Do I Really Need a Will?

No one enjoys pondering their own mortality, but we can all help unburden our loved ones after we’ve gone, by creating a will.

Bankrate’s recent article entitled “Why it’s important for every adult to get a will” explains why you need a will and how to protect what you most cherish after you pass away.

Many people think that a will must be a complicated document full of confusing legal jargon. However, the purpose of a will is really very simple despite its importance. A will is a legal document that disposes of your property at your death. In addition, wills address several issues required to be resolved after death, such as who will care for your children, who will make decisions about your estate and who will receive your assets? Every adult should have a will that speaks to these issues.

There are several types of wills which are customized based on your property and assets. Some people have specific instructions regarding special bequests at their death, and others pass everything to a surviving spouse and children.

Testamentary will. This will is prepared in advance and is signed in front of witnesses. This is the most common type of will.

Holographic will. This is a will that is written by hand and is frequently a last resort in emergency situations. It is not valid in all states.

Oral will. This is a verbal will that’s spoken in front of witnesses. However, most courts prefer instructions in writing. As a result, an oral will isn’t a form that is widely recognized or recommended.

Mutual will. A couple can create a joint will, so that when one spouse dies, the other remains bound by the existing will’s terms.

Pour-over will. This type of will is used when you plan to “pour” your assets into a previously established trust at your death.

There are many reasons why you should have a will. A will can:

Clearly identify ownership of your property
Name a legal guardian for your children
Shorten the legal process of assigning your assets
Make donations of assets to charitable organizations
Make specific gifts; and
Save on estate tax.

Speak to an experienced estate planning attorney about the right will for your situation.

Reference: Bankrate (Nov. 6, 2020) “Why it’s important for every adult to get a will”

Is Transferring House to Children a Good Idea?

Transferring your house to your children while you’re alive may avoid probate. However, gifting a home also can mean a rather large and unnecessary tax bill. It also may place your house at risk, if your children get sued or file for bankruptcy.

You also could be making a mistake, if you hope it will help keep the house from being consumed by nursing home bills.

There are better ways to transfer a house to your children, as well as a little-known potential fix that may help even if the giver has since died, says Considerable’s recent article entitled “Should you transfer your house to your adult kids?”

If a parent signs a quitclaim to give her son the house and then dies, it can potentially mean a tax bill of thousands of dollars for the son.

Families who see this error in time can undo the damage, by gifting the house back to the parent.

People will also transfer a home to try to qualify for Medicaid, but any gifts or transfers made within five years of applying for Medicaid can result in a penalty period when seniors are disqualified from receiving benefits.

In addition, transferring your home to another person can expose you to their financial problems because their creditors could file liens on your home and, depending on state law, take some or most of its value. If the child divorces, the house could become an asset that must be divided as part of the marital estate.

Section 2036 of the Internal Revenue Code says that if the parent were to retain a “life interest” in the property, which includes the right to continue living there, the home would remain in her estate rather than be considered a completed gift. However, there are rules for what constitutes a life interest, including the power to determine what happens to the property and liability for its bills.

There are other ways to avoid probate. Many states and DC permit “transfer on death” deeds that let homeowners transfer their homes at death without probate.

Another option is a living trust, which can ensure that all assets avoid probate.

Many states also have simplified probate procedures for smaller estates.

Reference: Considerable (Sep. 18) “Should you transfer your house to your adult kids?”

Is a Tax Change a Good Time to Check My Will?

A last will and testament can make certain that your goals for legacy and asset disposition are satisfied and carried out. However, what most people fail to grasp is that a will needs regular review—especially if the document was written or involved the creation of a trust prior to passage of tax reform, the Tax Cuts and Jobs Act (TCJA), in 2017, says Financial Advisor’s recent article entitled “Tax Changes Make This A Good Time To Revise A Will.”

Wills can pass on assets, but taxes have come to greatly impact how much money is passed on. People usually understand the primary components, including the tax implications, of their wills.

These include:

The unlimited marital deduction
Applying current rules to make non-taxable gifts of up to $15,000 per person
The current estate tax exemption of $11.58 million
Health care directives
Naming trustees and executors; and
Creating long-term trusts with non-taxable asset transfers.

Wills and trusts were created prior to the passage of the TCJA may not consider that reform changed the amount which can be exempted from estate taxes.

The law more than doubled the amount that can be exempted from estate taxes. The potential tax changes could cause many more Americans to have a taxable estate, and it’s important to have a full understanding of your assets and carefully decide who you want to receive them. You must also decide if you want them passed outright or through a trust.

Privacy is a good reason why some people often prefer trusts. They also like the quick processing and avoiding probate.

Estate plans should be reviewed every few years, and wills should be reviewed more frequently because life changes are the biggest reason for trouble in revising wills.

Divorce, separation or marriage; the birth or adoption of children, as well as a child reaching adulthood; and changes to finances, location and health all can play important roles.

Reference: Financial Advisor (Nov. 9, 2020) “Tax Changes Make This A Good Time To Revise A Will”

How Does Court Choose an Executor if a Will Isn’t Available?

An executor is the person who’ll manage your estate by protecting your assets, paying your debts and distributing the remaining property according to the terms in the will. But Programming Insider’s recent article, “Role of the Court When There is No Will For an Estate, asks “what would happen if someone dies without a will and, therefore, without appointing a personal representative?”

This is known as dying “intestate.” When it happens, the probate court must decide who will act as the estate’s administrator or personal representative. The judge’s decision will be based on state law, which will say how to prioritize potential fiduciaries in an administrator’s appointment. Every state has a prioritized list of preferred executors, and some states offer detailed guidance, like Oklahoma, which has a prioritized list. If more than one person is equally entitled to be appointed, a court has the option to appoint one or more executors.

The probate court has the final decision as to who will serve as the estate’s administrator or personal representative, even including a person who is named as executor in a will or is entitled to be chosen as a valid executor. The court will award authority to an administrator and will issue letters of administration or letters of testamentary. This authorizes the person to serve as an estate’s personal representative. Some people who might otherwise be entitled to serve as an executor may be disqualified based on state law. Here are some of the factors that a judge may consider when disqualifying a potential executor:

An executor must be an adult, who is at least 18 years old. However, some states require the minimum age of 21.
Criminal History. Some states don’t permit someone who’s been convicted of a serious crime to serve as the fiduciary representative of a decedent’s estate. Other states only require a potential executor to notify the court of any felony convictions.
Residency. This may be a factor in a person’s ability to serve as a personal representative. Some states let nonresidents serve in some circumstances. Some let nonresidents serve, if it’s a close relative. Finally, some other states require a nonresident executor to post a bond or use an agent within the state to process services and the court’s communication.
Business Relationship. There may be state laws as to who may be an executor if the decedent was an active member of a partnership; and
It also may be difficult for a noncitizen to serve as an estate’s personal representative.

Generally, probate judges have a lot of latitude and discretion on this selection.

Reference: Programming Insider (Nov. 9, 2020) “Role of the Court When There is No Will For an Estate

Does My Business Need a Power of Attorney?

Some business owners may need a power of attorney (POA). However, what type would be of benefit the most is the question. This article looks at the types of power of attorney and in what circumstances a business owner may need each of them.

Entrepreneur’s recent article entitled “Does Your Business Need a Power Of Attorney?” reports that the Consumer Financial Protection Bureau (CFPB) defines power of attorney as a legal document that permits a trusted agent the authority to act on your behalf. Accordingly, signing a power of attorney allows the business owner to authorize another person to conduct business in his stead. The person designated in the document is called the “agent” or sometimes the “attorney-in-fact.” There are three main types of power of attorney:

Financial Power of Attorney. This document allows the agent to deal with the financial responsibilities and functions of the “principal” (the person who signs the document), if the principal is unable to do so themselves. Some functions for the agent of a financial power of attorney include the following:

Delegation of the operation of your business
Hiring an attorney and making decisions in lawsuits
Filing and paying taxes
Conducting transactions with banks and other financial institutions
Making decisions on your investments and retirement plan
Entering into a contract
Purchasing of selling real estate or different types of property; and
Using your assets to pay for your living expenses.

Special Power of Attorney (or Limited Power of Attorney). A business owner may need to accomplish a task for the company, but she’s unable to be there because of other responsibilities. This document permits a particular agent to conduct business on her behalf, concerning a specific and clearly outlined event, like opening a bank account, settling a lawsuit, or signing a contract.

Healthcare Power of Attorney. An individual who is incapacitated and can’t communicate, can use this to permit an agent to make medical decisions on his behalf. Note that a healthcare power of attorney isn’t the same as a living will. A living will focuses on a person’s preferences for healthcare treatment, such as do-not-resuscitate and other religious or philosophical beliefs that they want to be respected. A healthcare power of attorney is more flexible and leaves the decisions regarding healthcare to the agent. A living will concerns end-of-life decisions only, where healthcare power of attorney applies in all medical situations.

Durable Power of Attorney. A POA usually becomes effective when a person is incapacitated and stops once they’re able to make their own decisions. However, a durable power of attorney or enduring power of attorney may be applied to any of the types mentioned above. As a result, the agent can make decisions on behalf of a business owner when they aren’t incapacitated.

A POA provides considerable protections that will help a business deal with regular operations, while the owner is unable to lead the company. If the business is an LLC or corporation, a power of attorney for the company may not be needed. However, it’s wise to have one for your own estate planning. Ask an experienced estate planning attorney about the types of power of attorney and how they might help your business.

Reference: Entrepreneur (Nov. 3, 2020) “Does Your Business Need a Power Of Attorney?”

Does Pandemic have an Impact on Financial Powers Of Attorney?

If you’re concerned about the consequences of contracting COVID-19, you’d typically create an advanced directive, a medical power of attorney and a HIPAA release to give authority to those you want to have access to your medical information. These documents are intended to both state your medical care wishes and specify who can make medical decisions for you, if you’re unable.

Forbes’s recent article entitled “If You Lose It, Don’t Lose It: Financial Powers Of Attorney In A Covid-19 World” says that sometimes the issue of money is lost in the confusion. If you’re in the hospital or otherwise unavailable, who do you want to take care of any of your immediate financial issues?

People frequently associate this issue with just writing checks, like paying the mortgage. If it’s deducted automatically, it should be okay, and the other bills can wait until they recover. However, some financial issues are planning-related, and those can’t wait, like in late December when you want to make a Roth IRA conversion but you’re in a hospital. You might also want to make a contribution to your favorite charity, since the CARES Act provides a $300 non-itemized charitable deduction. If you are incapacitated, you need a trusted agent who can make important financial decisions for you and execute them on your behalf.

A financial power of attorney (POA) is often the answer. It is separate from a medical POA but equally as important. Without a binding financial POA, your incapacity will have a major financial impact. A financial POA gives you the power to name an agent to act on your behalf, if you lose the physical or mental capacity to handle your own finances.

If you are worried about the financial risk related to a sudden impairment from an event, such as the coronavirus, ask an experienced estate planning attorney about creating a springing and durable POA. “Springing” means the power doesn’t trigger until you’ve lost legal capacity to handle your own finances. “Durable” means that your agent continues to retain the power to act on your behalf, until you either recover or die. This is the preferred approach because they retain control until something bad happens (causing it to “spring” into action) and then their agent maintains control, even if some unscrupulous individual attempts to hijack the process (proving the power is “durable”).

Note that a POA may not be recognized when it is presented to an individual or company. Financial institutions have been hesitant to accept a financial POA submitted by the principal’s agent because they’re concerned about liability if the POA turns out to be fraudulent, or if the agent acts contrary to the accountholder’s desires. Without the institution’s agreement, the incapacitated person’s plans won’t happen. However, many states have addressed this.

Many people are creating “just in case” estate planning documents to deal with the possibility of contracting COVID-19. Ask an experienced estate planning attorney about creating a financial POA.

Reference: Forbes (Oct. 27, 2020) “If You Lose It, Don’t Lose It: Financial Powers Of Attorney In A Covid-19 World”

Act Quickly to Protect an Estate

For most families, the process of estate administration or the probate of a will starts weeks after the death of a loved one. However, before that time, there are certain steps that need to be taken immediately after death, according to a recent article “Protecting an estate requires swift action” from The Record-Courier. It is not always easy to keep a clear head and stay on top of these tasks but pushing them aside could lead to serious losses and possible liability.

The first step is to secure the deceased’s home, cars and personal property. The residence needs to be locked to prevent unauthorized access. It may be wise to bring in a locksmith, so that anyone who had been given keys in the past will not be able to go into the house. Cars should be parked inside garages and any personal property needs to be securely stored in the home. Nothing should be moved until the trust administration or probate has been completed. Access to the deceased’s digital assets and devices also need to be secured.

Mail needs to be collected and retrieved to prevent the risk of unauthorized removal of mail and identity theft. If there is no easy access to the mailbox, the post office needs to be notified, so mail can be forwarded to an authorized person’s address.

Estate planning documents need to be located and kept in a safe place. The person who has been named as the executor in the will needs to have those documents. If there are no estate planning documents or if they cannot be located, the family will need to work with an estate planning attorney. The estate may be subjected to a probate proceeding.

One of the responsibilities that most executors don’t know about, is that when a person dies, their will needs to be admitted to the court, regardless whether they had trusts. If the deceased left a will, the executor or the person who has possession of the will must deliver it to the court clerk. Failing to do so could result in large civil liability.

At least five and as many as ten original death certificates should be obtained. The executor will need them when closing accounts. As soon as possible, banks, financial institutions, credit card companies, pension plans, insurance companies and others need to be notified of the person’s passing. The Social Security Administration needs to be notified, so direct deposits are not sent to the person’s bank account. Depending on the timing of the death, these deposits may need to be returned. The same is true if the deceased was a veteran—the Veteran’s Affairs (VA) need to be notified. There may be funeral benefits or survivor benefits available.

It is necessary, even in a time of grief, to protect a loved one’s estate in a timely and thorough manner. Your estate planning attorney will be able to help through this process.

Reference: The Record-Courier (Oct. 17, 2020) “Protecting an estate requires swift action”

Why Is an Art Dealer’s Family Contesting His Will?

Zarre didn’t have a wife or children. He is believed to have amassed a valuable art collection in the years since he opened the Andre Zarre Gallery on New York’s Upper East Side in 1974.

The gallery closed several years ago, because of Zarre’s health problems.

ArtNews’ recent article entitled “A New York Art Dealer Just Left His Multimillion-Dollar Estate to the Owner of a Deli in Queens—But His Family Is Crying Foul” explains that Yeje met Zarre in 2016. He reportedly cared for Zarre over the last eight months of his life, including when the dealer contracted the coronavirus.

Zarre recovered but fell in his Park Avenue apartment in July. Yeje drove him to the hospital, where he reportedly died of a heart attack.

“I washed him, I bought his groceries and fed him. He trusted me and I took care of him,” Yeje, who is 50, told the New York Post. “He was an awesome person.”

Friends of the dealer say they questioned his actions, when he reportedly began investing in the Palermo Delicatessen in Glendale, Queens last fall.

“[Zarre] was really going blind and could barely put one foot in front of the other,” Nick Wolfson, a friend of Zarre and one his gallery’s artists, told the New York Post, wondering if failing health had made the elderly dealer vulnerable to a swindle.

Zarre’s first cousin Arkadiusz Tomasik, who lives in the United Kingdom, claims that Zarre always told him that he’d inherit the estate. He questions the validity of the will leaving everything to Yeje, especially since Zarre was legally blind.

Yeje has offered Zarre’s family $45,000 and land that the art dealer owned in his native Poland, in exchange for not challenging the will. Tomasik is reportedly thinking about legal action.

If Tomasik disputes the will, he will file a lawsuit that seeks to invalidate the art dealer’s will. He will have to show that the will was signed under undue influence, by fraud, that Zarre didn’t have the capacity to sign the will or that the will wasn’t signed in accordance with New York law.

Reference: ArtNews (Oct. 19, 2020) “A New York Art Dealer Just Left His Multimillion-Dollar Estate to the Owner of a Deli in Queens—But His Family Is Crying Foul”

Cornelius Vanderbilt Created an Estate Plan, but Should I?

AJC’s recent article entitled “Why Vanderbilts should inspire you to create an estate plan” explains that when Cornelius Vanderbilt died, his son, William, inherited most of the fortune and nearly doubled it within a decade. However, after that came a drop in the cash, and after just a few decades, the fortune had been spent. Therefore, none of Vanderbilt’s descendants stayed among the wealthiest people in the country.

When 120 Vanderbilt family members recently gathered for a reunion at Vanderbilt University, not one was a millionaire. In a century, the largest estate America has ever known had dwindled to next to nothing.

Let’s look at why this happens and how you can prevent this from happening to your estate.

America is currently in the midst of the greatest transfer of wealth ever. An estimated $59 trillion will be transferred to heirs, charities and taxes between 2007 and 2061. However, roughly 70% of wealth transfers aren’t successful. This means that sometimes heirs get practically nothing. There are three reasons for this failure:

No trust and communication among heirs because they’re all concerned about their share.
Heirs are unprepared to inherit an estate, which may include managing investments or a business. In many cases, other family members don’t know how it works.
Heirs have no clue where the money should go and what purpose it should serve because no one is thinking long term about what is best for the family assets.

It’s common for business owners to believe that an estate plan is enough to keep everything in order, but they don’t consider their business. This is the reason why succession planning is vital. This planning determines what happens to the business itself and lays out the strategy, so it continues to operate smoothly after it’s passed to the heirs.

Let’s look at some tips for dealing with estate planning that should make for a smooth transition:

Create a plan. If you die without a will, state probate law will determine who gets your assets. This may not be what you want. Talk to an experienced estate planning attorney to be certain that everything is drawn up correctly.

Discuss the issues with your heirs. Talk to your family about the financial details. Make sure that your heirs know the details of your estate, so they can start to manage and oversee it once you die.

Get heirs involved in the process. Likewise, heirs can help plan based on their knowledge, future availability and expectations. By planning now, no one will be caught unaware about what to do with the estate.

Ready your heirs. Educate your heirs on how to manage and oversee your assets, especially if you have a succession plan for a business. Discuss the company’s mission and vision, and what you want the company to achieve.

Organize your financial documents. Get all financial documents in a single location and label everything clearly to help out your heirs. Keep this in a safe location, and let your heirs know where it’s located. Your attorney should also have a copy of your will, estate plan and succession plan (if applicable).

Get help from experts. Help forge a relationship between your heirs and your financial team, which may include a financial adviser, an estate planning attorney and an accountant. This will allow your heirs to know who to call, if things get complicated. It’ll also help to prepare them for what they’re supposed to be doing, once they get their inheritance.

Communication is the key. Talking with your experts and your heirs will make certain that everyone understands each other’s roles, regardless of whether it’s a small business or a multimillion-dollar empire.

Reference: AJC (Sep. 25, 2020) “Why Vanderbilts should inspire you to create an estate plan”

Protect Your Estate with Five Facts

It is true that a single person who dies in 2020 could have up to $11.58 million in personal assets and their heirs would not have to pay any federal estate tax. However, that doesn’t mean that regular people don’t need to worry about estate taxes—their heirs might have to pay state estate taxes, inheritance taxes or the estate may shrink because of other tax issues. That’s why U.S. News & World Report’s recent article “5 Estate Planning Tips to Keep Your Money in the Family” is worth reading.

Without proper planning, any number of factors could take a bite out of your children’s inheritance. They may be responsible for paying federal income taxes on retirement accounts, for instance. You want to be sure that a lifetime of hard work and savings doesn’t end up going to the wrong people.

The best way to protect your family and your legacy, is by meeting with an estate planning attorney and sorting through all of the complex issues of estate planning. Here are five areas you definitely need to address:

Creating a last will and testament
Checking that beneficiaries are correct
Creating a trust
Converting traditional IRA accounts to Roth accounts
Giving assets while you are living

A last will and testament. Only 32% of Americans have a will, according to a survey that asked 2,400 Americans that question. Of those who don’t have a will, 30% says they don’t think they have enough assets to warrant having a will. However, not having a will means that your entire estate goes through probate, which could become very expensive for your heirs. Having no will also makes it more likely that your family will challenge the distribution of assets. As a result, someone you may have never met could inherit your money and your home. It happens more often than you can imagine.

Checking beneficiaries. Once you die, beneficiaries cannot be changed. That could mean an ex-spouse gets the proceeds of your life insurance policy, retirement funds or any other account that has a named beneficiary. Over time, relationships change—make sure to check the beneficiaries named on any of your documents to ensure that your wishes are fulfilled. Your will does not control this distribution and is superseded by the named beneficiaries.

Set up a trust. Trusts are used to accomplish different goals. If a child is unable to manage money, for instance, a trust can be created, a trustee named and the account funded. The trust will include specific directions as to when the child receives funds or if any benchmarks need to be met, like completing college or staying sober. With an irrevocable trust, the money is taken out of your estate and cannot be subject to estate taxes. Money in a trust does not pass through probate, which is another benefit.

Convert traditional IRAs to Roth retirement accounts. When children inherit traditional IRAs, they come with many restrictions and heirs get the income tax liability of the IRA. Regular income tax must be paid on all distributions, and the account has to be emptied within ten years of the owner’s death, with limited exceptions. If the account balance is large, it could be consumed by taxes. By gradually converting traditional retirement accounts to Roth accounts, you pay the taxes as the accounts are converted. You want to do this in a controlled fashion, so as not to burden yourself. However, this means your heirs receive the accounts tax-free.

Gift with warm hands, wisely. Perhaps the best way to ensure that money stays in the family, is to give it to heirs while you are living. As of 2020, you may gift up to $15,000 per person, per year in gifts. The money is tax free for recipients. Just be careful when gifting assets that appreciate in value, like stocks or a house. When appreciating assets are inherited, the heirs receive a step-up in basis, meaning that the taxable amount of the assets are adjusted upon death, so some assets should only be passed down after you pass.

Reference: U.S. News & World Report (Sep. 30, 2020) “5 Estate Planning Tips to Keep Your Money in the Family”

Estate Planning Blog Articles

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

Do I Really Need a Will?

Is Transferring House to Children a Good Idea?

Is a Tax Change a Good Time to Check My Will?

How Does Court Choose an Executor if a Will Isn’t Available?

Does My Business Need a Power of Attorney?

Does Pandemic have an Impact on Financial Powers Of Attorney?

Why Is an Art Dealer’s Family Contesting His Will?

Cornelius Vanderbilt Created an Estate Plan, but Should I?

Protect Your Estate with Five Facts

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Do I Really Need a Will?

Is Transferring House to Children a Good Idea?

Is a Tax Change a Good Time to Check My Will?

How Does Court Choose an Executor if a Will Isn’t Available?

Does My Business Need a Power of Attorney?

Does Pandemic have an Impact on Financial Powers Of Attorney?

Why Is an Art Dealer’s Family Contesting His Will?

Cornelius Vanderbilt Created an Estate Plan, but Should I?

Protect Your Estate with Five Facts

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