Michigan Estate Planning Blog

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?”

 

What Should I Know about Lady Bird Deeds?

 

Enhanced life estate deeds, also called Lady Bird deeds, can be a great tool to transfer ownership of real property at death. This type of deed got its nickname when President Lyndon B. Johnson used one to convey property to his wife, Lady Bird.

Florida Today’s recent article entitled, “Real estate transfers: Is a 'Lady Bird deed' right for me?” explains that Lady Bird deeds are a type of life estate deed designed to automatically transfer property ownership upon the death of the original owner to another individual. However, they don’t require the original owner to give up use, control, or ownership of the property while alive.

The beneficial receiver of the property upon death doesn’t get any immediate rights or ownership interests in the property. Their consent isn’t needed to sell, convey, or change the use of the property while the original owner is alive. The Lady Bird deed is rendered obsolete if the original owner sells or conveys the property in their lifetime. However, if the original owner passes away, the property subject to the Lady Bird deed is automatically conveyed to the beneficial recipient without needing to pass through probate.

With a traditional Life Estate deed, the original owner must give up control when adding a beneficial recipient. This means the original owner is prohibited from selling, conveying, or encumbering the property without explicit consent from the beneficial recipient. The original owner also can’t change or end a traditional Life Estate deed without consent from the beneficial recipient.

Here are the benefits of a Lady Bird deed:

Properties can be conveyed at death without having to pass through probate.

The original owner remains in full control of the property while they’re alive.

Recording a Lady Bird deed doesn’t impact the current owner’s homestead protection and exemptions.

Any property subject to a Lady Bird deed doesn’t violate Medicaid’s five-year look-back period and isn’t subject to gifting taxes or penalties, since the beneficial owner doesn’t immediately possess any ownership rights.

Here are the downsides of a Lady Bird deed:

Doesn’t protect non-homestead properties from any judgment liens issued against the original owner during their lifetime.

A Lady Bird deed can be an effective tool to transfer property outside of probate. However, as in any real estate transaction or estate planning endeavor, it is necessary to have a knowledgeable estate planning attorney to discuss your desired outcome and best course of action for your specific situation.

Reference: Florida Today (June 9, 2023) “Real estate transfers: Is a 'Lady Bird deed' right for me?”

 

What Should I Know About Living Trusts?

Roughly a fifth of Americans use living trusts as part of their estate plans. It is a sensible option for many retirees.

Motley Fool’s recent article, “What Is a Living Trust?” explains that a living trust is also known as a revocable or inter vivos trust.

It's a legal document that lets people transfer their assets into a trust while alive. In doing so, the individual, known as a grantor or settlor, can manage the trust until they die and make changes as necessary.

A living trust ensures that your assets are distributed according to your wishes after your death. It has several advantages over other methods, since it replaces a will. First, it lets your descendants or beneficiaries avoid probate court, which can be time-consuming. A living trust can also protect your and your family's privacy. A will, on the other hand, becomes a public record once it enters probate.

The revocable nature of the trust permits you to make changes as needed or even revoke it if you decide it no longer suits your needs. Finally, a living trust also makes it simple for someone else to manage your assets if you become incapacitated, avoiding the need for a court-appointed guardian or conservator.

Among the drawbacks of a living trust is requiring their own sets of record-keeping and filed tax returns. That’s because a trust is a separate financial entity from your own assets. Living trusts also have a more extended contesting period than wills, allowing beneficiaries to protest any distribution from the trust for one to five years after your death.

A living trust can help ensure that people with blended families or complicated family situations can control how their assets are distributed. For example, if you had children from a previous marriage but remarried, you'd want to ensure your spouse and your children are cared for, even if they're at odds.

Ask an experienced estate planning attorney if a living trust makes sense.

Reference: Motley Fool (July 20, 2023) “What Is a Living Trust?”

 

How to Find Out If a Person has a Will

The American Reporter’s recent article entitled “How to Find Out if Someone Has a Will” explains that if a will has been made a public record, anyone can view it. However, when the existence of a will is unknown, only immediate family members or the executor or personal representative of the estate may attempt to locate and access it.

Contact Family and Close Friends. If you want to find out if someone has a will, you can ask immediate family members and close friends. This allows you to gather crucial information and determine if a will exists.

Ask the Person’s Attorney. See if there’s any contact information, such as business cards or documents, among the person’s belongings. Explain your situation and request their assistance in locating the will. They might have kept a copy or records indicating the document's existence.

Look for Relevant Documents. While searching for a will, looking for related documents that might give you some idea of its location is essential. Start by examining the person’s files, safes, and safety deposit boxes. You can also review financial records, like bank statements and insurance policies, which might reference a will or the person’s attorney. You should also look at digital files, such as email accounts and cloud storage, for electronic copies.

Ask the Probate Court. If you’ve exhausted all other options, you may contact the probate court and explain your situation to the court clerk. However, if a will exists, it may only be available for public access after the individual’s death.

Discovering whether a person has a will is an important step in estate planning.

By contacting family members, reaching out to attorneys, searching for relevant documents and checking with the probate court, you can collect the necessary information to navigate the estate settlement process efficiently and respect the wishes of the decedent.

It’s important to know if you’re legally allowed to do this search and abide by any rules associated with the process.

Reference: The American Reporter (June 16, 2023) “How to Find Out if Someone Has a Will”

 

How to Speak With Mom and Dad About Estate Planning

 

The estate planning process typically includes making a list of your assets and debts, determining the beneficiaries of your property, and establishing a power of attorney (a person who can act on your behalf to handle your finances, healthcare, or other needs, if you become incapacitated).

The Milwaukee Journal-Sentinel’s recent article, “Five tips for having a conversation with your loved one about estate planning,” gives us some ideas to make the conversation easier.

Learn the laws. Know your state's probate laws when you talk to family members about estate planning. Some states’ laws say that if a family member dies intestate (without a will), their assets — if they have any — go directly to their children. However, this can present issues if there are no children or multiple children and no one, such as a trustee or executor, to carry out the dead loved one's wishes.

Start early. The earlier these discussions happen, the better. In many cases, people wait until they’re already sick and having problems before they even begin to think about estate planning. Involve loved ones early, so they feel invested in seeing it through and that planning will help ensure that their death does not burden the ones they love.

Keep discussions empathetic and brief. Family visits or holiday gatherings are good times to discuss estate planning. It's important to remind relatives that planning protects their wishes. Ask open-ended questions, such as, "Let’s talk about your legacy or how you would like to give back to your family or your community."

Remind your loved one they're in control — and estate planning helps them stay that way. Leaving your loved one out of the planning process can result in their wishes being misinterpreted or not represented.

Note that the person creating the will should consult an experienced estate planning attorney.

Reference: Milwaukee Journal-Sentinel (April 25, 2023) “Five tips for having a conversation with your loved one about estate planning”

What Should I Know About Estate Planning?

Estate planning is the process of making the necessary preparations to ensure that your entire estate is transferred to the intended people when you die. Estate planning is essential, and your family may suffer financially without it.

Tech Bullion’s recent article, “Six Reasons Why Estate Planning is an Essential Part of Life,” highlights why you must consider estate planning immediately.

Reducing Tax Burdens and Expenses: An estate plan can protect your assets from estate and inheritance taxes imposed by the government. By carefully planning your estate, you can minimize the tax burden and ensure that your assets are transferred to your heirs with as little taxation as possible.

Keep Control of Asset Distribution: Estate planning allows you to have the authority to choose your inheritors and that your assets are transferred to the right people. Without an estate plan, the court will distribute assets.

Keep Your Assets from Probate: An effective way to prevent conflicts within your family is by ensuring that your estate doesn’t go through probate. Estate planning approaches let assets pass directly to beneficiaries without court involvement, reducing costs, delays and potential family conflicts.

Estate Planning Can Protect Beneficiaries: Creating a plan will ensure that beneficiaries receive their rightful inheritance as you desire. A comprehensive estate plan can shield beneficiaries from potential threats like creditors or opportunistic family members who might try to exploit the situation.

To Prevents Conflict Among Families: Estate planning can prevent family fights from occurring in inheritance disputes. Establishing clear guidelines and expectations for asset distribution among beneficiaries will permit fair treatment of all family members, minimizing the likelihood of arguments or disagreements over the division of the estate in the future.
Eases the Burden on Loved Ones: Estate planning is an opportunity to leave behind invaluable instructions on how their assets should be managed and divided.

By proactively creating an estate plan, you can ensure that your family is spared from the potential hardships of lack of planning.

Reference: Tech Bullion (May 27, 2023) “Six Reasons Why Estate Planning is an Essential Part of Life”

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?”

Why Do I Need an Estate Planning Attorney?

An experienced estate planning attorney provides numerous benefits because estate planning is a necessary process to help ensure that your assets are distributed as you wish after you pass away. An attorney can help you work through the complex legal and financial issues involved in estate planning and ensure your assets are protected and your family is cared for.

Digital Crime’s recent article, “The Benefits of Having a Will and Estate Planning Lawyer,” says that many folks are hesitant to plan their estates because they find the process overwhelming or don’t know where to begin. An experienced estate planning attorney can help you understand the different estate planning options available to you and counsel you through the process, making it easier and less stressful.

Another benefit of working with an estate planning lawyer is the ability to tailor your plan to meet your specific needs and goals. It’s not a one-size-fits-all process; an experienced attorney can help you design your plan to reflect your unique circumstances.

An estate planning attorney can also help you minimize taxes and other expenses associated with estate planning. That’s because the tax laws concerning estate planning are complex and challenging to navigate without professional legal help.

An experienced attorney can help you craft your estate plan to minimize tax liability and ensure that your assets are distributed efficiently and cost-effectively.

Also, a will and estate planning lawyer can help you avoid potential legal disputes and challenges to your estate plan. Estate planning documents are legal documents. As such, any errors or omissions can result in legal disputes that can be time-consuming, costly, and emotionally draining for your family. An experienced estate planning attorney will help you avoid these problems by ensuring that your estate plan is properly drafted and executed in accordance with state and federal law.

Finally, an experienced estate planning attorney can help you stay up to date with changes in the law and your circumstances.

Planning your estate can be a complex and daunting process, but working with a will and estate planning lawyer can make it easier, more efficient, and more effective.
Reference: Digital Crime (April 12, 2023) “The Benefits of Having a Will and Estate Planning Lawyer”

Should My Kids Get an Equal Inheritance?

Equal inheritances have become less common. According to research, the proportion of parents over 50 who reported treating children unequally in their wills rose from 16% to almost 35% between 1995 and 2010.
The News and Record’s recent article, “When Leaving an Unequal Inheritance Makes Sense,” says that leaving unequal inheritances can be risky. A third of Americans say their financial stability depends on receiving an inheritance, and the stakes can be high for siblings — and their parents.
It may be easier to divide your assets evenly among your beneficiaries. Still, you might feel strongly about helping an adult child who’s struggling or want to leave less to a child you’ve already financially supported. One of the most common reasons people leave unequal inheritances is to address uncompensated caregiving from an adult child. A 2018 Merrill Lynch and Age Wave study found that two-thirds of the respondents said that children who have provided care to them in their later years should receive a larger inheritance than those who didn’t.
When a child has had to compromise their lifestyle to care for a parent — such as giving up a job or working part-time instead of full-time — the parent understands the sacrifice and often wants to favor that child with the inheritance. And the Merrill Lynch and Age Wave study says many parents also feel that children who need the money most should get more. That may mean leaving less to relatively well-off kids.
While unequal inheritances are frequently designed to reward children for their help or to ensure kids are left in the best financial condition possible, fights can flare up if one sibling feels that another sibling didn’t “earn” the extra inheritance. Here are a few things that may help reduce any friction:
1. Explain your wishes. Explain what you’ve decided to leave your heirs and why before it’s too late. Include an estate planning attorney to be sure everyone understands the tax implications and liabilities associated with the assets.
2. Add a deterrent. Despite your explanation, your heirs may still not agree with your choices and decide to contest the will in probate court. You can discourage this by adding a no-contest clause stipulating, for instance, that anyone who contests the will and loses forfeits the right to any inheritance.
3. Invest in meaningful relationships. Financial need can certainly motivate a person to contest a parent’s will in court. However, emotional baggage can also have an effect. Sibling resentments can surface at the end of a parent’s life, and a larger inheritance may look like a preference for a “favored” child. The more secure children feel in their relationships with their parents, the more likely they will accept the decision to leave an unequal inheritance.
Reference: News and Record (April 13, 2023) “When Leaving an Unequal Inheritance Makes Sense”

What are the Basics of Trusts?

Trusts aren’t just for the uber-wealthy; using one in your estate plan can make sense no matter how much money you have. But work with an experienced estate planning attorney to see if a trust is right for your situation.

A survey by Wealth.com found that three-quarters (76%) of respondents created an estate plan to take care of their families.

A trust could help you achieve that goal with its combination of privacy, asset protection, and the ability to avoid the potentially drawn-out process of probate.

Fortunes’ recent article, “Understanding trusts: An important estate planning tool for everyday

Americans,” explains that at its core, a trust is a legal document that creates a triangle-like relationship between three different parties: the trust, its trustee, and its beneficiaries.

The trust is the legal entity that holds title to the assets;

The trustee is the trust’s decision-maker; and

The beneficiaries are those who receive assets from the trust.

A trust—created by the grantor—says how assets can be used during their lifetime and how they should pass to the grantor’s beneficiaries when they die. Trusts offer an added estate planning perk: avoiding probate.

And while the word “trust” might be intimidating, they’re just arrangements that most people already use in their day-to-day finances.

While there are different types of trusts, they all work the same way. The grantor establishes the trust and specifies how the assets in the trust should be managed and transferred to the beneficiaries at their death.

The grantor will put assets in the trust, which removes the assets from the grantor’s name and estate. In addition, the grantor names a trustee, the person charged with making the day-to-day decisions for the trust, its assets, and its beneficiaries. When the grantor dies, the trustee will direct the distributions of assets held in the trust according to the trust’s terms.

You can create a trust by contracting with an estate planning attorney.

Reference: Fortune (June 9, 2023) “Understanding trusts: An important estate planning tool for everyday Americans”

What Is a ‘Step-Up’ in Basis in Estate Planning?

Let’s say that you have a condominium in New York that’s currently being rented out, and you retired to Florida. You plan to sell the apartment within the next year or two, which is in your name, not your trust.

However, the question arises if you didn’t sell it and put it in trust, would the condo get the stepped-up basis if it were sold after we pass away, asks Market Watch’s recent article entitled, “Will our condo get a step-up in basis if we put it in trust?”

The answer is yes for revocable trusts and most irrevocable trusts.

Trusts can be beneficial for out-of-state property to avoid two probate processes upon the death of the owners, one in their state of residence and one where the out-of-state property is located. These are usually revocable trusts. Irrevocable trusts may be used for other purposes, such as asset protection.

The “step-up” in basis concerns the calculation of the capital gains on the sale of property. The capital gain is the difference between net proceeds on sale and the basis. The initial basis is the purchase price of the property. The cost of any improvements may be added to it.

So, for instance, if you paid $500,000 for your condominium and spent $100,000 replacing the kitchen, the basis would be $600,000. If you sold the apartment for $1 million, your capital gain would be $400,000.

The step-up in basis is another adjustment that occurs when an owner dies. At that time, the basis is adjusted to the date-of-death fair market value of the property. This is commonly called a “step-up” in basis because real-estate values typically increase over time, so the new basis is typically higher than the old one.

In the example, if the condo had a market value of $1 million upon the death of the owner, that would become the new basis. If the property were sold, any capital gain would be only an increase in value after death.

To receive a step-up in basis on a property upon the death of the owner, it must be in their taxable estate. All property in a revocable trust created by the decedent is in their taxable estate.

Whether an irrevocable trust is in the decedent’s taxable estate depends on how it’s drafted. Ask an experienced estate planning attorney to draft an irrevocable trust for estate inclusion and consequently a step-up in basis if that’s your goal.

Reference: Market Watch (April 7, 2023) “Will our condo get a step-up in basis if we put it in trust?”

 

What are the Benefits of Making a Living Trust?

A living trust is a legal arrangement established by the grantor in their lifetime to protect their assets and instruct distribution after the grantor's death.
Forbes’ recent article entitled, “What Is A Living Trust? Definition, Pros & Cons” provides some of the advantages of having a living trust in place:

Assets Held in Trust Transfer Outside the Probate Process. The successor trustee arranges the transfer of assets through the trust administration process. This process is quicker than the probate process, which can take months or even years to facilitate the transfer of assets to those who inherit them. The probate process is also public record. However, the assets in a trust transfer privately.

The Successor Trustee Manages Assets in Case of Incapacity. If you become incapacitated, you can say that the successor trustee assumes management of trust assets. This will spare your family from going to court to appoint a guardian or conservator if you don’t have a trust or a power of attorney.

You Keep Control Over Assets During Your Lifetime. Unlike an irrevocable trust that generally can’t be changed and requires you to forfeit control of your assets, you keep control over the property you transfer into your living trust. Not only can you be the trustee during your lifetime, but you can also modify the terms of the living trust or cancel it at any time.

You Reduce the Risk of the Wishes Being Challenged. A will can be contested if you pass away, which could be very expensive and potentially result in your chosen beneficiaries not receiving the assets you wanted to be transferred to them. A trust can be contested. However, it can be more challenging to show a problem that makes it invalid—especially if the trust was in effect for a long time before you passed away.

There are also some disadvantages of a living trust Let’s take a look:

A Living Trust Doesn’t Provide Solid Asset Protection. When you make a living trust, creditors can still go after trust assets because you retain control of the property. If you go into a nursing home, the assets held in your living trust are counted when determining if you are eligible for Medicaid to pay for your nursing home.

A Living Trust Doesn’t Avoid Estate Tax. While assets held in a living trust don’t pass through the probate process, they’re still considered part of your taxable estate.

Reference: Forbes (May 12, 2023) “What Is A Living Trust? Definition, Pros & Cons”

 

What Are the Details About Probate?

Probate is started when an individual files a petition for probate in the state's probate court system.

The petition is normally filed by the executor of the deceased's will or by a member of the deceased's family. The person filing the petition must also file the original last will and testament and a copy of the certified death certificate.

In the initial hearing, the probate court appoints the executor for the deceased's estate. This individual is responsible for distributing the deceased's estate to the proper beneficiaries, among other administrative duties.

The court grants the executor with Letters Testamentary (or Letters of Administration), which gives the executor the authority to pay bills, sell assets and perform other tasks, says Investopedia’s recent article, “What Is Probate Court?”

The executor will then notify those to whom the deceased owed money (creditors), notify beneficiaries, inventory the deceased's assets, pay outstanding bills, sell assets if necessary to pay what's owed, pay taxes and file a final tax return.

Once this is done, the executor distributes the remaining assets to the beneficiaries, according to the will.

The probate court oversees the executor's activities and addresses any issues that may come up. The executor normally must give an accounting of exactly how the estate was handled. Once the court approves this, it closes the probate process.

If a person dies without a will, the probate court distributes their assets to their next of kin, according to the relevant state's probate laws. This is known as the law of intestate succession. This sets out the distribution of assets between surviving spouses, children, grandchildren, siblings, parents, aunts, uncles, and other relatives.

At a probate court hearing, the judge will detail the executor’s responsibilities under 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 typically verify that these items have been completed and then close out the estate, so that the transfers of money and other assets in the estate may commence.

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

When is a Trust a Good Idea?

If you prefer to place specific conditions on your assets after you pass away, you should have a trust in place, says Kiplinger’s recent article, “Why Do I Need a Trust?”

Trusts can be especially important with second marriages, where one spouse wants to leave their assets to their children but not their stepchildren. Here are some other benefits of a trust:

Creditor Protection. If your profession has a high probability of liability, having assets transferred via a trust (once the trust becomes irrevocable) may shelter funds from being attached in a lawsuit. This can be very specific concerning state law and the type of lawsuit, so discuss this with an experienced estate planning attorney before making any decisions.

Passing Funds Outside of the Estate. For large estates that are anticipated to grow, creating trusts during your lifetime and gifting assets can remove the growth from your estate and lower future estate taxes. If your estate is higher than the exemption, and you have more funds than you need to live on, funding an irrevocable trust now is beneficial. Also, remember, revocable (or living) trusts become irrevocable on your passing, so anything in the revocable trust will be out of the beneficiary’s estate.

Providing for Grandchildren. If you want to provide for grandchildren at your death or don’t trust the parents to set inheritance funds aside for their children, creating a trust for the grandchildren is an option. If you leave assets outright to their parents, there’s no guarantee that the funds will get to them.

Protect Against Fraud or Beneficiary Changes. Seniors can be duped into updating their beneficiaries when they’re in the hospital or under hospice care. If the individual can sign a form and their signature matches what is on file at the custodian—and they have no immediate family to catch the update—this can be a problem. If the elderly person is not of sound mind, the attorney will likely be able to notice something is wrong compared to submitting a beneficiary form to a custodian directly.

Special Needs Beneficiaries. If you have incapacitated beneficiaries who require special care due to mental or physical disability, setting up a special needs trust may be a good move. A Special Needs Trust will ensure that assets can be given to this person but not interfere with government benefits or disability payments.

Ask an experienced estate planning attorney if your situation and your intentions warrant a trust. They can help you protect your assets and your wishes.

Reference: Kiplinger (August 31, 2022) “Why Do I Need a Trust?”

What Should I Do Now for a Successful Business Succession?

According to the Conway Center for Family Business, family businesses account for 64% of the U.S. Gross Domestic Product (GDP), yet 57% of those businesses have no formal succession plan.

Twin Cities Business’s recent article, “Don’t Wait for the Future,” notes that many businesses are founded on a high degree of personal trust and loyalty, often a simple handshake agreement.

However, these informal agreements aren’t enough to protect you against disagreements and damaged relationships, which can be costly. A lack of business succession planning can negatively impact business owners, as well as their heirs and employees.

There are two key reasons business owners should think about a business succession structure sooner rather than later. One is taxes. Under the current laws, the estate tax exemption is scheduled to sunset in 2025. This leaves business owners with a small window to take advantage of the planning opportunities around this exemption. Second, the absence of a succession structure may result in business disruption at a very emotional time for owners and employees.

The reason why so many business owners are unprepared is that many of them find it uncomfortable or daunting to discuss succession planning or enacting formal agreements. Others don’t truly see the importance of such discussions. And, in other cases, it can be seen as a sign of disloyalty.

The good news is that partnerships can be strengthened if you address this process the right way, with respect for everyone’s point of view and a willingness to listen. The result will be that you’re totally confident that everyone’s interests are secured. This lets you focus on your business, instead of being distracted by unspoken concerns.

Formal contingency plans help business partners clarify their vision for the future. Many are so busy with personal lives, families, and work that they frequently fail to consider the impact of events outside their control. However, these conversations help us think clearly about what we want in the future and what it will take to get there.

If the process is handled correctly, guided by an experienced attorney, the result should be peace of mind and a higher degree of protection for partners and their families.

Reference: Twin Cities Business (April 10, 2023) “Don’t Wait for the Future”

 

What Should I Know About a Living Trust?

 

Forbes’ recent article, “What Is A Living Trust? Definition, Pros & Cons,” explains everything you need to know about living trusts to determine if one is right for you.

The grantor (or owner of the assets) transfers property ownership to the trust. They will name a trustee to manage the trust property. The grantor can choose to be the trustee, retaining control of trust property. However, the grantor can also designate a “successor trustee.” The successor trustee will manage the trust property if and when the primary trustee becomes incapacitated or passes away.

The grantor also names beneficiaries of the trust. These individuals are the individuals (or other entities) who benefit from the trust. The grantor designates beneficiaries who will inherit the property held within the trust after the grantor’s death. A significant benefit of a trust is that the assets held within the trust transfer to the beneficiaries without going through probate.

Creating a living trust entails drafting a formal legal document that:

Establishes the trust

Names the trustee (and successor trustee)

Names the beneficiaries; and

States when and how trust property will be transferred to beneficiaries.

Note that after you create the trust document, you must transfer the property title to it.

The trust becomes effective as soon as you create it. However, because it’s a living trust, you have the right to cancel it or make changes to it any time you want to.

A living trust is a powerful legal tool. However, there are other estate planning documents that you may need. Work with an experienced estate planning lawyer to get help creating a living trust, as well as assistance in developing a comprehensive plan to protect you in case of incapacity and to provide for your loved ones after you’re gone.

Reference: Forbes (May 12, 2023) “What Is A Living Trust? Definition, Pros & Cons”

 

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 Three Things Do People Overlook on Estate Planning Benefits?

An estate plan is important for everyone. Without a legally enforceable estate plan, a court may apply state laws and decide how your assets will be distributed and who will raise your minor children. In addition to allowing you to direct the wrap-up of your affairs after you are gone, an estate plan can also help you reduce taxes, expedite settling your estate and reduce conflict in your family.

Yahoo Finance’s recent article, “3 Overlooked Benefits of Estate Planning,” explains that planning your estate entails making arrangements to ensure that your wishes are carried out after your death.

While some think estate planning is only for those with mansions and millions in the bank, this isn’t true. Instead, even those with modest assets can benefit from having a defined estate plan.

Remember that the estate planning process isn’t about how much you have—it’s about making sure what you do have ends up where you want it. It may also decide who will be responsible for raising any minor children who survive you.

Your estate plan can also affect taxes, the time it takes to settle your estate, your end-of-life medical care and the odds that your family will fight over it.

Deciding who gets what is the big question of many estate plans. Your estate consists of the assets, property and personal items you own at your death. This may include real estate, bank accounts, life insurance, stocks and investments, retirement accounts, and personal property like collectibles, vehicles, art and jewelry.

The documents in estate plans include a last will and testament, a living will, financial and medical powers of attorney and documents establishing various trusts.

Start your estate plan today with the help of an experienced estate planning attorney and review it periodically to accommodate marriages, divorces and births. The process often includes reviewing your property and wishes, drafting a will, naming an executor, assigning healthcare and financial proxies and settling other matters, like funeral arrangements.

Reference: Yahoo Finance (April 24, 2023) “3 Overlooked Benefits of Estate Planning”

 

Do I Need to Know about ‘Per Stirpes’ for My Estate Plan?

Per stirpes is one of the ways you can choose to divide your assets among your heirs. For many, it’s the preferred way to set up asset transfer upon death.

“Per stirpes” is Latin for “by branch.” It’s used in estate planning to state that assets are to be distributed according to the decedent’s family tree.

Motley Fool’s recent article entitled, “What Does Per Stirpes Mean?” says that, in other words, if you want to leave your estate to your children, and one of them dies before you do, a per stirpes designation means that the deceased heir’s share will pass to their children (your grandchildren).

The other primary way that assets can be distributed according to the terms of a last will and testament is per capita. This means “by heads” and divides the estate only among living heirs.
Per stirpes considers only direct descendants. Therefore, if your child passes before you, their children inherit their share of your estate.

Spouses aren’t included in the distribution. Therefore, even if a child were married at his death, his spouse wouldn’t be entitled to receive a share of the estate.

A per stirpes designation in a will can be used to ensure that all your heirs (and their heirs) are considered when it comes time to divide the estate.

Therefore, if you want to make sure that your grandchildren get a portion of your property even if your children die before you do, a per stirpes designation in your will can make sure that will happen.

Of course, every estate planning situation is different, so there’s no one-size-fits-all answer. If a person dies while their heirs have no children or other direct descendants, per stirpes and per capita are effectively the same thing. However, if you plan to put a will in place, your chosen designation could have significant consequences.

In most instances, a per stirpes designation in a will ensures that your heirs and their families will get a proportional share of your estate after you die—even if your direct descendants die before you.

However, your best designation depends on your preferences and circumstances. Ask an experienced estate planning attorney for help with your estate plan.

Reference: Motley Fool (April 22, 2023) “What Does Per Stirpes Mean?”

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 Biggest Blunders with Health Care Proxies?

A health care proxy, also called a medical power of attorney, is a legal document in which you name a person to make medical decisions, in the event that you are unable to do so for yourself.

Forbes’ recent article entitled, “Health Care Proxies - 5 Biggest Mistakes,” lists the five biggest mistakes people make on this vital document.

No 1: Failing to have one. A study found that two-thirds of us don’t have a health care proxy. If you don’t have one, your doctor may be forced to make decisions in a vacuum. As a result, your wishes may not be respected. Even worse, a court might have to step in to make decisions requiring a guardian’s appointment.

No. 2: Not speaking to those you appoint as your health care agent. This conversation doesn’t have to be complicated or lengthy. However, it’s essential to give your agent some understanding of your feelings and wishes.

No. 3: Not addressing religion If you’ve changed faith , married someone of a different faith, or have children with differing religious views, addressing this in your health care documents and your discussions with your agent is critical. Don’t skip religious considerations because you aren’t religious—that’s also an essential part of this.

No. 4: Not having copies of the health care proxy available. You can put together an envelope and write your name, address, phone number and those of your agents on it. Place a copy of your health insurance info, drug cards and health care proxy in the envelope. If you created and signed a living will and/or a POLST (Physical Order for Life-Sustaining Treatment) that you signed with your doctor, add copies of those to the envelope and a HIPAA release.

No. 5: Failing to address financial matters. Your health care agent most likely won’t have legal rights to pay medical bills, caregiver costs, or other outstanding bills. You should sign a durable power of attorney, a financial document designating a person (called an agent) to handle financial matters for you. Provide your agent with the necessary information, like bank account information.

Reference: Forbes (March 21, 2023) “Health Care Proxies - 5 Biggest Mistakes”

 

What Legal Documents are Needed in an Estate Plan?

 

If you plan to give away property or assets, you’ll need to create a will, trust document, or other estate planning document, advises KHTS’s recent article entitled “Common Documents An Estate Planning Attorney Can Draft.” Let’s take a look at these:

Trusts and Wills. An experienced estate planning attorney can draft documents, such as a will or trust, to ensure that your property is distributed the way you’d want it in the event of your death. A will can do this. An estate planning attorney can also assist you in keeping assets out of probate court. A trust is crucial if you have to keep the money you give away out of your estate. A trust also protects assets from possible creditors.

Living Trust. A living trust is set up while you’re alive rather than waiting until your death, so that you can change it at any time without court administration. A living trust also doesn’t require probate or court approval. The way money passes through a trust is instead determined by the terms and the state in which you live.

Medical Powers of Attorney. This legal document lets a person delegate specific healthcare decisions, if incapacitated. This document doesn’t supersede a living will or any other advance directive but allows an individual to enjoy more flexibility. A medical power of attorney also allows the individual to appoint a healthcare proxy and someone to the power of attorney who can make medical decisions in their name while they are still capable.

Durable Power of Attorney. This legal document allows individuals to delegate specific authority over their financial and legal affairs. A durable power of attorney also permits the individual to appoint someone as guardian, who can make financial decisions for the individual when they cannot do so. Of course, a guardian can’t make decisions for the incapacitated person in all situations. For example, they may be unable to protect the individual’s assets from creditors. However, a guardian can make financial decisions and has the power to access your bank account, even if you’re incapacitated.
It’s never too early to start planning for your future and estate. However, without the proper legal documents, your property may not be distributed as you would like, or other necessary steps may not be taken. An experienced estate planning attorney will give you options that aren’t available to those who try to do it themselves.

Reference: KHTS (Dec. 15, 2022) “Common Documents An Estate Planning Attorney Can Draft”

What Should Women Know About Estate Planning?

Life circumstances, such as the demise of their spouse or a loved one, incapacitation of the breadwinner of the family, divorce, or terminal illness usually forces a woman to look into financial matters. However, managing these affairs promptly safeguards your assets, wishes and choices.

Money Control’s recent article entitled “How women can make a solid estate plan” looks at the crucial aspects you should consider when creating your estate plan.

Last Will and Testament. Suppose you choose not to create a will. In that case, intestate succession laws will prevail, whereby your assets may be inherited by individuals and in a manner not necessarily aligned with your wishes. Therefore, getting a will in place should be one of the first steps to protect your wishes and those of your intended beneficiaries.
As a mother with minor children ― married, divorced, or widowed ― there is a greater responsibility to make sure that you appoint a guardian who would manage your children’s financial affairs until they’re 18. As a married woman, it may also be worthwhile to consider coordinating your estate plan with your spouse, so both of you can be on the same page regarding safeguarding each other’s interests and deciding on the subsequent manner of your inheritance. Then, again, by writing your will, you can determine whomsoever you wish to pass on your wealth to, such as confidantes, friends, staff members, or charitable institutions.

Power of Attorney. A power of attorney is a document that can ensure your financial affairs are taken care of during your lifetime, for instance, in case of incapacitation. If you can’t manage your financial affairs due to medical conditions, you may consider appointing a trustworthy individual to ensure that your finances are safe.

Private Family Trust. There may need to be more than a will for large families with a complex succession planning mechanism. A trust is a structure that can be created during your lifetime, so beneficiaries are defined, and the trust’s instructions are clearly stated. Men frequently set up the trust to benefit their spouse, children and lineal descendants.

Women shouldn’t overlook this critical aspect of their life and wait for a life-changing event to take charge of their financial affairs in which case it might be too late. 

Reference: Money Control (March 28, 2023) “How women can make a solid estate plan”

 

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”

When Should I Begin Estate Planning for the Farm?

 

Successful Farming’s recent article entitled “Is 50 Too Early For Estate Planning?” gives us some guidelines, so you can address the what-ifs as changes occur and eventually solidify everything.
Let’s look at some key guidelines:
1. Define parameters. Regardless of what age you implement your plan, it needs definition. Outline the basics like how the rent will be calculated, how buyouts will be done, what defines a farming heir and at what ages distribution should happen.
2. Lay out options. There need to be “defined options.” These include:
Who has the option to farm?
Who has to option to rent or buy?
Are there equal options or secondary options?
3. Consider involvement. Your plan should reward those who are involved on the farm. You might want to hold off on the actual distribution of any assets until the youngest child has reached the age of 25 or 30. This gives everyone the opportunity to be involved if they want to.
4. Choose the right document. For example, drafting a revocable trust or planning a will allows you to make changes later in your lifetime.
With a revocable trust, its terms can be altered or canceled based on the wishes of the grantor or the originator of the trust. During the life of the trust, income earned is distributed to the grantor, but when they die, the property transfers to the trust’s beneficiaries.
5. Don’t overpromise and under-deliver. If you tell your children you’re going to do what will help them keep the farm together, be sure you do it. If you tell someone without documenting, it can lead to a major conflict later.
6. Update your life insurance. You can also change ownership and beneficiary designations of life insurance policies.
The biggest “what if” is “what if you don’t have anything in place?”
Reference: Successful Farming (March 16, 2023) “Is 50 Too Early For Estate Planning?”

The Biggest Mistakes Made with Trusts

The Dallas Morning News’ recent article entitled “Owning your trust: Avoid these five common trust mistakes” explains these big mistakes frequently made with trusts.

Mistake 1: Failing to fund the trust. This involves transferring assets into the trust and managing assets with the trustee. It also makes the assets subject to the trust’s terms. A trust without assets is a worthless piece of paper.

Mistake 2: Placing your homestead into the trust. For example, a homestead designation in Texas carries several benefits, like creditor protection, tax exemptions and bankruptcy protection. Those are lost when you put your homestead into a trust, unless it is a “qualifying trust.” If your homestead has a mortgage, transferring it into a trust may cause a default. A mortgage company may also refuse to refinance an existing mortgage or extend new financing on a homestead that is in a trust.

Mistake 3: Funding the trust with a vacation home. This can be a headache for the trust’s beneficiaries. Most of us don’t leave enough money in the trust to maintain the home in perpetuity. Your children and their spouses will fight over holiday usage. It ends up being an expensive albatross. If you decide to keep the property in the family, ask an experienced estate planning attorney about a family limited partnership or an LLC. However, before you take this step, ask your children if they want to keep it.

Mistake 4: Failing to understand the trust document. While most trusts are long, boring and contain provisions that make absolutely no sense to anyone but the IRS, if you rely on a trust for your financial future and legacy, you must know what it says and does.

Mistake 5: Failing to review the trust annually. A lot can change in a year, like assets, financial conditions, births, deaths, divorces, marriages, etc. These may require changes to your trust.

Reference: Dallas Morning News (March 12, 2023) “Owning your trust: Avoid these five common trust mistakes”

Do I Need an Estate Planning Attorney?

Sound estate planning can help minimize taxes and expenses associated with transferring your assets and property after your death, says Urban Asia’s recent article entitled “Why Is It Important To Hire An Estate Planning Attorney.”

An experienced estate planning attorney can help you with your estate planning goals efficiently, avoiding legal processes that can be time-consuming and costly. Estate planning through an attorney can help you, and your loved ones avoid legal complications or unwanted delays.

What are the benefits of hiring an experienced estate planning attorney?

Legal expertise: They have specialized knowledge of the laws and regulations governing probate and estates. They can advise you on the best plan to suit the utilization of your assets and needs, and make sure that your estate planning complies with all applicable laws.

Tax implications: Estates can have tax implications. An experienced estate planning attorney can advise you on how to structure your estate plan to minimize taxes and maximize the benefits for your beneficiaries.

Customization: They can help customize your estate plan to suit your individual needs and goals.

Protection of beneficiaries: Estate planning attorneys can help protect your heirs’ interests by ensuring that your will and trust are administered correctly. They can help assure that all your assets are protected from creditors and other legal claims.

Charitable giving: An estate planning attorney can advise you on how to make philanthropic gifts, either during your lifetime or at death, through charitable trusts or other charitable giving vehicles.

Incapacity planning: They can help you plan for incapacity by creating a power of attorney or living will to let you specify how your assets and property should be managed, if you are unable to decide for yourself.

Finding the right attorney for estate planning can be a challenging task. Estate planning can be complex, and selecting an attorney with experience and expertise in this discipline is essential.

Therefore, look for an attorney with plenty of experience in estate planning.

Reference: Urban Asia (Jan. 22, 2023) “Why Is It Important To Hire An Estate Planning Attorney”

 

How Should I Handle Memorabilia in My Estate Planning?

Kiplinger’s recent article entitled “Estate Planning for Memorabilia Collectors: Don’t Leave Your Family in the Lurch” says the first step is to know what you have. Make a thorough and updated inventory to help your family understand the scale of the collection and where the items are located. Make sure the inventory is current and has detailed information about the items, like if a piece of memorabilia is signed or if it was game-used.

It’s also wise to log valuations along with the items' description. You can try to stay on top of when comparable items sell at auction and follow industry publications to keep your valuations as current as possible. Every sector of collectible is different. Some items see their valuations fluctuate more than others. Even so, it's helpful to have a ballpark idea of the total value of the collection. At some point, it might be worth hiring an appraiser to give you a formal valuation of the collection.

As far as authentication, many items need supporting paperwork to verify they’re legitimate. As you plan for your family to handle the sale of your items, they'll need to know that those documents are an essential part of the collection and where they are.

When you're walking them through your inventory, note where the items are identified as having separate certificates of authenticity and make sure they know where to find them. This can be as simple as using file folders.

When it comes time to sell, where does your family go Whether it's sports memorabilia, coins, stamps, or just about anything else, there are dealers who are willing to purchase the collection. If you go into a collectibles shop that's only buying items they plan to resell, you can expect to get about half of a collection's actual value.

You can help your loved ones by making connections with auction houses that would be interested in bringing your collection up for sale. This can be a highly specialized area, so you'll be saving your beneficiaries a big pain if you give them information about where they will get a fair price.

Reference: Kiplinger (Feb. 26, 2023) “Estate Planning for Memorabilia Collectors: Don’t Leave Your Family in the Lurch”

What Is Probate Court?

Probate court is a part of the court system that oversees the execution of wills, as well as the handling of estates, conservatorships and guardianships. This court also is responsible for the commitment of a person with psychiatric disabilities to institutions designed to help them.

Investopedia’s recent article entitled “What Is Probate Court?” also explains that the probate court makes sure all debts owed are paid and that assets are distributed properly. The court oversees and usually must approve the actions of the executor appointed to handle these matters. If a will is contested, the probate court is responsible for ruling on the authenticity of the document and the cognitive stability of the person who signed it. If no will exists, the court also decides who receives the decedent's assets, based on the laws of the state.

Each state has rules for probate and probate courts. Some states use the term “surrogate’s court”, “orphan’s court”, or “chancery court.”

Probate is usually required for property titled only in the name of the person who passes away. For example, this might include a family home that was owned jointly by a married couple after the surviving spouse dies. However, there are assets that don't require probate.

Here are some of the assets that don't need to be probated:
IRA or 401(k) retirement accounts with designated beneficiaries
Life insurance policies with designated beneficiaries
Pension plan distributions
Living trust assets
Payable-on-death (POD) bank account funds
Transfer-on-death (TOD) assets
Wages, salary, or commissions owed to the deceased (up to allowable limit)
Vehicles intended for immediate family (under state law); and
Household goods and other items intended for immediate family (under state law).

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

What Is Included on a HIPAA Authorization Form?

HIPAA Journal’s recent article entitled “What is HIPAA Authorization?” explains that the authorization form must be written in plain language so it can be easily understood. In addition, and as a minimum, the authorization form must have these components:
Specific and meaningful information, including a description of the information that will be used or disclosed
The name of the individual authorized to make the requested use or disclosure
The name of the person or class of persons to whom information will be disclosed
A description of the purpose of the requested use or disclosure
A specific time frame for the authorization, including an expiration date; and
A date and signature from the individual giving the authorization.
Statements must also be included on the HIPAA authorization to notify the individual of the right to revoke the authorization in writing and either:
exceptions to the right to revoke and a description of how the right to revoke can be exercised; or
the extent to which the information is included in the organization’s notice of privacy practices.
In addition, the statement included on the HIPAA authorization to notify the individual of the ability or inability to condition treatment, payment, enrollment, or eligibility for benefits on the authorization by stating either:
that the covered entity may not condition treatment, payment, enrollment, or eligibility for benefits on whether the individual signs the authorization; or
the consequences of a refusal to sign the authorization when the covered entity is permitted to condition treatment, enrollment in the health plan, or eligibility for benefits on a failure to obtain authorization.
The person giving consent must be provided with a copy of the authorization form for their records.
Reference: HIPAA Journal (Oct. 9, 2021) “What is HIPAA Authorization?”

What Do I Need to Know If I’m Getting an Inheritance?

 

Kiplinger’s recent article entitled “Getting an Inheritance? Here Are 4 Things to Consider” says you can’t always know exactly what’s left in a will. However, if you’ve received or anticipate receiving some type of inheritance, there are a few things to consider that can help you prepare for the issues heirs face.
1. Expect the Process to Take Time. Settling an estate is a big task. When the decedent’s affairs aren’t in order, it’s an even greater task. The executor (the person appointed to administer the will) must notify beneficiaries and interested parties, pay outstanding debts, close accounts, take an inventory of assets and determine if any of the assets not part of the will must go through probate. They must file with the IRS to pay taxes. After this, the assets finally can be distributed to close the estate.
2. Create a Plan for the Money. This is an opportunity to put the money toward some practicalities, including ways to help protect your future. Think about building up your emergency fund, paying off high-interest debt and saving for long-term goals. After you address your financial priorities, it’s fine to begin thinking about spending the money on something fun.
3. Get Advice from an Experienced Estate Planning Attorney. The rules on inheriting assets can be complex, like when inheritors may have what’s called a step-up-in-basis provision for taxes. This lets the heirs set the valuation of their inherited property equal to its fair market value at the date of death – instead of the lower price at which it was purchased. This helps minimize capital gains taxes on inherited assets that have appreciated over time. There may also be state estate and inheritance taxes to consider.
4. Take Time to Review Your Own Estate Plan. Make your own estate administration as easy as possible after you are gone. This includes keeping clear records of all your accounts, along with any estate plan documents including trusts, wills, powers of attorney and advance health care directives. You should keep them all in a location accessible to those responsible for administering your estate.
Reference: Kiplinger (Jan. 9, 2023) “Getting an Inheritance? Here Are 4 Things to Consider”

Is Estate Planning and Writing Will the Same Thing?

 

An estate plan is a broader plan for your assets that may apply during your life as well as after your death. A will states where your assets will pass after you die, who will be the guardian of your minor children and other directions. A will is often part of an estate plan, but an estate plan covers much more.

Yahoo’s recent article entitled “How Is Estate Planning Different From Will Planning?” says that if you’re thinking about writing your will or creating an estate plan, it can be a good idea to speak with an experienced estate planning attorney.

A will is a legal document that describes the way you want your assets transferred after your death. It can also state your wishes when it comes to how your minor children will be cared after your death. Wills also nominate an executor who’s in charge of carrying out the actions in your will.

Without a will, your heirs may spend significant time, money and energy trying to determine how to divide up your assets through the probate court. When you die intestate, the succession laws where you reside determine how your property is divided.

Estate planning is much broader and more complex than writing a will. A will is a single tool, and an estate plan involves multiple tools, such as powers of attorney, advance directives and trusts.

Estate planning may include thinking through topics even beyond legal documents, like deciding who has the power to make healthcare decisions on your behalf while you’re alive, in addition to deciding how your assets will be distributed after your death.

Therefore, wills are part of an estate plan. However, an estate plan is more than just a will.

A will is just a first step when it comes to creating an estate plan. To leave your family in the best position after your death, create a comprehensive estate plan, so your assets can end up where you want them.

Reference: Yahoo (Oct. 20, 2022) “How Is Estate Planning Different From Will Planning?”

Why Do I Need an Estate Plan?

Money Talks News’ recent article entitled “Why Everyone Needs an Estate Plan” reminds us that estate plans aren’t just for the wealthy. People of all ages and income levels can benefit from drafting an estate plan. An estate plan provides instructions about how your assets will be distributed, as well as how you’ll pay for your debts, final arrangements and even your medical care if you become incapacitated.

With everything stated explicitly in an estate plan, your family can work through their grief after your death instead of battling each other about who gets what.

An estate plan describes your wishes regarding how assets such as your house, vehicle bank accounts, investments and valuables will be transferred to your beneficiaries after you die. Most of this is included in your will. You’ll also name the executor of your estate in your will, as well as a guardian for your minor children, and even someone to take care of your pets when you’re no longer here.

Many people will confuse an estate plan with a will. However, that’s just a part of a comprehensive estate plan. There is much more involved in an estate plan than just who gets what after you die. An estate plan can also include your wishes, if you’re medically unable to manage your own affairs. Your plan can designate your durable power of attorney (DPA), who can make medical and financial decisions in your stead, along with medical directives on what medical procedures you do or don’t want to prolong your life.

One of the most compelling reasons to have an estate plan is that it can help avoid probate and prevent your family from winding up in court to access the assets you’ve left behind for them. Another reason to have an estate plan is to help reduce any estate or inheritance taxes imposed on your estate when your assets are transferred to your beneficiaries.

Federal estate taxes typically only apply to the very wealthy. In 2022, the threshold, or estate tax exemption, is $12.06 million, for 2023 that number is $12.93 million.

Unless your assets are valued over the applicable exemption in the year of death, you’re exempt from federal estate taxes. However, while you may be exempt from federal-level estate taxes, the state you live in may impose its own estate taxes. Some states also levy inheritance taxes on beneficiaries who receive assets from your estate.

Check with an experienced estate planning attorney in your area.

Reference: Money Talks News (Oct. 21, 2022) “Why Everyone Needs an Estate Plan”

Giving to My Favorite Charity in Estate Plan

 

If you’d like to leave some or all of your money to a charity, Go Banking Rates’ recent article entitled “How To Leave Your Inheritance to an Organization” provides what you need to know about charitable giving as part of your estate plan.
1. Make Sure the Organization Accepts Donations. Unless you have a formal agreement with the charity stating they’ll accept the inheritance, the confirmation isn’t a binding commitment. As a result, you should ask the organization if there’s any form language that they may want you to add to your will or trust as part of a specific bequest. If the charity isn’t currently able to accept this kind of donation, look at what they will accept or if other charities with a similar mission will accept it.
2. Set the Amount You Want the Charity To Receive. Some people want to leave the estate tax exemption — the maximum amount that can pass without tax — to individuals and leave the rest to charity. Because the estate tax exemption is subject to change and the value of your assets will change, the amount the charity will get will probably change from when the planning is completed.
3. Have a Plan B in the Event that the Charity Doesn’t Exist After Your Death. Meet with your estate planning attorney and decide what happens to the bequest if the organization you’re donating to no longer exists. You may plan ahead to pass along the inheritance to another organization and make sure it receives the funds. You could also have the inheritance go back into the general distributions in your will.
4. State How You Want Your Gift to Be Used. If there is a certain way that you’d like the charity to use the inheritance, you can certainly inquire with the organization and learn more. Find out if the charity accepts this type of restriction, how long it may last and what happens if the charity no longer uses it for this purpose.
As you draft charitable planning provisions, make sure you do so alongside an experienced estate planning attorney.
The provisions in your will should be specific about your desires and provide enough flexibility to your personal representative, executor, or trustee to be modified based on the conditions at the time of your death.
Reference: Go Banking Rates (August 26, 2022) “How To Leave Your Inheritance to an Organization”

The Basics of Estate Planning

No matter how BIG or small your net worth is, estate planning is a process that ensures your assets are handed down the way you want after you die.

Forbes’ recent article entitled “Estate Planning Basics” explains that everybody has an estate.

An estate is nothing more or less than the sum total of your assets and possessions of value. This includes:

Your car
Your home
Financial accounts
Investments; and
Personal property.

Estate planning is the process of deciding which people or organizations are to get your possessions or assets after you’ve died.

It’s also how you leave directions for managing your care and assets if you are incapacitated and unable to make financial or medical decisions. That is done with powers of attorney, a healthcare directive and a living will.

Your estate plan details who gets your assets. It also designates who can make critical healthcare and financial decisions on your behalf should you become incapacitated. If you have minor children, your estate plan also lets you designate their legal guardians, in case you die before they reach 18. It also allows you to name adults to safeguard their financial interests.

Your estate plan directs assets to specific entities or people in a legally binding manner. If you want your daughter to have your coin collection or your favorite animal rescue organization to get $500, it’s all mapped out in your estate plan.

You can also create a trust to safeguard a minor child’s assets until they reach a certain age. You can also keep assets out of probate. That way, your beneficiaries can easily access things like your home or bank accounts.

All estate plans should include documents that cover three main areas: asset transfer, medical needs and financial decisions. Ask an experienced estate planning attorney to help you create your estate plan.

Reference: Forbes (Nov. 16, 2022) “Estate Planning Basics”

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 is a Life Estate?

 

A life estate is a type of property ownership that divides the control and ownership of a property. The person who creates the life estate for their home and assets is known as the “life tenant.” While a tenant retains control of the property, he or she shares ownership during their lifetime with the remainderman (the estate's heir).

Quicken Loans’ recent article entitled “What Is A Life Estate And What Property Rights Does It Confer?” explains that while the life tenant lives, they’re in control of the property in all respects, except they can’t sell or encumber the property without the consent of the remaindermen. After the life tenant passes away, the remainderman inherits the property and avoids probate. This is a popular estate planning tool that automatically transfers ownership at the life tenant's death to their heirs.

The life estate deed shows the terms of the life estate. Upon the death of the life tenant, the heir must only provide the death certificate to the county clerk to assume total ownership of the property.
Medicaid can play an essential role in many older adults’ lives, giving them the financial support needed for nursing facilities, home health care and more. However, the government considers your assets when calculating Medicaid eligibility. As a result, owning a home – or selling it and keeping the proceeds – could impact those benefits. When determining your eligibility for Medicaid, most states will use a five-year look-back period. This means they will total up all the assets you’ve held, sold, or transferred over the last five years. If the value of these assets passes above a certain threshold, you’ll likely be ineligible for Medicaid assistance.

However, a life estate can help elderly property owners avoid selling their home to pay for nursing home expenses. If your life estate deed was established more than five years before you first apply for benefits, the homeownership transfer would not count against you for Medicaid eligibility purposes.

To ensure you’re correctly navigating qualifying for Medicaid, it’s smart to discuss your situation with an attorney specializing in Medicaid issues.

Reference: Quicken Loans (Aug. 9, 2022) “What Is A Life Estate And What Property Rights Does It Confer?”

Important Documents in Your Estate Plan

 

The Durable Power of Attorney (DPOA) and a Health Surrogacy or Advanced Health Directive are used for situations where you can’t make decisions for yourself, explains Parent Your Parents recent article entitled “What You Should Know about Durable Powers of Attorney and Health Surrogacies.”

A Durable Power of Attorney (DPOA). This is written authorization to represent or act on another’s behalf in private affairs, business, or legal matters. The person authorizing the other to act is the “principal” or “grantor.” The person given the power is called the “agent” or “attorney-in-fact.” There are two types of power of attorney: (1) a Springing Durable Power of Attorney, which “springs” into action when you become incapacitated; and (2) a General Durable Power of Attorney, which becomes effective as soon as it is signed and continues until you die.

If you live in a “Springing POA” state and move to a “Durable POA” state, the document is treated as a Durable Power of Attorney, and your agent can act without your consent. You should consider who you trust to be your agent.

It is typically a family member, a friend, or a professional agent. You should also have an alternate designated who can step in if something happens to your first choice and he or she is unable to serve.

Health Surrogacy or Advanced Directive. This document is called a variety of things: a Power of Attorney for Health, Designation of Health Surrogate, or a Living Will. No matter what it’s called, you’re appointing an adult to make healthcare decisions for you when you are unable to make them for yourself.

When you’re in an accident, unconscious, or injured and need a specific medical procedure, the designated agent steps in and makes important decisions in your stead.

If you’re in your 60s but still don’t have a legal document describing what you want to happen when you’re incapacitated, speak with an experienced estate planning attorney.

Your family, close friends, and healthcare professionals should know how you feel about end-of-life treatments and have your detailed directions as to various circumstances and how you would like them handled.

Reference: Parent Your Parents (Sep. 15, 2022) “What You Should Know about Durable Powers of Attorney and Health Surrogacies”

The Difference between Revocable and Irrevocable Trust

 

A living trust can be revocable or irrevocable, says Yahoo Finance’s recent article entitled “Revocable vs. Irrevocable Trusts: Which Is Better?” And not everyone needs a trust. For some, a will may be enough. However, if you have substantial assets you plan to pass on to family members or to charity, a trust can make this much easier.

There are many different types of trusts you can establish, and a revocable trust is a trust that can be changed or terminated at any time during the lifetime of the grantor (i.e., the person making the trust). This means you could:

Add or remove beneficiaries at any time

Transfer new assets into the trust or remove ones that are in it

Change the terms of the trust concerning how assets should be managed or distributed to beneficiaries; and

Terminate or end the trust completely.

When you die, a revocable trust automatically becomes irrevocable and no further changes can be made to its terms. An irrevocable trust is permanent. If you create an irrevocable trust during your lifetime, any assets you transfer to the trust must stay in the trust. You can’t add or remove beneficiaries or change the terms of the trust.

The big advantage of choosing a revocable trust is flexibility. A revocable trust allows you to make changes, and an irrevocable trust doesn’t. Revocable trusts can also allow your heirs to avoid probate when you die. However, a revocable trust doesn’t offer the same type of protection against creditors as an irrevocable trust. If you’re sued, creditors could still try to attach trust assets to satisfy a judgment. The assets in a revocable trust are part of your taxable estate and subject to federal estate taxes when you die.

In addition to protecting assets from creditors, irrevocable trusts can also help in managing estate tax obligations. The assets are owned by the trust (not you), so estate taxes are avoided. Holding assets in an irrevocable trust can also be useful if you’re trying to qualify for Medicaid to help pay for long-term care and want to avoid having to spend down assets.

But again, you can’t change this type of trust and you can’t act as your own trustee. Once the trust is set up and the assets are transferred, you no longer have control over them.

Speak with an experienced estate planning or probate attorney to see if a revocable or an irrevocable trust is best or whether you even need a trust at all.

Reference: Yahoo Finance (Sep. 10, 2022) “Revocable vs. Irrevocable Trusts: Which Is Better?”

 

Who Is the Best Choice for Executor?

 

Parents do so much to make sure they are treating their children equally. This is all good when it comes to buying bicycles or sharing candy. However, when it comes to naming your executor, equal is not always best, says a recent article titled “3 Mistakes to Avoid When Choosing Your Personal Representative of Your Estate” from The Street.

The most common mistake parents make is naming all of their children, with the hope they’ll set aside any differences and rise to the occasion. Another is to make an age-based decision and name the oldest child as the executor. Maybe worse: tossing names into a hat and picking one.

The wrong decision can lead to more than fighting among siblings. Fighting often escalates to litigation and wounds that never heal.

The decision of who to name as a personal representative, agent or executor needs to have a business approach. Remove emotions from the equation and examine your children’s strengths and weaknesses.

Your executor, the agent named to carry out instructions in your will, has many responsibilities, including:

Obtain the last will and testament and file it with the court.

Obtain multiple original copies of a death certificate.

Inform heirs and relatives of your death and of the open contest period when they may challenge the validity of the will.

Use estate funds to settle outstanding debts.

Maintain any real property, until the estate is settled.

Notify banks, government agencies, insurance companies and creditors of your death.

File final personal income tax.

Create a complete inventory of the estate and, when the will is deemed valid by the court and creditors have been paid, distribute assets.

Make court appearances on behalf of the estate during probate.

File estate taxes.

The executor must be able to manage these and other matters, while keeping the peace in the family and standing up to any challenges. Not everyone is up to the task.

Naming more than one personal representative so no feelings get hurt.

If your children have a history of working well together and are all equally versed in personal finance, this might work. However, more often than not, it’s a recipe for disaster. By asking so much of them during a highly emotional time, even the best sibling relationships will be tested.

Picking the wrong child for the job.

Not only does the person need to be responsible, reliable, organized and trustworthy, but they need to live close enough or be able to travel if you live far away. If none of your children are good candidates, speak with an estate planning attorney to explore other options.

Not preparing the person ahead of time.

Someone who has never served as an executor before is not likely to fully understand what their role will be, what tasks need to be accomplished and how much time it will take out of their schedule. Talk with the person you chose as your executor and provide them with all the details. Tell them where personal property is located and where you are storing your last will and testament. Share the names of your estate planning attorney, financial advisor and CPA.

Good estate planning and clear communication is the best bet to avoid acrimony between siblings after parents die. Make sure that they understand your desire for the family to stay together and give them the tools to do so.

Reference: The Street (July 28, 2022) “3 Mistakes to Avoid When Choosing Your Personal Representative of Your Estate”

Some Key Documents Should Be Considered Before Sending Your Child Off to College

In the United States, as soon as a minor turns 18, they’re typically considered a legal adult.

As a result, parents no longer have any authority to make decisions for their child, including financial and health care decisions.

Yahoo’s recent article entitled “Don’t Let Your Child Leave for College Without Signing Three Critical Documents” asks what if your adult child becomes sick or is in an accident and ends up hospitalized?

Because of privacy laws, known as Health Insurance Portability and Accountability Act (HIPAA), you wouldn’t have any rights to get any information from the hospital regarding your child's condition.

Yes, we know you’re her mother. However, that’s the law!

You also wouldn’t have the ability to access his or her medical records or intercede on your child's behalf regarding medical treatment and care.

If your child’s unable to communicate with doctors, you’d also have to ask a judge to appoint you as your child’s guardian before being able to be told of his or her condition and to make any healthcare decisions for them.

While this is hard when your child is still living at home, it’s a huge headache if your child is attending college away from home.

However, there’s a relatively easy fix to address this issue:

Ask an experienced estate planning attorney about drafting three legal documents for your child to sign:

A Durable Power of Attorney (DPOA) for Health Care. This document designates the parent as your child's patient advocate.

A HIPAA Authorization gives you access to your child’s medical records and lets you to discuss his or her health condition with doctors.

A DPOA for Financial Matters, designates the parent as your child's agent, so that you can manage your child's financial affairs, including things like banking and bill paying, in case your child becomes sick or injured, or is unable to act for any reason.

Reference: Yahoo (Aug. 2, 2022) “Don’t Let Your Child Leave for College Without Signing Three Critical Documents”

Does the Way I Title My Assets Have an Impact on My Estate?

FedWeek’s recent article entitled “How Assets Are Titled Can Make a Big Difference” discusses the different ways property may be titled, and the significance of each one.

The way in which you take title to assets can affect your estate, taxes and perhaps the disposition of the asset if a couple divorces. Many couples want assets to be titled simply in the event something happens to one, so the other spouse can take possession immediately without taxes or complications. Joint ownership may be the simplest way to meet most of these objectives. However, this can get complicated if any number of things happen, such as divorce, second marriage, children from multiple marriages, adoption and blended families of all types.

It’s critical to be educated on the different types of ownership, so you know when a change may be needed. Here are the main options:

Holding Assets in Your Own Name is simple and inexpensive. However, if you become incompetent, those assets might be mismanaged. At your death, individually owned assets may have to go through probate.

Joint Tenants with Right of Survivorship is when one co-owner dies, all assets held this way automatically pass to the survivor. One joint owner can take over if the other is incapacitated, and jointly held assets don’t go through probate.

Tenants in Common means there’s a divided interest, although none of the owners may claim to own a specific part of the property. At the death of one of the joint owners, the share owned by the deceased must pass through their will to determine ownership. The surviving joint owner doesn’t automatically own the entirety of assets.

Tenancy by the Entirety is a type of joint ownership similar to rights of survivorship for married couples. It lets spouses own property together as a single legal entity. Ownership can’t be separated, which means creditors of an individual spouse may not attach and sell the property. Only creditors of the couple may make claims against the property.

With Entity Ownership, you might create a trust, a partnership (such as a family limited partnership), or a limited liability company (LLC) to hold assets. These entities may provide protection from creditors and tax benefits.

Community Property may only be used by married couples in community property states (Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin). Each person owns an undivided interest in the entire property. When a spouse dies, the survivor automatically receives the entire interest, so there’s no need for probate. Community property can’t be controlled by a person’s will or trust.

Ask an experienced estate planning attorney to review your estate plan and how assets are titled.
Reference: FedWeek (July 27, 2022) “How Assets Are Titled Can Make a Big Difference”

What are Big Mistakes to Avoid in Estate Planning?

Whether it’s a change in domicile, the death of a family member, new grandchildren, or a significant change in assets, it is important to make sure you adjust your estate plan accordingly, says Kiplinger’s recent article entitled “Updating Your Estate Plan? Don’t Make These Top Mistakes.”

1. Updating a will or trust but forgetting to update ancillary documents. When updating an estate plan, people tend to home in on updating their wills and trusts without also having their powers of attorney, health care directives, or guardians reviewed. This prevents them from completing a full update to their estate planning. While these ancillary documents are good forever, that doesn’t mean they shouldn’t be reviewed and updated.
2. Using flawed reasoning when selecting agents to act on your behalf. Some people choose their executors, trustees and other agents by trying to appoint all their children together or appointing agents by age or profession, instead of who is best suited to serve. The best person should live nearby and have the time to address issues you may need.
3. Forgetting to update an estate plan when moving to another state. Estate planning documents drafted out-of-state, provided they were drafted with the legal requirements of that state, will be effective in all states. However, practically speaking, having out-of-state documents can complicate trust or estate administration, or the ability to exercise powers of attorney or health care directives. You should always update your plan when they move to another state to make certain that the plan functions correctly.
4. Forgetting to create an asset cheat sheet or failing to keep that list updated. Most of us accumulate different assets and investments as we get older. It’s not uncommon for a person to have stocks, life insurance, annuities, securities, or other investments at many different institutions. When you update your estate plan, create a list of your accounts and assets and update that list as things change. Be sure to include the name and location of the account and the last four digits of the account number.

When making changes, if you avoid the above mistakes, it will ensure that your plan is properly updated and will not cause any unnecessary future complications.

Reference: Kiplinger (June 30, 2022) “Updating Your Estate Plan? Don’t Make These Top Mistakes”

Addressing Vacation Home in Another State in Estate Planning

Many families have an out-of-state cabin or vacation home that’s passed down by putting the property in a will. While that’s an option, this strategy might not make it as easy as you think for your family to inherit this home in the future.

Florida Today’s recent article entitled “Avoiding probate: What is the best option for my out-of-state vacation home?” explains the reason to look into a more comprehensive plan. While you could just leave an out-of-state vacation home in your will, you might consider protecting your loved ones from the often expensive, overwhelming and complicated process of dealing both an in-state probate and an out-of-state probate.

There are options to help avoid probate on an out-of-state vacation home that can save your family headaches in the future. Let’s take a look:

Revocable trust: This type of trust can be altered while you’re still living, especially as your assets or beneficiaries change. You can place all your assets into this trust, but at the very least, put the vacation home in the trust to avoid the property going through probate. Another benefit of a revocable trust is you could set aside money in the trust specifically for the management and upkeep of the property, and you can leave instructions on how the vacation home should be managed upon your death.

Irrevocable trust: similar to the revocable trust, assets can be put into an irrevocable trust, including your vacation home. You can leave instructions and money for the management of the vacation home. However, once an irrevocable trust is established, you can’t amend or terminate it.

Limited liability company (LLC): You can also create an LLC and list your home as an asset of the company to eliminate probate and save you or your family from the risk of losing any other assets outside of the vacation home, if sued. You can protect yourself if renting out a vacation home and the renter decides to sue. The most you could then lose is that property, rather than possibly losing any other assets. Having beneficiaries rent the home will help keep out-of-pocket expenses low for future beneficiaries. With the creation of an LLC, you’re also able to create a plan to help with the future management of the vacation home.

Transfer via a deed: When you have multiple children, issues may arise when making decisions surrounding the home. This is usually because your wishes for the management of the house are not explicitly detailed in writing.

Joint ownership: You can hold the title to the property with another that’s given the right of survivorship. However, like with the deed, this can lead to miscommunication as to how the house should be cared for and used.

Plan for the future to help make certain that the property continues to be a place where cherished memories can be made for years to come. Talk to a qualified estate planning attorney for expert legal advice for your specific situation.

Reference: Florida Today (July 2, 2022) “Avoiding probate: What is the best option for my out-of-state vacation home?”

When Should I Revise My Will?

 

Just as your life changes, so should your will. You may need to replace an executor, update accounts, or adjust heirs. If you have an estate plan with greater wealth or need more complex arrangements, such as trusts or guardianship provisions, may want to work with an experienced estate planning attorney, says US News’ March 2018 article entitled “4 Times It Makes Sense to Revise Your Will.” Let’s look at the four events:
1. You've experienced a significant life event. This may be a marriage, a divorce, the birth of a child, remarriage or the death of a loved one. These changes may require that new heirs be added to a will or others removed. These life events may also influence how assets are divided in the will. In addition, if you move to a new state, update your will to ensure it adheres to the laws there.
2. A person in your will has experienced a significant life event. Wills also include executors, trustees and guardians. These individuals may move, get married or become sick or disabled, all of which could change whether they are appropriate for the role listed in your will.
3. The tax laws have changed. A will may be written to minimize the effects of estate taxes. When laws change, the provisions of the will may need to be updated. For example, in 2017, $5.49 million of a person's estate was exempt from the 40% federal estate tax. Under the Tax Cuts and Jobs Act, $12.06 million of an estate is currently exempt from the tax in 2022. This could mean that some families no longer need to worry about paying an estate tax and could eliminate the need for some trusts or other provisions in a will.
4. If it's been three to five years. It's smart to review a will at least every three to five years and ensure that all provisions are still in line with your wishes.
While you're reviewing your will, don't forget to also review beneficiaries on bank accounts, retirement funds and life insurance. Remember that a named beneficiary trumps the will.
Make sure that all that hard work on your will does not go to waste, by reviewing and updating the document periodically to make sure it reflects the changing landscape of your life.
When you have the will updated, be sure to store it in a secure location, like a fire-proof safe, and let your executor know where to find it. If an attorney drew up your will, they’ll be happy to store at least a digital copy for you.
Reference: US News (March 30, 2018) “4 Times It Makes Sense to Revise Your Will”

Should I Update My Estate Plan?

An estate plan exists to accomplish three things.

Preserving your accumulated wealth

To specify who will inherit your assets after your death; and

To indicate who will make health care and financial decisions on your behalf if you’re unable.

Real Daily’s recent article entitled “4 Good Reasons to Update Your Estate Plan” says that as you age, you should consider updating your estate plan. Why? Well, your feelings may change over time or you may experience a significant life event that requires you to update things. These are events such as a marriage or divorce, a new child or grandchild, or a significant change in your health, wealth and outlook on life.

In addition to your will and trusts, you need to review your power of attorney, healthcare directive, living will and HIPAA waiver.

It's critical to recognize the life events that may necessitate updating your estate plan.
For example, if you are recently married or divorced, according to some state laws, existing wills are nullified when someone gets married or divorced.

It’s also possible that your wealth has increased significantly, which may affect the way you view how your assets should be distributed to your beneficiaries.

Another reason to update your plan, is if you want to give more (or less) to charity or to your heirs.

Your executor or trustees may change their minds about their roles, no longer live nearby, or they themselves have died. If an individual is no longer interested in assuming those responsibilities, no longer alive, or no longer in good health or of repute, then there is a need to revise the document.
Some other reasons to update your plan include if you’re in the process of retiring, moving to another state, or buying or selling real estate.

Each of these events calls for a comprehensive estate plan review.

Finally, your goals may evolve over the years as a result of changes to your lifestyle or circumstances, such as an inheritance, career change, marriage, house purchase, or a growing family.

Reference: Real Daily (June 13, 2022) “4 Good Reasons to Update Your Estate Plan”

Is a Trust a Good Idea?

If chosen wisely, with the help of an experienced estate planning attorney, a trust can be a great chance to minimize taxes on your estate.

Forbes’ recent article entitled “Estate Planning Opportunities: How Trusts Can Minimize Taxes On Your Legacy,” explains that trusts are legal arrangements that benefit causes or people you choose down the line. They vary in how they are activated and accessed, according to these basic types.

Revocable or irrevocable: In a revocable trust, a grantor can reclaim assets whenever they want during their lifetime. In an irrevocable trust, a grantor gives up the right to reclaim property once the trust is designated.

Testamentary or living: a testamentary trust, created under a last will, becomes effective when the grantor dies and then becomes irrevocable to administer the inheritance. A living trust, also called an “inter-vivos trust,” is a transitionary method that helps with incapacity planning, putting a trust into action before death, and avoiding potential problems in the probate process.

Grantor or non-grantor: In a grantor arrangement, income is generally taxed to the grantor rather than to the trust. In a non-grantor arrangement, income is generally taxed to the trust (unless it is being distributed that same year).

With the help of an experienced estate planning attorney, you can look at the best opportunities for you to protect your assets from unnecessary charges, leaving behind as much of your legacy as possible.

Reference: Forbes (May 23, 2022) “Estate Planning Opportunities: How Trusts Can Minimize Taxes On Your Legacy”

What Exactly Is a Prenup?

There are some important financial decisions that need to be made before you get hitched. One of them is whether you should get a prenuptial agreement (“prenup”). This isn’t the most romantic issue to discuss, especially because these agreements usually focus on what will happen in the event of the marriage ending. However, in many cases, having tough conversations about the practical side of marriage can actually bring you and your spouse closer together.

JP Morgan’s recent article entitled “What to know about prenups before getting married” explains that being prepared with a prenup that makes both people in a marriage feel comfortable can be a great foundation for building a financially healthy and emotionally healthy marriage.

A prenup is a contract that two people enter before getting married. The terms outlined in a prenup supersede default marital laws, which would otherwise determine what happens if a couple gets divorced or one person dies. Prenups can cover:

How property, retirement benefits and savings will be divided if a marriage ends;

If and how one person in the couple is allowed to seek alimony (financial support from a spouse); and

If one person in a couple goes bankrupt.

Prenups can be useful for people in many different income brackets. If you or your future spouse has a significant amount of debt or assets, it’s probably wise to have a prenup. They can also be useful if you (or your spouse) have a stake in a business, have children from another marriage, or have financial agreements with an ex-spouse.

First, have an open and honest conversation with your spouse-to-be. Next, talk to an attorney, and make sure he or she understands you and your fiancé’s unique goals for your prenup. You and your partner will then compile your financial information, your attorney will negotiate and draft your prenup, you’ll review it and sign it.

Remember that a prenup can be a useful resource for couples in many different circumstances.

It might feel overwhelming to discuss a prenup with your fiancé, but doing this in a non-emotional, organized way can save a lot of strife in the future and could help bring you closer together ahead of your big day.

Reference: JP Morgan (April 4, 2022) “What to know about prenups before getting married”

 

Has the Pandemic Made People More Aware of Estate Planning?

 

The COVID-19 pandemic has led many more Americans to pay attention to estate planning, but just a third of them have taken action, according to a recent report.

Financial Advisor IQ’s recent article entitled “More Americans Set Up Estate Plans Since Start of Pandemic” reports that more than 50% of Americans think estate planning is at least somewhat important, senior living referral service Caring.com found in a survey of more than 2,600 American adults. Caring.com didn't disclose when the survey was conducted.

The number of those aged 18 to 34 with estate planning documents has increased 50% since the beginning of the pandemic, according to the survey. Americans who’ve suffered through a serious COVID case are also 66% more likely to have a will than those who haven’t, Caring.com found.
Roughly 48% who have had a serious case have estate planning in place, as do 41% of those who have loved ones who had one. That’s compared to 29% who have no experience with a serious COVID -19 case, according to the survey.

Overall, two out of three American adults don’t have a will — the percentage has only inched up from 32.1% in 2020 to 32.9% in 2021 to 33.1% this year.

More than 60% of those without a will have done nothing toward getting a will or any estate planning document, according to the survey.

The most cited reason for not having a will is simply not getting around to it. That’s cited by 40% of all Americans without one.

That’s particularly prevalent among those earning $80,000 a year or more and without a will, 63% of whom say they haven’t had time to do so, as well as those with postgraduate education, two out of three of whom say they haven’t got around to it, according to the survey.

On the other hand, 48% of those earning $80,000 or more say they do have a will or another estate planning document.

That represents a 7% increase since 2020, Caring.com says.

However, a third (33%) of Americans overall say they don’t have an estate plan because they don’t have enough to leave behind, according to the survey.

Meanwhile, 12% say they don’t know how to get a will or living trust, and about 13% believe it’s too expensive to set up. Another 6% think it takes too long, and 9% say they don’t have anyone to leave their assets to, Caring.com found.

Reference: Financial Advisor IQ (April 25, 2022) “More Americans Set Up Estate Plans Since Start of Pandemic”