Many people spend more time planning a vacation than they do thinking about who will inherit their assets after they pass away. Although estate planning isn’t an enjoyable activity, without it, you don’t get to direct who gets everything for which you’ve worked so hard.
Investopedia asks you to consider these four reasons why you should have an estate plan to avoid potentially devastating results for your heirs in its article “4 Reasons Estate Planning Is So Important.”
Wealth Won’t Go to Unintended Beneficiaries. Estate planning may have been once considered something only rich people needed, but that’s changed. Everyone now needs to plan for when something happens to a family’s breadwinner(s). The primary part of estate planning is naming heirs for your assets. Without an estate plan, the courts will decide who will receive your property.
Protection for Families With Young Children. If you are the parent of small children, you need to have a will to ensure that your children are taken care of. You can designate their guardians, if both parents die before the children turn 18. Without a will and guardianship clause, a judge will decide this important issue.
Avoid Taxes. Estate planning is also about protecting your loved ones from the IRS. Estate planning is transferring assets to your family, with an attempt to create the smallest tax burden for them as possible. A little estate planning can reduce much or even all of their federal and state estate taxes or state inheritance taxes. There are also ways to reduce the income tax beneficiaries might have to pay. However, without an estate plan, the amount your heirs will owe the government could be substantial.
No Family Fighting (or Very Little). One sibling may believe she deserves more than another. This type of fighting can turn ugly and end up in court, pitting family members against each other. However, an estate plan enables you to choose who controls your finances and assets, if you become mentally incapacitated or after you die. It also will go a long way towards settling any family conflict and ensuring that your assets are handled in the way you wanted.
To protect your assets and your loved ones when you no longer can do it, you’ll need an estate plan. Without one, your family could see large tax burdens, and the courts could say how your assets are divided, or even who will care for your children.
Reference: Investopedia (May 25, 2018) “4 Reasons Estate Planning Is So Important”
Two out of every five people over 45 years old don’t have a prepared will. Many of them have not thought about estate planning. It doesn’t take that much to do the planning necessary to help family members who survive you, according to the Lebanon Democrat’s article “End-of-life planning beneficial no matter your age.”
The planning you do will also help your family avoid the nasty disagreements that so often happen, when no one has been told what is going to occur after a parent dies. It will help your loved ones who may not know what you would have wanted after you pass: a funeral, a big memorial service, graveside services only or even cremation.
If you die without a will, which is known as dying “intestate,” all of your assets, from bank accounts to your favorite table saw could be awarded to someone, based on the judgment of a court-appointed administrator. This person won’t know that you had a nephew who you’d promised your woodworking tools and that would include the table saw.
Start by meeting with an estate planning attorney in your community. The laws that govern estate planning are based on your state’s law, so an attorney from another state may not be familiar with the big or small differences in your state versus another state. The same goes for online wills: unless they are reviewed by an attorney in your state, you won’t know if they are valid. Your family will find out, after you have passed, and they can’t make changes. That’s probably not how you want to be remembered.
If there’s a senior citizen in the family, ask them if they have prepared a will. It’s best to do this, while they are still competent. You never know what tomorrow might bring–and that holds true for people of all ages. Many people become incapacitated unexpectedly, at all ages and stages of life. Prior planning prevents a bad situation from becoming much worse.
Here’s what your estate planning attorney will speak with you about:
Who do you want to be in charge of your estate? It should be someone who you trust without reservation. That person will become your executor, when you die.
Who do you want to receive certain possessions? We tend to think about who will inherit a house or a car, but many families argue over sentimental possessions, like jewelry or art. Epic battles have occurred over items with little monetary value.
Your estate planning attorney will ensure that you also have a living will, since you’ll need this, if you have to go to the hospital or long-term care facility and are not able to speak up for yourself.
Update your will as time goes on. Families grow and shrink, and your will needs to reflect your changing life. What if the person you named as executor dies, or moves far away? You’ll want to make sure there are people who can carry out the responsibilities you want.
Don’t forget to tell your executors that they have been named and make sure they are up for the tasks. If you have an argumentative family, will your executor be able to stand up to them? Personality is as important as understanding legal and financial issues.
Your estate planning attorney will be able to guide you through any rough spots, or issues you might be struggling with. It is better for you and the ones you love to have an estate plan, regardless of your age or health. Life changes come quickly, and it’s best to be prepared.
Reference: The Lebanon Democrat (Jan. 18, 2019) “End-of-life planning beneficial no matter your age”
The unknown events of life include financial perils. They don’t disappear just because you try to ignore them. There are more threats to your financial future and personal health than an estate tax, says Newsmax Finance in its article “Your Estate is at Risk.” There is also legal liability, which is a commonplace event in our increasingly litigious society.
For many people, the first experience with litigation is a divorce. Even in the best of circumstances, it’s a difficult situation. In a bad situation, it’s a nightmare for all concerned. What would happen if you became disabled? It’s more likely that someone will become disabled during the course of their life than that they will die prematurely.
Do you have a health care power of attorney, so someone you trust is empowered to make decisions on your behalf if you became disabled? What about a durable power of attorney so a person you trust, who also has some financial savvy, can take over for you if you can’t do things, like pay bills or manage your business?
If you don’t have these documents in place, a court-appointed person will be assigned as your guardian. That is not something you want to happen.
If you’ve created a private business, you also need to plan for succession. Too many business owners let their businesses die along with them, leaving families, employees and clients stranded. Transitioning a business for succession or to be managed in your absence takes planning.
All of these issues can be dealt with in an estate plan, which you should have created for you by an estate planning attorney. The attorney should be someone you trust, who has experience helping people with the same challenges as your situation, whether that’s a blended family or a privately held family business.
Estate planners know how to use certain methods to help individuals and families make the most of their assets, limit their tax liabilities and plan for the future. There are many different tools available, from different types of trusts to the basics, like a will, power of attorney, and health care power of attorney, to make sure you and your family have the correct protection in place.
Going through the estate planning process is a useful experience, since it gives you and your spouse a chance to review your life’s accomplishments from a long-term perspective, prepare for events like retirement or funding a child or grandchild’s college education and taking care of this important element of adulthood.
Reference: Newsmax Finance (Jan. 14, 2019) “Your Estate is at Risk”
The story never really focuses on why Cinderella is placed in such a dire position in the first place. However, The National Law Review article titled “A Cautionary Fairy-Tale–If Only Cinderella’s Father Had An Estate Plan” does. It starts with a light-hearted tone, but the details quickly move to how many different ways that this family situation could have been prevented with proper estate planning.
To refresh your memory: Cinderella’s mother died, her father remarried and then he died. She is basically a slave to her evil stepmother and stepsisters, in her own home.
Let’s start with what would happen, if there had been no estate plan. If the family lived in Mississippi, half of her father’s estate would go to her stepmother, and half of the estate would be given to Cinderella. As a minor, her half of the estate would be placed in an UTMA account–Uniform Transfers to Minors Act. There would be a court-appointed custodian, who would be required to use these funds for her health, education, maintenance and support. The court would have likely appointed the Evil Stepmother, who would not likely have complied with the guidelines. A second option would have been for the money to be placed in a trust for Cinderella’s benefit, but the Evil Stepmother would likely have been named a trustee, and that would not have worked out well either.
What Cinderella’s father should have done, was to create a Revocable Living Trust Agreement, stating that certain assets are the separate property of the father (Schedule A), that certain assets are the property of the Evil Stepmother (Schedule B) and that certain assets are community property of the father and the Evil Stepmother (Schedule C).
A neutral successor trustee would have been named—a friend, fiduciary, corporate trustee or perhaps the Fairy Godmother—to oversee the trust. At the death of the father, the trust should have directed that the trust be divided into two subtrusts, known as an A/B split trust.
The Survivor’s Trust (Trust A) would have gathered all the Evil Stepmother’s separate property and one half of the value of the community property assets. Trust B (The Decedent’s Trust) would have all of the father’s separate property, as well as half the value of the community property assets. The trust could have been structured, so that the Evil Stepmother could use the Survivor’s Trust assets as she wanted and could only receive income, if the assets to the Survivor’s Trusts were depleted.
The neutral successor trustee would either work with the Evil Stepmother or make sure that Cinderella’s share of the Decedent’s Trust was not being improperly depleted. At the death of the Evil Stepmother, the assets in the Decedent’s Trust would go to Cinderella.
Cinderella’s father could have also taken out a large life insurance policy to ensure that she was cared for, with the proceeds to be distributed to an UTMA account, with a neutral custodian or to a support trust with a neutral trustee.
The only way Cinderella could have recovered any assets would have been through litigation, which is the likely way this story would have turned out, if it happened today. It’s not ideal, but if a child has been left with nothing but an Evil Stepmother and two nasty stepsisters, a lawsuit is a worthwhile effort to recover some assets. Assuming that the Evil Stepmother either adopted Cinderella or was appointed her guardian by the court, there would be a fiduciary obligation to protect her, and an accounting of assets at the time of her father’s death would have been prepared.
Estate planning would have preempted the story of Cinderella. It does serve as a clear example of what can happen with no estate plan in place. Whether your blended family enjoys a great relationship or not, have your estate plan created, so that if things turn wicked, your beloved children will be protected.
Reference: The National Law Review (Jan. 16, 2019) “A Cautionary Fairy-Tale–If Only Cinderella’s Father Had An Estate Plan”
Enjoy these hand picked selections as you head into the weekend…
The recent changes in the tax laws created increased year-end activity for those trying to finalize their divorces by December 31—prior to the effective date of the new rules.
The new tax laws stipulate that alimony is no longer deductible by the payor, and it’s no longer taxable by the receiver—this creates a negative impact on both parties. The payor no longer receives a tax deduction, and the receiver will most likely wind up with less alimony because the payor has more taxes to pay.
Forbes’ recent article, “9 Things You Need To Know About Estate Planning After Divorce” suggests that if you were one of those whose divorce was finalized last year, it’s time to revise your estate plan. It’s also good idea for those people who divorced in prior years and never updated their estate plans. Let’s look at some of the issues about which you should be thinking.
See your estate planning attorney. Right off the bat, send your divorce agreement to your estate planning attorney, so he or she can see what obligations you have to your ex-spouse in the event of your death.
Health care proxy. This document lets you designate someone to make health care decisions for you, if you were incapacitated and not able to communicate.
Power of attorney. If you had an old POA that named your ex-spouse, it should be revoked, and you should execute a new POA naming a friend, relative, or trusted advisor to act as your agent regarding your finances and assets.
Your will and trust. Ask your attorney to remove the provisions for your ex-spouse and remove your ex-spouse as the executor and trustee.
Guardianship. If you have minor children, you can still name your ex-spouse as the guardian in your will. Even if you don’t, your ex-spouse will probably be appointed guardian if you pass away, unless he or she is determined by the judge to be unfit. While you can select another responsible person, be sure to leave enough cash in a joint bank account (with the trusted guardian you name) to fund the litigation that will be necessary to prove your ex-spouse is unfit.
A trust for your minor children. If you don’t have a trust set up for your minor children, and your ex-spouse is the children’s guardian, he or she will have control of the children’s finances until they turn 18. You may ask your estate planning attorney about a revocable trust that will name someone else you select as the trustee to access and control these funds for your children, if you pass away.
Life insurance. You may have an obligation to maintain life insurance under the divorce agreement. Review this with your estate planning attorney and with your divorce attorney.
Beneficiary designations. Be certain that your 401K and IRA beneficiary designations are consistent with the terms of your divorce agreement. Have the beneficiary designations updated. If you still want to name your ex-spouse as the beneficiary, execute a new beneficiary designation dated after the divorce. It’s also wise to leave a letter of intent with your attorney, so your intentions are clear.
Prenuptial agreement. If you’re thinking about getting remarried, be certain you have a prenuptial agreement.
It’s a great time to settle these outstanding issues from your divorce and get your estate plan in order.
Reference: Forbes (January 8, 2019) “9 Things You Need To Know About Estate Planning After Divorce”
A Power of Attorney is just one part of your estate plan. Don’t have an estate plan? Instead of making the same old New Year’s resolutions, try making a will and an estate plan your top priority in 2019, says the Toronto Sun in the article “Where there’s a will, there’s a way.” We are reminded that when we do select a person to serve as our Power of Attorney (POA), we better make sure to appoint someone we trust.
Many people insist that they are fine and not old enough to need a POA. However, life holds surprises. Parents whose adult children are injured in a sport or accident, discover they can’t manage their kid’s finances because there was no POA in place.
Anyone over the age of 18 needs a POA and a will. The POA is used while you are alive, if you should become incapacitated and the will is used after you die. You’ll want to speak with an estate planning attorney to create both documents and an overall plan, since this is a complex area of the law and every person’s situation is different. There is no such thing as a one-size-fits-all document. The problem is, you won’t know that until it’s too late.
Another reason for an estate plan is to protect the emotional integrity of a family. Estate battles don’t just happen to celebrities. They happen to “regular” people as well. Families often fracture, when grandparents or parents neglect to share details of their financial situation or reasons for their estate plan.
Let’s say you come home from the hospital after a serious operation and find that a member of your family, without your knowing it, has decided to prepare all your belongings for your demise.
Everything in the house has a sticker on it, bearing either the name of a person who was expecting to inherit the item, or a price for an estate sale. No plans about your will were ever discussed with your children, so they had no idea what you wanted. From their perspective, they were expecting you to pass and just making sure things were properly taken care of.
Those kids probably won’t get a penny, since their eagerness was excessive. They were concerned more about possessions than their parents.
A better way to go is to work with an estate planning attorney to create a holistic plan that addresses your wishes, while you are living and the distribution of your assets when you have passed. You might want to consider holding a few family meetings with the attorney, so that everyone’s on the same page. You don’t want to come home from a hospital stay, to find your home ready for a yard sale!
Reference: Toronto Sun (Dec. 30, 2019) “Where there’s a will, there’s a way”
More than 50% of Americans don’t have a will, according to a 2017 survey by Caring.com. Spelling out how your assets should be divided, is an essential start to estate planning that can be easily overlooked.
A U.S. News & World Report’s article asks “Should You Make a Free Will Online?” According to the article, before writing your will or using an online service, you need to know the legal requirements in your area. In many instances, this is best left to a legal professional in your state.
There are plenty of online tools that will help you create a will. However, before clicking on a website’s promise, you need to evaluate the available options. There are three main ways to write a will:
- Do it yourself;
- Use a do-it-yourself program; or
- Get help from a qualified estate planning attorney.
If you draft a will on your own, you’ll need to be absolutely certain you understand all of the applicable probate, tax and property laws. People who’ve written their own wills are usually those with very basic estates, like a person with a single piece of real estate and a small amount in basic checking accounts.
If you use an online service, you’ll have access to software that walks you through the process. In this case, you’ll need to be sure that the software company has all the applicable laws covered, as required for your state. You also want a program that lets you make updates later, if your situation changes.
However, if you engage the assistance of an experienced estate planning attorney, you’ll have the opportunity to have an expert help you think through the details. This result will be a well-drafted comprehensive estate plan. Yes, it will cost a bit more, but for many situations—like those with blended families, complex investments, or property in several states—it’s worth it.
Remember that the probate laws can vary widely from state to state. For example, the basic form requirements may allow a handwritten will in some states, but in other states the will must be typewritten. Some states require only two witnesses, and others require that the will be witnessed, notarized and typed.
If you have a larger estate or heirs with medical conditions, it may be wise to work with an attorney who can counsel you on the best solutions for your situation. For example, if you have a child with special needs receiving government benefits, you should have an attorney create a trust so their inheritance doesn’t negatively impact their benefits.
You should also use an attorney if you want to reduce your exposure to probate fees. Some people transfer their assets into a revocable living trust, so they are not subject to probate fees. An online service can’t give you this type of attention or personalized service.
If you have a complex situation, you may end up paying less by using an attorney. An experienced estate planning attorney has helped numerous families. He or she can offer insight into setting up guardians for minor children or appointing an individual to be in charge of the distribution of the estate. There are frequently estate and gift tax considerations about which the average person doesn’t know or monitor.
Reference: U.S. News & World Report (January 9, 2019) “Should You Make a Free Will Online?”
Increases in the estate tax exemption has an impact on how some people are thinking about life insurance, says ThinkAdvisor in the article “Estate Planning Is Still Important.” However, before making any changes, consider the larger picture and think long, not short, term.
Let’s start with why many people buy life insurance policies. As young parents, they buy life insurance so a surviving spouse and family will be able to continue to live in their home, pay the mortgage and send children to college. Another reason for life insurance is to cover the cost of estate taxes.
Remember the new higher estate tax exemption is federal. Your heirs may still have state estate taxes and inheritance taxes, depending upon where you live. Having an insurance policy will still help with the costs of settling an estate and paying any taxes that are due.
The new tax exemption also has a sunset date. The year 2026 may seem far away. However, it will arrive, while we are busy with our lives. It may be much harder and more expensive for an individual to purchase a life insurance policy in 2026 than it is right now.
If someone is very old or in ill health, they have a different window of time for planning. However, if you are in your middle years or relatively healthy, now is not the time to put off purchasing life insurance or to let an existing policy lapse.
We know that political landscapes change. If they do, and you want to buy a policy, there may be additional obstacles in the future.
Life insurance also serves as a tool for your estate. If your estate plan seeks to distribute an inheritance equally from assets in a traditional IRA, life insurance can become an equalizer. Let’s say one child is in a much higher tax bracket than the others. Upon receiving the IRA, they will have to pay more in taxes than the others. The child in the lower bracket will end up with a larger sum of money, having lower taxes on their inheritance. This could lead to sibling arguments, which are not uncommon when brothers and sisters become heirs. The insurance policy proceeds can be used to make up the difference.
Another point to consider is who owns the insurance policy? If it is owned by a trust, you may not have the legal right to make a change. If the trustee does not agree that the policy should be liquidated or cancelled, they may not allow the change to go forward.
Your estate planning attorney will be able to review your life insurance policies, when she reviews your overall estate plan. Each part of an estate plan works best, when all parts work in concert.
Reference: ThinkAdvisor (Jan. 11, 2019) “Estate Planning Is Still Important”