Why Do Families Fail when Transferring Wealth?

A legacy plan is a vital part of the financial planning process, ensuring the assets you have spent your entire life accumulating will transfer to the people and organizations you want, and that family members are prepared to inherit and execute your wishes.

Kiplinger’s recent article entitled “4 Reasons Families Fail When Transferring Wealth” gives us four common errors that can cause individuals and families to veer off track.

Failure to create a plan. It’s hard for people to think about their own death. This can make us delay our estate planning. If you die before a comprehensive estate plan is in place, your goals and wishes can’t be carried out. You should establish a legacy plan as soon as possible. A legacy plan can evolve over time, but a plan should be grounded in what your or your family envisions today, but with the flexibility to be amended for changes in the future.

Poor communication and a lack of trust. Failing to communicate a plan early can create issues between generations, especially if it is different than adult children might expect or incorporates other people and organizations that come as a surprise to heirs. Bring adult children into the conversation to establish the communication early on. You can focus on the overall, high-level strategy. This includes reviewing timing, familial values and planning objectives. Open communication can mitigate negative feelings, such as distrust or confusion among family members, and make for a more successful transfer.

Poor preparation. The ability to get individual family members on board with defined roles can be difficult, but it can alleviate a lot of potential headaches and obstacles in the future.

Overlooked essentials. Consider hiring a team of specialists, such as a financial adviser, tax professional and estate planning attorney, who can work in together to ensure the plan will meet its intended objectives.

Whether creating a legacy plan today, or as part of the millions of households in the Great Wealth Transfer that will establish plans soon if they haven’t already, preparation and flexibility are uber important to wealth transfer success.

Create an accommodative plan early on, have open communication with your family and review philosophies and values to make certain that everyone’s on the same page. As a result, your loved ones will have the ability to understand, respect and meaningfully execute the legacy plan’s objectives.

Reference: Kiplinger (Aug. 29, 2021) “4 Reasons Families Fail When Transferring Wealth”

How Does Medicaid Count Assets?

For seniors and their families, figuring out how Medicaid works usually happens when an emergency occurs, and things have to be done in a hurry. This is when expensive mistakes happen. Understanding how Medicaid counts assets, which determines eligibility, is better done in advance, says the article “It’s important to understand how Medicaid counts your resources” from The News-Enterprise.

Medicaid is available to people with limited income and assets and is used most commonly to pay for long-term care in nursing homes. This is different from Medicare, which pays for some rehabilitation services, but not for long-term care.

Eligibility is based on income and assets. If you are unable to pay for care in full, you will need to pay nearly all of your income towards care and only then will Medicaid cover the rest. Assets are counted to determine whether you have non-income sources to pay for care.

Married people are treated differently than individuals. A married couple’s assets are counted in total, regardless of whether the couple owns assets jointly or individually. The assets are then split, with each spouse considered to own half of the assets for counting purposes only. Married couples have some additional asset exemptions as well.

Not all resources are considered countable. Prepaid funeral expenses, a car used to transport the person in the care family and qualified retirement accounts may be exempt from Medicaid’s countable asset limits.

For married couples, their residence for a “Community Spouse”—the spouse still living at home, and a large sum of liquid assets, are also excluded. Many non-countable assets are very specific to the individual situation or current events. For example, stimulus checks were exempt assets, but only for a limited time.

Medicaid sets a “snapshot” date to determine asset balances because some assets change daily. For unmarried individuals, all asset protections and spend-downs must happen prior to submitting the application to Medicaid. A detailed explanation must be included, especially if any assets were transferred within five years of the application.

For married couples, a Resource Assessment Request should be submitted to Medicaid before any action is taken. This document details all resources Medicaid will count and specifies exactly how much of these resources must be “spent down” by the institutionalized spouse for eligibility.

In many cases, assets are preserved by turning the countable asset into a non-countable income stream to the spouse remaining at home.

Medicaid application is a complicated process and should be started as soon as it becomes clear that a person will need to enter a facility. Understanding options early in the process makes it more likely that property and assets can be preserved, especially for the spouse who remains at home.

Reference: The News-Enterprise (Oct. 5, 2021) “It’s important to understand how Medicaid counts your resources”

How Do I Hire an Elder Law Attorney?

Elder law attorneys are lawyers who assist the elderly and their family members, and caregivers with legal questions and planning related to aging.

These attorneys frequently are called upon to assist with tax planning, disability planning, probate and the administration of an estate, nursing home placement, as well as a host of other legal issues, says Forbes’ recent article entitled “Hiring An Elder Law Attorney.”

In addition, there are some elder law attorneys who have the designation of Certified Elder Law Attorney (CELA), a certification issued by the National Elder Law Foundation. A Certified Elder Law Attorney must meet licensing and other requirements, including specific experience in elder law matters and continuing education in elder law. However, note that an elder law attorney does not need to have the CELA certification to be an experienced elder law attorney.

There are many elder law attorneys who specialize in Medicaid planning to help protect a senior’s financial assets, if they suffer from dementia or another debilitating illness that may require long-term care. Elder law attorneys also prepare estate documents, such as a durable power of attorney for health and medical needs and a living will. As you age, the legal issues that you, your spouse, and/or your family caregivers must address can also change.

If you are a senior, then you should have durable powers of attorney for financial and health needs, in the event that you or your spouse becomes incapacitated. You might also need an elder law attorney to help you transfer assets if you or your spouse move into a nursing home to avoid spending your life savings on long-term care.

Healthy people over 65 are in the best spot to do more than having estate planning documents prepared. That’s because they have the opportunity to develop a holistic strategy beyond the legal documents. This can give assurances that the family members and professionals they’ve assembled understand the principle of supported decision-making and how it will be implemented.

For example, an elder law attorney may focus on finding the least restrictive residential environment and making other health care and financial choices. An elder law attorney can also protect seniors with diminished capacity, who are being victimized by personal and financial exploitation.

An initial consultation with an elder law attorney will help determine the types of legal services they can offer, and the fees associated with these services.

Reference: Forbes (Oct. 4, 2021) “Hiring an Elder Law Attorney”

How Is a Notary Used in Estate Planning?

After the coronavirus pandemic hit, and the virus spread continued to surge throughout 2021, the methods of getting a document quickly and safely notarized evolved, reports WTOP’s article entitled “What Is a Notarized Document — and Where Can I Get Something Notarized?”

“Notaries have bent over backwards to accommodate the varying needs during the pandemic,” says Bill Anderson, vice president of government affairs at the National Notary Association. “The pandemic didn’t stop business. Even though we’ve been working from home, and it’s been harder than usual to get work done, the types of documents that required notarization before the pandemic continue to require notarization during the pandemic.”

A notary is appointed by the state to serve as an impartial witness to protect against fraud. They act as gatekeepers during the signing of important documents. Moreover, they’re required to follow specific rules in accordance with state laws and regulations. Notarization is an official process in which the parties of a transaction make certain that a document is authentic and legitimate.

Notarization entails the verification of a signer’s identity, their willingness to sign without duress or intimidation, along with their awareness of the document’s contents.

Notarizations can also be called “notarial acts.”

There are three common types of notarial acts:

Acknowledgments, where a signer declares the signature on the document is his or her own, made willingly, for documents, such as real property deeds, powers of attorney, and trusts.
Jurats which verifies that paperwork is truthful. This typically involves documents associated with criminal or civil justice systems.
Certified copies include certifying the copying or reproduction of certain papers.

A notary will ask to see a current ID that has a photo, physical description and signature. He or she will also record the details of the notarization in a chronological journal of notarial acts.

If a document fails any of the criteria, the notary will refuse to validate the document.

The process is complete when the notary affixes his or her signature and seal of office on a notarial certificate.

Reference: WTOP (Aug. 26, 2021) “What Is a Notarized Document — and Where Can I Get Something Notarized?”

How Do I Write a Will?

You should get the basic estate planning documents in order and revisit them regularly. Everyone should have a will, but it’s only one of several significant estate planning documents in a comprehensive plan.

US News’ recent article entitled “10 Steps to Writing a Will” says that many of a typical household’s assets, such as retirement accounts, can be transferred outside of a will by naming beneficiaries. Documents, like financial and medical powers of attorney, can also be more powerful in determining the outcome of an estate.

Find an Experienced Estate Planning Attorney. Most situations will require an estate planning attorney, especially when you have a large estate, a blended family, or other complex situations.

Select Beneficiaries. A common mistake people make when planning their estate is failing to name or update beneficiaries on key accounts that work with the plans outlined in their wills. The beneficiary listed on bank accounts, life insurance and other financial accounts will have control over the will.

Choose the Executor. The executor of your will has the task of carrying out your wishes detailed in the will.

Choose a Guardian for Your Minor Children. If you have minor children, you must designate a guardian in your will. That way you can name the person you want to care for your children, in the event you die while they are yet minors.

Be Specific About Who Gets What. One of the most time-consuming aspects of creating a will may be deciding which assets to include and determining who will receive what. Consider the types of assets being allocated to heirs to help with decision-making and management.

Be Clear About Who Gets What. Think practically about how your property will be distributed. A big reason children stop speaking after a parent’s death is because there’s boilerplate language directing tangible assets, such as artwork, collectibles, or jewelry, to be divided equally among children.

Attach a Letter. You can attach an explanatory letter to your will. This letter may provide additional detail about certain wishes. This is also called a “Letter of Last Instruction.”

Sign the Will Properly. If you fail to execute your will properly, it may result in the document being deemed invalid. An experienced estate planning attorney will know precisely what is required as far as witnesses and notarization.

Find a Place for Your Will. Inform a person you trust about the location of your will as well as any other important legal papers and passwords to financial institutions. In addition, it’s wise to store the original copy somewhere secure, such as in a fireproof safe.

Review and Update Your Will. A will should be updated every few years.

Reference: US News (May 31, 2021) “10 Steps to Writing a Will”

When Should You Update Your Estate Plan?

Updating an estate plan is not usually the first thing on one’s mind when large life events occur. However, if you fail to update your estate plan, over time the plan may not work—for you or your loved ones. Reviewing estate plans at least once every three or four years will help to reach your goals and protect your family, explains the article “Do I Need to Update My Estate Plan?” from Arkansas Business.

Two key documents are used to distribute your assets: your last will and testament and trusts. As your children and other family members mature, those documents should change as may be needed.

If you have a revocable trust, you need to review the dispositive provisions and the trust funding. One of the biggest mistakes in estate planning, after failing to have an estate plan, is failing to fund or manage the funds in a trust.

Trusts are created to avoid probate and establish a process for distributing assets in case of disability or death. However, if assets are not retitled to be owned by the trust, or if the assets don’t have an appropriate beneficiary designation to transfer assets to the trust at the time of your death, they won’t perform as intended. As new assets are purchased, they also need to be incorporated into your estate plan.

Relationships you have with people who have responsibilities for your estate plan may change over time. Those need to be updated, including the following:

Trustee—The person or institution administering and managing a revocable trust, when you can no longer do so.

Guardian—The individual who will have legal authority and responsibility to raise your minor child(ren).

Executor—The person who is in charge of administering and managing your estate.

Health Care Agent—The person you authorize to make medical decisions in the event of incapacity.

Another common point of failure for estate plans: neglecting to update beneficiary designations for assets like life insurance, retirement plans and any asset that customarily passes to an heir through a beneficiary designation.

A regular review of your estate plan with your estate planning attorney also allows your plan to incorporate changes in tax laws. The last few years have seen many significant changes in tax laws, and more changes are likely in the future. Strategies that may have been extremely effective five or ten years ago are probably outdated and might create costs for your heirs. A review with an experienced estate planning attorney can prevent unnecessary tax liabilities, unexpected inheritances and family feuds.

Reference: Arkansas Business (Sep. 2021) “Do I Need to Update My Estate Plan?”

Will Inflation Ruin My Retirement?

The 5.4% rise in the consumer price index in the last year is the highest inflation in almost 13 years. Kiplinger’s recent article entitled “How Big of a Threat Does Inflation Pose to Your Retirement?” explains that even moderate inflation can have a big effect on a retiree’s savings. The Federal Reserve’s target inflation rate is 2%. However, it said it will let inflation rise above that mark for some time. Here’s how an average annual inflation rate of 3% over the next 20 years would affect your finances.

If you needed $60,000 for your first year of retirement, in 20 years you’d need more than $108,000 to match today’s purchasing power of $60,000. Said another way to look at it: at a 3% annual inflation rate, that initial $60,000 would be worth only $33,000 in 20 years.

You have to take into account inflation in your retirement plan because you can expect that everyday items, travel and other expenses will continue to rise in cost. Inflation decreases the value of savings and will continue to do so after you retire. As a result, it’s important to look at your investment strategy and retirement income plan to determine if you’re protected against inflation for the long term.

The Senior Citizens League estimates that the average Social Security benefit has lost almost a third of its buying power since 2000 because benefit increases have failed to keep up with the increasing cost of prescription drugs, food and housing. This has happened even with yearly cost-of-living adjustments (COLAs) for Social Security benefits that are designed to make benefit amounts keep up with inflation.

Think about what would happen if all your retirement income lost a third of its value over the course of 20 years. Would that scenario make it more likely that you’ll run out of money? How can you know how much income you will need in retirement, when inflation insists on complicating the situation? Here are some things to keep to consider

Fixed-Income Sources. Look at any fixed-income sources in retirement that won’t keep pace with inflation. Consider the amount of interest you’re earning from money in a savings account or CD. It’s unlikely that we’ll see a substantial interest rate hike in the next few years, so be ready to continue earning little interest. Assess your investment strategy and retirement income plan to see if you’re protected against inflation for the future.
Look at Your Nest Egg. See how much your nest egg is right now and factor in inflation over the next 10, 20, and 30 years. Know that while overall inflation rates may fall from what they are now, that might not be true for some of the specific goods and services that could take a large chunk of your income, like utilities, food, health care and long-term care costs.
Will Your Strategy Need to Change? Think about whether your current investment strategy will need to be modified when you retire. You may want to contemplate a strategy that continues to grow your money in retirement, so when transitory events like inflation hit, you’re okay. A solid plan will make certain that your purchasing power needs are always satisfied. Some people may need to take on less investment risk when they are approaching and hit retirement. However, having the right risk asset allocations for your particular circumstances may help to thwart the eroding effects of inflation on your nest egg over the course of your retirement.

Reference: Kiplinger (Oct. 3, 2021) “How Big of a Threat Does Inflation Pose to Your Retirement?”

How Can I Conduct a Family Meeting about Family Wealth Planning?

Kiplinger’s recent article entitled “It’s Never Too Late for a Family Meeting – Here’s How to Do Them Well” emphasizes that no matter the amount of wealth that a family has, wealth education is crucial to overall financial education, preparing for the future and to becoming a good steward of an inheritance.

Family meetings are a great way of bringing members of a family together with a goal of facilitating communication and education. This allows for sharing family stories, communicating values, setting goals to help ensure transparency and helping members across generations understand their roles around stewardship and wealth.

Here are some ideas on how to have an effective family meeting:

Prepare. The host of the meeting should spend time with each participating family member to help them understand the reason for the meeting and learn more about their expectations. There should be a desire and commitment from the participants to invest time and effort to make family meetings a success.

Plan. Create a clear agenda that defines the purpose and goals of each meeting. Share this agenda with participants before the meeting. Select a neutral location that makes everyone comfortable and encourages participation.

Have time for learning. Include an educational component in the agenda, such as an introduction to investing, estate planning, budgeting and saving, or philanthropy.

Have a “parking lot.” Note any topics raised that might need to be addressed in a future meeting.

Use a facilitator. Perhaps have a trusted adviser facilitate the meeting. This can help with managing the agenda, offering a different perspective, calming emotions and making certain that everyone is heard and understood.

Follow up. Include some to-do’s and schedule the next meeting to set expectations about continuing to bring the family together.

Reference: Kiplinger (Sep. 1, 2021) “It’s Never Too Late for a Family Meeting – Here’s How to Do Them Well”

What Items Should Not Be Stored in a Safe Deposit Box?

We’re reminded daily about living in a digital world where anything of importance is stored in the cloud. However, if you were thinking about getting rid of your safe deposit box, says the article “9 Things You’ll Regret Keeping in a Safe Deposit Box,” from Kiplinger, think again.

By all means keep your prized possessions like baseball cards in a safe deposit box. Some documents also do belong in a bank vault. However, it’s not the right place for everything.

Even if the bank’s ATMs are open 24/7, access to the safe deposit box is limited to hours when the bank is open. If you need something in an emergency on a weekend, holiday or at night, you’re stuck. The same goes for natural disasters, which seem to be happening more frequently in certain parts of the country. Reduced operations and branch closures happened because of the pandemic and today’s hiring problems might mean a longer wait even during regular business hours at a bank branch.

Here’s a look at what not to put in your safe deposit box:

Cash money. Most banks are very clear: cash should not be kept in a safe deposit box. Read your contract with the bank. The FDIC does not protect cash, unless it’s in a bank account.

Passports. Unless you travel often enough to keep a passport next to your wallet, it may be tempting to put it in the safety deposit box. However, if an emergency arises, or you get a great last minute travel bargain, you won’t have quick access to your passport.

An original will. Keeping copies of your will in a safe deposit box is fine, but not the original. After death, the bank seals the safe deposit box until an executor can prove they have the legal right to access it.

Letters of Intent. A letter of intent, or letter of instruction, is a letter to your family, telling them what your wishes are for your funeral or memorial service and giving details on specific bequests. However, if it’s locked up in a safe deposit box, your final wishes may not see the light of day for months. Keep the letter of intent with your original will. You might also wish to send the letter of intent to anyone who is designated to receive a specific item.

Power of Attorney. Similar to the will, the POA needs to be accessible any time, day, or night. Keep it with your original will and provide copies to anyone who might need it. The same goes for your Advance Directives for Health Care or Living Will. It won’t do you any good to say you don’t want to be kept alive on a heart and lung machine if your agents can’t get to these documents.

Valuables, Jewelry or Collectibles. The FDIC does not insure safe deposit boxes or their contents. There are no federal laws governing safe deposit boxes and no law says the bank has to reimburse you for stolen items. Protect valuables with a supplemental policy or a rider to your homeowner’s insurance policy and keep them at home.

Spare House Keys. How likely are you to be able to get to your house keys even if the bank is open, if your key to the safe deposit box is in your home? Enough said.

Illegal, Dangerous, or Liquid Items. When you opened your safe deposit box, you signed a contract listing what you may and may not keep in a safe deposit box. Firearms, explosive, illegal drugs, and hazardous materials are among the things prohibited from being kept in a safe deposit box. The same goes for less dramatic items: if you have a collection of rare whiskey, keep it at home.

Reference: Kiplinger (Sep. 24, 2021) “9 Things You’ll Regret Keeping in a Safe Deposit Box”

If I Have a Will, Do I Have an Estate Plan?

Estate planning and writing a will are entirely different terms.

An estate plan is a broader plan of action for your assets that may apply during your life, as well as after your death.

However, a will states the way in which your assets will go after you die.

Yahoo Finance’s recent article entitled “Estate Planning vs. Will: What’s the Difference?” explains that a will is a legal document that states the way in which you’d like your assets to be distributed after you die.

A will can also detail your wishes about how your minor children will be cared after your death, and it names an executor who’s in charge of carrying out the actions in your will. Without a will, the state’s probate laws determine how your property is divided.

Estate planning is a lot broader and more complex than writing a will. A will is a single tool. An estate plan involves multiple tools, such as powers of attorney, advance directives and trusts.

Again, a will is a legal document, and an estate plan is a collection of legal documents. An estate plan can also handle other estate planning matters that can’t be addressed in a will.

A will is a good place to start, but you’ll want to create an estate plan to ensure that your family is fully covered in the event of your death.

While having a will is important, it’s only the first step when it comes to creating an estate plan.

To leave your heirs and loved ones in the best position after your death, you should talk to an experienced estate planning attorney about creating a comprehensive estate plan, so your assets can end up where you want them.

Reference: Yahoo Finance (Aug. 10, 2021) “Estate Planning vs. Will: What’s the Difference?”

Estate Planning Blog Articles

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