Should You Get Medical Power of Attorney?

The pandemic has created awareness that being suddenly incapacitated by an illness or injury is no longer a hypothetical. The last year has reminded us that health is a fragile gift, regardless of age or any medical conditions, explains the article “Now Is the Time to Protect Your Health Care Decision Making Rights” from Kiplinger. Along with this awareness, comes an understanding that having control over our medical decisions is not assured, unless we have a well-considered health care decision-making plan created by an estate planning attorney, while we are well and healthy.

Without such a plan, in the event of incapacity, you will not have the opportunity to convey your wishes or to ensure they will be carried out. This also leaves the family in a terrible situation, where siblings may end up in court fighting against each other to determine what kind of end-of-life care you will receive.

The best way to exercise your medical decision rights will vary to some degree by your state’s laws, but three are three basic solutions to protect you. An estate planning attorney will be needed to prepare these properly, to reflect your wishes and align with your state’s law. Do-it-yourself documents may lead to more problems than they solve.

Living Will. This document is used when you are in an end-stage medical condition or permanently unconscious. It provides clear and written instructions as to the type of treatments you do or do not want to receive, or the treatment you always want to receive in case of incapacity.

Health Care Durable Power of Attorney. The health care durable POA is broader than a living will. It covers health care decisions in all situations, when you are not able to communicate your wishes. You may appoint one or more agents to make health care decisions, which they will base on their personal knowledge of what your decisions would be if you were able to speak. Just realize that if two people are named and they do not agree on the interpretation of your decision, you may have created a problem for yourself and your family. Discuss this with your estate planning attorney.

Health Care Representative Laws. There are laws in place for what occurs if you have not signed a Health Care Durable Power of Attorney or a Living Will before becoming incompetent. They are intended to fill in the gap, by authorizing certain family members to act on your behalf and make health care decisions for you. They are a solution of last resort, and not the equal of your having had the living will and/or health care durable power of attorney created for you.

If the statute names multiple people, like all of your children, there may be a difference of opinion and the children may “vote” on what’s to happen to you. Otherwise, they’ll end up in court.

The more detailed your documents, the better prepared your loved ones will be when decisions need to be made. Share your choices about specific treatments. For instance, would you want to be taken off a ventilator, if you were in a coma with limited brain function and with no hope of recovery? What if there was a slim chance of recovery? The decisions are not easy. Neither is considering such life or death matters.

Regardless of the emotional discomfort, planning for health-care decisions can provide peace of mind for yourself and loved ones.

Reference: Kiplinger (April 29, 2021) “Now Is the Time to Protect Your Health Care Decision Making Rights”

What Is a Holistic Estate Plan?

Estate planning is more than a tax strategy. It’s about creating a legacy and protecting your family for the short and long term, explains the article “Create A Holistic Estate Plan Now For Bigger Payoffs In The Future” from Forbes. The process begins with as much disclosure as possible. That means talking with your estate planning attorney about the challenges your family faces, as well as the assets to be left for loved ones.

One change to the tax code can disrupt decades of careful planning and leave people scrambling to protect loved ones. Market tumult can require assets to be sold to meet cash flow needs. Charitable contributions may also need to be reviewed and possibly changed, if the family’s asset level changes.

There are three aspects to consider when creating an estate plan: a lifetime spending strategy, a charitable legacy and bequests. All of these are impacted by taxes and need to be reviewed as a whole.

Lifetime spending strategy. These questions are centered on your goals and plans. Where do you want to live during retirement and how do you wish to live, travel and entertain? Will you stay in place and focus on charitable organizations, or travel throughout the year? It’s good to set a budget and stress-test it to see what different outcomes may arise.

A family that owns businesses or large real estate holdings may benefit from strategies, like family limited partnerships. A sale of the business to an outsider or a family member could create many different options, and all should be considered.

Charitable gift planning. Estate planning offers a way to clarify charitable giving goals and create a road map for how gifting can be transformed into a legacy. A well-planned charitable gift strategy can also minimize estate taxes and maximize the future of the gift, for both the family and the charities you favor.

A Charitable Remainder Trust is used to provide an income stream during your lifetime and reach gifting goals at the same time. One way to accomplish this is to transfer an asset, like highly appreciated stocks or bonds, into an irrevocable trust, thereby removing the asset from your taxable estate. The trustee may then sell the asset at market value and reinvest, creating a lifelong income stream for you or a beneficiary.

Leaving assets, not estate tax bills, for heirs. Families who own multiple properties in their own names or in a single LLC can lead to a lot of administrative headaches when the owners die. One simple fix is to place each property into a separate LLC, which increases the availability of strategic tax savings.

Another way to minimize estate taxes is through the use of life insurance. This is a strategy to do while you are still relatively healthy, as it becomes increasing difficult to obtain once you turn 60 or 70.

All of these strategies take knowledge and time to set up, so creating an estate plan and working through the many different strategies is best done with an experienced estate planning attorney and before any trigger events occur.

Reference: Forbes (April 6, 2021) “Create A Holistic Estate Plan Now For Bigger Payoffs In The Future”

What Is the Purpose of an Estate Plan?

No one wants to think about becoming seriously ill or dying, but scrambling to get an estate plan and healthcare documents done while in the hospital or nursing home is a bad alternative, says a recent article titled “The Essentials You Need for an Estate Plan” from Kiplinger. Not having an estate plan in place can create enormous costs for the estate, including taxes, and delay the transfer of assets to heirs.

If you would like to avoid the cost, stress and possibility of your spouse or children having to go to court to get all of this done while you are incapacitated, it is time to have an estate plan created. Here are the basics:

A Will, a Living Will, Power of Attorney and a Beneficiary Check-Up. People think of a will when they think of an estate plan, but that’s only part of the plan. The will gives instructions for what you want to happen to assets, who will be in charge of your estate—the executor—and who will be in charge of any minor children—the guardian. No will? This is known as dying intestate, and probate courts will make all of these decisions for you, based on state law.

However, a will is not enough. Beneficiary designations determine who receives assets from certain types of property. This includes life insurance policies, qualified retirement accounts, annuities, and any account that provides the opportunity to name a beneficiary. These instructions supersede the will, so make sure that they are up to date. If you fail to name a beneficiary, then the asset is considered part of your estate. If you fail to update your beneficiaries, then the person you may have wanted to receive the assets forty years ago will receive it.

Some banks and brokerage accounts may have an option of a Transfer on Death (TOD) agreement. This allows you to plan out asset distribution outside of the will, speeding the distribution of assets.

A Living Will or Advance Directive is used to communicate in advance what you would want to happen if you are alive but unable to make decisions for yourself. It names an agent to make serious medical decisions on your behalf, like being kept on life support or having surgery. Not having the right to make medical decisions for a loved one requires petitioning the court.

Financial Power of Attorney names an attorney in fact to manage finances, paying bills and overseeing investments. Without a POA, your family can’t take action on your financial matters, like paying bills, overseeing the maintenance of your home, etc. If the court appoints a non-family member to manage this task, the family may see the estate evaporate.

Creating a trust is part of most people’s estate plan. A trust is a means of leaving assets for a minor child, or someone who cannot be trusted to manage money. The trust is a legal entity that inherits money when you pass, and a trustee, who you name in the trust documents, manages everything, according to the terms of the trust.

Today’s estate plan needs to include digital assets. You need to give someone legal authority to manage social media accounts, websites, email and any other digital property you own.

The time to create an estate plan, or review and update an existing estate plan, is now. COVID has awakened many people to the inevitability of severe illness and death. Planning for the future today protects the ones you love tomorrow.

Reference: Kiplinger (April 21, 2021) “The Essentials You Need for an Estate Plan”

Will Inheritance and Gift Taxes Change in 2021?

Uncertainty is driving many wealth transfers, with gifting taking the lead for many wealthy families, reports the article “No More Gift Tax Exemption?” from Financial Advisor. For families who have already used up a large amount or even all of their exemptions, there are other strategies to consider.

Making gifts outright or through a trust is still possible, even if an individual or couple used all of their gift and generation skipping transfer tax exemptions. Gifts and generation skipping transfer tax exemption amounts are indexed for inflation, increasing to $11.7 million in 2021 from $11.58 million in 2020. Individuals have $120,000 additional gift and generation-skipping transfer tax exemptions that can be used this year.

Annual exclusion gifts—individuals can make certain gifts up to $15,000 per recipient, and couples can give up to $30,000 per person. This does not count towards gift and estate tax exemptions.

Don’t forget about Grantor Retained Annuity Trust (GRAT) options. The GRAT is an irrevocable trust, where the grantor makes a gift of property to it, while retaining a right to an annual payment from the trust for a specific number of years. GRATS can also be used for concentrated positions and assets expected to appreciate that significantly reap a number of advantages.

A Sale to a Grantor Trust takes advantage of the differences between the income and transfer tax treatment of irrevocable trusts. The goal is to transfer anticipated appreciation of assets at a reduced gift tax cost. This may be timely for those who have funded a trust using their gift tax exemption, as this strategy usually requires funding of a trust before a sale.

Intra-family loans permit individuals to make loans to family members at lower rates than commercial lenders, without the loan being considered a gift. A family member can help another family member financially, without incurring additional gift tax. A bona fide creditor relationship, including interest payments, must be established.

It’s extremely important to work with a qualified estate planning attorney when implementing tax planning strategies, especially this year. Tax reform is on the horizon, but knowing exactly what the final changes will be, and whether they will be retroactive, is impossible to know. There are many additional techniques, from disclaimers, QTIPs and formula gifts, that an experienced estate planning attorney may consider when planning to protect a family legacy.

Reference: Financial Advisor (April 1, 2021) “No More Gift Tax Exemption?”

Can a Person with Alzheimer’s Sign Legal Documents?

If a loved one has been diagnosed with Alzheimer’s disease or any other form of dementia, it is necessary to address legal and financial issues as soon as possible. The person’s ability to sign documents and take other actions to protect themselves and their assets will be limited as the disease progresses, so there’s no time to wait. This recent article “Financial steps to take when dealing with Alzheimer’s” from Statesville Record & Landmark explains the steps to take.

Watch for Unusual Financial Activity

Someone who has been sensible about money for most of his life may start to behave differently with his finances. This is often an early sign of cognitive decline. If bills are piling up, or unusual purchases are being made, you may need to prepare to take over his finances. It should be noted that unusual financial activity can also be a sign of elder financial abuse.

Designate a Power of Attorney

The best time to designate a person to take care of finances is before she shows signs of dementia. It’s not an easy conversation, but it is very important. Someone needs to be identified who can be trusted to manage day-to-day money matters, who can sign checks, pay bills and supervise finances. If possible, it may be easier if the POA gradually eases into the role, only taking full control when the person with dementia can no longer manage on her own.

An individual needs to be legally competent to complete or update legal documents including wills, trusts, an advanced health care directive and other estate planning documents. Once such individual is not legally competent, the court must be petitioned to name a family member as a guardian, or a guardian will be appointed by the court. It is far easier for the family and the individual to have this handled by an estate planning attorney in advance of incompetency.

An often-overlooked detail in cases of Alzheimer’s is the beneficiary designations on retirement, financial and life insurance policies. Check with an estate planning attorney for help, if there is any question that changes may be challenged by the financial institution or by heirs.

Cost of Care and How It Will Be Paid

At a certain point, people with dementia cannot live on their own. Even those who love them cannot care for them safely. Determining how care will be provided, which nursing facility has the correct resources for a person with cognitive illness and how to pay for this care, must be addressed. An elder law estate planning attorney can help the family navigate through the process, including helping to protect family assets through the use of trusts and other planning strategies.

If the family has a strong history of Alzheimer’s disease or other cognitive diseases, it makes sense to do this sort of preparation far in advance. The sooner it can be addressed, even long before dementia symptoms appear, the better the outcome will be.

Reference: Statesville Record & Landmark (April 11, 2021) “Financial steps to take when dealing with Alzheimer’s”

What Happens when Homeowner Dies without Will?

When parents die suddenly, in this case due to COVID-19, and there is no will and no discussions have taken place, siblings are placed in an awkward, expensive and emotionally fraught situation. The article titled “My parents died of COVID-19 and left no will. My brother lives rent-free in their home and borrowed $35,000. What now?” from MarketWatch sums up the situation, but the answer is complicated.

When there is no will, or “intestacy,” there aren’t a lot of choices.

These parents had a few bank accounts, owned their home outright and left no debts. They had six adult children, including one that died and is survived by two living sons. None of the siblings agrees upon anything, so nothing has been done.

One of the siblings lives in the house rent free. Another brother was loaned $35,000 for a down payment on a mobile home. He now claims that the loan was a gift and does not have to pay it back. There are receipts, but the money was paid directly to the escrow company from the mother’s bank account.

How do you determine if this brother received a loan or a gift? What do you do about the brother who lives rent-free in the family home? How does the family now move the estate into probate without losing the house and the bank accounts, while maintaining a sense of family?

For starters, an administrator needs to be appointed to begin the probate process and act as a mediator among the siblings. In some states, the administrator also requires a family tree, so they can know who the descendants are. Barring some huge change of heart among the siblings, this is the only option.

If the parents failed to name a personal representative and the siblings cannot agree on who should serve, an estate administration lawyer is the sensible choice. The court may name someone, if there is concern about possible conflicts of interests or the rights of creditors or other beneficiaries.

A warning to all concerned about how the appointment of an administrator works, or sometimes, does not work. Working with an estate planning attorney that the siblings can agree upon is better, as the attorney has a fiduciary and ethical obligation to the estate. While state laws usually hold the administrator responsible to the standard of care of a “reasonable, prudent” individual, not all will agree what is reasonable and prudent.

One note about the loan/gift: if the mother helped a brother to qualify for a mortgage, it is possible that a “Gift Letter” was created to satisfy the bank or the resident’s association. Assuming this was not a notarized loan agreement, the administrator may rule that the $35,000 was a gift. Personal loans should always be recorded in a notarized agreement.

This family’s disaster serves as a good lesson for anyone who does not have an estate plan. Siblings rarely agree, and a properly prepared estate plan protects more than your assets. It also protects your children from losing each other in a fight over your property.

Reference: MarketWatch (April 4, 2021) “My parents died of COVID-19 and left no will. My brother lives rent-free in their home and borrowed $35,000. What now?”

What Paperwork Is Needed after Someone Dies?

Tax return issues, family matters, business associates, partners, trustees, bankers, investment advisors and tax collectors from the IRS to state and local taxing authorities all require attention after someone has died. There is a lot of work, and often a grieving family member finds it helpful to enlist the aid of a professional to lighten the load. A recent article, “Checklist for Working With a Decedent’s Estate” from Accounting Web, contains a list of the tasks to be completed.

General administration and legal tasks. At the very earliest, the executor should create a timetable with the known tasks. If you’ve never done this before, there’s no shame in enlisting help from a qualified professional. Be realistic about your familiarity with tax and legal issues and your organizational skills.

Determine with your estate planning attorney whether probate is necessary. Is the estate small enough for your state’s laws to allow you to expedite the process? Some jurisdictions can do this, others do not.

If an estate plan was created and executed properly, many assets may not need to go through probate. Assets like IRAs, joint tenancies, accounts that are POD, or Payable on Death and any assets with named beneficiaries do not require probate.

Gather information about family owners or others who may have a claim to the estate and who may have useful information about the assets. You’ll need to locate and notify heirs of the decedent’s passing.

Others who need to be notified, include charities named in the will. You’ll need to identify prior transfers to charities that were partial transfers, such as Charitable Remainder Trusts. If there is a charitable remainder trust with a retained lifetime income interest, it will need to be in the estate tax return, albeit with an offsetting estate tax charitable deduction.

Locate the important documents, including the will, any correspondence relating to the will, any letters explaining the decedent’s wishes, deeds, trusts, bank and brokerage statements, partnership agreements, prior tax returns, federal and state tax forms and any gift tax returns.

An estate planning attorney will be able to help determine ownership issues, including identifying assets and liabilities. This includes deeds, vehicle titles, club memberships, personal possessions and business assets, including copyrights and patents.

Social Security will need to be notified, as will Medicare, pension administrators, Department of Veteran Affairs, the post office, trustees, and any service providers.

Filing taxes for the last year of the person’s life and their estate tax filing needs to happen on a timely basis. Even if an estate tax return may not be required, it is useful to file to establish date of death values for assets. It is important to resolve income tax statute of limitation issues and any IRS or state examination issues.

Estate administration is a big job, especially if you’ve never done it before. Having the help of an experienced estate lawyer can alleviate much of the worry that comes with settling an estate.

Reference: Accounting Web (March 19, 2021) “Checklist for Working With a Decedent’s Estate”

Trusts can Work for ‘Regular’ People

A trust fund is an estate planning tool that can be used by anyone who wishes to pass their property to individuals, family members or nonprofits. They are used by wealthy people because they solve a number of wealth transfer problems and are equally applicable to people who aren’t mega-rich, explains this recent article from Forbes titled “Trust Funds: They’re Not Just For The Wealthy.”

A trust is a legal entity in the same way that a corporation is a legal entity. A trust is used in estate planning to own assets, as instructed by the terms of the trust. Terms commonly used in discussing trusts include:

Grantor—the person who creates the trust and places assets into the trust.
Beneficiary—the person or organization who will receive the assets, as directed by the trust documents.
Trustee—the person who ensures that the assets in the trust are properly managed and distributed to beneficiaries.

Trusts may contain a variety of property, from real estate to personal property, stocks, bonds and even entire businesses.

Certain assets should not be placed in a trust, and an estate planning attorney will know how and why to make these decisions. Retirement accounts and other accounts with named beneficiaries don’t need to be placed inside a trust, since the asset will go to the named beneficiaries upon death. They do not pass through probate, which is the process of the court validating the will and how assets are passed as directed by the will. However, there may be reasons to designate such accounts to pass to the trust and your attorney will advise you accordingly.

Assets are transferred into trusts in two main ways: the grantor transfers assets into the trust while living, often by retitling the asset, or by using their estate plan to stipulate that a trust will be created and retain certain assets upon their death.

Trusts are used extensively because they work. Some benefits of using a trust as part of an estate plan include:

Avoiding probate. Assets placed in a trust pass to beneficiaries outside of the probate process.

Protecting beneficiaries from themselves. Young adults may be legally able to inherit but that doesn’t mean they are capable of handling large amounts of money or property. Trusts can be structured to pass along assets at certain ages or when they reach particular milestones in life.

Protecting assets. Trusts can be created to protect inheritances for beneficiaries from creditors and divorces. A trust can be created to ensure a former spouse has no legal claim to the assets in the trust.

Tax liabilities. Transferring assets into an irrevocable trust means they are owned and controlled by the trust. For example, with a non-grantor irrevocable trust, the former owner of the assets does not pay taxes on assets in the trust during his or her life, and they are not part of the taxable estate upon death.

Caring for a Special Needs beneficiary. Disabled individuals who receive government benefits may lose those benefits, if they inherit directly. If you want to provide income to someone with special needs when you have passed, a Special Needs Trust (sometimes known as a Supplemental Needs trust) can be created. An experienced estate planning attorney will know how to do this properly.

Reference: Forbes (March 15, 2021) “Trust Funds: They’re Not Just For The Wealthy”

What Is Family Business Succession Planning?

The importance of the family business in the U.S. can’t be overstated. Neither can the problems that occur as a direct result of a failure to plan for succession. Business succession planning is the development of a plan for determining when an owner will retire, what position in the company they will hold when they retire, who the eventual owners of the company will be and under what rules the new owners will operate, instructs a recent article, “Succession planning for family businesses” from The Times Reporter. An estate planning attorney plays a pivotal role in creating the plan, as the sale of the business will be a major factor in the family’s wealth and legacy.

Start by determining who will buy the business. Will it be a long-standing employee, partners, or family members?
Next, develop an advisory team of internal employees, your estate planning attorney, CPA, financial advisor and insurance agent.
Have a financial evaluation of the business prepared by a qualified and accredited valuation professional.
Consider taxes (income, estate and gift taxes) and income requirements to sustain the owner’s current lifestyle, if the business is being sold outright.
Review estate planning strategies to reduce income and estate tax liabilities.
Examine the financial impact of the sale on the family member, if a non-family member buys the business.
Develop the structure of the sale.
Create a timeline.
Get started on all of the legal and financial documents.
Meet with the family and/or the new owner on a regular basis to ensure a smooth transition.

Selling a business to the next generation or a new owner is an emotional decision, which is at the heart of most business owner’s utter failure to create a plan. The sale forces them to confront the end of their role in the business, which they likely consider their life’s work. It also requires making decisions that involve family members that may be painful to confront.

The alternative is far worse for all concerned. If there is no plan, chances are the business will not survive. Without leadership and a clear path to the future, the owner may witness the destruction of their life’s work and a squandered legacy.

Speak with your estate planning attorney and your accountant, who will have had experience helping business owners create and execute a succession plan. Talking about such a plan with family members can often create an emotional response. Working with professionals who benefit from a lack of emotional connection to the business will help the process be less about feelings and more about business.

Reference: The Times Reporter (March 7, 2021) “Succession planning for family businesses”

Should Inherited Money Be Equally Split Between Family Members

Leaving an equal amount to adult children works for many families, but equal is not always equitable. In those cases, leaving different amounts to heirs can lead to irreparable breaks within the family. A recent article titled “The Unequal Inheritance: It Can Work, or It Can ‘Destroy Relationships’” from The New York Times examines the problem and some of the solutions. There are times, however, when even the fairest of decisions doesn’t heal the “Mom always liked you best” hurt, imagined or otherwise.

Unequal inheritances can trigger sibling fighting after a parent dies, some of which end up in court, especially if one child thinks that a parent was being overly influenced by the sibling who ended up with the bigger inheritance.

Parents need to explain their decision to each child, individually and as a group, or even seek mediation. Many estate planning attorneys encourage a family meeting, where everyone is in a neutral location, to discuss the parent’s wishes and estate plan. In some cases, the children understand when one of the siblings is disabled or has a lower earning potential.

Another reason for unequal inheritances is to balance things out when one child received significant support that others did not need. Equalization of gifts can be documented in an estate plan, as heirs may need to be reminded of the parent’s generosity at an earlier date. If this isn’t addressed, the siblings who received less help during the parent’s lifetime may resent their decision to give equally.

What about the caregiving child? Some parents decide to give extra to the adult child who became their primary caregiver. That usually takes the shape of the family home, a larger cash distribution or life insurance proceeds. However, siblings don’t always agree on how this is handled. Some will see the child’s decision to care for their parents as manipulative.

Blended families with stepchildren run into complications often. The growth in stepfamilies is a big part of why Americans 50 and older left their children unequal bequests, which more than doubled from 16 percent in 1995 to 35 percent in 2010, as reported in a study from the National Bureau of Economic Research.

At the same time, the study also found that the longer the relationship, the more likely the parent would leave stepchildren inheritances equal to that of a biological or adopted child.

Even when parents intend to split the estate equally, failing to plan for taxes can leave children with different inheritances. This happens when parents leave different types of assets to different heirs.

If a parent left a $500,000 IRA to one child and a $500,000 taxable brokerage account to another, the child who received the IRA will pay federal income taxes up to 37 percent on every withdrawal, which now must be done within ten years of the death of the parent. The child with the brokerage account would have to pay a long-term capital gains tax of up to 20 percent, when an appreciated asset was sold.

Generally speaking, IRA and other tax deferred accounts should have all children as equal beneficiaries. These accounts are usually outside of the probate estate. A house may be left in a trust or the will, with directions for the house to be sold and all assets divided equally.

There is no way around it—inheritances are seen as a proxy for love, and any unequal distribution will be felt as such, even by the most rational of people. Speak with your estate planning attorney to learn how to avoid these scenarios and consider holding a family meeting to make sure your intentions and the reasons behind your intentions are made clear to all concerned.

Reference: The New York Times (Feb. 19, 2021) “The Unequal Inheritance: It Can Work, or It Can ‘Destroy Relationships’”

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