In the US, a Uniform Act is an act proposed by the Uniform Law Commission to standardize state laws in the United States. Since Congress lacks the authority under the Constitution to legislate many issues, and the power is left to state governments, there is a need to have some consistency within laws across the states.

In most states, minors do not have the right to enter into a contractual agreement, and would not be able to own stocks, bonds, mutual funds, annuities or life insurance policies. In particular, that meant parents were not able to transfer assets to their minor children, but instead must transfer the assets to a trust.

In addition, the IRS allows persons to give up to $13,000 annually to another person without any tax burden. If this recipient person is a minor, the Uniform Gift Act to Minors allows the minor to own the assets without establishing a special trust fund. In essence, a custodial account is established, which functions much like a trust, but is less expensive and less complicated to set up.

Additional legislation, The Uniform Transfer to Minors Act (UTMA), also allows minors to own other types of property, such as real estate, fine art and royalties, and for the transfers to occur through inheritance. It basically extended the definition of gifts beyond cash and securities to include real estate, paintings, royalties, and patents.

The Uniform Gift to Minors Act prohibits the minor from taking control of the gifted assets until age 18, 21, or 25 depending on the state. In Colorado, the age is 21.

A gift transferred to an UTMA account is considered irrevocable, meaning it cannot be taken back. A custodian cannot use UTMA assets for the benefit of anyone other than the minor for whom the account was created. While the funds do not need to remain in the original UTMA account, the custodian must keep these assets separate from all other property and keep records of all transactions related to the assets. A custodian of an account is entitled to be paid for their services.

So which is better, a custodial account or an actual trust? It depends, often custodial accounts are better for transferring small sums, while trusts can handle larger transfers. An estate planning attorney can advise you of the various gifting and tax reduction options available to suit your particular needs.

The Hammond Law Group is a member of the American Academy of Estate Planning Attorneys.

Life insurance is a powerful estate planning tool. There are several roles it can play in easing the burden of your passing on your loved ones. While many consider life insurance to simply be an income replacement when a loved one passes, there are other ways it fits into an estate plan:

1. To pay expenses while an estate is in probate.

Since life insurance pays benefits to a named beneficiary, it avoids probate, and therefore the funds can be accessed more quickly than property that must be probated. Probate is the legal process that ‘settles’ an estate, and it can tie up property for months, but life insurance proceeds pass outside of this process.

2. To pay funeral costs, debt and estate administration costs.

Life insurance policies can be used to pay the costs of funerals, as well as probate fees and other debt of the deceased when an estate may have assets that are not liquid, such as real estate.

3. To create a life insurance trust.

An ILIT is an irrevocable life insurance trust, and it can be a powerful estate planning tool. An ILIT is a holding device that owns your life insurance policy for you, removing it from your estate. As its name suggests, the ILIT is irrevocable, which means once you have created this trust and funded it with an insurance policy, you may not take the policy back in your own name. But you can closely control many other aspects, such as naming the beneficiaries, the terms of the payment of benefits as well as choosing the trustee to manage the trust.

While a life insurance policy can have many advantages within an estate plan, it is important to work with an estate planning attorney to ensure that it properly coordinates to other aspects of your plan.

The Hammond Law Group is a member of the American Academy of Estate Planning Attorneys.

A living trust is an estate planning tool that is often used as a will substitute. The benefit is that, if done properly, a trust can keep your family completely out of the legal probate process when you pass away.

When you create a trust, you transfer assets such as a home, financial accounts and personal property to the trust. These assets are then managed for your benefit during your lifetime, and either continue to be held and managed or transferred to your beneficiaries when you die.

The creator of the trust, also called the grantor, normally names him or herself as the initial trustee in charge of managing the assets, which allows them to remain in control of the assets during their lifetime. For all practical purposes, nothing changes in the way the grantor manages or controls the assets after they are put in trust, often the only difference is the named owner.

A successor trustee is named within the trust document, usually a family member or friend but sometimes an institution such as a bank, law firm or trust company may take over Trustee duties. This successor trustee then will manage the trust assets for the benefit of the grantor if the grantor becomes disabled and for the named beneficiaries after the grantor dies.

Living trusts have become popular tools in estate planning over the past decade, but how do they benefit an estate plan?

1. Living trusts and avoiding probate

Trusts allow property to avoid probate when you die, as you do not own the property, the trust does. But this benefit may be somewhat overused, as only property held within your name will be subject to probate, not jointly owned property. Thus, the living trust may benefit estates that have a large amount of property in sole ownership.

2. Living trusts and establishing a blueprint

A living trust sets up a ‘blueprint’ of sorts for handling your property should you become incapacitated, as a successor Trustee can take over at that time. You are also able to specify your wishes within the trust documents, right down to how you would like money to be spent.

3. Living trusts and maintaining privacy

Living trusts are normally private documents, while wills become public record when filed in Probate Court, thus many prefer using a living trust as a will substitute to keep a family’s financial affairs private.

A Living Trust attorney can advise you whether it’s within the best interests of your estate plan to create a living trust, as well as other approaches that may benefit your particular needs.

The Hammond Law Group is a member of the American Academy of Estate Planning Attorneys.

An Irrevocable Life Insurance Trust is an irrevocable trust that holds life insurance, and as an irrevocable trust it keeps the proceeds of the policy out of the estate of the grantor. First, let’s review the purpose of a trust, which is an estate planning tool that sets up an entity to hold and manage property or assets. The person setting up a trust is known as a grantor or settlor, the person managing the trust is called a trustee, while the person(s) benefitting from the trust is known as the beneficiary.

With a life insurance trust, the trust is set up specifically to hold and manage the life insurance policy. Normally, when an insured owns a life insurance policy, the proceeds of the policy will be subject to estate tax when he dies; but if the owner of the policy transfers ownership to an irrevocable life insurance trust that follows specific guidelines, the proceeds are free of the estate tax.

There are limitations to an irrevocable life insurance trust, such as:

• An insured person may not serve as the trustee of a life insurance trust;
• A beneficiary may not be changed on the policy;
• The insured may not borrow against the policy. If the trust allows him to borrow against the policy, he will be deemed as benefiting from the policy, and thus the owner of the policy, which then subjects it to estate tax and defeats the purpose of the trust; and
• Once you set up and fund the trust, you cannot get the policy back. If you become uninsurable, you will be committed to this trust as your only life insurance.

While there are several drawbacks, there are also several estate planning benefits, such as:

• A properly structured irrevocable life insurance trust provides liquidity. In an estate that holds an abundance of non-liquid assets, such as real estate, a Life Insurance Trust can help pay a large estate tax bill without selling off assets;
• Beneficiaries may be protected from future creditors by including a spendthrift provision in the trust document and granting discretion to the trustee in making distributions; and
• Premiums on the policy can be paid with gifts to the life insurance trust from the insured and, if the trust is properly drafted, the gifts may qualify for the IRS exclusion from gift tax liability.

Trusts are a powerful estate planning tool, and an estate planning lawyer can help you determine if an irrevocable life insurance trust meets your needs.

The Hammond Law Group is a member of the American Academy of Estate Planning Attorneys.

A trust can be a powerful estate planning tool – it allows property to avoid probate, and in the case of living trusts, can establish a method of managing property and finances in case of incapacitation. While a trust attorney works with you to create a trust, there are several questions that you will need to address in the process….

1. Who are the beneficiaries? In the case of living trusts, you may be a beneficiary, but will still need to name successor beneficiaries for the trust.

2. Who will be the trustee? Again, in the case of living trusts, you may handle the trustee duties, but will need to name a successor trustee that can take over duties upon a specified event, such as your incapacitation or death.

3. When will the trust make distributions? Often trusts begin making distributions to beneficiaries when they reach specified ages.

4. How should the trust assets be invested? Depending on the goal of the trust, you may want to advise how the portfolio will be invested, such as for growth, value or to generate income.

5. What are the trustee’s powers when it comes to making distributions? You may make these powers either broad, allowing the trustee to exercise discretion, or narrow, such as paying out income for specific purposes such as educational expenses.

6. Can the beneficiaries remove and replace the trustee? This should be spelled out within the trust documents.

7. How long should the trust last? A trust can be set up to end with a specified event, such as a beneficiary reaching a certain age, or to continue for a longer timeframe for asset protection purposes.

Creating a trust can benefit many estates, but a trust attorney can best advise you of which trust will best meet your estate planning goals.

The Hammond Law Group is a member of the American Academy of Estate Planning Attorneys.

You’ve received an inheritance, or you think you did, you were named as a beneficiary of a trust. So is that the same thing as being a beneficiary in a will and inheriting property?

No, it’s not, and here’s why:

1. A person can create a trust in countless ways. The only restriction is that the trust may not function for an illegal purpose, so the door is left wide open. For example, a trust can be created to hold money or property until you reach a certain age, or even until you achieve a certain goal, such as graduating from college. On the other hand, if you were to inherit money from a will, you normally receive your inheritance when the estate is settled.

2. A trustee is the person who manages a trust, they not only manage the property held by the trust, but they can also determine the best time and method for distributing the assets, as long as their decisions are made for the benefit of the beneficiary and in accordance with trust documents. There is not that level of oversight and control with an inheritance received as a bequest within a will.

3. A trust can help protect the assets held within the trust from your creditors. While you may not be able to access funds when you want them, neither may your creditors in some instances. Therefore, a trust can act as an asset protection device for you, while a will cannot do so.

While it may seem there are strings attached to being the beneficiary of a trust, the trust does act within the best interests of the beneficiary – you. If you need assistance with creating a trust, leaving an inheritance or even estate litigation, an estate planning attorney can help you.

The Hammond Law Group is a member of the American Academy of Estate Planning Attorneys.

Trusts are more than just estate planning tools for the rich and famous, they are legal tools that allow you to transfer whatever you own to your loved ones without the hassle, delay and expense of going to court, put conditions on how and when your assets will be distributed after your death, and can also help manage property later in life.

One of the primary purposes of estate planning is to ease the burden of your passing on your loved ones. This includes reducing the costs to your estate and ensuring the full, fast and proper distribution of your property. Using a trust as an estate planning tool helps meet this goal, as a trust allows property to pass outside of probate, the legal process which administers an estate. Not only can this save on probate court costs, but can distribute these assets more quickly, as well as put terms in place to help manage and distribute those assets in a way that benefits the beneficiaries named in the trust documents.

In fact, a living trust can also help manage your financial affairs should you no longer be able to do so on your own due to age, illness or other incapacitation. Establishing a trust involves working with a trust attorney to draft the legal documents, and a simple, living trust may involve the following tasks:

1. A Grantor establishes a Trust to benefit beneficiaries that they name.

2. The Grantor transfers an asset or assets, such as a piece of real estate, to the Trust, which is known as funding the Trust.

3. The Grantor names a Trustee to manage this asset. In a living trust, the Grantor can also act as the Trustee, and name a Successor Trustee to take over when they pass away.

4. The property is managed by the Trust. When the Grantor passes away, the property does not go through Probate, since the property is owned by the trust rather than the deceased. The Successor Trustee takes over the Trust administration duties.

5. The Trustee manages the Trust to benefit the named beneficiaries, which can involve selling the property and distributing the proceeds to the beneficiaries, thus terminating the Trust.

As you can see, this estate planning tool could benefit many estates, not just those of the wealthy – in fact, many modest-sized estates can benefit from many of the estate planning tools that are used within a comprehensive estate plan. Working with an estate planning attorney ensures that you have the legal documents and plans in place that meet the needs and goals of your family.

The Hammond Law Group is a member of the American Academy of Estate Planning Attorneys.

A guardian is a surrogate decision-maker appointed by the court to make either personal and/or financial decisions for a minor or for an adult with mental or physical disabilities. Guardianship may enter the lives of the elderly or infirmed if they lose the capacity to handle their own affairs. But guardianship is often the last resort, as it is taking away the personal rights of an individual, as well as allowing a personal issue to be aired within the public record of a court proceeding.

Rather than resorting to a guardianship, less intrusive alternatives should be considered before it becomes an issue or in lieu of a guardianship proceeding.

• Durable Power of Attorney: A durable power-of-attorney is in force even if a person becomes incapacitated. A durable power-of-attorney lets a person choose who will act on their behalf if he or she can no longer handle either finanical or personal affairs, therefore, the ‘attorney-in’fact’ that is designated must be someone who is totally trustworthy.
• Advance Medical Directive – An advance medical directive allows a person to select another person who will act as their agent in making health care decisions when the individual cannot make their own decisions.
• Living Trust – A trust is a powerful estate planning tool. Property is transferred into the ownership of the trust and put in the control of a trustee for the benefit of the individual. Although the trustee controls the funds, the trust document dictates how the money is to be handled and for whose benefit it should be spent. If a person’s funds are in a trust and the trustee is reliably paying the person’s bills, there may be no need for a financial guardian.

Having an estate plan in place can help avoid a guardianship proceeding should you or a loved one need assistance later in life, but should this become necessary, a guardianship attorney can assist with the process.

The Hammond Law Group is a member of the American Academy of Estate Planning Attorneys.

Reading legal terms can often be like reading something in a foreign language. In fact, some legal terms actually are a foreign language! We define several terms that are used in estate planning that may help you translate these words to allow a better understanding of estate plans.

Administrator: An administrator is appointed by a probate court when there is no will to ‘settle’ an estate. Their tasks include paying debts, inventorying assets and distributing inheritances to the heirs. Administrator may be used interchangeably with the term executor, although an executor is usually named within a will, while an administrator is appointed by the probate court.

Beneficiary: A person or institution who inherits property by a will, trust, retirement account or life insurance policy.

Bequest: A bequest is often used to describe personal property that is left by a will.

Codicil: A codicil is used to supplement or make changes to a will.

Decedent: Someone who has died.

Escheat: The legal process in which property of a decedent passes to the state if no heirs are identified or located.

Grantor: The person creating a trust.

Inter vivos trust: Another term for a living trust.

Intestate: Dying without a will

Marital deduction: The exemption within federal estate tax laws for property passed to a surviving spouse.

Probate: The legal process which validates a will, if there is one, and administers an estate, such as paying bills, identifying heirs and transferring ownership of property that is inherited.

Residuary estate: Property that is not specifically left to a designated beneficiary.

Testator: A person making a will.

Trust: A legal arrangement in which a settlor or grantor, the person making the trust, transfers ownership of their assets into a trust in which a trustee then manages and controls the assets for the benefit of a third person, called a beneficiary.

The Hammond Law Group is a member of the American Academy of Estate Planning Attorneys.

One of the goals of estate planning is ensuring that the tools used would be able to stand up to a legal challenge by a beneficiary or heir. Which estate planning tool is more difficult for a beneficiary to challenge, a will or a living trust?

It is generally considered more difficult to challenge a living trust than to contest a will. Why? A living trust allows for a continued involvement of the grantor, the person establishing a trust, than a will does. For example: A living trust requires that property be transferred to the trust in order to fund it, this act alone may serve as proof of competency in managing financial affairs.

Contesting a will and challenging a trust are both more difficult than many believe. To successfully contest a will, a person must prove that the testator, the person creating the will, either lacked the capacity to have the will drafted or they were subject to undue influence by a beneficiary. They may also challenge the legality of the will itself if it is suspected to be fraudulent.

These issues would also be used when it comes to challenging a trust. However, they are likely to be more difficult to prove with a trust document, since:

• A living trust is more likely to be set up by a trust attorney who can avoid the pitfalls of a ‘DIY’ will;
• A living trust has the continued participation from the grantor, making it more difficult to prove incapacitation;
• A living trust allows a successor trustee to be named, meaning they can take over should the grantor be found to be lacking capacity to make decisions involving the trust.

We would all like to believe that our friends and family will come together after we pass, and that a will will not be contested nor a trust challenged. Unfortunately, family issues or feeling slighted during an emotional time may lead to unexpected challenges upon the death of a loved one. Working with an estate planning attorney or trust attorney can help you determine the best estate planning tools for your family’s goals and needs, as well as take proactive measures to avoid contests and challenges.

The Hammond Law Group is a member of the American Academy of Estate Planning Attorneys.