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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Four Common Myths about Estate Planning

1) Myth: My spouse can make all of my healthcare and financial decisions because he/she is my spouse.

Reality: This is not always the case. To make sure your spouse can indeed make important medical decisions on your behalf, you should sign a durable power of attorney and a medical advance directive.

2) Myth: I’ve told my family how I want my affairs handled after I die. They’ll divide everything the way I want it divided.

Reality: Informal discussions about your affairs have no legal enforceability. Even if your immediate family does carry out your wishes, if  here is a remarriage or divorce, for instance, your estate could end up in the hands of people you never intended to be beneficiaries. A properly executed will and other estate planning documents are the only way you can ensure your estate ends up where you want it to go.

3) Myth: I signed a will before, so I don’t need to do it again.

Reality: An old will may not reflect your current goals. You or your children may have married or remarried. Your property holdings may have changed. A trust may now be the preferred method to safeguard your legacy because of changes in your circumstances and needs. The only way to know for sure is to have a comprehensive estate plan review.

4) Myth: I am not wealthy enough to need an estate plan.

Reality: Almost everyone will benefit from estate planning, which addresses non-wealth aspects of your legacy along with the financial aspects. Estate planning can ensure someone you trust will care for your children and pets after your death, and make sure treasured family heirlooms end up where you want them to go. Estate planning also can help you pass along your values.
Moreover, trusts are not just for the wealthy: In states that practice Medicaid recovery, for instance, your survivors may receive a large bill for Medicaid-funded nursing home care after your death, which can force the sale of assets like the family home. Some states even seize life insurance proceeds. Depending on your situation, a trust can prevent this from happening. The only way to know for sure is to visit with an estate planning attorney to obtain personalized advice for your situation.
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No Matter How Young—Or Young at Heart—You Need End-of-Life Planning

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”

 

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What If Mom’s Executor Won’t Sell the House?

What if the father died first, then the mother? They both wrote identical wills and named the youngest child as executor. The middle child was named as the alternate. The will states that if the first executor can’t or won’t carry out the duties of the will, then the alternate executor takes over. It also states that within six months after the mother’s death, the home should be sold, and the proceeds divided evenly between all three siblings.

Time passes, and now it’s been now a year after her death. The oldest child is occupying the house—but he can’t qualify for a mortgage or buy the other two kids out of their shares.

Is the alternate executor permitted to just assume the executor duties and sell the home?

nj.com weighs in with a recent article, “Family fights over mom’s will when executor won’t sell the house. What’s next?” According to the article, being named in the will doesn’t give you the automatic right to serve as executor.

If an individual is named as successor executor in the will, there must be two steps taken, before he can assume the administration of the estate.

In this situation, the youngest brother, as the current executor, must either resign or be removed.

The easiest, quickest and least costly option is for him to voluntarily step aside. However, he obviously has to agree to it.

The second option is to go to court and ask the Chancery Court judge to remove him.

To be successful in removing the executor, a person must show the Chancery Court judge that the executor is refusing to take the necessary action, as directed by the mother’s will. If the judge is convinced, she can remove the youngest brother by court order.

The middle child would then need to be appointed by the judge as the new executor.

Typically, when a person is named as the alternate, it isn’t a problem. It’s merely an administrative process. The middle child would have to go to the probate court and sign the required paperwork.

Reference: nj.com (December 27, 2018) “Family fights over mom’s will when executor won’t sell the house. What’s next?”

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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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Here’s a Happy Way to Start the New Year – A Gift of Estate Planning

If you think of estate planning as a gift to your loved ones, and not an obligation, then you will understand why the start of a new year is the perfect time to give your family the peace of mind that an estate plan can bring. The article “Give the gift of estate planning to loved ones this holiday season” from the Brainerd Dispatch describes how stress and guilt for the family can be alleviated just by having a good estate plan in place.

Your estate plan will provide your family with clear directions on where you want your assets to go when you have passed, but that’s just for starters. They will be dealing with many moving parts when you pass: funeral arrangements, notifying family members and grief, which can be overwhelming.

If you don’t have a will or haven’t done any planning, the process for your family to gain access to your assets becomes extremely problematic. The process is called probate, and it can take months and cost a great deal to unlock real estate ownership, account information or other assets for your spouse, children and grandchildren.

There’s also no way to ensure that your assets will be distributed as you wanted, if you do not have a will or an estate plan. Let’s say you have a non-traditional family. You’ve lived with your partner for decades, even raised children together, but never married. Your partner and your children may find themselves completely without any voice in your estate, and no right to any assets. Without a will, the state’s laws will determine who receives your assets, and that may be a sibling or a parent, if still living.

Your estate plan becomes your legacy, and it’s not just for family members. If there are causes or organizations that have meaning for you, they can be included in your estate plan. Lifetime giving or giving “with warm hands” is rewarding, because you get to see the impact of your generosity. However, you can use an estate plan to make a gift to an organization, which serves a dual purpose. It decreases the value of your estate, and can lessen the tax burden of your estate, giving your family more money.

There are many ways to make planned giving part of your estate. Donor advised funds are increasingly popular, or you may want to use a charitable trust or fund a scholarship. Your estate planning attorney will be able to help you determine the best way to structure your giving.

An experienced estate planning attorney has worked with families of all different types and will have the knowledge and skills to help you create an estate plan that works best for your family. The attorney will also encourage you to talk with your family members to make sure they know that you have put a plan into place. You may wish to have a family meeting with your estate planning attorney, to ensure that everyone understands why you made the decisions you did and ensure that the family understands that your estate plan is a gift from the heart.

Reference: Brainerd Dispatch (Dec. 8, 2018) “Give the gift of estate planning to loved ones this holiday season”

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Where Do I Start as an Executor if There’s a House in the Estate?

Handling an estate can be a monumental task. The Greater Baton Rouge Business Report explains the details in its article that asks “So you inherited a house … now what?

For instance, an executor’s immediate worry might be the safety of the house. One of the first questions an heir might ask, is whether there’s a security company involved that has a contract for monitoring. If so, contact the company to see where to call should there be a security breach and change the security passwords. Another suggestion is to change the locks on the house, because who knows who has been given keys to the home over the years. Siblings might want to place valuable items in safety deposit boxes or remove them from the house, as soon as they can.

The key to this entire process among heirs is communication. Keep everyone up-to-date. This alone will reduce the risk of misunderstanding, mistrust and frustration in the family.

Different interests among siblings often creates tensions after inheriting a house. A house may have sentimental value to the heirs, but the executor must stay objective about the situation. Reducing the house to cash by selling it and dividing the proceeds, typically makes the most financial sense.

It’s costly to maintain a house in an estate and insurance and court proceedings can also be expensive. Come to an up-front agreement on terms of the sale, when drafting an estate plan, because disagreements among siblings can sometimes lead to costly and lengthy court proceedings.

Heirs might decide to keep a house, especially if it’s a beach house or mountain retreat. You’ll then need someone to be the manager. One way to accomplish this is to establish a limited liability company (an LLC) with the other heirs. This gives the heirs a more stable, corporate management structure, while allowing for more flexibility. Place a year’s worth of cash to cover of expenses into the LLC and sign an agreement between heirs that states what happens with repairs, renting the property and other scenarios.

If you do sell, the sooner you sell it and the closer to the time of death, the less likely you’ll have to pay taxes on any appreciation since the time of death and have to worry about what the value was at the date of death. Inherited assets get a new tax basis, known as the date-of-death value. Use a qualified real estate appraiser to value the property, because the beneficiaries need to know the house’s most recent value to calculate capital gains tax later, should they choose to sell it.

Reference: Greater Baton Rouge Business Report (November 13, 2018) “So you inherited a house … now what? Here’s some advice

Suggested Key Terms: Estate Planning, Executor, Asset Protection, Inheritance, Capital Gains, Basis, Tax Planning, Financial Planning, Estate Tax, Gift Tax

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