Estate Planning: 3 Common Myths

Estate Planning: Why Me, Why Now, and Is a Will Enough?

You have worked hard for years, have family members and friends you care about, and have approached a time in your life when “estate planning” sounds like something you should do, but you are not exactly sure why. You may feel that you are not wealthy enough or old enough to bother or care. Or you may already have a Will and feel that you are all set on that front. Whatever your current position, consider these common misconceptions about estate planning:

  1. Estate planning is for wealthy(ier) people.

False. Anyone who has survived to age eighteen and beyond has likely accumulated a few possessions that are of some monetary or sentimental value. While things like your home, car, and financial accounts are self-evident assets, that collection of superhero figurines or your iTunes library also deserve proper attention. There is no minimum asset value required to justify having a Will, especially since there are many low-cost options, including estate planning attorneys who will not charge an arm and a leg for a basic Will.

  1. Estate planning is for old(er) people.

False. Tragedy can strike at any moment, and it is best to have your affairs in order so as not to put your loved ones in a financial or bureaucratic bind while they are grieving. Young parents should ensure that proper guardians are in place to take care of their children if they are no longer around, lest the children end up with the most irresponsible member of the family or, worse, a complete stranger.

  1. Estate planning means having a Will.

False. Having a Will is smart because it puts you in charge of the disposition of your assets. A Will allows you to pick your executor, designate the guardians for your minor children, and name any individuals and charitable organizations as beneficiaries of your estate. If you were to die without a Will (i.e., intestate), the law of the state where you reside at your death would govern who receives what part of your estate, who administers your estate, and who takes care of your children. There are some situations where state law may override the provisions in your Will (e.g., a spouse’s elective share), but for the most part, you are in the driver’s seat.

However, a Will is only one tool in the estate planning toolbox. There are other vehicles that allow you to remain in control of your possessions and family’s future during life and upon death. Depending on your situation, a Will alone may not be the most efficient or the most cost-effective means to achieve your goals.

Upon your passing, your Will has to go through probate – a process whereby a court reviews your Will and determines its validity. It is a lengthy and often costly process in many states to begin with and can become even lengthier if a Will is contested (e.g., on the grounds that someone coerced or cajoled their way into an inheritance). The delay in the disposition of your assets and the accompanying legal costs may put your family members in financial straits. If your goal is to ensure that your survivors’ cash flow is uninterrupted after your death, it would be wise to incorporate a trust or a life insurance policy into your estate plan. These assets are considered “non-probate” – they pass outside of your Will and the probate process.

There are other non-probate assets that may constitute a part of your estate. For example, a joint tenancy arrangement on your home, IRA, and payable-on-death (POD) or transfer-on-death (TOD) accounts designate specific beneficiaries upon your death, and the assets pass to them without the delay and cost of the probate process. If your Will provides for a different beneficiary of your IRA account or another non-probate asset, it will be superseded by the beneficiary designation form on file with that account’s or asset’s administrator. Therefore, it is wise to review all of your beneficiary designations periodically, but certainly upon life-altering events like marriage, birth of a child, or divorce.

You are neither too young nor too poor to engage in estate planning! Just remember that a Will may be a necessary, but not the only means to plan your estate in an efficient and cost-effective manner. Keep on top of your assets, and your survivors will have another good thing to say about you at your memorial.

There’s Never A Better Time Than Now To Get Your Affairs in Order

There’s Never A Better Time Than Now To Get Your Affairs in Order

The idea of getting your financial and legal house in order is likely the last thing on your mind during the busy holiday season. But, getting started is much easier than you think. In fact, the end of the year is a good time to reflect upon the year that has passed and focus on your aspirations for the future. Don’t hold this task off for later. Some careful thought and a little bit of work now can go a long way to help you feel 100% confident about moving forward in the new year.

In preparation for the upcoming tax season, you may have already begun gathering some paperwork, like your property tax bill, year end mortgage statement, or final pay stubs. Although filing your income taxes is different than putting your affairs in order, you’re already in paperwork “mode”. Now is the perfect time to reassess your legal and financial situation to create a new plan or update an existing one that no longer suits your circumstances.

Basic Estate Planning

All you need to do is start with a general list of everything that you own. You don’t have to complete a comprehensive inventory. Think instead about categories of assets, like bank accounts, life insurance, real estate, vehicles, etc.

Then, draw out your family tree. Think about who you would like to receive what you’ve spent your lifetime building. If you don’t put your wishes in writing, your estate – everything you’ve worked so hard to build – may be liquidated and will be distributed according to the government’s plan. Estate planners refer to this as intestacy.

The foundation of all estate plans are wills and trusts. Which one is the best for your depends on your individual circumstances.

A will is a written legal declaration of your intentions on how you want your property disposed upon death. This document is not legally enforceable until after your passing. Therefore, it can be changed at any time before you die or have diminished mental incapacity. A will allows you to control what happens after you are gone.

A trust is a legal arrangement where a trustee manages property for the benefit of the beneficiaries. There are many kinds of trusts, ranging from living trusts to complex dynasty trusts. Each type of trust has its own benefits and drawbacks. Talk with me about which one is the best fit for your circumstances.

Although there are many types of trusts, the one most people need is a living trust. It’s a great alternative to a will. It can be changed during your life, can provide financial protection should you become incapacitated, and yet often is easier and less expensive for your family to handle upon your death.  Another common type of trust is a testamentary trust, which is one that is contained within the provisions of the will. Just like a will, a testamentary trust is not operative until your death, making them a little less flexible and more limited in function.

Benefits of Estate Planning

Estate planning can help provide financial stability for loved ones, designate a guardian for minor children or disabled family members, distribute property to chosen charitable organizations, reduce tax liabilities, and achieve other personal and family goals. Organizing your financial and legal affairs is your opportunity to make impactful decisions on your assets, money, and healthcare and leave a legacy after you are gone.

Planning your estate may feel like a daunting task. I’m here to help. You don’t have to do this alone. Contact me today to discuss your options and organize your future.

Life Changes? Think Estate Planning

Big “Life Changes” Often Mean Big “Estate Plan Changes”

Many people who put together an estate plan do so when they start a family – assuming they put an estate plan together at all during their lifetime. While putting an estate plan together is a good thing to do, many people make few updates once the plan has been created, despite other key life events happening over the years. This is a major mistake that can place your hard-earned money and assets into a costly probate or into the wrong hands. To make sure you do not run into these issues and your wishes are followed in the event of your death or incapacity, below are nine life decisions or events that should get you thinking about updating — or creating — your estate plan right away.

Important Life Decisions

There are several important life decisions that you should factor into your estate plan. They include:

  • Getting married: Estate planning after tying the knot does not have to be complicated. Simply updating your beneficiary information, purchasing a life insurance policy, and updating emergency contact information are all things that should happen right away. You should also consider preparing a will and a living will. As your marriage progresses, it may make sense to consider a revocable trust as well. Having discussions with your spouse about how you want your estate to be managed depending on different scenarios is also important.
  • Getting divorced: While couples do not plan for divorce, many spouses go through this process. For many, the emotional toll and legal complexities of divorce can be overwhelming. Oftentimes estate planning is overshadowed by the divorce, resulting in unintended consequences. Making sure you make changes to your estate plan as soon as your divorce proceedings have been finalized will make sure your ex will not end up with the house, life insurance proceeds or other assets of yours.
  • Buying life insurance: These policies are present in virtually all estate plans and serve as a useful source of liquidity, education-expense coverage, and financial support for your family or loved ones. Make sure to list all beneficiaries under the policy and make sure to update them as time passes.
  • Buying a new home: When you purchase or refinance a home or other real estate, you should always make sure the asset is titled appropriately. If you use a trust, sometimes a lender will take a property out of a trust during a refinance. The key is to make sure your title furthers your goals.
  • Having a child: While adding another member to your family is an exciting time in your life, it is not an excuse to forget to update your estate plan. A new child necessitates major revisions to your estate plan. This not only affects who will inherit your estate upon your death but will also require you deciding who will be the guardian of your children if you should die before they become adults. As your child grows and matures — and more children are added — your estate plan will likely continue to change.
  • Starting a business: If you start a business or ownership interest changes in a current business, you need to understand what impact these changes have on your estate plan. Even more, there may be tax implications that could affect your heirs without proper planning ahead of time.
  • Death of a loved one: The passing away of someone listed in your will is often overlooked in estate planning. These individuals may be named guardians to your children, have an inheritance allocated to them, be designated as emergency contacts, or may be named as executors of your estate. Leaving the role vacant can have terrible unintended consequences and necessitates transitioning new people to fill the void left behind by your loved one’s death right away.
  • Moving to another state or country: When you change your residency from one state to another, you must review your estate plan to make sure it conforms with local laws. The same is true if you move to another country. Likewise, if you have property in more than one state or country, special attention must be paid to how those assets will be distributed according to your estate plan and applicable law.
  • Change in work benefits: Whether this happened through a promotion, demotion, or your employer just changed the benefits they offer, this could impact the type amount of assets you have available. Look at your estate plan to see if your goals are still achievable or if you can do more with what you have.

Estate Planning Advice

Planning based on your life stages is important because your circumstances over the years will surely change. If you have any questions about estate planning — or have had to make a recent big decision in your life — contact us to learn more about your options.

When Should You Update Your Estate Plan?

How Often Do You Update Your Estate Plan? More Often Than Your Resume?

A resume is a “snapshot” of your experience, skill set, and education which provides prospective employers insight into who you are and how you will perform. Imagine not updating that resume for 5, 10, or even 15 years. Would it accurately reflect your professional abilities? Would it do what you want it to do? Likely not. Estate plans are similar in that they need to be updated on a regular basis to reflect changes in your life so they can do what you want them to do.

Outdated estate plans – like outdated resumes – simply don’t work.

Take a Moment to Reflect

Think back for a moment – think of all the changes in your life. What’s changed since you signed your will, trust, and other estate planning documents? If something has changed that affects you, your trusted helpers, or your beneficiaries, your estate plan probably needs to reflect that change.

Here are examples of changes that are significant enough to warrant an estate plan review and, likely, updates:

  • Birth
  • Adoption
  • Marriage
  • Divorce or separation
  • Death
  • Addictions
  • Incapacity/disability
  • Health challenges
  • Financial status changes – good or bad
  • Tax law changes
  • Move to a new state
  • Family circumstances changes – good or bad
  • Business circumstances changes – good or bad

Procrastination

With the end of the year fast approaching, call my office now to get your estate planning review on the calendar. If you’re like most people, if it’s on the calendar, you’ll make it happen. Just as you update your resume on a regular basis and just like you meet with the doctor, dentist, CPA, or financial advisor on a regular basis, you need to meet with me on a regular basis as well. I’ll make sure your estate plan reflects your current needs and those of the people you love. Updating is the best way to make sure your estate plan will actually do what you want it to do.

Warning: Don’t Let Creditors Inherit from You

Shocking to most people, the retirement account you leave for your spouse can be seized in a divorce, lawsuit, or bankruptcy.

3 Options Available To Surviving Spouses

When your surviving spouse inherits your IRA, he or she generally has three options:

  1. Cash out the inherited IRA and pay the income tax.

WARNING! The cashed-out IRA will not have creditor protection and accelerates taxation.

  1. Maintain the IRA as an inherited IRA.

WARNING! The inherited IRA will not have creditor protection.

  1. Roll over the inherited IRA and treat it as his or her own.

WARNING! This may offer some creditor protection; however, not in all cases.

It’s frustrating to many that a stranger can swoop in and take their hard earned money; fortunately, there’s a solution and that solution is a retirement trust.

Standalone Retirement Trusts Provide Protection

A Standalone Retirement Trust (SRT) is a special type of trust designed to be the beneficiary of your retirement accounts after you die. It can protect your assets from your beneficiary’s creditors.  In fact, we can include trust provisions which specifically benefit your spouse in situations such as:

  • Second marriages
  • Divorce
  • Lawsuits from car accidents, malpractice, or tenants
  • Business failure
  • Bankruptcy
  • Medicaid qualification

Want To Know More? 

The bottom line is that a properly drafted SRT is often your best option for protecting your retirement assets (and providing the bonus of tax-deferred growth). Want to know more?  Contact us today to schedule a conversation. We look forward to working with you.

Estate Planning: Benefits Open Enrollment

Estate Planning Considerations for Benefits Open Enrollment

The fall, generally late-October or early-November, is the time when employers send out summaries of employee benefits offered by the company and give employees the option to enroll in these benefits. These can generally include retirement plan options, health care, dental, vision, short and/or long-term disability, and life insurance coverage. Your employer may pay 100 percent of the premiums, split the costs with you, or you may have to pay all of the premiums yourself. Below are several considerations you should keep in mind once open enrollment begins, particularly as it relates to estate planning.

Benefits Explained

When considering any retirement plan offered through your employer such as a 401(k), 403(b), or 457 plan, you will need to consider: what percentage of income you choose to contribute and whether the contribution must be made pre-tax, after-tax, or to a Roth plan (if available). How much you can contribute, and whether pre- or post-tax, depends on your specific financial circumstances. Remember to also consider any “matching” contributions your employer may make since these contributions can help improve your overall retirement savings.

Healthcare benefits may include the ability to enroll in a Health Savings Account (HSA), in addition to enrolling in the usual healthcare, vision, and/or dental coverage. HSAs allow plan participants to set funds aside, tax-free, for health care costs.

Employer-provided life and disability insurance coverage will provide your beneficiary with a stated amount of money if you die while employed by your employer or become disabled. The coverage generally expires when you no longer work for that employer.

Perhaps the most important thing to do during your employer’s open enrollment period is to review the employer-provided benefit package to determine what should remain and what should be changed. If you do not understand the options being provided to you, contact human resources right away for more information.

Beneficiary Designations

While you are reviewing your benefit package, you should consider your beneficiary elections or those who will inherit these assets upon your death or incapacity. A primary beneficiary is the first to inherit. Should he or she pass before you, or with you, assets would then go to any secondary beneficiary you have designated. These are often referred to as contingent beneficiaries.

Even if you have previously enrolled, you must review your beneficiary designations on your employer-provided benefits to ensure they are still how you want them. Benefits that may require a beneficiary designation are life insurance policies, retirement accounts, health savings accounts (HSA), as well as disability insurance.

If there are any new providers for your employer-sponsored benefits, this means that the insurance company has changed. Keep in mind that your previously chosen beneficiaries, and possibly coverage, may not have carried over. It is always better to review these documents, even if you are not planning any changes.

Estate Planning Concerns

 If you are contemplating any changes to your beneficiaries, give me a call so I can ensure your beneficiary designations work as expected with your current estate plan or so I can properly prepare a plan that carries out your ultimate goals for you and your family. Once you have updated your beneficiaries, make sure to obtain written confirmation of this from your employer’s human resources department and share this information with me.  If you have any questions, please feel free to contact me. I am here to help.

How to Make Your Inheritance Last

How to Make Your Inheritance Last

A 2012 study by Ohio State researcher Jay Zagorsky found that about one-third of Americans who receive an inheritance have negative savings within two years of getting their money, and of those who receive $100,000 or more, nearly one in five spend, donate or simply lose it all.  If you are about to receive an inheritance, there are several steps you can take to insure your funds will last longer than a few years.

Don’t Make Any Hasty Decisions.  Once you receive your money, don’t make any hasty decisions about what to do with it.  Instead, park the funds in a safe place such as a savings account, money market, or CD until you have had enough time to put together a long term financial plan.  If you don’t already have one, set up an emergency fund that will cover six months of expenses.  If you already have an emergency fund, consider adding to it to cover one year of expenses.  If you are married, you will need to decide early on if you want to keep your inheritance in your separate name or place the funds in joint names with your spouse.  If you are considering giving some of your inheritance to your children, you could invoke a gift tax or negative income tax consequences and should only proceed with gifting once you understand all of the consequences.

Still Working?  Put Away More Towards Your Retirement.  If you are working and are not contributing the maximum to your 401(k), bump up your withholding, particularly if you are not meeting your employer’s match.  If your employer does not offer a 401(k), start funding an IRA.  Note that if you have inherited a traditional IRA, any withdrawals you make will be included in your taxable income.  You can minimize the income tax consequences by only taking required distributions and leaving the balance invested inside of the inherited IRA.

Hire a Team of Professional Advisors.  You will need a team of professionals to help you develop long term plans for your inheritance.  A financial advisor will help analyze your current finances and build a solid financial foundation to include investment advice, insurance (life, long term care, and liability), credit and debt management, college savings, and retirement planning.  Your advisor can also help you look into the future and plan for long term financial goals, such as purchasing a first or second home or starting a charitable foundation.  An accountant will help you determine cash flow and minimize capital gains and other income taxes.  An estate planning attorney will help you create or update your estate plan (everyone needs a will, revocable trust, advance medical directive and durable power of attorney), decrease or eliminate estate taxes (federal and/or state), set up a gifting strategy, meet your charitable goals, create a family legacy, and protect your inheritance from creditors, predators, and lawsuits.

If your inheritance is large enough, it has the potential to last your lifetime.  Don’t go it alone.  I am here to answer any questions you have about receiving, growing, donating, protecting and ultimately passing on your inheritance to your loved ones.

Inheritor’s Trusts

Introduction

An inheritance is a blessing. It can enable you to start a new business, send your children to college or buy your dream home. Sadly, most families lose their wealth by the second generation. Therefore, it is important to tell your estate planner if you are expecting an inheritance. One way an estate planner can help you protect an inheritance is by using an inheritor’s trust.

What is an Inheritor’s Trust?

When it comes to estate planning there are several types of tools you can use, depending on your circumstances. One such estate planning tool is the trust. There are numerous types of trusts aimed at fulfilling different estate planning purposes. If you are anticipating an inheritance, there is a special type of trust designed to help protect it: an inheritor’s trust.

Purpose of an Inheritor’s Trust

An inheritor’s trust is a trust that has been established for the purpose of receiving a beneficiary’s inheritance in a way that is protected legally and financially. In order to fulfill its intended purpose, an inheritor’s trust must be set up in a way that follows numerous tax and legal rules. Virtually every state in the country forbids what is referred to as a “self-settled trust.” A self-settled trust is an irrevocable trust established by an individual, for his or her own benefit, with the intent to protect the trust assets from creditors. Therefore, once you receive an inheritance, it is very challenging to protect the inheritance assets yourself. Luckily, the inheritor’s trust provides an option for people expecting an inheritance.

Inheritor’s Trust Explained

If you are expecting an inheritance from a loved one, and he or she is unwilling or unable to leave your inheritance in a trust, you can protect these new assets with an inheritor’s trust. However, because you cannot set up the trust yourself because of the “self-settled trust” rule discussed earlier, you will need to work with your loved one to establish the trust. Instead of receiving the inheritance outright, the trust will be the recipient of the inheritance. The trust will typically include a spendthrift clause to protect against creditors, a more drawn out distribution schedule, or provisions granting only discretionary distributions to you. Once the trust has been drafted, your loved one will need to sign the instrument as the creator (grantor) but you will be the beneficiary.

There are several benefits to an inheritor’s trust:

  • The inheritance can be excluded from your taxable estate potentially saving your family estate taxes;
  • The trust can be a more cost effective way to protect the assets instead of your loved one revising their existing plans;
  • Upon your death, the inheritance will be distributed outside of your probate estate which can help ensure privacy and lower attorneys fees and administration costs;
  • The inheritance will be protected from creditors, lawsuits, and divorcing spouses;
  • In some circumstances, the inheritance can even be controlled and managed by you, as a trustee; and
  • You can decide how remaining trust assets will be distributed after you pass away if the trust gives you that power.

An inheritor’s trust is a sophisticated, but powerful estate planning tool. It is ideal for anyone who is to receive a substantial, outright inheritance that may need additional asset and tax protection.

Consult with an Estate Planning Professional

Estate planning can be complicated, but it is essential in protecting yourself and your loved one’s financial future. If you expect to receive an outright inheritance and desire to maintain control, gain superb asset protection, and use all possible avenues to avoid estate and transfer taxes, an inheritor’s trust may be right for you. Give me a call today to learn about whether this estate planning tool is an option for you.

FAQs – Expecting an Inheritance

In my previous post, I explained why receiving an inheritance changes your estate plan (read here). Today, I will address some frequently asked questions regarding inheritances.

Frequently Asked Questions

Should I tell my estate planner I’m expecting an inheritance?

Yes. While some people are hesitant to count their chickens before they hatch, looping your estate planner into your full financial picture is the best way to prepare for whatever the future may hold. By planning ahead, you can help ensure that whatever is left to you will be protected and able to be enjoyed for years to come. With all of the emotions that surround the passing of a loved one, you’ll be able to focus on grieving and the administration process, without having the additional worries of how you will handle your finances.

What will happen to my plan if I don’t actually receive the inheritance?

If you expected to a receive an inheritance and ultimately do not, your financial and estate plans can be revised to take the change into account. I like to think of estate planning as a process rather than a one-time event. Your plan must evolve over time to ensure a continued management of the assets you have, not just the ones you had when the plan was originally prepared.

How do I ask my family if I’m getting an inheritance?

Money can be a taboo subject in some families. Broaching this subject with your family may be difficult and uncomfortable, but it is necessary.  Start the conversation during a relatively stress-free time rather than springing it on a family member during the chaotic holiday season or before a big family celebration.

Instead of focusing solely on what you are to receive as your inheritance, you can discuss it as part of a larger conversation regarding your loved ones’ future plans for their health and overall well-being. You can begin by inquiring as to what type of planning they have already done. Have they designated agents under Financial or Medical Powers of Attorney to act on their behalf should they become incapacitated? Do they have a living will in place to assist with end-of-life decisions? While planning for an inheritance may be your main focus, this conversation can help ensure that your loved one is protected as well.

Why Receiving An Inheritance Changes Your Estate Plan

Why Receiving an Inheritance Changes Your Estate Plan

Receiving an inheritance is a huge blessing but, if not handled properly, can also become a curse. Often times, the inheritor does not know what to do with the new asset and runs into financial trouble, squandering most, if not all of it. This could happen due to the inheritor having outstanding creditor issues or tax troubles or being inexperienced with managing the new assets. No matter what the financial obstacles maybe, estate planning can help address or even eliminate these issues. For these reasons, it is vital to update your estate plan – or create one if you have not already – if you have received or are expecting to receive an inheritance.

How Inheritances Affect Estate Plans

An inheritance will likely change your assets in a major way, which may result in a change in your tax and financial planning needs. An inheritance may also increase your exposure to lawsuits since people are more likely to seek out the “deep pockets” in a lawsuit. If your inheritance is the first time you have invested or have had substantial assets, an estate plan can set up safeguards to both manage and protect your wealth. If you already have an estate plan in place, it is critical to update it so that the plan incorporates your recent inheritance. The presence of more assets may require a revision in order to make sure that your intentions are properly carried out. This is particularly true if you have a blended family, have changed from a non-taxable to a taxable estate because the value of your assets is now over $11 million, or if your original estate plans involved utilizing a charitable strategy. Putting your inheritance to work – whether it be for short-term or long-term financial goals – will help you avoid wasting your inheritance.

Preserving Your Family’s Wealth

Another important reason to re-evaluate your estate planning when you receive an inheritance is to preserve your family’s wealth. Unfortunately, statistics on wealth preservation across generations are grim. Studies estimate that 70 percent of wealthy families lose their wealth by the second generation, and 90 percent lose it by the third. One common reason for these surprising statistics is the lack of communication among generations. Needless to say, proactive steps are necessary to preserve wealth for the long-term. Families fail to discuss this important topic because money can be a taboo topic to discuss openly, the older generations fear that the younger generations will become lazy and entitled if they are made aware of their inheritance too soon, or they fear their private financial information will be leaked to those who should not have the information. But, if your family is open, honest, and everyone plans properly, your family does not have to see its collective fortune evaporate within a couple generations. Estate planning can provide the foundation to ensure assets continue to be managed properly and are preserved instead of dissipated. Proper planning can also make wealth a part of the family legacy instead of a burden or societal ill.

Seek Professional Advice

An inheritance can be used up faster than you would think, but proper planning can reduce this risk. If you have received an inheritance – or expect to receive one in the near future – it is vital that you seek out financial and legal advice. Give us a call to schedule an appointment so we can discuss your options to help preserve your family legacy.

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