Why a Will Is the Foundation of an Estate Plan

An estate planning lawyer has many different tools to achieve clients’ estate planning goals. However, at the heart of any plan is the will, also known as the “last will and testament.” Even people who are young or who have modest levels of assets should have a will—one that is legally valid and up to date. For parents of young children, this is especially important, says the article “Wills: The Cornerstone of Your Estate Plan” from the Sparta Independent. Why? Because in most states, a will is the only way that parents can name guardians for their children.

Having a will means that your estate will avoid being “intestate,” that is, having your assets distributed according to the laws of your state. With a will, you get to determine who is to receive your property. That includes your home, car, bank and investment accounts and any other assets, including those with sentimental value.

Without a will, your property will be distributed to your closest blood relatives, depending upon how closely related they are to you. Few individuals want to have the state making these decisions for their property. Most people would rather make these decisions for themselves.

Property can be left to anyone you choose—including a spouse, children, charities, a trust, other relatives, a college or university, or anyone you want. There are some limits imposed by law that you should know about: a spouse has certain rights to your property, and they cannot be reversed based on your will.

For parents of young children, the will is used to name a legal guardian for children. A personal guardian, who takes personal custody of the children, can be named, as well as a property guardian, who is in charge of the children’s assets. This can be the same person, but is often two different people. You may also want to ask your estate planning attorney about using trusts to fund children’s college educations.

The will is also a means of naming an executor. This is the person who acts as your legal representative after your death. This person will be in charge of carrying out all of your estate settlement tasks, so they need to be someone you trust, who is skilled with managing property and the many tasks that go into settling an estate. The executor must be approved by the probate court, before they can start taking action for you.

There are also taxes and expenses that need to be managed. Unless the will provides directions, these are determined by state law. To be sure that gifts you wanted to give to family and loved ones are not consumed by taxes, the will needs to indicate that taxes and expenses are to be paid from the residuary estate.

A will can be used to create a “testamentary trust,” which comes into existence when your will is probated. It has a trustee, beneficiaries and directions on how distributions should be made. The use of trusts is especially important, if you have young children who are not able to manage assets or property.

Note that any assets distributed through a will are subject to probate, the court-supervised process of administering and proving a will. Probate can be costly and time-consuming, and the records are available to the public, which means anyone can see them. Many people chose to distribute their assets through trusts to avoid having large assets pass through probate.

Talk with an experienced estate planning attorney about creating a will and the many different functions that the will plays in settling your estate. You’ll also want to explore planning for incapacity, which includes having a Power of Attorney, Health Care Proxy, and Medical Directives. Estate planning attorneys also work on tax issues to minimize the taxes paid by the estate.

Reference: Sparta Independent (Dec. 19, 2019) “Wills: The Cornerstone of Your Estate Plan”

Mistakes to Avoid when Planning Estates

Because estate planning has plenty of legal jargon, it can make some people think twice about planning their estates, especially people who believe that they have too little property to bother with this important task.

Comstock’s Magazine’s recent article entitled “Five Mistakes to Avoid When Planning Your Estate” warns that without planning, even small estates under a certain dollar amount (which can pass without probate, according the probate laws in some states) may cause headaches for heirs and family members. Here are five mistakes you can avoid with the help of an experienced estate planning attorney:

Getting Bad Advice. If you want to plan an estate, start with a qualified estate planning attorney. There are plenty of other “experts” out there ready to take your money, who don’t know how to apply the law and strategies to your specific situation.

Naming Yourself as a Sole Trustee. You might think that the most trustworthy trustee is yourself, the testator. However, the estate plans can break down, if dementia and Alzheimer’s disease leave a senior susceptible to outside influences. In California, the law requires a certificate of independent review for some changes to trusts, like adding a nurse or an attorney as a beneficiary. However, this also allows family members to take advantage of the situation. It’s wise to designate a co-trustee who must sign off on any changes — like a trusted adult child, financial adviser, or licensed professional trustee, providing an extra layer of oversight.

Misplacing Assets. It’s not uncommon for some assets to be lost in a will or trust. Some assets, such as 401(k) plans, IRAs, and life insurance plans have designated beneficiaries which are outside of a last will and testament or trust document. Stocks and securities accounts may pass differently than other assets, based upon the names on the account. Sometimes people forget to change the beneficiaries on these accounts, like keeping a divorced spouse on a life insurance policy. When updating your will or trust, make certain to also update the beneficiaries of these types of assets.

Committing to a Plan Without Thinking of Others. When it comes to estate planning, there’s no one-size-fits-all solution. For example, for entitlement or tax reasons, it may make sense to transfer assets to beneficiaries, while the testator is still living. This might also be a terrible idea, depending on the beneficiaries’ situation and ability to handle a sum of money. He or she may have poor spending habits. Remember that estate planning is a personal process that depends on each family’s assets, needs and values. Work with an experienced estate planning attorney to be sure to consider all the angles.

Reference: Comstock’s Magazine “Five Mistakes to Avoid When Planning Your Estate”

Key Health Document Most Americans Don’t Have but Should

You may not like the idea of contemplating your own mortality, or that of a loved one. You may procrastinate all year long about putting your final wishes in place. However, this one document is important for yourself, your loved ones and your life. You shouldn’t put it off any longer. Forbes’ recent article titled “Two-Thirds of All Americans Are Missing This Estate Planning Document” explains why.

A health care directive is a legal document that an individual will use to give specific directions for caregivers, in case of dementia or illness. It directs end of life decisions. It also gives directions for how the person wishes their body to be cared for after their death.

This document is known by several different names: living wills, durable health care powers of attorney or medical directives. However, the purpose is the same: to give guidance and direction on making medical and end-of-life decisions.

This document itself is a relatively new one. The first was created in California in 1976, and by 1992, all fifty states had similar laws. The fact that the law was accepted so fast across the country, indicates how important it is. The document provides control when a person is impaired and after their death. That is at the heart of all estate planning.

Yet just as so many Americans don’t have wills, only a third have a health care directive. That’s a surprise, since both estate planning attorneys and health care professionals regularly encourage people to have these documents in place.

A key part of a health care directive is selecting an agent. This is a person who will act as the proxy to make decisions for another person, consistent with their wishes. They will also have to advocate for the person with respect to having treatment continue or shifting to pain management and palliative care. The spouse is often the first choice for this role. An adult child or other close and trusted family or friends can also serve.

The agent’s role does not end at death but continues to ensure that post-mortem wishes are carried out. The agent takes control of the person’s body, making sure that any organ donations are made, if it was the person’s wish.

Once any donation wishes are carried out, the agent also makes sure that funeral wishes are done according to the person’s wishes. Burial is an ancient tradition, but there are many different choices to be made. The health care directive can have as many details as possible, or simply state burial or cremation.

Having a health care directive in place permits an individual to state his or her wishes clearly. Talk with your estate planning attorney about creating a health care directive as part of your comprehensive estate plan.

Reference: Forbes (December 13, 2019) “Two-Thirds of All Americans Are Missing This Estate Planning Document”

Money Mistakes Retirees Can Avoid

By the time retirement comes, most people have gained a certain amount of insight and wisdom.  However, this doesn’t always translate into financial savvy. The article “5 Common Money Mistakes Retirees Make” from Next Avenue aims to help retirees steer clear of mistakes that are easy to make—and just as easy to avoid.

Thinking You’re Smarter than the Market. Even professionals who buy and sell individual stocks, or the money managers who run billion-dollar funds rarely outperform the market. Don’t forget the millions of artificial intelligence programs now operating in markets world-wide. Moving in and out of individual stocks, known as an “active strategy,” is a recipe for financial risk. Here’s why:

  • Betting on an individual stock is not betting on the company’s performance, as much as it is betting it will go up more than the professionals believe it will, and betting that you know more than the supercomputers that run today’s markets.
  • Higher volatility strategies may look better than the market some years. However, even if you’ve done well for ten years, you may be up against a big upset. Do you have time to recover those losses? Not if you’re over 65.

Sticking with an All Cash Portfolio. The opposite of the person who trades stocks, is the one who keeps everything in cash, money-market mutual funds or CDs. However, health care costs are rising, at some point inflation will start to ramp up and money that doesn’t grow can’t keep up.

Putting a Little Bit Here, a Little Bit There. Diversification is the name of the game, but that doesn’t mean having multiple accounts at numerous financial institutions. Many people think they are playing it safe by keeping some money in a high-risk mutual fund, while other money is in a risk-avoiding mutual fund. The strength of diversification is in the underlying assets—stocks, bonds, real estate, etc. Having money in multiple mutual funds in different financial services accounts may mean all of your money is invested in exactly the same way. Ask your financial advisor for a look-through analysis to review underlying assets to be sure that your investments really are diversified.

Not Touching Savings. Not Even a Little Bit. Is your plan to leave money for children, or charity? Don’t be afraid to dip into your savings accounts during retirement. Many people live too frugally, afraid that they will outlive their money. However, if you have a good handle on your spending and investments, you should enjoy the money you worked hard to accumulate. There are numerous ways to make donations or bequests that can protect your money, while enjoying your retirement. Talk with an estate planning attorney about the use of charitable donations as a means of reducing taxes, or how trusts can help.

Letting Real Estate pin You in a Financial Corner. The family home is many people’s biggest asset. Selling it to finance your retirement may create many unknowns. Will the sale generate enough profit to cover your cost of living for the next few decades? You’ll need to crunch the numbers to figure out what the best strategy will be. If you can sell your home, buy something smaller and use the proceeds to enjoy your retirement, you might actually end up with more money, not less.

How do you pull your retirement finances together? Consider the risks, like long-term care costs, medical expenses, or outliving your savings. Figure out a strategy to address them. Use a simple, broad-based investment approach, and finally, figure out how much money you need to live on. Then, use that money in the best way possible, so that you are managing your costs of living and enjoying your life.

Reference: Next Avenue (November 14, 2019) “5 Common Money Mistakes Retirees Make”

How Does a Conservatorship Work?

Millennials, now in their 30s, need to begin thinking about caring for their boomer parents, as medical, financial and mental health needs come up. For lucky families, this will mean conversations with travel agents and financial advisors. For those not so fortunate, it will mean conversations with doctors, nursing home staff and, in some cases, with lawyers regarding conservatorships, says KAKE.com in the article “What is a Conservatorship and How Does It Work?”

A conservatorship is a form of legal guardianship of an adult. The conservator has legal authority over certain parts of the person’s life. It may be a “limited conservatorship,” where only specific matters are under the conservator’s control, like health or finances. The “full conservatorship” gives the conservator complete control over the person’s life, in the same way that a parent has legal control over a child.

Conservatorship is granted when the person no longer has the capacity to make decisions on their own behalf. In almost all cases, this is based on their mental capacity. While it can happen, physical incapacity rarely is acceptable for conservatorship to be awarded.

Some of the common reasons for conservatorship by way of mental incapacity, include if the person is in a coma, suffers from Alzheimer’s, dementia or severe mental illness, or has a permanent or genetic mental disability that prevents them from ever reaching legal maturity or independence.

Conservatorship is a legal proceeding, which must be granted by an officer or appointee of the court. It’s typically handled by a state probate court or family court. Hearings are usually held by a judge or a magistrate. A conservatorship may be part of estate planning. Most conservatorships require medical paperwork, but in all instances, the potential ward must have the opportunity to be heard by the decision maker and to present their case, if they wish, as to why conservatorship should not be granted. An individual also has the right to challenge the conservatorship, in court, at any time, if they disagree.

Power of Attorney may be used to accomplish some of the things that would be accomplished by a conservatorship. A POA gives a person the ability to make legally binding decisions for someone else, and the scope can be narrow or broad. The POA, however, is granted at the discretion of the person giving another person this power.

An estate planning attorney will be able to discuss all of the rights, responsibilities and fiduciary obligations of a conservatorship. Most have had experience with conservatorship and will be able to help the family and the individual make informed decisions in the best interest of the individual.

Reference: KAKE.com (December 11, 2019) “What is a Conservatorship and How Does It Work?”

Making a Fresh Start for 2020? Here’s Help

Some people like to start their New Year’s off with a clean slate, going through the past year’s documents and organizing, tossing, or shredding anything they don’t absolutely need. However, many don’t, in part because we’re not sure exactly what documents we need to keep, and which we can toss. This article from AARP Magazine provides the missing information so you can get started: “When to Keep, Shred or Scan Important Papers.”

Tax Returns. Unless you’re planning on running for office, the last three years of tax returns and supporting documents are enough. That’s the window the IRS has to audit taxpayers. But there are some exceptions: if you are self-employed or have a complex return, double that number to six years, which is how much time the IRS has to audit you, if it suspects something’s fishy.

Regardless of how you earn your income, visit MySocialSecurity.gov account before shredding to make sure that your income is being accurately recorded. Having your tax records in hand will make it easier to get any figures fixed.

As for documents regarding home ownership, keep records related until you sell the house. You can use home-improvement receipts to possibly reduce taxes at that time.

Banking and Investments. If you or your spouse might be applying for Medicaid to pay nursing home costs, you’ll need to have five years of financial records. That includes bank statements, credit card statements, and statements from brokerage or financial advisors. This is so the government can look for any asset transfers that might delay eligibility.

If that’s not the case, then you only need banking and financial statements for a year, except for those issued for income-related purposes to provide the IRS with a record of tax-related transactions. Your bank or credit card issuer may have online statements going back several years online. However, if not, download statements and save them in a password protected folder on your home computer.

Stocks and bonds purchases need to be kept for six years after filing the return reporting the sale of the security. Again, this is for the IRS.

If you have a stack of cancelled checks, shred them. Most every bank and credit union today have an electronic version of your checks.

Medical Records. These are the documents you want to organize and keep indefinitely, especially if you have had a serious illness or injury. The information may make a difference in how your physicians treat you in the future, so normal or not, hang on to the following documents: surgical reports, hospital discharge summaries and treatment plans for major illnesses. Put these in a password-protected folder in your computer or a secure cloud-based account, so they can be shared with future healthcare providers. You should also keep immunization and vaccination records. The goal is to have your own medical records and not to rely on your doctor’s office for these documents.

Maintain proof of payments to medical providers for six years, with the relevant tax return, in case the IRS questions a health care deduction. If you have questions consult your elder law attorney.

Reference: AARP Magazine (August 5, 2019) “When to Keep, Shred or Scan Important Papers”

From Gentle Persuasion to a No-Nonsense Approach, Talking About Estate Plans

Sometimes the first attempt is a flop. Imaging this exchange: “So, do you want to talk about what happens when you die?” Answer: “Nope.” That’s what can happen, but it doesn’t have to, says The Wall Street Journal’s recent article “Readers Offer Their Advice on Talking to Aging Parents About Estate Plans.”

Many people have successfully begun this conversation with their aging parents. The gentle persuasion method is deemed to be the most successful. Treating elderly parents as adults, which they are, and asking about their fears and concerns is one way to start. Educating, not lecturing, is a respectful way to move the conversation forward.

Instead of asking a series of rapid-fire questions, provide information. One family assembled a notebook with articles about how to find an estate planning attorney, when people might need a trust, or why naming someone as power of attorney is so important.

Others begin by first talking about less important matters than bank accounts and bequests. Asking a parent for a list of utility companies with the account number, phone number and if they are paying bills online, their password, is an easy entry to thinking about next steps. Sometimes a gentle nudge, is all it takes to unlock the doors.

For some families, a more direct, less gentle approach gets the job done. That includes being willing to tell parents that not having an estate plan or not being willing to talk about their estate plan is going to lead to disaster for everyone. Warn them about taxes or remind them that the state will disburse all of their hard-earned assets, if they don’t have a plan in place.

One son tapped into his father’s strong dislike of paying taxes. He asked a tax attorney to figure out how much the family would have to pay in estate taxes, if there were no estate plan in place. It was an eye-opener, and the father became immediately receptive to sitting down with an estate planning attorney.

A daughter had tried repeatedly to get her father to speak with an estate planning attorney. His response was the same for several decades: he didn’t believe that his estate was big enough to warrant doing any kind of planning. One evening the daughter simply threw up her hands in frustration and told him, “Fine, if your favorite charity is the federal government, do nothing…but if you’d rather benefit the church or a university, do something and make your desires known.”

For months after seeing an estate attorney and putting a plan in place, he repeated the same phrase to her: “I had no idea we were worth so much.”

Between the extremes is a third option: letting someone else handle the conversation. Aging parents may be more receptive to listening to a trusted individual, who is of their same generation. One adult daughter contacted her wealthy mother’s estate planning attorney and financial advisor. The mother would not listen to the daughter, but she did listen to her estate planning attorney and her financial advisor, when they both reminded her that her estate plan had not been reviewed in years.

Reference: The Wall Street Journal (December 16, 2019) “Readers Offer Their Advice on Talking to Aging Parents About Estate Plans”

I’m a Fiduciary—What Does That Mean?

There are any number of pitfalls that may occur when administering an estate, a trust or another person’s finances under a Power of Attorney (POA). Fiduciary duties are the highest under the law, and the fiduciary is legally required to put the interests of the person they are representing above their own. The most common problem for a fiduciary is not taking their responsibilities seriously enough, says the article “What does it mean to serve as a fiduciary? from the New Hampshire Union Leader.

You can avoid some common pitfalls, if you keep the following in mind:

Know the governing instrument. A fiduciary must abide by the terms of the governing instrument, which might be a Power of Attorney (POA), trust, or another legal document. The powers you hold are limited to those granted in the document. There are times when even though you have a power or the ability to do something, it’s not in the best interest of the grantor. Let’s say the trust gives you as a trustee the power to make distributions to a beneficiary. If the beneficiary has sufficient independent resources, doing so might be a breach of your duties. In the same way, the ability to make gifts that is given by a POA, doesn’t mean you should automatically start making gifts.

Maintain extremely detailed records. Do this for two reasons. You have a duty to do so, and you need good records in case anyone claims that you did something wrong. Make sure that your records have enough details so that any expense or expenditure can be documented and explained.

Transparency is the best approach. Every situation is different, and family dynamics differs, but if you can, speak with family members before making any transactions. If they object, you can decide whether or not to proceed, or to petition the probate court to give the court’s blessing in advance. In this case, it is better to ask permission in advance, than ask for forgiveness after the fact.

Never mix your personal or business funds with that of the estate. This is one of the biggest problems for people who have never been a fiduciary before. If you are a fiduciary for more than one estate, then you’ll need to have funds and property completely separate from each other.

Fiduciary duties need to be treated with great care to avoid any liability and litigation. If you are not prepared to be a fiduciary, you could decide to decline the role. Speak with an estate planning attorney, if you have any reservations about taking on this responsibility.

Reference: New Hampshire Union Leader (December 7, 2019) “What does it mean to serve as a fiduciary?

Careful–the Silver Tsunami is Coming!

Approximately one in three homes in the U.S. is owned by someone who is 60 and older. As these millions of boomers decide it’s time to sell their homes and move to another location or to a retirement community, that will have an impact on housing markets, says the article from Market Watch “These housing markets will feel the biggest impact from the ‘Silver Tsunami.’”

In the ten years between 2007-2017, around 730,000 homes that had been owned by seniors went on the market every year. That number is expected to grow enormously over the next few decades. A news analysis from Zillow says that as many as 920,000 homes will go on the market between 2017-2027.  In the ten years after that, the figure may go as high as 1.17 million homes per year.

In total, says Zillow, almost a third of currently owner-occupied homes, around 20 million properties, will go on sale as the direct result of a boomers dying or deciding to move to a smaller home or retirement facility.

The wave won’t hit all at once, and it won’t strike all markets equally.

The biggest impact is expected to be in the Tampa-St. Petersburg-Clearwater metropolitan area in Florida. The Tucson, Arizona area is next in line, with the Miami-Ft. Lauderdale-Port Saint Lucie and Orlando metro areas following.

At the far end of the spectrum, Salt Lake City, Utah, is expected to see the smallest impact from the Silver Tsunami. Less than 20% of homes there are expected to go up for sale, because of being owned by aging boomers.

A few other cities are expected to escape this trend with little impact. They include Austin, Houston, and Dallas, all in Texas.

In other cities, there are micro-neighborhoods that will feel the impact within cities. For instance, in greater Phoenix, all will be well. However, in the towns of El Mirage or Sun City, nearly two-thirds of all homes will be on the market, as they are mainly retirement communities.

Those who are planning to relocate for retirement may want to keep the Silver Tsunami in mind, if their retirement finances depend upon the value of their homes.

Reference: Market Watch (December 3, 2019) “These housing markets will feel the biggest impact from the ‘Silver Tsunami’”

Not a Festive Thought, But A Kind One: Planning for Your Own Funeral

Leaving instructions for your funeral and burial wishes relieves loved ones of the burden of making decisions and hoping they are following your wishes. In addition, says the article “Important to provide instructions for preferred funeral, burial wishes” from The Leader, it also prevents arguments between relatives and friends who have their own opinions about what they think you may have wanted.

What often happens is that people make this information part of their estate plan. However, the will is usually not looked at until after the funeral. If your loved ones don’t know where your will is, then they certainly won’t know what your wishes were for the funeral.

Without clear written directions, spiritual practices or cultural traditions that are important to you, may not be followed.

An estate planning attorney can help you create a document that outlines your wishes and will have suggestions for how to discuss this with your family and where it should be located. The documents are different in each state, so be sure to work with a local lawyer. In New York State, there is a form that allows you to name an agent who will be in charge of your remains. You can give your instructions to that person or you can leave them in charge to make arrangements in their discretion.

In New York State, if this form is not completed, the following people, in descending order, have the right to control your remains: spouse, domestic partner, children, other family members and others.

For funeral planning, one option is to go to the funeral home and arrange to pay for the funeral and go to the cemetery and purchase a plot. A pre-paid irrevocable funeral trust purchased at a funeral home can also protects assets from nursing home costs, when applying for Medicaid.

Some people wish to donate their organs, which can be done on a driver’s license or in another statement. Donating your body for medical research or education will require researching medical schools or other institutions and may require an application and other paperwork that confirms your intent to donate your body. When you pass, your family member or whoever is in charge will need to contact the organization and arrange for transport of your remains.

A comprehensive estate plan does more than distribute assets at death. It also includes what a person’s wishes are for their funeral and burial wishes. Think of it as a gift to loved ones.

Reference: The Leader (December 7, 2019) “Important to provide instructions for preferred funeral, burial wishes”