Michigan Estate Planning Blog

Avoid Common Estate Planning Mistakes

 

Otherwise sound estate plans can be undermined by critical mistakes. A recent article from The National Law Journal, “Estate Planning Mistakes—2025 Annual Refresher—Part 3 [Podcast],” outlines how to avoid a number of common mistakes and protect the estate plan and the family from the effects of these missteps.

Not providing complete and accurate information. Transparency is critical when creating an estate plan. There are times when life’s circumstances may be sensitive and difficult to share with a professional. However, secrets can tear estate plans to bits. If assets are being hidden to avoid paying taxes or if there is an unacknowledged biological child, the integrity of the estate plan could be jeopardized.

This is especially relevant in a blended family. If a prior marriage or a child from a prior marriage is not disclosed, the result could be litigation between heirs. Hidden debts or undisclosed assets may surface after death, leaving executors and heirs with tax liabilities and family strife.

Failure to coordinate estate and financial instruments. Financial investments, life insurance policies and estate plans are rarely all started and completed at the same time. However, these and other accounts need to be coordinated so they work together. If a will says all three children should receive equal shares of an estate, but only one child is named as a beneficiary on a life insurance policy, the three are not going to receive equal shares. Provisions with different instructions in trusts, wills and beneficiary designations will only lead to trouble.

This is a relatively easy problem to solve; it just takes time and attention. Review estate planning documents every few years, including wills, trusts, any account with a beneficiary designation, power of attorney documents and life insurance policies. An estate planning attorney is always willing to speak with a financial advisor and CPA to ensure that the estate plan and financial tools will work together.

Talk with your family about your estate plan. A lack of trust and communication leads to estate plan failure and family fights. If you are uncomfortable talking with family members, consider setting up a family meeting with your estate planning attorney. If the family is spread across the country, an online video meeting can be coordinated.

Even the best of intentions can lead to problems. If one family member is struggling financially while the others enjoy robust earnings, parents may wish to leave more of their estate to the child having money problems. Talking about this openly with all of the siblings while parents are still living is far better than giving the family a major jolt when expectations aren’t met. If the conversation doesn’t happen, a painful legacy may be created.

Relying on Joint Tenancy to transfer assets. It may seem like joint tenancy is an easy way to transfer assets upon death. However, it can undo the intentions of a will or a trust. Assets held in joint tenancy pass directly to the surviving tenant, transferring outside of the estate plan. If a parent puts one child’s name on a joint account but not others, the child on the account is under no legal obligation to share the asset with their siblings, setting the stage for family discord and often, litigation.

Joint tenancy should be reviewed along with all other ownership and estate planning documents to consider how it will impact the estate plan. Revocable trusts may offer the same flexibility, while also ensuring that assets are distributed according to the intent of the overall estate plan.

Relying on informal agreements. A verbal promise between close family members may feel good. However, it won’t be enforced if one party fails to live up to their promise. This situation arises frequently when family heirlooms or personal possessions are promised but end up in another person’s hands. Documenting these promises and discussing decisions with heirs can avoid disputes and damaged relationships.

Effective estate planning requires attention to detail, communication and the guidance of an experienced estate planning attorney. Ensuring that the estate is properly planned has the added bonus of protecting the relationships between family members, which is the most valuable legacy of all.

Reference: The National Law Journal (Dec. 17, 2024) “Estate Planning Mistakes—2025 Annual Refresher—Part 3 [Podcast]”

Make Life Easier for Heirs: Get Your Estate Organized

 

The holiday season is not when most of us think about death and dying. However, we do think about gift-giving. Estate planning is a gift for your family. Wouldn’t you prefer a package wrapped in festive paper and decorated with ribbons than an unwrapped item hastily stuffed into a shopping bag? The article “5 Things to Do Now to Make Your Estate Simpler for Your Heirs” from The Wall Street Journal offers a starting point.

Update all estate planning documents. Failing to update estate planning documents, including finalizing new documents, can wreak havoc on families. One example is a woman who took about two decades to update her will and then died before signing the papers. Her will included giving assets to stepchildren she hadn’t seen in more than twenty years. Her adult children are spending thousands to have the new will enforced by a judge, even though it’s unsigned.

When did you last examine the beneficiary designations for all your financial accounts? Life insurance, retirement accounts, bank and investment accounts, pensions and other financial accounts provide an opportunity to name a person or people to receive the assets directly upon your death. If your old college pal is the person you thought of when you started your 401(k) with your first job, your wife may not appreciate his receiving hundreds of thousands of dollars upon your death.

Named beneficiaries receive assets directly from the financial institution and do not go through probate. No matter what language is in a will or even a living trust, these assets belong to the people you named to receive them. You should have a list of all of these accounts and know who the beneficiaries are.

Digital assets are now part of estate plans. There are very few people today who don’t have digital assets. These include the content in your emails, photos stored on the cloud, websites, content on social media platforms, online businesses and anything you’ve created online. Most people don’t understand the Terms of Service Agreement they make between the service provider and themselves when they click on the link to approve the TOSA. However, this is a legally binding contract delineating what the platform owns and what the user owns. You may not own books, movies, or other digital assets; you might have rented them unknowingly.

Digital assets need to be organized for heirs, since there isn’t a paper trail for them to follow like in previous decades. You can create a spreadsheet, use a password manager or a pad of paper. However, there should be a means for your digital executor to identify and access your digital assets.

Some digital platforms allow you to name a “legacy” contact who can take care of your digital assets after you’ve passed. You’ll need to go through each of your digital assets to find out which platform has this or related features. If it seems annoying, imagine how your heirs will feel trying to untangle your digital assets.

If your estate includes cryptocurrency, this is especially important. Millions of dollars of crypto have been lost because people have failed to secure their pass keys or digital wallets.

Deal with personal property now. Especially if you have multiple heirs, hoping the kids “work things out” could be a recipe for disaster. Make a list of your personal items and who you want to receive what. In some families, this is relatively straightforward. However, your adult children will be grieving after your passing and vulnerable to disputes. Another tactic: give items while you’re living.

Get your estate planning documents organized. Create a three-ring binder with all essential documents. Contact information for your estate planning attorney, CPA and financial advisor should be provided. Include a list of bills paid online, like utility, mortgage, taxes, health insurance, car insurance, etc. Also included are Power of Attorney, Health Care Power of Attorney, Living Will, Trusts and other estate planning documents. Tell your executor and adult children where the folder is.

An organized estate plan helps avoid family conflict. Having documents prepared, property assigned and accounts recorded all takes time. However, by doing so, you’ve minimized the work for loved ones and minimized reasons for quarrels during what will already be a difficult time.

Reference: The Wall Street Journal (Nov. 14, 2024) “5 Things to Do Now to Make Your Estate Simpler for Your Heirs”

Planning to Protect Your Children’s Inheritance: Asset Protection

 

No one likes to think about the possibility of losing a lifetime of earnings through unfortunate events like divorce, spendthrift heirs, or litigation. However, ignoring these risks won’t prevent them. A recent article from Kiplinger, “Want Your Kids to Inherit? You Need an Asset Protection Plan, ” explains several asset protection strategies used to protect wealth from disappearing in nefarious ways.

Prenuptial agreements aren’t the most welcoming topic when your adult child announces their engagement. Still, this should be discussed and encouraged no matter how much you love your prospective new family member. A prenuptial agreement or prenup is a contract between two adults agreeing on how they will distribute assets in case of divorce. This legally binding document addresses assets, debts, spousal support, alimony, gifts and inheritances. It’s also helpful as a supporting document if one of the spouses should die unexpectedly. However, the couple should have a will, power of attorney and other estate planning documents created as soon as they are married.

Depending on the state, there may be laws concerning when the prenup is signed for it to be valid. Signing a prenup under duress could make it invalid, so this needs to be addressed in a timely manner.

Another option is to create a postnuptial agreement (postnup). Spouses may contractually agree to terms outlining the distribution of assets in the event of a divorce after the wedding.

Asset protection includes determining and formalizing how assets will be passed on to heirs. Parents should consider creating trusts as part of their estate plan. Trusts allow grantors (the person creating the trust) a much higher degree of control over who receives the assets in the trust and takes them out of the probate estate.

For example, the trust may call for a beneficiary to receive a portion of their inheritance at ages 30 and 40 and the balance at age 50. An heir with a drug dependency might be required to complete a rehabilitation program or maintain employment over a steady period of time before the trustee can distribute some or all of the assets in the trust.

If assets are left through a will, a number of vulnerabilities are created. First, they are part of the probate estate and subject to federal and state taxes. Second, the will becomes a public document when it goes through probate, so creditors can learn if someone is receiving an inheritance. Creditors may include ex-spouses, credit card companies and financial institutions.

An experienced estate planning attorney is familiar with the tools used to protect assets and ensure that they pass to the next generation according to your wishes. Protecting a lifetime of hard work is a worthy endeavor, creating a legacy and providing security for those you love.

Reference: Kiplinger (Nov. 9, 2024) “Want Your Kids to Inherit? You Need an Asset Protection Plan”

Why an Updated Estate Plan Is Critical, Especially Now

 

Without a properly prepared and current estate plan, property is distributed following the intestacy law of the decedent’s state of residence. In most cases, the laws are centered around kinship, with spouses and children dividing percentages of the estate.

If you had something else in mind, it wouldn’t matter—the time to create and update an estate plan is while you’re living. We all know this. However, many just keep procrastinating. A recent article, “Make sure your estate plan is updated to reflect law changes,” from Los Altos Town Crier, explains precisely what pitfalls your loved ones will face if you put off creating an estate plan until it’s too late.

Probate can be minimized or avoided with a professionally prepared estate plan. The probate experience varies with the jurisdiction: in some courts, it’s a streamlined process, while in others, it is a series of delays, sometimes stretching out over months or even years. The time and costs of probate also depend upon the complexity of the estate. In some states, probate can cost 4—7% of the estate’s total value.

An estate planning attorney works with clients to create a means of passing assets to their intended beneficiaries without court involvement. This takes many different shapes depending on the family, the value of the assets, the structure of ownership, etc. Trusts, payable on death accounts, joint tenancy ownership and LLCs (Limited Liability Corporations) are just a few means of passing wealth without involving probate.

Estate planning attorneys help clients control how and when assets are passed to heirs. For instance, if someone had a child who is exceptionally mature and responsible, they may wish to provide the child with their inheritance upon their death. A trust can be created to address the concerns of a family with an adult child who, for whatever reason, cannot manage money. The trust can have a trustee who will be charged with distributing assets according to directions provided by the parents—after achieving certain milestones, at specific ages, or when the trustee deems funds should be distributed.

Incapacity is unpleasant to consider but is as much a part of estate planning as planning for asset distribution after death. Without having a plan for incapacity, the family may be forced to go to court and petition for a supervised conservatorship, a costly and stressful process.

Incapacity or death are the last things on the minds of new parents. However, when a new child joins the family, updating an estate plan to include naming a guardian becomes critical. If there is no will or the will has never been updated to reflect the addition of children, the court determines who will raise the children. Any interested party may petition the court to be appointed as a guardian. The court ultimately makes the decision. However, the decision by the parents, as expressed in an estate plan, will have more weight than an estranged sibling.

An estate plan protects the family by lessening the chances of family disputes and legal battles, which can lead to lifelong divisions. A meeting with an estate planning attorney will give you insight into the importance of having an estate plan and how it serves as a gift to loved ones.

Reference: Los Altos Town Crier (Oct. 29, 2024) “Make sure your estate plan is updated to reflect law changes”

How Does a Special Needs Trust Work?

 

The most straightforward description of a special needs trust is designed to hold assets for a disabled person without putting benefits received from the government at risk. It’s essential for those planning for a loved one’s future to understand how special needs trusts work, how they are funded and what they can and cannot accomplish. A recent article appearing in Success, “What Is a Special Needs Trust?” provides more insight.

Individuals with disabilities who qualify for financial support through Medicaid or Supplemental Security Income (SSI) must have limited assets and income. They become ineligible for benefits and resources if they exceed their state’s limits. A Special Needs Trust (SNT) keeps assets separate.

An estate planning attorney creates the SNT and names a trustee for the funds. The trust's assets are to be used for housing, transportation, education, health and other expenses not covered by government benefits.

In some cases, the SNT shouldn’t be funded until necessary. Once money or other assets are in the trust, its use is restricted. Parents are advised to ensure that well-meaning grandparents or other family members don’t bequeath assets directly to their disabled loved ones. They have the option of creating an SNT of their own or bequeathing assets to the SNT created by the parent.

There are different kinds of SNTs. A Third-Party Special Needs Trust is created by a parent or other involved person to benefit a disabled child. If any assets are in the trust when the beneficiary of the trust dies, the person who created the trust decides who receives them. They may choose to donate the assets to a charity or a family member.

If an adult becomes disabled later in life, a different type of trust is used: a First Party Special Needs Trust. These trusts are created to own the assets of the disabled individual. For instance, if someone becomes disabled due to a car accident and receives a legal settlement, the money would go into the trust. This allows the disabled person to continue to receive government benefits. When the person dies, the funds spent on their care are paid back to the government through the Medicaid Repayment Program.

Parents or loved ones need several other legal documents to protect themselves and their disabled family members. An estate planning attorney will draft a will to ensure that the parent’s assets pass into the Special Needs Trust. Everyone should have a Power of Attorney and Medical Power of Attorney to protect themselves in case of incapacity.

Checking beneficiary designations is especially important if a family member receives funding from a Special Needs Trust. The person named on the beneficiary designations receives assets upon the owner’s death, which could put their government benefits at risk. All assets must go into the Special Needs Trust to protect their Medicaid eligibility.

Planning for the future is essential for parents of disabled children and adults. It can’t fix everything, but it can relieve some of the worry, knowing that their loved one’s future is protected.

Reference: Success (Oct. 20, 2024) “What Is a Special Needs Trust?”

Do You Need a Will and an Estate Plan?

 

Dying without a will can cause your family to go through at least a year, maybe longer, of probate, fights over property distribution, and, in many cases, litigation against each other. This is probably not the legacy you have in mind, which is why this aptly-titled article, “You need a will and here’s why,” from Lincoln County Leader, is a good read.

Dying intestate, the legal term for dying without a will, means the local jurisdiction will be in charge of how your estate is handled. Each state has its own laws for distribution. In most states, distribution is based on kinship or bloodlines, so if you have relatives, they may be first in line for your inheritance.

In some states, when there is no will, the surviving spouse receives 50% of all assets, and the remaining assets are divided equally among the children. In other states, the spouse gets 30%, with the children receiving the balance. You must have a will if you want your spouse to receive 100% of your assets. If you have children but no spouse, they will usually inherit everything in equal shares.

If you have no children and no spouse, property distribution can become more complicated unless you have a will. The court may give your parents your estate if they are living. If your parents have passed, your siblings are the next likely heirs. The court will seek to identify your closest relatives by kinship, and they may inherit all of your worldly goods.

If there are family heirlooms, you want to give to a particular child, or if you want to have a portion of your estate go to a charity, it won’t happen without a will.

Today’s family often is a bit more complicated than in the past. Blended families need to have estate planning so biological children aren’t disinherited. Estranged relatives could end up with your precious heirlooms unless a will is in place.

What if your children are minors? A will is used to name a guardian for children, so they are brought up by the people you trust. The court will decide who will raise your children if you don’t name a guardian in your will. Also, minor children cannot inherit property, so if you die, your spouse will get their share as per your state’s laws, and the children’s inheritance will be overseen either by the court or by a person named by the court.

Having a last will and testament allows you to direct who is to inherit your assets, from personal items to financial assets. But you need to do more to protect yourself and your family, and this is part of the estate planning process.

When you sit down with an estate planning attorney, they will also review matters, including beneficiary designations (i.e., the people named to receive assets upon your death on life insurance, retirement accounts, and certain financial accounts). They’ll also advise you on documents like a Power of Attorney and Medical Power of Attorney, which allow you to name someone to take care of your financial and healthcare matters if you become incapacitated.

Taken all together, an estate plan provides security for your family, protects you while you’re living, and creates a legacy of caring about the ones you love.

Reference: Lincoln County Leader (Aug. 4, 2024) “You need a will and here’s why”

Can You Get Around Probate?

 

As any estate planning attorney will tell you, probate takes time, costs money and adds stress to settling a loved one’s estate. A reporter shares her personal experience in a recent article appearing in Market Watch, “Inheritance isn’t automatic: The probate process can take almost two years and cost thousands of dollars.”

Most people have a vague notion of what probate is. They understand it to be a process where the family must file the will with the country court and wait for it to be approved before distributing assets. If there’s no will, they may think probate is the process of settling the estate.

Others think inheritance happens automatically, with heirs receiving 35% of an estate. This is not true. One of the easiest ways for assets to go to heirs outside of probate is to make the most of beneficiary designations. Certain financial accounts offer the option to assign someone as a beneficiary, usually investment, retirement and bank accounts. After the account owner dies, the heirs apply for their inheritance with a death certificate and proof of their identity.

A recent study showed that only 2% of people understood that the average period of time to probate an estate is 20 months. While there are some jurisdictions where probate happens more efficiently, most estates take a long time to go through the process.

How can you avoid probate or simplify your estate so fewer assets go through probate? Your estate planning attorney will be able to explain how using trusts takes assets out of the estate. Another is simplifying your life. If you have assets with multiple investment companies, for instance, consolidating them into one account with one financial institution could streamline the process for your heirs.

While you’re consolidating your accounts, check on your beneficiary designations. If you opened an investment account twenty years ago, you may have named someone who isn’t in your life anymore. They may be happy to receive a surprise inheritance from you. However, your family won’t be able to get the assets, even if your will says otherwise.

For an excellent example of how to manage an estate, consider the actor Matthew Perry. Most of his estate was transferred to heirs through trusts, which avoided large assets going through probate and kept his personal business private. One bank account had no named beneficiaries, so his family went to probate court to file his “pour-over will.” This is a will where assets not already in trust are directed to be added to the trust after death. Because the will was filed in court, reporters were able to obtain information about this one account. The rest was private.

Consult with your estate planning attorney to determine how to structure your estate best to avoid or minimize probate for your loved ones.

Reference: Market Watch (July 17, 2024) “Inheritance isn’t automatic: The probate process can take almost two years and cost thousands of dollars”

Top Estate Planning Mistakes Can Easily Be Avoided

The music icon Prince was far from the only celebrity failing to have a will, the most significant estate planning mistake of all. Tobacco heiress Dorothy Duke named her butler the executor of a $1.3 billion estate, and her family spent millions on legal costs before the estate was settled. You don’t have to be wealthy to make an expensive estate blunder, says a recent article from Microsoft Start Money, “Seven Estate Planning Mistakes You Can’t Afford To Make.” Regular people also make costly mistakes. However, they can easily be avoided by following these steps.

Procrastinating until the “right” time. Making decisions when you’re under a time constraint because of an unexpected event is a bad time to do estate planning. Leaving a mess for your children to figure out will almost always end badly. Fighting among family members, assets lost to cost battles and unnecessary stress are just a few of the headaches. It’s not how you want to be remembered.

Not updating your estate plan. Wills are like pets—they require ongoing care. If a new child is born and your will isn’t updated, you’ve effectively disinherited the child. If you remarry and don’t update your estate plan or beneficiary designations, your new spouse will have little recourse to what you might have left them. The same goes for major changes in your financial life, up or down.

Putting your head in the sand about taxes. In the last 15 years, there have been many tax changes. Failing to address tax changes with estate planning in mind can lead to financial disasters. Remember, you may not be near the federal estate tax threshold. However, if your state levies estate taxes, you’ll need to plan for them.

If the lifetime estate and gift tax exemption reverts to pre-2017 tax law levels, “average” wealthy people with estates worth around $6.46 million will pay federal estate taxes. If this is your situation, start talking with your estate planning attorney now to address this change.

Ignoring incapacity. We’re not sure which is harder to consider, incapacity or death. Neither is pleasant to consider; one is likely, and another is certain. Having the right plan in place means having the power of attorney, health care directives, HIPAA release forms, do not resuscitate, living wills and other documents specific to your state are all part of estate planning.

Forgetting to plan for non-cash assets. If you own a home, what do you want to have happen to the home upon your death? If you become incapacitated, who will take care of your home, your pets and any property requiring upkeep? Classic cars, antiques and art collections must be disposed of in a planned manner.

Neglecting digital assets. More and more of our lives are now conducted online. Bank accounts, social media, photos, online businesses and cryptocurrencies are not included in household assets by your will. You’ll need to provide a tech-savvy person with information on your accounts, create an inventory and direct the person to serve as your digital executor.

Trying to do it yourself. Creating an estate plan without the help of an experienced estate planning attorney is asking for trouble. Here’s just one example: a family thought it was a good idea to retitle the house to Joint Tenancy with Right of Survivorship for the parent and an adult child. They didn’t know about the child’s serious debt situation. The child now had an asset, and creditors moved swiftly to put a lien on the house. The family eventually lost the house to the creditors.

Reference: Microsoft Start Money (June 23, 2024) “Seven Estate Planning Mistakes You Can’t Afford To Make”

How to Protect Your Spouse when Diagnosis Is Dementia

 

Few illnesses are as terrifying as dementia, for which there is no cure. If estate planning is in place, it may need to be adjusted to address new, more imminent issues. Reviewing the family situation from a legal and financial aspect is critical, and there is no time for delay, explains a recent article from Morningstar, “’I don’t want my wife to lose everything’: I’ve been diagnosed with dementia –I suddenly could not spell or write legibly.”

There are a number of steps to be taken to smooth the path ahead. First is to update your will and create a financial power of attorney. Don’t try to do this without the help of an experienced estate planning attorney.

This may also be the time to reassess your investment portfolio based on your new financial plan and risk tolerance.

An Advanced Healthcare Directive will inform doctors what actions you want them to take when you cannot make those decisions for yourself. You may want to list your wife as your healthcare proxy to carry out these decisions, but be mindful of the pressures put on a marriage when serious healthcare issues occur. Your spouse will need emotional support as well, and you’ll want to have a successor to your spouse for both the healthcare and POA documents.

Share your situation with trusted family and friends to create a team–a community of people who can provide support, part of which will be updating beneficiaries. Now would also be the time to record instructions for access to devices, documents, and even daily habits.

Long-term care insurance will help with expenses and should serve as an example for anyone reading this article. Policies should be purchased early in life when they are relatively affordable to help alleviate the financial burden of nursing home costs.

An estate planning attorney and financial advisor will help you take an accounting for assets, expenses, and projected long-term care costs. You’ll want a team approach to provide as much guidance as possible.

When to put your long-term care policies into payout status is a difficult decision. You’ll need to time this with a Medicaid plan, which your elder law estate planning attorney will be able to help with.

Now may also be the time to create a trust and divest assets to make it through the five-year Medicaid look-back, using your long-term care policy in the next five years.

There are exceptions to the five-year look-back rule for Medicaid eligibility. They include paying off debts, buying medical devices, or making home improvements to improve accessibility. However, eligibility depends upon income and other assets.

Some states, including Florida and New York, have rules exempting homes from assets calculated by Medicaid under certain circumstances. California eliminated an asset limit this year, making a person’s home automatically safe from Medicaid while they are living, but this does not mean it’s exempt from the Medicaid Estate Recovery Program.

Working with a team of professionals, including an estate planning attorney, and having the support of family and trusted friends will be important as time goes by and the disease progresses.

Reference: Morningstar (Feb. 25, 2024) “’I don’t want my wife to lose everything’: I’ve been diagnosed with dementia –I suddenly could not spell or write legibly”

What are the Important Steps in the Estate Planning Process?

 

Estate planning is about taking charge of your legacy and your life. Despite all good intentions, only one in three Americans has an estate plan, according to a recent article from Kiplinger, “10 Things You Should Know About Estate Planning.”

An estate plan does not prevent death or illness. However, it does protect the family from stress and grief. By creating an estate plan, you provide your loved ones with clarity about what you want to happen to your property upon your death.

Equally importantly, the estate plan explains your wishes if you have a serious medical condition and can’t make decisions or communicate yourself. A financial Power of attorney (POA) names someone to oversee your finances and do tasks like paying bills if you are alive but incapacitated. A healthcare POA names someone to make healthcare decisions on your behalf. A healthcare directive explains your wishes for medical treatment in different situations.

What happens if you don’t have an estate plan? Each state has its own laws for what to do when someone dies or if they become incapacitated. Having an estate plan means you are making those decisions yourself. The court may assign someone to make healthcare and/or financial decisions for you. However, they may not be the person you would have selected or make the decisions you would have chosen.

Beneficiary designations supersede your will. Any account with beneficiary designations will go to the person named on the document, regardless of what your will may say.

Trust funds provide control of assets during life and after death. A trust is a legal entity holding property for someone else’s benefit. The trust can be set up to control exactly how you want your money and property distributed after death.

When you die, the court reviews your will to ensure that it’s been properly prepared and gives your executor the power to perform their tasks. This is called probate and can take time. A good estate plan can take much or all your assets out of your probate estate, speeding up the process of distributing assets faster.

Estate planning includes tax planning. In 2024, the federal exemption is $13.61 million, but 17 states and the District of Columbia levy a state estate tax. Some states also have inheritance taxes. Your estate planning attorney will help you incorporate tax planning into your estate plan.

Don’t neglect your pets. You can express your wishes in an estate plan. However, a pet trust is better. It is enforceable and provides specific information about how you want the pet to be cared for and who you want to care for it.

Digital assets need to be addressed to protect assets and prevent theft. Create an inventory of your accounts, usernames, passwords and name a person who will be your digital executor.

Review your plan every three to five years with an experienced estate planning attorney.

Reference: Kiplinger (Feb. 1, 2024) “10 Things You Should Know About Estate Planning”

What Is the Purpose of a Living Trust?

 

There are so many misconceptions around trusts, especially thinking trusts are only for wealthy people, according to a recent article, “2 Key Benefits of Living Trusts” from Forbes. During your lifetime, a living trust is an extension of yourself. There are no tax benefits or tax liabilities until you die, when living trusts provide benefits compared to assets not held in trust.

What happens to different types of assets after death?

If you own assets with beneficiary designations, these will be passed to beneficiaries outside of probate. These are typically retirement accounts, life insurance, some investment accounts, pensions and annuities.

If you have joint ownership of assets, they will become the property of the surviving joint owner(s) after death. The most common jointly owned assets are real estate, bank and investment accounts.

If you own assets as an individual, they will go through probate. While bank and investment accounts do permit transfer-on-death (TOD) and payable-on-death (POD) elections to bypass probate, this is not appropriate for every situation.

Two of the most common benefits of having a living trust are avoiding probate or reducing the probate estate and having greater control over the distribution of assets.

If one spouse passes and owns all liquid funds (and/or a privately owned business) in their own name, the survivor may be left without funds to pay bills while the probate estate is being settled. Having a living will means the survivor, if named as a beneficiary of the trust, has access to assets during probate.

Probate also incurs expenses and can take months to settle an estate. Any assets going to through probate become part of the public record, which can create a host of other issues. A large estate in probate can become a burden on the surviving spouse and family.

When assets go through probate, the court has the final word on how assets are distributed. This may align with your will, but it might not. Suppose assets are held in a living trust. In that case, probate or at least reduce the number of assets going through probate and control the distribution of the assets without your personal financial information becoming part of the public record.

Your estate planning attorney can create a living trust, naming you as the trustee and a person to serve as a successor trustee. Your successor trustee will be responsible for distributing the assets in the trust upon your death.

There are many ways to create the trust. The spouse is typically the successor trustee, with varying levels of access to assets during the surviving partner’s lifetime, with the remainder going to children or relatives. Trust laws are state-specific, so speak with an experienced estate planning attorney to create a trust that suits your unique situation.

Reference: Forbes (Jan. 24, 2024) “2 Key Benefits of Living Trusts”

What Does Your Estate Plan Include Besides a Will?

 

A last will and testament is a part of your estate plan, one of several essential documents to explain your wishes. However, a will is only the first step, and having an estate plan becomes more important as conditions and your life change says the article “Planning Ahead: Your estate plan does not end with a will” from The Times Herald.

Assets Need to Be Divided into Those Titled in Your Name Alone, Jointly Titled and Beneficiary Designations

There are different rules for how your assets are distributed upon your death. Looking at your assets and how they are owned will clarify what will happen when you pass. The review could be a surprise, especially if you haven’t updated designated beneficiaries in a while. You might be spared any shocks if you’re married and have traditionally titled assets.

If assets like your home, bank and investment accounts are titled jointly with your spouse (known as Tenants by the Entireties), those assets will pass directly to your spouse upon your death. If you have IRAs, 401(k)s, 403(b)s, or similar retirement accounts or life insurance policies, you likely named your spouse as the beneficiary. If you’ve remarried, make sure those beneficiaries are updated.

There are exceptions. You may have kept certain assets in your name only, especially if you have been married more than once. These generally will pass by will, unless they pass by beneficiary designation.

Consider how assets will pass if you become a widow or widower or are single or divorced. In most cases, your assets are mainly in your own name. You may not have named “secondary beneficiaries,” which you could have done when the original documents were drafted. It’s not too late to do this now.

Ask yourself if you want your adult children to inherit directly or if you want assets to go to grandchildren. Note that minors cannot inherit property, so talk with your estate planning attorney about creating a trust if you wish assets to go to grandchildren. When creating a trust, you can decide if you want the funds to be given to the beneficiaries in small sums over many years, when they reach certain milestones, or to be used solely for their education.

Consider the Entire Picture—Beneficiary Designations

Many people hold assets in the equity of their home or tax-deferred funds, like IRAs. Updating these beneficiary designations is a critical step for your estate plan. A difficulty might arise if you are single, divorced or widowed and don’t specify how you want these funds to be distributed.

Keep the Paperwork in a Safe Place

Once your paperwork for your will, life insurance and tax-deferred funds are completed, keep them in a safe place and tell your beneficiaries where they are located. Online access can be tricky or impossible. So many financial institutions have been bought and sold that we can’t count on their having documents properly archived.

Reference: The Times Herald (Jan. 14, 2024) “Planning Ahead: Your estate plan does not end with a will”

What Is the Biggest Mistake People Make on Their Wills?

 

Making mistakes in your estate planning can torpedo every effort made to protect your family after you die, warns a recent article from Kiplinger, “Common Estate Planning Mistakes.” Everyone benefits from a professionally-made comprehensive estate plan, a process for preparing your legal and financial affairs so assets and possessions are passed on after your death to the people or charities you want.

Not having an estate plan can create a world of trouble for those you love. The biggest estate planning mistake of all is not having an estate plan. After that, there are several others.

Procrastination. Suppose you unexpectedly become incapacitated and don’t have an estate plan. In that case, your family will be left guessing what you would want your medical care to be, in addition to needing to go to court to apply for guardianship so they can pay your bills and keep your household running. Everyone should have documents like Health Care Power of Attorney, Power of Attorney, HIPAA Release Form and Living Will in place.

Trying to make an estate plan on your own. Unless you’re an experienced estate planning attorney, there’s a lot you could leave out if you attempt a DIY estate plan. If there are errors, a court could declare your will invalid and it’s as if you never had a will in the first place. The laws of your state will be used to distribute your assets. It may not be what you had in mind.

Keeping estate planning documents in a safe or safe deposit box. Documents need to be where someone can get them in an emergency or after your passing. Safety deposit boxes are often sealed on the death of the owner. Give copies of your estate plan to your appointed executor or trustee, a trusted family member and your estate planning attorney.

Missing key documents. If your estate plan lacks key documents, your heirs might find themselves battling over the estate. Make sure your estate plan includes these documents:

Last will and testament—This document outlines all final wishes and instructions for distributing your assets and how you want your affairs managed after you die. It also is used to name a guardian for minor children and an executor to oversee the instructions in the will.

Beneficiary designations—Any account allowing for beneficiaries, including IRAs, pension plans, investment accounts and insurance policies, will pass directly to named beneficiaries. Be sure that these are up to date.

Durable power of attorney for medical care—Allows another person to make medical decisions for you if you become incapacitated. Depending on your jurisdiction, it may include an advanced healthcare directive, which gives your instructions on whether or not to use life support.

Funeral instructions—Do you want a traditional burial? Cremation? Tell your family your wishes for a funeral or memorial service.

Proof of identity—Your Social Security card, birth certificate, marriage and/or divorce certificate and any prenuptial agreements will be needed for administering the estate.

Deeds or loan documents for large assets—Collect paperwork for homes, boats and other big assets.

Digital assets. These include websites, cloud storage, social media accounts and cryptocurrency, to name a few. By assigning a digital fiduciary and sharing key information, you help heirs avoid identity theft and lost assets.

Failing to update your plan. Your estate plan needs to reflect the changes in your life. If your estate plan is outdated, you may unintentionally disinherit beneficiaries.

Appointing the wrong person as executor or trustee. If your eldest child is a disaster with money management, don’t name them your executor. Consider a trusted person who is unbiased and able to manage money and family dynamics and talk with them about taking on this role before appointing them to this critical role.

Reference: Kiplinger (Dec. 30, 2023) “Common Estate Planning Mistakes”

Are You Neglecting Your Estate Planning?

 

Estate planning is about more than ensuring that assets are distributed according to your own wishes after you die. It’s also about what you’d like to have happen to your assets and who you want to be in charge of your health care decisions if you become incapacitated. A recent article from Go Banking Rates, “8 Key Signs You’re Neglecting Essential Estate Planning,” outlines the top signs showing that you need to take care of this critical task.

You don’t have a will? This is the biggest red flag of estate planning mistakes. A will, or last will and testament, is a critical legal document specifying how you want your assets to be distributed after you die. If you don’t have a will, the laws of your state will determine how everything in your estate will be given to heirs. If you have estranged family members, they may end up owning everything. There won’t be anything your beloved family members can do about it. All state’s laws are different, so speak with a local estate planning attorney to address this critical document.

How outdated are your beneficiary designations? Many people open accounts as young adults and forget to update them as the decades pass. If you’ve been married, divorced, had children, experienced loss, or if your beneficiaries are no longer part of your life, you will want to update your beneficiary designations. Your assets could very easily go to people like an ex-spouse or a former friend. Beneficiary information should be updated every few years to be sure that your current wishes are followed.

Do you have a Power of Attorney? Everyone of legal age should have a Power of Attorney. A Power of Attorney is a legal document giving a person of your choice the legal power to make decisions on your behalf if you cannot do so because of illness or an injury. Without a POA, your family will need to go to court to apply for guardianship to take care of various duties, like paying bills, managing investments, or maintaining your home.

Do you have an inventory of digital assets? If you pay bills online, are active on social media accounts, or own any digital assets like cryptocurrency, you need a plan for digital assets. Start by making a complete inventory of your accounts—you’ll be surprised at how much of your life is lived online. Some platforms have an option for naming a “legacy” contact—someone who can access your data and manage it after you pass. Your digital executor will also need usernames and passwords. Otherwise, they won’t be able to access your accounts.

Have you planned for taxes? Estate planning includes understanding the tax implications of assets. There may be estate taxes or state estate taxes due from your estate, and failing to plan could leave heirs with a smaller or no inheritance.

Do you need a trust? Trusts are valuable tools for addressing specific needs, from caring for a disabled family member to managing minor children's assets. Without trusts, these individuals could face unexpected complications that could otherwise be avoided.

If you own a business, do you have a succession plan? Business owners need a succession plan to protect their work and family. Planning for a smooth transition includes naming key employees, creating partnership or shareholder agreements and determining if the business can continue to operate and provide income to family members, including the retiring owner.

What about end-of-life care plans? Estate planning includes end-of-life care, including a living will or healthcare directives. Your family will be less stressed if you have documented your wishes for what kind of health care you want or don’t want if you become incapacitated.

Reference: Go Banking Rates (Nov. 25, 2023) “8 Key Signs You’re Neglecting Essential Estate Planning”

The Team Behind a Successful Estate Plan

 

 

Most advisors stick with their areas of knowledge. The estate planning attorney drafts the necessary documents, your CPA files tax returns and the investment advisor fine tunes assets. However, coordinating these professional silos is critical to ensuring your estate plan works, says a recent article from Forbes, “Your Estate Plan Must Be Coordinated To Work.”

Communication needs to extend past advisors to key loved ones and people you name in roles, such as agents, trustees and executors. Many people find these discussions awkward. However, preparing heirs and fiduciaries for their roles and setting expectations is a crucial step to avoid issues during transition periods. Some of the most significant estate planning problems arise when the baton is passed, such as if you fall and become incapacitated. You need to be sure your agents know what is expected of them and when they will be called upon to perform their respective tasks.

Coordinating advisor actions will save time and expense in the long run. Your estate planning attorney, CPA, trust officer, wealth advisor and insurance broker should know what each other is doing on your behalf. Many people shy away from doing this because of concerns about cost. However, not doing it can lead to much larger expenses.

You want to foster coordination and collaboration, in a controlled and cost-effective manner. One way to do this is to have advisors prepare a summary of key points, facts and decisions following your meetings, so you can circulate it to other advisors. This way they all know what is being done and can share their knowledge and experience if they think something is wrong or won’t work as planned.

One example of what can happen when advisors are not coordinated is paying bills from incorrect accounts. For instance, if you incur legal fees for the estate plan but pay them from a trust account or business entity, a creditor could argue this is a personal benefit from a trust you are not a beneficiary of, or you’ve violated the business purpose of an entity, which could expose all trust or entity assets.

Your estate planning attorney should know how your assets are titled, which are owned jointly, or other designations used to avoid the terms of your will and/or any trusts. Beneficiary designations, wills and titles must be planned and coordinated to avoid derailing your estate plan.

If you die and an asset is owned in your name only, the asset will go through probate and be distributed according to the terms of your will. If you are incapacitated, your agent, under your financial Power of Attorney, must act concerning the asset to help pay bills.

Many people opt to have assets held in a joint name so that on death, the asset will pass to the named joint owner without going through the will and probate. If the person named as the joint owner is not the same as the POA, you may have created a logistical nightmare. How will the POA pay bills if the joint owner does not cooperate?

Coordinating professional advisers is as important as coordinating family members. There are many different agents and positions to be appointed. People often sign a financial POA with their estate planning attorney, and no one looks closely at any conflicting appointments.

The same kind of issues occur with health care agents. There are several different health care documents, and you’ll want to coordinate them to eliminate the possibility of conflicting appointments. The key to achieving this is diligence, communication and follow-up.

Reference: Forbes (Oct. 31, 2023) “Your Estate Plan Must Be Coordinated To Work”

 

Are CDs Good for My Estate Plan?

 

Certificates of deposit (CDs) are a low-risk way of saving funds for the short term and earning a modest return on it. When you take out a standard CD, your bank or credit union guarantees that they will pay you a set return on your money. In exchange, you agree to leave your money untouched in the account.

Investopedia’s recent article, “Can You Bypass Probate With CDs?” says that because CDs are a low-risk, time-constrained investment, they’re popular among seniors and often form part of inheritance settlements. When the owner of a CD passes away, it can be inherited in one of three ways. Therefore, it’s a way to pass on money without the CD going through probate.

CDs are treated like any other account as far as inheritance. While probate is frequently used to decide who will inherit particular assets after someone dies, other ways of passing on accounts can be much simpler and less expensive than probate.

There are three common ways to inherit property; only one involves probate. First, some property is jointly owned, passing directly to the co-owner without probate. This applies to joint accounts (including joint CDs) and real estate owned jointly.

The second category is contract property, like life insurance, retirement accounts and non-retirement accounts with beneficiaries designated upon death. These designations override instructions in the will and pass outside of probate directly to the named beneficiary. These accounts are often designated as payable on death (POD) or transfer on death (TOD). It is possible to add this designation to your CD account.

The third category is everything else. All property not covered above will generally have to go through probate.

If you want to avoid probate for the money you hold in your CD, there are two options available to you—you can either add a payable-on-death (POD) beneficiary to your account or hold it as a joint account. CDs can be held as joint accounts. However, the rules vary by state. In some states, if one joint account owner passes away, the other owner is automatically given full ownership of the account. If you inherit a CD in this way, it will typically continue to run in the way it was before. Once it reaches maturity, you can close it and withdraw the funds. In other states, if the joint owner of a bank account dies, the funds are divided between the surviving owner and the estate of the deceased.

Some CD accounts allow the owner to name a payable-on-death (POD) beneficiary. If the account owner dies, this person will automatically inherit the funds in a CD. These banks may terminate a CD when the account owner dies and allow the POD beneficiary immediate access to these funds. Other institutions will make them wait until the CD reaches maturity. In either case, the CD won’t have to go through probate.

Reference: Investopedia (August 23, 2022) “Can You Bypass Probate With CDs?”

 

Can a Minor Be Named as a Beneficiary?

The significant exception to the rule of not naming a minor as a beneficiary is trusts: you can name a legal minor as the beneficiary of a trust. That’s important because if you want to leave assets to a minor, a trust is the way to do it.

Yahoo Finance’s recent article entitled, “Can I Name a Minor as a Beneficiary?” points out that it’s important to know that property and estate laws are highly state specific. Therefore, consult a local attorney before making any decisions regarding your money and estate planning.

Several legal documents can name someone as the beneficiary of any underlying assets. A beneficiary is the third party who receives some benefit from the document, typically in the form of financial or other property assets.

Four primary types of documents can name a beneficiary when it comes to estate planning:

Wills: In a last will and testament, a beneficiary is the person the will names to receive assets from your estate.

Life Insurance: Here, a beneficiary is an individual who receives a payment from the life insurance policy after the policyholder's death.

Retirement Accounts: A beneficiary in a retirement account is someone who receives the assets in the account after the death of the account holder.

Trusts: In a trust, a beneficiary gets assets from the account based on the terms of the trust and the trustee’s management.

Under most circumstances, a minor can’t receive assets as a beneficiary. The major exception to this is also trusts. Minors can be named as beneficiaries of a trust because the beneficiaries of a trust don’t participate in contractual or financial transactions.

Because minors cannot participate in financial transactions or handle legal matters, they can’t get assets through contracts and legal documents. They can’t directly inherit through a will, nor can they receive assets through a contract, such as a life insurance policy or a retirement account.

Reference: Yahoo Finance (June 19, 2023) “Can I Name a Minor as a Beneficiary?”

Can I Keep Stepchildren Out of Estate Plan?

Parents in second marriages may want to leave assets to their children and try to make sure that their stepchildren don’t inherit. However, if stepchildren inherit, it can create resentment leading to legal disputes that can cost the estate significantly in delay and attorney fees.

AOL’s recent article, “How to Protect Assets From Stepchildren,” says that taking specific estate planning steps will let you effectively protect your assets from stepchildren.

If a stepchild inherits some of your assets, your children may feel cheated out of their rightful inheritance. Therefore, they may contest any awards to stepchildren to protect their interests.

Your children will be recognized as heirs to your estate even without a will naming them as beneficiaries. Stepchildren don’t have the same rights.

In most cases, they won’t inherit from a deceased stepparent’s estate unless specifically listed as beneficiaries in the will. However, stepchildren still may receive assets from your estate if your spouse dies after you and leaves assets to their children. Preventing stepchildren from ever getting assets from your estate can be done. However, it requires definite action to exclude them as beneficiaries.

If your spouse from a second or later marriage dies first, you usually don’t have to do anything to prevent stepchildren from receiving assets you control.

Even after an intestate death that happens without a valid will, stepchildren typically aren’t recognized as having any right to assets in the estate. However, some states grant stepchildren some rights of inheritance. Ask an experienced estate planning attorney about this.

In addition, a will can name specific people, including stepchildren, and exclude them from receiving benefits from the estate.

Using a trust, you can ALSO prevent stepchildren from getting assets from your estate after you die.

This can help avoid conflicts and potential litigation from children upset because stepchildren received assets from the estate.

Remember that if you fail to act, stepchildren can still benefit even at the expense of your children if, for example, you die before your spouse, who then names their children as beneficiaries of the estate.

Reference: AOL (April 26, 2023) “How to Protect Assets From Stepchildren”

What Is Probate?

Investopedia’s recent article, “What Is Probate Court?” explains that people want to avoid or shorten the probate process because of its length and expense. This can be accomplished by creating a living trust, assigning your assets to it and naming beneficiaries for those assets. A living trust is an estate planning tool that can help you avoid probate's usually lengthy, sometimes costly, and always public nature.

Some assets, including life insurance and retirement accounts, are not generally subject to probate. You instead designate beneficiaries for them in the account paperwork held by the life insurance company, retirement plan, brokerage, and bank. As a result, these funds will flow directly to the beneficiaries upon your death.

Another way to reduce probate is to give gifts during your lifetime. Anyone can provide individuals with tax-free money in the form of gifts, as defined by the IRS.

At a probate court hearing, the judge will list the responsibilities of the executor of the will, including contacting any beneficiaries and creditors, appraising the deceased's assets and paying any outstanding creditors and taxes.

At the second court hearing, the judge will ensure that all these tasks have been accomplished and close out the estate, so that the transfers of money and other assets in the estate may start.

Each state has specific probate laws to determine what's required. Unless someone has no assets or descendants when they die, probate may still be necessary to settle the deceased's remaining affairs, including debts, assets and paying their final bills and taxes.

While it can be hard to avoid probate court altogether, some ways to avoid probate include creating a living trust, naming beneficiaries clearly on all investment, bank and retirement accounts, and establishing joint ownership for certain assets.

The time for probate varies depending on the deceased person's assets, the complexity of their will and other factors. For instance, the executor may have to liquidate assets to pay creditors, and selling a home or other property for this purpose can take time. However, the average time it takes to complete is about nine months.

After someone dies, the grief over their loss can be all-consuming for their family and friends. Unfortunately, the probate process can add to this a financial and administrative burden. Yet, with or without a will, the probate process is essential to ensure that all of one's affairs are in order before death.

Investopedia (Sep. 21, 2022) “What Is Probate Court?”

What are Five Keys to Estate Planning?

 

If your family has to sort out your affairs while also dealing with the emotional fallout from losing you, they will soon realize the importance of having an estate plan, whether you are wealthy or not. They’ll also feel the pain of your failing to create one for them.
CNBC’s recent article entitled “5 key things to know when you create a will and make other end-of-life plans” explains that your estate plan spells out whom you want to make decisions and who will inherit what you own. “Estate” refers to possessions and other assets. With that in mind, here are five key things to know if you start thinking about how you’d craft an estate plan.
1. A will may not cover all your bases. A will is a core component of an estate plan. A will states whom you want to have your assets and whom you want as a guardian for minor children. Without a will in place when you die, a judge will decide who gets what or who is appointed guardian.
2. Use care when naming an executor. When you create a will, you name an executor to carry out your wishes and handle your estate. This includes liquidating or closing accounts, ensuring your assets go to the proper beneficiaries and paying any liabilities. An estate plan should also include other end-of-life documents, like a living will that details the health care you want and don’t want if you become unable to communicate those desires yourself. You also can sign a power of attorney to an agent to make decisions on your behalf if you become incapacitated.
3. Some assets get a step-up in basis. If you have assets, such as the family home, and are thinking about giving them to your children while you’re alive, it might make more sense to wait. When these assets are sold, any increase from the so-called cost basis (the value when the asset was acquired), and the sale price is subject to capital gains taxes. However, at your death, your heirs who inherit receive a “step-up in basis.” This means that the market value of the asset at your death becomes the cost basis for the heir. As a result, any appreciation prior to that is untaxed. Therefore, when the heir sells the asset, any gains (or losses) are based on the new cost basis. In comparison, if you were to gift such appreciated assets to heirs before your death, they’d assume your original cost basis — which could translate into a large tax bill when the assets are sold.
4. You may want to consider a trust. If you want your children to receive money but don’t want to give a young adult or one with poor money management total access to a sudden windfall, consider creating a trust to be the beneficiary of a particular asset. A trust holds assets on behalf of your beneficiary. The assets are left to the trust instead of directly to your heirs. They can only receive money according to how (or when) you’ve stipulated in the trust documents. Ask an experienced estate planning attorney to help you with this.
5. You’ll need to review your estate plan. When you have a major life change, like the birth of a child or divorce, you need to review your estate plan. If you move to a new state, check to see if you need to update any part of your plan, so it follows that state’s laws.
Reference: CNBC (March 19, 2023) “5 key things to know when you create a will and make other end-of-life plans”

What Is a Beneficiary?

 

A beneficiary can be designated by the owner or automatically assigned through the policy or contract. It’s essential to understand who these beneficiaries are and how they will be affected by the annuity payments to best plan for retirement income needs, says The Salisbury Post’s recent article entitled “What exactly is a beneficiary?” Let’s look at the different types:

Primary Beneficiary: This is typically designated by the owner when they buy the account who will receive any remaining funds from the annuity after the owner’s death. If there are multiple primary beneficiaries on an account, each may get a proportional portion of any remaining funds at death based on their age and relationship to the owner. Depending on individual circumstances, this may be taxable.

Secondary Beneficiaries: This is another individual who might benefit from an annuity upon the death of both owners (if it’s owned jointly). If a secondary beneficiary isn’t named, any remaining funds will pass directly through the owner’s estate according to state laws of intestate succession, if applicable.

Contingent Beneficiaries: In some instances, an owner may want to name a contingent beneficiary in the event that the primary and secondary beneficiaries predecease him or her before taking ownership of the annuity.

Annuity owners should keep their beneficiaries up to date by making sure they’re aware of changes in their lives such as marriages, divorces, the births or adoptions of children, the deaths of a loved ones, or any other relevant life events that may impact the ownership and/or distribution of the annuity policy.

It’s also important to think about the tax implications for everyone involved and how the funds should be allocated should something unexpected happen.

By understanding annuity beneficiaries and taking the time to name them correctly, an annuity owner can be sure his or her beneficiaries receive the funds from the annuity in accordance with their wishes.

Speak to an experienced estate planning attorney for more information about annuities and how naming the correct beneficiaries may help protect both you and those closest to you in the future.

Reference: Salisbury Post (Feb. 26, 2023) “What exactly is a beneficiary?”

Blunders in Estate Planning May Lead to Breach of Family Harmony

 

The Financial Post’s recent article entitled “Avoid these five mistakes when estate planning to preserve family peace” provides us with some of the biggest mistakes:
1. Treating family members differently. People do this frequently. They may have valid reasons for doing so. However, it’s still not a great idea. Instead, comfortably tell your children in advance why you’re doing this. This will avoid anger and jealousy between the children when they discover this. Try to leave assets equally, even if you don’t think it is fair.
2. Pass the family vacation home to multiple children. It's best to either sell the home in your later years or, if you keep it, make sure it is openly discussed. You might set up life insurance to specifically pay taxes and perhaps one or two children, so the remaining children can afford to keep the cottage. Even so, a sale is the cleanest approach.
3. Don’t tell the children anything about your money. Not a good idea. This approach often eliminates any ability to understand what might be most meaningful to your children or beneficiaries. Maybe less so in terms of cash, but in terms of family heirlooms or property. Perhaps a favorite piece of furniture was really important to two children, but there was never any discussion about it. As a result, it’s now completely left to them to fight over. This may sound like a small issue. However, many families have split up forever over just this type of scenario.
4. Purposely or inadvertently leaving most or all assets to a new spouse. It can occur by accident due to poor planning around ownership titles, lack of pre-nuptial agreements or the unintended naming of beneficiaries on investment accounts or life insurance. However, sometimes, it’s meant to hurt the children. The hurt can certainly go both ways and is frequently a major issue when a spouse isn’t treated fairly. Ask an experienced estate planning attorney to walk through this with you.
5. Significant charitable giving. If your gifts to charity aren’t discussed with your so-called traditional beneficiaries, there can be conflicts with the charity that can be drawn out.
Communicate what you’re doing and why to your family.
Reference: Financial Post (Nov. 9, 2022) “Avoid these five mistakes when estate planning to preserve family peace”

Major Blunders in Estate Planning

Kiplinger’s recent article entitled “5 Common Estate Planning Mistakes to Avoid” warns that if you overlook an important step or make a misstep in your estate planning, everything could be undone. You could instead burden your family with a challenging and headache-inducing estate.

There are many ways to get things wrong. Let’s look at a few:

1. Not preparing for incapacity. The main reason to create a will is because we know that some day we’ll pass away. A will lets your family know how to distribute your property and other assets. A well-thought-out estate plan should identify the people authorized to make important decisions on your behalf regarding finances, health care and other critical matters. This is accomplished with powers of attorney. Once you are unconscious or afflicted with dementia, it will be too late. Make a list of decision-makers now, inform them of your wishes and create the necessary powers of attorney
2. Failing to include funeral and burial wishes. If you can purchase a burial plot and make funeral plans, put this in your estate planning documents. If you don’t, it may mean a lot of work for your family after your death. Name someone to be in charge of the funeral and burial arrangements and make sure that person understands your wishes. If you don’t detail your wishes prior to your death, it may become an issue for your loved ones.
3. Ignoring the tax implications of transferring property. As generous as it may seem to give property to your family during your lifetime, it is usually much smarter – and far more generous – to delay the transfer until you’re deceased. If you convey the deed to property to your next of kin before you die, they may see a hefty tax bill whenever they sell the same property. That’s because the basis for that property will be tagged to the date on which you made your purchase, not the date you made your gift. As a result, it could leave your heirs scrambling to pay an enormous sum that would have been averted, had they been granted the deed after your death.
4. Failing to designate backups for decision-makers. The best of plans can go south without a secondary beneficiary. This will address any unforeseen events. Name backups for your executor and other decision-makers. If they can’t fulfill their obligations, a court will name substitutes unless you’ve already planned for these contingencies.
5.  Not tracking beneficiary designations. In addition to stating the beneficiaries and their respective shares in your will, you must also communicate a directive to your bank that sets forth the interests in your account after your death. If you fail to do this, the bank’s rules will override anything you’re written in your will as to that account. That means your percentages will be different from those expressed in your will.
6. Take steps now to make certain there are no hidden issues that will haunt your family after you’ve passed.
7. Reference: Kiplinger (Oct. 17, 2022) “5 Common Estate Planning Mistakes to Avoid”

What Should I Know about Estate Planning before ‘I Do’?

Romance is in the air. Spring is the time for marriages, and with America coming out of the pandemic, wedding calendars will be filled.

AZ Big Media’s recent article entitled “5 estate planning tips for newlyweds” gives those ready to walk down the aisle a few things to consider.

1. Prenuptial Agreement. Commonly referred to as a prenup, this is a written contract that you and your spouse enter into before getting legally married. It provides details on what happens to finances and assets during your marriage and, of course, in the event of divorce. A prenup is particularly important if one of the spouses already has significant assets and earnings and wishes to protect them in the event of divorce or death.

2. Review you restate plan. Even if you come into a marriage with an existing plan, it’s out of date as soon as you’re wed.

3. Update your beneficiary designations. Much of an individual’s estate plan takes place by beneficiary designations. Decide if you want your future spouse to be a beneficiary of life insurance, IRAs, or other pay on death accounts.

4. Consider real estate. A married couple frequently opts to live in the residence of one of the spouses. This should be covered in the prenup. However, in a greater picture, decide in the event of the death of the owner, if you’d want this real estate to pass to the survivor, or would you want the survivor simply to have the right to live in the property for a specified period of time.

5. Life insurance. You want to be sure that one spouse is taken care of in the event of your death. A married couple often relies on the incomes of both spouses, but death will wreck that plan. Think about life insurance as a substitute for a spouse’s earning capacity.

If you are soon-to-be-married or recently married and want to discuss it with an expert, make an appointment with a skilled estate planning attorney.

Reference: AZ Big Media (March 23, 2022) “5 estate planning tips for newlyweds”

When Should I Update My Will?

 

CNBC’s recent article entitled “When it comes to a will or estate plan, don’t just set it and forget it” says that your Will should be updated when your personal circumstances change, could happen at any time. Some frequent triggers include:

Changes in health, including that of executors and guardians

Changes in laws, which may impact tax and legal strategies; and

Changes in state residence, which can also impact planning.

Every state has different laws as to the administration of a Will. They will vary regarding the required residence of an executor, inheritance tax laws and whether a child can be disinherited by omission.

It’s wise to review your Will every few years with an estate planning attorney, who likely will say that documents should also be reviewed when these events happen:

A substantial change in your financial status

A change of parental status, like the birth of a child

A change of guardians

Changes in designations of fiduciaries, such as the executor of the will, successor trustee of a revocable trust, attorney-in-fact, or health-care agent; and

Changes in a family member’s situation, such as if a child develops special needs and will need appropriate planning.

The article says that an overlooked trigger to updating your will is consolidation in the banking industry. If you named a bank as the executor of your estate and the bank has been bought or sold recently, you may now have a new executor.

Make certain that you know who that person or institution is – and that you trust its judgment.
It’s also important to revisit your beneficiaries after marriage or divorce.

Reference: CNBC (March 1, 2022) “When it comes to a will or estate plan, don’t just set it and forget it”

How Do I Avoid Probate?

 

Probate can tie up the estate for months and be an added expense. Some states have a streamlined process for less valuable estates, but probate still has delays, extra expense and work for the estate administrator. A probated estate is also a public record anyone can review.
Forbes’ recent article entitled “7 Ways To Avoid Probate Without A Living Trust” says that avoiding probate often is a big estate planning goal. You can structure the estate so that all or most of it passes to your loved ones without this process.
A living trust is the most well-known way to avoid probate. However, retirement accounts, such as IRAs and 401(k)s, avoid probate. The beneficiary designation on file with the account administrator or trustee determines who inherits them. Likewise, life insurance benefits and annuities are distributed to the beneficiaries named in the contract.
Joint accounts and joint title are ways to avoid probate. Married couples can own real estate or financial accounts through joint tenancy with right of survivorship. The surviving spouse automatically takes full title after the other spouse passes away. Non-spouses also can establish joint title, like when a senior creates a joint account with an adult child at a financial institution. The child will automatically inherit the account when the parent passes away without probate. If the parent cannot manage his or her affairs at some point, the child can manage the finances without the need for a power of attorney.
Note that all joint owners have equal rights to the property. A joint owner can take withdrawals without the consent of the other. Once joint title is established you cannot sell, give or dispose of the property without the consent of the other joint owner.
A transfer on death provision (TOD) is another vehicle to avoid probate. You might come across the traditional term Totten trust, which is another name for a TOD or POD account (but there is no trust involved). After the original owner passes away, the TOD account is transferred to the beneficiary or changed to his or her name, once the financial institution gets the death certificate.
You can name multiple beneficiaries and specify the percentage of the account each will inherit. However, beneficiaries under a TOD have no rights in or access to the account while the owner is alive.
Reference: Forbes (March 28, 2022) “7 Ways To Avoid Probate Without A Living Trust”

Can I Plan My Estate to Avoid Leaving Residual Assets?

 

When looking into your estate plan, you see the term “residuary estate.” This is any part of your estate that hasn’t been distributed to your heirs through a will. It’s also called estate residue or residual estate. However, it simply means assets that are left over once your will’s been read, the assets have been distributed to your heirs and any final expenses have been paid.
Proper estate planning can help you avoid leaving residual assets behind, says Yahoo Finance’s recent article entitled “Residuary Estate Definition and Example.” An experienced estate planning attorney can help you select a structure for your estate that accomplishes your objectives.
A will lets you state how you want your assets to be divided among your heirs when you pass away. However, it’s possible that not all of your assets will make it into your will for some reason. Any assets that aren’t included in your will or distributed through a trust automatically become part of your residuary estate when you pass away.
Residual estates can be created without advance planning. For example, your heirs may be left to deal with a residuary estate if:
⦁ You neglected to include certain assets in your will;
⦁ You acquired new assets after drafting your will and failed to amend the document for the distribution of these assets; or
⦁ Someone you named in your will dies before you or is unable to receive their inheritance for some other reason.
Assets that are designed to have a named beneficiary but don’t have one, can also be included in the residuary estate.
When a residuary estate exists, it can complicate the probate process for your family. Any unclaimed or otherwise overlooked assets would be distributed according to the state’s inheritance laws, after any estate taxes, outstanding debts or final expenses have been paid.
You should also know that it’s possible to have a residuary beneficiary of a living trust. This person would receive any property or assets transferred to the trust that were not designated for specific beneficiaries. If you create a trust properly, there should be a provision for each beneficiary you want to be included and which assets they should receive. However, you could still run into issues if a named beneficiary dies, and you haven’t named anyone as a residuary beneficiary.
A residuary estate is something you may need to plan for when creating a will or trust. Fortunately, it’s pretty easy to do so by including the proper wording in your will and trust documents. Ask an estate planning attorney to eliminate confusion and to plan your estate properly.
: Yahoo Finance (Dec. 30, 2021) “Residuary Estate Definition and Example”

What are Biggest Estate Planning Mistakes?

The Huffington Post’s recent article entitled “The Biggest Mistakes People Make In Their Wills, According To Estate Lawyers” explains that your last will and testament is one of the most important legal documents you’ll ever have. A will lets you state where you want your property, minor children and debts to go after you die. It also allows you to appoint an executor to carry out your wishes. The lack of a will is a common tragic mistake. Just about everyone over the age of 18 needs some estate planning. The following are some of the major estate planning mistakes:
1. Assigning co-executors. You should name only one executor, with alternate executors. Many testators want to make all their children responsible for administering the estate. However, that’s a really bad idea. If you have two executors, and they don’t agree, who gets the final say? However, if you’re set on naming more than one, make it an odd number so it’s majority-rule.
2. Thinking a will is all you need to avoid probate. Probate is the legal process of administering a person’s estate whether they die with a will or without one (i.e., “intestate”). Although a valid will can say where assets are allocated, it will likely not avoid the probate process if there are assets titled solely in your name. If you have a will in place, but a bank account doesn’t have a beneficiary designation, the assets likely have to go through the probate process before being distributed according to the terms of your will.
3. Being too vague about items with sentimental value. When people pass away, relationships change. Money can change people. Children who got along so well when you were alive may not get along as well when you’re gone and not there to mediate between them. If you’re too general, a term may be based on interpretation. If people interpret it differently, there’s a problem. If you know that someone wants a specific item, write it down.
4. Failing to update your will to reflect life changes. The biggest mistake people make when it comes to doing wills or estate plans is their failure to update those documents. There are a number of life events that require the documents to be updated, such as marriage, divorce and births of children. It is recommended that your estate plan be revisited every few years.
5. Failing to hire an experienced estate planning attorney. It’s important to get your estate planning documents correct. This is because when the documents are executed, the difference between a good set of documents and those drafted by a non-attorney (or one who doesn’t practice in this area of law) can mean considerably more time, money and stress.
Reference: Huffington Post (March 8, 2022) “The Biggest Mistakes People Make in Their Wills, According to Estate Lawyers”

How Do I Talk to My Parents About Estate Planning?

 

Failing to draft an estate plan can mean a pair of obstacles when a parent dies. First, it can leave you scrambling to unravel their financial picture while trying to grieve. Second, it can be expensive.
MarketWatch’s recent article entitled “It’s easy to put it off, but here’s why you should talk to your parents about estate planning, and how to start the conversation” says that a wise way to avoid both scenarios is to begin talking with your parents about estate planning. While this can sound like a job just for the uber-rich, it is really an essential process that ensures clear directives exist for all sorts of situations that accompany the end of life.
An estate plan is a chance to set mindful intentions about life’s inevitabilities. It is, therefore, a great idea to ask your parents to take account of their assets and belongings. This is not just about the numbers and paperwork—it is a chance to gauge preparedness.
Start by asking your parent(s) the following:
Who do you want as your primary caregiver?
How will we pay for health care expenses?
What are your medical care preferences?
Which of us should make medical decisions on your behalf?
How should we handle your property when you die?
Do you have any valuable items that you want to be handled in a special way?
Where are your most important documents and do we have access to all of your digital records?
Inheritance often require probate. However, if the right legal documents are in place, it can be a relatively quick and painless process. When someone dies intestate (without a will), it can sticky and get tricky. Understand that the state has its own rules for dying without a will. Depending on the situation, you might need to hire a probate attorney because there will be legal proceedings. Therefore, make certain that your parents have a will and that beneficiaries are clearly stated in all policies and documents. It is a preventative measure that can pay dividends.
Remember that when wealth is transferred (or assets are passed from one person to another), taxes are often inevitable. Work with an experienced estate planning attorney to minimize liability.
Reference: MarketWatch (Dec. 29, 2021) “It’s easy to put it off, but here’s why you should talk to your parents about estate planning, and how to start the conversation”

Does My State Have an Inheritance Tax?

 

Real Simple’s recent article entitled “Here's Which States Collect Zero Estate or Inheritance Taxes” explains that inheritance taxes are levies paid by the living beneficiary who gets the inheritance. And both federal and state governments can apply estate taxes, which are levied against the assets that are bequeathed.
Just five states apply an inheritance tax: New Jersey, Nebraska, Iowa, Kentucky and Pennsylvania. There are 12 states that have an estate tax: Washington, Oregon, Minnesota, Illinois, New York, Maine, Vermont, Rhode Island, Massachusetts, Connecticut, Hawaii and the District of Columbia. Maryland collects both. As a result, there are 32 states that don’t collect death-related taxes: Alabama, Alaska, Arizona, Arkansas, California, Colorado, Delaware, Florida, Georgia, Hawaii, Idaho, Indiana, Kansas, Louisiana, Michigan, Mississippi, Missouri, Montana, Nevada, New Hampshire, New Mexico, North Carolina, North Dakota, Ohio, Oklahoma, South Carolina, South Dakota, Tennessee, Texas, Utah, Virginia, West Virginia, Wisconsin and Wyoming.
To better estimate and project the possible outcomes, you should consider an intergenerational planning meeting. There are some families that like the transparency of establishing a trust. This can minimize fighting and avoid probate. Trusts are also taxed differently than individuals. There’s more certainty about who will bear the costs.
There are families that gift assets, while an elderly or chronically ill person is still alive. These gifts can be subject to taxation, but there are exceptions for tuition and medical expenses. Gifts to children may also be excluded.
There’s no one-size-fits-all approach to transferring valuable or sentimental assets. You can list the most important people and causes in your life. If that list has people in other states, it will be even more important to prepare everyone for their role and responsibilities with the help of an experienced estate planning attorney.
If inheritance tax sounds intimidating, start small with updating the beneficiary forms on your bank accounts and employer-led retirement accounts. Organize documents, such as insurance information and house titles and deeds. Make them secure but accessible to those who might need them, if you're unavailable.
Even if you're socially distancing, many estate planning attorneys offer consultations via video conferencing. There's no reason to delay another year to clarify your inheritance and estate plans.
Reference: Real Simple (Nov. 24, 2021) “Here's Which States Collect Zero Estate or Inheritance Taxes”

What are Biggest Blunders in Wealth Transfer?

 

When it comes time to transfer what we’ve work so hard to accumulate, the way in which we transfer our wealth can have a big impact on how much of our wealth is actually received by our heirs and how much is transferred to the federal government.
Forbes’ recent article entitled “Top 7 Tax Mistakes Made in Planning a Wealth Transfer” says that tax mistakes can mean losing a lot of hard earned money, if you’re not careful. Here are some of the biggest mistakes made in wealth transfer planning.
1. IRD Taxes. Most people are unaware of this tax. It stands for “Income in Respect of the Decedent.” It’s the income tax your heirs will pay on tax-deferred assets, such as traditional IRAs, 401k’s and annuities. In many cases, these taxes will push heirs into a higher marginal tax bracket. You should plan to reduce or eliminate the IRD Tax, if you have a 401k, IRA or annuities. For example, if you gift IRA and 401k assets to charity and non-IRD assets to your heirs, you can save them in IRD Taxes! The use of a Charitable Remainder Trust can provide a tax-efficient way to create a “charitable stretch IRA” for your children or grandchildren.
2. Charitable Giving Mistakes. Most people do charitable giving with after tax cash from their income. However, this isn’t the most efficient way to give. Gifting highly appreciated securities, real estate, or even business interests can give you a double tax benefit: it can eliminate capital gains taxes and still get the charitable tax deduction.
3. Dying without a Comprehensive Estate Plan. About three-quarters of Americans die without a will. A will, by itself, subjects your assets (and your heirs) to probate. A well-designed estate plan can help reduce or eliminate both probate and estate taxes. Ask an experienced estate planning attorney about creating a comprehensive estate plan for you or review the one you have.
4. No (or Improper) Beneficiary Designations. This can result in a loss of inheritance for your family. With retirement accounts like IRAs or 401(k)s, properly designating beneficiaries is essential to avoid the loss of further income tax deferral at death. If you don’t have primary and contingent beneficiaries named on all your accounts, these assets will have to go through probate and could cost unnecessary IRD taxes.
5. Improper Titling of Business Interests. A business is frequently titled only in the name of the business owning spouse. However, when that spouse dies, the business itself must go through the costly process of probate, which can create issues for the operation of the company.
6. Bad Choices for Ownership & Beneficiary Designations on Life Insurance. Life insurance can be a great financial planning tool and provide liquidity. It can also be a great wealth transfer tool in estate planning or business planning. However, if the ownership and beneficiaries are done incorrectly, the life insurance benefits can be subject to estate taxes. Ask an experienced estate planning attorney about an irrevocable life insurance trust (ILIT).
7. Giving the Wrong Assets to your Heirs. A common mistake that people make in wealth transfer planning, is to leave a percentage of their estate to their children, another to their grandchildren and another to their favorite charities (or Donor Advised Fund) in their will or via a trust. However, this isn’t the smartest way to distribute your assets from a tax perspective. Doing so could subject them to IRD taxes. Instead, use IRA (and other IRD assets such as 401k) for your gifts to charity and, give non-IRD assets (such as cash, real estate, life insurance, or a Roth IRA) to your children and grandchildren.
Reference: Forbes (Dec. 15, 2021) “Top 7 Tax Mistakes Made in Planning a Wealth Transfer”

Can I Use a Roth IRA in Estate Planning?

There are a number of reasons to consider Roth IRAs as part of your estate planning efforts, says Think Advisor’s recent article entitled “How and Why to Use Roth IRAs in Estate Planning.” Let’s take a look:
One of the biggest estate planning benefits of a Roth IRA is the fact that there are no required minimum distributions or RMDs. This is a big estate planning tool and lets the money in the Roth grow tax-free for the benefit of a surviving spouse or other beneficiaries. This also eliminates the taxes that would otherwise need to be paid on these distributions.
Because the rules for inherited IRAs for most non-spousal beneficiaries under the Setting Every Community Up for Retirement Enhancement (Secure) Act went into effect at the beginning of 2020, Roth IRAs have become a very viable estate planning tool because beneficiaries who aren’t classified as eligible designated beneficiaries must withdraw the entire amount of their inherited IRA within 10 years of inheriting it. The Act eliminated the ability to “stretch” inherited IRAs for IRAs inherited prior to 2020 for most non-spousal beneficiaries.
For inherited traditional IRAs, the whole amount will be taxed within 10 years of inheriting. The 10-year rule also applies to inherited Roth IRAs. However, if the original account owner satisfied the five-year requirement prior to his or her death, the withdrawals from the inherited Roth IRA are tax-free. It makes a Roth a beneficial estate planning tool because taxes that are bunched into a 10-year period can substantially erode the value of an inherited traditional IRA.
For those who already have a Roth, they’re set in terms of their spouse being able to inherit the account and use it as their own. For non-spousal beneficiaries, there’s a five-year rule. For those with a Roth 401(k), it’s important to roll this account over to a Roth IRA once you leave your employer to avoid RMDs.
For those who are eligible to do so, contributing to a Roth IRA each year can help you build a Roth balance to pass on to your beneficiaries. For those who have access to a Roth 401(k) account with an employer-sponsored plan or a solo 401(k) for the self-employed, contributing to a Roth 401(k) can offer a higher contribution limit with no income restrictions, when compared to a Roth IRA. The amount in the Roth 401(k) can later be rolled over to a Roth IRA with no tax consequences, which also avoids RMDs.
A Roth IRA conversion is a strategy to looking at for passing IRA assets to non-spousal beneficiaries, either directly or as contingent beneficiaries upon the death of a surviving spouse. It’s a good way for you to prepay taxes for beneficiaries. Beyond prepaying the taxes, the five-year rule can come into play if you didn’t previously have a Roth IRA.
Whether a Roth IRA conversion makes sense as an estate planning tool depends on several variables, including your current tax situation, your age and the taxes that would be incurred by the conversion. Roth IRAs have many potential benefits as a planning tool. With the Secure Act and the changing tax and estate landscape, a Roth IRA can play a key role in your estate planning in the right circumstances. Ask an experienced estate planning attorney about whether it’s right for you.
Reference: Think Advisor (November 9, 2021) “How and Why to Use Roth IRAs in Estate Planning”

Should I Start Estate Planning Now?

The coronavirus has taken a toll on our finances, as well as our physical and mental health. As a result, it’s important to plan appropriately for your health care and financial needs in an estate plan to provide much-needed peace of mind, say Yahoo Finance’s recent article entitled “Estate Planning During a Pandemic – Quit Stalling.” The article lists the important components of a comprehensive estate plan:
Advance Health Care Directive. This is a written plan that states your wishes, in the event you can’t speak for yourself. Your wishes need to be in writing, and the document should be updated as your health changes. Review your advance health care directive with your doctor and the person you select as your health care proxy to be certain it’s completed correctly.
Health Care Power of Attorney. This legal document lets you name someone who can review your medical records and make decisions, such as how and where you should be treated. This would be applicable, if you were incapacitated and unable to make medical decisions for yourself.
Living Will. A living will is a type of advance health care directive that specifically states your end-of-life decisions in the event you are terminally ill or permanently unconscious. This covers specific medical treatments, like CPR, ventilation, pain management, tube feeding and organ and tissue donation.
Financial Power of Attorney. This document lets you name someone to help with your finances, if you become incapacitated and unable to do so. You can state how much control your power of attorney will have, like accessing accounts, selling stock and managing real estate.
Trusts. Ask an experienced estate planning attorney about creating a trust to protect your assets as you pass them down to your heirs. If your children or grandchildren aren’t old enough or mature enough to handle their inheritance, you can set up a trust that provides them with a small amount of money each year, increasing that amount as they get older. You can also direct that the money be specifically used for an adult child’s mortgage or student loans.
Beneficiaries. Many people forget to update their life insurance policies, bank, brokerage accounts and retirement plans. These all have beneficiary forms, which supersede a will. These should be updated, along with your estate plan, every few years and after every major life change. That’s something like a marriage, divorce, death, adoption, or birth.
Make certain that you are reviewing and updating your estate plan when you review your retirement plan each year or so.
Reference: Yahoo Finance (Oct. 31, 2021) “Estate Planning During a Pandemic – Quit Stalling”

What Is Probate?

WTOP’s recent article entitled “Everything You Need to Know About Probate” explains that probate is the court-supervised proceeding, in which the assets of the decedent are distributed to his or her heirs. This involves validating the decedent’s will, distributing assets and ensuring that the debts of the estate are paid.
Probate is how assets formally pass from one person who passed away to their heirs or beneficiaries. Probate can be long and complex or pretty efficient. Each state has its own probate code, and some have a small estate probate process for estates that are under a certain threshold. The administration of the estate involves the executor or personal representative, beneficiaries, creditors and a probate judge.
The probate process is required by state law to manage the decedent’s assets and property that aren’t transferred by contract law, state titling law, or trust law. As a result, any assets or property awarded in a last will or assets owned by an individual who dies without a will may require probate.
Property that passes through probate includes assets and property awarded to heirs through a will, such as household goods, automobiles and personal property owned at death but not awarded in the will and not otherwise transferred.
If a person dies intestate or without a valid will, the disposition of their probate property will be controlled by the laws of intestacy of the state where the decedent resided at death. Probate property is all property that was held individually and that does not have a beneficiary designation.
Each state has its own probate process. However, the first step in probate generally is to produce a will. A probate attorney can determine if all of the heirs will consent to have it probated. If there’s not going to be any objection, the attorney can prepare the probate documents and have the waivers signed by the distributees. Once they sign and notarize the consent, the attorney can take the will with the probate documents and have it filed.
After a will is deemed valid, the executor of the estate and the attorney will file certain documentation with the court. This might include the will, a certified copy of the death certificate, a list of names and addresses of the decedent’s heirs and any known creditors. Creditors will be paid first, then the remaining assets are distributed to the heirs. After any required tax returns are filed, the executor will ask the court to close the estate.
Reference: WTOP (Aug. 31, 20211) “Everything You Need to Know About Probate”

Should I Ask Mom and Pop about Their Finances?

 

Adult children should know about their parents’ finances in case of any emergency. They should also know critical information in case of death. NASDAQ’s recent article entitled “9 Questions to Ask Aging Parents About Their Finances” acknowledges that speaking to aging parents about their finances isn’t easy. However, to start this process, the article gives us nine important topics you may want to discuss with your parents:
Do You Have a Financial Plan (and is it enough)? See if your parents have a financial plan. Some parents will have a solid financial plan that will let them to live comfortably into their 80s or 90s. On the other hand, you may discover they’re living on a fixed budget and money is tight. If you see that you’ll need to help them financially now or in the future, start planning ASAP. Any decision to provide them with financial support will likely have an effect on your own financial plan.
Do You Have an Accessible List of All Your Accounts? Ask your parents to draft a list of their financial assets and those named as beneficiaries of those accounts and keep it in a safe place. They should also put together important contacts, such as clergy, CPA, estate planning attorney, physician, etc.
Where’s Your Will, and Who’s the Executor? See where your parents keep their wills and estate documents. Some estate planning attorneys retain an original copy. If your parents don’t have a will, encourage them to see an estate attorney. An item that’s not commonly listed in the will, that you may want to ask about, is if your parents have prepaid for a burial plot or memorial arrangements.
Do You Have Life Insurance Policies that I Should Know About? See if your parents have any active life insurance policies. Get the details of the policies and the policy numbers. If your parents are still working, they may also have life insurance through an employer.
Are There Any Special Bequests to Family and Friends? Family heirlooms and special personal property may be a part of your parents’ estate plan. A sibling may have claimed your dad’s coin collection. Knowing your parents’ intentions and wishes for their keepsakes will make things much easier when they pass. Moreover, having conversations about family heirlooms now can help prevent any hard feelings later. Some people make up a list for their personal bequests and reference it in their wills.
Who Have You Named as Your Financial Power of Attorney? This document lets your parents name a primary and secondary person to make financial decisions on their behalf, if they become incapacitated. If you’re the one named as the person to make financial decisions, find out where all of your parents’ financial assets are held. You should also get information about their Medicare policy, any pensions and their Social Security benefits. It even helps to know their utility companies in case you need to pay these bills and must prove power of attorney.

Do You Have a Living Will? They should each have an advance health care directive or living will and health care power of attorney. These documents designate who has authority to make medical decisions on their behalf, if they became incapacitated or terminally ill. This also includes your parents’ preferences for life-sustaining treatment, including a “Do Not Resuscitate” clause, as well as their preferences on organ donation.
Have You Had Trouble Balancing Your Checkbook Lately or Forgotten to Pay Bills? Have a discussion about key financial decisions with your parents while they are in good health. This will let you make a plan, if they show signs of memory loss. The signs of memory loss include forgetting appointments, making occasional errors while managing household finances, or getting confused about the day of the week.
Do You Have a Long-Term Care Policy? To claim benefits of long-term care insurance, a person typically needs to be unable to perform two out of six common “activities of daily living” (bathing, dressing, toileting, eating, transferring and continence) or have a severe cognitive disorder. If your parents have a policy, access it and review its core benefits, in case you need to help them file a claim.
Discussing your parents’ financial and estate plans isn’t fun, but it will help give both you and your parents some peace of mind to know that they will be provided for, and things will be taken care of in their absence.
Reference: NASDAQ (Aug. 27, 2021) “9 Questions to Ask Aging Parents About Their Finances”

What Should Small Business Owners Know about Estate Planning?

Not having an estate plan can place business owners and entrepreneurs in jeopardy because they may face difficulties in keeping the business running, if they have to withdraw from the business at any point in time.
Legal Reader’s recent article entitled “What Small Business Owners Should Know about Doing Estate Planning” explains that estate planning is necessary to ensure business continuity. Think about who can take control when you’re no longer around to have the business continue according to your wishes contained in your estate plan. An experienced estate planning attorney can help business owners create a comprehensive estate plan, so things do not become chaotic for their family in the event of premature death or any permanent disability. Consider these steps when it comes to good estate planning for business owners.
Create an estate plan if you haven’t got one. A will is designed to detail your wishes about how you want the business to run and the manner of sharing your property at your death. A power of attorney allows an entrusted individual to undertake your business transactions and manage your finances, if you are incapacitated by injury or illness. A healthcare directive permits a trusted agent to make medical decisions on your behalf when you can’t do so yourself.
Plan for taxes. Tax planning is a major component of estate planning. Our tax laws keep changing frequently, so you have to stay in constant touch with your attorney to develop strategies for decreasing your tax liability, as well as creating a strategy for minimizing inheritance/estate taxes.
Buy life and disability insurance. Small business owners should think about purchasing life insurance, so their families can have a source of income after their death.
Create a succession plan. In addition to estate planning, a business owner should have a succession plan that specifies exactly how your company, and your family will prepare for a transition of ownership. The purpose of a well thought out succession plan is to keep the business operating or to take steps to sell it. This plan also includes the organizational structure of the business in case of maintaining business continuity.
Finally, you should keep everyone impacted by your decisions apprised of your estate plan and your business succession plan.
Reference: Legal Reader (Aug. 26, 2021) “What Small Business Owners Should Know about Doing Estate Planning”

Do I Have to Give My Husband’s Children from First Marriage Anything When He Dies?”

 

This is a common question with second (or third marriages) and blended families. Questions frequently arise about Social Security, investments and savings, when the husband is divorced from the children’s mother and is paying child support until each child turns 18.
Nj.com’s recent article entitled “Are my husband’s kids from another marriage due assets when he dies?” says that these questions demonstrate why estate planning is critical to revisit after a divorce. You can take action to make certain that you’re taken care of, but if you don’t do this at the time of the divorce, it could be too late.
Let’s look at what you should know about beneficiaries and wills. First, beneficiary designations supersede a will. Make sure that all beneficiaries and contingent beneficiaries are consistent with your wishes. There are beneficiary designations on retirement accounts, pensions, life insurance policies, annuities and other accounts that take precedence over what may be stated in a will.
While New Jersey does not provide for beneficiary designations on certain assets like a house, vehicles, and real estate, many other states do. For assets without a beneficiary, it’s important to determine the way in which they’re titled.
The titling of assets has an effect on how the assets will be distributed after death. Thus, when married again, spouses should review and update their wills to have an idea of how a spouse’s estate would be disbursed at his or her death.
If a husband is paying child support, divorce decrees will often dictate that he purchase life insurance to cover that obligation upon his death. Therefore, there may be a life insurance policy for the children from a first marriage.
With Social Security, if a spouse remains unmarried after the spouse’s death, he or she can claim a survivor spousal benefit as early as age 60, and if he or she is caring for the spouse’s children from the first marriage who are under 16 years of age, he or she may be entitled to receive a payment earlier. The deceased spouse’s unmarried children can also claim a survivor benefit until age 18, or longer if in high school or disabled.
Reference: nj.com (Aug. 4, 2021) “Are my husband’s kids from another marriage due assets when he dies?”

No Kids? What Happens to My Estate?

Just because you don’t have children or heirs doesn’t mean you should not write a will. If you decide to have children later on, a will can help protect their financial future. However, even if you die with no children, a will can help you ensure that your assets will go to the people, institutions, or organizations of your own choosing. As a result, estate planning is necessary for everyone.
Claremont Portside’s recent article entitled “What Happens to Your Estate If You Die With No Children” says that your estate will go to your spouse or common-law partner, unless stated otherwise in your will. If you don’t have any children or a spouse or common-law partner, your estate will go to your living parents. Typically, your estate will be divided equally between them. If you don’t have children, a spouse, or living parents, your estate will go to your siblings. If there are any deceased siblings, their share will go to their children.
The best way to make certain your estate goes to the right people, and that your loved ones can divide your assets as easily as possible, is to write a will. Ask an experienced estate planning attorney to help you. As part of this process, you must name an executor. This is a person you appoint who will have the responsibility of administering your estate after you die.
It’s not uncommon for people to appoint one of their children as the executor of their will. But if you don’t have children, you can appoint another family member or a friend. Select someone who’s trustworthy, responsible, impartial and has the mental and emotional resources to take on this responsibility while mourning your death.
You should also be sure to update your will after every major event in your life, like a marriage, the death of one of your intended beneficiaries and divorce. In addition, specifically designating beneficiaries and indicating what they will receive from your estate will help prevent any disputes or contests after your death. If you have no children, you might leave a part (or your entire) estate to friends, and you can also name charities and other organizations as beneficiaries.
It’s important to name who should receive items of sentimental value, such as family heirlooms, and it’s a good idea to discuss this with your loved ones, in case there are any disputes in the future.
Even without children, estate planning can be complicated, so plan your estate well in advance. That way, when something happens to you, your assets will pass to the right people and your last wishes will be carried out. Ask an experienced estate planning attorney for assistance in creating a comprehensive estate plan.
Reference: Claremont Portside “What Happens to Your Estate If You Die with No Children”

How Do I Avoid Estate Planning Mistakes with a Blended Family?

The Wealth Advisor’s recent article entitled “Remarried With Children? 5 Estate Planning Mistakes to Avoid” says that you can’t guarantee that everyone in the blended family will be happy with the arrangements you’ve made with a second marriage.
Mistake #1: Failing to change beneficiaries. With a beneficiary designation, the money passes directly to your intended beneficiary without probate. Look at all of your financial accounts to be certain that your spouse is designated the beneficiary if that's what you want. Plus, check your life insurance beneficiaries because these payouts also bypass probate.
Mistake #2: Failing to update your last will. Your last will determines much of who gets the assets you and your spouse accumulated during your lifetimes. You probably don't want your ex-spouse to get these. People on their second marriage frequently decide that the surviving spouse gets all the assets; upon the death of the second spouse, the remaining assets will be divided evenly among all of the children. There are ways to make that happen, but it takes very special legal planning.
Mistake #3: Treating all heirs equally. Most spouses aren't financial equals when they marry, and this is particularly so in second marriages. If your new spouse moves into your house, for example, you may want your children to get the proceeds when it’s sold, not your spouse or your spouse's children. There are many reasons why parents don't treat children equally, including when there’s a child who’s disabled or has special needs. A child may also suffer from an addiction and require a trust that provides stipends at regular intervals to the beneficiary and deters creditors from getting money in the trust.
Mistake #4: Failing to give while you’re still alive. If you're planning to leave money to your kids, you might think about giving it to them now. You can give up to $15,000 per person without having to pay the federal gift tax or deal with the IRS. Plus, your spouse may also give the same amount.
Mistake #5: Failing to work with an experienced estate planning attorney. If you're older and on your second marriage, your life is probably complex with ex-spouses and children and stepchildren. Blended families and comingled assets make things complicated, as does a child with special needs or an aging parent. An experienced estate planning attorney can work through all of your issues and make sure you have the best and most comprehensive plan for your circumstances.
Reference: The Wealth Advisor (July 12, 2021) “Remarried With Children? 5 Estate Planning Mistakes to Avoid”

Should a Trust Be a Component of My Estate Planning?

 

Let’s say that there’s a young father with a wife and young son, who owns a home and a Roth IRA account, with a few stock investments. On the stock investments, he’s filled out the beneficiary designation forms passing all his assets to his wife and son, should anything happen to him.
This father owns his home is joint tenancy with right of survivorship with his wife.
Does he need to set up a separate trust, if most of his assets pass through beneficiary designations?
Nj.com’s recent article entitled “Do I need a trust in case something happens to me?” says that leaving assets outright to a minor is typically a bad move. The son’s guardian and/or the court would take custody of the assets, both of which require significant court oversight and involvement.
The minor would also receive the assets upon attaining the age of majority, which in most states is age 18.
No one can tell what a young child will be like at the age of 18, especially after suffering the loss of their parents. Even if there are no significant issues, such as drug addiction or special needs, parents should think about what they’d have done with that much money at that age.
The best option is to leave assets in trust for the benefit of the minor son.
The trustee can manage and use the assets for the benefit of the young boy with limited court involvement.
The terms of the trust can also delay the point at which the assets can be distributed and ultimately paid over to the beneficiary, if at all.
For example, it’s not uncommon for a trust to stipulate that the beneficiary gets a third of the assets at 25, half of the remaining assets at 30 and the rest at age 35. However, other trusts don’t provide for such mandatory distributions and can hold the assets for the beneficiary’s lifetime, which has its advantages.
In some instances, the terms of the trust are included in a will. This creates a trust account after death, which is also called a testamentary trust.
Talk to an experienced estate planning attorney, who can assess your specific situation and provide guidance in creating an estate plan. The attorney can also make certain that trust assets are correctly titled and that beneficiary designations of retirement accounts and life insurance are correctly prepared, so the trust under the will receives those assets and not the minor individually.
Reference: nj.com (June 14, 2021) “Do I need a trust in case something happens to me?”

What are Top ‘To-Dos’ in Estate Planning?

 

Spotlight News’ recent article entitled “Estate Planning To-Dos” says that with the potential for substantial changes to estate and gift tax rules under the Biden administration, this may be an opportune time to create or review our estate plan. If you are not sure where to begin, look at these to-dos for an estate plan.
See an experienced estate planning attorney to discuss your plans. The biggest estate planning mistake is having no plan whatsoever. The top triggers for estate planning conversations can be life-altering events, such as a car accident or health crisis. If you already have a plan in place, visit your estate planning attorney and keep it up to date with the changes in your life.
Draft financial and healthcare powers of attorney. Estate plans contain multiple pieces that may overlap, including long-term care plans and powers of attorney. These say who has decision-making power in the event of a medical emergency.
Draft a healthcare directive. Living wills and other advance directives are written to provide legal instructions describing your preferences for medical care, if you are unable to make decisions for yourself. Advance care planning is a process that includes quality of life decisions and palliative and hospice care.
Make a will. A will is one of the foundational aspects of estate planning, However, this is frequently the only thing people do when estate planning. A huge misconception about estate planning is that a will can oversee the distribution of all assets. A will is a necessity, but you should think about estate plans holistically—as more than just a will. For example, a modern aspect of financial planning that can be overlooked in wills and estate plans is digital assets. It is also recommended that you ask an experienced estate planning attorney about whether a trust fits into your circumstances, and to help you with the other parts of a complete estate plan.
Review beneficiary designations. Retirement plans, life insurance, pensions and annuities are independent of the will and require beneficiary designations. One of the biggest estate planning mistakes is having outdated beneficiary designations, which only supports the need to review estate plans and designated beneficiaries with an experienced estate planning attorney on a regular basis.
Reference: Spotlight News (May 19, 2021) “Estate Planning To-Dos”

Why are Beneficiary Designations Important in Estate Planning?

Not having your beneficiary designations set up correctly can cause a lot of trouble after you pass away.
A designated beneficiary is named on a life insurance policy or on a financial account as the person who will receive those assets, in the event of the account holder's death.
This person usually must file a claim with a copy of the death certificate to receive the assets.
NJ Money Help’s recent article entitled “Beneficiary designation – specific or not?” says that naming a beneficiary takes a little consideration.
When naming the beneficiaries on your accounts or insurance policies, you should always consider a primary and secondary (or contingent) beneficiary.
The owner of a policy or account can name multiple beneficiaries. The proceeds or assets can be divided among more than one primary beneficiary. Likewise, there can also be more than one secondary beneficiary.
The primary beneficiary or beneficiaries are the first ones to receive the asset. The secondary beneficiary is second next in line, if the primary beneficiary dies before the owner of the asset, can’t be found, or refuses to accept the asset.
Note that simply naming beneficiaries in generic terms, such as “wife,” “spouse”’ or “children,” may create legal issues, if there’s a divorce or in case someone becomes disenfranchised.
It is always best to name your beneficiaries specifically and if they are minors, make certain you have designated a guardian.
Because our lives are constantly changing, you should review your life insurance policies, IRAs, 401(k)s, and any other instruments that require beneficiary designations every couple of years to make certain that everything is exactly the way you want.
Reference: NJ Money Help (Oct. 2017) “Beneficiary designation – specific or not?”

Why Do I Need Estate Planning?

Many people who failed to plan their estate with the help of an experienced estate planning attorney have their assets tied up in lengthy, and often messy, legal battles that were decided by people not of their choosing.
Forbes’ recent article entitled “Everyone Needs An Estate Plan: Here's What You Need To Know” says that although many of us don't have quite as much at stake financially, it doesn't mean that estate planning is any less important. In fact, leaving a legacy, passing down wealth and helping family aren’t things that are just for the ultra-rich.
The biggest misstep is not creating an estate plan at all. This is more than just a last will and includes powers of attorney, healthcare directives, a living will and a HIPAA waiver. People put this important responsibility off because they do not want to contemplate their own death. They try to avoid the subject. Some others may have complex family dynamics, and still others are hesitant to confide their complicated relationships with a lawyer. However, all these are just excuses.
We know that life is full of changes, and people get married, divorced, have children and grandchildren, relocate to different states, change careers and get inheritances. Each of these events could make you reconsider your goals. This may necessitate an update to your estate plan.
You need to review the beneficiaries on your IRAs, life insurance policies and pensions. You should look at how you want your heirs to receive your assets and any charitable or philanthropic notions. With powers of attorney, healthcare directives, living wills and HIPAA waivers, you need to think about who you’ll entrust to make important medical and financial decisions for you, if you become incapacitated. You see these critical questions and many others are fluid and prone to change every few years as your life changes.
Remember that your assets receive different treatment from the IRS based on the type and who owns legally owns them. For example, individual retirement accounts (IRAs), Roth IRAs, traditional brokerage accounts, life insurance policies and bank accounts are different than the family home. Therefore, it’s important to be mindful of which assets are left to whom.
Don’t wait. Speak to an experienced estate planning attorney to be certain that you give this process the attention it deserves for the well-being of you and your family.
Reference: Forbes (Feb. 26, 2021) “Everyone Needs An Estate Plan: Here's What You Need To Know”

What’s the Difference between Per Stirpes vs. Per Capita in Estate Planning?

 

 

When creating an estate plan, one of the basic documents you need is a will. In estate planning, it’s important to distinguish between per stirpes and per capita distributions. These are two terms you are likely to come across when creating your estate plan, says Yahoo Finance’s recent article entitled “Per Stirpes vs. Per Capita in Estate Planning.”
Per stirpes is Latin and means “by branch” or “by class.” When this term is used in estate planning, it refers to the equal distribution of assets among the different branches of a family and their surviving descendants. This lets the descendants of a beneficiary keep inherited assets within that branch of their family, even if the original beneficiary passes away. The assets would be equally divided between the survivors. Per stirpes distributions essentially create a “trickle-down” effect: assets can be passed on to future generations if a primary beneficiary passes away.
In contrast, “per capita” is also a Latin term that means “by head.” When you use a per capita distribution method for estate planning, any assets you have would pass equally to the beneficiaries who are still living when you pass. The share portions would adjust accordingly, if one of your children or grandchildren were to die before you.
Whether it makes sense to use a per stirpes or per capita distribution in your estate plan can depend for the most part, the way in which you want your assets to be distributed after you’re gone.
Per stirpes allows you to keep asset distributions within the same branch of the family and eliminates the need to amend or update wills and trusts when a child is born to one of your beneficiaries or a beneficiary passes away. This method can also help to minimize the potential for infighting among beneficiaries, since asset distribution takes a linear approach. However, an unwanted person could take control of your assets.
With per capita, you can state precisely who you want to name as beneficiaries and receive part of your estate. The assets are distributed equally among beneficiaries, based on the value of your estate at the time you pass away.
Per stirpes and per capita distribution rules can help you determine how your assets are distributed after you die.
Talk with an experienced estate planning attorney to fully understand the implications of each one for your beneficiaries, including how they may be affected from a tax perspective.
Reference: Yahoo Finance (Jan. 7, 2021) “Per Stirpes vs. Per Capita in Estate Planning”

When Did You Last Review Beneficiary Designation Forms?

For many people, naming beneficiaries occurs when they first set up an account, and it’s rarely given much thought after that. The Street’s recent article entitled “Secure your IRA – Review Your Beneficiary Forms Now” says that many account holders aren’t aware of how important the beneficiary document is or what the consequences would be if the information is incorrect or is misplaced. Many people are also surprised to hear that wills don’t cover these accounts because they pass outside the will and are distributed pursuant to the beneficiary designation form.
If one of these accounts does not have a designated beneficiary, it may be paid to your estate. If so, the IRS says that the account has to be fully distributed within five years if the account owner passes before their required beginning date (April 1 of the year after they turn age 72). This may create a massive tax bill for your heirs.
Get a copy of your listed beneficiaries from every institution where you have your accounts, and don’t assume they have the correct information. Review the forms and make sure all beneficiaries are named and designated not just the primary beneficiary but secondary or contingent beneficiary. It is also important tomake certain that the form states clearly their percentage of the share and that it adds up to 100%. You should review these forms at any life change, like a marriage, divorce, birth or adoption of a child, or the death of a loved one.
Note that the SECURE Act changed the rules for anyone who dies after 2019. If you don’t heed these changes, it could result in 87% of your hard-earned money to go towards taxes. For retirement accounts that are inherited after December 31, 2019, there are new rules that necessitate review of beneficiary designations:
The new law created multiple “classes” of beneficiaries, and each has its own set of complex distribution rules. Make sure you understand the definition of each class of beneficiary and the effect the new rules will have on your family.
Some trusts that were named as beneficiaries of IRAs or retirement plans will no longer serve their original purpose. Ask an experienced estate planning attorney to review this.
The stretch IRA has been eliminated for most non-spouse beneficiaries. As such, most non-spouse beneficiaries will need to “empty” the IRA or retirement account within 10 years and they can’t “stretch” out their distributions over their lifetimes. Failure to comply is a 50% penalty of the amount not distributed and taxes due.
For many, the beneficiary form is their most important estate planning document but the most overlooked.
Reference: The Street (Dec. 28, 2020) “Secure your IRA – Review Your Beneficiary Forms Now”

Should I Add that to My Will?

In general, a last will and testament is an easy and straightforward way to state who gets what when you die and designate a guardian for your minor children, if you (and your spouse) die unexpectedly.

MSN’s recent article entitled “Things you should never put in your will” explains that you can be specific about who receives what. However, attaching strings or conditions may not work because there’s no one to legally enforce the terms. If you have specific details about how a person should use their inheritance, whether they are a spendthrift or someone with special needs, a trust may be a better option because you’ll have more control, even from beyond the grave.

Keeping some assets out of your will can actually benefit your future heirs because they’ll get their inheritance faster. When you pass on, your will must be “proven” and validated in a probate court prior to distribution of your property. This process takes some time and effort, if there are issues—including something in your will that doesn’t need to be there. For example, property in a trust and payable-on-death accounts are two types of assets that can be distributed to your beneficiaries without a will.

Don’t put anything in a will that you don’t own outright. If you jointly own assets with someone, they will likely become the new owner. For example, this applies to a property acquired by married couples in community property states.

Property in a revocable living trust. This is a separate entity that you can use to distribute your assets which avoids probate. When you title property into the trust, it is subject to the trust’s rules.  Because a trust operates independently, you must avoid inconsistencies and not include anything in your will that the trust addresses.

Assets with named beneficiaries. Some financial accounts are payable-on-death or transferable-on-death. They are distributed or paid out directly to the named beneficiaries. That makes putting them in a will unnecessary (and potentially troublesome, if you’re inconsistent). However, you can add information about these assets in your letter of instruction (see below). As far as bank accounts, brokerage or investment accounts, retirement accounts and pension plans and life insurance policies, assign a beneficiary rather than putting these assets in your will.

Jointly owned property. Property you jointly own with someone else will almost always directly pass to the co-owner when you die, so do not put it in your will. A common arrangement is joint tenancy with rights of survivorship.

Other things you may not want to put in a will. Businesses can be given away in a will, but it’s not the best plan. Wills must be probated in court and that can create a rough transition after you die. Instead, work with an experienced estate planning attorney on a succession plan for your business and discuss any estate tax issues you may have as a business owner.

Adding your funeral instructions in your will isn’t optimal. This is because the family may not be able to read the will before making arrangements. Instead, leave a letter of instruction with any personal wishes and desires.

Reference: MSN (Dec. 8, 2020) “Things you should never put in your will”

What are the Biggest Estate Planning Mistakes?

One of the largest wealth transfers our nation has ever seen is about to occur, since in the next 25 years, roughly $68 trillion of wealth will be passed to succeeding generations. This event has unique planning opportunities for those who are prepared, and also big challenges due to the ever-changing legal and tax world of estate planning.
Fox Business’ article “5 estate planning disasters you'll want to avoid,” discusses the biggest estate planning errors to avoid.
Failing to properly name beneficiaries. This common estate planning mistake is easily overlooked, when setting up a retirement plan for the first time or when switching investment companies. A big advantage of adding a beneficiary to your account, is that the account will avoid probate and pass directly to your beneficiaries.
Any account with a properly listed beneficiary designation will override what is written in your will or revocable living trust. Therefore, you should review your investment and bank accounts to make certain that your beneficiaries are accurate and match your intentions.
Naming a minor as a beneficiary. This can be a problem, if they are still minors when you die. A minor won’t have the legal authority to take control of inheritance or investment accounts until they reach the age of 18 or 21 (depending on state law). When a minor receives an asset as a beneficiary, a court-appointed guardianship will be created to supervise and manage the assets on behalf of the minor. To avoid this mistake, you can name a guardian for the minor child in your will.
Forgetting to fund a trust. Creating a trust is the first step, but many people don’t properly fund their trust after it’s established.
Making a tax mess for your heirs. A significant advantages of passing on real estate or other highly appreciated investments or property, is that your beneficiaries receive what is known as a “step-up” in basis, so that they aren’t responsible for any income taxes on the appreciated assets when they are received. The exception is when inheriting retirement accounts, such as 401k’s and traditional IRAs. Except for a surviving spouse, inheriting a traditional IRA or 401k means that you are now responsible for the taxes owed. With the recent passage of the SECURE Act, most non-spouse beneficiaries must totally withdraw a 401k or IRA within 10 years. It is deemed to be ordinary income for beneficiaries, which could result in a huge tax bill for your heirs. To avoid this, you can convert some or all of your retirement account assets to a Roth IRA during your lifetime, which lets you to pay the conversion taxes at your current income tax rate—a rate that may be much lower than your children or grandchildren’s tax rate. When you pass away, any money that is passed inside a Roth IRA goes tax-free to your heirs.
Failing to create a comprehensive estate plan. Properly establishing your estate plan now, will care for your loved ones financially, and can also save them a lot of emotional stress after you’re gone.
Talk to an experienced estate planning attorney about planning now. It can really affect your family for generations. It is one of the best gifts that you can leave your family.
Reference: Fox Business (Nov. 12, 2020) “5 estate planning disasters you'll want to avoid”

For Want Of A Beneficiary Will The IRA Be Lost? Saginaw, Michigan

Probate can be a difficult and long process. In fact, anything involving the court system is rarely quick and painless. Fortunately, IRAs can easily transfer to your loved ones outside of probate simply by completing a beneficiary designation form. Well what if there was no beneficiary designation form completed? How do the heirs or the executor figure this one out? The slightly messy situation of an IRA left without a beneficiary was tackled recently by Ed Slott’s blog, The Slott Report. The article, titled “There is No Beneficiary on the Retirement Account: Now What?,” is the perfect encouragement to ensure that every beneficiary form is filled out and up to date. The good news is that many accounts have a built-in default to the surviving spouse or children of the owner. Problem: What if that runs contrary to your estate plan? Alternatively, what if the account has no default? In all likelihood the account will then default to your probate estate and will be treated as any old bank account going through probate. Aside from probate itself, there are lots of rules regarding how IRAs can be inherited and used by the inheritor. They must take distributions just like you do, but when the IRA defaults to your probate estate it gets messy – and fast. The IRA can be assigned/transferred into a properly titled new account, but then again some IRA custodians simply refuse to do this, making the irreversible and catastrophically taxable choice to distribute the entire account to the estate. Simply put, an IRA not acting like an IRA within the estate plan is messy. It is easily avoidable by filling out the beneficiary form and keeping it up to date. In some situations this requires being proactive. For example, when a surviving spouse inherits an IRA but passes before naming a new designated beneficiary to the account.

Reference: The Slott Report (January 9, 2014) “There is No Beneficiary on the Retirement Account: Now What?”

For more information, see www.jerryreiflawyer.com

Are Your Beneficiary Designations Up-To-Date? Saginaw, Michigan

A lot can happen in a year. Whether small or life-changing, ignore changes to your peril. This is especially true when it comes to your estate planning. Often, the biggest mistakes we can make when it comes to our estate planning are also some of the easiest to prevent. For example, the consequences of failing to update your beneficiary designations can be catastrophic, while the “fix” is as easy as a phone call or completing a paper (or online) form. A recent Forbes article titled “The Big Estate-Planning Goof You May Be Making” puts the importance of proper beneficiary designations in perspective. With the New Year upon us and our resolutions still holding up (or newly renewed?), this may be a good time to review the beneficiary designations we have made for our assets. You see, beneficiary designations are a peculiar thing. They carry with them very important powers for good or ill. Many accounts from IRAs to policies of one type or another offer the chance to name a beneficiary. Ultimately, the beneficiary will automatically assume ownership of the account upon your passing. That is powerful. For starters, assets that pass by beneficiary designation escape probate. For a basic tutorial on the distinction between probate and non-probate assets, click here for a good, general explanation from ElderLawAnswers.com. So, what happens when your life changes and someone named as beneficiary a good long time ago is simply no longer appropriate (read: the ex-spouse, or other horror-story staples)? Well, they still get it. Bottom line: begin the New Year right with a review of your current estate plan and beneficiary designations. Make sure they are consistent and not in conflict with your wishes.

Reference: Forbes (December 16, 2013) “The Big Estate-Planning Goof You May Be Making

For more information, see www.jerryreiflawyer.com

 

For Want Of A Beneficiary Will The IRA Be Lost? Mid-Michigan

Probate can be a difficult and long process. In fact, anything involving the court system is rarely quick and painless. Fortunately, IRAs can easily transfer to your loved ones outside of probate simply by completing a beneficiary designation form. Well what if there was no beneficiary designation form completed? How do the heirs or the executor figure this one out? The slightly messy situation of an IRA left without a beneficiary was tackled recently by Ed Slott’s blog, The Slott Report. The article, titled “There is No Beneficiary on the Retirement Account: Now What?,” is the perfect encouragement to ensure that every beneficiary form is filled out and up to date. The good news is that many accounts have a built-in default to the surviving spouse or children of the owner. Problem: What if that runs contrary to your estate plan? Alternatively, what if the account has no default? In all likelihood the account will then default to your probate estate and will be treated as any old bank account going through probate. Aside from probate itself, there are lots of rules regarding how IRAs can be inherited and used by the inheritor. They must take distributions just like you do, but when the IRA defaults to your probate estate it gets messy – and fast. The IRA can be assigned/transferred into a properly titled new account, but then again some IRA custodians simply refuse to do this, making the irreversible and catastrophically taxable choice to distribute the entire account to the estate. Simply put, an IRA not acting like an IRA within the estate plan is messy. It is easily avoidable by filling out the beneficiary form and keeping it up to date. In some situations this requires being proactive. For example, when a surviving spouse inherits an IRA but passes before naming a new designated beneficiary to the account

Reference: The Slott Report (January 9, 2014) “There is No Beneficiary on the Retirement Account: Now What?”

For more information, see www.jerryreiflawyer.com

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