Category Archives: Uncategorized

August 31, 2020 admin

Long Term Care Concerns

Millions of Americans are financially unprepared for retirement. In fact, the typical adult in our country has only saved about $2,500 toward retirement, with couples saving roughly double that amount. These savings will not go far in maintaining the retirement lifestyle of anyone. After all, in retirement, your “earned” income from full-time work will stop.

The Trap of Procrastination

Young people can find it difficult to sacrifice now for something that is 30 or 40 years away. It is easy to put off today, what you can do tomorrow. Instant gratification is more fun than delayed gratification. However, it does not take long before that tomorrow becomes today. Without proper planning for retirement, when that day arrives, the once young worker realizes that he or she has no savings.

What if our hypothetical worker believes he or she will never retire but will continue to work for the rest of his or her life?

Unfortunately, most older Americans must stop working. It is not necessarily by choice. Some may lack relevant job skills for the current job market or may leave employment due to changes in health. A potential employer might choose a less expensive younger worker over a more expensive older worker. For these and other reasons, the need for financial planning looms ever greater. This is especially true, when you consider the high cost of long-term care.

The Cost of Long-Term Care

People today are living longer than when today’s seniors were young adults. Living in a nursing home currently costs roughly $100,000 a year. This is the national average. At this rate, long-term care will cost $1 million per decade. If a person enters a nursing home at age 70 and lives to age 90, the long-term care costs could reach $2 million. Living in an assisted living facility is about half that cost, but is still a lot of money. According to commonly cited government statistics, once you reach age 65, you have a 70% likelihood of needing some form of long-term care. What are the most common options for paying for this care?

How People Pay for Long-Term Care

If you have very low income and few countable assets, Medicaid may pay for long-term care, after you have “spent down” your assets to allowable eligibility limits. Medicaid is the largest single-payer of nursing home care in the United States. Medicaid eligibility requires that you have limited financial resources to be eligible. An elder law attorney should be consulted without delay to discuss how to lawfully maximize preservation of your assets from the spend down and meet eligibility requirements as they vary from state to state.

Too many people also mistakenly assume that Medicare will pay for the cost of a nursing home. In reality, Medicare only provides very limited benefits and only for certain types of care in a skilled nursing facility and only for a limited number of days. For example, Medicare may fully pay for a covered patient to receive impatient rehabilitation services at a skilled nursing facility after hip replacement surgery for 20 days. Then, for days 21 through 100, Medicare will pay only part of the costs. What if that patient cannot return home, but must be discharged to some form of custodial facility for assistance with one or more of the “activities of daily living” (i.e., eating, bathing, getting dressed, toileting, transferring, and continence)? In that case, Medicare will not pay for such assistance, since they are not medically necessary.

Some people may be able to self-insure. However, depending on the duration and cost of their long-term care, they may be rendered Medicaid eligible with no inheritance for loved ones. People in this category might be better off using some of their money to buy long-term care insurance from a reliable company.

Long-Term Care Insurance

Many financial experts recommend that people buy long-term care insurance. However, this option has some downsides. This type of insurance can be expensive, especially if you wait too long to purchase a policy. Wait too long and you may not qualify health-wise. In addition, you may have heard a few “horror stories” about long-term care insurance companies and their business practices. For example, the stories include companies that:

Refused to pay for long-term care after the individual paid premiums for a long time, in some situations, 10 or 20 years or longer.
Used “hidden loopholes” in their policies to deny claims for benefits.
Had “fine print” in the policies that excluded some of the most expensive aspects of long-term care, without explaining this to policyholders.
Went out of business, leaving thousands of people with no coverage after spending hundreds of dollars a month for years on insurance premiums.

There are now far fewer companies that offer long-term care insurance than there were 20 years ago. Fortunately, these remaining companies have survived market downturns, unexpected increases in claims made and heightened scrutiny by state insurance commissioners.

If you want to buy long-term care insurance to preserve your financial freedom and protect the inheritance you intend to leave, then find a reputable company you trust. The next issue is to determine the amount of coverage to purchase. When calculating the appropriate amount for your unique circumstances, consider the amount of other resources likely available to help pay for long-term care costs. These resources include Social Security retirement benefits, your investments and any pension you may receive. These anticipated income streams can help pay some of the monthly long-term care costs and reduce the amount of coverage you need.

Summary

Long-term care planning is an essential component of a secure retirement. The issues involved, by their very legal and financial nature, require the expert advice of a financial advisor, a long-term care insurance agent and an elder law attorney. This team of professionals can help you find retirement planning peace of mind, so do not put off until tomorrow, what you can do today.

July 31, 2020 admin

DIY Estate Planning

Frugality can be a virtue. There is certainly wisdom in having a budget and weighing the cost-benefit of every purchase, before parting with your hard-earned cash. However, pinching pennies can backfire and cost you more in the long run. Sometimes, hiring a professional is the best choice.

Unless you are a certified electrician, wiring your house could send your dream home up in smoke, as you stand powerless to fix your faulty work. Do-it-yourself estate planning presents a similar risk. Without a thorough understanding of state and federal laws governing taxes and asset transfers, you could endanger your estate and your loved ones with the plan you created.

Estate planning mistakes are easier to make than you might think. Consider these seven basic DIY estate planning pitfalls.

Not using available tax-effective transfer strategies.

Lifetime giving and estate planning provide means for transferring assets to loved ones. However, both of these can trigger taxes when done without knowledge of current laws. The estate tax exemption threshold has seen significant changes throughout the years. Currently, only estates with total assets exceeding $11.58 million for an individual and $23.16 million for a married couple are subject to federal estate taxes. Certain states also impose their own state estate taxes and have their own rules regarding exemptions. Lifetime giving can serve the dual purpose of transferring assets, while reducing your taxable estate. However, there is an annual limit on how much you can give to a person without triggering a gift tax. At present that amount is $15,000. Going over this amount when making lifetime gifts, will reduce your federal estate exemption at death. Filling out the appropriate tax forms and acting in accordance with current tax law is vital to tax-efficient planning.

Not reviewing and updating estate planning documents.

Creating a will and trust is only the start of a good estate plan. An effective estate plan is designed to satisfy your current needs and the relevant laws. However, laws and family circumstances change over time. If your estate plan does not change with legal and family changes, then your estate plan could actually undermine your own goals. To avoid leaving a mess for your loved ones, review your estate plan every few years and make the appropriate changes.

Not protecting a spouse through a Medicaid trust.

People age differently. You may require nursing home care, while your spouse is capable of living independently. Nursing homes are expensive and can quickly drain life savings. Because of this, the independent or surviving spouse may be left destitute. A Medicaid trust can help preserve assets to be used by the healthier spouse. In addition, or alternatively, consider acquiring long-term care insurance while you are healthy.

Using a “one size fits all” plan.

You can find generic wills, trusts and other estate planning documents online. These documents may seem like a fairly simple solution to create an estate plan. Unfortunately, like deceptive clothing labels, “one size fits all” estate plans cannot meet the needs of every individual. If you have minor children or a shady son-in-law, you may need more advanced legal planning to protect the inheritance for and from your financially immature heirs. While a simple will may work for someone else, your family might require the probate avoidance privacy of a funded revocable living trust with inheritance protection. A penny of prevention is worth a pound of cure!

Selecting an unfit executor or trustee.

The roles of executor and trustee carry considerable responsibility. Not everyone is capable of filling these roles. The person you select should be someone who is mature, organized and will likely outlive you. If the dead could execute estates or administer trusts, there would be no need for you to name someone other than yourself. An experienced estate planning attorney can help you evaluate your options.

Not funding your trust.

A revocable living trust can be an effective estate planning tool. It allows you to distribute assets to your heirs, while bypassing lengthy and public probate proceedings. A trust gives you greater control over the management of these assets and how they are to be used to benefit your successors. However, the trust can only control and distribute assets, when it has title to the assets. You will need to “fund” your trust. However, not all assets need to be titled to your trust. Certain assets transfer through their own beneficiary designations. In fact, placing certain assets in your trust could have negative consequences. There is more to “funding” a revocable living trust, than any DIY estate planning website can properly advise.

Overlooking witness qualification.

Estate plans are not legally binding, simply because you typed out your wishes and printed them from your computer. For a court, bank, or hospital to accept your documents, the documents must be “legally” executed with all of the required formalities. For example, the requirements for a valid last will and testament vary from state to state, especially when it comes to witnesses and notaries. If your DIY estate plan is not “technically” legal, then it is not legal. The good news? When the estate plan fails to work, you will not know it. You will be dead. The bad news? The loved ones you leave behind will be left with your estate mess to clean up. Is this how you want to be remembered?

These mistakes are easy to make, if you do not work with an experienced estate planning attorney. Spending money to work with a professional in any field is a small price to pay for peace of mind.

June 30, 2020 admin

Gifting to Minors with Custodial Accounts

Legally speaking, a minor is a person under the “age of majority,” which defines the transition from childhood to adulthood. The age of majority depends upon the jurisdiction and application, but it commonly occurs at age 18 in most states.

While minors cannot legally own assets outright, you can transfer assets to your minor child or any minor children, regardless whether he or she is related to you. However, you must adhere to specific rules to ensure these transfers are legal and tax efficient. There are several options for gifting to minors, depending on your situation and goals. This article will introduce one of these methods: the custodial account.

UGMA and UTMA

Have you heard of the Uniform Gifts to Minors Act (UGMA) or the Uniform Transfers to Minors Act (UTMA)? Parents often set up custodial accounts, as either UGMA or UTMA accounts, to make gifts to their minor children, usually for college education. These accounts are popular and are a simpler, less expensive alternative to creating and administering a formal trust for the minor child.

With either account, you are making an irrevocable gift to a minor child and the account is held under the Social Security number of the child. As a result, any taxes on the account are reported on the income tax return of the child. These two accounts also have subtle, but important, differences.

For example, UTMA accounts can hold a wider variety of assets and for a longer time period than UGMA accounts. Whereas UGMA account investment options are limited to traditional financial products, like savings accounts, certificates of deposit, stocks, and bonds, the UTMA account investment options are much broader, extending to nearly any manner of tangible or intangible asset. Limitations are typically in place to prevent the custodian from higher-risk investing, like buying securities on margin.

The accounts also differ when it comes to how long they can be withheld from the direct control of the minor child after attaining the age of majority under state law. UGMA accounts become fully available at age 18, while UTMA accounts can be withheld until age 21. This delayed availability age under a UTMA account can prove to be invaluable, especially if the newly-minted young adult is financially immature. Consequently, funds held in a UTMA account are more likely to be used for college, when controlled by a parent until the child is age 21.

How They Work

While underage, the beneficiary cannot serve as the custodian of a UGMA or UTMA account. Consequently, an adult or financial institution will act as the custodian of the account. The parent who contributes the funds into the account usually also serves as its custodian. Once the account is opened, any friend or family member can make deposits into the account for the child. At that point, assets in the account belong to the child beneficiary. In fact, if the beneficiary applies for federal financial aid for college, the account will be considered an asset of the beneficiary when determining student loan eligibility.

Tax-Free Gifting Rules

The law places limits on much can be added to either of these accounts per year, without triggering gift taxes. Under current law, the “annual gift exclusion” amount is $15,000 per donee and donor. In other words, you and your spouse could each deposit $15,000 into your son’s UTMA account each year without triggering gift taxes. By not exceeding this $15,000 limit, no Form 709 Gift Tax filing is required. “Gifts,” by the way, include all gifts made during the year, even birthday gifts. Your gifts to your son are not considered “income” reportable on his tax return, but they are obviously not “deductible” on your tax return.

What if you want to gift more than the annual exclusion amount in a given year? What if you want to leverage a “down market” and transfer currently undervalued assets to take advantage of potential exponential appreciation later? In 2020, the maximum transfer you and your spouse may make to your son without triggering gift taxes is $23,190,000! You would need to file a Form 709 Gift Tax Return to report the value of your gift in 2020, when filing your personal income tax return. Giving more than $20 million to any newly minted adult may not be a wise move. Therefore, if you are considering a substantial gift to a minor child, a custodial account may not be the best option.

Trust a Trust?

Therefore, what is an alternative to a custodial account when making a substantial gift (or series of gifts) to a minor child in excess of the annual gift exclusion? As famed jurist Oliver Wendell Holmes Sr. famously quipped, “Put not your trust in money, but put your money in trust.” Consequently, consider creating an irrevocable trust with your minor child as the beneficiary. This approach provides many benefits not available with a UGMA or UTMA account. For example, a trust can be designed to protect the inheritance from and for your son.

An irrevocable trust can shield the gifted assets from being squandered or lost to potential divorces, lawsuits, or bankruptcies. In fact, there are very few negatives to using an irrevocable trust, when making substantial gifts to loved ones. Creating, funding, and administering an irrevocable trust is not a do-it-yourself project. Work with an experienced estate planning attorney, when considering your gifting alternatives.

May 31, 2020 admin

Dementia & Estate Planning

Proper estate planning is essential for every adult American, but especially for those in the early stages of Alzheimer’s disease and other forms of dementia. Action must be taken sooner rather than later, if you want to participate in the planning process itself.

While you might not think you are at risk for dementia, one in three adults over the age of 65 develops dementia. Even if you do not experience dementia yourself, the odds are that someone close to you will.

Estate Planning for Seniors without Dementia

Knowing the numbers, it would be a wise decision to create your estate plan before there is any question about whether you have sufficient legal capacity. Still, if you are 65 or older, you might want to include a letter from your primary care physician confirming that you are of sound mind at the time you prepare and sign your legal documents.

Things to discuss with your estate planning lawyer include:

Developing a strategy for long-term care. This includes evaluating your long-term care insurance policy provisions or, if you are uninsured, your Medicaid planning options.
Designating your key decision-makers. You will need to legally appoint someone now to make your personal, health care, and financial decisions, if you unable to make or communicate them in the future. An advance health care directive with a durable power of attorney for health care decisions and a general durable power of attorney for financial decisions are key legal documents for every adult American.
Creating or updating your will or living trust. Many of us execute these legal instruments then stick them in a drawer and promptly forget about them. We simply set it and forget it. This is the time to locate your will or living trust, dust them off and read them. Like many people, you will likely find that your will or living trust is out-of-date. For example, your documents might include a former spouse or contain terms that were appropriate when you had young children but no longer apply.

Estate Planning for Seniors in the Early Stages of Dementia

Even after a diagnosis of dementia, you may still prepare or update your estate plan. However, the estate planning process must carefully assess and memorialize your mental capacity. As noted above, it is always a good idea to have a medical doctor evaluate and certify in writing your ability to understand the content of your estate planning documents and the consequences of signing them.

The medical evaluation and certification of mental capacity should be kept with your important legal papers, including your estate planning documents.

What to Do When a Person with Dementia Lacks Mental Capacity

We do not always have the luxury of knowing that there is a “problem” before there is a problem, especially when someone close to us experiences diminished mental capacity. Unfortunately, at some point, that someone loses the legal capacity to participate in preparing and signing legal documents. In hindsight, loved ones should have recognized the warning signs of dementia. Nevertheless, whether due to denial or the business of daily life, no action was taken to create an appropriate estate plan.

What then?

If you find yourself in this situation with a close loved one, you will need to initiate a probate process to be formally appointed as a guardian/conservator by the court. Once appointed, you will be able to make personal, health care and financial decisions for your incapacitated loved one under the ongoing supervision of the court. You will need the assistance of an attorney to process this legal action.

Final Thoughts

As with most things in life, prevention is always more prudent than the cure. It is the same in the face of an Alzheimer’s or a dementia diagnosis. If you have not taken care of your legal business, then there is no time like the present. While you are at it, share this advice with those near and dear to you.

April 30, 2020 admin

Life Insurance Assurance

You have created an estate plan to prepare for your potential incapacity and eventual death. This will spare your grieving loved ones the additional grief of cleaning up your legal affairs. Congratulations!

What have you done to assure their financial security without your paycheck? How will food, clothing and shelter be provided, let alone braces, post-secondary schooling and weddings? Have you taken steps now to create an “instant” estate, if you do not live long enough to build an estate? Enter the miracle of life insurance.

As part of your estate planning, you should consider the financial assurance that life insurance can provide. Your family will need to replace the income you provide for them and life insurance is a proven way to get cash into their hands quickly.

How quickly? It takes as little as 30 to 60 days for your beneficiaries to receive needed funds, after they submit a claim for life insurance benefits. On the other hand, it can take years for a last will to be processed through a probate court. Your family will need to find some way to continue paying the mortgage or rent, buy groceries and take care of all the other financial commitments.

A life insurance company can be required to pay hefty interest charges, if it does not pay valid claims promptly after receiving a valid claim for benefits and a certified copy of the death certificate. Courts face no such penalties, when a last will crawls its way through probate.

Filing a Claim for Life Insurance Proceeds

Many companies offer online claims service, but some still require paper forms that travel by snail mail. Regardless of the claims process, your loved ones will likely need to fill out a claim form and send it to the insurer with bona fide proof of death. They also might submit the original insurance policy itself.

The policy’s contestability clause can delay the payout, if the death occurs during the first two years of the life insurance policy. The insurer can investigate the cause of death for six to 12 months. It will still need to pay out the death benefit, unless the company can prove the insured lied on the insurance application.

Your state insurance commissioner usually sets limits on how much time an insurer can take to review a claim and pay it, deny it, or request more information. In most states, the review period limit is 30 days. However, some companies pay claims as quickly as two weeks after they receive the claim form and death certificate.

Options for Payout of Proceeds

The traditional form of payout for life insurance benefits is a lump sum. This means that the beneficiaries receive all of the money at one time. If you want to replace your income with the life insurance policy, you might want to consider talking with your insurance agent about what payout options the company offers. You might be able to arrange installment payments for a set number of years. These annuity or installment payout options can range from five to 40 years.

The downside of annuity type payouts is that the beneficiaries must pay taxes on the interest income. The policy proceeds usually are not taxable, but interest on the proceeds is taxable. This should not be a concern, since taxes would be owed regardless of where the proceeds are invested and producing income.

Getting Life Insurance Proceeds During Your Lifetime

Some life insurance companies offer policies with an option for the insured to use part of the proceeds during his lifetime, in the event of a significant or life-threatening illness. Some policies even have a long-term care rider allowing proceeds to be used for nursing home care. If you select a policy with these options beyond the traditional death benefits, you will want to be sure that you understand all of the requirements and limitations.

Summary

In the right situation, a life insurance policy may provide financial security for you during your lifetime and essential benefits for your loved ones thereafter. Working together, an experienced life insurance professional can help you acquire the right coverage and an experienced estate planning attorney can help you design an estate plan to wisely administer the life insurance proceeds for your loved ones’ needs.

March 31, 2020 admin

Trust Funding Fundamentals

Creating a revocable living trust (RLT) can be an essential foundation of your estate planning. Nevertheless, your RLT is nothing but a stack of paper until it holds title to your assets now or in the future. Either way, this process is commonly known as “funding” an RLT.

An Overview of Transferring Assets to a Trust

Until you fund your RLT, it has no assets to manage should you become incapacitated or to distribute upon your passing. If you are married, likely you own some assets individually and some jointly with your spouse. You and your spouse set up either one joint RLT or each of you has your own RLT. Either way, you need to transfer the title, assign ownership rights, or change the beneficiaries of all the assets you want to be held in trust.

If you do not complete these steps, your trustee cannot manage your assets when you become disabled or die. Your assets that were not retitled will be subject to probate and “probate avoidance” is one of the fundamental purposes of estate planning with an RLT. With regard to those assets, you will lose all of the benefits of having an RLT. Your intended beneficiaries might not inherit the assets you intended in the way you intended.

How to Fund Your Trust

The procedure for funding your trust will depend on the type of asset. Some assets need to be titled in the RLT now, while other assets should be transferred to your RLT at death through beneficiary designations.

Assets You Need to Retitle

Generally speaking, investments, bank accounts, and real estate should be formally retitled without delay. For example, you might change the title from “Pat Smith,” “Robin Smith,” or “Pat and Robin Smith” to “Pat and Robin Smith, Trustees, or their successors in trust, under the Smith Family Living Trust, dated June 1, 2020, and any amendments thereto.”

You can transfer these assets into your trust using this method:

Checking and savings accounts
Investment and brokerage accounts that are not IRAs or 401(k) accounts
Stocks or bonds in certificate form
Your home and other real estate

You can change the ownership of these accounts because they already have legal titles.

Changing the Beneficiary

Sometimes you simply need to re-designate the primary or secondary beneficiary on certain assets to your RLT. For example, on your life insurance, 401(k), 403(b), or IRA, all you need to do is change the beneficiary to the trust. You still directly own the asset until your death. Changing the beneficiary also works for some medical savings accounts (MSAs), health savings accounts (HSAs) and pension benefits.

Certain federal or state laws might restrict your right to change beneficiaries. The specific language that you must use to retitle assets to your trust can also differ from one state to the next. Before designating an RLT as a designated beneficiary of a retirement fund, be sure to seek legal and tax counsel.

Assets Without Legal Titles

Remember to “assign” your ownership rights in assets that may not have legal titles. The kinds of assets in this category may include:

Items of “tangible personal property” (e.g., antiques, artwork, musical instruments, collections and jewelry)
Money owed to you for personal loans
Copyrights and patents
Royalties
Some mineral, gas and oil rights
Interests in partnerships and other business ventures

After the assignment, your RLT will own your rights, title and interests with regard to these assets.

Final Thoughts

Like estate planning itself, the “funding” process is a “process,” not a set-it-and-forget-it event. Consequently, as you buy, sell, and trade assets of whatever nature or kind, be mindful of the need to ensure proper title and beneficiary “alignment” with your estate plan.

February 28, 2020 admin

Blended Family Estate Planning

In 1960, nearly three-quarters of children lived with two parents who were in their first marriage. The children in the household were all full siblings. Now, only 46 percent of children live as full siblings with both first-marriage parents.

Blended Family Reality

“Blended families” are now the norm and not the exception. Whether formed after the death of a spouse or following a divorce, blended families themselves are not limited to any particular age demographic. With increased life expectancies, many more seniors tie the knot even into their 90s. While the divorce rate in America is declining slightly, so-called “gray” divorce is on the rise for those age 50 and older.

Unique Estate Planning Challenges

Just as the American family has changed over the last 60 years, so has the need for careful attention to estate planning. For the traditional nuclear family, inheritance planning can be straightforward. Typically, after one spouse dies, all assets pass to the surviving spouse. Thereafter, when the surviving spouse dies, everything passes to the children. However, what if that surviving parent remarries? That is when things can get interesting.

For starters, before that widowed parent in this illustration remarries, a valid and binding prenuptial agreement should be signed by both future spouses. In the absence of a prenuptial agreement, the new spouses have rights under state law to one another’s assets, if the marriage does not work out. In addition, if the marriage does last and one spouse predeceases the other, then the surviving spouse has rights under state law to the assets of the deceased spouse. Note: even with a prenuptial agreement, the assets of both spouses are considered for purposes of Medicaid qualification should one spouse need long-term care.

Title and Beneficiary Designation Traps

It is not uncommon in a blended family for children to be unintentionally disinherited, when their parent is the first spouse to die. How does that happen? It is due to a failure to understand and appreciate the deadly traps set by how assets are titled and how beneficiary designations work. Here is how it works: even if the first deceased spouse has a last will that leaves everything to his own children, everything owned jointly with the surviving spouse with “rights of survivorship” (or as “tenants by the entirety” in some states) will pass automatically to the surviving spouse. By “operation of law” title can “trump” a last will. This also applies to any asset that is designated to pass at death to the surviving spouse. For example, if a surviving spouse did not formally “waive” her interest in his 401(k)retirement plan after the marriage was official, then she inherits the retirement plan. This is the case, even if his children are the designated beneficiaries.

Disinheritance Alternatives

If you want to provide for your new spouse and your own children, then it takes open communication and careful estate planning. For example, assuming that you enter into a valid and binding prenuptial agreement, you may set aside certain assets in trust to provide for your new spouse, with the balance of the assets passing to your own children. Later, following the death of your new spouse, those assets set aside in trust can pass to your own children. In the end, you want to create clear-eyed legal plans, so you can enjoy your new marriage and avoid unintended consequences.

January 30, 2020 admin

Family (Estate) Feuds

It is a sad truth: when a last surviving parent dies, the children often fight over the distribution of the family estate. Will your estate plan keep your children from feuding with each other after you are gone? Forbes estimates that $30 trillion will pass through inheritance during the next three decades, which could leave many families ripped apart by feuds. Adding to the problem, is the fact that many adults do not save enough for their retirement and expect to fund their retirement with their anticipated inheritance.

A legal challenge to your estate plan can delay the distribution of assets to the beneficiaries. The litigation can also drain the estate through court costs, experts and legal fees. The case can drag on for years, with the average costing $10,000 to $50,000, or even more.

Every family is different. The things that could trigger a knock-down-drag-out battle in one family, will not cause a blip on the radar screen for another. Here are some of the reasons why families fight over the estate when the last parent dies:

Caretaker coercion. When one sibling takes care of an aging parent and then receives the house or a disproportionate share of the inheritance, the other siblings might cry foul and accuse the caretaker sibling of undue influence and coercion. While an adult who has the legal capacity to make a will or trust generally has the right to dispose of her estate as she sees fit, this situation can lead to contests when the other children are not informed regarding why the inheritance is not equal.
Disinheritance. When a person disinherits a natural heir, that heir has nothing to lose by challenging the estate plan. Some people include language in their will or trust that penalizes would-be beneficiaries for contesting the will or trust.
Sibling rivalry. Sometimes, siblings who never got along well try to settle old scores by squabbling over the deceased parent’s estate. The solution to this scenario will depend on the facts of the situation.
Advancements or Gifts. If the parent helped a struggling adult child with student loans, a house down-payment, or other big-ticket items while the parent was alive, that child’s siblings might feel cheated. Make it clear in the estate plan whether this assistance was an “advancement” on the future inheritance or a gift. The former is “repaid” out of the inheritance and the latter is not.
Unequal financial status of heirs. Sometimes a parent leaves an asset, like a vacation home, to all the children equally. A wealthy beneficiary can afford to hold the asset, until the time is right to sell it. However, less wealthy co-beneficiaries might want to sell the asset right away. The disparity in financial security can lead to disagreements among the siblings.
Co-trustees or administrators. A parent might try to play fair among adult children, by making them co-trustees of the trust or co-administrators of the estate. Unfortunately, even this strategy can backfire, if the siblings do not work well together.

One of the best ways to avoid future problems among your heirs is not to keep secrets. Tell your natural beneficiaries about your plans and your reasons for them. You do not need to go into detail and include dollar amounts, but a general idea of what assets are in the estate and who will get them, can prevent unpleasant surprises.

December 30, 2019 admin

Estate Planning: Essential Tools

There are several estate planning tools available today. You should choose the combination of documents that best meets your needs.

Wills

One of the earliest forms of estate planning tools, a will is your opportunity to decide who will inherit your house, car, bank accounts, investments, sports memorabilia and other items. In most states, a will is the legal document whereby you nominate the backup parents for orphaned minor children. A will can be short and simple or more complex.

In your will, you should designate someone to serve as your executor. This person will gather your assets, pay your last debts, file the tax returns for you and your estate, work with the probate court and distribute your assets, according to the instructions in your will. The executor does not have to perform all the work personally. He can hire professionals, like an attorney, accountant and appraiser to do some of the tasks.

Trusts

Many people choose a revocable living trust instead of a will. Such trusts, when “funded,” are not subject to probate. Unlike a will, which is filed with the court, a trust protects your privacy. Your trust will not be a public record. It can take less time to administer an estate that has a trust document, if you put all your accounts and property into the trust. You will need to retitle your house, car, bank and brokerage accounts, and other assets into the name of the trust.

Irrevocable Trusts, known as “testamentary trusts,” when created under a will, can continue to protect the eventual inheritance from and for your heirs for many years. You can make arrangements for college educations, set up protections in case a loved one does not manage money well and address special needs and disabilities. Some trusts reduce taxes, while other types of trusts manage charitable giving.

Powers of Attorney

A well-rounded estate plan can protect you, if you become incapacitated because of an illness or injury. You can create a durable power of attorney document that selects someone to handle your financial affairs, run your business, or perform other stated functions, if you cannot do so for yourself.

If you do not have such a document and something catastrophic sidelines you, your family will have to go to court to get a guardian and conservator appointed for you. This process can cost thousands of dollars and take months. During that time, your bills go unpaid and your investments are unmanaged.

A medical power of attorney can designate someone to make medical decisions for you, if incapacitated. You should accompany a medical power of attorney with a medical records release. Without a medical records release, the Health Insurance Portability and Accountability Act (HIPAA) will prohibit your healthcare providers from talking with or showing your medical chart to the person who needs to make decisions for you.

Advance Directives

If you have strong convictions about particular types of medical care, you can prepare an advance directive. This document tells the medical personnel, for example, that you do not want to be on life support. The forms for advance directives tend to list specific kinds of life support, like food, water and ventilators. If you prefer to have someone you trust make those decisions based on the circumstances at the time, you can provide for this in your medical power of attorney.

November 27, 2019 admin

Family Business Succession Checklist

Fact: a business owner may be a phenomenal entrepreneur and yet may not be equally gifted when anticipating future threats to the future continuation of that same business. Consequently, if you want your family business to exist and thrive when you no longer run it, then you need to engage in succession planning sooner rather than later.

Business succession planning is more about avoiding problems than setting goals for growth. While you do want to set a general course for the enterprise you nurtured and grew, you also need to anticipate challenges that might arise 10, 20, even 50 years down the road.

This checklist can help you to avoid common miscues with your business succession:

Face the situation and choose a successor. Although almost every business owner acknowledges the need for succession planning, very few people actually complete the task.
Choose your successor based on the current and future needs of your business, and not on emotion. Business founders often select a family member or a protégé as the person to take the reins, but this decision can be a big mistake.
Choosing someone with the same strengths as your own, might not serve the needs of your business, particularly in a changing marketplace. For example, your strong tech background might have provided the skills your startup needed, but a candidate with sales and marketing ability might be what your company needs going forward.
Resist the temptation to set up competition among several candidates for the leadership role. This method of decision-making can result in a toxic workplace that damages relationships and hurts your business. The candidates might also sacrifice the future health of the business, in the name of short-term gains during the competition.
If you have more than one person in mind for the top role, be honest and transparent. Decades of earned trust can be destroyed in an instant, if your best employees feel that you are hiding some of the facts and decisions from them.
Shift your focus from what will happen to you when you step away from the business, to what will happen to your business. This approach can help you overcome your fears about the unintended consequences of a change in leadership.
Many successful entrepreneurs build their identity around their organizations. It can be hard to walk away. You will need to redefine yourself and think about ways to craft the succession plan, so it is a win-win for all stakeholders.
Create a succession plan that will encourage the new leader to stay. One of the top reasons why succession plans fail, is that the successor leaves the organization.
Make sure you step away as scheduled. The best succession plan in the world will fail, if you do not let the new person do the job.
Have a Plan B, in case the new leader fails, because 40 to 60 percent of all CEOs fail within the first year and a half.
Realize your business will need to be nimble to survive in today’s market. Do not make the mindset of the organization too rigid to adapt to changing conditions.

Do not limit yourself to the items on this checklist. Feel free to consider other factors, depending on your business and its unique characteristics.

Estate Planning Updates