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While establishing a trust for your loved ones is often a wise choice, a number of pitfalls can make the experience more stressful than it has to be. Financial matters—and, in the case of a trust that goes into effect after the death of the grantor, grief—can make an already delicate situation even more challenging. While nobody wants to plan for the worst-case scenario, doing so can ensure your wishes are carried out, and your trust remains unchallenged. In addition to being very clear about your trust terms and working with an estate planning attorney to ensure procedural compliance, trusts can also incorporate a no-contest clause that removes a challenging beneficiary’s right to the trust if they challenge the trust and fail.

Reasons to Challenge a Trust

A trust can generally be contested in the same way that a will can. These include a wide range of reasons that can vary based on your own personal circumstances. For example, someone challenging a trust may claim that the person who formed the trust lacked the capacity to do so or did so under duress or undue influence. There are also certain procedural requirements a person must meet when establishing a trust, and a challenger can attack on those grounds if any steps are missed, or any T’s are uncrossed or I’s undotted. Specific terms of the trust can also be challenged if ambiguous or unclear or somehow against reasonable public policy. Alternatively, beneficiaries can sue the trustee directly if the trustee acts outside of the bounds or spirit of the trust.

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The wide range of the internet and the increased interconnectivity of our society has led to an increase in financial frauds against the elderly. Older people lose $3 billion each year to financial scams, and more than 3.5 million individuals are impacted. People over the age of 60 are more vulnerable than other populations to scams, and individuals over 80 suffer even higher losses.

These scams can occur in a variety of ways. Sometimes, the elderly person is taken advantage of by a trusted friend or family member. In other situations, financial professionals and medical care providers abuse their position to commit these frauds. In other scenarios, complete strangers come into contact with elderly individuals through the internet or other means to perpetuate scams. While there is no limit to the ways your loved ones may be defrauded, the U.S. Department of Justice has identified several common scams to be on the lookout for.

Common Elder Fraud Scams

Many common scans involve fraudsters pretending to be representatives from federal agencies. For example, in a Social Security Administration imposter scam, victims are contacted via telephone and are convinced their social security numbers have been suspended because of suspicious or criminal activity. Victims will then confirm their social security numbers and even give imposters access to bank accounts, thinking it’s necessary for keeping their finances safe. Imposters use robocalls, caller ID spoofing, and U.S.-based money mules to convince victims of their legitimacy. Callers also use similar techniques to pretend to be the IRS, claiming victims owe substantial sums of money to the agency that they must pay quickly through wire transfers or gift cards. Victims who refuse are threatened with arrest or other official action.

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Finances can be a touchy topic no matter the conversation—from salary discussions to planning for marriage or talking about debt, many people feel uncomfortable. It can be even more difficult when individuals are getting older and the financial topic is estate planning. Adult children of aging parents may wish to make sure their parents can manage their assets effectively. When a family business is concerned, the need to involve everyone impacted in the estate planning discussion can be even greater. Below are three things to consider when trying to start an estate planning conversation.

1. People resist change.

People generally resist change, but this can manifest in different ways. Considering which way your parent or aging loved one may be resistant to change—whether they fail to see a problem altogether or disagree with you as to the solution—can help you formulate the right questions to ask. For any level of resistance, involving a business succession or estate planning attorney can help pinpoint the best questions to ask and the right information needed to move the process forward.

2. Determine how assets are currently structured.

The current structure of your parent or loved ones’ assets can guide the next steps. For example, if your family member owns a business, they may already have a succession plan in place. But other issues may still be in play. For example, they may self-manage and own all assets themselves, which might require some separation in the future. Or they may have plans for their business, but not their own retirement or personal asset management—or the other way around. Asking questions to figure out the current state of affairs can guide your loved ones toward thinking about practical considerations. Sometimes some positioning is needed before transitioning to the next stage of estate planning.

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As individuals near their final years, they often begin to think about their assets, accounts, and possessions. Who will receive property and funds? Which loved ones will benefit most? The idea of giving gifts can be appealing—especially if people think it may save their estate and their loved ones from a hefty tax bill. Or they may expect that a gift will help avoid probate for that asset. But this phenomenon, called deathbed giving, is not often a very good idea, according to experts.

What Are the Cons to Deathbed Giving?

Deathbed giving can negatively impact the tax bill of your heirs down the line in many cases. Most Americans do not have to worry about exceeding the approximately $13 million exemption on estate taxes. Getting rid of an asset that would otherwise neatly fit within that exemption can be problematic in terms of capital gains taxes. For example, say you have a second home that effectively has a zero tax basis. If you gift your second home to your children before your passing, and they someday sell that home, they would have to pay capital gain taxes on the proceeds of the sale—the difference between what you bought the home for and any appreciation in value. The tax basis carries over.

But in a scenario where your property remains in your name, it will be wrapped up in your taxable estate. When it is in your estate, the tax basis will become the value of the home, rather than the value you purchased it for—the asset will receive what is called a step up in income tax basis. When your heirs sell the property for a value close to the tax basis, the capital gains will be minimized. The taxes associated with the estate fell within the $13 million exemption, and Texas has zero inheritance tax.

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Unfortunately, elder abuse is all too common. But the abuse is not only physical or psychological but also financial: seemingly legitimate brokers can manipulate and steal from aging communities, especially those with limited competence or memory issues. In 2019, $25 million was lost from individuals over 60 due to investment fraud. One recent instance exposes many of the problems with elder financial abuse.

In one instance, a former stockbroker for the firm LPL Financial was charged with multiple counts of exploiting and stealing from an elderly person. The losses totaled nearly $1.3 million from the client, who suffered from dementia and memory loss. The broker advised the client to move funds from her trust to her bank account to fund investments in one of the broker’s businesses, allegedly to make investments in real estate investment trusts. This happened over the course of approximately eight years. Instead of making the investments, the broker moved the funds from the investment fund’s bank accounts to his personal accounts, where he used the money to pay off personal debts and other expenses.

The broker exploited his personal relationship with his client and her late husband. After her husband passed, he “positioned himself as a friend and confidant” to the client, according to the SEC, and began to assert control and influence over the client’s affairs.

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Horror stories abound of individuals with plenty of assets passing on without a will, throwing their loved ones into chaos and probate drama. You may have heard of these stories and made sure to establish a secure will. You may have even gone a step further and placed some assets into a trust for your heirs so those assets can avoid probate. Unfortunately, a will and a trust do not make a complete estate plan. Here are 5 other things to consider when evaluating the completeness of your estate plan.

Regularly Update Your Documents

First, even a will and a trust won’t do what you want them to if you do not regularly evaluate and update them. Changes to your financial or personal circumstances should prompt an update. For example, a divorce, marriage, death of a spouse or beneficiary, or a loss of a job or large inheritance could all require changes to your estate plans.

Include Health Care Designations

If you have a will and a trust, you still may wish to put specific documents in place that designate your healthcare wishes in the event you become incapacitated. These documents are called advance directives. A medical power of attorney grants a person of your choosing the right to make your medical decisions for you, while a directive to physicians will outline wishes for your care in advance.

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A divorce is no doubt a challenging time in the lives of all who go through one. Even for the amicable splits, the time spent doing paperwork and discussing the best division of assets can be draining. Unfortunately, the issuance of a divorce decree or separation agreement is not the end of the journey. You will need to make changes to your estate plan to reflect your new circumstances and avoid regret down the road.

Do not think that changing your will is the only update you will need to make. After a divorce, any document may include your former spouse as a beneficiary. Pay special attention to your will, of course, but also consider your living trust and power of attorney documents. Also, be sure to update any life insurance policies or transfer-on-death provisions as well.

Updating Your Documents

If you’ve been through a divorce, consider revising your old will by executing a new one and destroying the old one. This will work to revoke the old will. Provisions that may need rewriting include arranging for any property previously designated for your spouse to go to an alternate beneficiary, updating the executor of your estate if it was previously your spouse, and designating a guardian of your children. Even though in all likelihood your spouse will be awarded custody of your children in the event of your death, if your wishes are for your children to live with another guardian, you should still include that language in your will.

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If you are expecting a new addition to your family, congratulations! This can be an exciting and exhilarating time with plenty of changes, but the changes do not stop at diapers. Secure your child’s future by updating your estate plans across the board. In addition to updating your beneficiaries, you will want to do the difficult work of establishing a guardian for your child. You may also want to consider establishing a trust to begin building wealth for your family and planning for their future alongside yours.

In any event, do not stress. In this exciting time, know that estate planning attorneys are there to help you make all the necessary plans for you, your children, and your family. An experienced attorney will leave no stone unturned in ensuring you have prepared for the care and financial wellness of your children, no matter your individual circumstances.

Updating Your Plans for Baby

The first step in preparing your financial future to include your child is addressing your will. Your will is crucial not only because it designates the heirs to your property and assets, which now will include more than just your partner and family, but also because it designates a guardian for your child in the unfortunate event that something happens to you and your partner.

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Statistics indicate one of every four children will have a childhood mental illness. And in Texas, in 2020, over 500,000 children were diagnosed with anxiety or depression. If you have a child or teen with mental health needs, you are not alone. But many families fail to consider mental health needs when planning for public benefits.

Public benefits programs like Medicare and Medicaid cover mental health services in addition to more traditional health care. Families that make over a certain income level may think they do not qualify for these programs. But these programs often increase access to health care and include benefits and programs not available under traditional employer-provided insurance, so it’s worth determining if your family qualifies via benefits planning or other income levels. In addition, Texas has programs for children of families that do not qualify for Medicaid. There are certain estate planning tools that can help aid in Medicaid qualification, such as Miller Trusts or lady bird deeds.

Medicare Coverage

Medicare is a federal health care program administered by the federal government and is available to anyone regardless of income, so long as they are over 65 years of age or have a specific disability. Medicare covers a wide range of mental health services but does not cover most long-term care costs. And Medicare patients may have to pay deductibles, copays, and other out of pocket costs. Medicare Part B covers outpatient mental health services that can include partial hospitalization, depression screenings, diagnostic testing, individual or group psychotherapy, and other medication and counseling needs. Medicare Part A covers inpatient mental health care at a regular or psychiatric hospital.

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A trust is a legal entity set up during a beneficiary’s lifetime by a third party to ensure assets are spent in accordance with the person setting up the trust’s wishes. Trusts can also avoid certain tax consequences and the headache of the probate process. If you have set up a trust, you may be wondering if the terms of that trust are modifiable after it’s been signed on the dotted line. Changes in circumstance, such as a changed relationship with a beneficiary or a change in your financial situation, may spark reasonable questions about any trusts you have set up.

The short answer: it depends. If your trust is set up as a revocable trust, you can change the terms at any time. If your trust is set up as an irrevocable trust, it can’t be modified unless any and all relevant beneficiaries provide consent. There are different benefits to each type of trust, and different circumstances may indicate the need for one, the other, or a combination.

What is a Revocable Trust?

A revocable trust is also known as a living trust. The person who created the trust, or grantor, can change the terms of the trust at any time. Changed terms include changed requirements on asset management requirements and the removal or addition of beneficiaries, but the exact rules vary by state.

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