Should My Kids Get an Equal Inheritance?

Equal inheritances have become less common. According to research, the proportion of parents over 50 who reported treating children unequally in their wills rose from 16% to almost 35% between 1995 and 2010.

The News and Record’s recent article, “When Leaving an Unequal Inheritance Makes Sense,” says that leaving unequal inheritances can be risky. A third of Americans say their financial stability depends on receiving an inheritance, and the stakes can be high for siblings — and their parents.

It may be easier to divide your assets evenly among your beneficiaries. Still, you might feel strongly about helping an adult child who’s struggling or want to leave less to a child you’ve already financially supported. One of the most common reasons people leave unequal inheritances is to address uncompensated caregiving from an adult child. A 2018 Merrill Lynch and Age Wave study found that two-thirds of the respondents said that children who have provided care to them in their later years should receive a larger inheritance than those who didn’t.

When a child has had to compromise their lifestyle to care for a parent — such as giving up a job or working part-time instead of full-time — the parent understands the sacrifice and often wants to favor that child with the inheritance. And the Merrill Lynch and Age Wave study says many parents also feel that children who need the money most should get more. That may mean leaving less to relatively well-off kids.

While unequal inheritances are frequently designed to reward children for their help or to ensure kids are left in the best financial condition possible, fights can flare up if one sibling feels that another sibling didn’t “earn” the extra inheritance. Here are a few things that may help reduce any friction:

Explain your wishes. Explain what you’ve decided to leave your heirs and why before it’s too late. Include an estate planning attorney to be sure everyone understands the tax implications and liabilities associated with the assets.
Add a deterrent. Despite your explanation, your heirs may still not agree with your choices and decide to contest the will in probate court. You can discourage this by adding a no-contest clause stipulating, for instance, that anyone who contests the will and loses forfeits the right to any inheritance.
Invest in meaningful relationships. Financial need can certainly motivate a person to contest a parent’s will in court. However, emotional baggage can also have an effect. Sibling resentments can surface at the end of a parent’s life, and a larger inheritance may look like a preference for a “favored” child. The more secure children feel in their relationships with their parents, the more likely they will accept the decision to leave an unequal inheritance.

Reference: News and Record (April 13, 2023) “When Leaving an Unequal Inheritance Makes Sense”

What Should We Do with an Inherited Home?

Inheriting a house with siblings can raise some financial issues about what it means for each of you. Let’s look at some options for handling this situation and possible responses to any differences of opinion that may emerge.

NASDAQ’s recent article, “What to Do When Inheriting a House With Siblings,” says that consulting with an estate planning attorney can help untangle some of the sticky issues that can arise when a home is left to multiple people.

Several siblings can inherit the same piece of property, and when siblings inherit a home, everyone’s typically entitled to an equal share of the property. So, there are a few essential things you might need to do, including:

Putting the utility services in your or your siblings’ names;
Contacting the post office to have your parents’ mail forwarded to your address;
Going through your parents’ belongings;
Taking care of any necessary maintenance or repairs;
Updating payment information for the home’s insurance policy; and
Paying any outstanding charges associated with the home, such as HOA fees or property taxes.

After that, here’s what you might consider doing with the inherited property.

Sell. Selling is an obvious choice if neither you nor your siblings plan to live in it. Sell the home and divide the proceeds.

Buyout. If a sibling is reluctant to sell or your parents’ wills bar you from selling, you could try to work out a buyout. In that scenario, one sibling would maintain ownership of the home and pay the others an amount equal to what their share of the home is worth. Getting the home professionally appraised to determine its value is a good idea.

Renting. A third option is to rent out the home. The upside of this option is collectively sharing in the rental income from the property. This might make sense if you think you might revisit the issue of selling or a buyout in the future or if you’re obligated to keep the home in the family. If you go this route, you and your siblings will need to decide how maintenance and rent collection will be handled, and it might make sense to agree to hire a property management company to help.

Reference: NASDAQ (April 12, 2023) “What to Do When Inheriting a House With Siblings”

Planning for Aging without Family Caregivers

As they age, many people have diminished capacity and cannot care for themselves. They may no longer be able to walk or drive easily and can experience difficulty with basic activities like shopping, cooking, cleaning, and arranging important doctor’s appointments. Traditionally, the adult children of the elderly have been caregivers, monitoring their parent’s health and overseeing financial decisions, reports the article “ICYMI | Getting Older Without Family” from CPA Journal. Parents without children, or those without good relationships with children, need to make alternative arrangements. An experienced estate planning attorney can help.

Living arrangements. Most people prefer to remain in their homes, in familiar surroundings. This may work if the home can be made elderly-friendly and a support system is implemented. A home alert system or automatic daily call-ins can be arranged through friends or local police departments. If remaining at home is not viable, an assisted living facility or continuing care retirement community may be the next best option if the cost can be managed.

Healthcare matters. Having a healthcare advocate is advisable for everyone. So is a Healthcare Proxy, or Healthcare Power of Attorney, which designates a person to act as the patient’s agent in making decisions. A Living Will details the kind of treatment a person does or doesn’t want if they cannot express their wishes.

Finances. As they age, people may find managing their finances too difficult. There are several options, depending on the degree of help needed. A CPA or financial advisor may be able to provide money management services. Banks may permit an account owner to add the name of another person with signatory authority—they can sign checks but are not an account owner. A representative can be named to receive Social Security funds, and they must file reports with the Social Security Administration to show how the funds have been used.

Durable Power of Attorney. This is the most critical planning tool for seniors and others. This designates an agent to act on behalf of the elderly person in financial matters. It can be created to define the scope of the agent’s authority and remains effective when the elderly person becomes incapacitated. It must be created and executed when the person has the requisite capacity.

Trusts. A trust holds legal title to an older adult’s assets, including bank accounts, brokerage accounts, or their home. The trust is managed by a trustee for the benefit of the elderly person. There are several different trusts available, depending on the situation. A Living Trust can be used while the person can still manage assets and act as their trustee, retaining the right to revoke the trust and regain title to assets. If the person becomes incapacitated, another person named the successor or co-trustee takes over, assuming the trust has not been revoked. The trustee could be a trusted professional, a relative, or a bank trust department, which may be expensive but is a good option for an aging person with significant resources but no individual to serve as the trustee.

Instead of a living trust, the elderly person may set up an Irrevocable Lifetime Trust for Medicaid and long-term care planning purposes wherein someone else is designated a trustee from the start.

Aging alone may seem like a daunting experience, but with the right planning and support network in place, it can be rewarding, enjoyable, and safe.

Reference: CPA Journal (July 2023) “ICYMI | Getting Older Without Family”

What are Biggest Mistakes People Make with Social Security?

With so many ways to claim benefits, especially if you are married or were divorced at some point in your life, small mistakes can add up to a big difference in the amount of Social Security benefits you receive, says a recent article, “11 Social Security Mistakes That Can Cost You a Fortune” from Nasdaq.

Not checking your earnings record during your working life can add up to significant losses. Even if you’re decades away from claiming, you should check your earnings record annually since this is what Social Security benefits are based on. Common mistakes include employers recording incorrect earnings or earnings not showing up because you changed your name and the name change wasn’t processed correctly.

Check your statement annually to avoid losing the right number of benefits because of earnings record mistakes. If you see an error, send proof of your earnings to the Social Security Administration. You might submit your W-2 form if you’re a salaried employee or your tax return if you are self-employed. Once the SSA verifies your claim, your record will be corrected. This is a “sooner is better than later” task because you may not have a paper trail going back 30 years.

Another mistake people make is not working long enough. To qualify for Social Security, you need at least 40 work credits. Taxpayers earn up to four credits each year based on earnings. For example, in 2023, you must earn $1,640 to earn one credit or $6,560 to earn four credits. Benefits are calculated based on the average of the 35 highest earning years. If you haven’t worked for 35 years, $0 will be averaged for each year you don’t have earnings.

It’s wise to do the calculations for Social Security before retiring. As you approach your retirement date, check your earnings statement first to be sure you have enough credits to qualify for Social Security. If you don’t have 35 years, consider working another year or two. If you worked at a job where you weren’t paying into Social Security, adding another year of work could ensure you qualify and may also boost your monthly benefit amount.

Taking Social Security too early can take a big bite out of benefits. While everyone eligible can start taking benefits at age 62, for everyone born after 1959, the reduction for benefits at age 62 is 30%. This lower benefit is permanent and won’t increase until you reach Full Retirement Age (FRA). It’s best to wait at least until FRA. If you can wait past FRA, your benefits could increase by as much as 8% per year up to age 70.

Another mistake is waiting too long to claim benefits. If you live to the average life expectancy, it won’t matter if you claim benefits too early or late. The amount of the benefit reduction for claiming early and the increase in delaying a claim evens out. But if you are in poor health or have cash flow trouble, a benefit check at a younger age could be the right move.

If you file for Social Security benefits solely on your earnings record, you might miss out on a larger benefit. Let’s say you were a stay-at-home parent while your spouse worked. You may not have enough work credits to qualify, or your benefits may be small. However, you could still qualify for benefits under your spouse’s work record. Check to see how much you would be eligible to receive under your spouse’s work record before deciding how to claim benefits.

If divorced, you might claim benefits under your ex-spouse’s earnings record if you meet all the requirements. Suppose the marriage lasted at least ten years. In that case, you are 62 or older, unmarried, and your ex-spouse is eligible to receive Social Security retirement or disability benefits. Your benefit from your work is less than what you would receive under your ex-spouse’s earnings record; it’s worth exploring this option.

If you are married, it’s best to coordinate claiming strategies with your spouse. A low-earning spouse could start claiming benefits based on the higher-earning spouse’s income at full retirement age. Meanwhile, the higher-earning spouse delays benefits to increase retirement credits.

Finally, remember that up to 85% of Social Security benefits could be subject to federal income taxes if you earn substantial income from wages or dividends. The percentage of benefits subject to income taxes depends on the couple’s combined income, which includes the household Adjusted Gross Income (AGI), any nontaxable interest income, and half of your Social Security benefits.

Reference: Nasdaq (July 2, 2023) “11 Social Security Mistakes That Can Cost You a Fortune”

What Is Best Method to Set Up Digital Estate Plan?

We now live in a digital world. As a result, many things we hold dear aren’t physical. What happens to our digital assets when we die? That’s where digital estate planning comes in, explains Kiplinger’s recent article, “How to Tackle Digital Estate Planning in Four Easy Steps.”

Let’s look at the article’s four steps:

First, some digital service providers have a tool or service to designate what happens to all of your assets after you pass away. One example is Yahoo’s inactive account manager, which can be used to designate a person to guide what happens to your digital assets.
If there isn’t this type of tool, the owners’ legal documents should dictate what should be done with the asset.
Next, if these two scenarios don’t help, the service provider’s terms of service should say how the executor can access those accounts.
Before making a digital estate plan, you must understand what is included in your digital estate. Your digital estate includes all of your electronic and virtual accounts and assets, such as:

Social media accounts
Email accounts
E-commerce and online store accounts
Photos saved in the cloud
Cryptocurrency keys
Cellphone apps
Domain names, blogs, and domains
Text, graphic and audio files
Other intellectual property
Loyalty program benefits, like credit card perks
Online banking accounts; and
Gaming accounts.

Note that electronic bank accounts are also considered digital assets. However, the money in the bank account isn’t a digital asset. The same is true for cryptocurrency. The crypto account access platform, like Coinbase, is a digital asset. However, the actual cryptocurrency, such as Ethereum or Bitcoin, isn’t a digital asset.

Reference: Kiplinger’s recent article entitled, “How to Tackle Digital Estate Planning in Four Easy Steps”

What Happens to Digital Assets on Death?

You’ve probably thought about who will inherit your home, your great-grandmother’s jewelry collection and your collection of superhero comics. However,what about your digital assets, asks a recent article from Coast Reporter, “Make sure your estate plan considers your digital assets.”

Digital assets may have significant value. Digital assets include cryptocurrency, non-fungible tokens (NFTs), domain names, digital photos, digital rights to literary content, musical compositions, blog content, online video channels where your content is generating revenue, online gaming, digital online betting accounts, PayPal accounts or even prepaid subscriptions to online content or goods and services.

If your estate plan hasn’t adequately accounted for these assets, your heirs may be unable to access them. Do you and your executor even know what digital assets you own?

Having a list of your digital assets is a start. However, this doesn’t mean your executor can access the assets after your death. Photos and videos stored online may be inaccessible, social media accounts may stay online forever and heirs might not receive money or other assets you intended them to have.

The first hurdle is knowing the passwords for your accounts. Some can be accessed by cybersecurity professionals, like breaking into your phone or a laptop. However, others, like cryptocurrency keys, could be lost forever. Unless you’ve given explicit authorization to someone to access your accounts, they could violate data privacy laws, a criminal offense in most states.

Here’s a game plan for your digital assets and estate plan:

Document digital assets. Know what you own and understand that there’s a difference between owning a digital asset and owning a non-transferable license to use the asset.

Back up your digital assets. Ensure that all online documents, data and assets are backed up to the cloud and store them on a local computer or external hard drive, so your family can access them with fewer obstacles.

Leave digital assets to your spouse. This will avoid the assets being taxed and give the surviving spouse time to plan for the tax liabilities upon their death with an experienced estate planning attorney.

Provide authorization in your will. Update your will so your executor can bypass, reset or recover passwords. If your digital assets are significant enough, talk with your estate planning attorney about having a separate will to deal with digital assets and name an executor knowledgeable about digital assets for the second will.

Check-in regularly. Digital assets are still new for most people, so speak with your estate planning attorney to be sure your wills and powers of attorney reflect any changes in the law or your digital assets.

Reference: Coast Reporter (June 21, 2023) “Make sure your estate plan considers your digital assets”

Who Pays Taxes, the Estate or Heirs?

If you needed another reason to prepare an estate plan besides saving your family the time and trouble of guessing your wishes for the distribution of property, avoiding litigation among family members and maintaining control of your estate by the family and not the court, perhaps a legacy of leaving heirs an expensive tax bill could get you to make an appointment with an estate planning attorney.

According to a recent article from Forbes, “Heirs Can Be Personally Liable For Estate’s Taxes,” a recent court case involving the estate of the founder of Gulfstream, the aircraft manufacturer, presents an example of why an estate plan and a knowledgeable executor are so important.

The founder died in 2000 in an estate worth about $200 million, primarily held in a living trust. His widow and surviving children were beneficiaries of the estate and trust. Each of them had, at one time or another, acted as a trustee or executor.

The estate tax return was filed, and an election was made to pay the $4.4 million in taxes over 15 years. The estate was able to do this in installments because the main asset of the estate was a business.

The IRS said the estate was worth more than stated on the estate tax return and took the estate to court, where it won the case. The estate now owed an additional $6.7 million in estate taxes, which it also elected to pay over the course of 15 years.

Here’s where things went south. Long before the court decision, the estate was fully distributed to beneficiaries. The estate and trust no longer owned any assets. Several estate tax payments were missed. The IRS sought to collect—from the heirs. The heirs took the matter to court.

A district court sided with the heirs, saying they were not responsible for the estate’s tax obligations. However, a federal appeals court recently reversed the decision. The appeals court ruled that the tax code imposes personal liability for unpaid estate taxes on successor trustees and beneficiaries of a living trust.

The beneficiaries argued they were liable only if they received property from the trust before its creator passed or if they had control of it on the date of death. The court disagreed and said the law places liability on anyone who received or had an interest in the estate’s property, either on the date the estate owner died or at any time after that. The heirs were found personally liable for the unpaid taxes of the estate.

Trustees and estate executors should be extremely cautious about final asset distributions. Great care must be taken in assessing the potential for the IRS or state tax authorities to claim additional estate or income taxes. Until the statute of limitations passes, executors may want to retain enough assets to pay any potential additional taxes, and beneficiaries who receive final distributions from trusts or estates must be aware that they may find themselves personally liable for additional taxes.

Reference: Forbes (June 21, 2023) “Heirs Can Be Personally Liable For Estate’s Taxes”

What is the Purpose of a Blind Trust?

One type of trust offers a layer of separation between the person who created the trust and how the investments held in the trust are managed. The trust’s beneficiaries are also unable to access information regarding the investments, says the article “What is a Blind Trust?” from U.S. News & World Report.

The roles involved in a blind trust are the settlor—the person who creates the trust, the trustee—the person who manages the trust—and beneficiaries—those who receive the assets in a trust.

Blind trusts, typically created to avoid conflicts of interest, are where the settlor gives an independent trustee complete discretion over the assets in the trust to manage, invest and maintain them as the trustee determines.

This is quite different from most trusts, where the owner of the trust knows about investments and how they are managed. Beneficiaries often have insight into the holdings and the knowledge that they will eventually inherit the assets. In a blind trust, neither the beneficiaries nor the trust’s creator knows how funds are being used or what assets are held.

Blind trusts can be revocable or irrevocable. If the trust is revocable (also known as a living trust), the settlor can dissolve the trust at any time.

If the trust is irrevocable, it remains intact until the beneficiaries inherit the entire assets, although there are some exceptions.

In some instances, irrevocable trusts are used to move assets out of an estate. Settlors lose control over the holdings and may not terminate the trust or change the terms.

Blind trusts can be used in estate planning if the settlor wants to limit the beneficiaries’ knowledge of the trust assets and their ability to interfere with the management of the trust.’

People who win massive lump sums in a lottery might use a blind trust because some states allow lottery winners to preserve their anonymity using this type of trust. They draft and sign a trust deed and appoint a trustee, then fund the trust by donating the winning ticket to the trust prior to claiming the prize. By remaining anonymous, winners have some protection from unscrupulous people who prey on lottery winners.

One drawback to a blind trust is the lack of knowledge about how investments are being handled. The blind trust also poses the issue of less accountability by the trustee, since beneficiaries have no right to inspect whether or not assets are being managed properly.

Do you need a blind trust? Speak with an experienced estate planning attorney to discuss whether or not your estate would benefit from a blind trust. If you want to separate yourself from investment decisions or would rather beneficiaries don’t know about the holdings, it might make sense. However, if you have no concerns about privacy or conflict of interests, other types of trusts may make more sense.

Reference: U.S. News & World Report (June 1, 2023) “What is a Blind Trust?”

How Do I Transfer Vehicle Ownership of a Deceased Relative?

The way to transfer a vehicle after death can depend on several factors. These include whether the automobile was owned by one person or several individuals and whether any provision was made in a will for its transfer.

If the title to the vehicle has more than one name on it, then the surviving owner may inherit the vehicle by operation of law.

That person can change the title to put in their name only, without further intervention from the executor.

When the vehicle is titled in joint tenancy, and the owners are living, the signatures of all owners are necessary to transfer ownership. Joint tenancy is when the names of two or more owners listed on the title are joined with the word “OR,” “AND” or “AND/OR.” These words note the right of survivorship.

Yahoo Finance’s recent article, “What Happens If the Executor of My Will Dies?” explains that when the title is in the name of the deceased owner only, the title will have to be changed to whoever will assume ownership.

Suppose the motor vehicle is included in probate because there is no surviving joint owner or it hasn’t been transferred to a trust. In that case, a title change likely won’t be able to be completed until probate ends and ownership of the car is assigned to one of the decedent’s heirs.

There are three documents that you will typically need to transfer a vehicle title after death:

A copy of the owner’s death certificate
The original title; and
Probate court documents allowing the transfer.

Transferring vehicle ownership after someone passes away can vary from state to state. It’s a good idea to review the probate laws and contact the local Department of Motor Vehicles (DMV) to see what’s required to complete the transfer.

Reference: Yahoo Finance (May 15, 2023) “What Happens If the Executor of My Will Dies?”

Ever Wonder How the Very, Very Rich Pass Wealth to Their Children?

When making plans to pass assets on to family members, it’s important to consider how estate planning can help manage the taxes associated with inheritances, says a recent article, “Here’s How the Ultra Rich Pass Wealth Tax Free to Their Heirs” from yahoo! finance. The very rich have used many strategies to pass on wealth with limited or no taxes owed, and some of these strategies can be used by regular people too.

The annual gift tax exclusion. Transferring wealth during your lifetime, rather than after your death, allows you to gift any number of people up to $17,000 each in a single year without incurring a taxable gift and having no impact on your estate and gift tax exemption. Married couples may give up to $34,000. People often use this annual exclusion for cash gifts and deposits into 529 education savings plans. These plans permit “frontloading” of up to five years’ worth of gifts into one year, which results in longer and more significant compounded growth.

Paying directly for medical care or tuition. If you wish to help a loved one pay for healthcare needs or education costs, the way to do this is to pay the institution directly. You may make unlimited payments to medical providers or educational institutions on behalf of others for qualified expenses without incurring a taxable gift or impacting your $17,000 individual gift exclusion. In addition, qualified medical expenses would be considered deductible for income tax purposes. Educational expenses are tuition, not living expenses or dorm fees. However, educational expenses aren’t limited to college and could be for a private school at the primary or high school level. Even certain daycare and afterschool activities might qualify.

Using the lifetime gift and estate tax exemption. One of the best estate planning tax strategies is to gift assets you expect to have significant appreciation in the future. For example, you have a $100,000 investment in a tech start-up you believe will appreciate ten times over the next five years. Of course, gifting the $100,000 investment today makes you eat slightly into your gift and estate tax exemption. All the future appreciation of the investment is still out of your taxable estate and into the hands of your heirs—estate and gift-tax free.

Converting IRAs to Roth IRAs. The SECURE Act’s 10-year rule eliminated the ability to ‘stretch’ inherited IRAs over most beneficiary’s lifetimes. A way to preclude the tax burden on your heirs from an inherited IRA is to convert it to a Roth IRA. You’ll pay the taxes at the time of conversion, but they won’t have to pay taxes upon inheriting the IRA or any future appreciation in the account.

Implementing discount strategies. This is a complex strategy used for transferring family businesses or real estate. Discount strategies reduce the value of an interest before its transfer to its value for gift tax purposes is reduced. You maintain some control or benefit from the asset after the transfer. Examples are FLPs (Family Limited Partnerships), Limited Liability Companies (LLPs) and Qualified Personal Residence Trusts (QPRTs).

Reference: yahoo! Finance (May 25, 2023) “Here’s How the Ultra Rich Pass Wealth Tax Free to Their Heirs”

Estate Planning Blog Articles

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

Should My Kids Get an Equal Inheritance?

What Should We Do with an Inherited Home?

Planning for Aging without Family Caregivers

What Is Best Method to Set Up Digital Estate Plan?

What Happens to Digital Assets on Death?

Who Pays Taxes, the Estate or Heirs?

What is the Purpose of a Blind Trust?

How Do I Transfer Vehicle Ownership of a Deceased Relative?

Ever Wonder How the Very, Very Rich Pass Wealth to Their Children?

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Should My Kids Get an Equal Inheritance?

What Should We Do with an Inherited Home?

Planning for Aging without Family Caregivers

What Is Best Method to Set Up Digital Estate Plan?

What Happens to Digital Assets on Death?

Who Pays Taxes, the Estate or Heirs?

What is the Purpose of a Blind Trust?

How Do I Transfer Vehicle Ownership of a Deceased Relative?

Ever Wonder How the Very, Very Rich Pass Wealth to Their Children?

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