What Is the Biggest Mistake People Make on Their Wills?

Making mistakes in your estate planning can torpedo every effort made to protect your family after you die, warns a recent article from Kiplinger, “Common Estate Planning Mistakes.” Everyone benefits from a professionally-made comprehensive estate plan, a process for preparing your legal and financial affairs so assets and possessions are passed on after your death to the people or charities you want.

Not having an estate plan can create a world of trouble for those you love. The biggest estate planning mistake of all is not having an estate plan. After that, there are several others.

Procrastination. Suppose you unexpectedly become incapacitated and don’t have an estate plan. In that case, your family will be left guessing what you would want your medical care to be, in addition to needing to go to court to apply for guardianship so they can pay your bills and keep your household running. Everyone should have documents like Health Care Power of Attorney, Power of Attorney, HIPAA Release Form and Living Will in place.

Trying to make an estate plan on your own. Unless you’re an experienced estate planning attorney, there’s a lot you could leave out if you attempt a DIY estate plan. If there are errors, a court could declare your will invalid and it’s as if you never had a will in the first place. The laws of your state will be used to distribute your assets. It may not be what you had in mind.

Keeping estate planning documents in a safe or safe deposit box. Documents need to be where someone can get them in an emergency or after your passing. Safety deposit boxes are often sealed on the death of the owner. Give copies of your estate plan to your appointed executor or trustee, a trusted family member and your estate planning attorney.

Missing key documents. If your estate plan lacks key documents, your heirs might find themselves battling over the estate. Make sure your estate plan includes these documents:

Last will and testament—This document outlines all final wishes and instructions for distributing your assets and how you want your affairs managed after you die. It also is used to name a guardian for minor children and an executor to oversee the instructions in the will.
Beneficiary designations—Any account allowing for beneficiaries, including IRAs, pension plans, investment accounts and insurance policies, will pass directly to named beneficiaries. Be sure that these are up to date.
Durable power of attorney for medical care—Allows another person to make medical decisions for you if you become incapacitated. Depending on your jurisdiction, it may include an advanced healthcare directive, which gives your instructions on whether or not to use life support.
Funeral instructions—Do you want a traditional burial? Cremation? Tell your family your wishes for a funeral or memorial service.
Proof of identity—Your Social Security card, birth certificate, marriage and/or divorce certificate and any prenuptial agreements will be needed for administering the estate.
Deeds or loan documents for large assets—Collect paperwork for homes, boats and other big assets.

Digital assets. These include websites, cloud storage, social media accounts and cryptocurrency, to name a few. By assigning a digital fiduciary and sharing key information, you help heirs avoid identity theft and lost assets.

Failing to update your plan. Your estate plan needs to reflect the changes in your life. If your estate plan is outdated, you may unintentionally disinherit beneficiaries.

Appointing the wrong person as executor or trustee. If your eldest child is a disaster with money management, don’t name them your executor. Consider a trusted person who is unbiased and able to manage money and family dynamics and talk with them about taking on this role before appointing them to this critical role.

Reference: Kiplinger (Dec. 30, 2023) “Common Estate Planning Mistakes”

What’s the Age Cut-Off for a Roth IRA?

Roth IRAs aren’t just for young people, as long as you meet the criteria regarding income, how much you may contribute and when you’re eligible for penalty-free withdrawals. A recent article, “Are You Too Old to Benefit From a Roth IRA?” from U.S. News & World Report, explains the benefits and requirements for older workers considering a Roth IRA.

Requirements for a Roth IRA

Once you meet the qualifications, you can add funds to a Roth IRA at any age. In 2024, the contribution limit Is $7,000 or $8,000 if you’re 50 or older. The account must be open for at least five years to take penalty-free withdrawals in retirement. If you take funds out early, you could face penalties, and contributions to a Roth IRA may only be made from earned income.

A single person may add funds to a Roth IRA if they earn up to $146,000. After that, the amount you may contribute is phased out until income reaches $161,000, after which you can’t add funds directly to the account. For married couples, the income threshold is less than $230,000.

Roth IRA Tax Benefits

Funds are taxed before they go into a Roth IRA account, giving the advantage of the account the tax-free distributions of contributions and earnings. In addition to the five-year rule, you’ll need to meet these eligibility requirements:

The original owner dies, and you inherit the Roth IRA.
The owner is at least 59 ½ years old.
The owner meets disability requirements.
The distribution is used for first-time homeowner expenses of up to $10,000.

Age Considerations

If you’re in your 70s and still working, there are some facts to consider before opening a Roth IRA. The tax-free growth of Roth IRAs works best as the holding period increases. The up-front tax costs may be very high if you’re in your highest income level and a higher tax bracket. This makes a Roth IRA more advantageous for younger contributors. However, if you work part-time, your lower taxable income might make the Roth IRA an excellent way to save.

Passing Funds to Heirs

With traditional IRAs or 401(k)s, Required Minimum Distributions start at a certain age, usually after celebrating your 73^rd birthday. However, there are no RMDs for Roth IRAs, and the funds remaining in the account after you die could be passed on tax-free. Beneficiaries may inherit the Roth IRA while allowing it to grow tax-deferred for up to ten years, then take the money without paying taxes.

Opening a Roth IRA later in life should be coordinated with your overall retirement and estate plan to be sure it works in concert with your overall estate plan. When reviewing your estate plan, it’s something to discuss with your estate planning attorney.

Reference: U.S. News & World Report (Dec. 29, 2023) “Are You Too Old to Benefit From a Roth IRA?”

How Do You Plan a Business Succession?

When business owners die without estate or succession plans, chaos ensues as family members clash over leadership decisions and determining the direction of the business. Even the closest families can quickly descend into a battlefield of hurt feelings, endless arguments and faction-building, according to the article “How to Make Your Business Outlive You” from next avenue.

Family disagreements often escalate into legal disputes. Lacking leadership, businesses spiral downward and often must be liquidated, leaving behind broken families with severely depleted assets.

This scenario occurs in small businesses on a regular basis. Owners with the vision and tenacity to take their ideas and create a successful enterprise are often so passionate that they can’t imagine the business without them.

A well-defined succession plan matters to more than just the family and their customers. According to the Small Business Association, businesses with less than 500 employees account for 99.9% of all firms in the U.S., 43.5% of the country’s total economic output, and just under 66% of new jobs created. A well-designed succession plan contributes to the national economy,

Having a succession plan in place protects the business and the family from unforeseen circumstances and creates a roadmap for the future. What is the best time to start? When all is well, leaders are healthy and there’s no internal drama.

Start by contemplating your legacy. How do you want your family and employees to benefit from the value created by the business? Clarifying this will drive much of what follows.

Seek professional guidance. An estate planning attorney should be one of several professionals to ensure that the plan complies with laws and regulations in your jurisdiction. You also want to be sure your business succession plan aligns with your estate plan. Otherwise, the resulting confusion could lead to prolonged difficulties and even litigation.

You’ll need a power of attorney for someone to be able to make decisions if the business owner becomes incapacitated. A buy-sell agreement establishes a fair market value for the company. Life and disability insurance policies provide financial security for the owner and key personnel.

Put it in legally enforceable documents. Discussions only go so far. Executing a formal series of documents ensures that the plan will be enforceable by a court if needed. Language should be clear, with no ambiguity, to transfer ownership and business shares.

Potential successors need to be identified. Will everyone step up to the next level if the business owner becomes incapacitated or dies? This isn’t always the best solution. Sometimes, skills override structure.

Reviewing and updating the business plan should be done as often as you update an estate plan. Whenever there is a major event in the business, review the plan to see if it is still relevant.

A succession plan is all about legacy, continuity, safeguarding a business, letting employees know they are valued and reducing volatility in the family’s future. It allows the business owner to communicate their values and vision, even if they are not present to be part of the future.

Reference: next avenue (Dec. 12, 2023) “How to Make Your Business Outlive You”

What Should I Do to Get My Affairs in Order?

Estate planning is one of the most important tasks you can do for your family. It has many different steps. Using a checklist can help be sure your wishes are met and simplify the process for loved ones, according to an article from Forbes, “Estate Planning Checklist: Get Your Affairs In Order.” Every plan is different. However, there are several primary steps everyone needs to take to protect their future and secure their legacy.

Identifying What Needs to Happen to Protect Wealth: Asset protection is crucial to estate planning. One way to do this is to create a Medicaid protection plan. Nursing home care is expensive and not covered by Medicare or other medical insurance, except in very limited situations. Medicaid does cover custodial care in a nursing home. However, you need limited assets to qualify. A Medicaid plan helps ensure that you can access care while protecting wealth. Ask your estate planning attorney about a Medicaid Asset Protection Trust.

You may also need to protect assets against creditor claims, be sure an irresponsible heir doesn’t burn through any inheritance, or take steps to limit or avoid estate taxes. All of these can be accomplished with the help of an experienced estate planning attorney.

Consider Your Heirs and Their Needs: You may face unique circumstances impacting the people who inherit your wealth or your ability to provide for them. For instance, a direct inheritance could jeopardize their eligibility if your family includes a special needs individual who receives government benefits such as Supplemental Security Income (SSI) or Medicaid. You may need to have a Special Needs Trust (SNT) created.

Other issues to consider when creating your estate plan include leaving money or other assets to minor children not old enough to inherit or manage funds or leaving money to someone you don’t trust to manage it. By thinking about who you wish to provide for, you can make informed choices about the strategies and tools used to create your estate plan.

A Plan to Transfer Assets: Once you’ve clarified your heirs’ needs and any potential threats to your wealth, you’ll be better positioned to create an estate plan to facilitate the transfer of your property to the people or charities you want after death.

Your estate plan will likely include the following:

A last will and testament.
Pay-on-death accounts.
Jointly owned property.
Revocable Trusts.
Irrevocable Trusts.

Prepare for Incapacity: Preparing for possible incapacity should be a key part of your estate planning checklist. This includes:

Creating a durable power of attorney—to allow someone of your choosing to act on your behalf in managing assets and making decisions for you.
Naming a healthcare proxy—giving someone the power to make medical decisions for you.
Creating a living will—allowing you to convey your wishes for medical care regarding being kept alive by artificial means.

Address Other Issues: If you have minor children, your will is used to name a guardian. You may also mention your pets and designate a person to care for them and arrange financial support for their lifetime. You can also include instructions for your funeral, although the will may not be reviewed for a while after your passing. Talk with your estate planning attorney about how to best handle this in your jurisdiction.

Reference: Forbes (Dec. 25, 2023) “Estate Planning Checklist: Get Your Affairs In Order”

Can Grandparents Give Money to Grandchildren for College?

Helping grandchildren prepare for long-term success and easing the financial burden of college costs is a gift for two generations, as mentioned in a recent article from Kiplinger, titled “529 Plans: Give the Gift of Education (and Compounding).”

Giving cash directly to children or parents isn’t the best long-term strategy. Once the money is given, control is surrendered, and the gift may not be used as intended by the giver. Saving for college is one of the significant financial challenges parents face, especially considering the high inflation of college tuition costs. Between 2021 and 2022, U.S. college tuition rates increased by 12%.

This is where estate planning intersects with the new year. As the current historically high estate tax exemption ends at the end of 2025, managing the size of one’s estate becomes a higher priority. The structure of 529 college savings accounts can be used for tax efficiency and to control the eventual use of the gift while taking advantage of long-term compounding.

Current gift tax rules allow individuals to gift up to $18,000 per year per person. Therefore, a married couple could gift $36,000 to each child and grandchild without it counting against their lifetime exemption or requiring them to file a gift tax return. However, the 529 is even more advantageous, allowing a five-year front-loading of such gifts per recipient.

If your state has a plan, funding 529 plans offers deductions on state income taxes. If your state doesn’t have a 529 plan, you can open an account in another state but won’t receive the tax deduction.

There have always been concerns about overfunding a 529 account or having unused funds if the beneficiary decides not to attend college. Most plans allow account owners to change beneficiaries without any tax consequences as long as the new beneficiary is a member of the current beneficiary’s family. If the new beneficiary is younger than the prior one, it may be wise to change the asset allocation to reflect the new time horizon.

Another common question regards the impact gifting may have on the student’s application for federal aid. While 529 plans owned by parents are considered, 529 plans owned by grandparents are not on the FAFSA (Free Application for Federal Student Aid) form.

Changes to the original 529 structure have rendered these accounts even more valuable. The Tax Cuts and Jobs Act expanded the eligibility of 529 accounts for private and parochial K-12 schools. Then, the SECURE Act allowed 529 funds to be used to pay down up to $10,000 in student debt.

Starting in 2024, the SECURE 2.0 Act allows 529 funds to be rolled over into a Roth IRA at the annual contribution limit up to a lifetime maximum of $35,000 for a beneficiary. The account needs to be open for at least 15 years. Still, having an account grow in a tax-free environment and removing the distribution restrictions presents a valuable new investment tool.

Speak with your estate planning attorney about how to incorporate the benefits of the 529 account into your estate plan to help family members achieve educational goals and plan for estate taxes.

Reference: Kiplinger (Dec. 20, 2023) “529 Plans: Give the Gift of Education (and Compounding)”

What Is the Advantage of a Step-Up Basis for Estates?

The adjustment in the cost basis is sometimes overlooked in estate planning, even though it can be a tax game-changer. Under this tax provision, an inherited asset’s cost basis is determined not by what the original owner paid but by the value of the asset when it is inherited after the original owner’s death.

Since most assets appreciate over time, as explained in the article “Maximizing Inheritance With A Step Up” from Montgomery County News, this adjustment is often referred to as a “step-up” basis. A step-up can create significant tax savings when assets are sold and is a valuable way for beneficiaries to maximize their inheritance.

In most cases, assets included in the decedent’s overall estate will receive an adjustment in basis. Stocks, land, and business interests are all eligible for a basis adjustment. Others, such as Income in Respect of the Decedent (IRD), IRAs, 401(k)s, and annuities, are not eligible.

Under current tax law, the cost basis is the asset’s value on the date of the original owner’s death. The asset may technically accrue little to no gain, depending on how long they hold it before selling it and other factors regarding its valuation. The heir could face little to no capital gains tax on the asset’s sale.

Of course, it’s not as simple as this, and your estate planning attorney should review assets to determine their eligibility for a step-up. Some assets may decrease in value over time, while assets owned jointly between spouses may have different rules for basis adjustments when one of the spouses passes. The rules are state-specific, so check with a local estate planning attorney.

To determine whether the step-up basis is helpful, clarify estate planning goals. Do you own a vacation home you want to leave to your children or investments you plan to leave to grandchildren? Does your estate plan include philanthropy? Reviewing your current estate plan through the lens of a step-up in basis could lead you to make some changes.

Let’s say you bought 20,000 shares of stock ten years ago for $20 a share, with the original cost-basis being $400,000. Now, the shares are worth $40 each, for a total of $800,000. You’d like your adult children to inherit the stock.

There are several options here. You could sell the shares, pay the taxes, and give your children cash. You could directly transfer the shares, and they’d receive the same basis in your stock at $20 per share. You could also name your children as beneficiaries of the shares.

As long as the shares are in a taxable account and included in your gross estate when you die, your heirs will get an adjustment in basis based on the fair market value on the day of your passing.

If the fair market value of the shares is $50 when you die, your heirs will receive a step up in basis to $50. The gain of $30 per share will pass to your children with no tax liability.

Tax planning is part of a comprehensive estate plan, where an experienced estate planning attorney can help you and your family minimize tax liabilities.

Reference: Montgomery County News (Dec. 20, 2023) “Maximizing Inheritance With A Step Up”

Top 5 Estate Planning Nightmares You Can Avoid with a Will

In the realm of estate planning, a common adage rings true: “Failing to plan is planning to fail.” As an experienced estate planning attorney, I’ve witnessed firsthand the turmoil and heartache that can ensue when individuals neglect the crucial step of drafting a will. This blog post is a clarion call to take control of your future and protect your loved ones from the all-too-common nightmares that arise from inadequate estate planning.

Family Disputes and Conflicts

The absence of a will can be the catalyst for family disputes that echo for generations. Imagine a scenario where siblings are torn apart, not by grief, but by the ambiguity of asset distribution. A will acts as a clear voice from beyond, guiding your family during a time of loss and preventing disputes that can irreparably fracture familial bonds.

Unintended Beneficiaries

Imagine your hard-earned assets falling into the hands of a distant relative you barely know, or worse, someone you wouldn’t have chosen to benefit from your estate. This isn’t just a hypothetical situation—it’s a reality for many who pass away without a will. Your will is a beacon, ensuring that your assets find their way into the right hands—those you specifically choose.

Delays and Additional Expenses

The probate process without a will is akin to navigating a ship through a storm without a compass. The journey is longer, fraught with legal complexities, and often more costly. By drafting a will, you provide a map that steers your estate through the probate process swiftly and efficiently, sparing your loved ones from unnecessary financial and emotional burdens.

Loss of Control Over Asset Distribution

Without a will, you relinquish control over who inherits your assets. State laws, devoid of personal sentiment, take the helm. This loss of control is especially critical if you have minor children or dependents whose future you wish to secure. A will is your tool to ensure that your specific wishes for your children’s guardianship and the distribution of your assets are honored.

Increased Legal Challenges

An estate without a will is fertile ground for legal disputes. These battles can drain your estate’s resources and leave your loved ones embroiled in legal quagmires. A well-crafted will is a shield, protecting your estate from the arrows of litigation and providing a solid legal foundation that upholds your wishes.

In conclusion, the nightmares of estate planning can be easily avoided by drafting a will. It is a fundamental step in ensuring your peace of mind and the well-being of your loved ones. Remember, a will is more than just a document; it’s a testament to your life, wishes, and legacy.

Don’t let indecision today lead to turmoil tomorrow. I invite you to take the first step in securing your legacy and safeguarding your family’s future. Contact me for a free consultation to discuss your estate planning needs. Together, we can craft a will that reflects your wishes, protects your assets, and provides clarity and comfort to your loved ones in times of need.

Remember, planning today creates peace of mind for tomorrow. Let’s embark on this journey together.

Key Takeaways

Prevent Family Disputes: A will is essential to avoid familial conflicts over asset distribution, ensuring your wishes are clearly understood and respected.
Control Over Beneficiaries: It enables you to designate precisely who receives your assets, preventing unintended beneficiaries from inheriting your estate.
Efficient Probate Process: Drafting a will streamlines the probate process, reducing delays, complexities, and additional expenses for your loved ones.
Guardianship of Dependents: A will allows you to make critical decisions about the future of your minor children or dependents, ensuring they are cared for as per your wishes.
Legal Protection: Having a will minimizes the risk of legal challenges, protects your estate from potential disputes, and preserves its value for your beneficiaries.

Frequently Asked Questions

Why is a will important if I don’t have a large estate?

A will is crucial regardless of the size of your estate. It ensures that your assets are distributed according to your wishes, no matter how modest. It also helps appoint guardians for minor children and can minimize legal complexities for your loved ones.

Can I write my own will, or do I need an attorney?

While writing your own will is possible, consulting an experienced attorney is advisable to ensure that it meets legal requirements and accurately reflects your wishes. An attorney can help avoid common pitfalls that might render your will invalid or ineffective.

What happens if I die without a will?

If you die without a will, your estate will be distributed according to state intestacy laws, which may not align with your personal wishes. This can lead to unintended beneficiaries receiving your assets and complicate matters for your loved ones.

How often should I update my will?

Reviewing and possibly updating your will every 3-5 years or after major life events such as marriage, divorce, the birth of a child, or significant changes in your financial situation is recommended. This ensures your will remains relevant to your current circumstances.

Can a will reduce taxes on my estate?

A well-planned will can help in minimizing estate taxes. An estate planning attorney can guide you in structuring your will and other estate planning tools to maximize tax efficiency and preserve the value of your estate for your beneficiaries.

Don’t Gamble with Your Future: Why Choosing the Right Estate Planning Attorney Matters

Introduction

Estate planning: two words that encapsulate the entirety of your life’s work and the legacy you wish to leave behind. It is a profound yet often misunderstood aspect of personal finance and legal preparedness. As an experienced estate planning attorney, I’ve seen firsthand the turmoil and heartache resulting from inadequate or nonexistent estate plans. This post aims to illuminate the crucial role of a skilled estate planning attorney in securing your future and the well-being of your loved ones.

Understanding Estate Planning

Estate planning is not merely drafting a will; it’s a comprehensive approach to managing your assets, health directives, and your legacy after you pass away or if you become incapacitated. Common misconceptions, such as the notion that estate planning is only for the wealthy or that it can be postponed until later in life, often deter people from taking the necessary steps. In reality, estate planning is a vital process for everyone, regardless of the size of their estate.

The Risks of DIY Estate Planning

In the era of do-it-yourself solutions, it’s tempting to cut corners and opt for online templates for estate planning. However, this approach is fraught with risks. Personalized advice is crucial since every individual’s situation is unique. DIY estate plans often fail to account for state-specific laws, complex family dynamics, or future changes in assets. Real-life cases abound where such oversights have led to legal battles, unintended disinheritance, or significant tax burdens for heirs.

The Value an Estate Planning Attorney Adds

A dedicated estate planning attorney brings a wealth of knowledge and experience. We don’t just draft documents; we craft a plan tailored to your specific needs, considering intricate legal frameworks and tax implications. Our expertise ensures your estate plan is robust, flexible, and up-to-date with current laws. Furthermore, we navigate the emotional and complex aspects of estate planning, offering peace of mind that your affairs are in competent hands.

What to Look for in an Estate Planning Attorney

When seeking an estate planning attorney, consider the following:

Experience and Expertise: Seek attorneys with significant experience in estate planning. They should have a strong track record in handling cases similar to yours.
Communication Skills: Your attorney should be someone you can talk to openly and who can explain complex legal concepts in understandable terms.
Reputation and Reviews: Research their reputation. Online reviews and referrals from friends or financial advisors can be valuable resources.

The Process of Working with an Estate Planning Attorney

Working with an estate planning attorney typically involves:

Initial Consultation: Discussing your goals, family dynamics, and financial situation.
Document Preparation: Drafting wills, trusts, powers of attorney, and other necessary documents.
Regular Updates: Estate plans should evolve with your life changes. Periodic reviews are essential.

This process is not a one-time event but an ongoing relationship to ensure your estate plan remains relevant and effective.

Financial and Emotional Benefits of Proper Estate Planning

A well-constructed estate plan offers significant benefits:

Financial Savings: Minimize taxes, avoid probate costs, and prevent legal disputes.
Peace of Mind: Knowing your loved ones will be cared for and your wishes will be honored.

These benefits extend beyond the financial; they offer a sense of security and clarity for you and your family.

Key Takeaways

Estate Planning is Essential for Everyone: It’s not just for the wealthy; everyone should have a plan to manage their assets and health directives.
DIY Comes with Risks: Online templates and DIY solutions are often insufficient and may lead to legal complications.
Professional Guidance is Key: An experienced estate planning attorney can provide tailored advice and ensure your plan is legally sound and up-to-date.
Choose the Right Attorney: Look for experience in estate planning, strong communication skills, and positive client reviews.
Ongoing Process: Estate planning is not a one-time task. It should be reviewed and updated regularly to reflect life changes.

Frequently Asked Questions

Why can’t I just use an online template for my will?

Online templates are generic and may not adequately address your specific needs or comply with state-specific laws. An estate planning attorney can provide a customized plan considering your unique situation and legal requirements.

At what age should I start thinking about estate planning?

It’s wise to start estate planning when you have any significant assets or responsibilities, such as owning a home, having children, or starting a business. It’s never too early to start planning for the future.

How often should I update my estate plan?

You should review and possibly update your estate plan every 3-5 years or sooner if you experience significant life changes like marriage, divorce, the birth of a child, or substantial changes in your financial situation.

What happens if I don’t have an estate plan?

Without an estate plan, the distribution of your assets will be determined by state laws, which may not align with your wishes. This can lead to family disputes, unnecessary taxes, and legal complications.

Is estate planning only about distributing my assets?

No, it’s more than that. Estate planning also includes making arrangements for your healthcare decisions if you become incapacitated, designating guardians for minor children, and potentially reducing taxes and other expenses.

What’s the Best Way to Manage an Inheritance?

Inheriting wealth comes with its own set of challenges and emotions, whether it’s a modest amount or a significant amount. A recent article from Kiplinger, “Three Essential Strategies for Managing Your Inheritance,” explains three key considerations to help manage an inheritance responsibly.

Understanding tax implications. Taxes take a bite out of inherited wealth and require the help of an experienced estate planning attorney to guide you through the maze of taxes. The type of assets inherited, and the laws of your state will affect tax liabilities. For the most part, life insurance proceeds are tax-free. However, inherited retirement accounts, including traditional IRAs or 401(k)s, are not.

When the asset inherited is real property, there may be a benefit from a step-up in basis, which can minimize capital gains taxes if the decision is made to sell the property.

Federal estate tax exemptions are still extremely high. However, there may be state estate taxes or inheritance taxes to consider.

Confusion about taxes often occurs because the rules differ for diverse asset types. Inherited IRAs, for instance, may be taxed heavily if the withdrawals are not appropriately managed. Understanding the rules makes all the difference.

Investing? Act wisely. Sudden wealth often causes people to act irresponsibly. It’s tempting to take a risk with investments. However, wealth can evaporate very quickly if not managed with care and prudence. Before making any big financial decisions, evaluate your overall financial picture. Wealth may be best used to pay off debt, invest and save for the future.

If you don’t have an emergency fund, this is the time to establish one, enhance retirement savings and rid yourself of any debt. You’ll want to chart a course to balance growth with wealth preservation.

Make a long-term plan for the future. A large inheritance can substantially impact your life goals and retirement plans. It’s an excellent opportunity to reassess your finances and consider making adjustments. Is early retirement your goal? Are there charitable causes you’d like to support? If you have or plan to have children, could your inheritance be used for their college education?

An inheritance is also a time to ensure that your estate plan is in place. This includes trusts, wills and health care directives to manage and protect your wealth. An inheritance of any size requires estate planning to protect yourself and your family.

Estate planning goes beyond having a will. It’s about ensuring assets are distributed according to your wishes. Trusts are excellent tools for managing wealth and allow for control over how assets are used by future generations, in addition to providing tax benefits and creditor protection.

If you’re navigating an inheritance, take time to plan before you act. You’ll want to make wise choices to honor the legacy behind the inheritance while creating your own legacy.

Reference: Kiplinger (Dec. 8, 2023) “Three Essential Strategies for Managing Your Inheritance”

What Questions Should You Ask an Estate Planning Attorney?

To protect assets and health during life and facilitate a smooth transition of assets to loved ones after your death, an estate plan needs to address many different issues. This includes the laws of asset distribution in your state of residence, potential transfer taxes and costs and strategies required to expedite and simplify succession issues. A recent article from mondaq, “Four Questions To Ask Your Estate Planning Attorney,” explains key points to cover with your estate planning attorney.

How do assets pass after death? Some assets pass through the will, but not all. It depends upon where you live, where your assets are situated, what kind of assets they are and how they are titled. State law governs how assets are conveyed after death, so consulting with an estate planning attorney in your estate is critical to creating a successful plan.

If you live in a community property state, your property will pass to the surviving spouse, who is deemed to own one-half of the community property. In these states, one cannot leave more than half of their property through a will, as you only own half.

There may be rules in your area restricting asset transfers. Some states have forced heirship rules, which require a certain percentage of assets to be distributed to a spouse or children, while others have “elective share” rights for surviving spouses. This allows the spouse to elect to take a sizable portion of their deceased spouse’s assets.

What legal documents make up an estate plan? There are two categories of estate planning documents: those used during your lifetime and those used after you die. During your lifetime, you’ll need a healthcare proxy to permit another person to make medical decisions for you. A Power of Attorney allows an agent to make financial and legal decisions on your behalf. Without these documents, your family may need to apply to the court for guardianship, which is an arduous process.

Everyone needs a will and/or trust to transfer assets after death. Lacking a legally enforceable document directing the disposition of assets, they will pass according to the laws of your jurisdiction, which may not follow your wishes. Using a trust to distribute assets combined with a “pour over will” is another approach to minimize court involvement. A pour-over will provides direction for any assets not already in a living trust to be placed into the trust when you die, thus removing assets from your probate estate and allowing them to be distributed according to the terms of the will.

What tax planning needs to be done? Federal, state, inheritance and income taxes vary by state and are subject to change. Consult with an estate planning attorney about what the tax rules are for you and how to accomplish goals in a tax-minded manner. For instance, right now (for 2024), the federal exemption for estate and gift taxes is $13.610 million per person, but this will be cut in half on January 1, 2026, so it may be wise for you to make gifts now. Some states have their own estate taxes, and a few have inheritance taxes, which apply to heirs regardless of where they live.

Have there been any recent changes to the law impacting my estate plan? Changes occur frequently on federal and state levels, making regular updates to estate plans critical to their effectiveness. Your estate plan may not reflect recent tax changes if it is over three to five years old. In addition to tax laws, other laws may significantly impact an estate plan. Regular meetings to review your estate plan with an experienced estate planning attorney could also prevent your will from being declared invalid by the court, when your estate will be treated as if there was no will and the state’s laws will determine how your assets are distributed.

Reference: mondaq (Dec. 18, 2023) “Four Questions To Ask Your Estate Planning Attorney”

Estate Planning Blog Articles

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

Family Disputes and Conflicts

Unintended Beneficiaries

Delays and Additional Expenses

Loss of Control Over Asset Distribution

Increased Legal Challenges

Key Takeaways

Frequently Asked Questions

Why is a will important if I don’t have a large estate?

Can I write my own will, or do I need an attorney?

What happens if I die without a will?

How often should I update my will?

Can a will reduce taxes on my estate?

Introduction

Understanding Estate Planning

The Risks of DIY Estate Planning

The Value an Estate Planning Attorney Adds

What to Look for in an Estate Planning Attorney

The Process of Working with an Estate Planning Attorney

Financial and Emotional Benefits of Proper Estate Planning

Key Takeaways

Frequently Asked Questions

Why can’t I just use an online template for my will?

At what age should I start thinking about estate planning?

How often should I update my estate plan?

What happens if I don’t have an estate plan?

Is estate planning only about distributing my assets?

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