Can I Split My Inheritance with My Sibling?

Let’s say that you are the beneficiary of your brother’s IRA.

All of his assets were supposed to be split between you and your sister according to a living trust. However, the IRA administrator says the IRA only has one beneficiary… you. How can you spilt this equally?

Can you sell half and give your other sibling her money?

What is the effect on taxes and the cost basis?

nj.com’s recent article entitled “Can I give my brother half of my inheritance?” says that it’s important to review beneficiary designations to make sure they reflect your wishes.

In this case, you would essentially be making a gift to your sister from the IRA account that you inherited.

To do this, you would have to liquidate some of the account and pay the taxes on the liquidated amount, if it is a traditional IRA.

You would also have to file a federal gift tax return for the amount gifted above the $16,000 annual exclusion amount. However, no gift tax should be due if you have less than $12.06 million in your estate and/or lifetime gifts made above the annual exclusion amounts.

The unified tax credit provides a set dollar amount that a person can gift during their lifetime before any estate or gift taxes apply. This tax credit unifies both the gift and estate taxes into one tax system that decreases the tax bill of the individual or estate, dollar to dollar.

As of 2021, the federal estate tax is 40% of the inheritance amount. However, the unified tax credit has a set amount that a person can gift during his or her lifetime before any estate or gift taxes are due. The 2021 federal tax law applies the estate tax to any amount above $11.7 million. This year’s amount is $12.06 million.

While you would receive a step-up in basis, the cost basis of your brother’s gifted share would be the value at the time the gift is made.

Another thought is that if there are other assets in the estate, perhaps your sister could have a greater share of those, so you could keep the IRA intact to avoid paying taxes at this time.

Reference: nj.com (Feb. 23, 2022) “Can I give my brother half of my inheritance?”

What If an Estate Owes Back Taxes?

If grandma did not finish up all of her duties as the executor of her husband’s estate before she passed away, it would be wise to speak with an experienced estate planning attorney.

An estate planning attorney can help with the issues with estate administration, says nj.com’s recent article entitled “My grandmother’s estate owes back taxes. What next?”

The fiduciary appointed to administer an estate—called an executor or personal representative—is responsible to make certain that all creditors are paid before making distribution of estate assets.

An executor of an estate is the person designated to administer the last will and testament of the decedent. His or her primary duty is to carry out the instructions to manage the affairs and wishes of the decedent.

An executor is appointed either by the testator of the will (the one who makes the will) or by a court, in situations where there is no will (also known as intestacy).

If there is a probate proceeding, the executor is required to officially notify creditors of it pursuant to the state probate statutes.

If there are not enough assets to pay all creditors, state statutes give a priority regarding how creditors are paid.

Funeral expenses and taxes are typically paid first.

Note that if the creditors are not paid, and money is distributed to beneficiaries, the creditors may seek the return of those distributions from the beneficiaries.

However, the executor’s individual assets would not be responsible for payment of estate debts. It is just the assets that are received from the decedent.

As far as taxes, the IRS is still legally entitled to the money owed by the decedent. The federal government will usually go to great lengths to collect it, even if the will instructs the remaining assets to be distributed elsewhere.

Reference: nj.com (Feb. 3, 2022) “My grandmother’s estate owes back taxes. What next?”

Why Is Estate Planning Review Important?

Maybe your estate plan was created when you were single, and there have been some significant changes in your life. Perhaps you got married or divorced.

You also may now be on better terms with children with whom you were once estranged.

Tax and estate laws can also change over time, requiring further updates to your planning documents.

WMUR’s recent article entitled “The ‘final’ estate-planning step” reminds us that change is a constant thing. With that in mind, here are some key indicators that a review is in order.

The value of your estate has changed dramatically
You or your spouse changed jobs
Changes to your income level or income needs
You are retiring and no longer working
There is a divorce or marriage in your family
There is a new child or grandchild
There is a death in the family
You (or a close family member) have become ill or incapacitated
Your parents have become dependent on you
You have formed, purchased, or sold a business;
You make significant financial transactions, such as substantial gifts, borrowing or lending money, or purchasing, leasing, or selling assets or investments
You have moved
You have purchased a vacation home or other property in another state
A designated trustee, executor, or guardian dies or changes his or her mind about serving; and
You are making changes in your insurance coverage.

Reference: WMUR (Feb. 3, 2022) “The ‘final’ estate-planning step”

What Can’t I Forget in My Will Now that I’m 50?

Yahoo News’ recent article entitled “If You’re Over 50, Don’t Leave This Out of Your Will, Expert Says” fills us in on what we can’t forget in a will after the big 5-0.

Incapacity. A 2021 survey from Caring.com says that almost two-thirds of adults do not have a will. Even those thinking about estate planning do not consider a plan for addressing the possibility of incapacity.

Ask an experienced estate planning attorney to create a power of attorney, so in the event you are incapable of making decisions because of your mental state or disability, you have someone you trust doing it for you.

More than a will. A will should be one component of a comprehensive estate plan that addresses who gets what when you die, but also who can take care of business, if you are not able to care for yourself. Naming a person in advance lets you to avoid having court involvement and lets you take control of your future.

The law has many ways for you to select who will have authority and care for you, if you become incapacitated. This is something that you can and should discuss with an experienced estate planning attorney.

Will backups. Designating loved ones you trust should be the rule in all facets of estate planning. However, it is critical to be certain that you have backups (“successors” or “alternates”), in the event that a person you’ve selected can’t fulfill their role.

Many people around age 50 who see their thriving, productive children making their way in the world fail to consider the thought that their children may not be available or able to serve a role. Designating more than one backup might not seem like it is a big deal, but you should consider the possibility that a loved one might be incapacitated, predecease you, or be unavailable.

Keep your will current. As your life changes, so do your needs. Therefore, it is vital to be sure that your will is up-to-date. You should review your will regularly (at least every few years) to make sure that it still reflects your current thinking.

You should also be sure you know where an original copy of the will is located. It is important to keep track of it. You can leave it locked away with your attorney or some other secure place, but you need to know where it is.

Reference: Yahoo News (Feb. 6, 2022) “If You’re Over 50, Don’t Leave This Out of Your Will, Expert Says”

Why are Siblings Battling over Mom’s Estate?

Sisters Jean Mamakos and Irene Savadian — both retired nurses in their 70s —have been locked in a bitter fight with their three other siblings over their mother’s $2.7 million estate.

The New York Post’s recent article entitled “Nasty family feud over mom’s will lands two retired sisters in jail — and one may lose her home” explains that Frances Perrenod, who died in 2006, named Mamakos and Savadian as the executors of her estate. All five of her children were named as beneficiaries. Perrenod was a homemaker and her husband, Charles, who died in 1988, manufactured specialized miniature light bulbs.

Since the siblings started their legal challenges in 2008, their objections have included the payment of legal fees to settle the estate with money from it; the cost to pursue mineral rights owned by their mother; and allegations that the executors delayed the sale of their mom’s Forest Hills home. They sold the Tudor home, which the family moved into in 1957, in 2014 for $1.8 million.

Anette Klingman, the oldest sibling who is an attorney, told The Post that her sisters were mismanaging the estate and taking money out of it to which they weren’t entitled. She was joined in her opposition to them with sister, Yvette Ravina, and her brother Charles Perrenod Jr., who died in 2020.

One of the disgruntled siblings also started a proceeding in South Carolina to take Irene Savadian’s house.

However, it really got ugly in April 2016, during a lunch break in a proceeding in Surrogate’s Court in Queens, Mamakos and Savadian said. Queens Surrogate Judge Peter Kelly said that the sisters were in contempt of court. At issue was a $100,000 distribution made to each beneficiary, a check the three disgruntled siblings refused to cash, Mamakos said. The judge ordered the two sisters to return their checks, but Savadian refused. Because Kelly said the sisters’ actions were “entwined,” both were sent to Rikers Island, where they were strip-searched and spent 21 days behind bars.

The two retained a lawyer for $50,000 to get them released from the lockup. However, when they were released, the discovered that Judge Kelly had replaced them as executors, naming their sister, Ravina.

In 2018, a final judgment in the estate was entered against Mamakos and Savadian for $1.8 million. It included the return of money they used for legal and other expenses to settle the estate. Judge Kelly ruled against a motion to vacate the judgment in October 2021, which the sisters are now trying to appeal.

Ravina started a lawsuit in South Carolina to take Savadian’s $400,000 house.

“We didn’t steal any money from my mother. We tried to get a good settlement for our siblings,” Savadian said. “It backfired against us.”

Reference: New York Post (Jan. 22, 2022) “Nasty family feud over mom’s will lands two retired sisters in jail — and one may lose her home”

Storing Passwords in Case of Death

Despite having the resources to hire IT forensic experts to help access accounts, including her husband’s IRA, it’s been three years and Deborah Placet still hasn’t been able to gain access to her husband’s Bitcoin account. Placet and her late husband were financial planners and should have known better. However, they didn’t have a digital estate plan. Her situation, according to the Barron’s article “How to Ensure Heirs Avoid a Password-Protected Nightmare” offers cautionary tale.

Our digital footprint keeps expanding. As a result, there’s no paper trail to follow when a loved one dies. In the past, an executor or estate administrator could simply have mail forwarded and figure out accounts, assets and values. Not only don’t we have a paper trail, but digital accounts are protected by passwords, multifactor authentication processes, fingerprints, facial recognition systems and federal data privacy laws.

The starting point is to create a list of digital accounts. Instructions on how to gain access to the accounts must be very specific, because a password alone may not be enough information. Explain what you want to happen to the account: should ownership be transferred to someone else, who has permission to retrieve and save the data and whether you want the account to be shut down and no data saved, etc.

The account list should include:

Social media platforms
Traditional bank, retirement and investment accounts
PayPal, Venmo and similar payment accounts
Cryptocurrency wallets, nonfungible token (NFT) assets
Home and utilities accounts, like mortgage, electric, gas, cable, internet
Insurance, including home, auto, flood, health, life, disability, long-term care.
Smart phone accounts
Online storage accounts
Photo, music and video accounts
Subscription services
Loyalty/rewards programs
Gaming accounts

Some accounts may be accessed by using a username and password. However, others are more secure and require biometric protection. This information should all be included in a document, but the document should not be included in the Last Will, since the Last Will becomes public information through probate and is accessible to anyone who wants to see it.

Certain platforms have created a process to allow heirs to access assets. Typically, death certificates, a Last Will or probate documents, a valid photo ID of the deceased and a letter signed by those named in the probate records outlining what is to be done with assets are required. However, not every platform has addressed this issue.

Compiling a list of digital assets is about as much fun as preparing for tax season. However, without a plan, digital assets are likely to be lost. Identity theft and fraud occurs when assets are unprotected and unused.

Just as a traditional estate plan protects heirs to avoid further stress and expense, a digital estate plan helps to protect the family and loved ones. Speak with your estate planning attorney as you are working on your estate plan to create a digital estate plan.

Reference: Barron’s (Dec. 15, 2021) “How to Ensure Heirs Avoid a Password-Protected Nightmare”

When Do I Need to Review Will?

You should take a look at your will and other estate planning documents at least every few years, unless there are reasons to do it more frequently. Some reasons to do it sooner include things like marriage, divorce, birth or adoption of a child, coming into a lot of money (i.e., inheritance, lottery win, etc.) or even moving to another state where estate laws are different from where your will was drawn up.

CNBC’s recent article entitled “When it comes to a will or estate plan, don’t just set it and forget it. You need to keep them updated” says that one of the primary considerations for a review is a life event — when there’s a major change in your life.

The pandemic has created an interest in estate planning, which includes a will and other legal documents that address end-of-life considerations. Research now shows that 18- to 34-year-olds are now more likely (by 16%) to have a will than those who are in the 35-to-54 age group. In the 25-to-40 age group, just 32% do, according to a survey. Even so, fewer than 46% of U.S. adults have a will.

If you’re among those who have a will or comprehensive estate plan, here are some things to review and why. In addition to reviewing your will in terms of who gets what, see if the person you named as executor is still a suitable choice. An executor must do things such as liquidating accounts, ensuring that your assets go to the proper beneficiaries, paying any debts not discharged (i.e., taxes owed) and selling your home.

Likewise, look at the people to whom you’ve assigned powers of attorney. If you become incapacitated at some point, the people with that authority will handle your medical and financial affairs, if you are unable. The original people you named to handle certain duties may no longer be in a position to do so.

Some assets pass outside of the will, such as retirement accounts, like a Roth IRA or 401(k)plans and life insurance proceeds. As a result, the person named as a beneficiary on those accounts will generally receive the money, regardless of what your will says. Note that 401(k) plans usually require your current spouse to be the beneficiary, unless they legally agree otherwise.

Regular bank accounts can also have beneficiaries listed on a payable-on-death form, obtained at your bank.

If you own a home, make sure to see how it should be titled, so it is given to the person (or people) you intend.

Reference: CNBC (Dec. 7, 2021) “When it comes to a will or estate plan, don’t just set it and forget it. You need to keep them updated”

How Do I Write a Will?

A poorly written or out-of-date will can be costly and ruin an otherwise well-planned estate. Yahoo Entertainment’s recent article entitled “11 Steps to Writing a Will” tells you how to get started and complete your will in 10 simple steps:

Hire an Estate Planning Attorney. Individuals or families with relatively simple financial situations may be able to use an online, reputable software program to complete their wills. However, many situations require an estate planning attorney, such as blended families.
Choose your Beneficiaries. A big 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 designation on an account supersedes the will, but it’s good to be consistent.
Name an Executor. The executor is responsible for carrying out the wishes expressed in your will.
Select a Guardian for Your Minor Children. It’s common to name multiple guardians, in case one of them named isn’t able to accept the responsibility of guardianship.
Be Specific About Your Bequests. One of the most time-consuming aspects of creating a will can be deciding which assets to include and determining who will get what.
Be Realistic About your Bequests. Practically consider how assets will be distributed. A big reason children stop speaking after a parent’s death is because of boilerplate language directing tangible assets, such as artwork or jewelry, to be divided equally among children.
Attach a Letter of Last Instruction. You can attach an explanatory letter to your will that can serve as a personal way to say goodbye and also provide additional details about certain wishes.
Sign the Will Properly. If you don’t, a will may be declared invalid. Witnesses must sign your will, and in many states, the witnesses can’t be under 18 and those who stand to inherit (“interested parties”).
Keep Your Will in a Safe and Accessible Spot. Make certain that someone you trust knows where to find your will and other important papers and passwords to financial institutions.
Review and Keep Your Up-to-date. Wills should be updated every five years or so, or sooner if you have a major life event, such as the birth or adoption of a new child or grandchild, a divorce, or the death of a spouse or parent.
Add Other Important Estate Planning Documents. A will by itself may not meet all of your estate planning needs. A trust is another estate planning tool that lets you transfer assets when and how you want. A living will communicates your desires for medical treatment or a power of attorney that allows a third party to make financial and legal decisions, along with the will and should be your next step after writing your will.

Reference: Yahoo Entertainment (Jan. 4, 2022) “11 Steps to Writing a Will”

What Power Does an Executor Have?

Being asked to serve as an executor is a big compliment with potential pitfalls, advises the recent article “How to Prepare to Be an Executor of an Estate” from U.S. News & World Report. You are being asked because you are considered trustworthy and able to handle complex tasks. That’s flattering, of course, but there’s a lot to know before making a final decision about taking on the job.

An executor of an estate helps file paperwork, close accounts, distribute assets of the deceased, deal with probate and any court filings and navigate family dynamics. Some of the tasks include:

Locating critical documents, like the will, any trusts, deeds, vehicle titles, etc.
Obtaining death certificates.
Overseeing funeral arrangements and memorial services, if any.
Filing the will in probate court.
Creating an estate bank account, after obtaining an estate tax number (EIN).
Notifying organizations, including Social Security, pension accounts, etc.
Paying creditors.
Distributing assets.
Overseeing the sale or transfer of real estate
Filing estate tax returns and final tax returns.

If you are asked to become the executor of an estate for a loved one, it’s a good idea to gather as much information as possible while the person is still living. It will be far easier to tackle the tasks, if you have been set up to succeed. Find out where their estate planning documents are and read the documents to make sure you understand them. If you don’t understand, ask, and keep asking until you do. Similarly, obtain information about all assets, including joint assets. Find out if there are any family members who may pose a challenge to the estate.

Today’s assets include digital assets. Ask for a complete list of the person’s online accounts, usernames and passwords. You will also need access to their devices: desktop computer, laptop, tablet, phone and smart watch. Discuss what they want to happen to each account and see if there is an option for you to become a co-owner of the account or a legacy contact.

Many opt to have an estate planning attorney manage some or all of these tasks, as they can be very overwhelming. Frankly, it’s hard to administer an estate at the same time you’re grieving the loss of a loved one.

As executor, you are a fiduciary, meaning you’re legally required to put the deceased’s interests above your own. This includes managing the estate’s assets. If the person owned a home, you would need to secure the property, pay the mortgage and/or property taxes and maintain the property until it is sold or transferred to an heir. Financial accounts need to be managed, including investment accounts.

The amount of time this process will take, depends on the complexity and size of the estate. Most estates take at least twelve months to complete all of the administrative work. It is a big commitment and can feel like a second job.

A few things vary by state. Convicted felons are never permitted to serve as executors, regardless of what the will says. A sole executor must be a U.S. citizen, although a non-citizen can be a co-executor, if the other co-executor is a citizen. Rules also vary from state to state regarding being paid for your time. Most states permit a percentage of the size of the estate, which must be considered earned income and reported on tax returns.

Be very thorough and careful in documenting every decision made as the executor to protect yourself from any future challenges. This is one job where trying to do it on your own could have long-term effects on your relationship with the family and financial liability, so take it seriously. If it’s too much, an estate planning attorney can help.

Reference: U.S. News & World Report (Dec. 22, 2021) “How to Prepare to Be an Executor of an Estate”

Does My State Have an Inheritance Tax?

Real Simple’s recent article entitled “Here’s Which States Collect Zero Estate or Inheritance Taxes” explains that inheritance taxes are levies paid by the living beneficiary who gets the inheritance. And both federal and state governments can apply estate taxes, which are levied against the assets that are bequeathed.

Just five states apply an inheritance tax: New Jersey, Nebraska, Iowa, Kentucky and Pennsylvania. There are 12 states that have an estate tax: Washington, Oregon, Minnesota, Illinois, New York, Maine, Vermont, Rhode Island, Massachusetts, Connecticut, Hawaii and the District of Columbia. Maryland collects both. As a result, there are 32 states that don’t collect death-related taxes: Alabama, Alaska, Arizona, Arkansas, California, Colorado, Delaware, Florida, Georgia, Hawaii, Idaho, Indiana, Kansas, Louisiana, Michigan, Mississippi, Missouri, Montana, Nevada, New Hampshire, New Mexico, North Carolina, North Dakota, Ohio, Oklahoma, South Carolina, South Dakota, Tennessee, Texas, Utah, Virginia, West Virginia, Wisconsin and Wyoming.

To better estimate and project the possible outcomes, you should consider an intergenerational planning meeting. There are some families that like the transparency of establishing a trust. This can minimize fighting and avoid probate. Trusts are also taxed differently than individuals. There’s more certainty about who will bear the costs.

There are families that gift assets, while an elderly or chronically ill person is still alive. These gifts can be subject to taxation, but there are exceptions for tuition and medical expenses. Gifts to children may also be excluded.

There’s no one-size-fits-all approach to transferring valuable or sentimental assets. You can list the most important people and causes in your life. If that list has people in other states, it will be even more important to prepare everyone for their role and responsibilities with the help of an experienced estate planning attorney.

If inheritance tax sounds intimidating, start small with updating the beneficiary forms on your bank accounts and employer-led retirement accounts. Organize documents, such as insurance information and house titles and deeds. Make them secure but accessible to those who might need them, if you’re unavailable.

Even if you’re socially distancing, many estate planning attorneys offer consultations via video conferencing. There’s no reason to delay another year to clarify your inheritance and estate plans.

Reference: Real Simple (Nov. 24, 2021) “Here’s Which States Collect Zero Estate or Inheritance Taxes”

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