Estate Planning Blog Articles

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

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”

Zappos CEO had No Will and That Is a Mistake

Former Zappos CEO Tony Hsieh, who built the giant online retailer Zappos based on “delivering happiness,” died at age 46 from complications of smoke inhalation from a house fire. He left an estate worth an estimated $840 million and no will, according to the article “Former Zappos CEO Tony Hsieh died without a will, reports say. Here’s why you should plan for your own death” from CNBC.

Without a will or an estate plan, his family will never know exactly how he wanted his estate to be distributed. The family has asked a judge to name Hsieh’s father and brother as special administrators of his estate.

How can someone with so much wealth not have an estate plan? Hsieh probably thought he had plenty of time to “get around to it.” However, we never know when we are going to die, and unexpected accidents and illnesses happen all the time.

Why would someone who is not wealthy need to have an estate plan? It is even more important when there are fewer assets to be distributed. When a person dies with no will, the family may be faced with unexpected and overwhelming expenses.

Putting an estate plan in place, including a will, power of attorney and health care proxy, makes it far easier for a family that might otherwise become ensnared in fights about what their loved one might have wanted.

An estate plan is about making things easier for your loved ones, as much as it is about distributing your assets.

What Does a Will Do? A will is the document that explains who you want to receive your assets when you die. It can be extremely specific, detailing what items you wish to leave to an individual, or more general, saying that your surviving spouse should get everything.

If you have no will, a state court may decide who receives your assets, and if you have minor children, the court will decide who will raise your children.

Some assets pass outside the will, including accounts with beneficiary designations. That can include tax deferred retirement accounts, life insurance policies and property owned jointly. The person named as the beneficiary will receive the assets in the accounts, regardless of what your will says. The law requires your current spouse to receive the assets in your 401(k) account, unless your spouse has signed a document that agrees otherwise.

If there are no beneficiaries listed on these non-will items, or if the beneficiary is deceased and there is no contingent beneficiary, then those assets automatically go into probate. The process can take months or a year or more under state law, depending on how complicated your estate is.

Naming an Executor. Part of making a will includes selecting a person who will carry out your instructions—the executor. This can be a big responsibility, depending upon the size and complexity of the estate. They are in charge of making sure assets go to beneficiaries, paying outstanding debts, paying taxes for you and your estate and even selling your home. Select someone who is trustworthy, reliable and good with finances.

Your estate plan also includes a power of attorney for someone to handle financial and legal affairs, if you become incapacitated. An advance health-care directive, or living will, is used to explain your wishes, if you are being kept alive by life support. Otherwise, your loved ones will not know if you want to be kept alive or if you would prefer to be allowed to die.

Having an estate plan is a kindness to your family. Don’t wait until it’s too late to take care of it.

Reference: CNBC (Dec. 3, 2020) “Former Zappos CEO Tony Hsieh died without a will, reports say. Here’s why you should plan for your own death”

estate planning basics

Estate Planning Basics You Need to Know

The key reason for estate planning is to create a plan directing where your assets will go after you die. The ultimate goal is for wealth and real property to be given to the people or organizations you wish, while minimizing taxes, so beneficiaries can keep more of your wealth. However, good estate planning also reduces family arguments, protects minor children and provides a roadmap for end-of-life decisions, says the article “What is estate planning?” from Bankrate.

Whenever you’ve opened a checking and savings account, retirement account or purchased life insurance, you’ve been asked to provide the name of a beneficiary for the account. This person (or persons) will receive these assets directly upon your passing. You can have multiple beneficiaries, but you should always have contingent beneficiaries, in case something happens to your primary beneficiaries. Named beneficiaries always supersede any declarations in your will, so you want to make sure any account that permits a beneficiary has at least one and update them as you go through the inevitable changes of life.

A last will and testament is a key document in your estate plan. It directs the distribution of assets that are not distributed through otherwise designated beneficiaries. Property you own jointly, typically but not always with a spouse, passes to the surviving owner(s). An executor you name in your will is appointed by the court to take care of carrying out your instructions in the will. Choose the executor carefully—he or she will have a lot to take care of, including the probate of your will.

Probate is the process of having a court review your estate plan and approve it. It can be challenging and depending upon where you live and how complicated your estate is, could take six months to two years to complete. It can also be expensive, with court fees determined by the size of the estate.

Many people use trusts to minimize how much of their estate goes through probate and to minimize estate taxes. Assets that are distributed through trusts are also private, unlike probate documents, which become public documents and can be seen by anyone from nosy relatives to salespeople to thieves and scammers.

Trusts can be complex, but they don’t have to be. Trusts can also offer a much greater level of control over how assets are distributed. For instance, a spendthrift trust is used when an heir is not good with handling money. A trustee distributes assets, and a timeframe or specific requirements can be set before any funds are distributed.

Living wills are also part of an estate plan. These are documents used to give another person the ability to make decisions on your behalf, if you become incapacitated or if decisions need to be made concerning end-of-life care.

An estate plan can help prevent family fights over who gets what. Arguments over sentimental items, or someone wanting to make a grab for cash can create fractures that last for generations. A properly prepared estate plan makes your wishes clear, lessening the reasons for squabbles during a difficult period.

Protecting minor children and heirs is another important reason to have a well thought out estate plan. Your last will and testament is used to nominate a guardian for minor children and can also be used to direct who will be in charge of any assets left for the children’s care.

Reference: Bankrate (Aug. 3, 2020) “What is estate planning?”

trust funding

That Last Step: Trust Funding

Neglecting to fund trusts is a surprisingly common mistake, and one that can undo the best estate and tax plans. Many people put it on the back burner, then forget about it, says the article “Don’t Overlook Your Trust Funding” from Forbes.

Done properly, trust funding helps avoid probate, provides for you and your family in the event of incapacity and helps save on estate taxes.

Creating a revocable trust gives you control. With a revocable trust, you can make changes to the trust while you are living, including funding. Think of a trust like an empty box—you can put assets in it now, or after you pass. If you transfer assets to the trust now, however, your executor won’t have to do it when you die.

Note that if you don’t put assets in the trust while you are living, those assets will go through the probate process. While the executor will have the authority to transfer assets, they’ll have to get court approval. That takes time and costs money. It is best to do it while you are living.

A trust helps if you become incapacitated. You may be managing the trust while you are living, but what happens if you die or become too sick to manage your own affairs? If the trust is funded and a successor trustee has been named, the successor trustee will be able to manage your assets and take care of you and your family. If the successor trustee has control of an empty, unfunded trust, a conservatorship may need to be appointed by the court to oversee assets.

There’s a tax benefit to trusts. For married people, trusts are often created that contain provisions for estate tax savings that defer estate taxes until the death of the second spouse. Income is provided to the surviving spouse and access to the principal during their lifetime. The children are usually the ultimate beneficiaries. However, the trust won’t work if it’s empty.

Depending on where you live, a trust may benefit you with regard to state estate taxes. Putting money in the trust takes it out of your taxable estate. You’ll need to work with an estate planning attorney to ensure that the assets are properly structured. For instance, if your assets are owned jointly with your spouse, they will not pass into a trust at your death and won’t be outside of your taxable estate.

Move the right assets to the right trust. It’s very important that any assets you transfer to the trust are aligned with your estate plan. Taxable brokerage accounts, bank accounts and real estate are usually transferred into a trust. Some tangible assets may be transferred into the trust, as well as any stocks from a family business or interests in a limited liability company. Your estate planning attorney, financial advisor and insurance broker should be consulted to avoid making expensive mistakes.

You’ve worked hard to accumulate assets and protecting them with a trust is a good idea. Just don’t forget the final step of funding the trust.

Reference: Forbes (July 13, 2020) “Don’t Overlook Your Trust Funding”

pets during pandemic

Don’t Neglect a Plan for Your Pet During the Pandemic

If you have a pet, chances are you have worried about what would happen to your furry companion if something were to happen to you. However, worrying and having an actual plan are two very different things, as discussed at a Council of Aging webinar. That’s the subject of the article “COA speakers urge pet owners to plan for their animal’s future” that appeared in The Harvard Press.

It’s stressful to worry about something happening, but it’s not that difficult to put something in place. After you’ve got a plan for yourself, your children and your property, add a plan for your pet.

Start by considering who would really commit to caring for your pet, if you had a long-term illness or in the event of your unexpected passing. Have a discussion with them. Don’t assume that they’ll take care of your pet. A casual agreement isn’t enough. The owner needs to be sure that the potential caretaker understands the degree of commitment and responsibility involved.

If you should need to receive home health care, don’t also assume that your health care provider will be willing to take care of your pet. It’s best to find a pet sitter or friend who can care for the pet before the need arises. Write down the pet’s information: the name and contact info for the vets, the brand of food, medication and any behavioral quirks.

There are legal documents that can be put into place to protect a pet. Your will can contain general directions about how the pet should be cared for, and a certain amount of money can be set aside in a will, although that method may not be legally enforceable. Owners cannot leave money directly to a pet, but a pet trust can be created to hold money to be used for the benefit of the pet, under the management of the trustee. The trust can also be accessed while the owner is still living. Therefore, if the owner becomes incapacitated, the pet’s care will not be interrupted.

An estate planning attorney will know the laws concerning pet trusts in your state. Not all states permit them, although many do.

A pet trust is also preferable to a mention in a will, because the caretaker will have to wait until the will is probated to receive funds to care for your pet. The cost of veterinary services, food, medication, boarding or pet sitters can add up quickly, as pet owners know.

A durable power of attorney can also be used to make provisions for the care of a pet. The person in that role has the authority to access and use the owner’s financial resources to care for the animal.

The legal documents will not contain information about the pet, so it’s a good idea to provide info on the pet’s habits, medications, etc., in a separate document. Choose the caretaker wisely—your pet’s well-being will depend upon it!

Reference: The Harvard Press (May 14, 2020) “COA speakers urge pet owners to plan for their animal’s future”

Join Our eNewsletter

Recent Posts
Categories