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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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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Without a Plan, Your Estate Could be at Risk

The unknown events of life include financial perils. They don’t disappear just because you try to ignore them. There are more threats to your financial future and personal health than an estate tax, says Newsmax Finance in its article “Your Estate is at Risk.” There is also legal liability, which is a commonplace event in our increasingly litigious society.

For many people, the first experience with litigation is a divorce. Even in the best of circumstances, it’s a difficult situation. In a bad situation, it’s a nightmare for all concerned. What would happen if you became disabled? It’s more likely that someone will become disabled during the course of their life than that they will die prematurely.

Do you have a health care power of attorney, so someone you trust is empowered to make decisions on your behalf if you became disabled? What about a durable power of attorney so a person you trust, who also has some financial savvy, can take over for you if you can’t do things, like pay bills or manage your business?

If you don’t have these documents in place, a court-appointed person will be assigned as your guardian. That is not something you want to happen.

If you’ve created a private business, you also need to plan for succession. Too many business owners let their businesses die along with them, leaving families, employees and clients stranded. Transitioning a business for succession or to be managed in your absence takes planning.

All of these issues can be dealt with in an estate plan, which you should have created for you by an estate planning attorney. The attorney should be someone you trust, who has experience helping people with the same challenges as your situation, whether that’s a blended family or a privately held family business.

Estate planners know how to use certain methods to help individuals and families make the most of their assets, limit their tax liabilities and plan for the future. There are many different tools available, from different types of trusts to the basics, like a will, power of attorney, and health care power of attorney, to make sure you and your family have the correct protection in place.

Going through the estate planning process is a useful experience, since it gives you and your spouse a chance to review your life’s accomplishments from a long-term perspective, prepare for events like retirement or funding a child or grandchild’s college education and taking care of this important element of adulthood.

Reference: Newsmax Finance (Jan. 14, 2019) “Your Estate is at Risk”

 

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How Would Cinderella’s Story Be Different, if Dad Did Estate Planning?

The story never really focuses on why Cinderella is placed in such a dire position in the first place. However, The National Law Review article titled “A Cautionary Fairy-Tale–If Only Cinderella’s Father Had An Estate Plan” does. It starts with a light-hearted tone, but the details quickly move to how many different ways that this family situation could have been prevented with proper estate planning.

To refresh your memory: Cinderella’s mother died, her father remarried and then he died. She is basically a slave to her evil stepmother and stepsisters, in her own home.

Let’s start with what would happen, if there had been no estate plan. If the family lived in Mississippi, half of her father’s estate would go to her stepmother, and half of the estate would be given to Cinderella. As a minor, her half of the estate would be placed in an UTMA account–Uniform Transfers to Minors Act. There would be a court-appointed custodian, who would be required to use these funds for her health, education, maintenance and support. The court would have likely appointed the Evil Stepmother, who would not likely have complied with the guidelines. A second option would have been for the money to be placed in a trust for Cinderella’s benefit, but the Evil Stepmother would likely have been named a trustee, and that would not have worked out well either.

What Cinderella’s father should have done, was to create a Revocable Living Trust Agreement, stating that certain assets are the separate property of the father (Schedule A), that certain assets are the property of the Evil Stepmother (Schedule B) and that certain assets are community property of the father and the Evil Stepmother (Schedule C).

A neutral successor trustee would have been named—a friend, fiduciary, corporate trustee or perhaps the Fairy Godmother—to oversee the trust. At the death of the father, the trust should have directed that the trust be divided into two subtrusts, known as an A/B split trust.

The Survivor’s Trust (Trust A) would have gathered all the Evil Stepmother’s separate property and one half of the value of the community property assets. Trust B (The Decedent’s Trust) would have all of the father’s separate property, as well as half the value of the community property assets. The trust could have been structured, so that the Evil Stepmother could use the Survivor’s Trust assets as she wanted and could only receive income, if the assets to the Survivor’s Trusts were depleted.

The neutral successor trustee would either work with the Evil Stepmother or make sure that Cinderella’s share of the Decedent’s Trust was not being improperly depleted. At the death of the Evil Stepmother, the assets in the Decedent’s Trust would go to Cinderella.

Cinderella’s father could have also taken out a large life insurance policy to ensure that she was cared for, with the proceeds to be distributed to an UTMA account, with a neutral custodian or to a support trust with a neutral trustee.

The only way Cinderella could have recovered any assets would have been through litigation, which is the likely way this story would have turned out, if it happened today. It’s not ideal, but if a child has been left with nothing but an Evil Stepmother and two nasty stepsisters, a lawsuit is a worthwhile effort to recover some assets. Assuming that the Evil Stepmother either adopted Cinderella or was appointed her guardian by the court, there would be a fiduciary obligation to protect her, and an accounting of assets at the time of her father’s death would have been prepared.

Estate planning would have preempted the story of Cinderella. It does serve as a clear example of what can happen with no estate plan in place. Whether your blended family enjoys a great relationship or not, have your estate plan created, so that if things turn wicked, your beloved children will be protected.

Reference: The National Law Review (Jan. 16, 2019) “A Cautionary Fairy-Tale–If Only Cinderella’s Father Had An Estate Plan”

 

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What Do I Need to Know About Estate Planning After a Divorce?

The recent changes in the tax laws created increased year-end activity for those trying to finalize their divorces by December 31—prior to the effective date of the new rules.

The new tax laws stipulate that alimony is no longer deductible by the payor, and it’s no longer taxable by the receiver—this creates a negative impact on both parties. The payor no longer receives a tax deduction, and the receiver will most likely wind up with less alimony because the payor has more taxes to pay.

Forbes’ recent article, “9 Things You Need To Know About Estate Planning After Divorce” suggests that if you were one of those whose divorce was finalized last year, it’s time to revise your estate plan. It’s also good idea for those people who divorced in prior years and never updated their estate plans. Let’s look at some of the issues about which you should be thinking.

See your estate planning attorney. Right off the bat, send your divorce agreement to your estate planning attorney, so he or she can see what obligations you have to your ex-spouse in the event of your death.

Health care proxy. This document lets you designate someone to make health care decisions for you, if you were incapacitated and not able to communicate.

Power of attorney. If you had an old POA that named your ex-spouse, it should be revoked, and you should execute a new POA naming a friend, relative, or trusted advisor to act as your agent regarding your finances and assets.

Your will and trust. Ask your attorney to remove the provisions for your ex-spouse and remove your ex-spouse as the executor and trustee.

Guardianship. If you have minor children, you can still name your ex-spouse as the guardian in your will. Even if you don’t, your ex-spouse will probably be appointed guardian if you pass away, unless he or she is determined by the judge to be unfit. While you can select another responsible person, be sure to leave enough cash in a joint bank account (with the trusted guardian you name) to fund the litigation that will be necessary to prove your ex-spouse is unfit.

A trust for your minor children. If you don’t have a trust set up for your minor children, and your ex-spouse is the children’s guardian, he or she will have control of the children’s finances until they turn 18. You may ask your estate planning attorney about a revocable trust that will name someone else you select as the trustee to access and control these funds for your children, if you pass away.

Life insurance. You may have an obligation to maintain life insurance under the divorce agreement. Review this with your estate planning attorney and with your divorce attorney.

Beneficiary designations. Be certain that your 401K and IRA beneficiary designations are consistent with the terms of your divorce agreement. Have the beneficiary designations updated. If you still want to name your ex-spouse as the beneficiary, execute a new beneficiary designation dated after the divorce. It’s also wise to leave a letter of intent with your attorney, so your intentions are clear.

Prenuptial agreement. If you’re thinking about getting remarried, be certain you have a prenuptial agreement.

It’s a great time to settle these outstanding issues from your divorce and get your estate plan in order.

Reference: Forbes (January 8, 2019) “9 Things You Need To Know About Estate Planning After Divorce”

 

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No Estate Taxes? You Still Need an Estate Plan

Increases in the estate tax exemption has an impact on how some people are thinking about life insurance, says ThinkAdvisor in the article “Estate Planning Is Still Important.” However, before making any changes, consider the larger picture and think long, not short, term.

Let’s start with why many people buy life insurance policies. As young parents, they buy life insurance so a surviving spouse and family will be able to continue to live in their home, pay the mortgage and send children to college. Another reason for life insurance is to cover the cost of estate taxes.

Remember the new higher estate tax exemption is federal. Your heirs may still have state estate taxes and inheritance taxes, depending upon where you live. Having an insurance policy will still help with the costs of settling an estate and paying any taxes that are due.

The new tax exemption also has a sunset date. The year 2026 may seem far away. However, it will arrive, while we are busy with our lives. It may be much harder and more expensive for an individual to purchase a life insurance policy in 2026 than it is right now.

If someone is very old or in ill health, they have a different window of time for planning. However, if you are in your middle years or relatively healthy, now is not the time to put off purchasing life insurance or to let an existing policy lapse.

We know that political landscapes change. If they do, and you want to buy a policy, there may be additional obstacles in the future.

Life insurance also serves as a tool for your estate. If your estate plan seeks to distribute an inheritance equally from assets in a traditional IRA, life insurance can become an equalizer. Let’s say one child is in a much higher tax bracket than the others. Upon receiving the IRA, they will have to pay more in taxes than the others. The child in the lower bracket will end up with a larger sum of money, having lower taxes on their inheritance. This could lead to sibling arguments, which are not uncommon when brothers and sisters become heirs. The insurance policy proceeds can be used to make up the difference.

Another point to consider is who owns the insurance policy? If it is owned by a trust, you may not have the legal right to make a change. If the trustee does not agree that the policy should be liquidated or cancelled, they may not allow the change to go forward.

Your estate planning attorney will be able to review your life insurance policies, when she reviews your overall estate plan. Each part of an estate plan works best, when all parts work in concert.

Reference: ThinkAdvisor (Jan. 11, 2019) “Estate Planning Is Still Important”

 

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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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Estate Planning Documents You Need While Living

Statistically, we know without a doubt that we are all going to die. That’s 100% certain. However, we know that the chances of becoming disabled are also high. For that reason, everyone should have a Power of Attorney, or POA, as well as a will. In fact, says nwi.com in the article “Estate Planning: 3 important estate planning docs, and 2 maybes,” everyone should have a POA, a will, an advanced medical directive and more specifically, a living will.

How many times have you heard the story about someone’s aging mom becoming disabled and the hospital asking if she has a POA? The problem is we’re so reluctant to ask mom about a POA, that we tend to neglect this difficult conversation. Then, when we are faced with a medical emergency, it’s too late.

The time to have a POA created, is before an emergency or health crisis, not afterwards!

In a medical emergency, people are actually far more likely to become disabled or incapacitated than they are to die. Therefore, you need a POA.

The living will is equally important to have in advance of an emergency. With a living will to provide instructions for when you are terminally ill, and death is expected to occur in the very near future, you will have had the opportunity to state your wishes regarding medical care in advance.

A living will should be part of your estate plan.

The related document, which is not as well known, is the “life prolonging procedure declaration,” which says, in a nutshell, “Do everything you can to keep me alive, because I’m not leaving until I absolutely have to.”

The third must-have estate planning document is a will. The will is the document where you tell your heirs exactly how you want your assets distributed. If you have children who are not yet of legal age, you name a guardian for them in your will.

One “maybe” document is a trust. Trusts are used to protect assets. There are many different types of trusts. An estate planning attorney, the same one who will help you with your POA, living will and will, can also help with trusts, if you should need one. They are not simple to set up and you’ll want to get the one that best fits your needs.

Another document is called a “letter of instruction.” This is a set of directions that you leave to your family that tells them what you would like to happen. It’s not legally binding, so it falls into the “maybe” document category. However, you may find it satisfying to put down on paper what you would like them to know, what you would like them to remember, etc.

If you want to dictate your funeral, memorial services and the like, work with an estate planning attorney to execute a funeral planning declaration. This document can be legally enforced.

Remember, the laws about estate plans vary by state, so you’ll want to speak with a local estate planning attorney to ensure that your wishes, your documents and your estate plan will be properly prepared.

Reference: nwi.com (Nov. 25, 2018) “Estate Planning: 3 important estate planning docs, and 2 maybes”

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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”

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