What Assets are Not Considered Part of an Estate?

In many families, more assets pass outside the Last Will than through the Last Will. Think about non-probate assets: life insurance proceeds, investment accounts, jointly titled real estate assets, assuming they were titled as joint tenants with right of survivorship, and the like. These often add up to considerable sums, often more than the probate estate.

This is why a recent article from The Mercury titled “Planning Ahead: Pay attention to your non-probate assets” strongly urges readers to pay close attention to accounts transferred by beneficiary.

Most retirement accounts like IRAs, 401(k)s, 403(b)s and others pass by beneficiary designation and not through the Last Will. Banks and investment accounts designated as Payable on Death (POD) or Transfer on Death (TOD) also do not pass through probate, but to the other person named on the account. Any property owned by a trust does not go through probate, one of the reasons it is placed in the trust.

Why is it important to know whether assets pass through probate or by beneficiary designation? Here’s an example. A man was promised half of this father’s estate. His dad had remarried, and the son didn’t know what estate plans had been made, if any, with the new spouse. When the father passed, the man received a single check for several thousand dollars. He knew his father’s estate was worth considerably more.

What is most likely to have happened is simple. The father probably retitled the house with his new spouse as tenants by the entireties–making it a non-probate asset. He probably retitled bank accounts with his new spouse. And if the father had a new Last Will created, he likely gave 50% to the son and 50% to the new spouse. The father’s car may have been the only asset not jointly owned with his new spouse.

A parent can also accidentally disinherit an heir, if all of their non-probate assets are in one child’s name and no provision for the non-probate assets has been made for any other children. An estate planning attorney can work with the parents to find a way to make inheritances equal, if the intention is for all of the children to receive an equal share. One way to accomplish this would be to give the other children a larger share of probated assets.

Any division of inheritance should bear in mind the tax liability of assets. Non-probate does not always mean non-taxed. Depending upon the state of residence for the decedent and the heirs, there may be estate or inheritance tax on the assets.

Placing assets in an irrevocable trust is a commonly used estate planning method to ensure inheritances are received by the intended parties. The trust allows you to give very specific instructions about who gets what. Assets in the trust are outside of the probate estate, since the trust is not owned by the grantor.

Your estate planning attorney will be able to review probate and non-probate assets to determine the best way to achieve your wishes for your distribution of assets.

Reference: The Mercury (April 12, 2022) “Planning Ahead: Pay attention to your non-probate assets”

My Children Really Don’t Want My Stuff?

Next Avenue’s recent article entitled “Your Top 10 Objects Your Kids Don’t Want” gives us a list of these items and what to do with them.

Books. Unless your grown children are professors, they don’t want your books. If you think the book is rare, call a book antiquarian.

Paper Ephemera. Snapshots, old greeting cards and postcards are called paper ephemera. Did you know that? Me neither. Old photos are not worth anything, unless the subject is a celebrity or linked with an important historical event. Old greeting cards are not valuable, unless handmade by a famous artist or sent by a celebrity. Postcards are valued mainly for the stamps. Take all your family snapshots and have them made into digital files. The other option is to sell those old snapshots to greeting card publishers who use them on funny cards or give family photos to image archive businesses, like Getty. If the archive is a not-for-profit, take the donation write-off.

Steamer Trunks, Sewing Machines and Film Projectors. Thrift stores are full of these items. Therefore, unless your family member was a professional and the item is top-notch, yours can go there as well.

Porcelain Figurine Collections and Bradford Exchange Pieces. Your collections of frogs, shoes, flowers, and trolls, as well your Hummel’s, and Precious Moments won’t be wanted by the children. See if you can find a retirement home that does a gift exchange at Christmas and donate the figurines. If you want to hold on to a memory of your mom’s collection, have a professional photographer take a photo for your wall. Collector’s plates won’t sell. Donate these as well.

Silver-Plated Stuff. Your children won’t polish silverplate, so if you give them platters, serving bowls, tea services and candelabra, you won’t enhance your standing. The exception may be silver-plated items from Tiffany or Cartier but give these away to any place or person who will take it.

Heavy, Dark, Antique Furniture. There’s still a market for this sort of furniture at secondhand shops. However, you’ll get less than a quarter of purchase price, if you sell on consignment. Unless your furniture is mid-century modern, there’s a good chance you will have to pay someone to take it off your hands. Instead, donate it and take a non-cash charitable contribution using fair market valuation.

Persian Rugs. No, these aren’t really in vogue for younger adults. However, the high-end market is still collecting in certain parts of the country, like Martha’s Vineyard. However, unless the rug is rare, it’s one of the hardest things to sell these days. If you think the value of the rug is below $2,000, it will be a hard sell. Like antique furniture, it may be best to donate these.

Linens. No, they don’t want them. They might not even own an iron or ironing board, and they definitely don’t set that kind of table. Give these to needlewomen who make handmade Christening clothes, wedding dresses and quinceañera gowns. You may also donate linens to costume shops of theaters and deduct the donation. A site like P4a.com has auction results to establish the fair market value of such objects.

Sterling Silver Flatware and Crystal Wine Services. Matching sets of sterling flatware are tough to sell because they rarely go for “antique” value. Do the children do a lot of formal entertaining? The same is true for crystal. These sets are too precious, and the wine they hold is too small a portion. Sites like Replacements.com offer matching services for people who do enjoy silver flatware and have recognized patterns. Because they sell per piece, and therefore buy per piece, sellers get a rather good price.

Fine Porcelain Dinnerware. Your grown children may not want to store four sets of fancy porcelain dinnerware and won’t see the benefit of unpacking it once a year for a holiday or event. China is something to consider selling. Know your pattern to get a quote. Some replacement companies buy per piece, so the aggregate of the selling price is always more than a bulk sale at a consignment store, which might be the only other option.

Reference: Next Avenue (March 1, 2018) “Your Top 10 Objects Your Kids Don’t Want”

Why Is Communication Important in Estate Planning?

Successful transition of wealth from generation to generation is best accomplished when family members have a shared understanding of the overall use of the family wealth. While the initial wealth creators have final say about how their assets are distributed, awareness and agreement on the part of the receiving family members regarding how the wealth is used can help preserve assets as they move to the next generation.

Forbes’ recent article entitled “Communication Can Be The Key To Creating Harmony In Multi-Generational Estate Planning” says that coming to an agreement can sometimes be difficult, especially if family members bring their own perspectives and values to the estate planning process. However, good communication can help head off potential multi-generational conflicts before they happen.

One of the most significant challenges in achieving multi-generational wealth preservation is that each individual and generation has a different outlook on wealth. Today’s families could include four or even five generations. This big gap in ages could mean differing perspectives on many topics, including:

Personal values. Family members may have different belief systems and values, including how they view work, social and political systems, relationships, and other topics.
Investing priorities. Some generations may give greater importance to socially conscious investing than others. This could create a conflict when it comes to how and where to invest.
Shifting economic environments. Older generations who have lived through various economic scenarios may have very different perspectives than younger generations, particularly those just coming of age in a time of high inflation and a slowing economy.
Communication. Not every generation or family member is comfortable talking openly about money, especially when it comes to sharing how much is involved and how to spend it.
View of the role of a financial advisor. Some family members may see a financial advisor as a trusted partner, and others may be more skeptical.

While these differences can create challenges in the estate planning process, you can resolve them and reach an agreement about how to best manage the family’s wealth. Begin with a plan designed for the long-term, spanning current and future generations that’s flexible to meet the family’s changing needs and shifting economic environments.

Reference: Forbes (April 18, 2022) “Communication Can Be The Key To Creating Harmony In Multi-Generational Estate Planning”

Should an Estate Plan Include a Cabin on the Lake?

If you don’t plan appropriately and thoughtfully, problems may arise with respect to this property and your family when you are gone, says Kiplinger’s recent article entitled “Your Vacation Home Needs an Estate Plan!”

Speaking with your spouse and children is a good first step to help determine interest in retaining the property for the next generation and financial ability to maintain it. Let’s look at three ways you can plan for your vacation home.

Leave a Vacation Home to Children Outright During Life or at Death. An outright transfer of the home via a deed to children is the easiest way to transfer a vacation home.

However, if your children all own the property equally, they all have an equal say as to its use and management.

As a result, all decisions require unanimous agreement, which can prove challenging and be ripe for disagreement. Suggest that they create a Use and Maintenance Agreement to determine the terms and rules for the property usage. The contract would require all children to agree.

Form a Limited Liability Company (LLC). This is a tool often used by families, where each family member has a certain amount of membership interests in a home or to give away a home in a controlled manner. The operating agreement states the rules for governing the use and management of the property.

Put the Vacation Home in a Trust. A trust is another way to help with the ownership and transfer of vacation homes. Ask an experienced estate planning attorney about how this might work for your family.

Planning for your family’s vacation property is important to help avoid litigation and maintain family peace.

Addressing how the property will be paid for and setting aside money for it—as well as selecting the right structure for your family to use and enjoy the property—will help avoid issues in the future.

Reference: Kiplinger (Feb. 1, 2022) “Your Vacation Home Needs an Estate Plan!”

How to Handle Digital Assets in a Will

Now that cryptocurrency has become almost commonplace, it is necessary to incorporate it into estate plans and their administration, according to the article “Estate planners want to keep the crypt out of cryptocurrency” from Roll Call.

One advantage of using cryptocurrencies in estate planning is the ease of transference—if all parties know how crypto works. Unlike a traditional bank, which typically requires executors to produce an original death certificate and other documents to take control of accounts in the estate, cryptocurrency only requires the fiduciary to have passcodes to gain access to accounts.

The passcode is a complex, multicharacter code appearing to be a long string of unrelated numbers and letters. It is stored in a digital wallet, which can only be accessed through the use of the 64-digit passcode, also known as a key.

While the passcode is simple, it is also very vulnerable. If the key is lost, there is no way to retrieve it. The executor must know not just where the key is physically located if it has been written down on paper, or if it is kept in a digital wallet, but how to access the digital wallet. There are also different kinds of digital wallets.

People do not usually share their passwords with others. However, in the case of crypto, consider storing it in a safe but accessible location and telling a trusted person where it may be found.

People who own cryptocurrency need to give someone access info. If someone is named an executor at one point in your life and they have the information about digital assets, then at some point you change the executor, there is no way to guarantee the former executor might not access the account.

How do you protect digital assets? Using “cold storage,” an account passcode is stored and concealed on a USB drive or similar device, allowing the information to be shared without the user needing to learn the passcode to access the account. The cold storage USB drive can be given from one fiduciary to the successor fiduciary without either knowing the passcode.

Many bills have been introduced in Congress addressing cryptocurrency and blockchain policies. The IRS has issued a number of notices and publications regarding taxes on digital currency transactions. Crypto is no longer an “invisible” asset.

In addition to policies and regulations, litigation concerning estates and cryptocurrency is still relatively new to the judiciary. Planning for these assets to ensure they are passed to the next generation securely is very important as their use and value continues to grow.

Reference: Roll Call (Feb. 22, 2022) “Estate planners want to keep the crypt out of cryptocurrency”

When Should I Think About Business Succession?

The pandemic has made many business owners rethink their business succession and retirement planning. Insurance News Net’s recent article entitled “Succession Planning For Business Owners: More Important Than Ever” reports that according to PwC’s 2021 US Family Business Survey, only a third of US family businesses have a robust, documented and communicated succession plan in place.

If you wait too long, you may not have the right people in place to run the business. It also restricts the tax planning options for the business and your personal estate. Either error can cause a business to fail, when it passes from one generation to the next.

An exit that is too sudden or without direction can leave a vacuum at the top and damage relationships with existing clients and customers. With clear objectives, a sense of urgency and an experienced estate planning attorney, you can help ensure that your business, and your future, are secure.

There are a number of areas of transition that should be addressed:

Founder Transition: Determine how long you plan to stay with the business, and what your retirement plans are;
Family Transition: If you plan to leave your business to your children, determine the way in which the roles and power relationships will change;
Business Transition: How will the company’s operations and customer relations be maintained through other transitions;
Management Transition: Decide who will make up the new management team, such as family, non-family, or both, and how new leadership will be evaluated. You should also map out the schedule for transferring control of day to day decisions;
Ownership Transition: Determine how ownership is to be transferred; and
Estate Transition: see how you will coordinate your estate plan to ensure that the other transitions above occur as planned.

Many of these transitions will be accomplished through formal documentation, such as an operating agreement, buy-sell agreements and trusts. Sit down with an attorney soon rather than later to sort this out.

Reference: Insurance News Net (December 30, 2021) “Succession Planning For Business Owners: More Important Than Ever”

Can a Vacation Home Be Kept in the Family for Generations?

Many family traditions include gatherings at vacation homes. However, leaving these properties to the next generation is not always in the best interest of the family. Some people try to make a simple solution work for a complex problem, leading to more challenges, as explained in the article “Succession planning for the family lakehouse” from NH Business Review.

Joint ownership among siblings can lead to disputes about how the home is used, operated and maintained. Some children want to continue using the house, while others may see it as an income stream for a rental property. There may be siblings who cannot afford to participate in the house’s upkeep and need the cash more than the tradition. When joint ownership is presented as a surprise in a will, the adult children may find themselves fighting about the vacation home, with no parent around to tell them to knock it off.

Making matters more complicated, if the siblings live in different states and the house is in a neighboring state, ownership of the real estate at death may subject the decedent’s estate to estate taxes where the property is located. As a result, the property may need to go through probate in an additional state. Every state has its own tax rules, so the transfer of joint property will have to be analyzed by an estate planning attorney knowledgeable about the laws in each state involved.

A sensible alternative is creating a Limited Liability Corporation, ideally while the original owners—the parents—are still living. The organizational documents include a certificate of organization to file with the Secretary of State and an operating agreement. The LLC will need its own taxpayer identification number, or EIN.

The operating agreement governs the management of the property and addresses the operating expenses and maintenance of the property. It should also address the process for a child to cash in on their ownership to other children. LLC operating agreements often include these items:

Responsibilities for operating expenses
Process to transfer member units or interests
Duties for regular maintenance, budgeting and approval of property improvements
Development of a property use schedule
Establishing rules for the home’s use

There are some costs associated with creating an LLC, including annual filing requirements. However, these will be small, when compared to the cost of family fights and untangling joint ownership.

An LLC can also offer personal liability protection from lawsuits brought by renters, creditors, or any litigants. If there is an accident resulting from work being done on the property, the owners may be shielded from the liability because they do not personally own the property, the LLC does.

In the case of divorce, bankruptcy filing, or a large judgement being filed against one of the children, the LLC will protect their interest in the property.

The real estate owned by the LLC is not part of the owner’s probate estate. This avoids the need for a second probate in the state where the property is located. Some states have adopted the Uniform Transfer on Death Security Registration Act, and the LLC membership interest can be assigned along to the terms of the beneficiary designation.

Planning for what will happen to a vacation home after death provides peace of mind for all in the family. Speak with an experienced estate planning attorney to ensure that the property and the family’s peace is preserved.

Reference: NH Business Review (March 23, 2022) “Succession planning for the family lakehouse”

Is Estate Planning Affected by Property in Two States?

Cleveland Jewish News’ recent article titled “Use attorney when considering multi-state estate plan” says that if a person owns real estate or other tangible property (like a boat) in another state, they should think about creating a trust that can hold all their real estate. You don’t need one for each state. You can assign or deed their property to the trust, no matter where the property is located.

Some inherited assets require taxes be paid by the inheritors. Those taxes are determined by the laws of the state in which the asset is located.

A big mistake that people frequently make is not creating a trust. When a person fails to do this, their assets will go to probate. Some other common errors include improperly titling the property in their trust or failing to fund the trust. When those things occur, ancillary probate is required. This means a probate estate needs to be opened in the other state. As a result, there may be two probate estates going on in two different states, which can mean twice the work and expense, as well as twice the stress.

Having two estates going through probate simultaneously in two different states can delay the time it takes to close the probate estate.

There are some other options besides using a trust to avoid filing an ancillary estate. Most states let an estate holder file a “transfer on death affidavit,” also known as a “transfer on death deed” or “beneficiary deed” when the asset is real estate. This permits property to go directly to a beneficiary without needing to go through probate.

A real estate owner may also avoid probate by appointing a co-owner with survivorship rights on the deed. Do not attempt this without consulting an attorney.

If you have real estate, like a second home, in another state (and) you die owning that individually, you’re going to have to probate that in the state where it’s located. It is usually best to avoid probate in multiple jurisdictions, and also to avoid probate altogether.

A co-owner with survivorship is an option for avoiding probate. If there’s no surviving spouse, or after the first one dies, you could transfer the estate to their revocable trust.

Each state has different requirements. If you’re going to move to another state or have property in another state, you should consult with a local estate planning attorney.

Reference: Cleveland Jewish News (March 21, 2022) “Use attorney when considering multi-state estate plan

No Will? What Happens Now Can Be a Horror Show

Families who have lived through settling an estate without an estate plan will agree that the title of this article, “Preventing the Horrors of Dying Without a Will,” from Next Avenue, is no exaggeration. When the family is grieving is no time to be fighting, yet the absence of a will and an estate plan leads to this exact situation.

Why do people procrastinate having their wills and estate plans done?

Limited understanding about wealth transfers. People may think they do not have enough assets to require an estate plan. Their home, retirement funds or savings account may not be in the mega-millions, but this is actually more of a reason to have an estate plan.

Fear of mortality. We do not like to talk or think about death. However, talking about what will happen when you die or what may happen if you become incapacitated is very important. Planning so your children or other trusted family member or friends will be able to make decisions on your behalf or care for you alleviates what could otherwise turn into an expensive and emotionally disastrous time.

Perceived lack of benefits. Working with an experienced estate planning attorney who will put your interests first means you will have one less thing to worry about while you are living and towards the end of your life.

Estate planning documents contain the wishes and directives for your legacy and finances after you pass. They answer questions like:

Who should look after your minor children, if both primary caregivers die before the children reach adulthood?
If you become incapacitated, who should handle your financial affairs, who should be in charge of your healthcare and what kind of end-of-life care do you want?
What do you want to happen to your assets after you die? Your estate refers to your financial accounts, personal possessions, retirement funds, pensions and real estate.

Your estate plan includes a will, trusts (if appropriate), a durable financial power of attorney, a health care power of attorney or advanced directive and a living will. The will distributes your property and also names an executor, who is in charge of making sure the directions in the will are carried out.

If you become incapacitated by illness or injury, the POA gives agency to someone else to carry out your wishes while you are living. The living will provides an opportunity to express your wishes regarding end-of-life care.

There are many different reasons to put off having an estate plan, but they all end up in the same place: the potential to create family disruption, unnecessary expenses and stress. Show your family how much you love them, by overcoming your fears and preparing for the next generation. Meet with an estate planning attorney and prepare for the future.

Reference: Next Avenue (March 21, 2022) “Preventing the Horrors of Dying Without a Will”

Why Shouldn’t I Wait to Draft my Will?

There are countless reasons why people 50 and over fail to write a will, update a previous one, or make other estate planning decisions. Market Watch’s recent article entitled “We beat up 6 of your excuses for not writing a will (or updating an old one)” takes a closer look at those six reasons, and how to help overcome them.

Excuse No. 1: You have plenty of time. Sure, you know you need to do it. However, it’s an easy thing to move down on your priority list. We all believe we have time and that we’ll live to be 100. However, that’s not always the case. Set up an appointment with an experienced estate planning lawyer ASAP because what gets scheduled gets done.

Excuse No. 2: You don’t have a lot of money. Some think they have to have a certain amount of assets before estate planning matters. That isn’t true. Drafting these documents is much more than assigning your assets to your heirs: it also includes end-of-life decisions and deciding who would step in, if you were unable to make financial decisions yourself. It’s also wise to have up-to-date documents like a power of attorney and a living will in case you can’t make decisions for yourself.

Excuse No. 3: You don’t want to think about your death. This is a job that does require some time and energy. However, think about what could happen without an up-to-date estate plan. Older people have seen it personally, having had friends pass without a will and seeing the children fighting over their inheritance.

Excuse No. 4: It takes too much time. There’s a misconception about how time-consuming writing a will is. However, it really can be a fairly quick process. It can take as little as 2½ hours. First, plan on an hour to meet with the lawyer; an hour to review the draft; and a half-hour to sign and execute your documents. That is not a hard-and-fast time requirement. However, it is a fair estimate.

Excuse No. 5: You’d rather avoid making difficult decisions. People get concerned about how to divide their estate and aren’t sure to whom they should leave it. While making some decisions in your estate plan may seem final, you can always review your choices another time.

Excuse No. 6: You don’t want to pay an attorney. See this as investment in your loved ones’ futures. Working with an experienced estate planning attorney helps you uncover and address the issues you don’t even know you have. Maybe you don’t want your children to fight. However, there can be other issues. After all, you didn’t go to law school to learn the details of estate planning.

Reference: Market Watch (March 12, 2022) “We beat up 6 of your excuses for not writing a will (or updating an old one)”

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