Estate Planning Blog Articles

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

No Will? What Happens Now Can Be a Horror Show

Families who have lived through settling an estate without an estate plan will agree that the title of this article, “Preventing the Horrors of Dying Without a Will,” from Next Avenue, is no exaggeration. When the family is grieving is no time to be fighting, yet the absence of a will and an estate plan leads to this exact situation.

Why do people procrastinate having their wills and estate plans done?

Limited understanding about wealth transfers. People may think they do not have enough assets to require an estate plan. Their home, retirement funds or savings account may not be in the mega-millions, but this is actually more of a reason to have an estate plan.

Fear of mortality. We do not like to talk or think about death. However, talking about what will happen when you die or what may happen if you become incapacitated is very important. Planning so your children or other trusted family member or friends will be able to make decisions on your behalf or care for you alleviates what could otherwise turn into an expensive and emotionally disastrous time.

Perceived lack of benefits. Working with an experienced estate planning attorney who will put your interests first means you will have one less thing to worry about while you are living and towards the end of your life.

Estate planning documents contain the wishes and directives for your legacy and finances after you pass. They answer questions like:

  • Who should look after your minor children, if both primary caregivers die before the children reach adulthood?
  • If you become incapacitated, who should handle your financial affairs, who should be in charge of your healthcare and what kind of end-of-life care do you want?
  • What do you want to happen to your assets after you die? Your estate refers to your financial accounts, personal possessions, retirement funds, pensions and real estate.

Your estate plan includes a will, trusts (if appropriate), a durable financial power of attorney, a health care power of attorney or advanced directive and a living will. The will distributes your property and also names an executor, who is in charge of making sure the directions in the will are carried out.

If you become incapacitated by illness or injury, the POA gives agency to someone else to carry out your wishes while you are living. The living will provides an opportunity to express your wishes regarding end-of-life care.

There are many different reasons to put off having an estate plan, but they all end up in the same place: the potential to create family disruption, unnecessary expenses and stress. Show your family how much you love them, by overcoming your fears and preparing for the next generation. Meet with an estate planning attorney and prepare for the future.

Reference: Next Avenue (March 21, 2022) “Preventing the Horrors of Dying Without a Will”

What Power Does an Executor Have?

Being asked to serve as an executor is a big compliment with potential pitfalls, advises the recent article “How to Prepare to Be an Executor of an Estate” from U.S. News & World Report. You are being asked because you are considered trustworthy and able to handle complex tasks. That’s flattering, of course, but there’s a lot to know before making a final decision about taking on the job.

An executor of an estate helps file paperwork, close accounts, distribute assets of the deceased, deal with probate and any court filings and navigate family dynamics. Some of the tasks include:

  • Locating critical documents, like the will, any trusts, deeds, vehicle titles, etc.
  • Obtaining death certificates.
  • Overseeing funeral arrangements and memorial services, if any.
  • Filing the will in probate court.
  • Creating an estate bank account, after obtaining an estate tax number (EIN).
  • Notifying organizations, including Social Security, pension accounts, etc.
  • Paying creditors.
  • Distributing assets.
  • Overseeing the sale or transfer of real estate
  • Filing estate tax returns and final tax returns.

If you are asked to become the executor of an estate for a loved one, it’s a good idea to gather as much information as possible while the person is still living. It will be far easier to tackle the tasks, if you have been set up to succeed. Find out where their estate planning documents are and read the documents to make sure you understand them. If you don’t understand, ask, and keep asking until you do. Similarly, obtain information about all assets, including joint assets. Find out if there are any family members who may pose a challenge to the estate.

Today’s assets include digital assets. Ask for a complete list of the person’s online accounts, usernames and passwords. You will also need access to their devices: desktop computer, laptop, tablet, phone and smart watch. Discuss what they want to happen to each account and see if there is an option for you to become a co-owner of the account or a legacy contact.

Many opt to have an estate planning attorney manage some or all of these tasks, as they can be very overwhelming. Frankly, it’s hard to administer an estate at the same time you’re grieving the loss of a loved one.

As executor, you are a fiduciary, meaning you’re legally required to put the deceased’s interests above your own. This includes managing the estate’s assets. If the person owned a home, you would need to secure the property, pay the mortgage and/or property taxes and maintain the property until it is sold or transferred to an heir. Financial accounts need to be managed, including investment accounts.

The amount of time this process will take, depends on the complexity and size of the estate. Most estates take at least twelve months to complete all of the administrative work. It is a big commitment and can feel like a second job.

A few things vary by state. Convicted felons are never permitted to serve as executors, regardless of what the will says. A sole executor must be a U.S. citizen, although a non-citizen can be a co-executor, if the other co-executor is a citizen. Rules also vary from state to state regarding being paid for your time. Most states permit a percentage of the size of the estate, which must be considered earned income and reported on tax returns.

Be very thorough and careful in documenting every decision made as the executor to protect yourself from any future challenges. This is one job where trying to do it on your own could have long-term effects on your relationship with the family and financial liability, so take it seriously. If it’s too much, an estate planning attorney can help.

Reference: U.S. News & World Report (Dec. 22, 2021) “How to Prepare to Be an Executor of an Estate”

What are Digital Assets in a Will?

Most of us overlook the amount of information and assets we have online, from social media to networking websites, frequent flier miles, online bank accounts, subscriptions, photos, websites, etc. The list of most people’s digital assets has grown considerably in recent years, and yet most have no plan for what should happen to those assets when their owner dies.

This is a growing problem, says msn money, in an article making the case clear: “From Facebook to iTunes to Amazon, You Need A Digital Will!” Every website has its own legal requirements for dealing with the original owner’s death, almost aways hidden deep within the Terms of Service Agreement we all click on without reading. Some have created processes for executors, while others have not. What can you do to make it easier for your executor?

Make a list of everything you access online. Be prepared to be surprised at just how much your life occurs online. Compile a list of all online accounts, usernames and passwords. You probably have to do this bit by bit, as a marathon session might take a long time. Use either a password manager with top-notch security or a password-protected spreadsheet you update around once every three months.

This is especially important for accounts with monetary value. But sentimental value counts too. A side note: all those playlists you’ve created on iTunes? They are non-transferrable and when you die, they are deleted.

What do you want to have happen to each account? You’ll need to decide what you want to happen to each account and, depending on the account, state it clearly in what’s known as a directive. You may want to preserve some, or you may want to shut down others. Some free email accounts are automatically shut down, if they are not used for a certain period of time. Others should be down immediately to prevent fraud. Scammers prefer accounts where the owners have died, since they are often an easy entry to the person’s online identity.

Facebook is one of the platforms allowing you to designate a Legacy contact, so the person can memorialize the account, allowing only friends to see the page and removing some information. If you want to have the page deleted on death, Facebook provides directions.

Each platform has its own rules. Most rely on provisions regarding privacy protection: only the original owner is authorized to access the account. There are now federal and state laws prohibiting accessing private online data, which have created significant obstacles for loved ones to access digital assets. Don’t expect anyone to resolve your digital accounts after you pass, unless you have a digital will. Even with one, there might be issues.

Your estate planning attorney will help you add the correct language to your estate documents as to what you want to happen to each account. It’s important to ensure that your estate plan gives your executor or other fiduciary authorization to access your digital assets and what you want to happen to them. Remember—don’t put account names, usernames, or passwords in a will, as it becomes a public document during the probate process.

Without an inventory of digital assets, it may be simply impossible to ascertain where digital assets are located and how to access them. Looking at credit card statements for autopayments may be a place to start, or at least to stop the autopayments.

This is a relatively new asset class, with laws varying from state to state. Speak with your estate planning attorney to ensure your digital assets are protected, as well as traditional assets when creating or reviewing your estate plan.

Reference: msn money (Dec. 19, 2021) “From Facebook to iTunes to Amazon, You Need A Digital Will!”

Why Naming Beneficiaries Is Important to Your Estate Plan

For the loved ones of people who neglect to update the beneficiaries on their estate plan and assets with the option of naming beneficiaries, the cost in time, money and emotional stress is quite high, says the recent article “Five Mistakes To Avoid When Naming Beneficiaries” from The Chattanoogan.

The biggest mistake is failing to name a beneficiary on all of your accounts, including retirement, investment and bank accounts as well as insurance policies. What happens if you fail to name a beneficiary? Assets in the accounts and proceeds from life insurance policies will automatically become part of your estate.

Any planning you’ve done with your estate planning attorney to avoid probate will be undercut by having all of these assets go through probate. Beneficiaries may not see their inheritance for months, versus receiving access to the assets much sooner. It’s even worse for retirement accounts like IRAs. Any ability your heir might have had to withdraw assets over time will be lost.

Next is forgetting to name a contingency beneficiary. Most people name their spouse, an adult child, or a sibling as their primary beneficiary. However, if the primary beneficiary should predecease you and there is no contingency beneficiary, it is as if you didn’t have a beneficiary at all.

Having a contingency beneficiary has another benefit: the primary beneficiary has the option to execute a qualified disclaimer, so some assets may be passed along to the next-in-line heir. Let’s say your spouse doesn’t need the money or doesn’t want to take it because of tax implications. Someone else in the family can more easily receive the assets.

Naming beneficiaries without taking care to use their proper legal name or identify the person with specificity has led to more surprises than you can imagine. If there are three generations of Geoffrey Paddingtons in the family and the only name on the document is Geoffrey Paddington, who will receive the inheritance? Use the person’s full name, their relationship to you (“child,” “cousin,” etc.) and if the document requires a Social Security number for identification, use it.

When was the last time you reviewed beneficiary documents? The only time many people look at these documents is when they open the account, start a new job, or buy an insurance policy. Every few years, around the same time you review your estate plan, you should gather all of your financial and insurance documents and make sure the same people named two decades ago are still the ones you want to receive your assets on death.

Finally, talk with loved ones about your legacy and your wishes. Let them know that an estate plan exists and you’ve given time and thought to what you want to happen when you die. There’s no need to give exact amounts. However, a bird’s eye view of your plan will help establish expectations.

If naming beneficiaries is challenging because of a complex situation, your estate planning attorney will be able to help as a sounding board or with estate planning strategies to accomplish your goals.

Reference: The Chattanoogan (Dec. 6, 2021) “Five Mistakes To Avoid When Naming Beneficiaries”

What to Leave In, What to Leave Out with Retirement Assets

Depending on your intentions for retirement accounts, they may need to be managed and used in distinctly different ways to reach the dual goals of enjoying retirement and leaving a legacy. It’s all explained in a helpful article from Kiplinger, “Planning for Retirement Assets in Your Estate Plan”.

Start by identifying goals and dig into the details. Do you want to leave most assets to your children or grandchildren? Has philanthropy always been important for you, and do you plan to leave large contributions to organizations or causes?

This is not a one-and-done matter. If your intentions, beneficiaries, or tax rules change, you’ll need to review everything to make sure your plan still works.

How accounts are titled and how assets will be passed can create efficient tax results or create tax liabilities. This needs to be aligned with your estate plan. Check on beneficiary designations, asset titles and other documents to make sure they all work together.

Review investments and income. If you’ve retired, pensions, annuities, Social Security and other steady sources of income may be supplemented from your taxable investments. Required minimum distributions (RMDs) from tax deferred accounts are also part of the mix. Make sure you have enough income to cover regular and unanticipated medical, long term care or other expenses.

Once your core income has been determined, it may be wise to segregate any excess capital you intend to use for wealth transfer or charitable giving. Without being set apart from other accounts, these assets may not be managed as effectively for taxes and long-term goals.

Establish a plan for taxable assets. Children or individuals can be better off inheriting highly appreciable taxable investment accounts, rather than traditional IRAs. These types of accounts currently qualify for a step-up in cost basis. This step-up allows the beneficiary to sell the appreciated assets they receive as inheritance, without incurring capital gains.

Here’s an example: an heir receives 1,000 shares of a stock with a $20 per share cost basis valued at $120 per share at the time of the owner’s death. They will pay no capital gains taxes on the gain of $100 per share. However, if the same stock was sold while the retiree owner was living, the $100,000 gain in total would have been taxed. The post-death appreciation, if any, on such inherited assets, would be subject to capital gains taxes.

Retirees often try to preserve traditional IRAs and qualified accounts, while spending taxable accounts to take advantage of lower capital gains taxes as they take distributions. However, this sets heirs up for a big tax bill. Another strategy is to convert a portion of those assets to a Roth IRA and pay taxes now, allowing the assets to grow tax free for you and your heirs.

Segregate assets earmarked for charitable donations. If a charity is named as a beneficiary for a traditional IRA, the charity receives the assets tax free and the estate may be eligible for an estate deduction for federal and state estate taxes.

Your estate planning attorney can help you understand how to structure your assets to meet goals for retirement and to create a legacy. Saving your heirs from estate tax bills that could have been avoided with prior planning will add to their memories of you as someone who took care of the family.

Reference: Kiplinger (May 21, 2021) “Planning for Retirement Assets in Your Estate Plan”

Tackling Estate Plan Quarter by Quarter

Most of us know that a tax bill is typically due on April 15, and we know that our paychecks will include deductions for taxes, Social Security, and IRA or 401(k) contributions. If we are self-employed or retired, we make quarterly estimated tax payments. We plan throughout the year to be better prepared when April 15 comes around. The preparation takes place routinely over time, and the same can be done for estate planning and updating, says a recent article “Make quarterly payments to estate plan” from Victoria Advocate. It’s simple and sensible.

If we can make our plans today to make our eventual passing easier for loved ones and friends, why not divide and conquer, in a quarterly manner? Consider these quarterly “payments” to your estate plan and your family:

First Quarter: Review current estate plans with your estate planning attorney. Don’t have an estate plan? Get started. An estate plan includes a Will, Durable Power of Attorney, Medical Power of Attorney, Directive to Physicians document and any trusts you might need.

The Will, aka Last Will and Testament, is the only one of these documents to be used post-mortem. The will is used to designate an executor to carry out your wishes and designate a person or persons to serve as legal guardians for minor children.

Second Quarter: Let your family know your wishes. Open communication with family members is a gift, so they are not left guessing during critical times. Finding the right words is not always easy, so try writing out your thoughts as you prepare your estate plan. Document your wishes for burial arrangements, information they’ll need for a death certificate or obituary. Do you want to donate your organs, or will your pet need special care? Where are your important papers located? Once you’ve had all the necessary documents created and have thought through these wishes and written a memo about them, let your future executor know what your wishes are, and where they can find the information that they’ll need.

Third Quarter: Do some easy but important estate planning tasks. Review the beneficiaries listed on your accounts. Assets and accounts that pass through beneficiary designations are not controlled by the will, so this is extremely important if it’s been more than a few years since you last reviewed these documents. Your IRA, SEP, 401(k), life insurance and any accounts titled Transfer or Payable on Death probably have beneficiaries listed.

Fourth Quarter: Does your estate plan include a legacy to future generations or charities? Speak with your estate planning attorney about how to pass your estate to children or grandchildren. If you have a unique goal, trusts can be as individual as you are.

As systematically as you pay taxes and bills, work through your estate plan so that you are prepared for the two things we know will occur, regardless of how we feel about them—taxes and death.

Reference: Victoria Advocate (May 8, 2021) “Make quarterly payments to estate plan”

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 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”

secure farm or ranch

Securing Farm or Ranch Needs to Happen Sooner and Not Later

Most American farms or ranches are family businesses, started by one generation with the hope that the business will be transferred to the next generation. However, surveys show that only 20% of farm and ranch owners are confident they have a good plan in place for the transition, reports High Plains Journal in the article “Don’t wait to secure the future of your farm or ranch.” A common reason is that owners just aren’t ready, or they don’t have the time, or the right advice. They could also be put off by the complexity of the process.

Transition planning is possible. There are solutions for every farm, ranch or business, whether the goal is to ensure that your legacy continues, minimize taxes or provide for heirs who are and who are not involved with the business.

Understand that the process can take at least a year. A good estate planning attorney who is familiar with family businesses like yours will be an important help. The process will include both estate and succession planning. Here are some basic steps to help:

Reaching consensus. You’ll need to have discussions to clarify what the senior generation wants, and what their heirs want. Discuss how management and task-focused work is currently divided and who is going to step to up take what tasks.

Developing a plan. How will the operation go forward, and how will assets be distributed? What kind of coaching will be needed to ensure that the next generation has the tools and knowledge to succeed?

Estate planning is the paper and financial part of the process that will provide ways for the operation to mitigate estate taxes and prepare for wealth and asset management.

The succession plan involves the “people” side of the business, including developing vital business management and leadership skills, passing down the values of the founding owners and providing clarity for the family throughout this process.

Implementing the plan. This will be different for every scenario, but might include:

  • Splitting the operation into two entities: one that will operate ranch operations, another that will own the land.
  • Stipulating the owners with two types of ownership: voting and non-voting.
  • Voting ownership—deciding if it is to be retained individually or controlled by a trust.
  • Should non-voting ownership be transferred to trusts to reduce estate taxes?
  • Transfer strategies must be evaluated: gift, sale or stock options.

Here’s the most important concept: start now. Waiting to talk with an estate planning attorney could leave heirs in a situation where they can’t continue the family legacy. A failure to plan could mean they are forced to sell the land that’s been in the family for generations.

Reference: High Plains Journal (Aug. 14, 2020) “Don’t wait to secure the future of your farm or ranch”