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”

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?”

What Is the Best Thing to Do with an Inherited IRA?

When a parent dies and their adult child inherits a traditional IRA, knowing what to do can be the difference between an inheritance and a tax disaster. Many people take the money from the IRA account and place it into their own IRA. However, that’s a mistake, says the article “How to manage an inherited IRA from a parent” from Sentinel Source.com.

Any inherited IRA, whether it’s from a parent, sibling, or friend, cannot be simply rolled into your own account or treated as if it’s your own IRA. Instead, the assets must be transferred in a timely manner to a new IRA that must be titled as an “Inherited IRA” that includes the name of the deceased owner and the phrase “For the benefit of…” and your name. Different financial institutions may have small variations in how they title the account. However, this seemingly small detail is critical.

If a traditional IRA has more than one beneficiary, it must be split into separate accounts for each beneficiary. Each heir will treat their own inherited portion in the same way, as if they were the sole beneficiary.

It’s the heir’s choice to either set up a new Inherited IRA Beneficiary account with a financial institution or advisor of their own, or to create a new account using the prior institution. Sometimes using the same firm that held the account is easier, as long as the correct title is used.

The new owner of a Beneficiary IRA needs to know the rules to avoid costly penalties. After the SECURE Act became law in December 2019, most beneficiaries are now required to deplete an inherited IRA within ten (10) years of the original account owner’s death. This applies to any inherited IRAs where the owner has died after December 31, 2019.

The prior rules allowed Inherited IRAs to be depleted over the lifetime of the beneficiary, which allowed the accounts to grow tax-deferred and in many cases, be passed to a third generation, often referred to as “Stretch IRAs.” This option is gone.

There are no limits as to how much or how often withdrawals can be taken from the account, as long as it’s depleted in ten years. However, the withdrawals are taxable as regular income, so if you wait until the ten year mark and take out the entire amount, you’ll end up with a hefty tax bill.

There are exceptions to the withdrawal rule. A surviving spouse, a minor child, a disabled or chronically ill beneficiary, or a beneficiary within ten years of age of the original IRA owner may have a little more time to withdraw funds (and pay taxes on the withdrawals).

If inheriting an IRA from a spouse, you may transfer the IRA balance into your own account and delay distributions until age 72.

Consider your IRAs carefully when working with an estate planning attorney on the distribution of your assets. Will your heirs be able to pay the taxes on their inherited IRAs, or should they be converted to Roth IRAs to relieve heirs of a future tax burden? These are questions that your estate planning attorney will be able to address.

Reference: Sentinel Source.com (Sep. 18, 2021) “How to manage an inherited IRA from a parent”

Where Do You Score on Estate Planning Checklist?

Make sure that you review your estate plan at least once every few years to be certain that all the information is accurate and updated. It’s even more necessary if you experienced a significant change, such as marriage, divorce, children, a move, or a new child or grandchild. If laws have changed, or if your wishes have changed and you need to make substantial changes to the documents, you should visit an experienced estate planning attorney.

Kiplinger’s recent article “2021 Estate Planning Checkup: Is Your Estate Plan Up to Date?” gives us a few things to keep in mind when updating your estate plan:

Moving to Another State. Note that if you’ve recently moved to a new state, the estate laws vary in different states. Therefore, it’s wise to review your estate plan to make sure it complies with local laws and regulations.

Changes in Probate or Tax Laws. Review your estate plan with an experienced estate planning attorney to see if it’s been impacted by changes to any state or federal laws.

Powers of Attorney. A power of attorney is a document in which you authorize an agent to act on your behalf to make business, personal, legal, or financial decisions, if you become incapacitated. It must be accurate and up to date. You should also review and update your health care power of attorney. Make your wishes clear about do-not-resuscitate (DNR) provisions and tell your health care providers about your decisions. It is also important to affirm any clearly expressed wishes as to your end-of-life treatment options.

A Will. Review the details of your will, including your executor, the allocation of your estate and the potential estate tax burden. If you have minor children, you should also designate guardians for them.

Trusts. If you have a revocable living trust, look at the trustee and successor appointments. You should also check your estate and inheritance tax burden with an estate planning attorney. If you have an irrevocable trust, confirm that the trustee properly carries out the trustee duties like administration, management and annual tax returns.

Gifting Opportunities. The laws concerning gifts can change over time, so you should review any gifts and update them accordingly. You may also want to change specific gifts or recipients.

Regularly updating your estate plan can help you to avoid simple estate planning mistakes. You can also ensure that your estate plan is entirely up to date and in compliance with any state and federal laws.

Reference: Kiplinger (July 28, 2021) “2021 Estate Planning Checkup: Is Your Estate Plan Up to Date?”

What are Digital Assets in an Estate?

Planning for what would happen to our intangible, digital assets in the event of incapacity or death is now as important as planning for traditional assets, like real property, IRAs, and investment accounts. How to accomplish estate planning for digital assets is explained in the article, aptly named, “Estate planning for your digital assets” from the Baltimore Business Journal.

Digital asset is the term used to describe all electronically stored information and online accounts. Some digital assets have monetary value, like cryptocurrency and accounts with gaming or gambling winnings, and some may be transferrable to heirs. These include bank accounts, domains, event tickets, airline miles, etc.

Ownership issues are part of the confusion about digital assets. Your social media accounts, family photos, emails and even business records, may be on platforms where the content itself is considered to belong to you, but the platform strictly controls access and may not permit anyone but the original owner to gain control.

Until recently, there was little legal guidance in managing a person digital files and accounts in the event of incapacity and death. Accessing accounts, managing contents and understanding the owner, user and licensing agreements have become complex issues.

In 2014, the Uniform Law Commission proposed the Uniform Fiduciary Access to Digital Assets Act (UFADAA) to provide fiduciaries with some clarity and direction. The law, which was revised in 2015 and is now referred to as RUFADAA (Revised UFADAA) was created as a guideline for states and almost every state has adopted these laws, providing estate planning attorneys with the legal guidelines to help create a digital estate plan.

A digital estate plan starts with considering how many digital accounts you actually own—everything from online banking, music files, books, businesses, emails, apps, utility and bill payment programs. What would happen if you were incapacitated? Would a trusted person have the credentials and technical knowledge to access and manage your digital accounts? What would you want them to do with them? In case of your demise, who would you want to have ownership or access to your digital assets?

Once you have created a comprehensive list of all of your assets—digital and otherwise—an estate planning attorney will be able to update your estate planning documents to include your digital assets. You may need only a will, or you may need any of the many planning tools and strategies available, depending upon the type, location and value of your assets.

Not having a digital asset estate plan leaves your estate vulnerable to many problems, including costs. Identity theft against deceased people is rampant, once their death is noted online. The ability to pay bills to keep a household running may take hours of detective work on your surviving spouse’s part. If your executor doesn’t know about accounts with automatic payments, your estate could give up hundreds or thousands in charges without anyone’s knowledge.

There are more complex digital assets, including cryptocurrency and NFTs (Non-Fungible Tokens) with values from a few hundred dollars to millions of dollars. The rules on the valuation, sale and transfers of these assets are as yet largely undefined. There are also many reports of people who lose large sums because of a lack of planning for these assets.

Speak with your estate planning attorney about your state’s laws concerning digital assets and protect them with an estate plan that includes this new asset class.

Reference: Baltimore Business Journal (Sep. 16, 2021) “Estate planning for your digital assets”

What Should I Know about Cryptocurrency and Estate Planning?

Cryptocurrency is a digital currency that can be used to buy online goods and services, explains Forbes’ recent article entitled “Cryptocurrency And Estate Planning: What Digital Investors Should Know.” Part of cryptocurrency’s appeal is the technology that backs it. Blockchain is a decentralized system that records and manages transactions across many computers and is very secure.

As of June 24, the total value of all cryptocurrencies was $1.35 trillion, according to CoinMarketCap. There are many available cryptocurrencies. However, the most popular ones include Bitcoin, Ethereum, Binance Coin and Dogecoin. Many believe cryptocurrency will be a main currency in the future, and they’re opting to buy it now. They also like the fact that central banks are not involved in the process, so they can’t interfere with its value.

In addition, NFTs or non-fungible tokens, are also gaining in popularity. Each token is one of a kind and they’re also supported by blockchain technology. They can be anything digital, such as artwork or music files. NFTs are currently being used primarily as a way to buy and sell digital art. An artist could sell their original digital artwork to a buyer. The buyer is the owner of the exclusive original, but the artist might retain proprietary rights to feature the artwork or make copies of it. The popularity of NFTs is centered around the social value of fine art collecting in the digital space.

Here are three reasons to have an estate plan, if you buy bitcoin:

No probate. Even if your loved ones knew you had cryptocurrency, and even if they knew where you stored your password, that wouldn’t be enough for them to get access to it. Without a proper estate plan, your digital assets may be put through a lengthy and expensive probate process.
Blockchain technology. You must have a private key to access each of your assets. It’s usually a long passcode. A comprehensive estate plan that includes this can help you have peace of mind knowing that your investments can be passed on to loved ones’ if anything were to happen to you unexpectedly.
Again, central banks don’t play any part in the process, and it’s secure because its processing and recording are spread across many different computers. However, there’s no governing body overseeing the affairs of cryptocurrency.

Reference: Forbes (July 21, 2021) “Cryptocurrency And Estate Planning: What Digital Investors Should Know”

States with the Best Tax Rates for Retirees

For the moment, fewer Americans are concerned about the federal estate tax. However, if your goal is to leave as much as possible to heirs, then it’s wise to consider all the taxes of the state you choose for retirement. That’s all detailed in the article “33 States with No Estate Taxes or Inheritance Taxes” from Kiplinger.

Twelve states and the District of Columbia have their own estate taxes, which some call “death taxes.” Their exemption levels are far lower than the federal government’s. There are also six states with inheritance taxes, where heirs pay taxes based on their relationship to the deceased. Maryland has both: an estate tax and an inheritance tax.

The most tax friendly states of all are Nevada, Arizona, Wyoming, Colorado, Arkansas, Tennessee, South Carolina and Delaware. In Colorado, taxpayers 55 and older get a retirement income exclusion from state taxes that gets better when they reach 65. Colorado also has one of the lowest median tax rates and seniors may qualify for an exemption of up to 50% of the first $200,00 of property value. Colorado also has a flat income tax rate of 4.55%, and up to $24,000 of Social Security benefits, along with other retirement income, can be excluded for income tax purposes.

Next in line for retiree tax friendliness are Montana, Idaho, California, Kentucky, Virginia, Louisiana, Mississippi, Alabama, Georgia and Florida. Let’s look at the Sunshine State, which has no state income tax and also a low sales tax rate. Property taxes are low in Florida, and residents 65 and older who meet certain income, property-value and length-of-ownership standards also receive a homestead exemption of up to $50,000 from some city and county governments and meet other requirements. Social Security benefits are not taxed in Florida and the state has no income tax, making it extremely attractive to retirees.

Coming in third place with a mixed tax picture are Washington, Oregon, North Dakota, South Dakota, Utah, Oklahoma, Missouri, West Virginia, North Carolina, Maryland and the District of Columbia. Many people are moving to North Carolina, where Social Security benefits are not taxed, but tax breaks for other kinds of retirement income are far and few between. Property taxes are low and there are no estate or inheritance taxes. State income is taxed at a flat 5.25% percent, making North Carolina competitive, when compared to high state income taxes. Then there’s Oklahoma, which doesn’t tax Social Security benefits and allows residents to exclude up to $10,000 per person ($20,000 for couples) in retirement income. However, the Sooner State has one of the highest combined state and local sales tax rates in the nation. Property taxes also fall right in the middle, when the median property taxes for all 50 states are compared.

Looking for a state to avoid when it comes to taxes? The fourth place in taxes goes to New Mexico, Minnesota, Michigan, Indiana, Ohio, Pennsylvania, Maine, New Hampshire and Massachusetts. Indiana may not tax Social Security benefits, but it taxes IRAs, 401(k) plans and private pension income. And counties are authorized to levy their own income taxes on top of the state’s flat tax. Sales and property taxes are in the middle of the road. Illinois also spares retirees from taxes on Social Security and income from most retirement plans, but property taxes in are the second highest in the nation. Sales tax rates are high in Illinois. The state also levies an estate tax on heirs. Pennsylvania has an inheritance tax and high property taxes (the 12^th highest in the country). However, it has a flat income tax rate of 3.07%, although school districts and municipalities may levy their own taxes.

Lowest on the list for retirees seeking to minimize tax expenses are New York State, Vermont, New Jersey, Connecticut, Wisconsin, Illinois, Iowa, Nebraska, Kansas and Texas. Everyone knows about taxes in New York, New Jersey, and Connecticut, but Texas? How does a state with no income tax at all end up on the “least tax friendly for retirees” list? Texas has the seventh-highest median property tax rate in the country. There are some exemptions for retirees, but not enough to make the state tax friendly. Sales taxes are high, with the average combined state and local taxes in the state hitting 8.19%.

Taxes are not the only factor in deciding where to retire. Where you ultimately retire also considers where your loved ones live, what level of healthcare you need now and may need in the future and whether you want to move or remain in your community.

Reference: Kiplinger (Aug. 25, 2021) “33 States with No Estate Taxes or Inheritance Taxes”

Should I Try Do-It-Yourself Estate Planning?

US News & World Report’s recent article entitled “6 Common Myths About Estate Planning explains that the coronavirus pandemic has made many people face decisions about estate planning. Many will use a do-it-yourself solution. Internet DIY websites make it easy to download forms. However, there are mistakes people make when they try do-it-yourself estate planning.

Here are some issues with do-it-yourself that estate planning attorneys regularly see:

You need to know what to ask. If you’re trying to complete a specific form, you may be able to do it on your own. However, the challenge is sometimes not knowing what to ask. If you want a more comprehensive end-of-life plan and aren’t sure about what you need in addition to a will, work with an experienced estate planning attorney. If you want to cover everything, and are not sure what everything is, that’s why you see them.

More complex issues require professional help. Take a more holistic look at your estate plan and look at estate planning, tax planning and financial planning together, since they’re all interrelated. If you only look at one of these areas at a time, you may create complications in another. This could unintentionally increase your expenses or taxes. Your situation might also include special issues or circumstances. A do-it-yourself website might not be able to tell you how to account for your specific situation in the best possible way. It will just give you a blanket list, and it will all be cookie cutter. You won’t have the individual attention to your goals and priorities you get by sitting down and talking to an experienced estate planning attorney.

Estate laws vary from state to state. Every state may have different rules for estate planning, such as for powers of attorney or a health care proxy. There are also 17 states and the District of Columbia that tax your estate, inheritance, or both. These tax laws can impact your estate planning. Eleven states and DC only have an estate tax (CT, HI, IL, ME, MA, MN, NY, OR, RI, VT and WA). Iowa, Kentucky, Nebraska, New Jersey and Pennsylvania have only an inheritance tax. Maryland has both an inheritance tax and an estate tax.

Setting up health care directives and making end-of-life decisions can be very involved. It’s too important to try to do it yourself. If you make a mistake, it could impact the ability of your family to take care of financial expenses or manage health care issues. Don’t do it yourself.

Reference: US News & World Report (July 5, 2021) “6 Common Myths About Estate Planning”

How Does Probate Work?

Having a good understanding of how wills are used, how probate works and what other documents are needed to protect yourself and loved ones is key to creating an effective estate plan, explains the article “Understanding probate helps when drafting will” from The News Enterprise.

A last will and testament expresses wishes for property distribution after death. It’s different from a living will, which formalizes choices for end-of-life decisions. The last will and testament also includes provisions for care of minor children, disabled dependents and sometimes, for animal companions.

The will does not become effective until after death. However, before death, it is a useful tool in helping family members understand your goals and wishes, if you are ever incapacitated by illness or injury.

The will has roles for specific people. The “testator” is the person creating the will. “Beneficiaries” are heirs receiving assets after the testator has died. The “executor” is the person who oversees the estate, ensuring that directions in the will are followed.

If there is no will, the court will appoint someone to manage the estate, usually referred to as the “administrator.” There is no guarantee the court will appoint a family member or relative, even if there are willing and qualified candidates in the family. Having a will precludes a court appointing a stranger to make serious decisions about a treasured possession and the future of your loved ones.

A will is usually not filed with the court until after the testator dies and the executor takes the will to the court in the county where the testator lived to open a probate case. If the person owned real estate in other counties or states, probate must take place in all other such locations. The will is recorded by the county clerk’s office and becomes part of the public record for anyone to see.

Assets with named beneficiaries, like life insurance proceeds, retirement funds and property owned jointly are distributed to beneficiaries outside of probate. However, any property owned solely by the decedent is part of the probate action and is vulnerable to creditors and anyone who wishes to make a claim against the estate.

The best way to protect your family and your assets is to have a complete estate plan that includes a will and a thorough review of how assets are titled so they can, if possible, go directly to beneficiaries and not be subject to probate.

Reference: The News Enterprise (Aug. 17, 2021) “Understanding probate helps when drafting will”

Estate Planning Blog Articles

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

How Do I Write a Will?

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

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

What Is the Best Thing to Do with an Inherited IRA?

Where Do You Score on Estate Planning Checklist?

What are Digital Assets in an Estate?

What Should I Know about Cryptocurrency and Estate Planning?

States with the Best Tax Rates for Retirees

Should I Try Do-It-Yourself Estate Planning?

How Does Probate Work?

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Recent Posts

How Do I Write a Will?

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

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

What Is the Best Thing to Do with an Inherited IRA?

Where Do You Score on Estate Planning Checklist?

What are Digital Assets in an Estate?

What Should I Know about Cryptocurrency and Estate Planning?

States with the Best Tax Rates for Retirees

Should I Try Do-It-Yourself Estate Planning?

How Does Probate Work?

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