Michigan Estate Planning Blog

How Out of Date is Your Estate Plan?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.

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What's The Best Way To Leave An Inheritance For My Children?

Last year, AARP included an article in its materials titled, "How to Leave an Inheritance to Your Kids." Among other things, the article provides several tips on how to properly set up your estate plan to leave an inheritance to your children. One tip is to manage expectations. Talk to your children so they will have a better understanding of your assets and what they may expect as their inheritance from them. Another tip is to treat all of the children equally. This will reduce cause for arguments and hurt feelings. This equal treatment should also include sharing responsibilities when it comes to settling your affairs, not just the division of assets. If, however, you decide to split your assets in some manner other than equal shares, take the time to explain your reasoning. AARP also suggests creating a trust if you are concerned with how a child will use the inheritance. A trust will allow you to control the disbursement of the assets and place contingencies or strings on the gift. This can include reaching a certain age or using the money for education. However, the experts quoted in the article warn against creating an “incentive trust,” which makes distributions based on accomplishing a specific goal. While you want your child to have the inheritance and use the money wisely, issues can arise if he or she does not go to college. For example, what if becoming a hair stylist is their chosen career path? Things happen to all of us, and there is no way to predict the exact events that will impact your child's life. Keep it simple and work with your estate planning attorney to craft your estate plan so you are leaving your inheritance to your children in an effective and sound manner.

Reference: AARP (April 24, 2013) "How to Leave an Inheritance to Your Kids"

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Your Digital Life – Will It Outlast You?

Most people today have numerous online accounts. They have email accounts for work and personal use. They have accounts on sites like Facebook and Twitter. Some people also have blogs or even their own websites. If you check the privacy policies on the sites where you have accounts, you will notice that most sites will not give out any information about your accounts without your prior permission and some will not give out information without a court order. As a recent New York Times article, “How to Digitally Avoid Taking It to the Grave,” points out, if you do not plan ahead regarding how someone else can access your accounts after you pass away, then you risk the loss of those accounts. In other cases, accounts you would want to carry on might disappear. It depends on the policies of the sites where you have accounts. Some states have passed laws granting executors access to digital accounts after the owners pass away, and there is an effort underway to pass a uniform law in every state. However, until the law catches up with today's current digital environment, you need to have a plan. At a minimum, you should make sure that a list exists of your digital accounts. You should make sure someone will be able to find the passwords for those accounts. You also need to store that information somewhere it can be found by someone you trust. This could be done by including that information in your will, but that could make updating the digital information cumbersome. You could also give that information to a trusted individual before you pass away. You do not need to tell them now what your passwords are. You just need to tell them where to find the information. Reference: New York Times (July
2, 2014) “How
to Digitally Avoid Taking It to the Grave"

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Reading Intent From an Estate Plan

Actor Philip Seymour Hoffman died of a heroin overdose in February. When he passed away, his immediate family consisted of three minor children and a long-time girlfriend. We now know from court papers that Hoffman did not leave his estate to his children. Instead, the majority of his estate was left to the girlfriend. A trust was created for one of his children, but money from the trust can only be used to pay for education, support, health, and maintenance. A recent Yahoo article, titled“Why Philip Seymour Hoffman Didn't Leave His Fortune to His Children,” recounts why Hoffman distributed his assets this way. One thing we can tell is that he thought of his girlfriend as most people think of their spouses. He wanted to provide for her. The two were never married because Hoffman did not believe in marriage. The more interesting thing that we can learn from the story is that he did not leave his assets to the children because he did not want them to become “trust fund kids.” Instead, he trusted his girlfriend to provide for them. One child did receive a small trust. Apparently, this was the only child living at the time the estate plan was made. You might want to consider what your estate plan might say about your intent. Does it do what you intend to happen? Think about what will happen to your assets and, even more significantly, what someone (who did not already know what you wanted) would think your intent was based on the plain language. If that language is different than what you really do intend, it might be time to visit an estate planning attorney to consider some changes to your plan.

Reference: Yahoo (July 21, 2014) “Why Philip Seymour Hoffman Didn't Leave His Fortune to His Children”

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Grandparents Paying for College

It used to be normal for parents to pay their children's way through college or for the children themselves to work their own way through. However, the cost of a college education is now so high that it is almost impossible for students to make enough to pay for it with part-time jobs. Many families struggle enough to meet their current needs that they just do not have enough to pay for their children's education. Increasingly, paying for college education has become something that grandparents want to do. They have already earned their wealth and are in a better position than the parents to pay for college. A recent Reuters article examined how grandparents can pay for their grandchildren's college education while getting a tax benefit for themselves. The article, titled “YOUR PRACTICE-Selling grandparents on the perks of 529 college savings plans,”suggests a 529 college savings plan. This unique account can be used to contribute more than the yearly gift tax exemption into an account that a grandchild can later use for educational expenses. The accounts are not perfect as they could make a grandchild ineligible for financial aid. Paying for college is difficult, but grandparents who want to do so have several options. A 529 plan is one of them, but in some cases a more traditional trust is a better option. The key is to talk to an estate planning attorney about your best options, in conjunction with your financial advisor. Different families have different needs. Your attorney and financial advisor team can help grandparents sort through the options to come up with the best solution for their needs.

Reference: Reuters (July 18, 2014) “YOUR PRACTICE-Selling grandparents on the perks of 529 college savings plans”

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Does Credit Card Debt Outlive You?

News stories about the high amount of credit card debt that the typical American family has continue to be popular. It is no longer unusual for someone to have more credit card debt than assets. This can create issues for an estate because credit card debt does not automatically disappear when the debtor passes away. It still needs to be paid by the estate if possible. The Deseret News discusses the different possibilities in a story titled “What Happens to Credit Card Debt When Someone Dies?” Basically, any credit card debt will have to be paid out of any assets the estate has. The debt must be paid before any heirs can inherit. The good news is that in most cases no one will inherit the debt. If there are not enough assets in the estate to pay the debt, then in essence the debt ceases to exist. However, there are some exceptions. In community property states, a surviving spouse will be responsible for any unpaid credit card debt. A joint owner of the credit card account would also still be responsible for paying off any remaining debt in the account. It is important to understand how your debts will be paid off after you pass away. If you have credit card debt, or any other type of debt, speak to an estate planning attorney about what you might be able to do today to plan for paying off your debts while still leaving some assets for your heirs to inherit.

Reference: Deseret News (July 18, 2014) “What Happens to Credit Card Debt When Someone Dies?”

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When Comedians Tackle Estate Planning Issues

Americans increasingly get the news and social commentary from comedians, such as Jon Stewart and Stephen Colbert. More and more Americans, especially younger Americans, want to be entertained when they are listening to the news. One new television show in this category is HBO's Last Week Tonight hosted by John Oliver. A recent Los Angeles Times article titled “John Oliver Tackles Income Inequality on 'Last Week Tonight'” describes a recent Oliver show that tackled the estate tax and income inequality. Oliver suggested during the show that whether a viewer would agree with his opinions depended on whether they subscribed to HBO or watched his show by getting it illegally. The implication was that people who were wealthy enough to afford HBO would have one opinion and those who were not would have another opinion. Oliver later went on to compare the American promise to a lottery system where the already rich get multiple fantastic opportunities to win and the poor cannot even get a draw because the machine is broken. Naturally, opinions are not as black and white as Oliver suggests. Some wealthy people support high estate taxes. Some poor people do not think income inequality is necessarily bad. Oliver is of course exaggerating for comedic effect. The important thing to consider is what you believe to be the truth and whether or not you think income inequality and the estate tax are good or bad. Or, perhaps, you agree with Oliver?

Reference: Los Angeles Times (July 14, 2014) “John Oliver Tackles Income Inequality on 'Last Week Tonight'”

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Does Everyone Need a Revocable Living Trust?

When many people first consult an estate planning attorney, they assume they already know what they need in their estate plans before the attorney even says a single word. As revocable living trusts continue in popularity, many of these first-time visitors think that is the solution to their estate planning needs. Usually a friend or family member who has a trust will suggest it, or they may have read articles online suggesting everyone needs to have a revocable living trust. The truth is that revocable living trusts are designed for particular estate planning situations. They are not necessary in every situation. A recent article in Financial Planning titled “Does Your Client Need a Revocable Trust?” considered common situations that might call for a revocable living trust. The list includes: • Probate Avoidance – If an estate might have issues in probate, a revocable living trust can be used to keep it out of probate. Not every estate will have issues with probate, however. • Privacy Concerns – Wills are often subject to public scrutiny through the probate process. Because a trust does not go through probate, the details of an estate plan can be kept private. • Second Marriages & Blended Families – Trusts can provide a way to ensure that assets go to a second wife first and that the remainder then goes to children of a first marriage, if that is the objective. • Incapacity Planning – Trusts can provide a way for someone to manage your assets in the event you become too sick to do so yourself. • Special Needs – If you have a relative with special needs, a trust can be used to provide for their care without jeopardizing their public assistance benefits. Again, these are the primary reasons why you might want to have a revocable living trust as part of your estate plan. However, the important thing to remember is to go to an estate planning attorney's office with an open mind. Let the attorney tell you what the best options for your estate plan are.

Reference: Financial Planning (July 14, 2014) “Does Your Client Need a Revocable Trust?”

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