Can I Split My Inheritance with My Sibling?

Let’s say that you are the beneficiary of your brother’s IRA.

All of his assets were supposed to be split between you and your sister according to a living trust. However, the IRA administrator says the IRA only has one beneficiary… you. How can you spilt this equally?

Can you sell half and give your other sibling her money?

What is the effect on taxes and the cost basis?

nj.com’s recent article entitled “Can I give my brother half of my inheritance?” says that it’s important to review beneficiary designations to make sure they reflect your wishes.

In this case, you would essentially be making a gift to your sister from the IRA account that you inherited.

To do this, you would have to liquidate some of the account and pay the taxes on the liquidated amount, if it is a traditional IRA.

You would also have to file a federal gift tax return for the amount gifted above the $16,000 annual exclusion amount. However, no gift tax should be due if you have less than $12.06 million in your estate and/or lifetime gifts made above the annual exclusion amounts.

The unified tax credit provides a set dollar amount that a person can gift during their lifetime before any estate or gift taxes apply. This tax credit unifies both the gift and estate taxes into one tax system that decreases the tax bill of the individual or estate, dollar to dollar.

As of 2021, the federal estate tax is 40% of the inheritance amount. However, the unified tax credit has a set amount that a person can gift during his or her lifetime before any estate or gift taxes are due. The 2021 federal tax law applies the estate tax to any amount above $11.7 million. This year’s amount is $12.06 million.

While you would receive a step-up in basis, the cost basis of your brother’s gifted share would be the value at the time the gift is made.

Another thought is that if there are other assets in the estate, perhaps your sister could have a greater share of those, so you could keep the IRA intact to avoid paying taxes at this time.

Reference: nj.com (Feb. 23, 2022) “Can I give my brother half of my inheritance?”

Why Is Estate Planning Review Important?

Maybe your estate plan was created when you were single, and there have been some significant changes in your life. Perhaps you got married or divorced.

You also may now be on better terms with children with whom you were once estranged.

Tax and estate laws can also change over time, requiring further updates to your planning documents.

WMUR’s recent article entitled “The ‘final’ estate-planning step” reminds us that change is a constant thing. With that in mind, here are some key indicators that a review is in order.

The value of your estate has changed dramatically
You or your spouse changed jobs
Changes to your income level or income needs
You are retiring and no longer working
There is a divorce or marriage in your family
There is a new child or grandchild
There is a death in the family
You (or a close family member) have become ill or incapacitated
Your parents have become dependent on you
You have formed, purchased, or sold a business;
You make significant financial transactions, such as substantial gifts, borrowing or lending money, or purchasing, leasing, or selling assets or investments
You have moved
You have purchased a vacation home or other property in another state
A designated trustee, executor, or guardian dies or changes his or her mind about serving; and
You are making changes in your insurance coverage.

Reference: WMUR (Feb. 3, 2022) “The ‘final’ estate-planning step”

What Can’t I Forget in My Will Now that I’m 50?

Yahoo News’ recent article entitled “If You’re Over 50, Don’t Leave This Out of Your Will, Expert Says” fills us in on what we can’t forget in a will after the big 5-0.

Incapacity. A 2021 survey from Caring.com says that almost two-thirds of adults do not have a will. Even those thinking about estate planning do not consider a plan for addressing the possibility of incapacity.

Ask an experienced estate planning attorney to create a power of attorney, so in the event you are incapable of making decisions because of your mental state or disability, you have someone you trust doing it for you.

More than a will. A will should be one component of a comprehensive estate plan that addresses who gets what when you die, but also who can take care of business, if you are not able to care for yourself. Naming a person in advance lets you to avoid having court involvement and lets you take control of your future.

The law has many ways for you to select who will have authority and care for you, if you become incapacitated. This is something that you can and should discuss with an experienced estate planning attorney.

Will backups. Designating loved ones you trust should be the rule in all facets of estate planning. However, it is critical to be certain that you have backups (“successors” or “alternates”), in the event that a person you’ve selected can’t fulfill their role.

Many people around age 50 who see their thriving, productive children making their way in the world fail to consider the thought that their children may not be available or able to serve a role. Designating more than one backup might not seem like it is a big deal, but you should consider the possibility that a loved one might be incapacitated, predecease you, or be unavailable.

Keep your will current. As your life changes, so do your needs. Therefore, it is vital to be sure that your will is up-to-date. You should review your will regularly (at least every few years) to make sure that it still reflects your current thinking.

You should also be sure you know where an original copy of the will is located. It is important to keep track of it. You can leave it locked away with your attorney or some other secure place, but you need to know where it is.

Reference: Yahoo News (Feb. 6, 2022) “If You’re Over 50, Don’t Leave This Out of Your Will, Expert Says”

How Do I Write My Will?

Remember that if you don’t write your will correctly, your wishes could end up going unfulfilled, says Claremont Portside’s article entitled “A Guide for Writing Your Will: Steps You Need to Take.”

While there are a lot of tools online, your best bet is working with an experienced estate planning attorney.

Schedule a meeting with an estate planning attorney to discuss your final wishes. The process of writing a will is relatively straightforward:

Decide who you want to inherit your assets
Remember to include your favorite charities, if you want
Note if any of your heirs has special needs or requires extra planning (e.g., if they’re not good with money)
Note if you have minor children who will need a guardian and can’t inherit outright at their age
List the specific items or assets you want each person to inherit
List any debts or liabilities
Designate an executor or personal representative
Determine how your estate should be managed, until it is distributed; and
Ask your attorney about tax implications.

Once prepared, retain a copy in a safe place and make copies for your executor, your spouse or partner, children older than 18 years old and any other heirs who live in another state.

When you begin this process, create a list of what you own and how much it’s worth. This can help ensure that your estate is distributed according to your wishes.

The executor of your will is responsible for ensuring that everything goes according to plan, so choose someone you trust.

Reference: Claremont Portside “A Guide for Writing Your Will: Steps You Need to Take”

Will Moving to a New State Impact My Estate Planning?

Since the coronavirus pandemic hit the U.S., baby boomers have been speeding up their retirement plans. Many Americans have also been moving to new states. For retirees, the non-financial considerations often revolve around weather, proximity to grandchildren and access to quality healthcare and other services.

Forbes’ recent article entitled “Thinking of Retiring and Moving? Consider the Financial Implications First” provides some considerations for retirees who may set off on a move.

Income tax rates. Before moving to a new state, you should know how much income you’re likely to be generating in retirement. It’s equally essential to understand what type of income you’re going to generate. Your income as well as the type of income you receive could significantly influence your economic health as a retiree, after you make your move. Before moving to a new state, look into the tax code of your prospective new state. Many states have flat income tax rates, such as Massachusetts at 5%. The states that have no income tax include Alaska, Florida, Nevada, Texas, Washington, South Dakota and Wyoming. Other states that don’t have flat income tax rates may be attractive or unattractive, based on your level of income. Another important consideration is the tax treatment of Social Security income, pension income and retirement plan income. Some states treat this income just like any other source of income, while others offer preferential treatment to the income that retirees typically enjoy.
Housing costs. The cost of housing varies dramatically from state to state and from city to city, so understand how your housing costs are likely to change. You should also consider the cost of buying a home, maintenance costs, insurance and property taxes. Property taxes may vary by state and also by county. Insurance costs can also vary.
Sales taxes. Some states (New Hampshire, Oregon, Montana, Delaware and Alaska) have no sales taxes. However, most states have a sales tax of some kind, which generally adds to the cost of living. California has the highest sales tax, currently at 7.5%, then comes Tennessee, Rhode Island, New Jersey, Mississippi and Indiana, each with a sales tax of 7%. Many other places also have a county sales tax and a city sales tax. You should also research those taxes.
The state’s financial health. Examine the health of the state pension systems where you are thinking about moving. The states with the highest level of unfunded pension debts include Connecticut, Illinois, Alaska, New Jersey and Hawaii. They each have unfunded state pensions at a level of more than 20% of their state GDP. If you’re thinking about moving to one of those states, you’re more apt to see tax increases in the future because of the huge financial obligations of these states.
The overall cost of living. Examine your budget to see the extent to which your annual living expenses might increase or decrease in your new location because food, healthcare and transportation costs can vary by location. If your costs are going to go up, that should be all right, provided you have the financial resources to fund a larger expense budget. Be sure that you’ve accounted for the differences before you move.
Estate planning considerations. If this is going to be your last move, it’s likely that the laws of your new state will apply to your estate after you die. Many states don’t have an estate or gift tax, which means your estate and gifts will only be subject to federal tax laws. However, a number of states, such as Maryland and Iowa, have a state estate tax.

You should talk to an experienced estate planning attorney about the estate and gift tax implications of your move.

Reference: Forbes (Nov. 30, 2021) “Thinking of Retiring and Moving? Consider the Financial Implications First”

When Do I Need to Review Will?

You should take a look at your will and other estate planning documents at least every few years, unless there are reasons to do it more frequently. Some reasons to do it sooner include things like marriage, divorce, birth or adoption of a child, coming into a lot of money (i.e., inheritance, lottery win, etc.) or even moving to another state where estate laws are different from where your will was drawn up.

CNBC’s recent article entitled “When it comes to a will or estate plan, don’t just set it and forget it. You need to keep them updated” says that one of the primary considerations for a review is a life event — when there’s a major change in your life.

The pandemic has created an interest in estate planning, which includes a will and other legal documents that address end-of-life considerations. Research now shows that 18- to 34-year-olds are now more likely (by 16%) to have a will than those who are in the 35-to-54 age group. In the 25-to-40 age group, just 32% do, according to a survey. Even so, fewer than 46% of U.S. adults have a will.

If you’re among those who have a will or comprehensive estate plan, here are some things to review and why. In addition to reviewing your will in terms of who gets what, see if the person you named as executor is still a suitable choice. An executor must do things such as liquidating accounts, ensuring that your assets go to the proper beneficiaries, paying any debts not discharged (i.e., taxes owed) and selling your home.

Likewise, look at the people to whom you’ve assigned powers of attorney. If you become incapacitated at some point, the people with that authority will handle your medical and financial affairs, if you are unable. The original people you named to handle certain duties may no longer be in a position to do so.

Some assets pass outside of the will, such as retirement accounts, like a Roth IRA or 401(k)plans and life insurance proceeds. As a result, the person named as a beneficiary on those accounts will generally receive the money, regardless of what your will says. Note that 401(k) plans usually require your current spouse to be the beneficiary, unless they legally agree otherwise.

Regular bank accounts can also have beneficiaries listed on a payable-on-death form, obtained at your bank.

If you own a home, make sure to see how it should be titled, so it is given to the person (or people) you intend.

Reference: CNBC (Dec. 7, 2021) “When it comes to a will or estate plan, don’t just set it and forget it. You need to keep them updated”

How Do I Write a Will?

A poorly written or out-of-date will can be costly and ruin an otherwise well-planned estate. Yahoo Entertainment’s recent article entitled “11 Steps to Writing a Will” tells you how to get started and complete your will in 10 simple steps:

Hire an Estate Planning Attorney. Individuals or families with relatively simple financial situations may be able to use an online, reputable software program to complete their wills. However, many situations require an estate planning attorney, such as blended families.
Choose your Beneficiaries. A big mistake people make when planning their estate is failing to name or update beneficiaries on key accounts that work with the plans outlined in their wills. The beneficiary designation on an account supersedes the will, but it’s good to be consistent.
Name an Executor. The executor is responsible for carrying out the wishes expressed in your will.
Select a Guardian for Your Minor Children. It’s common to name multiple guardians, in case one of them named isn’t able to accept the responsibility of guardianship.
Be Specific About Your Bequests. One of the most time-consuming aspects of creating a will can be deciding which assets to include and determining who will get what.
Be Realistic About your Bequests. Practically consider how assets will be distributed. A big reason children stop speaking after a parent’s death is because of boilerplate language directing tangible assets, such as artwork or jewelry, to be divided equally among children.
Attach a Letter of Last Instruction. You can attach an explanatory letter to your will that can serve as a personal way to say goodbye and also provide additional details about certain wishes.
Sign the Will Properly. If you don’t, a will may be declared invalid. Witnesses must sign your will, and in many states, the witnesses can’t be under 18 and those who stand to inherit (“interested parties”).
Keep Your Will in a Safe and Accessible Spot. Make certain that someone you trust knows where to find your will and other important papers and passwords to financial institutions.
Review and Keep Your Up-to-date. Wills should be updated every five years or so, or sooner if you have a major life event, such as the birth or adoption of a new child or grandchild, a divorce, or the death of a spouse or parent.
Add Other Important Estate Planning Documents. A will by itself may not meet all of your estate planning needs. A trust is another estate planning tool that lets you transfer assets when and how you want. A living will communicates your desires for medical treatment or a power of attorney that allows a third party to make financial and legal decisions, along with the will and should be your next step after writing your will.

Reference: Yahoo Entertainment (Jan. 4, 2022) “11 Steps to Writing a Will”

Does My State Have an Inheritance Tax?

Real Simple’s recent article entitled “Here’s Which States Collect Zero Estate or Inheritance Taxes” explains that inheritance taxes are levies paid by the living beneficiary who gets the inheritance. And both federal and state governments can apply estate taxes, which are levied against the assets that are bequeathed.

Just five states apply an inheritance tax: New Jersey, Nebraska, Iowa, Kentucky and Pennsylvania. There are 12 states that have an estate tax: Washington, Oregon, Minnesota, Illinois, New York, Maine, Vermont, Rhode Island, Massachusetts, Connecticut, Hawaii and the District of Columbia. Maryland collects both. As a result, there are 32 states that don’t collect death-related taxes: Alabama, Alaska, Arizona, Arkansas, California, Colorado, Delaware, Florida, Georgia, Hawaii, Idaho, Indiana, Kansas, Louisiana, Michigan, Mississippi, Missouri, Montana, Nevada, New Hampshire, New Mexico, North Carolina, North Dakota, Ohio, Oklahoma, South Carolina, South Dakota, Tennessee, Texas, Utah, Virginia, West Virginia, Wisconsin and Wyoming.

To better estimate and project the possible outcomes, you should consider an intergenerational planning meeting. There are some families that like the transparency of establishing a trust. This can minimize fighting and avoid probate. Trusts are also taxed differently than individuals. There’s more certainty about who will bear the costs.

There are families that gift assets, while an elderly or chronically ill person is still alive. These gifts can be subject to taxation, but there are exceptions for tuition and medical expenses. Gifts to children may also be excluded.

There’s no one-size-fits-all approach to transferring valuable or sentimental assets. You can list the most important people and causes in your life. If that list has people in other states, it will be even more important to prepare everyone for their role and responsibilities with the help of an experienced estate planning attorney.

If inheritance tax sounds intimidating, start small with updating the beneficiary forms on your bank accounts and employer-led retirement accounts. Organize documents, such as insurance information and house titles and deeds. Make them secure but accessible to those who might need them, if you’re unavailable.

Even if you’re socially distancing, many estate planning attorneys offer consultations via video conferencing. There’s no reason to delay another year to clarify your inheritance and estate plans.

Reference: Real Simple (Nov. 24, 2021) “Here’s Which States Collect Zero Estate or Inheritance Taxes”

Can I Avoid Password Problems for My Family in Estate Planning?

Barron’s recent article entitled “How to Ensure Heirs Avoid a Password-Protected Nightmare” explains that even financial planners may not consider until too late, how difficult it can be to recover and access a loved one’s accounts after they pass away. Since we are much more paperless with our finances, getting access to these accounts can be extremely hard for heirs, if they don’t have the right information. That’s because digital accounts are protected by encryption, multifactor authentication and federal data privacy laws.

Create a list of digital accounts and instructions on how to access them. The list should include not only financial assets but social media and other accounts. Digital accounts that loved ones or advisors may need to access following a death include:

Traditional financial accounts
Cryptocurrency accounts
Home payment and utilities accounts
Health insurance benefits
Email accounts
Social media
Smartphone accounts
Storage and file-sharing
Photo, music and video accounts
E-commerce accounts
Subscriptions to streaming services, such as Netflix, newspapers, music services; and
Loyalty/rewards programs for airlines and hotels.

Create a list of accounts, passwords and access information, keeping it up to date as information changes and letting a trusted person, such as an executor or estate planning attorney, know its location. Without a password list, it can be a nightmare.

Note that with every digital account, there’s a specific process that heirs must undertake to gain access, which should then be communicated clearly in your estate plan. Make a list of all digital assets and their access information, but don’t include this in the will itself, since the document is part of the public record in probate.

Being prepared well ahead of time can help your family avoid additional stress and delays as they probate your estate. It also ensures that they don’t forfeit significant financial assets concealed behind an impenetrable digital wall.

Reference: Barron’s (Dec. 15, 2021) “How to Ensure Heirs Avoid a Password-Protected Nightmare”

Why Do I Need an Estate Planning Attorney?

Pennsylvania News Today’s recent article entitled “Top 7 Reasons You Need An Estate Lawyer says that when you think about hiring a real estate lawyer, it might seem a little unsettling. However, let’s look at these reasons and why you might require them.

Estate Planning. You might want to consider this, but everyone passes away. It’s important that your family is ready for this. An experienced estate planning attorney can help you through this process and make certain everything is prepared. You should have a will. This document says what should happen with your assets when you pass away.

Trusts. A trust helps manage assets before someone dies. If you only have one or two assets you want given to someone, a will is adequate. However, if you own extensive property, ask an experienced estate planning attorney about setting up a trust. This will help your family keep living in your home, even after you’re gone without worrying about it being sold out from under them.

Probate. The probate court oversees the distribution of a person’s estate according to the instructions in their will. Probate can be a lengthy and expensive process, depending on where you live and the complexity of your assets or family situation. An estate planning attorney can help you with strategies to avoid it. A probate attorney can help you, so your family doesn’t have to worry about dealing with that stress or spending a vast amount of money necessary to do this correctly.

Guardianship. Guardianships are used when parents pass away and leave minor children behind. You can designate a guardian for your minor children in your will.

Elder Law Services. Seniors frequently need help managing finances and health care decisions. An experienced estate planning attorney or elder law attorney can help your loved ones through these complicated matters.

Estate Investments. An experienced attorney can also advise you on how to make smart investments for your family and can make certain that the transaction goes smoothly, and that any moves work with your estate planning objectives.

Tax Issues. Taxes may be owed on estates worth more than five million dollars. This can make it hard for heirs who don’t have access to this much money upfront. An estate planning attorney can help you avoid taxes, so your family doesn’t have to deal with this problem.

Estate planning is a process that should be started as soon as possible. You’ll need an estate planning lawyer who is knowledgeable and experienced to help.

Reference: Pennsylvania News Today (Nov. 11, 2021) “Top 7 Reasons You Need An Estate Lawyer”

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