Estate Planning Blog Articles

Estate & Business Planning Law Firm Serving the Providence & Cranston, RI Areas

Is Prince’s Estate Settled Yet?

The long-running estate battle over Prince’s estate may be coming to a close, according to a recent article from Yahoo! News, “Minnesota probate court set to discuss ‘final distribution’ of Prince estate in February.” The Carver County probate court has set a date to start talking about Prince’s assets with heirs and beneficiaries.

Prince died of a fentanyl overdose in April 2016, with no estate plan. Administering the estate and coming up with a plan for its distribution among heirs has cost tens of millions of dollars, in an estate estimated at more than $100 million. One of many obstacles in settling the estate: a complicated dispute with the IRS over the value of Prince’s assets.

The estate will be almost evenly split between a music company—Primary Wave—and the three oldest of the pop icon’s eldest six heirs or their families.

Primary Wave bought out all or most of the interests of Prince’s three youngest siblings, one of whom died in August 2019. Three older siblings, including one who died in September 2021, rejected the offers from Primary Wave.

Comerica Bank & Trust, the administrator of the estate, settled with the IRS over the value of the estate, according to a late November filing in the U.S. Tax Court. The Carver County probate court has to approve this agreement.

Another tax dispute, this one between Prince’s estate and the state of Minnesota, has not yet been resolved.

Last year, the IRS set a value of $163.2 million on Prince’s estate. Comerica valued the estate at $82.3 million—nearly half of the IRS value. The value was so low the IRS penalized the estate with a $6.4 million “accuracy-related penalty.” Comerica followed by suing the IRS in U.S. Tax Court, saying the IRS calculations were loaded with mistakes. With the settlement now underway, the tax trial has been cancelled. The estate and the IRS have been ordered to file a status report on the case in February 2022.

The IRS and Comerica agreed on the value of Prince’s real estate holdings at $33 million. The harder task was to place a value on intangible assets, like Prince’s music rights.

The full IRS settlement most likely led to the probate court setting a date for a hearing. With the settlement, certain parts of the estate may move forward.

However, don’t expect it to be quick. It may be months before the court approves any distributions.

The lesson from Prince’s estate: everyone needs an estate plan, whether the estate is modest or includes multi-million assets and multiple heirs. Tens of millions in legal fees plus a $6.4 million penalty from the IRS adds up, even when the estate is this big.

Reference: Yahoo! News (Dec. 22, 2021) “Minnesota probate court set to discuss ‘final distribution’ of Prince estate in February”

What are Digital Assets in a Will?

Most of us overlook the amount of information and assets we have online, from social media to networking websites, frequent flier miles, online bank accounts, subscriptions, photos, websites, etc. The list of most people’s digital assets has grown considerably in recent years, and yet most have no plan for what should happen to those assets when their owner dies.

This is a growing problem, says msn money, in an article making the case clear: “From Facebook to iTunes to Amazon, You Need A Digital Will!” Every website has its own legal requirements for dealing with the original owner’s death, almost aways hidden deep within the Terms of Service Agreement we all click on without reading. Some have created processes for executors, while others have not. What can you do to make it easier for your executor?

Make a list of everything you access online. Be prepared to be surprised at just how much your life occurs online. Compile a list of all online accounts, usernames and passwords. You probably have to do this bit by bit, as a marathon session might take a long time. Use either a password manager with top-notch security or a password-protected spreadsheet you update around once every three months.

This is especially important for accounts with monetary value. But sentimental value counts too. A side note: all those playlists you’ve created on iTunes? They are non-transferrable and when you die, they are deleted.

What do you want to have happen to each account? You’ll need to decide what you want to happen to each account and, depending on the account, state it clearly in what’s known as a directive. You may want to preserve some, or you may want to shut down others. Some free email accounts are automatically shut down, if they are not used for a certain period of time. Others should be down immediately to prevent fraud. Scammers prefer accounts where the owners have died, since they are often an easy entry to the person’s online identity.

Facebook is one of the platforms allowing you to designate a Legacy contact, so the person can memorialize the account, allowing only friends to see the page and removing some information. If you want to have the page deleted on death, Facebook provides directions.

Each platform has its own rules. Most rely on provisions regarding privacy protection: only the original owner is authorized to access the account. There are now federal and state laws prohibiting accessing private online data, which have created significant obstacles for loved ones to access digital assets. Don’t expect anyone to resolve your digital accounts after you pass, unless you have a digital will. Even with one, there might be issues.

Your estate planning attorney will help you add the correct language to your estate documents as to what you want to happen to each account. It’s important to ensure that your estate plan gives your executor or other fiduciary authorization to access your digital assets and what you want to happen to them. Remember—don’t put account names, usernames, or passwords in a will, as it becomes a public document during the probate process.

Without an inventory of digital assets, it may be simply impossible to ascertain where digital assets are located and how to access them. Looking at credit card statements for autopayments may be a place to start, or at least to stop the autopayments.

This is a relatively new asset class, with laws varying from state to state. Speak with your estate planning attorney to ensure your digital assets are protected, as well as traditional assets when creating or reviewing your estate plan.

Reference: msn money (Dec. 19, 2021) “From Facebook to iTunes to Amazon, You Need A Digital Will!”

Can I Avoid Password Problems for My Family in Estate Planning?

Barron’s recent article entitled “How to Ensure Heirs Avoid a Password-Protected Nightmare” explains that even financial planners may not consider until too late, how difficult it can be to recover and access a loved one’s accounts after they pass away. Since we are much more paperless with our finances, getting access to these accounts can be extremely hard for heirs, if they don’t have the right information. That’s because digital accounts are protected by encryption, multifactor authentication and federal data privacy laws.

Create a list of digital accounts and instructions on how to access them. The list should include not only financial assets but social media and other accounts. Digital accounts that loved ones or advisors may need to access following a death include:

  • Traditional financial accounts
  • Cryptocurrency accounts
  • Home payment and utilities accounts
  • Health insurance benefits
  • Email accounts
  • Social media
  • Smartphone accounts
  • Storage and file-sharing
  • Photo, music and video accounts
  • E-commerce accounts
  • Subscriptions to streaming services, such as Netflix, newspapers, music services; and
  • Loyalty/rewards programs for airlines and hotels.

Create a list of accounts, passwords and access information, keeping it up to date as information changes and letting a trusted person, such as an executor or estate planning attorney, know its location. Without a password list, it can be a nightmare.

Note that with every digital account, there’s a specific process that heirs must undertake to gain access, which should then be communicated clearly in your estate plan. Make a list of all digital assets and their access information, but don’t include this in the will itself, since the document is part of the public record in probate.

Being prepared well ahead of time can help your family avoid additional stress and delays as they probate your estate. It also ensures that they don’t forfeit significant financial assets concealed behind an impenetrable digital wall.

Reference: Barron’s (Dec. 15, 2021) “How to Ensure Heirs Avoid a Password-Protected Nightmare”

Why Do I Need an Estate Planning Attorney?

Pennsylvania News Today’s recent article entitled “Top 7 Reasons You Need An Estate Lawyer says that when you think about hiring a real estate lawyer, it might seem a little unsettling. However, let’s look at these reasons and why you might require them.

Estate Planning. You might want to consider this, but everyone passes away. It’s important that your family is ready for this. An experienced estate planning attorney can help you through this process and make certain everything is prepared. You should have a will. This document says what should happen with your assets when you pass away.

Trusts. A trust helps manage assets before someone dies. If you only have one or two assets you want given to someone, a will is adequate. However, if you own extensive property, ask an experienced estate planning attorney about setting up a trust. This will help your family keep living in your home, even after you’re gone without worrying about it being sold out from under them.

Probate. The probate court oversees the distribution of a person’s estate according to the instructions in their will. Probate can be a lengthy and expensive process, depending on where you live and the complexity of your assets or family situation. An estate planning attorney can help you with strategies to avoid it. A probate attorney can help you, so your family doesn’t have to worry about dealing with that stress or spending a vast amount of money necessary to do this correctly.

Guardianship. Guardianships are used when parents pass away and leave minor children behind. You can designate a guardian for your minor children in your will.

Elder Law Services. Seniors frequently need help managing finances and health care decisions. An experienced estate planning attorney or elder law attorney can help your loved ones through these complicated matters.

Estate Investments. An experienced attorney can also advise you on how to make smart investments for your family and can make certain that the transaction goes smoothly, and that any moves work with your estate planning objectives.

Tax Issues. Taxes may be owed on estates worth more than five million dollars. This can make it hard for heirs who don’t have access to this much money upfront. An estate planning attorney can help you avoid taxes, so your family doesn’t have to deal with this problem.

Estate planning is a process that should be started as soon as possible. You’ll need an estate planning lawyer who is knowledgeable and experienced to help.

Reference: Pennsylvania News Today (Nov. 11, 2021) “Top 7 Reasons You Need An Estate Lawyer”

What are Trends in Senior Health Care?

Feeling comfortable using virtual care technologies in the home, demanding more tech in independent living communities and becoming more engaged in their own health data are trends that show that seniors will be turning to technology more than ever to enhance their healthcare in the next year. Health Tech’s recent article entitled “3 Senior Care Tech Trends to Watch in 2022” gives us the top three trends in senior care for 2022:

  1. Senior Care Will Continue to Adopt the Hospital-at-Home Model. Hospital-at-home is a growing trend in healthcare, as increased adoption of virtual care technologies permits the care of seniors with acute conditions to take place at home.

A 2018 AARP survey found that 76% of adults ages 50+ said they prefer to stay in their homes and communities, aging in place rather than moving to an independent living community. According to the American Hospital Association, the hospital-at-home care delivery model can reduce costs, improve outcomes and enhance the patient experience. However, traditional healthcare organizations have a part to play in this care delivery model with telehealth and remote patient monitoring that can extend care to the home setting.

  1. Organizations Will Create Tech Concierge Roles to Help Seniors. Tech ownership, adoption, and use among older adults increased during the pandemic, with nearly half of those in an AARP saying that they used video chats more than before. With growing use of texting, email, smartphones and wearable devices, seniors are using more technology. As a result, the trend is likely to continue.
  2. Consumerization Will Give Seniors More Control Over Their Health. Wearables and apps place health data in consumers’ hands. Healthcare organizations will not have to provide patients with all of their health information, which will create even more patient involvement in healthcare. This will give older adults more information and empower them to be active in decision-making about their health. Another impact of consumerization on senior care is that older adults are getting more comfortable with technology and are joining independent living communities’ selection committees to make decisions about which technologies the community will acquire.

As we go into 2022, consumerization and the desire for personalization are expected to impact the types of technology preferred by older adults and offered by independent living communities, as well as the ways seniors interact with digital health solutions.

Reference: Health Tech (Dec. 14, 2021) “3 Senior Care Tech Trends to Watch in 2022”

Is It Better to Inherit Stock or Cash?

To make an inheritance even more advantageous for heirs, it’s a good idea to streamline accounts and simplify what you own before you die, eliminating some complications during a very emotional time. The next three decades will see a massive transfer of wealth from one generation to the next, says a recent article “6 of the Best Assets to Inherit” from Kiplinger. If you might be among those leaving inheritances to loved ones, there are steps you can take to prevent emotional and even family-destroying fights resulting from problematic assets.

Cash is king of inheritance assets. It’s simplest to deal with and the value is crystal clear. If you have accounts in multiple financial institutions, consolidate cash into one account. Each bank may have different rules for distributing assets, so reducing the number of banks involved will make it easier. Just remember to stay within FDIC limits, which insures only $250,000 per bank per ownership category. Tell your children if they are going to receive a significant cash inheritance and discuss what they may want to do with it.

Cash substitutes. Proceeds from a life insurance policy are usually very cut and dried. When you pass away, the life insurance company pays beneficiaries the death benefit in cash, according to the beneficiaries named on the policy. Be sure to tell your heirs where the original policy is located. They’ll need to provide the insurance company with a death certificate and there may be a form or two involved. The proceeds are income tax free, although the death benefit itself is added to the value of your estate and might be charged estate taxes.

Bank products, like CDs and Money Market Accounts. You can set up these accounts to be Payable on Death (POD), so the person named can access the assets quickly after your death. Don’t put one person’s name on the account and hope they share with their siblings. That’s a recipe for family disaster. If your will has one set of instructions and the bank product names another owner, the bank will pay according to the titling of the account. The same goes for life insurance proceeds—the beneficiary designation supersedes instructions in a will.

Brokerage Accounts. Stocks, bonds, mutual funds and other assets held in a taxable brokerage account are easy to divide and value. They are also easy to sell and convert to cash. What’s more, they could give heirs a significant tax benefit. If you bought shares of Apple or IBM years ago and sold the stocks while you were living, you’d owe capital gains taxes. However, if the investments are inherited, the heir receives a step-up-in-basis, which means the investment basis goes to the market value on the day you die. It’s entirely possible for heirs to sell appreciated assets with no or little taxes due.

Assets that decrease in value fast: this is not for everyone. Let’s say you know your heir is going to take their inheritance and buy an over-the-top luxury item, like a new sports car or a yacht. You know the asset will lose value the minute it’s driven out of the showroom or launched for the first time. Rather than leave them cash to make a purchase, buy the car or boat yourself and leave it to them as an inherited asset. They lose value immediately, while reducing your taxable estate. You’ve always wanted a Lamborghini anyway.

Roth IRA—Best of All IRA Worlds. The Roth IRA is funded with after-tax dollars, and in exchange, retirement withdrawals and investment gains are income tax-free. If you leave a 401(k) or traditional IRA, heirs will owe taxes on withdrawals and unless they meet certain requirements, they have to empty the account within ten years.

Trust Fund Assets. This may be the best way to protect an inheritance from heirs. If you leave property outright to heirs, it’s subject to creditors and predators. Funds in a trust are carefully protected, according to the terms of the trust, which you determine. Your estate planning attorney can create the trust to achieve whatever you want. Inheritances in trusts are less likely to evaporate quickly and you get the final say in how assets are distributed.

Reference: Kiplinger (Dec. 9, 2021) “6 of the Best Assets to Inherit”

Can I Restructure Assets to Qualify for Medicaid?

Some people believe that Medicaid is only for poor and low-income seniors. However, with proper and thoughtful estate planning and the help of an attorney who specializes in Medicaid planning, all but the very wealthiest people can often qualify for program benefits.

Kiplinger’s recent article entitled “How to Restructure Your Assets to Qualify for Medicaid says that unlike Medicare, Medicaid isn’t a federally run program. Operating within broad federal guidelines, each state determines its own Medicaid eligibility criteria, eligible coverage groups, services covered, administrative and operating procedures and payment levels.

The Medicaid program covers long-term nursing home care costs and many home health care costs, which are not covered by Medicare. If your income exceeds your state’s Medicaid eligibility threshold, there are two commonly used trusts that can be used to divert excess income to maintain your program eligibility.

Qualified Income Trusts (QITs): Also known as a “Miller trust,” this is an irrevocable trust into which your income is placed and then controlled by a trustee. The restrictions are tight on what the income placed in the trust can be used for (e.g., both a personal and if applicable a spousal “needs allowance,” as well as any medical care costs, including the cost of private health insurance premiums). However, due to the fact that the funds are legally owned by the trust (not you individually), they no longer count against your Medicaid income eligibility.

Pooled Income Trusts: Like a QIT, these are irrevocable trusts into which your “surplus income” can be placed to maintain Medicaid eligibility. To take advantage of this type of trust, you must qualify as disabled. Your income is pooled together with the income of others and managed by a non-profit charitable organization that acts as trustee and makes monthly disbursements to pay expenses on behalf of the individuals for whom the trust was made. Any funds remaining in the trust at your death are used to help other disabled individuals in the trust.

These income trusts are designed to create a legal pathway to Medicaid eligibility for those with too much income to qualify for assistance, but not enough wealth to pay for the rising cost of much-needed care. Like income limitations, the Medicaid “asset test” is complicated and varies from state to state. Generally, your home’s value (up to a maximum amount) is exempt, provided you still live there or intend to return. Otherwise, most states require you to spend down other assets to around $2,000/person ($4,000/married couple) to qualify.

Reference: Kiplinger (Nov. 7, 2021) “How to Restructure Your Assets to Qualify for Medicaid”

Can I Claim Grandfather’s Unclaimed Insurance Policy?

What if you recently discovered some old life insurance accounts being held by the state for your grandfather, who passed away in 1977.

It looks like the funds were never disbursed because the address was spelled wrong. As a result, the insurance accounts were considered unclaimed.

None of his children—including your mom—is alive today, and there are a number of adult grandchildren besides you.

How do you get your hands on this money? How is it disbursed?

Nj.com’s recent article entitled “I found two old life insurance policies. How can we collect?” says that insurance claims can be made at any time, even years after the death of the policy holder.

The first step is to make contact with the life insurance company that issued the policy.

The National Association of Insurance Commissioners has a website to help people locate insurance policies.

Even if the policy proceeds reverted to the state, you can still claim it through the Unclaimed Property Administration.

The National Association of Unclaimed Property Administrators, which is a network of the National Association of State Treasurers, says that about one in 10 people have unclaimed cash or property waiting for them.

Unclaimed or “abandoned” property is defined as property or accounts within financial institutions or companies with no activity generated (or contact with the owner) as to the property for one year or a longer period.

After a designated period of time—known as “the dormancy period”— with no activity or contact, the property becomes “unclaimed” and—by law—must be turned over to the state.

There are billions of dollars in unclaimed property that’s held by state governments and treasuries across the country.

As far as who would get your grandfather’s insurance policy proceeds, the distribution of the life insurance proceeds are governed by the contract of the life insurance policy.

Reference: nj.com (Nov. 18, 2021) “I found two old life insurance policies. How can we collect?”

Can I Avoid Taxes when I Inherit?

Kiplinger’s recent article entitled “Minimizing Taxes When You Inherit Money” says that if you inherit an IRA from a parent, the taxes on mandatory withdrawals could mean you will have a smaller inheritance than you anticipated.

Prior to 2020, beneficiaries of inherited IRAs or other tax-deferred accounts, like 401(k)s, could transfer the money into an account known as an inherited (or “stretch”) IRA. From there, you could take withdrawals over your life expectancy, allowing you to minimize withdrawals taxed at ordinary income tax rates. This lets the funds in the account to grow.

However, the Setting Every Community Up for Retirement Enhancement (SECURE) Act of 2019 stopped this tax-saving strategy. Most adult children and other non-spouse heirs who inherit an IRA after January 1, 2020, now have two options: (i) take a lump sum; or (ii) transfer the money to an inherited IRA that must be depleted within 10 years after the death of the original owner. This 10-year rule doesn’t apply to surviving spouses, who can roll the money into their own IRA and allow the account to grow, tax-deferred, until they must take required minimum distributions (RMDs) at 72.  Spouses can also transfer the money into an inherited IRA and take distributions based on their life expectancy. The SECURE Act also created exceptions for non-spouse beneficiaries for those who are minors, disabled, chronically ill, or less than 10 years younger than the original IRA owner.

As a result, IRA beneficiaries who aren’t eligible for the exceptions could wind up with a big tax bill, especially if the 10-year withdrawal period is when they have a lot of other taxable income.

The 10-year rule also applies to inherited Roth IRAs. However, although you must still deplete the account in 10 years, the distributions are tax-free, provided the Roth was funded at least five years before the original owner died. If you don’t need the money, delay in taking the distributions until you’re required to empty the account. That will give you up to 10 years of tax-free growth.

Many heirs cash out their parents’ IRAs. However, if you take a lump sum from a traditional IRA, you’ll owe taxes on the whole amount, which might move you into a higher tax bracket.

Transferring the money to an inherited IRA lets you allocate the tax bill, although it’s for a shorter period than the law previously allowed. Since the new rules don’t require annual distributions, there’s a bit of flexibility.

Reference: Kiplinger (Oct. 29, 2021) “Minimizing Taxes When You Inherit Money”

Why Naming Beneficiaries Is Important to Your Estate Plan

For the loved ones of people who neglect to update the beneficiaries on their estate plan and assets with the option of naming beneficiaries, the cost in time, money and emotional stress is quite high, says the recent article “Five Mistakes To Avoid When Naming Beneficiaries” from The Chattanoogan.

The biggest mistake is failing to name a beneficiary on all of your accounts, including retirement, investment and bank accounts as well as insurance policies. What happens if you fail to name a beneficiary? Assets in the accounts and proceeds from life insurance policies will automatically become part of your estate.

Any planning you’ve done with your estate planning attorney to avoid probate will be undercut by having all of these assets go through probate. Beneficiaries may not see their inheritance for months, versus receiving access to the assets much sooner. It’s even worse for retirement accounts like IRAs. Any ability your heir might have had to withdraw assets over time will be lost.

Next is forgetting to name a contingency beneficiary. Most people name their spouse, an adult child, or a sibling as their primary beneficiary. However, if the primary beneficiary should predecease you and there is no contingency beneficiary, it is as if you didn’t have a beneficiary at all.

Having a contingency beneficiary has another benefit: the primary beneficiary has the option to execute a qualified disclaimer, so some assets may be passed along to the next-in-line heir. Let’s say your spouse doesn’t need the money or doesn’t want to take it because of tax implications. Someone else in the family can more easily receive the assets.

Naming beneficiaries without taking care to use their proper legal name or identify the person with specificity has led to more surprises than you can imagine. If there are three generations of Geoffrey Paddingtons in the family and the only name on the document is Geoffrey Paddington, who will receive the inheritance? Use the person’s full name, their relationship to you (“child,” “cousin,” etc.) and if the document requires a Social Security number for identification, use it.

When was the last time you reviewed beneficiary documents? The only time many people look at these documents is when they open the account, start a new job, or buy an insurance policy. Every few years, around the same time you review your estate plan, you should gather all of your financial and insurance documents and make sure the same people named two decades ago are still the ones you want to receive your assets on death.

Finally, talk with loved ones about your legacy and your wishes. Let them know that an estate plan exists and you’ve given time and thought to what you want to happen when you die. There’s no need to give exact amounts. However, a bird’s eye view of your plan will help establish expectations.

If naming beneficiaries is challenging because of a complex situation, your estate planning attorney will be able to help as a sounding board or with estate planning strategies to accomplish your goals.

Reference: The Chattanoogan (Dec. 6, 2021) “Five Mistakes To Avoid When Naming Beneficiaries”