The Basics of Estate Planning

No matter how BIG or small your net worth is, estate planning is a process that ensures your assets are handed down the way you want after you die.

Forbes’ recent article entitled “Estate Planning Basics” explains that everybody has an estate.

An estate is nothing more or less than the sum total of your assets and possessions of value. This includes:

Your car
Your home
Financial accounts
Investments; and
Personal property.

Estate planning is the process of deciding which people or organizations are to get your possessions or assets after you’ve died.

It’s also how you leave directions for managing your care and assets if you are incapacitated and unable to make financial or medical decisions. That is done with powers of attorney, a healthcare directive and a living will.

Your estate plan details who gets your assets. It also designates who can make critical healthcare and financial decisions on your behalf should you become incapacitated. If you have minor children, your estate plan also lets you designate their legal guardians, in case you die before they reach 18. It also allows you to name adults to safeguard their financial interests.

Your estate plan directs assets to specific entities or people in a legally binding manner. If you want your daughter to have your coin collection or your favorite animal rescue organization to get $500, it’s all mapped out in your estate plan.

You can also create a trust to safeguard a minor child’s assets until they reach a certain age. You can also keep assets out of probate. That way, your beneficiaries can easily access things like your home or bank accounts.

All estate plans should include documents that cover three main areas: asset transfer, medical needs and financial decisions. Ask an experienced estate planning attorney to help you create your estate plan.

Reference: Forbes (Nov. 16, 2022) “Estate Planning Basics”

What Documents are Needed in an Emergency?

Most people don’t have any idea where to start when it comes to their emergency documents. This often keeps them from going anywhere near their estate planning. This is a big mistake, says a recent article, “3 tasks your family needs to complete to ease any anxiety over unexpected emergencies,” from MarketWatch.

Estate planning is not just about wealthy people putting assets into trusts to avoid paying taxes. Estate planning includes preparing for life as well as death. This includes a parent preparing for surgery, for instance, who needs to have the right documents in place so family members can make emergency medical or financial decisions on their behalf. Estate planning also means being prepared for the unexpected.

Power of Attorney. Everyone over age 18 should have a POA, so a trusted person can take over their financial decisions. The POA can be as specific or broad as desired and must follow the laws of the person’s state of residence.

Medical Directives. This includes a Medical Power of Attorney, HIPAA authorization and a Living Will. The Medical POA allows you to appoint an agent to make health care decisions on your behalf. A HIPAA authorization allows someone else to gain access to medical records—you need this so your agent can talk with all medical and health insurance personnel. A living will is used to convey your wishes concerning end of life care. It’s a serious document, and many people prefer to avoid it, which is a mistake.

All of these documents are part of an estate plan. They answer the hard questions in advance, rather than putting family members in the terrible situation of having to guess what a loved one wanted.

An estate plan includes a will, and it might also include a trust. The will covers the distribution of property upon death, names an executor to be in charge of the estate and, if there are minor children, is used to name a guardian who will raise them.

A list of important information is not required by law. However, it should be created when you are working on your estate plan. This includes the important contacts from doctors to CPAs and financial advisors. Even more helpful would be to include a complete health profile with dates of previous surgeries, current medications with dosage information and pharmacy information.

Don’t overlook information about your digital life. Names of financial institutions, account numbers, usernames and passwords are all needed if your agent needs to access funds. Do not place any of this information in your will, as you’ll be handing the keys to the vault to thieves. Create a separate document with this information and tell your agent where to find the information if they need it.

Reference: MarketWatch (Nov. 19, 2022) “3 tasks your family needs to complete to ease any anxiety over unexpected emergencies”

What Is Wife of Chrysler Building Billionaire Owner Entitled to Under Prenup?

Sixty-two-year-old Michael Fuchs and 47-year-old Alvina Collardeau-Fuchs, who are in the process of divorcing, lived the “billionaire lifestyle” during their marriage with a string of luxury properties around the world, reports The Digital Journal’s recent article entitled “French wife of Chrysler Building billionaire owner entitled to £37 mn under prenup.”

Money was “never a concern” and the couple enjoyed “fully staffed homes” in fashionable locations such as the Hamptons, New York City, Paris, Miami, Cap d’Antibes, Capri and London.

Fuchs is originally from Germany but moved to the U.S. in the 1990s. He and former journalist Collardeau-Fuchs married in New York in 2012 and went on to have two children. However, they separated in 2020, and the High Court in London was asked to rule on the amount to which Collardeau-Fuchs was entitled. Fuchs’ lawyers argued his estranged wife should get about $36 million, but she claimed it should be more than $53 million.

Despite the two having signed a prenuptial agreement, accusations have been lobbed both ways, including Collardeau-Fuchs’ alleging that Fuchs tried to control her spending and made her daily life “intolerable.”

At one hearing, the court heard that Fuchs had enjoyed an “extraordinarily successful career” and owned a “very significant amount of prime mid-town Manhattan real estate”. In fact, the Art Deco Chrysler Building on the East Side of Manhattan, one of New York’s most distinctive landmarks, is owned by Fuchs’ company. However, Fuchs said the value of his fortune had plummeted recently due to the turbulent economic climate.

Such litigation is usually avoided with a properly drafted prenuptial agreement.

A prenuptial agreement is a legal agreement between two partners engaged to be married and is effective upon marriage.

A prenup [also known as an antenuptial agreement or premarital agreement] can set out the property rights and financial arrangements upon which the engaged couple has agreed.

It also allows the couple to contract for themselves–how they want their property, assets, income and inheritance to be viewed or considered in their marriage.

Reference: Digital Journal (Nov. 14, 2022) “French wife of Chrysler Building billionaire owner entitled to £37 mn under prenup”

How to Transfer Business to the Next Generation

The reality and finality of death is uncomfortable to think about. However, people need to plan for death, unless they want to leave their families a mess instead of a blessing. In a family-owned business, this is especially vital, according to a recent article, “All in the Family—Transition Strategies for Family Businesses” from Bloomberg Law.

The family business is often the family’s largest financial asset. The business owner typically doesn’t have much liquidity outside of the business itself. Federal estate taxes upon death need special consideration. Every person has an estate, gift, and generation-skipping transfer tax exemption of $12.06 million, although these historically high levels may revert to prior levels in 2026. The amount exceeding the exemption may be taxed at 40%, making planning critical.

Assuming an estate tax liability is created upon the death of the business owner, how will the family pay the tax? If the spouse survives the business owner, they can use the unlimited marital deduction to defer federal estate tax liabilities, until the survivor dies. If no advance planning has been done prior to the death of the first spouse to die, it would be wise to address it while the surviving spouse is still living.

Certain provisions in the tax code may mitigate or prevent the need to sell the business to raise funds to pay the estate tax. One law allows the executor to pay part or all of the estate tax due over 15 years (Section 6166), provided certain conditions are met. This may be appropriate. However, it is a weighty burden for an extended period of time. Planning in advance would be better.

Business owners with a charitable inclination could use charitable trusts or entities as part of a tax-efficient business transition plan. This includes the Charitable Remainder Trust, or CRT. If the business owner transfers equity interest in the business to a CRT before a liquidity event, no capital gains would be generated on the sale of the business, since the CRT is generally exempt from federal income tax. Income from the sale would be deferred and recognized, since the CRT made distributions to the business owner according to the terms of the trust.

At the end of the term, the CRT’s remaining assets would pass to the selected charitable remainderman, which might be a family-established and managed private foundation.

Family businesses usually appreciate over time, so owners need to plan to shift equity out of the taxable estate. One option is to use a combination of gifting and selling business interests to an intentionally defective grantor trust. Any appreciation after the date of transfer may be excluded from the taxable estate upon death for purposes of determining federal estate tax liabilities.

For some business owners, establishing their business as a family limited partnership or limited liability company makes the most sense. Over time, they may sell or gift part of the interest to the next generation, subject to the discounts available for a transfer. An appraiser will need to be hired to issue a valuation report on the transferred interests in order to claim any possible discounts after recapitalizing the ownership interest.

The ultimate disposition of the family business is one of the biggest decisions a business owner must make, and there’s only one chance to get it right. Consult with an experienced estate planning attorney and don’t procrastinate. Succession planning takes time, so the sooner the process begins, the better.

Reference: Bloomberg Law (Nov. 9, 2022) “All in the Family—Transition Strategies for Family Businesses”

Can I Protect My Elderly Parents?

Estate planning requires the ability to be realistic about current health and assets, while considering the inevitable changes to come. For adults with aging parents, having a well-thought out estate plan, regardless of the size of the estate, becomes more urgent as the time to use the documents draws closer. A recent article, “Accessing needs of aging parents,” from The News-Enterprise explains the steps adult children need to take to protect their parents.

There are four key factors to consider: medical needs, housing and care needs, finances and legal needs. All require candid, non-emotional assessments.

Start with medical, housing and care needs. Consider the next five years. Is it likely their medical condition may decline? How will their present home work, if they are unable to manage steps or need to sleep and toilet on the same level? If their home is not conducive for aging in place, will they consider moving to a better situation—or can they afford to make any changes?

Next, examine health and care needs. Do they have long-term care insurance or do they expect to apply for Medicaid? If one spouse will need memory care or one spouse dies, will the surviving spouse have the resources needed to remain in home and receive the care they need? An experienced estate planning attorney will be able to evaluate their financial situation with regard to becoming eligible for Medicaid, if this will be needed. There is a five-year look-back period for Medicaid, so advance action is necessary to protect assets.

Do they have any estate planning documents in place? Is there a will, and when was it prepared? Ask any estate planning attorney how many times seniors have told their children a will exists, only for the children to learn the will is forty years old, woefully out of date and declared invalid by the probate court. Deceased individuals may be listed as agents for Power of Attorney and Medical Power of Attorney. Funds left for heirs may no longer exist. Laws for power of attorney may not include required provisions as a result of changes to the law.

More complicated issues may exist. If appreciated real estate property has been deeded to loved ones to protect the property from nursing home costs, are the beneficiaries prepared to pay the resulting taxes? If deeded real estate property was intentionally left unrecorded, transferring property could become a legal quagmire.

The best solution is to have an experienced estate planning attorney meet with the parents, review any existing documents and prepare an updated set of documents to achieve the parent’s goals, protect them in case of medical emergencies and allow parents and children to gain the peace of mind of knowing they are ready for the future. This includes a will, power of attorney, health care power of attorney, HIPAA release, living will and, depending upon the situation, may also include trusts.

Reference: The Times-Enterprise (Nov. 5, 2022) “Accessing needs of aging parents”

Can You Prevent Family Fights over Inheritance?

Inheritance battles can create new conflicts, inflame long-standing resentments and squander assets intended to make heir’s lives better. What can families do to prevent estate battles when a loved one’s intentions aren’t accepted is the question asked by the recent article, “Warning Signs Of Estate Disputes—And Ways to Avoid Them,” from mondaq.com.

Here are the more common scenarios leading to family estate battles:

Siblings who are always fighting over something
Second or third marriages
Disparate treatment of children, whether real or perceived
Mental illness or additional issues
Isolation or estrangement
Economic hardship

There are steps to take to minimize, if not eliminate the likelihood of estate battles. The most important is to have an estate plan in place, including all the necessary documents to clearly indicate your wishes. You may want to include a letter of intent, which is not a legally enforceable document. However, it can support the wishes expressed in estate planning documents.

Update the Estate Plan. Does your estate plan still achieve the desired outcome? This is especially important if the family has experienced big changes to finances or relationships. An estate plan from ten years ago may not reflect current circumstances.

Make Distributions Now. For some families, giving with “warm hands” is a gratifying experience and can remove wealth from the estate to avoid battles as everything’s already been given away. The pleasure of seeing families enjoy the fruits of your labor is not to be underestimated, like a granddaughter who is able to buy a home of her own or an entrepreneurial loved one getting help in a business venture.

Appoint a Non-Family Member as a Trustee. Warring factions within a family are not likely to resolve things on their own, especially when cash is at stake. Appointing a family member as a trustee could cause them to become a lightning rod for all of the family’s tensions. Without the confidence of beneficiaries, accusations of self-dealing or an innocent mistake could lead to litigation. Removing the emotions by having a non-family member serve as a professional trustee can lessen suspicion and decrease the chances of legal disputes.

Communicate, with a facilitator, if necessary. Families with a history of disputes often do better when a professional is involved. Depending on the severity of the dynamics, this could range from annual meetings with an estate planning attorney to explain how the estate plan works and have discussions about the parent’s wishes to monthly meetings with a family counselor.

A No-Contest Clause. For some families, a no-contest clause in the will can head off any issues from the start. If people are especially litigious, however, this may not be enough to stop them from pursuing a case. An experienced estate planning attorney will be able to recommend the use of this provision, based on knowing the family and how much wealth is involved.

Addressing the problem now. The biggest mistake is to sweep the issue under the proverbial rug and “let them fight over it when I’m gone.” A better legacy is to address the problem of the family squabbles and know you’ve done the right thing.

As we head into the holiday season, efforts to bring families together and prepare for the future will allow parents, children and grandchildren to enjoy their time together.

Reference: mondaq.com (Nov. 4, 2022) “Warning Signs Of Estate Disputes—And Ways to Avoid Them”

Could Your Estate Plan Be a Disaster?

You may think your estate plan is all set.However, it might not be. If you met with your attorney when your children were small, and your children are now grown and have children of their own, your estate could be a disaster waiting to happen, says a recent article “Today’s Business: Your estate plan—what could go wrong?” from the New Haven Register.

Most estate planning attorneys encourage their clients to revisit their estate plan every three to five years, with good reason. The size of your estate may have changed, you may have experienced a health issue, or you may have a new child or a grandchild. There may be tax law changes, statutes may have been updated and the plan you had three to five years ago may not accomplish what you want it to.

Many people say they “have nothing” and their estate is “simple.” They might also think “my spouse will get everything anyway.” This is wrong 99% of the time. There are unintended consequences of not having a will—accounts long forgotten, an untimely death of a joint owner, or a 40-year-old car with a higher value than anyone ever expected.

Your last will and testament designates who receives your assets and provides for any minors. A will can also help protect your wishes from a challenge by unwanted heirs after your passing.

The federal estate tax exemption today is $12.6 million, but if your will was created to minimize estate taxes when the exemption was $675,000, there may be unnecessary provisions in your plan. Heirs may be forced to set up inherited trusts or even sub-trusts. With today’s current exemption level, your plan may include trusts that no longer serve any purpose.

When was the last time you reviewed your will to see whether you still want the same people listed to serve as guardians for minor children, executors, or trustees? If those people are no longer in your family, or if the named person is now your ex, or if they’ve died, you have an ineffective estate plan.

Many adults believe they are too young to need an estate plan, or they’ve set up all of their assets to be owned jointly and, therefore, don’t need an estate plan. If one of the joint owners suffers a disability and is receiving government benefits, an inheritance could put all of their benefits at risk. Minor children might inherit your estate. However, the law does not permit minors to inherit assets, so someone needs to be named to serve as their conservator. If you don’t name someone, the court will, and it may not be the person you would choose.

What about using a template from an online website? Estate planning attorneys are called in to set things right from online wills with increasing frequency. The terms of a will are governed by state law and often these websites don’t explain how the document must be aligned with the statutes of the state where it is signed. Estate plans are not one-size-fits-all documents and a will deemed invalid by the court is the same as if there were no will at all.

If you don’t have an estate plan, if your estate plan is outdated, or if your estate plan was created using an online solution, your heirs may inherit a legal quagmire, in addition to your coin collection. Give yourself and them the peace of mind of knowing you’ve done the right thing and have your will updated or created with an experienced estate planning attorney.

Reference: New Haven Register (Oct. 29, 2022) “Today’s Business: Your estate plan—what could go wrong?”

There are Ways to Transfer Home to Your Children

Kiplinger’s recent article entitled “2 Clever Ways to Gift Your Home to Your Kids” explains that the most common way to transfer a property is for the children to inherit it when the parent passes away. An outright gift of the home to their child may mean higher property taxes in states that treat the gift as a sale. It’s also possible to finance the child’s purchase of the home or sell the property at a discount, known as a bargain sale.

These last two options might appear to be good solutions because many adult children struggle to buy a home at today’s soaring prices. However, crunch the numbers first.

If you sell your home to your child for less than what it’s worth, the IRS considers the difference between the fair market value and the sale price a gift. Therefor., if you sell a $1 million house to your child for $600,000, that $400,000 discount is deemed a gift. You won’t owe federal gift tax on the $400,000 unless your total lifetime gifts exceed the federal estate and gift tax exemption of $12.06 million in 2022, However, you must still file a federal gift tax return on IRS Form 709.

Using the same example, let’s look at the federal income tax consequences. If the parents are married, bought the home years ago and have a $200,000 tax basis in it, when they sell the house at a bargain price to the child, the tax basis gets split proportionately. Here, 40% of the basis ($80,000) is allocated to the gift and 60% ($120,000) to the sale. To determine the gain or loss from the sale, the sale-allocated tax basis is subtracted from the sale proceeds.

In our illustration, the parent’s $480,000 gain ($600,000 minus $120,000) is non-taxable because of the home sale exclusion. Homeowners who owned and used their principal residence for at least two of the five years before the sale can exclude up to $250,000 of the gain ($500,000 if married) from their income.

The child isn’t taxed on the gift portion. However, unlike inherited property, gifted property doesn’t get a stepped-up tax basis. In a bargain sale, the child gets a lower tax basis in the home, in this case $680,000 ($600,000 plus $80,000). If the child were to buy the home at its full $1 million value, the child’s tax basis would be $1 million.

Another option is to combine your bargain sale with a loan to your child, by issuing an installment note for the sale portion. This helps a child who can’t otherwise get third-party financing and allows the parents to charge lower interest rates than a lender, while generating some monthly income.

Be sure that the note is written, signed by the parents and child, includes the amounts and dates of monthly payments along with a maturity date and charges an interest rate that equals or exceeds the IRS’s set interest rate for the month in which the loan is made. Go through the legal steps of securing the note with the home, so your child can deduct interest payments made to you on Schedule A of Form 1040. You’ll have to pay tax on the interest income you receive from your child.

You can also make annual gifts by taking advantage of your annual $16,000 per person gift tax exclusion. If you do this, keep the gifts to your child separate from the note payments you get. With the annual per-person limit, you won’t have to file a gift tax return for these gifts.

Reference: Kiplinger (Dec. 23, 2021) “2 Clever Ways to Gift Your Home to Your Kids”

The Benefits of a Good Estate Plan

If you don’t have a comprehensive estate plan, state law will control. That’s unlikely to coincide with what you would choose to do. MSN’s recent article entitled “What is estate planning?” discusses the benefits of estate planning.

Minimizes taxes. Clever structuring of flexible retirement accounts, such as a Roth IRA, can help funnel more tax-free money to your heirs, while other tax-planning strategies like strategic charitable giving can help you mitigate estate taxes.

Prevents family disputes. The possibility of a fight about who gets what of value or even a sentimental treasure can arise without proper planning.

Clarifies your directives. Although you may have always intended for your niece to get a certain heirloom, unless it’s written out in your estate plan, it may not get into her hands. If you clearly spell out your wishes with the help of an experienced estate planning attorney, you can help your loved ones remember you fondly or at least get what you intended.

Avoids the time and expense of probate court. Done correctly, a trust can help your family avoid the hassles of probate court. Because of the ease of using a trust, more people are doing an end-run around probate and setting up their assets this way. You don’t need as much wealth as you might think to make it worthwhile.

Keeps your family assets together. Trusts can be a good way to make sure your money stays in the family. With the help of an estate planning attorney, a trust can keep a beneficiary from blowing your lifetime of hard work in a few years.

Protects your heirs. If you have minor children, a will can instruct who will take care of them. A living will can help heirs avoid some difficult health decisions during a parent’s end of life.

Sound estate planning can help avoid several potentially troubling problems.

Reference: MSN (Oct. 13, 2022) “What is estate planning?”

Major Blunders in Estate Planning

Kiplinger’s recent article entitled “5 Common Estate Planning Mistakes to Avoid” warns that if you overlook an important step or make a misstep in your estate planning, everything could be undone. You could instead burden your family with a challenging and headache-inducing estate.

There are many ways to get things wrong. Let’s look at a few:

Not preparing for incapacity. The main reason to create a will is because we know that some day we’ll pass away. A will lets your family know how to distribute your property and other assets. A well-thought-out estate plan should identify the people authorized to make important decisions on your behalf regarding finances, health care and other critical matters. This is accomplished with powers of attorney. Once you are unconscious or afflicted with dementia, it will be too late. Make a list of decision-makers now, inform them of your wishes and create the necessary powers of attorney.
Failing to include funeral and burial wishes. If you can purchase a burial plot and make funeral plans, put this in your estate planning documents. If you don’t, it may mean a lot of work for your family after your death. Name someone to be in charge of the funeral and burial arrangements and make sure that person understands your wishes. If you don’t detail your wishes prior to your death, it may become an issue for your loved ones.
Ignoring the tax implications of transferring property. As generous as it may seem to give property to your family during your lifetime, it is usually much smarter – and far more generous – to delay the transfer until you’re deceased. If you convey the deed to property to your next of kin before you die, they may see a hefty tax bill whenever they sell the same property. That’s because the basis for that property will be tagged to the date on which you made your purchase, not the date you made your gift. As a result, it could leave your heirs scrambling to pay an enormous sum that would have been averted, had they been granted the deed after your death.
Failing to designate backups for decision-makers. The best of plans can go south without a secondary beneficiary. This will address any unforeseen events. Name backups for your executor and other decision-makers. If they can’t fulfill their obligations, a court will name substitutes unless you’ve already planned for these contingencies.
Not tracking beneficiary designations. In addition to stating the beneficiaries and their respective shares in your will, you must also communicate a directive to your bank that sets forth the interests in your account after your death. If you fail to do this, the bank’s rules will override anything you’re written in your will as to that account. That means your percentages will be different from those expressed in your will.

Take steps now to make certain there are no hidden issues that will haunt your family after you’ve passed.

Reference: Kiplinger (Oct. 17, 2022) “5 Common Estate Planning Mistakes to Avoid”=

Estate Planning Blog Articles

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

The Basics of Estate Planning

What Documents are Needed in an Emergency?

What Is Wife of Chrysler Building Billionaire Owner Entitled to Under Prenup?

How to Transfer Business to the Next Generation

Can I Protect My Elderly Parents?

Can You Prevent Family Fights over Inheritance?

Could Your Estate Plan Be a Disaster?

There are Ways to Transfer Home to Your Children

The Benefits of a Good Estate Plan

Major Blunders in Estate Planning

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The Basics of Estate Planning

What Documents are Needed in an Emergency?

What Is Wife of Chrysler Building Billionaire Owner Entitled to Under Prenup?

How to Transfer Business to the Next Generation

Can I Protect My Elderly Parents?

Can You Prevent Family Fights over Inheritance?

Could Your Estate Plan Be a Disaster?

There are Ways to Transfer Home to Your Children

The Benefits of a Good Estate Plan

Major Blunders in Estate Planning

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