Wills and Trusts
According to Forbes.com (Ashlee Ebeling, 03/01/10), 65% Americans have no will or estate plan in place when they die. That is why every state has a plan in place if you die without a will. It is called an Intestacy Statute. If you don’t make a plan, the state has one already made for you and it probably will not be a plan you want or like.
If you are part of the 65%, what happens to your property when you die? Usually, your spouse or loved one will decide that an estate administration must be opened. More often than not, this will involve hiring the help of an attorney. A Petition for Administration must be filed with the court. A list of assets will need to be provided to the court. Sometimes, the person seeking to be an administrator will be required to purchase a bond from an insurance company. They must notify all of the legal heirs of the deceased and ask them to sign a waiver consenting to them being named the Administrator of the Estate. If no one contests them being named Administrator, the judge will issue an Order, called Letters of Administration, authorizing them to handle the estate. If any of the heirs fails or refuses to sign the stipulation, at least, one court appearance will be necessary. The problem with relying on New Mexico & Texas’s plans is it may not fit your family. It might give money to people who will squander it.
It could give money to:
- Children with drug or alcohol issues.
- A child facing bankruptcy, a lawsuit or divorce.
- A child who is simply too young to handle it.
- A spouse in a nursing home.
- A spouse who may remarry.
In each case, all of the money you spent a lifetime saving could be gone in a flash. For parents of minor children, having no plan can be especially problematic because they can name a guardian for their children only in a will. Without a will the state (court) decides who will be the guardian for your minor children.
If you have a blended or non-traditional family, the outlook is really grim. If you are in an unmarried relationship, even if it is long-term, you are considered legal strangers with your partner. That could mean losing everything if you don’t plan and something unexpected happens. If you have a life partner, you may want your partner, rather than you “legal” family, to receive some or all of your assets at your death. Without estate planning your assets may not get to the people you want, instead going to relatives the State names in the statutes.
At Estrada Law, P.C., we care about our clients. We listen. We want you and your family to have peace of mind and a life plan that will carry out your wishes.
New Mexico & Texas Probate and Trust Administration
Probate and Trust administration are the processes through which estate assets will be transferred after death. When probate avoidance planning has not been implemented before death, the state will require a probate proceeding if the deceased was a resident or owned assets in the state. Probate can be supervised or unsupervised. In an unsupervised probate, the appointed estate administrator manages assets, pays any debts, files required tax returns and various court documents and distributes the estate assets. However, the court may require the process to be supervised (usually when someone complains about the estate administration). In a supervised probate, the probate judge must approve every detail of the estate administration.
Because probate can be a lengthy, costly and public process, many people choose to avoid it. There are several strategies that will allow you to pass property to another person after death, without going through probate.
Joint Tenancy & Tenancy by the Entirety. Adding another person to your assets as a joint owner or “joint tenant with rights of survivorship” will allow your property to pass to them upon your death without going through probate. There are pitfalls to this strategy, however, to include subjecting such assets to any claims (such as lawsuits) against the co-owner and making them available to the co-owner’s creditors — all while you are still alive and planning on using the assets yourself.
Beneficiary Designations. New Mexico & Texas allows Transfer on Death (TOD) or Pay on Death (POD) beneficiary designations to be added to bank accounts and real estate. Beneficiary designations like these are preferable to joint tenancy in that they allow you to transfer property only upon your death without giving away current ownership. One of the drawbacks, however, is that it can be difficult to obtain an equitable distribution of property among your heirs by utilizing beneficiary designations. Understand that if you have beneficiaries listed on your assets, those assets will be distributed upon your death to the listed beneficiaries, even if your will states otherwise.
Trusts: Revocable Living Trusts, Irrevocable Trusts, Testamentary Trusts, Special Needs Trusts, etc. Trusts come in many “flavors,” they can be simple or complex, and serve a variety of legal, personal, investment or tax planning purposes. At the most fundamental level, a trust is a legal entity with at least three parties involved: the trust-maker, the trustee (trust manager), and the trust beneficiary. Often, all three parties are represented by one person or a married couple. With a revocable living trust, for example, a person may create a trust (the trust-maker) and name themselves the current trustees (trust managers) who manage the trust assets for their benefit (trust beneficiary).
Depending on the situation, there may be many advantages to establishing a trust, including avoiding probate court. Usually, assets owned in a revocable living trust will pass to the trust beneficiaries (or heirs) immediately upon the death of the trust maker(s) with no probate required. Certain trusts also may result in tax advantages both for the trust-maker and the beneficiary. Or they may protect property from creditors, or simply to provide for someone else to manage and invest property for the trust-maker(s) and the named beneficiaries. Upon your disability or death, the trust terms appoint your successor trustee who then continues to manage — or distribute — the assets held in trust. A properly drafted trust can accomplish many goals, including guardianship and probate avoidance for your estate and bloodline, marital and creditor protection for your children. If well drafted, another advantage of trusts is their continuing effectiveness even if the trust-maker dies or becomes incapacitated.
A properly drafted and funded trust will avoid probate. The trust need not be filed with the probate court. Nonetheless, there are still steps necessary to administer the trust. Beneficiaries must be contacted; assets must be gathered, valued and managed; potential creditors must be notified; debts, taxes, and final expenses must be paid; and, ultimately, any remaining income and assets must be distributed in compliance with the trust terms. Successor trustees often lack the time, resources or knowledge to administer the trust, and, therefore, may call upon legal, accounting and investment professionals for assistance. Often, a corporate fiduciary (e.g., a trust company) is an alternative to relying solely on busy family members or friends to serve as trustee. We can help your successor trustee(s) deal with the complexities of administering your trust. Please call our office and we will be happy to schedule a consultation, whether or not our office has drafted the original trust.
Medicaid will exempt your home up to $814,000 in New Mexico and can qualify for a homestead exemption in Texas. If you improperly transfer your home to your children before applying for Medicaid, not only will it result in immediate ineligibility for Medicaid, but it could also, trigger a gift tax, or result in your child’s spouse (the in-laws) inheriting your home.
Giving your assets away means losing control. It’s not safe even if you “trust” the person to whom you give the assets. If that person divorces, goes bankrupt or becomes involved in a lawsuit, all of the money and property that you transferred are at risk. There are asset protection trusts that permit you to keep 100% control of your assets without the risk of losing them if long-term care is needed. You do not have to wait 60 months to qualify for Medicaid. Eligibility calculated on a case-by-case basis will allow you to plan to avoid needless loss of your family assets. Contact us and get professional advice and learn the facts.
Schedule your initial meeting today to see how quickly you can qualify for Medicaid and how much money you can save for your loved ones. It is never too late to protect your assets even if you are already in a nursing home. A nursing home or hospital that offers to file a Medicaid application for you has no obligation (and often can’t) advise you on how to protect your assets. Only a qualified Medicaid planning attorney will be looking out for your interests. Make sure the attorney you hire is trained and experienced in Medicaid planning.