Michigan Estate Planning Blog

Survivorship Insurance - Making A Comeback Saginaw, Michigan

Where there is a risk and an attending financial exposure you cannot afford, there is a form of insurance to cover that risk exposure. When it comes to the ultimate risk – your family’s risk of losing you – life insurance is the fundamental solution. But what if there are two spouses? Naturally, financial risk is felt by the survivor at the passing of the first. That is why almost everyone needs some form of life insurance to provide for the surviving spouse. However, when there is some quantifiable financial risk left behind when the survivor passes, then there is a special form of life insurance to cover such exposure. It is called “survivorship life insurance.” For the basics on survivorship insurance, consider reading a recent Forbes article titled “Sales of Survivorship Insurance Gain.” This form of insurance is underwritten on the lives of both spouses, but only pays the benefits after the death of the surviving spouse. In essence, it works like two life insurance policies stacked together, and survivorship policies are almost always more affordable than owning separate policies on each spouse for the same grand total of death benefit. In addition, when properly owed in an irrevocable trust arrangement, the death benefit proceeds are even excluded from the insured couple’s estate tax calculation. Survivorship insurance can help solve many financial risks. For example, at the death of the surviving spouse, the death benefits can help provide a “safety net” for a family member with special needs, ensure sufficient liquidity to pay any estate taxes that otherwise might threaten a “liquidity event” for estates heavily weighted in real estate, business interests or art, or help equalize estates when some children will inherit the family business and others will not. As you can see, there are multiple reasons why survivorship life insurance sales are increasing. Especially in times of economic uncertainty, life insurance provides cash when needed most.

Reference: Forbes (December 15, 2013) “Sales of Survivorship Insurance Gain”

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How Out of Date is Your Estate Plan?

Estates plans are like a snapshot of your life at a particular point in time. An old photograph shows how you looked at the time it was taken. An old estate plan shows how your property and life circumstances looked at the time it was made. However, just as the way you look changes so does your property and life circumstances. If you never change your estate plan, it might stop doing what you want. As Forbes points out, in an article titled “Why You Should Update Your Estate Plan,” if you do not update your estate plan when your life circumstances change, then you might be risking costly legal battles for your heirs. Significant property acquisitions that are not accounted for in your estate plan can lead to problems. Having additional children or getting divorced can cause problems, if you do not change your estate plan. Tax law changes could make your old estate plan ineffectual. You should plan to update your estate plan every time your life changes significantly. If you get married, change your plan. If you start a new business, change your plan. Any significant life event that has occurred since you first created your estate plan may trigger a needed change or two in your estate plan. You should also plan on meeting with your estate planning attorney every few years to make sure that your plan takes into account any changes to tax laws. If you do not, your plan might not do what you think it should do.

Reference:Forbes (July 3, 2014) “Why You Should Update Your Estate Plan”

 

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New Study Shows Special Needs Expenses Skyrocket

A new study in the medical journal JAMA Pediatrics reports that the total lifetime cost of supporting an individual with an ASD is $1.4 million in the U.S.—with an added intellectual disability, the total rises to $2.4 million. Reuters recently reported on this study and its findings in an article titled "Raising an Autistic Child: Coping With the Costs." These costs typically include an ongoing mix of special education programs, medical care, and lost wages as many parents of autistic children reduce their work hours or even quit their jobs to help their child full-time. The organization Autism Speaks estimates that it now takes roughly $60,000 annually to support someone with an ASD. Such costs can be so prohibitive that many affected families will move to states that offer a better collection of services. The original article advises parents not to automatically think they must drop out of the workforce to manage their child’s case full-time. It is the natural human instinct to want to do so. No one knows a child and his or her needs like a parent, and navigating the morass of city, state and federal services can be a full-time job. However, if a parent drops out of the workforce, just as out-of-pocket expenses start to mount up, it can become very challenging financially. The article urges families to take a long-term view of caregiving. In some situations it might be more advantageous for mom to stay in the workforce, and then hire additional support to provide case-management services. An attorney well-versed in special needs issues can be an indispensable aid in this area.

Reference:  Reuters (June 24, 2014)"Raising an Autistic Child: Coping With the Costs"

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A New Digital Assets Proposal

What happens to digital accounts after someone passes away? This has become a hot button issue in estate planning and technology law. Currently, most states do not have laws that would grant executors or others access to digital accounts. This means that access is determined by the terms and conditions and privacy policies of the technology companies that operate the websites the accounts are on. This has caused headaches for many families attempting to wrap up a loved one's digital affairs. The Uniform Law Commission has come up with a plan called the Uniform Fiduciary Access to Digital Assets Act that, if adopted by the states, would end this problem. However as National Public Radio points out, in “A Plan To Untangle Our Digital Lives After We're Gone,” the idea is not popular with all technology companies. The Commission states that its proposal would give an executor access to accounts in the same way that a family has access to real world items, such as photographs and letters. However, technology companies say the proposal could create privacy concerns for third parties as their communications with the deceased would be accessible. It is clear that something needs to be done about the problem with a deceased's digital accounts. Some technology companies, such as Yahoo Japan, have taken steps to allow account holders to choose who has access to what after they pass away. Other companies are waiting for legal solutions. Still others are satisfied with the current landscape. Regardless what happens in the future on the legal side, how your digital accounts will be handled is something that you need to plan for on the practical side in your estate plan.

Reference:  National Public Radio - NPR (July 23, 2014) “A Plan To Untangle Our Digital Lives After We're Gone”

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How Safe Is Your IRA?

In the past it was thought that if you made an heir a beneficiary of your IRA, the money in the IRA would be safe from your heir's creditors after you passed away. This was because the inherited IRA was treated as retirement savings and not as current income. However, the United States Supreme Court recently ruled to the contrary. As Insurance News Net points out, in an article titled “Court Decision Has Implications for Estate Planning,” the full implications of this court ruling are not yet clear. The court's decision leaves open the possibility that a surviving spouse named as the beneficiary of an IRA might still be able to treat it as retirement savings, but the court did not address that issue. For other beneficiaries, however, it is clear that in most states, inherited IRAs will be much easier for creditors to claim in bankruptcy proceedings or otherwise. Such an inheritance will be treated as income, not retirement savings. If leaving an heir money in a way that is protected from the heir's creditors is an important component of your estate plan, then you need to speak to an estate planning attorney as soon as possible. If you rely on your IRA to accomplish your goals, as is common, then you will need to make other plans. There are several possibilities including a retirement trust, which is a trust designed to preserve retirement income. An attorney can help you consider other alternatives as well.

Reference: Insurance News Net (July 24, 2014) “Court Decision Has Implications for Estate Planning”

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Divorce and Your Estate Plan

Most married people have estate plans that leave significant portions of their estates to the surviving spouse. Thus, if you get a divorce, it is easy to see why you would need to change your estate plan. Most of the time, if you do not change your estate plan after getting a divorce, a judge will ordinarily disregard any specific bequests you made to your ex-spouse. The law assumes you would not want your estate to go to a former spouse. However, as the Wills, Trusts & Estates Prof Blog points out in a recent article titled “When Death Occurs Mid-Divorce,” the same thing is not true if you are in the divorce process but your divorce has not yet been finalized. This is a common problem when a divorce has been filed and one of the parties passes away during the process. When that happens, it can cause issues with a family home that is owned by both parties. If the home is owned as joint tenants, then the property will automatically pass to the survivor. If the divorcing couple owns the home as tenants in common, however, the deceased party’s share of the home will go to his or her heirs. As most couples own their property as joint owners, it is important to talk to an estate planning attorney as early in the divorce process as possible. It might be in the interests of both you and your spouse to sever the joint tenancy in the home before the divorce is finalized. When getting divorced, there are many other estate planning issues you will need to consider during the process as the terms of the divorce will have a large impact on your eventual estate. Reference:  Wills,
Trusts & Estates Prof Blog (July 25, 2014) “When Death Occurs Mid-Divorce"

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Learning From Disney Is Not Just for Kids

Walt Disney passed away in 1966, however problems with his estate plan continue to mount. At issue is a trust he left for his grandchildren. The trust itself is fairly standard in that trust principal was to be distributed to the grandchildren in stages. For one grandchild, everything went according to plan. However, for the other two, problems have arisen. Investing Daily, in an article entitled “Key Estate Planning Mistakes You Need to Avoid,” locates the problem with a clause in the trust that states the principal could be withheld if the grandchildren lacked the “maturity and financial ability to manage and utilize such funds in a prudent and responsible manner.” The article points out that this is a standard clause in many trusts. The problem is that disagreements have arisen between the trustees and the grandchildren. The trustees say the grandchildren have learning disabilities and are unable to manage money. In addition, the trustees contend that the grandchildren are overly influenced by a stepfather. However, the grandchildren believe the trustees just do not want to lose their income from managing the trust and that the grandchildren are being punished for refusing to keep any distributed money at one of the trustee's financial firms. From the outside, it is impossible to know whether the trustees or the grandchildren are in the right. What we can say is that it appears that Walt Disney chose the wrong trustees. It is extremely important to choose a trustee who will be able to cooperate with your trust's beneficiaries. Whenever litigation occurs between trustees and beneficiaries, that may indicate that wrong choice has been made.

Reference: Investing Daily (July 24, 2014) “Key Estate Planning Mistakes You Need to Avoid”

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Any Guess What The Top Mistake Is In Estate Planning?

The recent MarketWatch article, titled “Don’t make the No. 1 estate-planning goof,” outlines several reasons for updating your beneficiary designations. Here are a few: • A change of jobs. A job change can mean that you will need to roll over your retirement plan. If this happens, beware! Moving money from your former employer’s retirement plan into your new one or into an IRA could eliminate your beneficiaries’ claims to those assets. You should make sure you have them as beneficiaries on the new account, too. • Your primary beneficiary died. If this happens, it is a 100% no-brainer that you need to change your designation and speak with your estate planning attorney regarding any changes required in your estate plan as a result. • A change of ownership at your financial institution. This is not as uncommon as it used to be: banks and other financial institutions merge on a regular basis. When they do, they have been known to drop the ball when it comes to the beneficiary designations of older accounts. • A new child or grandchild. Do not designate a minor. If you do, a conservatorship will be set up by the state to protect the assets until the child reaches the age of majority. In this instance, a trust is the way to go for his or her benefit (with the trust as the beneficiary), so that the child can inherit your financial assets, and you will control the terms under which he or she can gain access to the funds. This is tricky business, however, and you need to work closely with your estate planning attorney to avoid potential tax pitfalls. • A beneficiary became disabled. This situation means you should change the designation or be in jeopardy of canceling his or her eligibility for Social Security’s Supplemental Security Income (SSI) benefits. Ask your estate planning attorney to create a Special Needs Trust for the disabled person's benefit and make the trust the beneficiary on your accounts. The original article discusses several other situations when it is a good idea to update your beneficiaries. After reading the full article, consider contacting your estate planning attorney with any questions.

Reference: MarketWatch, Jan. 23, 2014: "Don’t make the No. 1 estate-planning goof"

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Retirement Strategies for Younger Workers

(Note: Parents, here is a great article to share with your twenty-something adult children!) If you are a twenty-something, you have plenty of time to think about investing, right? Even so, a recent article from U.S. News & World Report, titled "10 retirement moves for your 20s," confirms that this is your decade to create the financial habits that will work for you and help you have a comfortable retirement. The original article details some retirement strategies you can start now to develop those crucial financial habits. Here is an overview before you click over to read the article yourself: • Pay yourself first. This old adage is vital to be successful in your savings mentality, especially when you are a twenty-something. Opening a 401k through your employer is a great way to save. The nice thing about this is most everyone now has a payroll deduction option, so you can set aside a dollar amount or a percentage of your income straight to your retirement account every time you get paid. Since it is an automatic deposit of a relatively small amount, you likely will not miss it. • Control spending. The less you spend, the more you can save. Makes sense, right? Now this does not mean you have to live like a starving artist (unless you are, indeed, an artist who is starving!), but you should be in the habit of spending less than you earn each month. An easy way to do this is to pay with cash! Credit cards are convenient, but they come with heavy interest charges and fees — as well as a relaxed, "No worries, I can pay later" attitude. Perhaps keep a card for emergencies, but know what you have in your wallet and in the bank. • Eliminate debt. Did you know non-mortgage debt is one of the greatest impediments to retirement? Paying yourself first is hard to do if also have to pay credit cards, student loans, and your monthly car loan installment. Work on eliminating that debt now and focus on avoiding debt altogether. Organizing your finances need not be complicated or time-consuming. Adopt a system for organizing digital and hard copies of financial information—there are plenty of software programs and applications on the web. These will save you time and help you analyze your spending habits. Read more about these tips and others in the original article. Call your estate planning attorney with any questions. What estate planning attorney, you ask? Now is the time to talk to one. He or she will have the resources and relationships to help you get … and stay on track.

Reference: U.S. News & World Report (November 20, 2013) "10 retirement moves for your 20s"

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Are You Afraid To Speak Of Estate Planning?

Remarkably, a recent New York Times article, titled "What’s Almost as Certain as Death? Not Talking About the Inheritance," noted that it is easier to have a will (83% do) than it is to discuss the will with your children (only half). It is even more difficult to give them details about those assets (34%). Regardless their levels of financial wealth, those surveyed were equally deficient when it comes to discussing estate plans with their children. Roughly 55% of people with more than $1 million talk to their children about an inheritance, and 53% of people with fewer than $1 million did. As you might expect, the majority of parents want the transfer of money to their children to go smoothly (84%) without creating bad feelings among siblings (66%). Why are there so many people failing to take time to let their kids know about this important subject? According to the original article, people usually do not want to discuss inheritance with their children for several reasons. • They do not want to talk about dying; • They do not want to discuss money with their children; • They do not want their children to know how much they are going to receive; and • They are concerned about their children's financial acumen. However, there is an even greater issue making the conversation about inheritance more troublesome than it was in prior generations. For example, the article describes how one 65-year-old disclosed everything to her executor, even though she was divorced without children or siblings. She learned from her experience with her mother's estate, which took the women almost two years to settle — despite the fact that it was a modest estate, and her mother had told her where everything was. Likewise, when her stepfather died many years earlier, he left everything to her mother. However, after he died, title to none of the assets had been updated. Consequently, she had to go to court three times to get it done, run an ad in the newspaper and take copies of the will to the bank to get the investments straightened out. This certainly was not what she expected. Let your children know what to expect regarding their inheritance and your other estate plans. Speak with your estate planning attorney to make sure everything is in order, and then get the family together and have that conversation.

Reference: The New York Times (August 1, 2014) "What’s Almost as Certain as Death? Not Talking About the Inheritance"

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Estate Planning for Singles and Those Without Children

The website dailycall.com recently posted an article, titled "Aging and estate planning for singles and couples without children," to help get you thinking about what you need to do to be well-prepared for the future. Here are some of the ideas suggested: • Choose your advocates wisely. Select individuals you can trust. This could be a friend, family member, or a trustee — just make sure everyone knows and will support your wishes. Select some younger people as alternates, if the people you ask are about your same age, in the event someone is not able to perform his or her responsibilities. • Determine your asset distribution. A will is an easy way to put your intentions for your assets in writing and into a binding legal document. Your estate planning attorney is well-equipped to help you draw up a will that states how and to whom you want your assets distributed. If you do not have a will, your estate may be probated according to the statutes of your state. This may or may not be what you intended for your assets. • Create a gifting plan. Another part of your estate plan can include strategies for giving monetary gifts before or after your passing. Currently, you can give up to $14,000 per person to an unlimited number of individuals without gift tax consequences. Another idea is to pay college tuition for others without gift tax liability and without using any of the annual or lifetime gift tax exclusions (provided payment is made directly to the institution). The original article includes additional helpful ideas, and your estate planning attorney can create a plan that works for you.

  For more information, see www.jerryreiflawyer.com