Estate Planning Blog Articles

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

Cornelius Vanderbilt Created an Estate Plan, but Should I?

AJC’s recent article entitled “Why Vanderbilts should inspire you to create an estate plan” explains that when Cornelius Vanderbilt died, his son, William, inherited most of the fortune and nearly doubled it within a decade. However, after that came a drop in the cash, and after just a few decades, the fortune had been spent. Therefore, none of Vanderbilt’s descendants stayed among the wealthiest people in the country.

When 120 Vanderbilt family members recently gathered for a reunion at Vanderbilt University, not one was a millionaire. In a century, the largest estate America has ever known had dwindled to next to nothing.

Let’s look at why this happens and how you can prevent this from happening to your estate.

America is currently in the midst of the greatest transfer of wealth ever. An estimated $59 trillion will be transferred to heirs, charities and taxes between 2007 and 2061. However, roughly 70% of wealth transfers aren’t successful. This means that sometimes heirs get practically nothing. There are three reasons for this failure:

  1. No trust and communication among heirs because they’re all concerned about their share.
  2. Heirs are unprepared to inherit an estate, which may include managing investments or a business. In many cases, other family members don’t know how it works.
  3. Heirs have no clue where the money should go and what purpose it should serve because no one is thinking long term about what is best for the family assets.

It’s common for business owners to believe that an estate plan is enough to keep everything in order, but they don’t consider their business. This is the reason why succession planning is vital. This planning determines what happens to the business itself and lays out the strategy, so it continues to operate smoothly after it’s passed to the heirs.

Let’s look at some tips for dealing with estate planning that should make for a smooth transition:

Create a plan. If you die without a will, state probate law will determine who gets your assets. This may not be what you want. Talk to an experienced estate planning attorney to be certain that everything is drawn up correctly.

Discuss the issues with your heirs. Talk to your family about the financial details. Make sure that your heirs know the details of your estate, so they can start to manage and oversee it once you die.

Get heirs involved in the process. Likewise, heirs can help plan based on their knowledge, future availability and expectations. By planning now, no one will be caught unaware about what to do with the estate.

Ready your heirs. Educate your heirs on how to manage and oversee your assets, especially if you have a succession plan for a business. Discuss the company’s mission and vision, and what you want the company to achieve.

Organize your financial documents. Get all financial documents in a single location and label everything clearly to help out your heirs. Keep this in a safe location, and let your heirs know where it’s located. Your attorney should also have a copy of your will, estate plan and succession plan (if applicable).

Get help from experts. Help forge a relationship between your heirs and your financial team, which may include a financial adviser, an estate planning attorney and an accountant. This will allow your heirs to know who to call, if things get complicated. It’ll also help to prepare them for what they’re supposed to be doing, once they get their inheritance.

Communication is the key. Talking with your experts and your heirs will make certain that everyone understands each other’s roles, regardless of whether it’s a small business or a multimillion-dollar empire.

Reference: AJC (Sep. 25, 2020) “Why Vanderbilts should inspire you to create an estate plan”

Caring for a Loved One from a Distance

Trying to coordinate care from a distance becomes a challenge for many, especially since as many as 80% of caregivers are working. Add COVID-19 into the mix, and the situation becomes even more difficult, reports the article “When your parent is far away and you are trying to care for them” from the Pittsburgh Post-Gazette.

The starting point is to have the person you are caring for give you legal authorization to act on their behalf with a Power of Attorney for financial affairs and a Health Care Directive that gives you authority to receive health information under HIPAA (Health Insurance Portability and Accountability Act). It is HIPAA that addresses the use, disclosure and protection of sensitive patient information.

Next, have a conversation about their finances. Find out where all of their important documents are, including insurance policies (long-term care, health, life, auto, home), Social Security and Medicare cards. You’ll want to know where their tax documents are, which will provide you with information on retirement accounts, bank accounts and investments.

Gather up family documents, including birth, death, and marriage certificates. Make sure your loved one has completed their estate planning, including a last will and testament.

Put all of this information into a binder, so you have access to it easily.

Because you are far from your loved one, you may want to set up a care plan. What kind of care do they have in place right now, and what do you anticipate they may need in the near future? There should also be a contingency plan for emergencies, which seem to occur when they are least expected.

Find a geriatric care manager or a social worker who can do a needs assessment and help coordinate services, including shopping for groceries, medication administration and help with basic activities of daily living, including bathing, toileting, getting in and out of bed, eating and dressing.

If possible, develop a list of neighbors, friends or fellow worshippers who might create a local support system. If you are not able to visit with any degree of frequency, find a way to see your loved ones on a regular basis through video calls. It is impossible to accurately assess a person’s well-being, without being able to see them. In the past, dramatic changes weren’t revealed until family members made a trip. Today, you’ll be able to see your loved one using technology.

You may need to purchase a smartphone or a tablet, but it will be worth the investment. A medical alert system will provide further peace of mind for all concerned. Regular conference calls with caregivers and your loved one will keep everyone in touch.

Caring from a distance is difficult, but a well-thought out plan and preparing for all situations will make your loved one safer.

Reference: Pittsburgh Post-Gazette (Sep. 28, 2020) “When your parent is far away and you are trying to care for them”

Protect Your Estate with Five Facts

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

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

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

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

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

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

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

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

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

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

 

What Does Research Say about Senior Well-Being and Living Space Design?

Design’s Impact on Seniors’ Perceptions of Wellness from New York-based architecture firm Perkins Eastman, reviewed the responses of 540 older adults living in three West Coast senior living communities to see how they looked at their own physical, social/emotional and intellectual wellness.

McKnight’s Senior Living’s recent article entitled  “90% of senior living residents say design integral to well-being: study” explains that the study started many years before the impact of COVID-19 on the senior living sector. It included responses from residents living in three life plan communities, also known as continuing care retirement communities: MonteCedro in Altadena, CA; Spring Lake Village in Santa Rosa, CA; and Rockwood Retirement Communities in Spokane, WA. The three communities were chosen due to their focus on whole-person wellness and specific design strategies to support that objective.

The residents of these communities completed questionnaires between 2015 and 2017 at certain points of pre-construction, post-construction, and occupancy. The study looked at these wellness strategies used by designers:

  • Autonomy, control and choice
  • Design in variety
  • Promotion of use through location and access
  • Patterns of movement
  • Natural connections
  • Touch of serendipity
  • Degrees of privacy
  • Layers of light
  • Sensory experiences; and
  • Feelings of home.

The results showed that more than 90% felt that design strategies used in their communities were essential to their overall well-being. Research showed that residents’ perceptions of wellness positively increased or held steady after they began using new or renovated spaces in their communities. The aspects that exhibited the most improvement in physical wellness in all communities was access to physical wellness resources and exercising regularly.  In addition, social/emotional wellness, access to resources, a strong support system, and a sense of connection and belonging also improved across all three communities.

The residents’ access to intellectual wellness resources were seen as better, and there were more opportunities for residents to expand their knowledge and explore the creative arts.

The authors of the study said the design strategies in the study should be a “starting point” upon which designers and providers can expand, while developing more strategies and approaches to support “whole-person wellness”.

Reference: McKnight’s Senior Living (Sep. 8, 2020) “90% of senior living residents say design integral to well-being: study”

Does My Estate Plan Need an Audit?

You should have an estate plan because every state has statutes that describe how your assets are managed, and who benefits if you don’t have a will. Most people want to have more say about who and how their assets are managed, so they draft estate planning documents that match their objectives.

Forbes’ recent article entitled “Auditing Your Estate Plan” says the first question is what are your estate planning objectives? Almost everyone wants to have financial security and the satisfaction of knowing how their assets will be properly managed. Therefore, these are often the most common objectives. However, some people also want to also promote the financial and personal growth of their families, provide for social and cultural objectives by giving to charity and other goals. To help you with deciding on your objectives and priorities, here are some of the most common objectives:

  • Making sure a surviving spouse or family is financially OK
  • Providing for others
  • Providing now for your children and later
  • Saving now on income taxes
  • Saving on estate and gift taxes in the future
  • Donating to charity
  • Having a trusted agency manage my assets, if I am incapacitated
  • Having money for my children’s education
  • Having retirement income; and
  • Shielding my assets from creditors.

Speak with an experienced estate planning attorney about the way in which you should handle your assets. If your plan doesn’t meet your objectives, your estate plan should be revised. This will include a review of your will, trusts, powers of attorney, healthcare proxies, beneficiary designation forms and real property titles.

Note that joint accounts, pay on death (POD) accounts, retirement accounts, life insurance policies, annuities and other assets will transfer to your heirs by the way you designate your beneficiaries on those accounts. Any assets in a trust won’t go through probate. “Irrevocable” trusts may protect assets from the claims of creditors and possibly long-term care costs, if properly drafted and funded.

Another question is what happens in the event you become mentally or physically incapacitated and who will see to your financial and medical affairs. Use a power of attorney to name a person to act as your agent in these situations.

If, after your audit, you find that your plans need to be revised, follow these steps:

  1. Work with an experienced estate planning attorney to create a plan based on your objectives
  2. Draft and execute a will and other estate planning documents customized to your plan
  3. Correctly title your assets and complete your beneficiary designations
  4. Create and fund trusts
  5. Draft and sign powers of attorney, in the event of your incapacity
  6. Draft and sign documents for ownership interest in businesses, intellectual property, artwork and real estate
  7. Discuss the consequences of implementing your plan with an experienced estate planning attorney; and
  8. Review your plan regularly.

Reference: Forbes (Sep. 23, 2020) “Auditing Your Estate Plan”

Does Your Estate Plan Include Digital Property Protection?

One of the challenges facing estate plans today is a new class of assets, known as digital property or digital assets. When a person dies, what happens to their digital lives? According to the article “Digital assets important part of modern estate planning” from the Cleveland Jewish News, digital assets need to be included in an estate plan, just like any other property.

What is a digital asset? There are many, but the basics include things like social media—Facebook, Instagram, SnapChat—as well as financial accounts, bank and investment accounts, blogs, photo sharing accounts, cloud storage, text messages, emails and more. If it has a username and a password and you access it on a digital device, consider it a digital asset.

Business and household files stored on a local computer or in the cloud should also be considered as digital assets. The same goes for any cryptocurrency; Bitcoin is the most well-known type, and there are many others.

The Revised Uniform Fiduciary Access to Digital Assets Act (RUFADAA) has been adopted by almost all states to provide legal guidance on rights to access digital assets for four (4) different types of fiduciaries: executors, trustees, agents under a financial power of attorney and guardians. The law allows people the right to grant not only their digital assets, but the contents of their communications. It establishes a three-tier system for the user, the most important part being if the person expresses permission in an online platform for a specific asset, directly with the custodian of a digital platform, that is the controlling law. If they have not done so, they can provide for permission to be granted in their estate planning documents. They can also allow or forbid people to gain access to their digital assets.

If a person does not take either of these steps, the terms of service they agreed to with the platform custodian governs the rights to access or deny access to their digital assets.

It’s important to discuss this new asset class with your estate planning attorney to ensure that your estate plan addresses your digital assets. Having a list of digital assets is a first step, but it’s just the start. Leaving the family to fight with a tech giant to gain access to digital accounts is a stressful legacy to leave behind.

Reference: Cleveland Jewish News (Sep. 24, 2020) “Digital assets important part of modern estate planning”

What Estate Planning Documents Do I Need for a Happy Retirement?

Estate planning documents are made to help you and your family, in the event of your untimely demise or incapacitation.

These documents will give your family specific instructions on how to proceed.

The Winston-Salem Journal’s recent article entitled “4 Must-Have Documents for a Peaceful Retirement” looks at these critical documents in constructing an effective estate plan.

  1. Power of Attorney (POA). If you become incapacitated or become unable to make your own financial decisions, a POA will permit a trusted agent to manage your affairs. Have an estate planning attorney review your POA before it’s executed. You can give someone a limited POA that restricts their authority to specific transactions. You can also create a springing POA, which takes effect only at the time of your incapacitation.
  2. Will. About 40% of Americans actually have a will. Creating a valid will prevents you from leaving a mess for your heirs to address after you die. A will appoints an executor who will manage your affairs in a fiduciary manner. The will also details your plan for the distribution of your property. Make certain that your will is also in agreement with other documents you’ve set up, so it doesn’t create any questions.
  3. TOD/POD Designation Forms. A Transfer-on-Death (TOD) or Payable-on-Death (POD) designation lets you to assign your investment accounts to a named beneficiary. The big benefit here is that accounts with a named TOD/POD beneficiary pass directly to that person when you die. Any accounts without a TOD/POD beneficiary will be subject to the terms of your will and will be required to go through the probate process.
  4. Healthcare POA/Advance Directives. These are significant health-related documents. A healthcare POA allows your named agent to communicate your wishes to medical professionals, if you are unable. They also include instructions as to whether you want to have life-saving measures performed, if you have a cardiac or respiratory arrest. These healthcare documents also remove the need for your family to make difficult decisions for you.

Reference: Winston-Salem Journal (Sep. 20, 2020) “4 Must-Have Documents for a Peaceful Retirement”

Should I Cash in My Life Insurance Policy?

Investopedia’s recent article entitled “Cashing in Your Life Insurance Policy” explains that there are some drawbacks to using life insurance to meet your immediate cash needs—one of which is potentially compromising your long-term goals or your family’s financial future. However, if other options aren’t available, life insurance—especially cash-value life insurance—can be a good source of needed income.

Cash-value life insurance, like whole life and universal life, builds reserves in its excess premiums plus earnings. The deposits are held in a cash-accumulation account within the policy. These cash-value life insurance policies offer the chance to access cash savings within the policy through withdrawals, policy loans, or partial or full surrender of the policy. Another option is to sell your policy for cash, which is called a life settlement.

While cash from the policy might be useful during stressful financial times, you could face unwanted consequences, depending on the way you use to access the funds. You can generally withdraw limited amounts of cash from a life insurance policy. The amount you can take differs, based on the type of policy you have and the carrier. The big advantage of cash-value withdrawals is they’re not taxable up to your policy basis, provided your policy isn’t classified as a modified endowment contract (MEC). That’s a term given to a life insurance policy, where the funding exceeds federal tax law limits.

You should also note that cash-value withdrawals can have some unexpected or unrealized consequences. For one, the withdrawals that decrease your cash value could reduce your death benefit, which is a potential source of funds you or your family might need for income replacement, business purposes, or wealth preservation.

Cash-value withdrawals aren’t always tax-free, like when you take a withdrawal during the first 15 years of the policy, and the withdrawal causes a reduction in the policy’s death benefit. If so, some or all of the withdrawn cash could be subject to taxation. The withdrawals that reduce your cash surrender value could also make your premiums go up to maintain the same death benefit. Otherwise, your policy could lapse.

If your policy has been classified as a modified endowment contract, the withdrawals generally are taxed pursuant to the rules applicable to annuities. The cash disbursements are considered to be made from interest first and are subject to income tax and possibly a 10% early-withdrawal penalty, if you’re under the age of age 59½, when you take out the funds.

Most cash-value policies let you borrow money from the issuer, using your cash-accumulation account as collateral. The amount you can borrow depends on the value of the policy’s cash-accumulation account and the contract’s terms. The borrowed amounts from non- modified endowment contract policies are not taxable, and you don’t have to make payments on the loan, even though the outstanding loan balance might be accruing interest. However, loan balances typically decrease your policy’s death benefit. Therefore, your beneficiaries might receive less than you intended. An unpaid loan accruing interest also reduces your cash value. This can cause the policy to lapse, if insufficient premiums are paid to maintain the death benefit. If the loan is still outstanding when the policy lapses or if you later surrender the insurance, the borrowed amount becomes taxable to the extent the cash value (without reduction for the outstanding loan balance) exceeds your basis in the contract.

Policy loans from a policy that’s seen as a MEC are treated as distributions. As a result, the amount of the loan up to the earnings in the policy will be taxable and could also be subject to the pre-59½ early-withdrawal penalty. Note that withdrawing money or borrowing money from your policy can reduce your policy’s death benefit. Surrendering the policy also means that you’re giving up the right to the death benefit altogether.

When you surrender or cancel your policy, you can use the cash any way you want. However, if you surrender the policy during the early years of ownership, there will probably be surrender fees that will drop the cash value. The gain on the surrendered policy is also taxed. If you have an outstanding loan balance against the policy, additional taxes could be incurred.

Look at other options before using your life insurance policy for cash, like borrowing against your 401(k) plan or taking out a home equity loan. Each has its drawbacks, but based on your current financial circumstances, some choices are better than others.

As the policy owner, if you sell your life insurance policy to an individual or a life settlement company in exchange for cash, the new owner will keep the policy in force (and pay the premiums). They’ll also get a return on the investment, by receiving the death benefit when you die. The big advantage to a life settlement is that you may receive more for the policy than by cashing it in (surrendering the policy). While life settlements can be a valuable source of liquidity, remember these issues:

  • You relinquish control of the death benefit
  • The new policy owner(s) has access to your past medical records and usually the right to request updates on your health; and
  • The life settlement industry is very marginally regulated, so it’s hard to determine your policy’s value, which makes it tough to know if you’re getting a fair price for your policy.

Up to 30% of your proceeds may also go to commissions and fees, which reduces the net amount you receive.

Reference: Investopedia (Aug. 11, 2019) “Cashing in Your Life Insurance Policy”

Can Senior Care Facilities Use ‘Granny Cams’?

A bill in Georgia that would permit residents in assisted living communities and personal care homes to install electronic monitoring equipment in their rooms has been met with resistance. There are some members of the long-term care industry the oppose HB 849, so-called “granny cam” legislation due to privacy issues. The legislation—which also covers nursing homes—was introduced by state representative Demetrius Douglas (D-Stockbridge). Douglas contends that the technology is needed now more than ever.

Several states have similar laws.

McKnight’s Senior Living’s recent article entitled “Georgia Legislature blocks ‘granny cam’ legislation; industry reps raised concerns” reports that Tony Marshall, president and CEO of the Georgia Health Care Association, says he previously spoke with Douglas and other legislators about the granny cam bill and his concerns. He said concerns were also shared by the state ombudsman and various advocacy groups.

“Surveillance cameras observe — they do not protect — and the use of such cameras in a healthcare setting significantly increases the risk of violating HIPAA [Health Insurance Portability and Accountability Act], federal and state privacy regulations,” Marshall told McKnight’s Senior Living. “We also have concerns related to several other technical aspects of the bill.”

Marshall also noted that the Georgia Health Care Association supports “transparency and measures to ensure that the highest quality of care is being provided to elderly Georgians,” while also “valuing a home-like setting and honoring each resident’s dignity and right to privacy.”

He said his association believes that true quality improvement happens by collaborative efforts with legislators and other players to bolster the ability of nursing centers to recruit and retain a skilled, competent workforce. This also will “further programs designed to educate healthcare professionals, consumers and communities-at-large on abuse prevention and identification,” Marshall said.

The bill allows electronic monitoring equipment to be put in a resident’s rooms in assisted living communities, personal care homes, skilled nursing facilities and intermediate care homes. The resident would be required to provide written consent from any roommate and notify the facility before installing a device. A sign must also to be posted to let visitors and staff members know about the granny cam. The facility also wouldn’t be permitted to access any video or audio recording from the resident’s device.

Douglas said the pandemic has shown the need for cameras and noted that other states have adopted similar measures, according to the Atlanta Journal-Constitution. The state legislator remarked that he introduced the legislation after being contacted during the lockdown by family members, who said they weren’t told about outbreaks or immediately told when an elderly family member died.

There are six states—Minnesota, Missouri, North Dakota, Oklahoma, South Dakota, Texas, and Utah—that have laws requiring assisted living communities to accommodate resident requests to install electronic monitoring equipment in their rooms.

New Jersey also has a “Safe Care Cam” program that loans such equipment to healthcare consumers, including families of assisted living and nursing home residents.

Reference: McKnight’s Senior Living (Sep. 15, 2020) “Georgia Legislature blocks ‘granny cam’ legislation; industry reps raised concerns”