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inheritance acceptance

Do I Have to Accept an Inheritance?

Most people don’t use a disclaimer because they’re not entitled to other assets to offset the value of the asset disclaimed. They don’t get to decide who gets their disclaimed asset.

MarketWatch’s recent article entitled “Can I reject an inheritance?” explains that the details can be found in Internal Revenue Code §2518. However, here are some of the basics about disclaimers.

In most states, a qualified disclaimer can be filed within nine months of an asset owner’s death. This disclaimer is irrevocable. Therefore, once it’s done, it’s done. This can create problems with IRAs because they have beneficiary designations, and the death claim can be processed with a few forms. As soon as the funds are transferred to an inherited IRA, disclaiming is no longer an option.

When a person disclaims an asset, the asset is distributed as though that beneficiary had died prior to the date of the benefactor’s death. Therefore, with an IRA, it is pretty simple. If you disclaim all or a part of the IRA, the funds pass on, based on the beneficiary designation.

The IRA usually has a secondary beneficiary named. If the beneficiaries in line to inherit the account are who you would want to inherit the account, disclaiming should transfer the account to them. However, if they’re not who you want to get the funds, you have little leverage to do anything about it.

If there are no other beneficiaries and you disclaimed, the money goes back into the decedent’s estate.

The funds would go through probate and be directed based upon his will. If there was no will (intestacy), the probate laws of the decedent’s state will dictate how the assets are distributed.

Having an IRA go through an estate is inefficient, time consuming and adds additional costs beyond the taxes.

All these drawbacks can be avoided, by properly designating beneficiaries.

Being wise with your beneficiary designations, also provides flexibility in your estate plan.

For example, you can set up beneficiary designations to purposely give an inheritor the option to disclaim to other family members, which is done when the primary beneficiary can disclaim to a family member that is in greater need of funds or is in a lower tax bracket.

Reference: MarketWatch (Aug. 25, 2020) “Can I reject an inheritance?”

state laws and estate planning

State Laws Have an Impact on Your Estate

Nj.com’s recent article entitled “Will N.J. or Florida’s tax laws affect this inheritance?” notes that first, the fact that the individual from Florida isn’t legally married is important.

However, if she’s a Florida resident, Florida rules will matter in this scenario about the vacation condo.

Florida doesn’t have an inheritance tax, and it doesn’t matter where the beneficiary lives. For example, the state of New Jersey won’t tax a Florida inheritance.

Although New Jersey does have an inheritance tax, the state can’t tax inheritances for New Jersey residents, if the assets come from an out-of-state estate.

If she did live in New Jersey, there is no inheritance tax on “Class A” beneficiaries, which include spouses, children, grandchildren and stepchildren.

However, the issue in this case is the fact that her “daughter” isn’t legally her daughter. Her friend’s daughter would be treated by the tax rules as a friend.

You can call it what you want. However, legally, if she’s not married to her friend, she doesn’t have a legal relationship with her daughter.

As a result, the courts and taxing authorities will treat both persons as non-family.

The smart thing to do with this type of issue is to talk with an experienced estate planning attorney who is well-versed in both states’ laws to determine whether there are any protections available.

Reference: nj.com (July 23, 2020) “Will N.J. or Florida’s tax laws affect this inheritance?”

estate planning

Trusts: The Swiss Army Knife of Estate Planning

Trusts serve many different purposes in estate planning. They all have the intent to protect the assets placed within the trust. The type of trust determines what the protection is, and from whom it is protected, says the article “Trusts are powerful tools which can come in many forms,” from The News Enterprise. To understand how trusts protect, start with the roles involved in a trust.

The person who creates the trust is called a “grantor” or “settlor.” The individuals or organizations receiving the benefit of the property or assets in the trust are the “beneficiaries.” There are two basic types of beneficiaries: present interest beneficiaries and “future interest” beneficiaries. The beneficiary, by the way, can be the same person as the grantor, for their lifetime, or it can be other people or entities.

The person who is responsible for the property within the trust is the “trustee.” This person is responsible for caring for the assets in the trust and following the instructions of the trust. The trustee can be the same person as the grantor, as long as a successor is in place when the grantor/initial trustee dies or becomes incapacitated. However, a grantor cannot gain asset protection through a trust, where the grantor controls the trust and is the principal recipient of the trust.

One way to establish asset protection during the lifetime of the grantor is with an irrevocable trust. Someone other than the grantor must be the trustee, and the grantor should not have any control over the trust. The less power a grantor retains, the greater the asset protection.

One additional example is if a grantor seeks lifetime asset protection but also wishes to retain the right to income from the trust property and provide a protected home for an adult child upon the grantor’s death. Very specific provisions within the trust document can be drafted to accomplish this particular task.

There are many other options that can be created to accomplish the specific goals of the grantor.

Some trusts are used to protect assets from taxes, while others ensure that an individual with special needs will be able to continue to receive needs-tested government benefits and still have access to funds for costs not covered by government benefits.

An estate planning attorney will have a thorough understanding of the many different types of trusts and which one would best suit each individual situation and goal.

Reference: The News Enterprise (July 25, 2020) “Trusts are powerful tools which can come in many forms”

update a will

When Exactly Do I Need to Update My Will?

Many people say that they’ve been meaning to update their last will and testament for years but never got around to doing it.

Kiplinger’s article entitled “12 Different Times When You Should Update Your Will” gives us a dozen times you should think about changing your last will:

  1. You’re expecting your first child. The birth or adoption of a first child is typically when many people draft their first last will. Designate a guardian for your child and who will be the trustee for any trust created for that child by the last will.
  2. You may divorce. Update your last will before you file for divorce, because once you file for divorce, you may not be permitted to modify your last will until the divorce is finalized. Doing this before you file for divorce ensures that your spouse won’t get all of your money, if you die before the divorce is final.
  3. You just divorced. After your divorce, your ex no longer has any rights to your estate (unless it’s part of the terms of the divorce). However, even if you don’t change your last will, most states have laws that invalidate any distributive provisions to your ex-spouse in that old last will. Nonetheless, update your last will as soon as you can, so your new beneficiaries are clearly identified.
  4. Your child gets married. Your current last will may speak to issues that applied when your child was a minor, so it may not address your child’s possible divorce. You may be able to ease the lack of a prenuptial agreement, by creating a trust in your last will and including post-nuptial requirements before you child can receive any estate assets.
  5. A beneficiary has issues. Last wills frequently leave money directly to a beneficiary. However, if that person has an addiction or credit issues, update your last will to include a trust that allows a trustee to only distribute funds under specific circumstances.
  6. Your executor or a beneficiary die. If your estate plan named individuals to manage your estate or receive any remaining funds, but they’re no longer alive, you should update your last will.
  7. Your child turns 18. Your current last will may designate your spouse or a parent as your executor, but years later, these people may be gone. Consider naming a younger family member to handle your estate affairs.
  8. A new tax or probate law is enacted. Congress may pass a bill that wrecks your estate plan. Review your plan with an experienced estate planning attorney every few years to see if there have been any new laws relevant to your estate planning.
  9. You come into a chunk of change. If you finally get a big lottery win or inherit money from a distant relative, update your last will so you can address the right tax planning. You also may want to change when and the amount of money you leave to certain individuals or charities.
  10. You can’t find your original last will. If you can’t locate your last will, be sure that you replace the last will with a new, original one that explicitly states it invalidated all prior last wills.
  11. You purchase property in another country or move overseas. Many countries have treaties with the U.S. that permit reciprocity of last wills. However, transferring property in one country may be delayed, if the last will must be probated in the other country first. Ask your estate planning attorney about having a different last will for each country in which you own property.
  12. Your feelings change for a family member. If there’s animosity between people named in your last will, you may want to disinherit someone. You might ask your estate planning attorney about a No Contest Clause that will disinherit the aggressive family member, if he or she attempts to question your intentions in the last will.

Reference: Kiplinger (May 26, 2020) “12 Different Times When You Should Update Your Will”

cryptocurrency in estate planning

How Do I Incorporate Cryptocurrency into My Estate Planning?

Planning for cryptocurrency has been neglected. It means that, in some cases, the cryptocurrency has been lost. There have been people who tossed their computer hard drives with thousands of bitcoins (now worth millions). They then spend days sifting through tons of garbage. To save your family from this trouble and embarrassment after you die, add your cryptocurrency into your estate plan to preserve the benefits and avoid the risks of cryptocurrency.

Wealth Advisor’s recent article entitled “Estate Planning When You Own Cryptocurrency” says, first, you must preserve the benefits of your cryptocurrency.

Cryptocurrency is highly secure. However, that security is in danger, if the private key is carelessly recorded or discarded. With the private key, anyone can access the cryptocurrency. As a result, your planning and procedures must address how to secure this information. Just like cash, cryptocurrency isn’t traceable. In fact, there’s no electronic or paper trail connecting the parties in a transaction involving cryptocurrency. Therefore, in order to preserve that privacy, you’ll need to plan so the other documentation in the transaction doesn’t reveal these identities, or at least keep that information privileged. Remember that transferring cryptocurrency takes only seconds.

Because cryptocurrency, like precious metals and other commodities, can fluctuate wildly in value even during the course of a day, it must be treated like stock in a private company and other assets that are volatile in nature. Cryptocurrency also isn’t subject to government regulation, so no government is responsible for losses from fraud, theft or other malfeasance.

Trusts and other planning devices have a tough time with cryptocurrency, especially if the Prudent Investor Rule applies. Without specific language, the trust won’t be capable of holding cryptocurrency. If that language is written too broadly, the trustee may be exempt from damages due to willful neglect.

Cryptocurrency is also taxed as property not as currency by the IRS, which means that the fair market value is set by conversion into U.S. dollars at “a reasonable exchange rate” and transactions involving cryptocurrency are subject to the capital gains tax regulations. As a result, you must have specific tax provisions in trusts, partnerships, LLCs, and other entities. Therefore, if you, or your business, own bitcoin or any other cryptocurrency, your estate, business succession, and financial plans need to address it specifically. Ask an experienced estate planning attorney for help.

Reference:  Wealth Advisor (August 4, 2020) “Estate Planning When You Own Cryptocurrency”

estate planning mistakes

Which Stars Made the Biggest Estate Planning Blunders?

Mistakes in the estate planning of high-profile celebrities are one very good way to learn the lessons of what not to do.

Forbes’ recent article entitled “Eight Lessons From Celebrity Estates” discussed some late celebrities who made some serious experienced estate planning blunders. Hopefully, we can learn from their errors.

James Gandolfini. The “Sopranos” actor left just 20% of his estate to his wife. If he’d left more of his estate to her, the estate tax on that gift would have been avoided in his estate. But the result of not maximizing the tax savings in his estate was that 55% of his total estate went to pay estate taxes.

James Brown. One of the hardest working men in show business left the copyrights to his music to an educational foundation, his tangible assets to his children and $2 million to educate his grandchildren. Because of ambiguous language in his estate planning documents, his girlfriend and her children sued and, years later and after the payment of millions in estate taxes, his estate was finally settled.

Michael Jackson.  Jackson created a trust but never funded the trust during his lifetime. This has led to a long and costly battle in the California Probate Court over control of his estate.

Howard Hughes. Although he wanted to give his $2.5 billion fortune to medical research, there was no valid written will found at his death. His fortune was instead divided among 22 cousins. The Hughes Aircraft Co. was bequeathed to the Hughes Medical Institute before his death and wasn’t included in his estate.

Michael Crichton. The author was survived by his pregnant second wife, so his son was born after his death. However, because his will and trust didn’t address a child being born after his death, his daughter from a previous marriage tried to cut out the baby boy from his estate.

Doris Duke. The heir to a tobacco fortune left her $1.2 billion fortune to her foundation at her death. Her butler was designated as the one in charge of the foundation. This led to a number of lawsuits claiming mismanagement over the next four years, and millions in legal fees.

Casey Kasem. The famous DJ’s wife and the children of his prior marriage fought over his end-of-life care and even the disposition of his body. It was an embarrassing scene that included the kidnapping and theft of his corpse.

Prince and Aretha Franklin. Both music legends died without a will or intestate. This has led to a very public, and in the case of Prince, a very contentious and protracted settlement of their estates.

So, what did we learn? Even the most famous (and the richest) people fail to carefully plan and draft a complete estate plan. They make mistakes with tax savings (Gandolfini), charities (Brown and Hughes), providing for family (Crichton), whom to name as the manager of the estate (Duke) and failing to prevent family disputes, especially in mixed marriages (Kasem).

If you have an estate plan, be sure to review your existing documents to make certain that they still accomplish your wishes. Get the help of an experienced estate planning attorney.

Reference: Forbes (July 16, 2020) “Eight Lessons From Celebrity Estates”

change home title

Is It Easy to Change My Home’s Title from Tenants in Common to Joint Tenants?

Many couples may have purchased a home years ago with the original deed titled as “William Smith and Wilhelmina Smith”. In some states, like Georgia, this defaults to tenants in common. With Wilhelmina being William’s wife for decades, they thought it was time to think about changing the title to William Smith and Wilhelmina Smith, joint tenants with right of survivorship.

The Washington Post’s recent article entitled “Changing a home title from ‘tenants in common’ to ‘joint tenants’” looks at whether this would result in any adverse consequences, such as issues with the title insurance or taxes issues.

When you own a home in joint tenancy, should either of the owners die, that owner’s interest automatically goes to the surviving joint tenant. However, when people own a home as tenants in common, each person owns a specific share of that home. Therefore, our hypothetical couple William Smith and Wilhelmina Smith each owns a 50% interest in the home. If either of them were to die, his or her 50% interest in the home would be distributed, as provided in his or her will or as provided by state probate statute.

If people purchase a home but don’t specify how they want to own the property, in most situations, the state law will say how the parties take title to the property when the deed is silent.

You can typically record a new document that puts both William Smith and Wilhelmina Smith on the title to the home, as joint tenants with rights of survivorship. When it’s a simple change in the title from tenants in common to joint tenants, most state tax authorities will ignore that change.

To be sure you should ask an experienced estate planning attorney or the office that collects or assesses values in your location for more information. However, it’s a pretty safe bet that the change won’t affect a home’s value.

As far as the title insurance policy, after so many years, it would be doubtful there would be any problems. That’s because the original title insurance policy named William Smith and Wilhelmina Smith as the insured. If they change the ownership from tenants in common to joint tenants, the Smiths are still the owners of the home and still named on that policy.

Reference: Washington Post (July 6, 2020) “Changing a home title from ‘tenants in common’ to ‘joint tenants’”

estate planning

How Do I Make Sure My Wife Gets the House?

Nj.com’s article “Will my wife get my house when I die?” explains that many of life’s transitions and big events, such as marriage, divorce, new job, birth or adoption of a child and others, are the triggers to address in your estate and financial plan.

It’s not uncommon for a person’s decisions made before marriage as a bachelor, not to match up with a future with a new spouse.

As far as making certain that a house with a sister on the deed passes to the spouse, depends on how the house was titled at purchase. The titling of an asset can affect the way in which it would be transferred at death.

With real estate, most frequently, a person would have titled it either as Tenancy in Common (TIC) or Joint Tenancy with Rights of Survivorship (JTWROS).

If a person elects to go with JTWROS, then at his death, the house will avoid probate and pass entirely to the sister.

The law stipulates that the sister would be the full owner of the house, in which the man and his new wife had been living.

If you select to title as TIC, upon the man’s death, his half of the house would go to his estate. This doesn’t avoid probate. Therefore, the rights of the estate will be determined according to the decedent’s will.

However, neither scenario is too great for the wife. This potentially leaves her in a stressful situation upon her husband’s death.

A wise approach is for the man to begin a dialog with the sister and an experienced estate planning attorney, who can help draft an agreement or help to change the titling of the house.

His will and beneficiaries should also be updated at the same time.

Another recommendation is to consider life insurance to provide for the wife after his death.

Reference: nj.com (June 18, 2020) “Will my wife get my house when I die?”

real estate investments

Can I Add Real Estate Investments in My Will?

Motley Fool’s recent article entitled “How to Include Real Estate Investments in Your Will” details some options that might make sense for you and your intended beneficiaries.

A living trust. A revocable living trust allows you to transfer any deeds into the trust’s name. While you’re still living, you’d be the trustee and be able to change the trust in whatever way you wanted. Trusts are a little more costly and time consuming to set up than wills, so you’ll need to hire an experienced estate planning attorney to help. Once it’s done, the trust will let your trustee transfer any trust assets quickly and easily, while avoiding the probate process.

A beneficiary deed. This is also known as a “transfer-on-death deed.” It’s a process that involves getting a second deed to each property that you own. The beneficiary deed won’t impact your ownership of the property while you’re alive, but it will let you to make a specific beneficiary designation for each property in your portfolio. After your death, the individual executing your estate plan will be able to transfer ownership of each asset to its designated beneficiary. However, not all states allow for this method of transferring ownership. Talk to an experienced estate planning attorney about the laws in your state.

Co-ownership. You can also pass along real estate assets without probate, if you co-own the property with your designated beneficiary. You’d change the title for the property to list your beneficiary as a joint tenant with right of survivorship. The property will then automatically by law pass directly to your beneficiary when you die. Note that any intended beneficiaries will have an ownership interest in the property from the day you put them on the deed. This means that you’ll have to consult with them, if you want to sell the property.

Wills and estate plans can feel like a ghoulish topic that requires considerable effort. However, it is worth doing the work now to avoid having your estate go through the probate process once you die. The probate process can be expensive and lengthy. It’s even more so, when real estate is involved.

Reference: Motley Fool (June 22, 2020) “How to Include Real Estate Investments in Your Will”

estate planning

Did ‘The Gambler’ Have Estate Planning?

An article from Wealth Advisor entitled “What Kenny Rogers Leaves Behind After Four Divorces And Restaurant Armageddon,” says that he was a hit machine, racking up an estimated $250 million through extensive touring, TV appearances, and constant radio play.

Rogers was a singer, songwriter, actor, record producer and entrepreneur.

He was elected to the Country Music Hall of Fame in 2013 and charted more than 120 hit singles.  He topped the country and pop album charts for more than 200 individual weeks in the U.S. alone. He sold more than 100 million records worldwide during his lifetime, making him one of the best-selling music artists of all time.

However, Rogers may not have left a lot of that money behind. He built a 425-restaurant chain in the 1990s that should have been his retirement plan. However, those restaurants closed everywhere, except in Asia. He had no licensing fees for use of the name, so there’s no revenue for his heirs.

The issue is whether Rogers accumulated sufficient wealth in life to support the lifestyles of his family. He left a wife (his fifth) and five adult kids behind. Kenny paid out $60 million to settle his fourth divorce in 1993, which was half his fortune.

While it was a while after his commercial peak, he started working on a smaller scale and married again, raising his two youngest kids. Kenny continued to tour and record, but his health became an issue. He decided the 2017 tour would be his last— and he was forced to cancel that one as well.

Kenny most likely only had whatever cash he set aside in conventional investment accounts, working real estate and other retirement assets. It’s unclear how much that was, but it’s probably enough to keep his widow comfortable for the rest of her life. That’s another challenge with late marriages. Roger died at 81, and wife No. 5 is just 57.

So, in theory, she needs those assets to last another 40 years to maintain her lifestyle.

Reference: Wealth Advisor (March 23, 2020) “What Kenny Rogers Leaves Behind After Four Divorces And Restaurant Armageddon”

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