Is Will Planning the Same as Estate Planning?

Will planning and estate planning are very different processes. Both provide family members with instructions on how assets should be distributed after death, but estate planning goes beyond that, to provide instructions on your health, finances and more while you are living, according to an article from Lexology titled “The Differences Between Will Planning & Estate Planning.”

An estate planning lawyer can help you determine exactly what kind of planning you need, help you create the documents that will support your needs and give you and your family guidance in more complex matters.

Will planning is a relatively simple process that involves creating a document known as a last will and testament. It conveys instructions for after you have died. That may include naming a guardian to rear your children or who should take over your business, who should be in charge of your estate, the executor and who will receive your assets.

Everyone needs a will. It avoids family disputes about property, saves money on legal expenses that occur when there is no will and makes many decisions about your estate much easier. It is a kindness to your loved ones, to have a will.

Estate planning is a little different. It is more detailed and involves tax planning and certain protections for you while you are living. A living will is used to convey your wishes about what kind of medical care you want, if you should become unable to speak on your own behalf. The living will includes end-of-life care, the use of extraordinary measures, like a respirator or feeding tube and more. This is also a kindness to your loved ones, since it spares them from having to guess what your wishes might be.

You’ll also want to have a financial Power of Attorney created to instruct a named person regarding how to handle your money, your business and your investments, if you are unable to function. This person can do anything you could do, from transacting business to moving money into accounts, etc.

A living trust can be used to outline your wishes regarding your property and finances. An estate planning attorney will be able to review your assets and determine whether you need a living trust or if there are other trusts that may be more appropriate for your situation.

Beneficiaries are the individuals named on various accounts. They will receive assets directly from the institution that holds the assets, like insurance policies, retirement accounts, investment accounts and the like. It’s very important to understand that when there is a beneficiary named in a document, that beneficiary will get the assets, regardless of what your will says. These should be updated on a regular basis and if possible, you should always have a primary beneficiary and a secondary beneficiary.

An estate planning attorney will review your situation and talk with you about your goals for your family and your assets after your death. They will create a comprehensive plan with the necessary documents.

Reference: Lexology (January 28, 2019) “The Differences Between Will Planning & Estate Planning”

 

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Does Anyone Really Need a Trust?

The simplest definition of a trust is a three-party fiduciary relationship between the person who created the trust and the fiduciary for the benefit of a third party. The person who created the trust is known as the “Settlor” or “Trustor.” The fiduciary, known as the “Trustee,” is the person or organization with the authority to handle the asset(s). The trustee owes the duty of good faith and trust to the third party, known as the “Beneficiary.”

That is accurately described by the Pittsburgh Post-Gazette in the article titled “Do I need a trust?”

Trusts are created by the preparation of a trust document by an estate planning attorney. The trust can be made to take effect while the Trustor is alive — referred to as inter vivos or after the person’s death — testamentary.

The document can be irrevocable, meaning it can never be changed, or revocable, which means it can change from one type of trust to another, under certain circumstances.

Whether you even need a trust, has nothing to do with your level of assets. People work with estate planning attorneys to create trusts for many different reasons. Here are a few:

  • Consolidating assets during lifetime and for ease of management upon disability or death.
  • Avoiding probate so assets can be transferred with privacy.
  • Protecting a beneficiary with cognitive or physical disabilities.
  • Setting forth the rules of use for a jointly shared asset, like a family vacation home.
  • Tax planning reasons, especially when IRAs valued at more than $250,000 are being transferred to the next generation.
  • Planning for death, disability, divorce or bankruptcy.

There is considerable misinformation about trusts and how they are used. Let’s debunk a few myths:

An irrevocable trust means I can’t ever change anything. Ever. Even with an irrevocable trust, the settlor typically reserves options to control trust assets. It depends upon how the trust is prepared. That may include, depending upon the state, the right to receive distributions of principal and income, the right to distribute money from the trust to third parties at any time and the right to buy and sell real estate owned by the trust, among others. Depending upon where you live, you may be able to “decant” a trust into another trust. Ask your estate planning attorney, if this is an option.

I don’t have enough assets to need a trust. This is not necessarily so. Many of today’s retirees have six figure retirement accounts, while their parents and grandparents didn’t usually have that much saved. They had pensions, which were controlled by their employers. Today’s worker owns more assets with complex tax issues.

You don’t have to be a descendent of an ancient Roman family to need a trust. You must just have enough factors that makes it worthwhile doing. Talk with your estate planning attorney to find out if you need a trust. While you’re at it, make sure your estate plan is up to date. If you don’t have an estate plan, there’s no time like the present to tackle this necessary personal responsibility.

Reference: Pittsburgh Post-Gazette (Jan. 28, 2019) “Do I need a trust?”

 

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What is an Irrevocable Life Insurance Trust?

The threshold for each state’s estate tax needs to be considered, when the family is doing estate tax planning. This is because many are not as high as the current federal estate tax exemption. As part of an overall estate planning strategy, says JD Supra in the article “Estate Planning: The Irrevocable Life Insurance Trust,” an Irrevocable Life Insurance Trust, or ILIT, can be used to take the life insurance proceeds out of a donor’s taxable estate. One catch: the donor (the owner of the policy) must live for three years after the policy is transferred to the trust, in order for the proceeds to be excluded from the estate for any estate taxes.

The donor should also not be the trustee and may not retain any economic benefits from the policy, including the ability to change beneficiaries, to cancel or surrender the policy or to assign the policy.

If the donor is married, the surviving spouse may be a trustee, but should not be the sole trustee for most situations. A family member, or even a professional trustee, may serve as a co-trustee with the spouse.

The terms of the ILIT provide for the funds to be distributed to beneficiaries, or they also may be linked to another trust. That might be a Special Needs Trust or a Revocable Trust.

An ILIT also offers a level of asset protection to beneficiaries from creditors.

The ILIT pays policy premiums through gifts made to the trust. These gifts, it should be noted, do not qualify for the current $15,000 annual gift tax exclusion, unless the beneficiaries of the trust are given some very specific powers that will allow them to withdraw the gift to the trust for a period of time. These powers are known as “Crummey” powers. The trustee in this case must send “Crummey” notices to all the beneficiaries telling them about their withdrawal rights, when there is a contribution to the trust. An estate planning attorney will be needed to create and manage this.

An ILIT can be funded with term or permanent insurance that is in effect for the owner’s lifetime. To pass the proceeds outside of the donor’s estate, the donor may not borrow against or access the cash value of the insurance policy, once the life insurance policy has been transferred into the ILIT. However, the donor could indirectly benefit from the cash value through his or her spouse, who is a beneficiary of the ILIT.

Another way to use an ILIT is to establish it by a married couple and fund it with a second-to-die life insurance policy. The second-to-die policy pays out to the surviving spouse’s death and is often used as cash to pay estate taxes on illiquid assets or to fund a special needs trust.

Reference: JD Supra (Jan. 21, 2019) “Estate Planning: The Irrevocable Life Insurance Trust”

 

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How Can I Goof Up My Estate Plan?

There are several critical errors you can make that will render an estate plan invalid. Many of these can be easily avoided, by examining your plan periodically and keeping it up to date.

Investopedia’s article, “5 Ways to Mess Up Estate Planning” gives us a list of these common issues.

Not Updating Beneficiary Designations. Be certain those to whom you intend to leave your assets are clearly named on the proper forms. Whenever there’s a life change, update your financial, retirement, and insurance accounts and policies, as well as your estate planning documents.

Forgetting Key Legal Documents. Revocable living trusts are the primary vehicle used to keep some assets from probate. However, having only trusts without a will can be a mistake—the will is the document where you designate the guardian of your minor children, if something should happen to you and/or your spouse.

Bad Recordkeeping. Leaving a mess is a headache. Your family won’t like having to spend time and effort finding, organizing and locating your assets. Draft a letter of instruction that tells your executor where everything is located, the names and contact information of your banker, broker, insurance agent, financial planner, attorney etc.. Make a list of the financial websites you use with their login information, so your accounts can be accessed.

Faulty Communication. Telling your heirs about your plans can be made easier with a simple letter of explanation that states your intentions, or even tells them why you changed your mind about something. This could help give them some closure or peace of mind, even though it has no legal authority.

Not Creating a Plan. This last one is one of the most common. There are plenty of stories of extremely wealthy people who lose most, if not all, of their estate to court fees and legal costs, because they didn’t have an estate plan.

These are just a few of the common estate planning errors that happen. For more information on how to be certain your assets will be dispersed according to your wishes, talk with a qualified estate planning attorney.

Reference: Investopedia (September 30, 2018) “5 Ways to Mess Up Estate Planning”

 

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Am I Too Young to Start Thinking About Estate Planning?
Protect your children with an estate plan

Am I Too Young to Start Thinking About Estate Planning?

Many people believe they’re too young to begin thinking about estate planning. Others say they don’t have significant enough assets to make the process of planning worthwhile.

However, the truth is that everyone needs estate planning. If you have any assets, and you intend to give those assets to a loved one, you need to have a plan.

Forbes’s article, “Reviewing Your Financial And Estate Planning Checklist,” examines some important topics in estate planning.

The first of topic is a durable power of attorney for property, finances and health care. This document allows you to designate a trusted individual to make decisions and take action on your behalf with matters relating to each of the three areas above.

In addition to the importance of having all powers of attorney readily available, in case you become incapable of making decisions, beneficiary designations should also be looked at frequently to update any changes to family situations, like a birth or adoption, death, marriage or divorce.

Another topic to address is a living trust. A trust will give direction regarding where and how the assets are dispersed when you die. A great reason to use a living trust is that the assets in a trust do not pass through probate court, which can be an expensive and time-consuming process.

Another area is digital assets. It’s critical for your heirs to have access to digital files, passwords and documents. This can be easy to overlook. Create a list of your digital assets, including social media accounts, online banking accounts and home utilities you manage online. Include all email and communications accounts, shopping accounts, photo and video sharing accounts, video gaming accounts, online storage accounts, and websites and blogs that you manage. This list should be clear and updated for your heirs to access.

If we fail to plan for these somewhat uncomfortable topics, the outcome will be stressful and expensive for our heirs.

Reference: Forbes (January 4, 2019) “Reviewing Your Financial And Estate Planning Checklist”

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Thinking about Giving It All Away? Here’s What You Need to Know

There are some individuals who just aren’t interested in handing down their assets to the next generation when they die. Perhaps their children are so successful, they don’t need an inheritance. Or, according to the article “Giving your money away when you die: 10 questions to ask” from MarketWatch, they may be more interested in the kind of impact they can have on the lives of others.

If you haven’t thought about charitable giving or estate planning, these 10 questions should prompt some thought and discussion with family members:

Should you give money away now? Don’t give away money or assets you’ll need to pay your living expenses, unless you have what you need for retirement and any bumps that may come up along the way. There are no limits to the gifts you can make to a charity.

Do you have the right beneficiaries listed on retirement accounts and life insurance policies? If you want these assets to go to the right person or place, make sure the beneficiary names are correct. Note that there are rules, usually from the financial institution, about who can be a beneficiary—some require it be a person and do not permit the beneficiary to be an organization.

Who do you want making end-of-life decisions, and how much intervention do you want to prolong your life? A health care power of attorney and living will are used to express these wishes. Without these documents, your family may not know what you want. Healthcare providers won’t know and will have to make decisions based on law, and not your wishes.

Do you have a will? Many Americans do not, and it creates stress, adds costs and creates real problems for their family members. Make an appointment with an estate planning attorney to put your wishes into a will.

Are you worried about federal estate taxes? Unless you are in the 1%, your chances of having to pay federal taxes are slim to none. However, if your will was created to address federal estate taxes from back in the days when it was a problem, you may have a strategy that no longer works. This is another reason to meet with your estate planning attorney.

Does your state have estate or inheritance taxes? This is more likely to be where your heirs need to come up with the money to pay taxes on your estate. A local estate planning attorney will be able to help you make a plan, so that your heirs will have the resources to pay these costs.

Should you keep your Roth IRA for an heir? Leaving a Roth IRA for an heir, could be a generous bequest. You may also want to encourage your heirs to start and fund Roth IRAs of their own, if they have earned income. Even small sums, over time, can grow to significant wealth.

Are you giving money to reputable charities? Make sure the organizations you are supporting, while you are alive or through your will, are using resources correctly. Good online sources include GuideStar.org or CharityNavigator.org.

Could you save more on taxes? Donating appreciated assets might help lower your taxes. Donating part or all your annual Required Minimum Distributions (RMDs) can do the same, as long as you are over 70½ years old.

Does your family know what your wishes are? To avoid any turmoil when you pass, talk with family members about what you want to happen when you are gone. Make sure they know where your estate planning documents are and what you want in the way of end-of-life care. Having a conversation about your legacy and what your hopes and dreams are for family members, can be eye-opening for the younger members of the family and give you some deep satisfaction.

Reference: MarketWatch (Oct. 30, 2018) “Giving your money away when you die: 10 questions to ask”

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How Do I Contest a Will?
Will contest

How Do I Contest a Will?

The ways that children of a first marriage can contest a will fall into several scenarios. However, in order to do so, a person must have “standing.” Typically, a person has standing in two situations, explains nj.com in its recent article, “Can children from a first marriage contest a will?”

One way is when the individual is the decedent’s heir at law and would inherit under the laws of intestacy if the will were declared invalid. Another way a person could have standing, is if there were a prior will in which the person is a named beneficiary, and the prior will would be reinstated, if the subsequent will were set aside.

For example, in Mississippi, probate laws take blended families into consideration. If a person dies without a will and has descendants, like children or grandchildren who are not descendants of the surviving spouse, then several things would happen. The surviving spouse would inherit a child’s share of the estate. The descendants from outside the marriage would then inherit the remainder of the estate in equal shares.

Let’s say George and Gracie were married and had baby Benny. After George and Gracie divorce, George marries Phyllis. If George dies intestate—without a will—then Benny would inherit one-half of his estate. If George dies with a will, Benny has standing to challenge the validity of the will.

As a practical matter, Benny should only challenge the will, if he’d stand to inherit more under intestacy than under the will, and he has a valid challenge justifying that the will be set aside.

The four most common challenges to a will are lack of capacity, improper execution, fraud and undue influence/duress.

It’s not uncommon for will contests to be successful. However, it really depends on the facts and circumstances of each specific case. For example, Benny would have a much tougher time proving undue influence, if John and Phyllis were similar in age and married for 30 years prior to George’s death, than if Phyllis was 50 years younger than George, and he had some level of dementia.

Reference: nj.com (December 11, 2018) “Can children from a first marriage contest a will?”

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Why are Heirlooms the Source of Family Conflict in Probate?
Family jewelry and guns are often the source of controversy after a parent dies.

Why are Heirlooms the Source of Family Conflict in Probate?

When a family member dies, personal items and heirlooms can be the cause of significant conflict among family members, The Guardian says in its recent article, “When It Comes To Heirlooms, It’s Personal.” Many of these hotly-disputed items may have little to no monetary value. However, that doesn’t make them any less important to those family members who treasure their “priceless” emotional value.

A person can typically leave his estate to whomever he wants, provided that it satisfies the obligations to a spouse and dependents. There are several ways to ensure that an estate is equitably distributed, according to the wishes of the deceased. However, making decisions on personal effects and family heirlooms is often one of the hardest parts of the estate planning process.

Here’s what can you do to make sure the cherished personal property you wish to leave to your heirs doesn’t become the focal point for future disputes:

  • Avoid any surprises. Avoid potential conflicts by sharing with your family the contents of your will and your reasons for the way that you’ve decided to distribute your assets, so there are no surprises after you are gone.
  • Know what “fairness” means. Fairness doesn’t always mean “equal.” That is especially true when it comes to your personal items and heirlooms. Decide what “fairness” means to each of your family members, and if you agree, distribute your items accordingly.
  • Talk about your special assets. Create a list of the items you want to bequeath and ask your family who should get what.
  • Get appraisals and consultations. Have your personal property appraised and consult with your heirs to be certain that the items you bequeath are appropriately valued–both monetarily and emotionally.
  • Create a list. Attach to your will a letter that lists your personal property items and the heirs you want to receive them. The letter won’t be enforceable as part of your will, unless you incorporate it into the terms of the will.
  • Make choice now. While you’re still alive, list your personal items and have your heirs take turns choosing what they want.
  • Choose later. If you don’t want your heirs to select your personal items in advance but still prefer they are the ones who chose, leave a direction in your will that your heirs are to take turns, until all of the items have been chosen.

Reference: The Guardian (December 23, 2018) “When It Comes To Heirlooms, It’s Personal”

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Proper Estate Planning Can Prevent Family Fights

Research shows that about 60% of U.S. adults don’t have a will.

However, not all of your possessions pass through a will. 401(k)s, life insurance proceeds, pensions, and annuities pass by beneficiary designation.

The (Washington, PA) Observer-Reporter’s recent article, “Improper estate planning can lead to familial conflict” explains that some of your possessions will pass through probate. If you own property in several states, the process could become more difficult for your loved ones. A way to simplify the process for them, is by having an updated will.

For instance, even if your will states that all of your possessions are to be split equally between your two children, this may not be what actually occurs. If your life insurance lists only Bob as the beneficiary, he’ll walk off with 100% of the death benefit. Your younger son Doug will receive only half of the assets that don’t have a beneficiary designation. Assets that pass by designation are not controlled by the will. That is why Bob gets all the money from the insurance. As you can see, it’s vital that you review your accounts’ beneficiary designations regularly, to make certain they’re up to date. Check on them every few years or when there’s a family divorce, birth, or death. Once you’re gone, they can’t be changed.

In addition, your estate plan should include two powers of attorney (POA). The first POA is to make health decisions. The second POA is to make financial decisions, if you don’t have the capacity to do so. Your POA agent has your authority to make decisions, only when you do not have capacity and she can only exercise it for your own benefit. POAs end at the drafter’s death.

It’s common today for families to have blended elements. Many people were married before and may have had children. Here’s an example of a famous father who made his third wife executor of his estate, giving her control of his business. In this case, his equally famous son was the principal player in the father’s business. The son didn’t understand the implications of his father’s estate plan. When the father died, there was a long and expensive legal battle between the son and the third wife.

Who was it? It was Dale Earnhardt Jr.

Work with an experienced attorney and don’t let this happen to your family.

Reference: The (Washington, PA) Observer-Reporter (December 7, 2018) “Improper estate planning can lead to familial conflict”

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How Do I Add Livestock to my Estate Plan?

Ranchers may think estate planning involves only assets like the house and the land. We think a lot about how these assets will be divided between children. Consequently, many farming and ranching families use language in their estate plans to give the on-farm child the first chance to buy farm assets, if the other siblings want to sell.

A recent Beef Magazine article asks, “Are your livestock covered in your estate plan?” The article notes that this “first chance” needs to cover a wide range of assets like equipment, vehicles, personal items and livestock.

Maintaining an itemized list of these assets can help your family recognize their true value. This is especially important, when you consider the value of livestock. When you take the herd to the sale barn, they’ll all bring commercial price. However, do your heirs understand how much you paid for that purebred herd sire five years ago? How about the semen in the tank? Seedstock producers or commercial producers who paid premiums for specific animals, know that the value of these animals isn’t as obvious as the current market price at the auction barn. Therefore, the way in which these cattle should be handled after the current operator dies, needs to be included in the estate plan.

Many ranchers and farmers are looking at livestock trusts. These are written declarations of how the farm owner would like livestock to be cared for after the owner’s death, along with resources and instructions for handling such livestock. A livestock trust can help put aside money and/or resources, so an owner can still protect prized animals, long after the owner’s death.

Livestock trusts are particularly important, if a rancher’s heirs aren’t involved in the ranch operations. The trust can detail the cattle’s veterinarian and nutritionist contact info, as well as preparations for who will feed the livestock and for how long, if the rancher dies. It can also discuss what happens, if the death is during or immediately prior to calving season or at weaning, as well as how the hired hand is paid.

In addition, if the heirs elect to sell the livestock, the trust can instruct them on the best way to market these valuable cattle to ensure the best price, along with information about a trucking company to haul the livestock and a breed representative who could work with perspective buyers. The sale of semen and embryos must also be addressed.

With all of these questions, it’s best to get answers while the owner is still alive. Ask your estate planning attorney about a livestock trust for your estate plan to protect your valuable cattle.

Reference: Beef Magazine (December 14, 2018) “Are your livestock covered in your estate plan?”

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