Estate Planning Blog Articles

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

Your Cryptocurrency and NFTs Need to Be Included in Your Estate Plan

As more people continue to purchase cryptocurrencies and non-fungible tokens (NFTs), digital assets are becoming a bigger part of the investment world and of people’s estate plans. If you want to pass these assets to loved ones upon death, you’ll need to plan for it, says the article “Got Cryptocurrency or NFTs? They Need to Be in Your Estate Planfrom Kiplinger. Otherwise, securing, transferring and gifting crypto and NFTs can create unsolvable problems and lost assets.

There are many different kinds of crypto and NFTs, with Bitcoin, Ethereum, Binance Coin, Thether among them. An NFT is a unique, collectable, and tradable digital asset, like digital art or a photo. NFTs are purchased through a bidding process in this universe and in the metaverse, an online world where people are buying homes, real estate and more in the shape of NFTs. Sales of NFTs are estimated to have reached more than $17 billion in 2021. For better or worse, the future is here.

Cryptocurrency is accessed through a private key. This is a series of alphanumeric characters known only to the owner and stored in cold storage or a digital wallet. Whoever has possession of the key can buy, sell and spend the digital currency. If you have crypto, your family or fiduciary needs to know what you have, where to find the assets and what to do with them.

One option is to share the private key or place crypto assets and NFTs in custody, using a software application or a hardware wallet. There are a number of companies now offering these services. An old-school option for this new world asset is to create a secure spreadsheet of your digital assets and list the login protocols for each account.

For now, it is difficult to open crypto accounts and NFTs in the name of a revocable or irrevocable trust. However, digital wallets allowing you to open an account in the name of a trust do exist, if the company handling the digital asset permits. This is a very new, rapidly evolving asset class. Beneficiaries may not yet be named for crypto accounts. However, this may change in the future.

With no trust account and no named beneficiary, what happens to your crypto and NFTs when you die? For now, they must pass through your probate estate under the will. Your estate planning attorney will make sure your estate plan includes the correct way to give digital asset powers for the fiduciary handling your estate and include digital asset powers in your will, trust, and durable power of attorney.

If your state has adopted the Uniform Fiduciary Access to Digital Assets Act (UFADAA) or the Revised Uniform Fiduciary Access to Digital Assets Act (RUFADAA)—46 states have—then it will be easier for loved ones to manage digital assets in case of incapacity or when you pass, as long as your estate plan addresses them.

Reference: Kiplinger (May 23, 2022) “Got Cryptocurrency or NFTs? They Need to Be in Your Estate Plan

What Sparks the Contesting of a Will?

A last will and testament is the document used to direct your executor to distribute assets and property according to your wishes. However, it’s not uncommon for disgruntled or distant family members or others to dispute the validity of the will. A recent article titled “5 Reasons A Law Will May Be Contested” from Vents Magazine explains the top five factors to keep in mind when preparing your will.

Undue influence is a commonly invoked reason for a challenge. If a potential beneficiary can prove the person making the will (the testator) was influenced by another person to make decisions they would not have otherwise made, a will challenge could be brought to court. Undue influence means the testator’s decision was significantly affected by a person who stood to gain something by the outcome of the will and made a concerted effort to change the testator’s mind.

Even if there was no evidence of fraud, any suspicion of the testator’s being influenced is enough for a court to accept a case. If you think someone unduly influenced a loved one, especially if they suffer from any mental frailties or dementia, you may have cause to bring a case.

Outright fraud or forgery is another reason for the will to be contested. If there have been many erasures or signature styles appear different from one document to another, there may have been fraud. An estate planning attorney should examine documents to evaluate whether there is enough cause for suspicion to challenge the will.

Improper witnesses. The testator is required to sign the will with witnesses present. In some states, only one witness is required. In most states, two witnesses must be present to sign the will in front of the testator. A beneficiary may not be a witness to the signing of the will. Some states have changed laws to allow for remote signings in response to COVID. If the rules have not been followed, the will may be invalid.

Mistaken identity seems farfetched. However, it is a common occurrence, especially when someone has a common name or more than one person in the family has the same name, and the document has not been properly signed or witnessed. This could create confusion and make the document vulnerable to a challenge. An experienced estate planning attorney will know how to prepare documents to withstand any challenges.

Capacity in the law means someone is able to understand the concept of a will and contents of the document they are signing, along with the identities of the people to whom they are leaving their assets. The person doesn’t need to have perfect mental health, so people with mild cognitive impairments, such as depression or anxiety, may make and sign a will. A medical opinion may be needed, if there might be any doubt as to whether a person had testamentary capacity when the will is signed.

A will contest can be time-consuming and expensive, so keep these issues in mind, especially if the family includes some litigious individuals.

Reference: Vents Magazine (May 6, 2022) “5 Reasons A Law Will May Be Contested”

What are Benefits of Putting Money into a Trust?

For the average person, knowing how a revocable trust, irrevocable trust and testamentary trust work will help you start thinking of how a trust might help achieve your estate planning goals. A recent article from The Street, “3 Powerful Types of Trusts that Can Work for You,” provides a good foundation.

The Revocable Trust is one of the more flexible trusts. The person who creates the trust can change anything about the trust at any time. You may add or remove assets, beneficiaries or sell property owned by the trust. Most people who create these trusts, grantors, name themselves as the trustee, allowing themselves to use their property, even though it is owned in the trust.

A Revocable Trust needs to have a successor trustee to manage the assets in the trust for when the grantor dies or becomes incapacitated. The transfer of ownership of the trust and its assets from the grantor to the successor trustee is a way to protect assets in case of disability.

At death, a revocable trust becomes an Irrevocable Trust, which cannot be easily revoked or changed. The successor trustee follows the instructions in the trust document to manage assets and distribute assets.

The revocable trust provides flexibility. However, assets in a revocable trust are considered part of the taxable estate, which means they are subject to estate taxes (both federal and state) when the owner dies. A revocable trust does not offer any protection against creditors, nor will it shield assets from lawsuits.

If the revocable trust’s owner has any debts or legal settlements when they die, the court could award funds from the value of the trust and beneficiaries will only receive what’s left.

A Testamentary Trust is a trust created in connection with instructions contained in a last will and testament. A good example is a trust for a child outlining when assets will be distributed to them by the trustee and for what purposes the trustee is permitted to make the distribution. Funds in this kind of trust are usually used for health, education, maintenance and supports, often referred to as “HEMS.”

For families with relatively modest estates, a trust can be a valuable tool to protect children’s futures. Assets held in trust for the lifetime of a child are protected in the event of the child’s going through a divorce because the child’s inheritance is not subject to equitable distribution when not comingled.

Many people buy life insurance for their families, but they don’t always know that proceeds from the life insurance policy may be subject to estate taxes. An insurance trust, known as an ILIT (Irrevocable Life Insurance Trust) is a smart way to remove life insurance from your taxable estate.

Whether you can have an ILIT depends on policy ownership at the time of the insured’s death. In most cases, the insurance trust must be the owner and the insurance trust must be named as the beneficiary. If the trust is not drafted before the application for and purchase of the life insurance policy, it may be possible to transfer an existing policy to the trust. However, if this is done after the purchase, there may be some challenges and requirements. The owner must live more than three years after the transfer for the policy proceeds to be removed from the taxable estate.

Trusts may seem complex and overwhelming. However, an estate planning attorney will draft them properly and make sure that they are used appropriately to protect your assets and your family.

Reference: The Street (May 13, 2022) “3 Powerful Types of Trusts that Can Work for You”

What Is the Best Way to Leave Money to Children?

Parents and grandparents want what’s best for children and grandchildren. We love generously sharing with them during our lifetimes—family vacations, values and history. If we can, we also want to pass on a financial legacy with little or no complications, explains a recent article titled “4 Tax-Smart Ways to Share the Wealth with Kids” from Kiplinger.

There are many ways to transfer wealth from one person to another. However, there are only a handful of tools to effectively transfer financial gifts for future generations during our lifetimes. UTMA/UGMA accounts, 529 accounts, IRAs, and Irrevocable Gift Trusts are the most widely used.

Which option will be best for you and your family? It depends on how much control you want to have, the goal of your gift and its size.

UTMA/UGMA Accounts, the short version for Uniform Transfers to Minor or Uniform Gift to Minor accounts, allows gifts to be set aside for minors who would otherwise not be allowed to own significant property. These custodial accounts let you designate someone—it could be you—to manage gifted funds, until the child becomes of legal age, depending on where you live, 18 or 21.

It takes very little to set up the account. You can do it with your local bank branch. However, the funds are taxable to the child and if an investment triggers a “kiddie tax,” putting the child into a high tax bracket and in line with income tax brackets for non-grantor trusts, it could become expensive. Your estate planning attorney will help you determine if this makes sense.

What may concern you more: when the minor turns 18 or 21, they own the account and can do whatever they want with the funds.

529 College Savings Accounts are increasingly popular for passing on wealth to the next generation. The main goal of a 529 is for educational purposes. However, there are many qualified expenses that it may be used for. Any income from transfers into the account is free of federal income tax, as long as distributions are used for qualified expenses. Any gains may be nontaxable under local and state laws, depending on which account you open and where you live. Contributions to 529 accounts qualify for the annual gift tax exclusion but can also be used for other gift and estate tax planning methods, including letting you make front-loaded gifts for up to five years without tapping your lifetime estate tax exemption.

You may also change the beneficiary of the account at any time, so if one child doesn’t use all their funds, they can be used by another child.

From the IRS’ perspective, a child’s IRA is the same as an adult IRA. The traditional IRA allows an immediate deduction for income taxes when contributions are made. Neither income nor principal are taxed until funds are withdrawn. By contrast, a Roth IRA has no up-front tax deduction. However, any earned income is tax free, as are withdrawals. There are other considerations and limits.  However, generally speaking the Roth IRA is the preferred approach for children and adults when the income earner expects to be in a higher tax bracket when they retire. It’s safe to say that most younger children with earned income will earn more income in their adult years.

The most versatile way to make gifts to minors is through a trust. There’s no one-size-fits-all trust, and tax rules can be complex. Therefore, trusts should only be created with the help of an experienced estate planning attorney. A trust is a private agreement naming a trustee who will manage the assets in the trust for a beneficiary. The terms can be whatever the grantor (the person creating the trust) wants. Trusts can be designed to be fully asset-protected for a beneficiary’s lifetime, as long as they align with state law. The trust should have a provision for what will occur if the beneficiary or the primary trustee dies before the end of the trust.

Reference: Kiplinger (May 15, 2022) “4 Tax-Smart Ways to Share the Wealth with Kids”

What about House Contents when Someone Dies?

Probate law does not allow anyone to take items from a loved ones’ home after they die, until the will has been probated. Learning about probate, what it entails and how to prepare for it may make it a little easier when a family member dies, says a recent article titled “Can you empty a house before probate? from Augusta Free Press. Knowing what to expect can avoid common pitfalls and mistakes, some of which often lead to family fights and even litigation.

Probate is a court-supervised period when the estate of the decedent is on pause. Assets may not be distributed, including personal items in the home. The goal is to ensure that assets are distributed only after the will has been ruled valid by the court and following the instructions in the will.

Probate includes the legal appointment of the executor, who is named in the will with specific statutory responsibilities, to include ultimately distributing assets.

For many people, estate planning includes preparing assets to avoid the probate process. An estate plan includes a review of the entire estate to see which assets are best suited to be taken out of the estate. Living trusts, joint ownership, transfer-on-death (TOD) and many other estate planning strategies can be used, depending on the person’s finances.

Certain tasks can be accomplished during probate relating to the home and other property. This includes changing the locks on the home to protect it from criminals and unauthorized people who have keys. The decedent’s mail can be forwarded to the executor or another family member’s address. A review of the decedent’s bills, especially monthly payments, can take place. If there’s a mortgage on the home, the mortgage company needs to be contacted and the payments need to be made.

As the end of the probate period nears, it may be time to contact an appraiser to get an unbiased, professional appraisal of the home’s value. This will be needed if the home is to be sold, or if the estate plan needs a valuation of the home.

Probate is often a necessary process. It can create challenges for the family, especially if no estate planning has been done. In some jurisdictions, probate is quick and painless, while in others it is a long and expensive process. Prior planning by an experienced estate planning attorney prevents many of the issues presented by probate.

After probate has been completed, the executor distributes the assets, including the personal property in the home. Personal property with sentimental value often sparks more family fights than assets of greater value. Administering an estate when emotions are running high is a challenge for all concerned.

Another reason to have an estate plan in place is to delineate very specifically what you want to occur after your death. That way there is no room for family members to stake a claim and do something contrary to your wishes.

Reference: Augusta Free Press (May 13, 2022) “Can you empty a house before probate?

What Is the Purpose of a Pet Trust?

You don’t have to be a billionaire to want to protect your pets. However, you do need to plan for their well-being, if something happens to you. Since pets are considered property, they can’t inherit money to be used for their care. Instead, as explained in a recent article from Barron’s Penta “Future Returns: Why Fido Needs a Trust” titled owners can create pet trusts to protect them, if something happens to their humans. With close to 70% of American households having pets, pet trusts have now become mainstream.

Owners need to designate a reliable caregiver, just as they would designate a guardian for minor children. If you don’t have family members or friends who love animals, contact a local animal rescue group to learn if they have a life-long care program for animals. Many do, with programs incorporating Charitable Remainder Trusts to cover the cost of the pet’s care.

If you want a friend or relative to care for your pet, make sure they are willing and able to do so.  You should have another person as a back-up, in case something happens to them. Circumstances change, and someone who wants to take care of your pet now may not be able to in future years. How long you need to plan for depends upon the lifespan of your pet.

An experienced estate planning attorney can create a pet trust. Because state law enforces conditional distributions from the trust, the care of your pet can be enforced in court, if necessary. The pet owner names a beneficiary, the caregiver and funds the trust with enough assets to care for the pet.

The pet owner also names a trustee. They are a responsible person who will be in charge of distributing funds and making sure they are used for the pet’s well-being. The trustee also makes sure that the pet is healthy and being properly cared for, following the directions of the trust.

Your estate planning attorney will know what your state’s laws are regarding pet trusts, which varies from state to state. For instance, Pennsylvania requires a pet trust to end when the last pet in the trust dies, while other states may limit the trust’s length to 21 years. For dogs and cats, 21 years is a reasonable period of time. However, for other pets, like birds who can live to 100 years, this won’t be long enough.

You’ll need to fund the trust, making sure that there’s enough money to cover the pet’s needs throughout their lifetime. You may also consider the caregiver’s needs, depending on circumstances. How much is reasonable will depend upon the type of pet and the lifestyle of the caretaker. An apartment dweller caring for an elderly cat will need a different level of resources than a person tasked to care for a young horse.

Some states limit the amount of money in a pet trust and will penalize overfunding. Making sure your pet trust is appropriately funded may limit the likelihood of its being challenged.

Reference: Barron’s Penta (April 18, 2022) “Future Returns: Why Fido Needs a Trust”

Does Power of Attorney Perform the Same Way in Every State?

A power of attorney is an estate planning legal document signed by a person, referred to as the “principal,” who grants all or part of their decision-making power to another person, who is known as the “agent.” Power of attorney laws vary by state, making it crucial to work with an estate planning attorney who is experienced in the law of the principal’s state of residence. The recent article from limaohio.com, titled “When ‘anything and everything’ does not mean anything and everything,” explains what this means for agents attempting to act on behalf of principals.

When a global or comprehensive power of attorney grants an agent the ability to do everything and anything, it may seem to the layperson they may do whatever they need to do. However, each state has laws defining an agent’s role and responsibilities.

As a matter of state law, a power of attorney does not include everything.

In some states, unless certain powers are explicitly stated, the POA does not include the right to do the following:

  • Create, amend, revoke, or terminate a trust
  • Make a gift
  • Change a beneficiary designation on an account
  • Change a beneficiary designation on a life insurance policy.

If you want your agent to be able to do any of these things, consult with an experienced estate planning attorney, who will know what your state’s law allows.

You’ll also want to keep in mind any gifting empowered by the POA. If you want your agent to gift your property to other people or to the agent, the power to gift is limited to $16,000 of value to any person in one year, unless the POA explicitly states the power to gift may exceed $16,000. An estate planning attorney will know what your state’s limits are and the tax implications of any gifts in excess of $16,000.

These types of limitations are intended to give some common-sense parameters to the POA.

Most people don’t know this, but the power of attorney can be as narrow or as broad as the principal wishes. You may want your brother-in-law to manage the sale of your home but aren’t sure he’ll do a good job with your fine art collection. Your estate planning attorney can create a power of attorney excluding him from taking any role with the art collection and empowering him to handle everything else.

Reference: limaohio.com (April 30, 2022) “When ‘anything and everything’ does not mean anything and everything”

What Happens If You Become Incapacitated?

If you became incapacitated and advance planning had been done, your family will have the legal documents you need. Just as importantly, they will know what your wishes are for incapacity and end-of-life care. If there was no planning, your loved ones will have to start with a lengthy application to the court to have someone named a guardian. They are a person who has legal authority to make medical decisions on your behalf.

Having a plan in place beforehand is always better, explains the article “If I become incapacitated, who makes healthcare decisions?” from Waterdown Daily Times.

Another reason to plan ahead: the court does not require the guardian to be a family member. Anyone can request a guardian to be appointed for another incapacitated individual, whether incapacity is a result of illness or injury. If no planning has been done, a guardianship must be established.

This is not an easy or inexpensive process. A petition must be filed, and the person in question must be legally declared incapacitated. In some cases, these filings are done secretly, and a guardianship maybe established without the person or their family even knowing it has occurred.

There are also many cases where one family member believes they are better suited for the task, and the family becomes embroiled in controversy about who should serve as the guardian.

The entire problem can be resolved by working with an experienced estate planning attorney long before incapacity becomes an issue. A comprehensive estate plan will include a plan for distribution of assets (Last Will and Testament), Power of Attorney, Healthcare Power of Attorney and a Living Will.

These last two documents work together to describe your wishes for end-of-life care, medical treatment and any other medical issues you would want conveyed to healthcare providers.

Unfortunately, the pandemic revealed just how important it is to have these matters taken care of. If you did create these documents in the last few years, it would be wise to review them, since the people in key roles may have changed. While the idea of being on a respirator may have at one time been a clear and firm no, you may feel otherwise now.

A Healthcare Power of Attorney is an advance directive used to name a person, who becomes your “agent,” to make healthcare decisions. If there is no Healthcare Power of Attorney, physicians will ask a family member to make a decision. If no family can be reached in a timely manner, the court may be asked to appoint a legal guardian to be the decision-maker. In an urgent situation, the physician will have to make the decision, and it may not be the decision you wanted.

The Living Will explains your wishes for end-of-life care. For instance, if you become seriously ill and don’t want a feeding tube or artificial heart machine, you can say so in this document. You can even state who you do and do not wish to visit you when you are sick.

The best advice is to have a complete estate plan, including these vital documents, created by an experienced estate planning attorney. If you have an estate plan and have not reviewed it in the past three to five years, a review would be best for you and your loved ones.

Reference: Watertown Daily Times (April 14, 2022) “If I become incapacitated, who makes healthcare decisions?”

Can You Inherit a House with a Mortgage?

Inheriting a home with a mortgage adds another layer of complexity to settling the estate, as explained in a recent article from Investopedia titled “Inheriting a House With a Mortgage.” The lender needs to be notified right away of the owner’s passing and the estate must continue to make regular payments on the existing mortgage. Depending on how the estate was set up, it may be a struggle to make monthly payments, especially if the estate must first go through probate.

Probate is the process where the court reviews the will to ensure that it is valid and establish the executor as the person empowered to manage the estate. The executor will need to provide the mortgage holder with a copy of the death certificate and a document affirming their role as executor to be able to speak with the lending company on behalf of the estate.

If multiple people have inherited a portion of the house, some tough decisions will need to be made. The simplest solution is often to sell the home, pay off the mortgage and split the proceeds evenly.

If some of the heirs wish to keep the home as a residence or a rental property, those who wish to keep the home need to buy out the interest of those who don’t want the house. When the house has a mortgage, the math can get complicated. An estate planning attorney will be able to map out a way forward to keep the sale of the shares from getting tangled up in the emotions of grieving family members.

If one heir has invested time and resources into the property and others have not, it gets even more complex. Family members may take the position that the person who invested so much in the property was also living there rent free, and things can get ugly. The involvement of an estate planning attorney can keep the transfer focused as a business transaction.

What if the house has a reverse mortgage? In this case, the reverse mortgage company needs to be notified. You’ll need to find out the existing balance due on the reverse mortgage. If the estate does not have the funds to pay the balance, there is the option of refinancing the property to pay off the balance due, if the wish is to keep the house. If there’s not enough equity or the heirs can’t refinance, they typically sell the house to pay off the reverse mortgage.

Can heirs take over the existing loan? Your estate planning attorney will be able to advise the family of their rights, which are different than rights of homeowners. Lenders in some circumstances may allow heirs to be added to the existing mortgage without going through a full loan application and verifying credit history, income, etc. However, if you chose to refinance or take out a home equity loan, you’ll have to go through the usual process.

Inheriting a house with a mortgage or a reverse mortgage can be a stressful process during an already difficult time. An experienced estate planning attorney will be able to guide the family through their options and help with the rest of the estate.

Reference: Investopedia (April 12, 2022) “Inheriting a House With a Mortgage”

What Assets are Not Considered Part of an Estate?

In many families, more assets pass outside the Last Will than through the Last Will. Think about non-probate assets: life insurance proceeds, investment accounts, jointly titled real estate assets, assuming they were titled as joint tenants with right of survivorship, and the like. These often add up to considerable sums, often more than the probate estate.

This is why a recent article from The Mercury titled “Planning Ahead: Pay attention to your non-probate assets” strongly urges readers to pay close attention to accounts transferred by beneficiary.

Most retirement accounts like IRAs, 401(k)s, 403(b)s and others pass by beneficiary designation and not through the Last Will. Banks and investment accounts designated as Payable on Death (POD) or Transfer on Death (TOD) also do not pass through probate, but to the other person named on the account. Any property owned by a trust does not go through probate, one of the reasons it is placed in the trust.

Why is it important to know whether assets pass through probate or by beneficiary designation? Here’s an example. A man was promised half of this father’s estate. His dad had remarried, and the son didn’t know what estate plans had been made, if any, with the new spouse. When the father passed, the man received a single check for several thousand dollars. He knew his father’s estate was worth considerably more.

What is most likely to have happened is simple. The father probably retitled the house with his new spouse as tenants by the entireties–making it a non-probate asset. He probably retitled bank accounts with his new spouse. And if the father had a new Last Will created, he likely gave 50% to the son and 50% to the new spouse. The father’s car may have been the only asset not jointly owned with his new spouse.

A parent can also accidentally disinherit an heir, if all of their non-probate assets are in one child’s name and no provision for the non-probate assets has been made for any other children. An estate planning attorney can work with the parents to find a way to make inheritances equal, if the intention is for all of the children to receive an equal share. One way to accomplish this would be to give the other children a larger share of probated assets.

Any division of inheritance should bear in mind the tax liability of assets. Non-probate does not always mean non-taxed. Depending upon the state of residence for the decedent and the heirs, there may be estate or inheritance tax on the assets.

Placing assets in an irrevocable trust is a commonly used estate planning method to ensure inheritances are received by the intended parties. The trust allows you to give very specific instructions about who gets what. Assets in the trust are outside of the probate estate, since the trust is not owned by the grantor.

Your estate planning attorney will be able to review probate and non-probate assets to determine the best way to achieve your wishes for your distribution of assets.

Reference: The Mercury (April 12, 2022) “Planning Ahead: Pay attention to your non-probate assets”