estates of families throughout California. If you want help navigating the ins and outs of protecting your estate by establishing or updating a trust to protect your future, visit us online, in person, or call (925) 757-4605.

Why Is Funding Your Trust So Important?

For some people setting up your trust estate plan can be a daunting task. You are forced to think about your least favorite subjects, death and taxes, and make critical decisions about how to distribute your estate. The final trust signing appointment is usually followed by a sigh of relief, with the plan to put your estate planning folder in a safe place for future generations.

But wait, there’s more….

The Most Important Part Of Setting Up Your Trust

Many people don’t sit down and take the time to read through their estate plans after their review and signing with their attorney. Usually, this includes an instruction letter on how to “fund” your trust. Unfortunately, this is the part of estate planning that many people skip.

To put it simply, a trust is a naming convention, or a bucket, to hold and protect your assets. You want to put all the assets that you can into that bucket. In order to actually put the assets in the bucket, you must retitle them so that they match the title of your trust. Because the title to your home lives at the county recorder’s office and your bank and brokerage accounts live at the financial institutions, you cannot physically put them in your bucket. You must retitle them so that the place where they live knows they belong in your trust. If these accounts are not in your trust, they won’t be available to your trustee to manage for you if you get sick, or to distribute to your heirs after your death.

Remember To Retitle Your Deed & Accounts

If you do not retitle your house deed or rename your bank accounts, then your trust will not be honored by the county or banks when the time comes to administer your trust. This will often result in probate court, which is not the purpose for which you just spent time, money, and effort creating your trust estate plan. Probate is a court proceeding that is required in California when a decedent owns assets only in their name (not in their trust), and is required for real estate valued at over $55,000, or any assets with a total value of over about $166,000. Probate in California currently takes about 2 years or more and costs a percentage of the gross value of your estate.

Here are the most common assets that end up causing probate within a trust administration:

  • Real estate, bank accounts, stock, bonds and mutual funds not titled in the name of your trust.
  • Property that is held jointly with family as tenants in common: joint tenancy will work with a right of survivorship, but creating a joint tenancy has very specific requirements and the default way of holding title is as “tenants in common”. We often see deeds with no stated form of title, which by law defaults to tenants in common. Tenants in common means the owners can do what they want with their share, such as gift it, sell it, or bequeath it via a will or trust, but if it’s not in the trust, then it must be probated. There is no right of survivorship with tenants in common.
  • Inherited property that was not retitled: if you inherit a home, a bank account, even an IRA, even though it is now yours by operation of law (meaning the person who left it to you has died), if you do not take care of the proper paperwork to either retitle the assets in your name and trust or designate new beneficiaries, then on your death and the asset go to probate.

Here are the normal assets that should go into your trust directly:

  • Bank accounts
  • Real estate
  • Brokerage/investment accounts
  • Stocks/mutual funds
  • Business interests (corporations, LLCs, partnerships, sole proprietorships)

What does not go into your trust:

  • IRAs
  • 401ks
  • Stock options
  • Any other tax-deferred plans
  • Life insurance (Trust should be named as beneficiary)

These tax-deferred accounts, or assets not yet vested, do not go into your trust, but you can, and should, designate beneficiaries for these accounts in line with the distribution plan for your estate. There may be instances where you want the trust to be the beneficiary of these plans, but please consult with your attorney first.

Funding a Trust; One and Done?

The good thing about funding a trust is that typically you only have to do it once. If you amend or restate your trust in the future, you do not have to redo the funding. The original name and date of the trust remain the same. Any assets you get rid of, such as selling a house or closing a bank account, have no effect on the trust. If you open a new account or purchasing real estate, you can do so directly in the name of your trust. The only update you should make is to update the asset schedule of your trust, and if necessary make changes to distributions because of these new assets.

Are You Worried About Your Estate Plan or Trust?

Setting up a trust and estate plan is a potential minefield you don’t want to tackle on your own.  Whether you have a plan in place now or need to start from the beginning, we can help. For over 30 years Joel A. Harris has been protecting the estates of families throughout California. If you want some help navigating the ins and outs of protecting your estate or establishing a trust to protect your future, feel free to visit us online, in person, or call us by phone at (925) 757-4605.

Five Major Takeaways From The SECURE Act You Need to Know for Estate Planning

Saving for retirement is a task that unfortunately we Americans have become worse and worse at over the years. Over half of the American population has not saved enough for retirement at the time of retirement and end up having to return to work with at least a part-time job. A full 25% of Americans don’t have any retirement savings or plans in place at any given time in their working careers. However, a law that was just signed into law by Congress on December 20, 2019, aims to improve and aid in Americans preparing and saving for retirement. The bill, called The Setting Every Community Up for Retirement Enhancement (SECURE) Act, has five major key takeaways that affect estate planning:

  • Part-time employees will now be qualified for retirement plans under their employers.
  • Small business owners will now be able to set up 401(k) accounts for their employees. 
  • 401(K) statements will now need to disclose potential monthly payments to the recipient on every balance statement 
  • The age at which you need to begin withdrawing money from retirement savings accounts has been shifted to 72 years, instead of 70.5 years. 
  • IRA distributions have been drastically altered.

How Are Part-Time Employees Affected?

 Under the SECURE Act, part-time employees who work at least 500 hours a year and have been with the institution for 3 years or more will now not be exempted from contribution plans from the employer. This will have a huge impact on those who have moved from full-time employment to part-time, instead of fully retiring. This will have a major impact on those who are 65 and above, who, in the last decade or so, have been forced to continue working in some capacity because their retirement accounts cannot support them fully. 

How Are Small Business Owners Affected?

The next large take-away from the SECURE Act is that now small businesses will be able to offer retirement plans for their employees. Previously, it was costly for small businesses to offer these kinds of options to their staff members, leaving employees to plan for themselves. Now, it will increase the cap of the income that employees need to be able to save from 10% of income to 15% of their income. This adjustment is important for those who have spent their lives in small businesses, and have been left to their own devices in terms of retirement planning. This aims to assist them in making their retirement planning more feasible.

How is My 401K Affected by the SECURE Act?

 Another significant part of the SECURE Act is the transparency it will require from 401(K) accounts. As of right now, 401(K) accounts are not required to disclose the monthly allowance the retiree would be receiving on each statement. While this might seem trivial, the sum of money saved has been allowing Americans to become falsely secure in the amount they are saving, without having a real concept of what that sum will translate into. Now, 401(K) accounts will be required to display the monthly allowance on every balance, for the retiree to better understand exactly the sums they will be receiving when they do retire. 

How Does the SECURE Act Affect Our Retirement Age?

Finally, the SECURE Act adjusts the age at which people need to begin withdrawing money from 70.5 years to 72 years of age. While this is a subtle change, since the majority of people are working into more advanced years anyways, those who do not need to withdraw money will have an additional 1.5 years to keep that money in their retirement accounts. Withdrawals from the retirement accounts are still allowed before then, but this increase in age is aimed at helping those who are continuing to work anyways, by allowing them more time to save.

How Does the SECURE Act Affect An IRA?

Trusts should no longer be beneficiaries of most IRA’s under the SECURE Act.  Previously if your living trust was written properly your trust could be the benefit of your IRA so that your trustee could maintain some control over your beneficiaries.  Now with the SECURE Act, if your trust is named one of the beneficiaries, the beneficiaries of the trust will probably have to take distribution of the entire IRA in the 10th year after death, which will result in a larger tax burden. Finally, if your IRA beneficiary is very young or disabled, you will want to consider a “trusteed IRA” which allows a professional to manage the IRA after your death.

How Does the SECURE Act Affect My Inherited IRA?

You will have to pay taxes on inherited IRAs sooner than you may have expected. The SECURE Act essentially eliminates the “stretch IRA,” which was an estate planning method that allowed IRA beneficiaries to stretch their distributions from their inherited account — and the required tax payments on them — based on their life expectancy. For example, if you named a grandchild as your beneficiary, most of your account could’ve stayed invested for decades after your passing, and the grandchild could’ve continued to take advantage of the tax benefits. Under the new law, however, most beneficiaries must now withdraw all the distributions from their inherited account and pay taxes on it within 10 years. The exceptions to this are for spouses and the chronically ill or disabled. One important thing to remember is that this provision is not retroactive and will not affect those who have already inherited an IRA. It will apply to those starting on Jan. 1, 2020, and may affect the estate planning of those planning to pass on an IRA to a non-spouse.

What Should I Do If My Living Trust Is Named As Beneficiary Of My IRA?

Under the SECURE Act, if your living trust is named as beneficiary of your IRA, your beneficiaries will probably only have two options, both bad: cash it all out immediately, or cash it all out in year 10.  This may cause a huge tax.  There are other options available, but these need to be explored on a case by case basis.  For most people, you simply need to name your spouse as primary IRA beneficiary, and your children as contingent IRA beneficiaries.  However, if your children are young, disabled or foolish, other options will need to be explored.  For example, you may be able to name a trust company or fiduciary as trustee of your IRA.  You can also explore ROTH IRA conversions with your tax and financial advisor.  More complex but powerful options may also be available.

What Should I Do Now?   

With these new changes in retirement planning, you may still have some remaining questions. The Law Offices of Joel A Harris are more than prepared to provide you with legal counsel pertaining to your retirement, establishing a trust to protect your legacy and your assets, and any other legal questions you may have. Whether it is in retirement planning or any other kind of legal counsel, The Law Offices of Joel A Harris, located in Concord, Walnut Creek, and Antioch are available to help you to the best of their abilities. Joel Harris is an attorney with over 25 years of experience and is extremely familiar with this process. If you are not sure how to begin, or you just want some help navigating the legal side of your retirement process, feel free to visit us online, in person or call us by phone at (925) 757-4605.

Sources

What Will The SECURE Act Mean For My Retirement Plans?

What Will The SECURE Act Mean For My Retirement Plans?

What are your retirement plans? Have you thought about how you will pay for your housing situation? Have you reserved enough money for extra expenses? Will the retirement age change by the time you retire? All of these questions are valid and you should take them into consideration as you grow older. With policies changing regularly, it is critical to stay up-to-date to be prepared for any situation.

In 2019 the senate will decide whether they approve the changes for the current retirement requirements or if they will make any changes at all. With the House of Representatives already approving the Setting Every Community Up for Retirement Enhancement Act (SECURE Art), the requirements for new retirement plans will change. If passed, you can expect some changes to be:

  • More part-time positions offering 401(K) plans
  • Contribution to traditional IRA’s (Individual Retirement Arrangements) for as long as desired
  • Penalty-free withdrawals for those who fall into specific groups/circumstances
  • The age for retirement to move from 70 ½ to 72 years of age
  • A requirement to withdraw from inherited retirement accounts within 10 years of retiring

Retirement should be an exciting time, away from confusing language and ever changing politics. For this reason, The Law Offices of Joel A. Harris works hard to provide you with information to make it easier for you to understand the new changes the SECURE Act brings. We are located in Concord, Walnut Creek and Antioch, to be most convenient to our clients. If you would like to visit us in person, by phone at (925) 757-4605 or via website, feel free to contact us and we will be more than happy to help!

What Changes Will I See?

There are quite a few changes that you can expect once the SECURE Act is passed and put into practice. Below are a few changes that you can expect and how you can prepare for them to better your retirement experience:

  • Part-Time 401(K) Options: There is currently a minimum number of hours worked in one year (~1000 hrs.) that decides if a worker is eligible for a 401(K) account. With the SECURE Act part-time workers will become eligible for a 401(K) account, so that they can start adding funds to their future income. If you would like to read more in detail about this change, go here.
  • Inclusion of Academic Income: At the moment, certain academic stipends and non-tuition aid are not treated as income for purposes of IRA contributions. With the SECURE Act in place, these kinds of aid and financial support will be included as a form of income. This means that higher taxes may be paid, but more money may be taken out when needed. If you would like to read more about this, check out this article
  • Removal Of Age Limit For Contributions: The SECURE Act would remove the current age (currently 70 ½ years old) restriction to contribute to a Traditional IRA. This change can be seen as a positive change since the age of retirement may change over time, which would affect the age restriction. If you would like to learn more about this, we recommend that you read this article.
  • Limitations on Tax-Advantages After Death: A benefit that was available to families in the past has been the inheritance of retirement funds. This option became popular in the 1960’s and can still be seen today. With the SECURE Act in place, family members who benefit from retirement inheritance may find themselves with stricter time limits on both the time it takes to withdraw the money, as well as how much can be withdrawn at one time. If you would like to read more, you can go here.
  • Penalty-Free Withdrawals for Birth or Adoption of Child: The changes to the SECURE Act would allow new parents, biological or adoptive, to take up to $5000 from their 401(K), IRA or other retirement accounts. This new change is beneficial for parents since there is also no limit as to how many times a future retiree can use this benefit. It is important to state that new parents should take into consideration their future retirement costs. If you would like to read more about penalty-free withdrawals,, read this article.

What Should I Do Now?

If you are planning to retire shortly or have yet to plan for retirement, The Law Offices of Joel A Harris, located in Concord, Walnut Creek, and Antioch are available to help you plan accordingly. Joel Harris is an attorney with nearly 30 years of experience in estate planning, trust and probate law. Joel works with expert tax and financial planners who can take the time to help you plan for retirement, create a budget, document progress and provide useful reminders pertaining to your personal retirement plan. If you are not sure how to begin planning for retirement, feel free to visit us online, in person or by phone at (925) 757-4605. Our priority is your future success!

Sources

4 Common Mistakes People Make AFTER Signing Their Living Trust

Every estate plan has unique features, but after preparing living trusts and wills for the nearly thirty years, we have seen the same problems and mistakes often reoccur. Each of these common mistakes is avoidable as long as you take the care to make sure you been address them correctly. From wills to trusts and beyond, protect your loved ones by avoiding these four costly and common estate-planning mistakes.

1. Neglecting to Update Your Estate Plan

Many people become passive in the presence of an estate planning attorney. They rely on the attorney to make sure everything in the plan is what they need and is done properly. Part of the estate planner’s job is to be sure you understand the basics of how the plan works, what you need to do to implement or maintain the plan, and how it works for you and your beneficiaries. It is not your job to know all the legal angles and why certain language is used.

Often people make decisions after a discussion with their estate attorney but then later on details become hazy. Insist that your attorney simply explain your documents. You may wish to take notes about key decisions and why you made them. Each time the law or your family changes, you need to make it a part of your check-list to revisit your estate plan. These changes may require alterations in both new and old estate plans.

2. Not Updating Powers of Attorney

Every estate plan should include powers of attorney. You need at least two, one for financial matters and one for medical care, often called an Advance Heath Care Directive in California. Unfortunately, many people don’t have either of these documents, and others haven’t kept them up to date or given the details much thought.  Be sure you have these completed these documents and that they have been reviewed recently. Your financial power of attorney agents normally mimic your Executors and Successor Trustees.

3. Not Updating Beneficiary Designations

Failure to update beneficiary designations means an asset might go to your parents, siblings, or even an ex-spouse because of what the original form states. Your asset may be designated to a deceased person, or other unintended beneficiaries – we’ve seen it all. Other times someone is inadvertently excluded because they were born or married into the family after you completed the form. Review your beneficiary designations every couple of years and after every major life change in your family.

4. Not Updating Asset Ownership

You might own some assets in your own name and others in joint title with your spouse, adult child, or someone else. Some assets might be in your trust, limited partnerships, or other vehicles. When you have a living trust, the trust only protects assets that it owns. Normally all real estate, partnerships, brokerage accounts, stocks, bonds, mutual funds, notes, bank accounts and personal property will be owned by your trust. Life insurance policies will name your trust as beneficiary (except for special policies created to pay estate taxes). IRA, 401K and similar tax deferred retirement accounts cannot be owned by the trust – it is critical to name the right beneficiary on these accounts.

The Tax Cuts and Jobs Act made significant changes in income and estate taxes. If you have a trust or established estate plan created before 2012, you should have them reviewed to see if they are obsolete, or add unnecessary costs and complexity. To help your beneficiaries avoid unnecessary stress, ensure that you are distributing the right assets to the right people. You would be surprised what we find in old estate plans!

Are You Worried about Your Estate Plan?

If you are not properly prepared and with a well-planned will, then your family could be vulnerable to higher tax bills, extensive legal fees, and familial conflicts. To avoid those obstacles you should visit an Estate Planning Attorney to get professional help, and create a plan that well suits your goals.

At The Law Offices of Joel A Harris located in Antioch, California (here is a convenient map), we have worked for over 25 years giving the best guidance our clients need to protect their assets. Have a question about your planning your estate? Feel free to schedule a sit-down meeting where we are happy to patiently answer every question you may have. For your free consultation reach out to us at (925) 757-4605.

Sources