What Legal Documents Should You Have?

You might think that the coronavirus pandemic has caused everyone to get their estate planning documents in order, but the 20th annual Transamerica Retirement Survey of Retirees found that 30% of all retirees have nothing prepared—not even a will. That’s not good, for them or their families, says this timely article 6 Legal Documents Retirees Need—but Don’t Have from MoneyTalksNews.

The survey revealed some troubling facts:

Only 32% have a Health Care Power Of Attorney or Medical Proxy, which allows named persons to make medical decisions on the retiree’s behalf.

Only 30% have an Advance Directive or Living Will, sharing their end-of-life wishes for medical care.

A mere 28% have a designated Power of Attorney, so an agent can act on their behalf to pay bills and manage finances, if they are too sick to do so.

Worse, only 19% have written funeral and burial arrangements. Their families will be left to make all the decisions.

18% have a Health Insurance Portability and Accountability Act (HIPAA) waiver, which is needed so someone else may speak with health care and insurance providers on their behalf.

11% have a Trust of any kind.

The study shines a bright light on a big problem that will be faced by families, if their elders have not taken steps to prepare for incapacity or death. Ignoring the problem does not make it go away. It becomes more complicated, expensive and stressful for the loved ones left behind.

These documents and a last will and testament are needed, so families have the legal right to take care of their loved ones while they are living, as well as handle their estates after they pass.

Without them, the family may find themselves having to go to court to have a guardian appointed in the event their senior loved ones are too ill to manage their financial affairs.

If the loved one should die and there is no will in place, the court will rely on the state’s estate laws to determine who inherits assets. An estranged family member could end up owning the family home and all of its contents, regardless of their absence from the family.

An experienced estate planning attorney can work with the family in a safe, socially distanced manner to have the necessary documents created, before they are needed.

Reference: MoneyTalksNews (Dec. 16, 2020) 6 Legal Documents Retirees Need—but Don’t Have

What Happens If Trust Not Funded
Senior couple meeting financial adviser for investment

What Happens If Trust Not Funded

Revocable trusts can be an effective way to avoid probate and provide for asset management, in case you become incapacitated. These revocable trusts — also known as “living” trusts — are very flexible and can achieve many other goals.

Point Verda Recorder’s recent article entitled “Don’t forget to fund your revocable trust” explains that you cannot take advantage of what the trust has to offer, if you do not place assets in it. Failing to fund the trust means that your assets may be required to go through a costly probate proceeding or be distributed to unintended recipients. This mistake can ruin your entire estate plan.

Transferring assets to the trust—which can be anything like real estate, bank accounts, or investment accounts—requires you to retitle the assets in the name of the trust.

If you place bank and investment accounts into your trust, you need to retitle them with words similar to the following: “[your name and co-trustee’s name] as Trustees of [trust name] Revocable Trust created by agreement dated [date].” An experienced estate planning attorney should be consulted.

Depending on the institution, you might be able to change the name on an existing account. If not, you’ll need to create a new account in the name of the trust, and then transfer the funds. The financial institution will probably require a copy of the trust, or at least of the first page and the signature page, as well as the signatures of all the trustees.

Provided you’re serving as your own trustee or co-trustee, you can use your Social Security number for the trust. If you’re not a trustee, the trust will have to obtain a separate tax identification number and file a separate 1041 tax return each year. You will still be taxed on all of the income, and the trust will pay no separate tax.

If you’re placing real estate in a trust, ask an experienced estate planning attorney to make certain this is done correctly.

You should also consult with an attorney before placing life insurance or annuities into a revocable trust and talk with an experienced estate planning attorney, before naming the trust as the beneficiary of your IRAs or 401(k). This may impact your taxes.

Reference: Point Verda Recorder (Nov. 19, 2020) “Don’t forget to fund your revocable trust”

Despite Pandemic, Many Still Don’t Have an Estate Plan

It’s true—many people still believe that they don’t have enough assets so they don’t need a will, or that their money will automatically go to a next of kin. Both of these beliefs are wrong. While the title of this CNBC article is “More people are creating wills amid the pandemic,” the story’s focus is on the fact that most Americans don’t have a will. If you belong to this group, here’s what happens when you die.

The state you live in has laws about who will receive your assets if you die without a will, known as intestacy. Let’s say you live in New York. Your surviving spouse and children will receive your assets. However, in Texas, your assets will be entered into the state’s intestacy probate process, and your relatives will divide up your assets. Want to be in charge of who inherits your property? Have a will created with an experienced estate attorney.

Young adults think they don’t need a will, but Covid-19 has taken the lives of many healthy, young people. Every adult over age 18 needs a will. If you don’t have one, your loved ones—even if it’s your parents—will inherit a legal mess that will take time and money to fix.

If you have children and no will, there’s no way to be sure who will raise your children. The court will decide. Choose your guardians, name them in your will and be sure to name additional choices just in case the first guardian can’t or won’t serve. You should also appoint someone to be in charge of your children’s money.

What if you had a will created 10 or twenty years ago? That’s another big mistake. Your life changes, the law changes, and so do relationships. Life insurance policies, retirement plans, and transfer-on-death instruments are all legally binding contracts. The last will you made will be used, and if you haven’t updated your will or other documents, then the old decisions will stand. Remember that contracts supersede wills, so no matter how much you don’t want your ex to receive your life insurance proceeds, failing to change that designation won’t help your second spouse. You should review and update all documents.

Doing it yourself is risky. You won’t know if your will is valid and enforceable, if you do it from an online template. Your heirs will have to fix things, which can be expensive. The cost of an estate plan depends on the complexity of your situation. You may only need a will, power of attorney and advance directive. You may also need trusts to pass property along with minimal taxes. An estate planning attorney will be able to give you an idea of how much your estate plan will cost.

Talking about death and planning for it is a difficult topic for everyone, but a well-planned estate plan is one of the most thoughtful gifts you can give to your loved ones.

Reference: CNBC (Oct. 5, 2020) “More people are creating wills amid the pandemic”

 

Protect Your Estate with Five Facts

It is true that a single person who dies in 2020 could have up to $11.58 million in personal assets and their heirs would not have to pay any federal estate tax. However, that doesn’t mean that regular people don’t need to worry about estate taxes—their heirs might have to pay state estate taxes, inheritance taxes or the estate may shrink because of other tax issues. That’s why U.S. News & World Report’s recent article “5 Estate Planning Tips to Keep Your Money in the Family” is worth reading.

Without proper planning, any number of factors could take a bite out of your children’s inheritance. They may be responsible for paying federal income taxes on retirement accounts, for instance. You want to be sure that a lifetime of hard work and savings doesn’t end up going to the wrong people.

The best way to protect your family and your legacy, is by meeting with an estate planning attorney and sorting through all of the complex issues of estate planning. Here are five areas you definitely need to address:

  1. Creating a last will and testament
  2. Checking that beneficiaries are correct
  3. Creating a trust
  4. Converting traditional IRA accounts to Roth accounts
  5. Giving assets while you are living

A last will and testament. Only 32% of Americans have a will, according to a survey that asked 2,400 Americans that question. Of those who don’t have a will, 30% says they don’t think they have enough assets to warrant having a will. However, not having a will means that your entire estate goes through probate, which could become very expensive for your heirs. Having no will also makes it more likely that your family will challenge the distribution of assets. As a result, someone you may have never met could inherit your money and your home. It happens more often than you can imagine.

Checking beneficiaries. Once you die, beneficiaries cannot be changed. That could mean an ex-spouse gets the proceeds of your life insurance policy, retirement funds or any other account that has a named beneficiary. Over time, relationships change—make sure to check the beneficiaries named on any of your documents to ensure that your wishes are fulfilled. Your will does not control this distribution and is superseded by the named beneficiaries.

Set up a trust. Trusts are used to accomplish different goals. If a child is unable to manage money, for instance, a trust can be created, a trustee named and the account funded. The trust will include specific directions as to when the child receives funds or if any benchmarks need to be met, like completing college or staying sober. With an irrevocable trust, the money is taken out of your estate and cannot be subject to estate taxes. Money in a trust does not pass through probate, which is another benefit.

Convert traditional IRAs to Roth retirement accounts. When children inherit traditional IRAs, they come with many restrictions and heirs get the income tax liability of the IRA. Regular income tax must be paid on all distributions, and the account has to be emptied within ten years of the owner’s death, with limited exceptions. If the account balance is large, it could be consumed by taxes. By gradually converting traditional retirement accounts to Roth accounts, you pay the taxes as the accounts are converted. You want to do this in a controlled fashion, so as not to burden yourself. However, this means your heirs receive the accounts tax-free.

Gift with warm hands, wisely. Perhaps the best way to ensure that money stays in the family, is to give it to heirs while you are living. As of 2020, you may gift up to $15,000 per person, per year in gifts. The money is tax free for recipients. Just be careful when gifting assets that appreciate in value, like stocks or a house. When appreciating assets are inherited, the heirs receive a step-up in basis, meaning that the taxable amount of the assets are adjusted upon death, so some assets should only be passed down after you pass.

Reference: U.S. News & World Report (Sep. 30, 2020) “5 Estate Planning Tips to Keep Your Money in the Family”

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Can I Fund a Trust with Life Insurance?

A trust is a legal vehicle in which assets are legally titled and held for the benefit of another party, the beneficiary, explains Forbes’ recent article entitled “How To Fund A Trust With Life Insurance.” The article says that trusts are often funded with a life insurance policy. This will provide assets to be used after the death of the insured for the benefit of their family. If you are a parent of minor children, the combination of life insurance and a trust may be the best way to make certain that your children have their financial needs satisfied and also make sure the assets are used in ways you want.

Trusts are either revocable or irrevocable. A revocable living trust is the most frequently used type of trust. It has some major benefits, like the ability to avoid probate, which can be an expensive and lengthy process. Assets in a revocable trust are accessible much more quickly than those left through a will.  Because they’re revocable, the person who creates the trust (the grantor) can also make adjustments to the trust, as their situation changes.

A grantor will fund the trust with assets for the trust beneficiaries. For parents of minor children, funding a trust using term life insurance is an inexpensive tactic to make certain that your children are cared for after your death. Typically, each parent buys a life insurance policy, and in a two-parent household, usually each spouse names the other as the primary beneficiary with a revocable living trust as the contingent beneficiary.

If the second parents were to die, the life insurance policies would pay to the trust. The trustee would manage the trust assets for the minor children. Funding a trust with life insurance also benefits heirs, because it provides liquidity right after your death. Other assets like investment accounts and real estate can be very illiquid or have tax consequences. As a result, it can take a while to get to that equity.

On the other hand, term life insurance is a fast and tax-free funding way to build a trust. Purchase a term life policy that will last until your children are adults and out of college. In making the life insurance paid to a trust with your children as beneficiaries, you also have some control over the assets. If you name minor children as beneficiaries on a life insurance policy, they won’t be able to use the money until they are an adult. Some children may also not be financially responsible enough to manage money as young adults in their 20s.

If you already own a life insurance policy and want to create a trust, you can transfer ownership of the policy to the trust. Work with an experienced estate planning attorney.

Reference: Forbes (Sep. 17, 2020) “How To Fund A Trust With Life Insurance”

How Far Did a Phoenix Man Go to Get His Grandparents’ Trust Funds?

A 36-year-old Phoenix man stands accused of threatening to kill his brother to get his inheritance from his grandparents. Fox 10 (Phoenix) News’ recent article entitled “Lawyer details ‘murder,’ ‘kidnapping’ plan over an inheritance between brothers” says that Ross Emmick has been charged with extortion, stalking and conspiracy to commit murder.

There are three brothers in this case. Two, including the suspect, were adopted out of the family when they were small, and the other says he had no idea he had brothers. The trouble started when changes were made to their grandparent’s trust. Documents showed scratched out names and clear changes made to a trust created back in 1998 by James and Jacqueline Emmick, the grandparents.

They were diagnosed with dementia in 2019, a few weeks before changes were made. The beneficiaries were their sons, who died before they’d ever get the inheritance. That is when the changes were made by Ross.

Ross is said to have talked his grandparents into naming him as the successor trustee, which allows a person to manage the assets for the benefit of the beneficiaries. However, Ross’ only job was to provide information to the beneficiaries—his two brothers, Patrick and the victim (who asked to remain anonymous).

Ross thought he could simply change the names of the beneficiaries. Patrick claims that in addition to the changes to the will, Emmick allegedly stole thousands of dollars before his grandfather died in June 2019.

Ross actually stole a bunch of money from James before he died and then walked out with $50,000 after his death, Patrick said.

“He tried to get some forms notarized for Power of Attorney, and the witness on the original, which was a housekeeper, said that they were in a stable condition and mentally, they weren’t, and even the notary had said that,” said Patrick.

A large part of that was gambled away by Ross, an attorney for one of the brothers said. It wasn’t a well-administered trust, he said.

The brothers agreed to drop the case and divide the rest of the trust. However, that is when investigators say Ross began threatening the other two brothers.

Reference: Fox 10 (Phoenix) News (Aug. 22, 2020) “Lawyer details ‘murder,’ ‘kidnapping’ plan over an inheritance between brothers”

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Estate Planning for Asset Distribution

Without proper planning, your will determines who inherits your property—everything from your home, car, bank accounts and personal possessions. Your spouse may not necessarily be your heir—and that’s just one of many reasons to have an estate plan.

An estate plan avoids a “default” distribution of your possessions, says the recent article “Asset distribution when we die” from LimaOhio.com.

Let’s say someone names a nephew as the beneficiary of his life insurance policy. The life insurance company has a contractual legal responsibility to pay the nephew, when the policy owner dies. In turn, the nephew will be required to provide a death certificate and prove that he is indeed the nephew. This is an example of an asset governed by a contract, also described as a named beneficiary.

Assets that are not governed by a contract are distributed to whoever a person directs to get the asset in their will, aka their last will and testament. If there is no will, the state law will determine who should get the assets in a process known as “intestate probate.”

In this process, when there is a last will, the executor is in charge of the assets. The executor is overseen by the probate court judge, who reviews the will and must give approval before assets can be distributed. However, the probate court’s involvement comes with a price, and it is not always a fast process. It is always faster and less costly to have an asset be distributed through a contract, like a trust or by having a beneficiary named to the asset.

If a will only provides limited instructions, the state’s law will fill in the gaps. Therefore, any assets that pass-through contracts will be distributed directly, assets noted in the will go through probate and anything else will go usually to the next of kin.

A better course of action is to have an estate attorney review all of your assets, determine who you want to receive your property and make up a plan to make this happen in a smooth, tax-efficient manner.

Reference: LimaOhio.com (Aug. 22, 2020) “Asset distribution when we die”

 

What Should I Know about Beneficiaries?

When you open most financial accounts, like a bank account, life insurance, a brokerage account, or a retirement account (e.g., a 401(k) or IRA), the institution will ask you to name a beneficiary. You also establish beneficiaries, when you draft a will or other legal contracts that require you to specify someone to benefit in your stead. With some trusts, the beneficiary may even be you and your spouse, while you’re alive.

Bankrate’s article entitled “What is a beneficiary?” explains that the beneficiary is usually a person, but it could be any number of individuals, as well as other entities like a trustee of your trust, your estate, or a charity or other such organization.

When you’re opening an account, many people forget to name a beneficiary, because it’s not needed as part of the process to create many financial accounts. However, naming a beneficiary allows you to direct your assets as you want; avoid conflict; and reduce legal issues. Failing to name a beneficiary may create big headaches in the future, possibly for those who have to deal with sorting out your affairs.

There are two types of beneficiaries. A primary beneficiary is first in line to receive any distributions from your assets. You can disburse your assets to as many primary beneficiaries as you want. You can also apportion your assets as you like, with a certain percentage of your account to each primary beneficiary. A contingent beneficiary receives a benefit, if one or more of the primary beneficiaries is unable to collect, such as if they’ve died.

After you’ve named your beneficiaries, it’s important to review the designations regularly. Major life events (death, divorce, birth) may modify who you want to be your beneficiary. You should also make certain that any language in your will doesn’t conflict with beneficiary designations. Beneficiary designations generally take precedence over your will. Check with an elder law or experienced estate planning attorney.

Finally, it is important to understand that a minor (e.g., typically under age 18 in most states) usually can’t hold property, so you’ll need to set up a structure that ensures the child receives the assets. One way to do this, is to have a guardian that holds assets in custody for the minor. You may also be able to use a trust with the same result but with an added benefit: in a trust you can instruct that the assets be given to beneficiaries, only when they reach a certain age or other event or purpose.

Reference: Bankrate (July 1, 2020) “What is a beneficiary?”

Estate Planning Is a Gift and a Legacy for Loved Ones

Without an end of life plan, a doctor you’ve never even met might decide how you spend your last moments, and your loved ones may live with the burden of not knowing what you would have wished. These are just a few reasons why “End-Of-Life Planning is a ‘Lifetime Gift’ To Your Loved Ones,” as discussed in a recent article from npr.org.

It’s important to recognize that planning for the end of your life is actually not all about you. It’s about the ones you love: your parents, spouse, children, or your pets. They are the ones who will benefit from the decisions you make to prepare for the end of your life, and life after you are gone. It is a gift to those you love.

So, what should you do?

Start by preparing to have an estate plan created. If you have an estate plan but haven’t reviewed it in the last three or four years, find it and review it. If you can’t find it, then you definitely need a new one. An estate planning attorney can help you create an estate plan, including a will and other documents.

In the will, you name an executor, someone who you trust completely to carry out your directions. Some people choose a spouse or adult child to be their executor. It’s a lot of work, so pick someone who is smart, organized and trustworthy. They’ll be in charge of all of your financial assets and communicating how the estate is distributed to everyone in your will.

Create an inventory. This includes things that are of financial and sentimental value. People fight over sentimental things, so giving your family specific directions may avoid squabbles.

If you have children under age 18, name a guardian for them. This should be a person who knows your children and will raise them with same values as you would.

Pets are often overlooked in estate planning. If you want to protect your pet, in many states you can create a pet trust. It includes funds that are to be used specifically for care for your pet, and a trustee who will be responsible for ensuring that the funds are used as you intended.

Digital accounts are also part of your property, including social media, online photos, everything in your online cloud storage, credit card rewards, email, frequent flyer miles and digital assets.

Make sure your will is executed and in compliance with the laws of your state. If your will is found to be invalid, then it is as if you never made a will, and all your planning will be undone.

You also need an advance directive, a legal document that covers health care and protects your wishes at the end of life. One part of an advance directive gives a person medical power of attorney, so they can make decisions for you if you cannot. The other part is a living will, where you share how you want to be cared for and what interventions you do or don’t want if you are near death.

Reference: npr.org (June 30, 2020) “End-Of-Life Planning is a ‘Lifetime Gift’ To Your Loved Ones”

 

How Do I Talk about End-Of-Life Decisions?

With the coronavirus pandemic motivating people to think about what they prioritize in their lives, experts say you should also take the time to determine your own end-of-life plans.

Queens News Service’s recent article entitled “How to have the hardest conversation: Making end-of-life decisions” reports that in this coronavirus pandemic, some people are getting scared and are realizing that they don’t have a will. They also haven’t considered what would happen, if they became extremely ill.

They now can realize that this is something that could have an impact upon them.

According to the U.S. Centers for Disease Control and Prevention (CDC), 70% of Americans say they’d prefer to die at home, while 70% of people die in a hospital, nursing home, or a long-term care facility. This emphasizes the importance of discussing end-of-life plans with family members.

According to a survey of Californians taken by the state Health Care Foundation, although 60% of people say that not burdening their loved ones with extremely tough decisions is important, 56% have failed to talk to them about their final wishes.

“Difficult as they may be, these conversations are essential,” says American Bar Foundation (ABF) Research Professor Susan P. Shapiro, who authored In Speaking for the Dying: Life-and-Death Decisions in Intensive Care.

“Now is a good time to provide loved ones with the information, reassurance and trust they need to make decisions,” Shapiro says.

Odds are the only person who knows your body as well as you do, is your doctor.

When thinking about your end-of-life plans, talk with your doctor and see what kind of insight she or he can provide. They’ve certainly had experience with other older patients.

If you want to make certain your wishes are carried out as you intend, detail all of your plans in writing. That way it will be very clear what your loved ones should do, if a decision needs to be made. This will eliminate some stress in a very stressful situation.

Even after the COVID-19 pandemic is over, everyone will still need a will.

Talk with an experienced elder law or estate planning attorney to make certain that you have all of the necessary legal documents for end-of-life decisions.

Reference: Queens News Service (May 22, 2020) “How to have the hardest conversation: Making end-of-life decisions”

Suggested Key Terms: Elder Law Attorney, Elder Care