How Does an Estate Plan Address Young Beneficiaries?

Certain beneficiaries require more intentional estate planning than others. While the law sets the age of adulthood at 18, specific testamentary instruments can redefine at what age a beneficiary is considered an adult. A recent article from The News-Enterprise, “When planning for young beneficiaries, consider all options,” explains how this works.

Young beneficiaries, especially 18-year-olds still in high school, are still immature, and their brains are still developing. Add a strong dose of grief to a teenager’s life, and even a bright, stable adolescent may not make good decisions.

Young adult beneficiaries are categorized in two ways: primary and contingent.

A primary beneficiary is one who the testator or grantor expects to be a young beneficiary at the time of distribution of assets or who is young when the estate planning documents are executed. This is typically the parents of young children or grandparents who intend to leave property to young grandchildren.

Contingent beneficiaries are those who are not anticipated to receive property as young beneficiaries. However, they could inherit if a primary beneficiary dies, such as when a grandchild receives an inheritance following their parent’s death.

Even for contingent beneficiaries, some level of planning needs to be done to define the age of majority and provide options for distribution. This is done through an immediate split of assets, with assets going into a general needs trust or a common pot trust.

Assets are most commonly left to young beneficiaries through an immediate split of assets upon estate distribution. Assets are held in a separate trust for each beneficiary, with a trustee appointed for each trust. Assets within the trust are typically available for the child’s health, education, maintenance, or support until the child reaches the predetermined age.

Upon reaching the age defined by the trust, the child may receive the assets either outright or incrementally over a period of time.

Another option is to use a common pot trust. This is used for parents with multiple minor children. This type of trust allows the assets to remain in one trust to be used for the needs of all children until a triggering event, such as the youngest child reaching age 18. At that time, the remaining trust assets are split into as many shares as there are beneficiaries, and the shares are distributed according to the remaining instructions. Each separate share is usually left in an ongoing general needs trust until a certain age.

Leaving property in trust for young beneficiaries doesn’t cut off their ability to use the money property. The trustee can continue to use the assets for the beneficiary’s care. However, whatever is left is distributed to the beneficiary upon reaching the distribution age.

Your estate planning attorney can help you determine the best way to structure trusts for your children or grandchildren based on your wishes and their ages. By redefining the age of majority and outlining specific directions for distributions, young beneficiaries can receive the most value from their inheritance.

Reference: The News-Enterprise (Feb. 10, 2024) “When planning for young beneficiaries, consider all options”

Should You Talk with Loved Ones about Your Estate Plan?

We think of family time as gatherings for holidays and celebrating joyful occasions. However, there are times when the business side of life needs to be addressed. The best time to share your estate plan information with the family is when you are well, mentally and physically, says the article “Financial Focus: Consider family meeting to discuss estate plans” from Vail Daily.

What should your conversation include?

What are your wishes for your estate plan? Do you hope to leave an inheritance for family members, support a family member in need, or create a legacy with a charitable organization? The family meeting is the time to clarify your thoughts with loved ones, especially if there are concerns within the family, such as a special needs member or economic disparities between siblings.

Be prepared for surprises. Your millennial children may be more concerned about you having a secure retirement than an inheritance.

If you have your estate planning documents in order, this is a time to discuss them. If you do not, make an appointment to meet with an experienced estate planning attorney to create a comprehensive plan. Your documents may include a will, a trust, financial power of attorney, health care power of attorney and end-of-life documents. Give your family members a general idea of your wishes, especially for end-of-life matters. This relieves them from having to guess what you would have wanted in times of incapacity or upon your death.

Talk about the roles you wish them to play. You will need to name an executor to administer your estate. They should be asked to take on this role before the time comes. You will also need a trustee and a successor trustee for any trusts. Choosing the right person for these roles involves acknowledging who is more capable—just because one sibling is older does not mean they are the best candidate to serve as executor.

For some families, the best setting for a family meeting is their estate planning attorney’s office. It is a neutral setting and people are less likely to fall into old behavior patterns (including spats) when they are in a professional office.

Let the family know this is not the final discussion about your estate plan. Encourage questions and, if necessary, offer to meet again. If the initial groundwork is set, you will have begun establishing a legacy for yourself and your family.

Reference: Vail Daily (Jan. 25, 2024) “Financial Focus: Consider family meeting to discuss estate plans”

Top 5 Estate Planning Nightmares You Can Avoid with a Will

In the realm of estate planning, a common adage rings true: “Failing to plan is planning to fail.” As an experienced estate planning attorney, I’ve witnessed firsthand the turmoil and heartache that can ensue when individuals neglect the crucial step of drafting a will. This blog post is a clarion call to take control of your future and protect your loved ones from the all-too-common nightmares that arise from inadequate estate planning.

Family Disputes and Conflicts

The absence of a will can be the catalyst for family disputes that echo for generations. Imagine a scenario where siblings are torn apart, not by grief, but by the ambiguity of asset distribution. A will acts as a clear voice from beyond, guiding your family during a time of loss and preventing disputes that can irreparably fracture familial bonds.

Unintended Beneficiaries

Imagine your hard-earned assets falling into the hands of a distant relative you barely know, or worse, someone you wouldn’t have chosen to benefit from your estate. This isn’t just a hypothetical situation—it’s a reality for many who pass away without a will. Your will is a beacon, ensuring that your assets find their way into the right hands—those you specifically choose.

Delays and Additional Expenses

The probate process without a will is akin to navigating a ship through a storm without a compass. The journey is longer, fraught with legal complexities, and often more costly. By drafting a will, you provide a map that steers your estate through the probate process swiftly and efficiently, sparing your loved ones from unnecessary financial and emotional burdens.

Loss of Control Over Asset Distribution

Without a will, you relinquish control over who inherits your assets. State laws, devoid of personal sentiment, take the helm. This loss of control is especially critical if you have minor children or dependents whose future you wish to secure. A will is your tool to ensure that your specific wishes for your children’s guardianship and the distribution of your assets are honored.

Increased Legal Challenges

An estate without a will is fertile ground for legal disputes. These battles can drain your estate’s resources and leave your loved ones embroiled in legal quagmires. A well-crafted will is a shield, protecting your estate from the arrows of litigation and providing a solid legal foundation that upholds your wishes.

In conclusion, the nightmares of estate planning can be easily avoided by drafting a will. It is a fundamental step in ensuring your peace of mind and the well-being of your loved ones. Remember, a will is more than just a document; it’s a testament to your life, wishes, and legacy.

Don’t let indecision today lead to turmoil tomorrow. I invite you to take the first step in securing your legacy and safeguarding your family’s future. Contact me for a free consultation to discuss your estate planning needs. Together, we can craft a will that reflects your wishes, protects your assets, and provides clarity and comfort to your loved ones in times of need.

Remember, planning today creates peace of mind for tomorrow. Let’s embark on this journey together.

Key Takeaways

Prevent Family Disputes: A will is essential to avoid familial conflicts over asset distribution, ensuring your wishes are clearly understood and respected.
Control Over Beneficiaries: It enables you to designate precisely who receives your assets, preventing unintended beneficiaries from inheriting your estate.
Efficient Probate Process: Drafting a will streamlines the probate process, reducing delays, complexities, and additional expenses for your loved ones.
Guardianship of Dependents: A will allows you to make critical decisions about the future of your minor children or dependents, ensuring they are cared for as per your wishes.
Legal Protection: Having a will minimizes the risk of legal challenges, protects your estate from potential disputes, and preserves its value for your beneficiaries.

Frequently Asked Questions

Why is a will important if I don’t have a large estate?

A will is crucial regardless of the size of your estate. It ensures that your assets are distributed according to your wishes, no matter how modest. It also helps appoint guardians for minor children and can minimize legal complexities for your loved ones.

Can I write my own will, or do I need an attorney?

While writing your own will is possible, consulting an experienced attorney is advisable to ensure that it meets legal requirements and accurately reflects your wishes. An attorney can help avoid common pitfalls that might render your will invalid or ineffective.

What happens if I die without a will?

If you die without a will, your estate will be distributed according to state intestacy laws, which may not align with your personal wishes. This can lead to unintended beneficiaries receiving your assets and complicate matters for your loved ones.

How often should I update my will?

Reviewing and possibly updating your will every 3-5 years or after major life events such as marriage, divorce, the birth of a child, or significant changes in your financial situation is recommended. This ensures your will remains relevant to your current circumstances.

Can a will reduce taxes on my estate?

A well-planned will can help in minimizing estate taxes. An estate planning attorney can guide you in structuring your will and other estate planning tools to maximize tax efficiency and preserve the value of your estate for your beneficiaries.

Estate Planning in Seven Steps

From defining financial objectives and understanding legal issues to safeguarding assets and establishing directives, every step in the creation of an estate plan is a brushstroke in the painting of your personal legacy. A recent article from Market Business News, “Crafting Your Legacy: 7 Steps in the Estate Planning Process,” describes the process of creating what is essentially a testament to protect loved ones.

Create an inventory of assets. You’ll need to be meticulous about this to ensure that all your assets are accounted for. This includes properties, investment accounts, items of value and sentimental possessions. It should include detailed descriptions and appraisals. This forms the foundation of your estate plan.

Consider your family’s needs after your death. Anticipate your family’s financial, practical, and emotional needs. Consider things like educational expenses, healthcare costs, ongoing support for basics, and, depending on your situation, recreational activities. Address this concern in your estate plan, so your family will have a secure foundation after your passing.

Select beneficiaries. This is simple in some cases and more complicated in others. You may have a traditional family or one including non-family members who are like family to you. Are there charitable concerns you want to address?

How do you want your estate divided? Be specific to avoid confusion and ensure that assets are distributed according to your intentions. Language needs to be specific and clear, with no room for ambiguity.

Store documents properly. Safeguard estate planning documents, which include your will, Power of Attorney, Health Care Power of Attorney, Living Will and others, in a secure location, like a fire and water-proof home safe. Do not put them in a bank safe deposit box, as the bank may seal the box upon your death and not allow representatives to access the box’s contents. Talk with your estate planning attorney about their recommendations.

Update your estate plan on a regular basis. Life changes, and so should your estate plan. It should be reviewed every three to five years or whenever there is a life event, including marriage, divorce, birth, or changes in your financial situation. Keeping an estate plan updated ensures that it remains relevant to your life.

Seek help from an experienced estate planning attorney. An estate planning attorney will help you navigate the complexities of legal documentation, tax implications and probate. You’ll want to be sure that your estate plan aligns with state laws. The knowledge of an estate planning attorney will provide you with peace of mind, knowing you’ve done the right thing to protect your family and ensure your legacy.

Reference: Market Business News (Oct. 28, 2023) “Crafting Your Legacy: 7 Steps in the Estate Planning Process”

Should I Give the Kids My House in My Estate Planning?

Houses make for terrible wealth transfer vehicles. Bequeathing a house can mean passing along financial burdens, red tape, home maintenance responsibilities, potential family conflict and housing market volatility, says Kiplinger’s recent article, “Your Home Would Be a Terrible Inheritance for Your Kids.”

Communication about plans is critical. A study from Money & Family found that 68% of homeowners plan to leave a home or property to heirs. However, 56% haven’t told them about their plans. That will surprise the recipients who may or may not want or be able to service an inherited home.

Suppose you bequeath a house to an heir or heirs. In that case, they’ll have to make an immediate plan for home maintenance, mortgage payments (if necessary), utilities, property taxes, repairs and homeowners’ insurance. Zillow says this can amount to as much as $9,400 annually, not including mortgage payments.

The psychology of the home. Owners often have deep emotional attachments to their homes. Therefore, when people gift their homes to children and heirs, they’re not just giving an asset — they’re endowing them with all the good memories that were made on that property. Emotional connections to the home can be nearly as powerful as a strong attachment to a living being.

Beneficiaries may struggle to make practical choices about the inherited property because of the home’s sentimental value. This emotional aspect can cloud judgment and hinder the effective management and allocation of assets.

The financial burdens and family conflicts for beneficiaries. Inheriting a home entails a range of financial responsibilities that can quickly add up.

Property taxes, insurance premiums, ongoing maintenance costs and unexpected repairs can strain beneficiaries’ financial resources dramatically. If beneficiaries already have their own homes, inheriting an additional property can exacerbate financial burdens and potentially hinder their own financial goals, retirement plans and aspirations. The passing of a family member can also sometimes lead to conflicts among heirs, potentially exacerbating existing fractures in relationships among siblings and other family members.

According to a 2018 study, nearly half (44%) of respondents saw family strife during an estate settlement. Disagreements can cause tension, strain relationships and even result in lengthy legal battles.

Why Your Will Is Just One Part of an Estate Plan

When a veterinarian’s third wife left him, he rushed to update his will and estate planning documents to ensure that she wouldn’t get anything when he died. However, the handwritten change he faxed to his life insurance company wasn’t accepted, so his three children from his first marriage spent six years embroiled in a fight with her after he died.

Most people make the mistake of assuming their will is the last word on who receives what when they die, according to a recent article, “Your Will Alone Won’t Guarantee Your Money Goes to Your Heirs,” from The Wall Street Journal. However, certain documents override wills, and chances are you’ve got more than a few: beneficiary forms for retirement accounts, life insurance and some bank and investment accounts. This is the case regardless of whether the accounts were opened through the workplace or on your own.

Failure to update them and your assets could end up in an ex-spouse’s accounts or a court battle. Estate planning attorneys say this is a growing issue as Americans juggle multiple accounts and have more of their net worth in retirement accounts.

You must be sure that all beneficiary forms match your current intent and estate plan. For one employee benefits attorney, the hardest part of the job is writing denial letters to children and parents, advising them they are not entitled to the accounts.

Some laws regarding pensions and spouses need to be explored and clarified. For example, an employee divorces and names an adult child as the new 401(k) beneficiary. The employee then remarries. Under federal law, the new spouse gets the 401(k), no matter what the beneficiary form or will says. The rules vary for beneficiary forms for different accounts, so each needs to be examined.

With 401(k)s, married spouses are automatically entitled to the money unless they formally waive it, and the waiver must be notarized. If no beneficiary and spouse are listed, the employer plan documents determine who is next in line.

With IRAs, in most states, you can name someone other than your spouse as a beneficiary without needing a waiver. You will need a waiver if you live in a community property state, like California or Texas. If no beneficiary is listed, the terms of the IRA agreement determine who inherits the IRA.

With insurance payouts, the employer plan documents control the payout, if the policy is a workplace plan obtained through your employer. If you purchased the policy independently, the insurance company’s rules govern. Litigation typically ends up in state court.

Want to protect your heirs?

Take beneficiary forms seriously, and don’t just sign and forget them. Be sure to include the beneficiaries’ proper name, date of birth and Social Security number.

Keep the documents updated according to the institution’s guidelines anytime there is a major life event, like getting married, divorced, or having children. Some states have laws automatically revoking designation upon divorce, but many do not.

For banks and investment accounts, people sometimes add a “payable on death” designation by filling out a special beneficiary form and then forget about it. If one child is named and not the other, this can lead to hurt feelings and fractured relationships.

These accounts and insurance policies must be aligned with your overall estate plan, or they may not work as you want.

Keep copies of beneficiary forms with your estate planning documents. You may want to send duplicate beneficiary forms to the bank, brokerage house, or insurance company and ask for one back with a stamp indicating it was received. You can sometimes check your account profile online to see if the change you requested has been made.

Reference: The Wall Street Journal (Sep. 30, 2023) “Your Will Alone Won’t Guarantee Your Money Goes to Your Heirs”

Now Is the Time for Estate Planning

Individuals in their twenties are usually focused on their careers, acquiring assets and enjoying life—death is one of the last things on their minds, according to a recent article from The National Law Review, “Don’t Wait until Time Is Up.” However, unexpected things happen, even to healthy young people.

Estate planning documents, including Power of Attorney, Healthcare Proxy and Living Will, should be prepared because they go into effect as soon as they are executed, allowing others to carry out legal, financial and health wishes in case of incapacity.

Thirty-somethings may have reached various milestones, such as marriage, having children, owning property, starting a business, or working in the family business. This is also a time when life-changing events occur, such as divorce, death in the family, inheritance, moving to another state and more. Estate planning documents should be in place now, including a will and ancillary documents. This may also be the time to establish trusts to accomplish estate planning goals.

If you are getting married, already married, divorced, or remarried, it’s time to call your estate planning attorney. Estate planning is often negotiated as part of prenuptial, postnuptial and separation agreements. Upon getting married or remarried, your estate plan must be updated to include your new spouse and/or remove your ex-spouse. A new spouse may have elective rights to a portion of their spouse’s estate if they remain married at death and the deceased spouse has failed to provide for their surviving spouse.

One of the most important provisions of a will is the designation of a guardian of minor children. The guardian will take legal custody and responsibility for minor children if both natural parents die while the child is under legal age. Any new parent must execute a will or update their will to designate a guardian. Within the will, you may also request guidelines for guardians to file while raising minor children. The court must find and appoint a guardian if there is no will or the will does not designate a guardian.

If you die without a will, the state laws of intestacy control, which means your spouse and nearest heirs will inherit your estate. If this is not your intention and you want to leave assets to friends, charities, or other relatives, then you need a will.

An estate plan is also needed to streamline the probate and administrative process of the estate. An estate plan can be designed to effectively minimize the expense, delay, and loss of privacy of the probate process. This is typically done by establishing a Living Revocable Trust in addition to the will. The trust can be funded during your lifetime and controlled by you before death. Assets don’t pass through the will, avoiding the need for probate.

One of the first steps of probate is filing the will with the appropriate court when the will becomes part of the public record, and anyone can access it. Probate varies from state to state, and courts experiencing back-ups can delay admitting the will and appointing an executor to manage and distribute the assets. This process can take up to a year in some New York Surrogate courts.

Having an estate plan in place and updating it regularly can help protect assets and beneficiaries. If you haven’t already implemented it, now is the best time to begin.

Reference: The National Law Review (Sep. 12, 2023) “Don’t Wait until Time Is Up”

Special Needs Planning for Beneficiaries with Disabilities

Families who aren’t knowledgeable about special needs planning often disinherit a disabled child because they don’t know the other options for protecting their offspring, reports a recent article, “Beneficiaries with disabilities require special planning” from The News-Enterprise. With proper planning, disabled beneficiaries can receive an inheritance and remain eligible for government benefits.

For estate planning, disabled beneficiaries are people who are disabled and receive public benefits, should be receiving public benefits, or are likely to need public benefits in the future. These public benefits are means-tested and determined by financial eligibility. They typically include Social Security Insurance and Medicaid. However, they may also include Section 8 housing, food stamps and other income or asset-based assistance.

Some people think they can replace public benefits with an inheritance. However, realistically, the disabled person will likely use up their inheritance and then be left only with public benefits and no resources to cover any other needs.

The best practice is to create a third-party supplemental needs trust for the beneficiary to receive an inheritance. This differs from a first-party supplemental needs trust and an ABLE account, since both have requirements based on the beneficiary’s age. The third-party supplemental needs trust can be funded regardless of the beneficiary’s age.

Third-party supplemental needs trusts don’t have a payback provision to the state. This is because a third party has funded the trust and not the beneficiary. Therefore, the assets within the trust aren’t required to be repaid to the state upon the death of the beneficiary. This leads to another benefit—the third-party supplemental needs trust may be left to a contingent beneficiary upon the death of the primary beneficiary.

Some families may leave the bulk of their estate to their disabled child, while the other children will be contingent beneficiaries.

A third-party supplemental needs trust is relatively flexible to set up and administer for future trustees. Your estate planning attorney can create one to include basic protective provisions giving the trustee maximum flexibility or set it up with instructions for an advisory committee, care planning and housing requirements.

Not all disabled individuals receive income or asset-based public benefits. In this case, the inheritance can be managed in one of two ways. First, planning documents could require the beneficiary’s inheritance to be left in a third-party supplemental needs trust, either because the planning anticipates a future need for benefits or because the beneficiary cannot manage their assets.

Another option is to leave the inheritance to the beneficiary outright, with a “trigger trust” provision. This means the third-party supplemental needs trust is set up within the planning document—a will or a trust—and will be “triggered” if the beneficiary is eligible for financial-based public benefits at the time of distribution.

The benefit of a trigger trust is that any beneficiary, including those who are healthy and capable of managing their lives when the documents are executed, can have the protection of a third-party supplemental needs trust, if and when needed.

The downside of a trigger trust is that once assets are distributed to the beneficiary outright, the option for a third-party trust is no longer available.

An experienced estate planning attorney will help the family with a disabled member plan for the future.

Reference: The News-Enterprise (July 8, 2023) “Beneficiaries with disabilities require special planning”

Who Gets My Bank Account When I Die?

Investopedia’s recent article, “What Happens to Your Bank Account After Death?” details the common ways you can set up your account to make things as simple as possible after your passing and what will happen if you don’t set up anything beforehand.

The easiest way to pass your bank account on to your heirs after your passing is to make sure you name payable-on-death (POD) or transfer-on-death (TOD) beneficiaries on your accounts. This ensures that they won’t have to go through probate. When you name a payable-on-death beneficiary, they won’t have direct access to your money until you die. You can change the named payable-on-death beneficiary at any time.

A bank will frequently freeze an account upon notification of the holder’s death to prevent fraud. Therefore, it’s important to have a payable on death (POD) beneficiary designated to ensure that your loved ones can access your money if you pass away.

Adding account holders to your bank accounts can make things easier for your heirs after your passing. However, it can have downsides while you are living. Note that most joint account holders are considered joint tenants with rights of survivorship (JTWROS). That means the account passes to the survivor(s) when an account holder dies.

The other people on your account may also be subject to gift tax and can withdraw funds from the account whether or not you want them to. The assets in the account are legally considered theirs to qualify for government programs or if they have a creditor with a judgment against them.

If you don’t set up anything before your passing, your accounts will go to probate and be distributed according to state probate law. Without a will, an executor will be appointed who will be responsible for paying off any creditors of the deceased. The remaining money will be distributed to the spouse and children of the decedent.

However, if the deceased has named a payable-on-death (POD) beneficiary for the account, they will get access to it immediately. They simply need to show the bank a death certificate and identification.

If you have a simple estate with no assets besides a bank account, adding a payable-on-death beneficiary to your account(s) is the easiest way to avoid probate. Ask an experienced estate planning attorney for assistance.

Reference: Investopedia (June 13, 2023) “What Happens to Your Bank Account After Death?”

Can I Motivate My Heirs After I’m Gone?

When providing what should happen to your property upon your death, language in an estate plan should be clear, direct and unambiguous. Using unclear language can lead to confusion and disagreements between beneficiaries and a longer and more expensive probate process.

Kiplinger’s recent article entitled “I Wish I May, I Wish I Might: Estate Planning’s Gentle Nudge” says it would seem that using phrases such as “I wish,” “I hope” or “I desire” — known as precatory language — would never belong in a will or trust. However, there are three important cases where it can be helpful to include non-binding guidance for your loved ones and estate representatives.

You want to encourage your beneficiaries to work with a professional. Baby Boomers will pass on more than $70 trillion in wealth to younger generations. Working with an adviser can help preserve and protect assets and set beneficiaries up for a positive working relationship with a trusted professional. If you have a great relationship with your financial adviser and estate planning attorney and want to encourage your beneficiaries to consider working with them, your will could be a great way to communicate this message. Consider the following wording:

“I desire that my children consult with our family adviser, Sally Brown, or another competent professional adviser of their choosing to manage their inheritance.”

Putting language in your will that encourages your loved ones to take action and meet with an adviser to help manage their inheritance could be just the reminder they need to set an appointment after you pass.

You want to encourage your co-trustees to collaboratively make decisions, even if decision-making isn’t unanimous. For example, if you have named three or more co-trustees, you may have said they act by majority consent to streamline the decision-making process. You can express a desire to see your trustees work through decisions constructively and collaboratively — even if their final decisions aren’t made by unanimous agreement.
You want to encourage your trustee to consider certain parameters when making decisions about trust distributions. A typical trust arrangement gives an independent trustee the power to make distribution decisions to beneficiaries at their sole discretion. This gives the trustee the most flexibility to ensure that the beneficiaries’ needs are met to the appropriate extent. You can add factors for the trustee to consider in exercising their discretion, such as if the beneficiary has ample funds apart from the trust funds or if the particular need at stake would likely have been supported were you still alive. Giving your trustee some guidance (“I encourage my trustee in the exercise of their discretion to consider requests related to educational pursuits”) can help them make decisions, while simultaneously not tying their hands if they ultimately decide a different route is in the beneficiaries’ best interest.

Your estate planning documents should be clear about where your property should go on your death and who should manage it. When appropriately used, precatory language can help communicate essential guidance to your family.

Reference: Kiplinger (March 21, 2023) “I Wish I May, I Wish I Might: Estate Planning’s Gentle Nudge”

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