Wealth Transfer Strategies to Consider in an Election Year

With a push by the Democratic party to return federal estate taxes to their historic norms, taxpayers need to act now before Congress passes legislation that could adversely impact their estates. Currently, the federal estate and gift tax exemption is set at $11.58 million per taxpayer. Assets included in a decedent’s estate that exceed the decedent’s remaining exemption available at death are taxed at a federal rate of 40 percent (with some states adding an additional state estate tax). However, each asset included in the decedent’s estate receives an income tax basis adjustment so that the asset’s basis equals its fair market value on the date of the decedent’s death. Thus, beneficiaries realize capital gain upon the subsequent sale of an asset only to the extent of the asset’s appreciation since the decedent’s death.

If the election results in a political party change, it could mean not only lower estate and gift tax exemption amounts but also the end of the longtime taxpayer benefit of a stepped-up basis at death. To avoid the negative impact of these potential changes, there are a few wealth transfer strategies it would be prudent to consider before the year-end.

Intrafamily Notes and Sales

In response to the COVID-19 crisis, the Federal Reserve lowered the federal interest rates to stimulate the economy. Accordingly, donors should consider loaning funds or selling one or more income-producing assets, such as an interest in a family business or a rental property, to a family member in exchange for a promissory note that charges interest at the applicable federal rate. In this way, a donor can provide a financial resource to a family member on more flexible terms than a commercial loan. If the investment of the loaned funds or income resulting from the sold assets produces a return greater than the applicable interest rate, the donor effectively transfers wealth to the family members without using the donor’s estate or gift tax exemption.

Swap Power for Basis Management

Assets such as property or accounts gifted or transferred to an irrevocable trust do not receive a step-up in income tax basis at the donor’s death. Gifted assets instead retain the donor’s carryover basis, potentially resulting in significant capital gains realization upon the subsequent sale of any appreciated assets. Exercising the swap power allows the donor to exchange one or more low-basis assets in an existing irrevocable trust for one or more high-basis assets currently owned by and includible in the donor’s estate for estate tax purposes. In this way, low-basis assets are positioned to receive a basis adjustment upon the donor’s death, and the capital gains realized upon the sale of any high-basis assets, whether by the trustee of the irrevocable trust or any trust beneficiary who received an asset-in-kind, may be reduced or eliminated.

Example: Phoenix purchased real estate in 2005 for $1 million and gifted the property to his irrevocable trust in 2015 when the property had a fair market value of $5 million. Phoenix dies in 2020, and the property has a date-of-death value of $11 million. If the trust sells the property soon after Phoenix’s death for $13 million, the trust would be required to pay capital gains tax on $12 million, the difference between the sale price and the purchase price. Let us say that before Phoenix died, he utilized the swap power in his irrevocable trust and exchanged the real estate in the irrevocable trust for stocks and cash having a value equivalent to the fair market value of the real estate on the date of the swap. At Phoenix’s death, because the property is part of his gross estate, the property receives an adjusted basis of $11 million. If his estate or beneficiaries sell the property for $13 million, they will only pay capital gains tax on $2 million, the difference between the adjusted date-of-death basis and the sale price. Under this scenario, Phoenix’s estate and beneficiaries avoid paying capital gains tax on $10 million by taking advantage of the swap power.

Grantor Retained Annuity Trust

A grantor retained annuity trust (GRAT) is an efficient way for a donor to transfer asset appreciation to beneficiaries without using, or using a minimal amount, of the donor’s gift tax exemption. After the donor transfers property to the GRAT and until the expiration of the initial term, the trustee of the GRAT (often the donor for the initial term) will pay the donor an annual annuity amount. The annuity amount is calculated using the applicable federal rate as a specified percentage of the initial fair market value of the property transferred to the GRAT. A Walton or zeroed-out GRAT is intended to result in a remainder interest (the interest that is considered a gift) valued at zero or as close to zero as possible. The donor’s retained interest terminates after the initial term, and any appreciation on the assets in excess of the annuity amounts passes to the beneficiaries. In other words, if the transferred assets appreciate at a rate greater than the historic low applicable federal rate, the GRAT will have succeeded in transferring wealth!

Example: Kevin executes a GRAT with a three-year term when the applicable federal rate is 0.8 percent. He funds the trust with $1 million and receives annuity payments of $279,400 at the end of the first year, $335,280 at the end of the second year, and $402,336 at the end of the third year. Assume that during the three-year term, the GRAT invested the $1 million and realized a return on investment of 5 percent, or approximately $95,000. Over the term of the GRAT, Kevin received a total of $1,017,016 in principal and interest payments and also transferred approximately $95,000 to his beneficiaries with minimal or no impact on his gift tax exemption.

Installment Sale to an Irrevocable Trust

This strategy is similar to the intrafamily sale. However, the income-producing assets are sold to an existing irrevocable trust instead of directly to a family member. In addition to selling the assets, the donor also seeds the irrevocable trust with assets worth at least 10 percent of the assets being sold to the trust. The seed money is used to demonstrate to the Internal Revenue Service (IRS) that the trust has assets of its own and that the installment sale is a bona fide sale. Without the seed money, the IRS could recharacterize the transaction as a transfer of the assets with a retained interest instead of a bona fide sale, which would result in the very negative outcome of the entire interest in the assets being includible in the donor’s taxable estate. This strategy not only allows donors to pass appreciation to their beneficiaries with limited estate and gift tax implications but also gives donors the opportunity to maximize their remaining gift and generation-skipping transfer tax exemptions if the assets sold to the trust warrant a valuation discount.

Example: Scooby owns 100 percent of a family business worth $100 million. He gifts $80,000 to his irrevocable trust as seed money. The trustee of the irrevocable trust purchases a $1 million dollar interest in the family business from Scooby for $800,000 in return for an installment note with interest calculated using the applicable federal rate. It can be argued that the trustee paid $800,000 for a $1 million interest because the interest is a minority interest in a family business and therefore only worth $800,000. A discount is justified because a minority interest does not give the owner much if any, control over the family business, and a prudent investor would not pay full price for the minority interest. Under this scenario, Scooby has removed $200,000 from his taxable gross estate while only using $80,000 of his federal estate and gift tax exemption.

Spousal Lifetime Access Trust

With the threat of a lowered estate and gift tax exemption amount, a spousal lifetime access trust (SLAT) allows donors to lock in the current, historic high exemption amounts to avoid adverse estate tax consequences at death. The donor transfers an amount up to the donor’s available gift tax exemption into the SLAT. Because the gift tax exemption is used, the value of the SLAT’s assets is excluded from the gross estates of both the donor and the donor’s spouse. An independent trustee administers the SLAT for the benefit of the donor’s beneficiaries. In addition to the donor’s spouse, the beneficiaries can be any person or entity including children, friends, and charities. The donor’s spouse may also execute a similar but not identical SLAT for the donor’s benefit. The SLAT allows the appreciation of the assets to escape federal estate taxation and, in most cases, the assets in the SLAT are generally protected against credit claims. Because the SLAT provides protection against both federal estate taxation and creditor claims, it is a powerful wealth transfer vehicle that can be used to transfer wealth to multiple generations of beneficiaries

Example: Karen and Chad are married, and they are concerned about a potential decrease in the estate and gift tax exemption amount in the upcoming years. Karen executes a SLAT and funds it with $11.58 million in assets. Karen’s SLAT names Chad and their three children as beneficiaries and designates their friend Gus as a trustee. Chad creates and funds a similar trust with $11.58 million that names Karen, their three children, and his nephew as beneficiaries and designates Friendly Bank as a corporate trustee (among other differences between the trust structures). Karen and Chad pass away in the same year when the estate and gift tax exemption is only $6.58 million per person. Even though they have gifted more than the $6.58 million exemption in place at their deaths, the IRS has taken the position that it will not punish taxpayers with a clawback provision that pulls transferred assets back into the taxpayer’s taxable estate. As a result, Karen and Chad have saved $2 million each in estate taxes assuming a 40 percent estate tax rate at the time of their deaths. 

Irrevocable Life Insurance Trust

An existing insurance policy can be transferred into an irrevocable life insurance trust (ILIT), or the trustee of the ILIT can purchase an insurance policy in the name of the trust. The donor can make gifts to the ILIT that qualify for the annual gift tax exclusion, and the trustee will use those gifts to pay the policy premiums. Since the insurance policy is held by the ILIT, the premium payments and the full death benefit are not included in the donor’s taxable estate. Furthermore, the insurance proceeds at the donor’s death will be exempt from income taxes.

When Should I Talk to an Estate Planner

If any of the strategies discussed above interest you, or you feel that potential changes in legislation will negatively impact your wealth, we strongly encourage you to schedule a meeting with us at your earliest convenience and definitely before the end of the year. We can review your estate plan and recommend changes and improvements to protect you from potential future changes in legislation.

How Trusts Have Helped Athletes

Estate planning is not just about what happens when you die. Proper estate planning takes into consideration all aspects of your life and how to protect your accounts and property so that you can receive the maximum use and enjoyment during your life as well as protect whatever you choose to leave to your loved ones upon your death.

A trust is an important planning tool used to provide this protection. In its basic form, a trust is a formal relationship in which someone (the trustmaker) appoints someone else (the trustee) to hold title to and manage the trust accounts and property for the benefit of one or more people (the beneficiaries). In most cases, when people refer to a trust, they are usually referring to the document that outlines the trust details. Depending upon the type of trust that is created, it can be used for many purposes, such as protecting the trustmaker’s accounts and property from the trustmaker’s creditors, divorcing spouses, and lawsuits, as well as providing for the trustmaker’s family if the trust maker passes away

Everyone needs estate planning and could possibly benefit from the use of a trust as part of that planning—even famous athletes. The following are some notable athletes whose use of trusts to protect themselves and their loved ones offers important lessons.

Allen Iverson

Allen Iverson, also known as “The Answer,” played professional basketball from 1996 until his official retirement in 2013. During his career, he played for a number of professional teams such as the Philadelphia 76ers, the Denver Nuggets, the Detroit Pistons, and the Memphis Grizzlies. Over the course of his career, it is estimated that he made over $200 million (including contracts and endorsements). However, in 2012, it was rumored that Iverson was experiencing financial troubles due to an outstanding creditor issue.

But there was a saving grace. As part of a deal he signed with Reebok in 2001, Iverson currently receives $800,000 per year and had a lump sum of $32 million placed into a trust, which will become accessible to him when he turns fifty-five years old (which will be in 2030). Although the specific terms of the trust have not been disclosed, and his ex-wife may be entitled to half of the trust, this strategic planning has protected a large part of the Reebok contract for Iverson’s future use and enjoyment.

Lesson: Saving for a rainy day is an excellent strategy, and a trust can be a great way to set aside money or property for a future date. Additionally, it is never too late to get a proper estate plan in place. Depending upon his current legal situation and the terms of the existing trust with Reebok, Iverson should meet with an experienced estate planning attorney and financial advisor to develop an asset protection strategy for this money before the first disbursement is made. Through proper investment and management, this money should be able to go a long way toward ensuring a happy retirement.

Michael Carter-Williams

Currently playing for the Orlando Magic, Michael Carter-Williams made headlines in 2013 when he decided to put the salary he received from the Philadelphia 76ers into an irrevocable trust to be managed by his mother and a close family friend. Instead of his salary, he lived off his endorsement deals. Per the terms of the trust, Carter-Williams would not have access to the money for three years

Using a trust in this manner was a unique move because Carter-Williams was relatively young, did not have a family of his own to support, and did not have any creditor issues. This strategy was a thoughtful financial decision in light of what was happening in the industry at the time. While not much is known about the status of the trust, with the proper oversight by his trusted advisors, this trust can offer him a source of income whenever he may need it

Lesson: An estate plan is not a one-size-fits-all product. With the multitude of planning strategies available, an experienced estate planning attorney can craft a plan that will provide what you need for today and tomorrow. During the estate planning process, it is important to consider your priorities. Are you looking to avoid a potentially large tax burden; protect your accounts and property from lawsuits, creditors, or a future divorcing spouse; or protect the inheritance you are leaving your loved ones after you have died?

Kobe Bryant

The legendary professional basketball player Kobe Bryant died on January 26, 2020, in a tragic helicopter accident that also claimed the life of his daughter and other passengers. With an estate worth over $600 million, proper estate planning was crucial in making sure that his wife and children were cared for.

There are few details about the extent of his estate planning for one very good reason: he had an estate plan. The only misstep in the estate planning process was Bryant’s failure to update the Kobe Bryant Trust upon the birth of his youngest child. According to court documents, the trust had been amended each time one of his children was born, but because his youngest child was born in June 2019, he had not amended his documents as he had done in the past prior to his death.

Lesson: Estate planning is not a one-and-done task. To ensure that your wishes are carried out in the best possible way, the documentation must be up to date. Once you have signed your estate planning documents, we encourage you to review them each year. Ask yourself the following questions:

  • Have there been any marriages, divorces, births, or deaths that might affect my estate plan?
  • Are the individuals I have chosen as my trustee, guardian for my minor child, agent under a power of attorney, or healthcare decision-maker still the individuals I want?
  • Do I want to change the types of items or amount of money that I am leaving to my beneficiaries?

We Are Here to Help

Estate planning can be difficult. It forces you to evaluate aspects of your life that may not be ideal. However, by diving in and addressing these concerns, we can help you craft a unique estate plan that will protect you during your lifetime and provide for your loved ones upon your death. Give us a call today to schedule your in-person or virtual consultation.

Seniors are Changing Their Living Wills Due to COVID-19 Concerns

Kaiser Health News is reporting the coronavirus pandemic is prompting seniors to create or modify their living wills. Specifically, intubation is the topic that has many seniors crafting or rethinking their strategies amidst a wealth of disparate COVID-19 information that makes forming reliable conclusions for decision making, dubious at best.

Ventilators Options Seniors During COVID-19

Initial reports were suggesting that the use of a ventilator, a machine that pumps oxygen throughout a patient’s body while lying in bed, sedated, with a breathing tube down their windpipe, was showing signs of promise in severe cases of COVID-19. Yet, further into the pandemic timeline, these machines that help patients to overcome respiratory failure appear to have discouraging survival rates.

The prognosis of an older adult with COVID-19 placed on a ventilator with an underlying medical condition like lung, kidney, or heart disease is even more dismal. These older COVID-19 patients who do survive, spend considerably longer (two weeks or more) on a ventilator and tend to come out of the treatment extremely weak, deconditioned, often suffering delirium, and requiring months of rehabilitative care.

Opting Out of Ventilators

Many seniors are revising their advance health care directive to address the case of COVID-19 specifically, and they are opting out on the use of a ventilator. Joyce Edwards from St Paul, Minnesota, is unmarried and living on her own with no children spoke to the issue stating, “I have to think about what the quality of my life is going to be. Could I live independently and take care of myself, the things I value the most? There’s no spouse to take care of me or adult children. Who would step into the breach and look after me while I’m in recovery?”

Joyce’s situation is not uncommon in the United States. American seniors are more likely to live alone than ever before: the new mantra of “aging in place.” Living alone does not mean they do not have family, somewhere. Still, in the case of contracting COVID-19 and the difficulties recovery can present, many seniors prefer not to upend the lives of their younger children to prolong their own lives. Some seniors prefer to ‘go quietly into that good night’ after a life well-lived. They are conceding in writing that extraordinary measures to keep them alive are not how they wish to spend their final months, weeks, or days. It is especially true in the case of intubation, where a patient is essentially in a coma state and unable to communicate with loved ones before they might pass on.

pewresearch.org

COVID-19 Care Gray Area

Then there is the gray area of choice regarding respiratory failure due to COVID-19. While some seniors may be saying NO to a ventilator, doctors can give high-flow oxygen and antibiotics. Positive airway pressure (PAP) machines are another mode of respiratory ventilation. BiPAP and CPAP machines deliver oxygen but without the sedation required during intubation, which allows the patient to be alert, more comfortable, and have interaction with family and friends.

COVID-19 Discussions for Senior Care

Having discussions with your spouse, family, or doctor if you are alone, about COVID-19 and what to do if you contract the disease and how you might amend your living will to reflect your desires are more important than ever. Dr. Rebecca Sudore, a professor of medicine at the University of California at San Francisco, suggests directing the discussion away from using a ventilator or not, to a more general discussion of how an older adult sees their future.

The discussion should include questions about what is most important to you as an older adult. Do you treasure your independence? Or is time with your family more valuable to you? Is being able to walk and be physically capable important to you, or can you live happily with compromised lungs in a more sedentary lifestyle? Is your goal to live as long as possible? Or is it about the quality of your years on earth? In an open and calm discussion, answering these and other general questions will provide the context that will lead you to your decision about ventilators and other breathing machines.

There is a lot to think about when it comes to end-of-life wishes. We are here to help you decide what documents are appropriate to adequately express your wishes. We look forward to talking with you.

COVID-19 and Minor Children: Things to Consider Now

Protecting your family is important, especially when you have minor children, and even more so now that we are living through a pandemic. With all of the unknowns of our current situation, you need some certainty. Having an up-to-date estate plan can be the first step toward providing that certainty in an uncertain world.

Many people view estate planning as limited to making arrangements for your death. However, it is equally important to plan for a time when you may still be alive but unable to care for yourself or your minor children. The inability to make decisions or care for oneself or a minor child is often referred to as incapacity.

Addressing the financial needs of you and your minor child

A revocable living trust can be a great solution for managing your and your minor child’s financial needs during incapacity. This planning tool enables you to name yourself as the trustee (the person or institution charged with managing, investing, and handing out the money and property) and allows you to continue exercising control over the money and property you transferred to the trust. The accounts and property are transferred to the trust when you change the legal ownership from you as an individual to you as the trustee of the trust. A trust also allows you to name a co-trustee or an alternate trustee to seamlessly step in, without court involvement, and manage the trust’s money and property for your benefit and the benefit of any other beneficiaries you have named in your trust if you become too ill to do it yourself.

In addition, when using a trust, you can specify when and how the funds should be used for your minor child’s benefit. You can provide instructions for certain expenses to be paid during a period of incapacity to ensure that your minor child is still being provided for in the same way you would provide for your child. Additionally, you can include a plan for how the money will be used upon your death. This can include your minor child receiving a specified percentage upon reaching a certain age (e.g., 50 percent at thirty years old and the remainder at fifty years old). You can also structure your child’s trust as an incentive trust to allow the trustee to give your child money only after your child meets certain goals (e.g., successfully completing postsecondary education, being sober for one year, etc.). Alternatively, you can leave the decision of how and when to give out the funds exclusively up to the trustee’s discretion. This is sometimes referred to as a discretionary trust. Because your child will not be guaranteed a specific amount of money or piece of property, the funds will be better protected from any future creditors or a divorcing spouse that your child may have. However, when deciding to use a discretionary trust, it is important to choose your trustee wisely and provide clear guidelines for the trustee to consider.

Because you choose the trustee and determine how the money is to be managed and spent, you can rest assured that a former partner or less-than-desirable family members will not have the ability to spend your minor child’s money for their own benefit, even if one of these individuals ends up raising your minor child.

Lastly, an added benefit of utilizing a trust as part of your estate plan is avoiding the time-consuming and often expensive probate process that would otherwise be required. As long as you properly transfer your accounts and property to the trust, you will save your loved ones precious time and money during an emotional period.

Caring for your minor child

When planning for minor children, it is also important to consider who will physically care for them if you are unable to. If your minor child’s other legal parent is still alive and able to care for the child, the other parent will continue to provide care or will assume the day-to-day responsibilities of the caregiver. Nevertheless, it is a good idea to plan for what will happen if both of you are unable to care for the minor child, just in case. If you are the only living parent, or if the other legal parent is unfit to care for your child, however, it is crucial that you make the proper arrangements. While most people are familiar with the idea of naming a guardian for a minor child in a last will and testament, this document does not become effective until your death. Therefore, to properly plan for your minor child’s care during your incapacity, you need to consider naming a guardian in a separate writing that meets the requirements of your state law. We can discuss the current planning options available to you under our specific state law.

Even absent your incapacity, you can delegate your parental authority for a limited period of time (six months to one year depending upon state law) using a power of attorney for minor child (also known as a guardianship power of attorney, delegation of parental powers, or minor power of attorney). This can be helpful if you will be traveling for an extended period of time without your minor child or otherwise need to provide authority to another trusted adult to act on your child’s behalf.

Let us help you

Providing for your minor child’s care and financial security is an important undertaking with many important questions to consider. We are here to walk you through the process and help you answer those questions so that your minor child is cared for in the best way possible. Please give us a call today so we can begin your journey. We are available for in-person and virtual meetings.

What is a Role of a Probate Lawyer?

Whether you are the Executor or an heir of the probate estate, knowing the lawyer’s role is one of the first steps you should take at the beginning of the probate process. One of the biggest sources of conflict in probating the estate is understanding the role of the lawyer hired by the Executor of a probate estate. Many Executors do not understand the probate process and leave the tasks up to the lawyer. The heirs of the estate may hear only from the lawyer or may hear the Executor say, “This is what the lawyer says we have to do.” This often raises the question, does the lawyer owe a fiduciary duty to the heirs of the estate since the Executor owes a fiduciary duty to the heirs?

The answer to that question depends on the state in which the estate is being probated. To be clear, this question is specifically about whether a lawyer owes the heirs of a probate estate a fiduciary duty, and not whether a lawyer owes a fiduciary duty in other contexts, such as to the beneficiaries of a trust when hired by a trustee, or a ward when hired by a guardian or conservator. The answer varies depending on each different circumstance.

Also, before answering the question, it is helpful to have an idea of some common activities created by fiduciary duties in the context of probating an estate:

  • Duty to communicate: a duty to notify the beneficiaries the estate exists, identify the Executor, provide a copy of the inventory, provide copies of court filings, generally explain documents that require a beneficiary’s signature, etc. This duty to communicate is not the same thing as an attorney-client relationship, which means there is no attorney-client privilege and the attorney cannot give legal advice.
  • Duty to account: provide regular estate accountings, which includes explaining funds paid out of estate accounts for expenses.
  • Duty to treat all beneficiaries equal: distribute estate funds at the same time, if a question arises as to how something in the Will is to be interpreted the attorney cannot interpret it, the court must interpret it.

Turning back to the question, whether the lawyer owes a fiduciary duty the heirs of a probate estate depends on the state in which the estate is being probated. Only a few states require the lawyer to meet the same fiduciary duty to the estate heirs as the Executor. These states believe that since the Executor owes a fiduciary duty to the heirs and the lawyer owes a fiduciary duty to the Executor, the duty flows from the Executor to the lawyer.

Most states, however, take the position that the lawyer does not owe a fiduciary duty to the estate heirs. These states view the fiduciary duty owed by the Executor to the heirs as unique from the fiduciary duty owed by the lawyer to the Executor. Also, these states want to maintain the Executor’s ability to have protected communication with the attorney.

There is a small third set of states, including California, New Mexico, and Illinois, that apply a balancing test to determine who was the actual intended beneficiary of the attorney-client relationship, the Executor or the heirs? Each state has established their own test criteria, but some common questions the courts ask include: who was the intended beneficiary of the attorney’s services, the Executor or the heirs; what was the foreseeability of the harm to the heirs as a result of the malpractice; and what was the proximity of the misconduct and the damage to the heirs?

If you are the Executor hiring the attorney, ask what the law is. If you are an heir of the estate, the lawyer should give you some guidance. If the probate estate is in one of the majority states, the first letter from the attorney should start with a sentence that reads, “I have been retained by Mr. Smith, Executor of the Estate of Ms. Smith. It is important that you understand I do not represent you.”  Otherwise, call and ask.

Everyone’s goal should be for the settling of the probate estate to go smoothly. Understanding the lawyer’s role will go a long way towards achieving that goal.

If you have questions or would like to discuss your personal situation, please don’t hesitate to contact our office by calling us at (405) 241-5994.

Tips for Divvying Up Personal Property

We collect stuff throughout our lives. This “stuff” is known as our personal property. Some items are valuable, like jewelry, baseball cards, and works of art. Other items are sentimental, like grandma’s tea set, old Christmas ornaments, and photographs. Regardless of the value, it is important that these items be distributed the way you want when you die. Consider the following to ensure that your wishes for your personal property are honored

Ways to Divvy Up Your Items

If there is a specific item that you want a loved one to have, the easiest way to make an official record is to create a personal property memorandum. This document, which typically must be referenced in your existing will or trust to be effective, allows you to designate who will receive the specific personal property. For instance, you can leave your gold pocket watch to your nephew, Bill Smith. When creating and updating this document, it is important that state law formalities are followed to ensure the document’s validity. Also, make sure that the items you list are described with enough clarity and specificity that your personal representative or trustee will be able to easily identify them. Lastly, you want to make sure that the recipient is specifically named. It is best to refer to a specific person by the person’s given name, denoting if the person is a junior or senior, instead of just as “my granddaughter” or “my son.” Because this is a separate document, you have the flexibility to change the contents without changing your entire will or trust. However, as previously mentioned, any changes made to this document must be done in accordance with your state’s laws.

If you want to divide the entirety of your personal property equally among a group of beneficiaries, you can allocate an equal amount of play money to each beneficiary and hold an auction using this fake money where each beneficiary can bid on the items. This distribution scheme allows for each beneficiary to participate in the auction at an equal level, with the value of each item being determined by how much each beneficiary wants the particular item rather than by how wealthy each beneficiary is in real life, relative to the others.

Another option would be to gather all of the personal property in one location and allow each beneficiary to take turns picking an item. To encourage fairness, you could have the beneficiaries draw numbers to determine the order that they will pick. Once the numbers are drawn, the beneficiary who selected number one would choose an item first, then the beneficiary who selected number two would choose an item second, and so on. Then, when the beneficiary with the highest number has chosen an item, that same beneficiary would choose again, thereby beginning the next round with the items being chosen in reverse order, and continuing in that manner until all items have been chosen. This method works well if you have a collection of items to be divided or if most of the items are of similar value. Using this method allows each beneficiary to receive an equal number of items but may not guarantee that each beneficiary receives an equal amount of value.

Note: When distributing a collection, consider whether you want the collection to be divided among multiple people or given entirely to one person. Some collections may be more valuable if all of the pieces are owned by the same person, especially if the collection is complete.

Additional Considerations

Provide guidelines if someone else has discretion.

Depending upon the types of personal property you own and your beneficiaries’ needs and wants, you may be tempted to have your personal representative or trustee distribute items as the personal representative or trustee “sees fit” or “equally.” Be cautious as to how much discretion you give. Any time you give someone else discretion to make decisions on your behalf, you should provide guidelines for the individual to use when making decisions. This can help alleviate tension and fighting among the beneficiaries and between the beneficiaries and the personal representative or trustee.

Get your loved ones involved in the planning.

If you are unsure of how to distribute your personal property, ask your loved ones if there are any specific items they would like. One common approach is to give everyone sticky notes or stickers with their names on them and let them go through the home and place the notes or stickers on the items they would like. If multiple people want the same item, you can resolve the conflict and come up with a solution ahead of time instead of leaving it to someone else to resolve upon your death. If there are items that no one wants, you can consider other people that you had not thought of that might like the items. Additionally, if you know a person would like a particular item, you may consider gifting it during your lifetime so that you can witness the joy that it brings the person while you are still alive. Getting your loved ones involved will help ensure that your memory will live on through the items your loved ones receive.

Do not overlook the minor children.

Younger loved ones may also appreciate something of yours after you have passed. Depending on the nature of the item, a parent, guardian, or other adults may have to keep or manage it for the minor until the child reaches the age of majority.

We Are Here for You

Do not wait until you are gone to determine who will receive your personal property. Without your clear instructions, loved ones will be left to determine what you would have wanted. This can lead to disagreements, broken relationships, and possible litigation. We are here to help you establish and properly document a strategy to clearly communicate your wishes. We are available for in-person and virtual meetings, whichever you prefer.

The Dilemma of E-Signature for Social Security Administration

As we move into new normal, electronic signature laws during the COVID-19 pandemic are playing a more significant role than ever before. The laws outlining acceptable electronic transaction standards that have the same effect as paper and ink signatures are the state Uniform Electronic Transactions Act (UETA) and the federal Electronic Signatures in Global and National Commerce Act (E-SIGN).

The US Social Security Administration (SSA) is struggling to modernize its IT infrastructure to support the American people’s current and future workloads, including e-signature acceptance. There are significant and ever-increasing service requirements and data storage responsibilities. The data includes sensitive information, susceptible to hacking, on nearly every citizen in the US, whether living or deceased, including their medical and financial records. While the SSA encourages agency interaction through their various online services, the truth is the agency’s outdated and poorly integrated computer systems make modern methods of e-signature acceptance a problem.

What is an e-signature? It is quite simply a digital file or symbol that attaches to places on an electronic file or contract, guaranteeing a person’s intent to sign the file or contract. E-signing has different formats. A signer can type their name into a signature area; they can paste in a scanned version of the signer’s signature, click on the “I accept” button, or even employ cryptographic scrambling technology. The security of these e-signatures varies across the formats.

What is a digital signature? This type of signature is considered more sophisticated and secure than the e-signature counterpart. This form of signature uses digital identification to authenticate the signer, which then becomes electronically bound to the document using encryption. Programs such as DocuSign, SignNow, Adobe, and others, offer easy ways to create a digital signature securely.

The National Federation of the Blind (NFB) and four individual plaintiffs are suing the SSA for their refusal to accept electronic signatures. The advent of COVID-19 is precluding many Americans who have compromised immune systems from applying for disability benefits because their existing condition makes them especially vulnerable. The argument is that the safest way for these at-risk individuals to apply is to fill out an online application at home with an e-signature since leaving home or interacting with paper mail presents an avoidable danger.

In the case of Timothy Cole, currently being treated for non-Hodgkins lymphoma, he is unable to submit his application for disability benefits because he plans to hire an attorney to help him navigate the complicated application process. Why would hiring an attorney preclude the SSA from accepting an application for disability benefits? Ultimately Mr. Cole is unable to submit his application online because the attorney or other authorized representative must sign a paper copy of their client’s application. So even though it is allowable for Mr. Cole to e-sign his application, his attorney may not even though the SSA maintains an online application process where e-signatures are reportedly secure, accessible, and federally approved.

The lawsuit is also seeking that the court order the SSA to permit blind people to fill out their Supplemental Security Income (SSI) application online. The SSA explicitly disallows blind people from applying online for this benefit. The lawsuit further asks the court to require e-signature acceptance on paperwork when a current beneficiary is subject to a CDR or continuing disability review.

The president of the National Federation of the Blind Mark Riccobono states, “The Social Security Administration regularly interacts with hundreds of thousands of blind people and other consumers with disabilities. Yet policies like this one persist, although the SSA has both the authority and the capability to accept electronic signatures. It is both unlawful and unconscionable that this agency continues to place blind and disabled consumers at a severe disadvantage, especially during a life-threatening global pandemic. The government should innovate, not discriminate.”

Therein lies the disconnect of expected service with the SSA. While consumers are looking for innovation and ease of use, the SSA’s continued dependence on outdated technology creates a focus on the behemoth project to migrate to a relational database that can allow for hardware alternatives with greater performance and interoperability at a much lower cost. Beyond these hardware infrastructure updates, data modernization and consolidation, and application modernization must also experience updates to be user friendly. Until these updates are in place, the SSA can expect to contend with more lawsuits as e-signatures become a need rather than a want during the COVID-19 pandemic.

If you have questions or would like to discuss your particular situation, please do not hesitate to contact our office by calling us at (405) 241-5994.

The Dilemma of E-Signature for Social Security Administration

As we move into a new normal, electronic signature laws during the COVID-19 pandemic are playing a more significant role than ever before. The laws outlining acceptable electronic transaction standards that have the same effect as paper and ink signatures are the state Uniform Electronic Transactions Act (UETA) and the federal Electronic Signatures in Global and National Commerce Act (E-SIGN).

The US Social Security Administration (SSA) is struggling to modernize its IT infrastructure to support the American people’s current and future workloads, including e-signature acceptance. There are significant and ever-increasing service requirements and data storage responsibilities. The data includes sensitive information, susceptible to hacking, on nearly every citizen in the US, whether living or deceased, including their medical and financial records. While the SSA encourages agency interaction through their various online services, the truth is the agency’s outdated and poorly integrated computer systems make modern methods of e-signature acceptance a problem.

What is an e-signature? It is quite simply a digital file or symbol that attaches to places on an electronic file or contract, guaranteeing a person’s intent to sign the file or contract. E-signing has different formats. A signer can type their name into a signature area; they can paste in a scanned version of the signer’s signature, click on the “I accept” button, or even employ cryptographic scrambling technology. The security of these e-signatures varies across the formats.

What is a digital signature? This type of signature is considered more sophisticated and secure than the e-signature counterpart. This form of signature uses digital identification to authenticate the signer, which then becomes electronically bound to the document using encryption. Programs such as DocuSign, SignNow, Adobe, and others, offer easy ways to create a digital signature securely.

The National Federation of the Blind (NFB) and four individual plaintiffs are suing the SSA for their refusal to accept electronic signatures. The advent of COVID-19 is precluding many Americans who have compromised immune systems from applying for disability benefits because their existing condition makes them especially vulnerable. The argument is that the safest way for these at-risk individuals to apply is to fill out an online application at home with an e-signature since leaving home or interacting with paper mail presents an avoidable danger.

In the case of Timothy Cole, currently being treated for non-Hodgkins lymphoma, he is unable to submit his application for disability benefits because he plans to hire an attorney to help him navigate the complicated application process. Why would hiring an attorney preclude the SSA from accepting an application for disability benefits? Ultimately Mr. Cole is unable to submit his application online because the attorney or other authorized representative must sign a paper copy of their client’s application. So even though it is allowable for Mr. Cole to e-sign his application, his attorney may not even though the SSA maintains an online application process where e-signatures are reportedly secure, accessible, and federally approved.

The lawsuit is also seeking that the court order the SSA to permit blind people to fill out their Supplemental Security Income (SSI) application online. The SSA explicitly disallows blind people from applying online for this benefit. The lawsuit further asks the court to require e-signature acceptance on paperwork when a current beneficiary is subject to a CDR or continuing disability review.

The president of the National Federation of the Blind Mark Riccobono states, “The Social Security Administration regularly interacts with hundreds of thousands of blind people and other consumers with disabilities. Yet policies like this one persist, although the SSA has both the authority and the capability to accept electronic signatures. It is both unlawful and unconscionable that this agency continues to place blind and disabled consumers at a severe disadvantage, especially during a life-threatening global pandemic. The government should innovate, not discriminate.”

Therein lies the disconnect of expected service with the SSA. While consumers are looking for innovation and ease of use, the SSA’s continued dependence on outdated technology creates a focus on the behemoth project to migrate to a relational database that can allow for hardware alternatives with greater performance and interoperability at a much lower cost. Beyond these hardware infrastructure updates, data modernization and consolidation, and application modernization must also experience updates to be user friendly. Until these updates are in place, the SSA can expect to contend with more lawsuits as e-signatures become a need rather than a want during the COVID-19 pandemic.

If you have questions or would like to discuss your particular situation, please do not hesitate to contact our office by calling us at (405) 241-5994.

Snowbirds: What You Need to Know about Renting Out Your Property

Retreating to a warmer climate for the winter sounds like an ideal way to spend a few months. To help make this dream a reality, some individuals choose to rent out their second homes when they are not in use. But before you list your second home for rent, there are a few things you should consider.

Benefits of renting out your property

One reason to rent out your second home is to help cover the expenses of owning that second home. In addition, you will not have to fully close it up when you leave because someone may be staying there soon after. Frequent use of the property may also help deter burglars who might otherwise think the property is abandoned. Enlist a property manager to respond to any renters’ needs or check the property during periods of vacancy.

Check local zoning ordinances and deed restrictions

Some communities may prohibit renting out a property. If you are purchasing a second home or have already purchased one, it is important to review your deed and contact the appropriate authorities or homeowner’s association to make sure that you are allowed to rent out your property. If not, you could end up angering your neighbors and becoming involved in a costly lawsuit.

Make sure you are insured

Before you open your second home to renters, check your homeowner’s insurance policy to see if it covers rental of the property. You may have to purchase a new policy or add a rider to your existing policy to provide sufficient insurance coverage, but the additional expense will be well worth the investment. The insurance will act as your first line of payment if a renter is injured on your property or the property sustains damage while being rented

Determine liability exposure

Because many different renters may stay at your second home, there is an increased risk of lawsuits arising in connection with this type of use. Transferring ownership to a limited liability company (LLC) can be a worthwhile option for creating greater protection from a potential lawsuit. If a renter gets injured on the property, sues the LLC that owns it, and obtains a judgment that exceeds any property insurance limits you have, the renter can only go after the assets owned by the LLC to satisfy any claims, not your personal assets or those of any other owners of the LLC.

However, in some states, a single-member LLC (an LLC in which you are the only member) does not provide enhanced protection from your personal creditors. The reason is that your creditors should be able to seek relief through your LLC to satisfy their claims because there are no other members that will be negatively impacted by the seizure of money and property owned by the LLC.

Before transferring your second home to an LLC, it is important to speak with the holder of any mortgage on the property. In many cases, the transfer of a mortgaged second home to an LLC can cause the due-on-sale clause to be triggered, requiring repayment of the loan in full. Unless you are financially prepared to pay off the mortgage, this may be a substantial and unwelcome financial hardship.

Consider the tax implications of renting out your second home

According to the Internal Revenue Service, if you rent your second home for fifteen days or more a year, the rental income must be reported. In most cases, you will be able to deduct the rental expenses that you have incurred. Because you are using the second home for both rental and personal purposes, you will have to divide your expenses between the rental use and the personal use based on the number of days used for each purpose. Work closely with your tax advisor or preparer to ensure that you accurately report your rental income and expenses and take the appropriate deductions on the right forms. Your tax preparer or advisor can also provide you with tips on proper recordkeeping

Get your second home ready for occupants

Before your first renter arrives, it is important to go through and remove anything personal that you do not want used, broken, or taken. This may make the space feel a little sterile, but the last thing you want is for a family heirloom to be stolen. You will also want to hire a cleaning crew to come in before and after each group. Not only will this keep the furnishings in good condition, but it may also encourage people to rent with you again. If possible, take pictures prior to new renters arriving in case damage occurs. Doing so will provide proof of the property’s condition before they arrive to compare with the condition after they leave.

We are here to help

While owning a second home can be expensive, it can offer a lifetime of memories for you and your loved ones. We are here to assist you to make sure your second home is properly included in your estate plan and protected for years to come. Give us a call today so we can discuss ways to maximize and protect your second home. We are available for in-person and virtual meetings.

Understanding Life Insurance

The current events of our world have made many of us think about our mortality and how to make sure our loved ones are taken care of especially if we die unexpectedly. Life insurance can be an affordable way to provide for our children, a spouse, a sibling, aging parents, and other loved ones. Life insurance can provide heirs numerous benefits: extra income to help pay ongoing household bills; funds to pay off a mortgage, credit cards and other debt; money to pay for college, or money to pay funeral costs and other final expenses. For business owners, life insurance also plays a vital role in business succession planning.

How Much Life Insurance Do I need?

A simple way to determine the amount of life insurance needed for income replacement purposes is to multiply the annual income to be replaced by the number of years it will be needed. If the insured is earning income, use the amount contributed to the household (after personal expenses and taxes). If the insured does not have income (perhaps a stay-at-home parent or caregiver), determine how much will be needed to pay someone to take over those responsibilities. For example, a dad who wants enough life insurance to replace his income for 20 years (until his children have completed college) would take the amount of annual income he wants to replace and multiply that by 20. He may want to add enough to pay for college and other expenses. The total amount is how much life insurance he needs. This is called the “face value” or “death benefit.”

Term Life Insurance VS. Permanent Life Insurance

Generally, there are two kinds of life insurance: term and permanent. Other “hybrid” life insurance policies can provide additional benefits, like long term care, however, this article will focus on general life insurance policies.

Term life insurance provides coverage for a set number of years or term. It can be a good choice when coverage is needed for a certain number of years; for example, until the kids are out of college or the mortgage is paid off. It is also less expensive than permanent life insurance and is least expensive when the insured is young and healthy. For these reasons, term life insurance is often a popular choice for young families.

Permanent life insurance, on the other hand, does not expire at the end of a specified term as long as the premiums are paid. Generally, the coverage stays in effect during the insured’s lifetime. The premium can either stay the same or fluctuate based upon the financial performance of the policy. Permanent policies also build cash value over time that can be borrowed from the policy can be used to help pay the premiums, or can be refunded if the policy is canceled. Any money borrowed will be charged against the proceeds paid at the insured’s death.

The amount a family pays for life insurance must be a reasonable and manageable expense. The cost will depend on the amount, kind (term vs. permanent), and the age and health of the person to be insured. If the cost to replace income for 20 or 30 years is too much for the family budget, one option is to cover five to seven years of expenses, which will give the family time to cope and adjust after the loss.

Incorporating life insurance into an estate plan can be vital to making sure family and loved ones are taken care of. We welcome the opportunity to help you with your planning, and to help you achieve peace of mind for you and your family contact our office by calling us at (405) 241-5994.

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