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”

 

Continue Reading

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?”

Continue Reading
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?”

Continue Reading
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”

Continue Reading

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”

Continue Reading

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”

Continue Reading

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”

Continue Reading

Is Your Estate Plan on Track?

Investopedia’s article from this fall, “How to Get Your Estate Plan on Track,” tells us what an estate plan accomplishes. A good estate plan accomplishes three objectives:

  • End-of-life health care decisions are documented in a legally binding document;
  • Assets will be distributed according to your instructions, rather than state law; and
  • Loved ones avoid the time, expense and stress of the probate process.

A basic estate plan should include advanced directives, such as a health care proxy and power of attorney, will (perhaps a “pour-over” will and a revocable living trust). If you want to ensure that you have a valid will that follows the laws of your state, avoid pitfalls and best protect your family, hire an experienced estate planning attorney to make certain you have professional legal knowledge, when considering the nuances of trusts and estate law.

A health care proxy, also called a health care power of attorney, accomplishes two goals. First, it authorizes a designated individual to make health care decisions on your behalf, if you are ill or otherwise can’t make these decisions on your own. Without this, a judge would decide who has this authority in those circumstances. A health care proxy also allows you to document specific decisions for your health care, such as end-of-life decisions.

Your estate plan should also include a power of attorney, which allows you to authorize a person to make financial decisions in your stead. It’s used, if you’re not in a position to handle such affairs on your own (like a health care proxy).

Probate is the legal process where the court approves the distribution of your assets and gives creditors an opportunity to collect your debts. Going through probate can be stressful for your heirs. There are costs incurred and procedures that must be followed before assets are distributed. The probate process can take months and can be dragged out for more than a year in some situations.

Probate can be avoided with the right planning. For example, you can title certain assets like bank accounts, brokerage accounts, and property, so they pass directly by operation of law to your heirs, and bypass probate. Retirement assets are required to have beneficiaries and likewise will bypass probate. Make sure to have contingent beneficiaries, so these assets continue to bypass probate, if your beneficiaries predecease you.

For people with minor children, designating their potential guardian is one of the most critical elements of an estate plan. It is part of your will in most states. Remember, if you don’t name guardians in your will, and both you and your spouse pass away, the court will appoint a guardian, which may not be ideal for your children.

There are other unique situations that may warrant creating additional documentation and planning. These include having a business, adult children from a previous marriage, a potential liability against your estate or a special needs child. In any of these situations, you’ll definitely need to review your circumstances with an attorney.

Those assets held jointly (your home perhaps) and assets that have a beneficiary (life insurance) aren’t included in the will. Each state has its own rules about where the property goes, when a person dies without a will.

Estate planning is an ongoing process. Review your plan every few years or if you’ve had any major life changes, like a birth or adoption of a child, a divorce or a death of a family member.

Having your affairs in order can help prevent making things worse after you pass away.

Reference: Investopedia (October 17, 2018) “How to Get Your Estate Plan on Track”

Continue Reading

Can I Contest a Will?

When a person contests a will, they’re arguing that the will isn’t valid. A will can be contested because an individual claims that the deceased person didn’t possess the required capacity to make a will, was unduly influenced or insane, made a more recent will, or there was fraud, duress or forgery. A will can also be contested because it contains technical flaws.

The Carroll County (MD) Times’ article, “Contesting a will is difficult; only an ‘interested party’ is eligible,” explains that to be eligible to contest a will in Maryland, you must be an “interested party.” This means you’re named in the will or would have been eligible to inherit by law, if the deceased hadn’t written a will.

In Mississippi, contested wills are heard by the Chancery Court.  Chancellors are tasked with hearing and deciding contested cases. They direct the actions of personal representatives (executors) and pass orders for administering an estate.

The person contesting a will has the burden of proof, meaning that she must show that the will isn’t valid. Other interested parties aren’t required to prove that the document is valid, but they may be called to testify, if they were present or involved when the deceased person made the will or signed and executed it.

Make no mistake: challenging a will is difficult. Courts regard a will as an expression of the deceased person’s wishes, and since he’s not around to tell the court, “No, that’s not what I meant,” judges are hesitant to make changes in the will as written.

This is a good reminder to be certain your will says what you want it to say. If it doesn’t, work with a qualified estate planning attorney to have revisions made or codicils (additions that modify or explain provisions in the will) added to reflect your intent accurately.

If a will is successfully contested, the estate is then treated as if the deceased died without a will or intestate. This doesn’t guarantee that the challenger will get some of the estate, because it’s based on where she is in the line of succession set out in state intestacy laws. If a person dies without a will, priority in the distribution of his estate will be as follows in Mississippi:

  • First, to the children and the descendant’s of children who died prior to the deceased individual (Under Mississippi’s laws of intestacy, a spouse is treated like a child as far as his or her share of the estate is concerned);
  • Second, to the decedent’s father, mother, brothers, sisters, and descendants of brothers and sisters who predeceased the deceased individual;
  • Third, to the grandparents and uncles and aunts.

If none of the relatives listed above exists, succession continues to any blood relatives of the highest degree defined by Mississippi law.

In the event there’s no qualifying relative, the estate goes to the State of Mississippi.  If the deceased was on Medicaid, the assets of the deceased may be required to be paid to the State of Mississippi Division of Medicaid.

Reference: Carroll County (MD) Times (November 23, 2018) “Contesting a will is difficult; only an ‘interested party’ is eligible”

Continue Reading

Should I Give Access to My Checking Account to My Adult Son in Case of an Emergency?

It’s not uncommon for an elderly parent to go to the bank to add a child to his or her bank account “in case something happens to me.”

The reason why most parents do this, is to give their child access to their money during an emergency. It sounds like it should be a pretty easy process. With proper planning, it can be. However, parents should know that simply making a child the joint owner of a bank account (or investment account or safe deposit box) can have unintended consequences. Sometimes this isn’t the best solution during a family crisis.

As Kiplinger’s recent article, “The Trouble with Joint Bank Accounts ‘Just in Case’” explains, the vast majority of banks set up all of their joint accounts as “Joint with Rights of Survivorship” (JWROS). This type of account ownership typically says that upon the death of either of the owners, the assets will automatically transfer to the surviving owner. However, this can create a few unexpected issues.

If Mom’s intent was for the remaining assets not spent during the family crisis to be distributed by the terms of a will, that’s not happening. That’s because the assets automatically transfer to the surviving owner. It doesn’t matter what Mom’s will says.

Remember that adding anyone other than a spouse could create a federal gift tax issue, depending on the size of the account. Anyone make a gift of up to $15,000 a year tax-free to whoever they wish, but if the gift is more than $15,000 and the beneficiary isn’t the spouse, it could trigger the need to file a gift tax return.

For example, if a parent adds a child to their $500,000 savings account, and the child predeceases the parent, half of the account value could be included in the child’s estate for tax purposes. The assets would transfer back to the parent, and, depending on the deceased’s state of residence, state inheritance tax could be due on 50% of the account value. In some states, the tax would be 4.5%, which would mean a state inheritance tax bill of more than $11,000.

However, if Mom’s intent in adding a joint owner to her account is to give her son access to her assets at her death, there’s a better way to do it. Most banks let you structure an account with a “Transfer on Death,” or TOD. With a TOD, if the beneficiary passes before the account owner, nothing happens. There’s no possibility of a state inheritance tax on 50% of the account value. When the account owner dies, the beneficiary has to supply a death certificate to the bank, and the assets will be transferred. These assets are transferred to a named beneficiary, so the time and expense of probating the will are also avoided, because named beneficiary designations supersede the will. This is the same for pensions, IRAs and life insurance policies.

Setting up an account as TOD doesn’t give the beneficiary access to the account, until the death of the account owner. Therefore, the change in titling isn’t considered a gift by the IRS, which eliminates the potential federal gift tax issue.

There’s no such thing as a joint retirement account because IRAs, 401(k)s, annuities, and the like can only have one owner—it’s not possible to make someone a joint owner. However, if a parent becomes incapacitated, they still often would like their child to have access to all their assets, in addition to their bank accounts. The answer for these is a financial power of attorney. This is a document that lets one or more people make financial decisions on your behalf. This document should be drafted by a qualified estate planning attorney.

It is important to understand that many financial institutions require a review process of a financial power of attorney appointment. The bank’s legal department may want to review the document before allowing the designated person to make transactions. This can take several weeks, so be sure that all financial institutions where you have accounts have a copy of your executed financial power of attorney. Have it in place before it’s needed.

Talk to your estate planning attorney about what you’re trying to do and let her guide you. Planning in advance will make things much easy for your loved ones, in case of an emergency.

Reference: Kiplinger (November 14, 2018) “The Trouble with Joint Bank Accounts ‘Just in Case’”

Continue Reading