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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Why Do I Need Estate Planning If I’m Not Rich?

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”

 

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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 Avoid the Three Biggest Estate Planning Mistakes?

The Street lists the “3 Worst Estate Planning Mistakes and How to Avoid Them.” These are issues that frequently mess up an estate plan:

Lack of Information. Unwinding the various pieces of your estate can be a monumental task. Some folks leave this all to chance. They fail to leave their executor and loved ones with a complete and updated list of where everything is located and how to get to it.

Think for a minute about all the assets you’ve accumulated in a lifetime: this will include your brokerage accounts, bank accounts, mutual fund holdings, IRAs, pensions and others. They’re hopefully all protected by a host of user names and passwords and maybe even by the answers to questions, like the hospital of your birth and your first pet’s name.

While things like insurance policies are likely online, some of your holdings are not available electronically. In addition, other possessions are totally digital, and you should guard against cyber-theft and hacking. Create a list of all your user names and passwords for investment accounts and other financial holdings.

Beneficiary Designations Issues. It’s not uncommon for people to forget that they’re required to name beneficiaries for their retirement accounts, annuity contracts and insurance policies. Messing this up is a guarantee that your assets will wind up in probate. It can be an expensive and time-consuming legal process, where your wishes may be disregarded.

Outdated Plans. Sometimes, decades pass after estate documents are executed and put away. In the meantime, divorces and other life events happen, radically impacting the original estate planning objectives. In addition, changes in tax laws might impact your initial intentions. It’s smart to periodically review what is in your will and your beneficiary designations.

Reference: The Street (November 29, 2018) “3 Worst Estate Planning Mistakes and How to Avoid Them”

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How Do I Find the Right Trustee for My Estate?

To be certain that your wishes are followed, many people create a trust. One of the tasks in this process is to designate the person who can best carry out your plans. That’s the trustee.

Kiplinger’s recent article, “How to Choose the Right Trustee for Your Estate,” explains that being a trustee means accepting specific duties and obligations. For example, this includes showing impartiality between the interests of the current and future beneficiaries, accurately accounting to all beneficiaries, wisely investing trust funds, managing trust property and adhering to the prohibition against self-dealing.

It’s important to understand the strengths and weaknesses of your trustee and that she appreciates her responsibilities and personal liability to the trust beneficiaries. When considering a trustee, ask yourself these questions:

  • Can your trustee separate her personal feelings and interests from those of the beneficiaries and exercise sound judgment?
  • Will your trustee treat all the beneficiaries impartially?
  • Is your trustee financially savvy enough to analyze investments?
  • Will a child who is balancing her family and career have enough time to devote to serving as trustee?

Family members are closer to the beneficiaries and are more likely to understand their needs. A family member trustee may charge her costs to the trust but typically doesn’t charge an administrative fee. When a sibling is selected as trustee, it can enflame feelings and resentments among the beneficiaries. A relative without any trust experience may run into trouble, because of his ignorance. He will also be liable for any damages.

If you choose an attorney, accountant, or financial adviser, ask yourself these questions:

  • Can she understand the unique dynamics of your family?
  • What experience does she have as a trustee?
  • What are the administrative fees and costs associated with being a trustee?

You can also select a corporate trustee. Banks and trust companies provide professional fiduciary services and act independently. Opting for a corporate fiduciary may eliminate some of the conflicts in the family, while providing experienced and professional investment and administrative management. Think about these questions:

  • Will they invest the time to understand my family and their needs?
  • What are the corporate trustee’s standards?
  • Does the trustee understand the goals of my trust?
  • What are the corporate trustee’s fees?

Corporate trustees follow specific procedures to ensure unbiased and professional services.

Many of the answers to these questions will depend on the size and the nature of your trust. Talk to a trust attorney about all of the details.

Reference: Kiplinger (November 20, 2018) “How to Choose the Right Trustee for Your Estate”

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Keep it All in the Family For Estate Plan Success

If estate planning were just about some basic math tasks, people would not put off going to their estate planning attorneys every few years to make sure their estate plan is in order. However,, as accurately described in the article “Estate Planning: A Family Affair” from Kiplinger, this is a highly emotional process.

If it helps to get you to move on this, consider that if you don’t have a will, the decisions about what will happen to your property–and if you are a parent of minor children, what will happen to your kids—will be decided by the laws of your state and the courts. That should be enough to get you to overcome the fear of mortality, that often keeps people from moving their estate planning forward.

Don’t have a will yet? You need to do that right away. If you have an estate plan, but haven’t reviewed it in a while, and your life has become more complex, it’s time for a review. By the way, just because you review your plan, does not necessitate an overhaul. However, laws and lives do change and the same goals your will and estate plan addressed four years or 14 years ago, may not be the same as they are now.

Every two or three years or whenever there is a major change in your life, such as a divorce, inheritance, financial loss, birth or a change in estate laws, it’s time for a review. Reviews should take place more often, when you are in your 50s or 60s. At that time, your assets may have grown, your children may have children of their own and your goals may have changed.

Your focus may have switched from protecting your children in the event of a premature death of a parent, to transferring wealth from one generation to the next.

The large changes to the tax law may mean that you no longer need some of the tax planning strategies you put into place prior to 2017. Several states have made major changes to their own estate tax laws. New Jersey eliminated its estate tax in 2018 and New York boosted its state estate tax exemption to $5.25 million that same year. Delaware eliminated its estate tax at the end of 2017.

One couple looked at their estate plans from almost 20 years ago, before two of their children were even born. They realized that the plan was out of date, their estate had become much larger, more complicated and they wanted to build in significant charitable giving.

The first task: updating their wills, health care proxies and advance directives for end-of-life care. They created a trust that will donate 11% of their estate to a charity that matters to them. Trusts were set up that will pay out a certain percentage to their children at ages 30, 35 and 40, rather than giving their kids lump sums. They set up a plan whereby a trustee has the discretionary ability to make payments for education, health care, emergencies and even a down payment on a house, which will be subtracted from the child’s future distribution.

An additional benefit: Because of their use of trusts, their distribution of assets will be private.

Trusts are considered the “work horses” of estate planning, because they can be used to accomplish so many different tasks within an estate. However, it is important to note that there is no one-size-fits-all trust. An estate planning attorney should review your situation and then will be able to recommend what trusts, if any, will be most useful for you and your family.

Don’t forget to have the talk. Sit down with your family members and tell them, to the extent you are comfortable, what you have decided. You don’t have to discuss numbers. However, your family will appreciate being part of the conversation, so they understand the reasoning behind your decisions.

Make sure the information shared is keyed to your child(s) maturity. Some 18-year-olds are mature enough to understand the impact that an inheritance can have, while some 30-year-olds see a future inheritance as a license to slack off. You know your children best—make thoughtful decisions about how much to tell them and when.

Reference: Kiplinger (Nov. 1, 2018) “Estate Planning: A Family Affair,”

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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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Make Estate Planning Simpler with a Checklist

Ask an average person to define estate planning, and chances are good they’ll start describing long meetings with a lot of paperwork and complicated forms. However, that doesn’t have to be the case, says this article from InsuranceNewsNet.com, “A simple way to simplify estate planning.” It focuses on the use of beneficiary designations on a number of accounts that can make an estate plan a much simpler experience in many situations.

Beneficiary designations are primarily used on the following types of accounts:

  • Employer-sponsored retirement plans, like 401(k)s
  • IRAs
  • Life insurance policies
  • Annuities
  • Transfer on death investment accounts
  • Pay-on-death bank accounts
  • Stock options
  • Executive deferred compensation plans

Making sure to keep track of the person who has been named the beneficiary and keeping that information up to date is extremely important. It’s not always done correctly. The consequences of having the wrong person named on the asset can be infuriating and, unfortunately, permanent.

The importance of the beneficiary designation means you’ll want to:

  • Remember who you have named a beneficiary of what account. People usually name their spouse as a primary and a child as a contingent. If you only have a primary, consider a charity that has meaning to you as the contingent beneficiary.
  • Update your beneficiary designations, as life events occur. That includes births, deaths, marriages, divorces, etc.
  • Read the instructions on the beneficiary designation. Not all forms are alike.
  • Don’t name your estate as a beneficiary.
  • Understand the tax implications of naming the beneficiaries. Not every asset has the same tax treatment.

Speak with your estate planning attorney to ensure that your beneficiary designations align with your estate plan. Remember that beneficiary designations supersede any provisions in your will. You should also talk with your beneficiaries—you may learn that they don’t want to inherit your asset (i.e., a person who is considering a divorce may not want the additional complication of a large inheritance).

Reference: InsuranceNewsNet.com (Nov. 2, 2018) “A simple way to simplify estate planning”

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