Estate Planning Blog Articles

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

How to Protect Digital Property

When people built wealth, assets were usually tangible: real estate, investments, cash, or jewelry. However, the last year has seen a huge jump in digital assets, which includes cryptocurrency and NFTs (Non-Fungible Tokens). Combine this growing asset class with the coming biggest wealth transfer in history, says the article “What happens to your NFTs and crypto assets after you die?” from Tech Crunch, and the problems of inheriting assets will take more than a complete search of the family attic.

One survey found only one in four consumers have someone in their life who knows the details of their digital assets, from the location of the online accounts to passwords. However, digital assets that require two factor authentication or biometrics to gain access may make even this information useless.

There are many reports about people who purchased digital assets like Bitcoin and then lost their passwords or threw away their computers. More than $250 million in client assets vanished when a cryptocurrency exchange founder died and private keys to these accounts could not be found.

Digital assets need to be a part of anyone’s estate plan. A last will and testament is used to dictate how assets are to be distributed. If there is no will, the state’s estate law will distribute assets. A complete list of accounts and assets should not be part of a will, since it becomes a public document when it goes through probate. However, a complete list of assets and accounts needs to be prepared and shared with a trusted person.

Even traditional assets, like bank accounts and investment accounts, are lost when no one knows of their existence. If a family or executor doesn’t know about accounts, and if there are no paper statements mailed to the decedent’s home, it’s not likely that the assets will be found.

Things get more complicated with digital assets. By their nature, digital assets are decentralized.  This is part of their attraction for many people. Knowing that the accounts or digital property exists is only part one. Knowing how to access them after death is difficult. Account names, private keys to digital assets and passwords need to be gathered and protected. Directives or directions for what you want to happen to the accounts after you die need to be created, but not every platform has policies to do this.

Password sharing is explicitly prohibited by most website and app owners. Privacy laws also prohibit using someone else’s password, which is technically “account holder impersonation.” Digital accounts that require two factor authentication or use biometrics, like facial recognition, make it impossible for an executor to gain access to the data.

Some platforms have created a means of identifying a person who may be in charge of your digital assets, including Facebook and more recently, LinkedIn. Some exchanges, like Ethereum, have procedures for death-management. Some will require a copy of the will as part of their process to release funds to an estate, so you will need to name the asset (although not the account number).

A digital wallet can be used to store access information for digital assets, if the family is reasonably comfortable using one. A complete list of assets should include tangible and digital assets. It needs to be updated annually or whenever you add new assets.

Reference: Tech Crunch (April 5, 2021) “What happens to your NFTs and crypto assets after you die?”

How to Avoid Medicaid Estate Recovery

Medicaid is a government program that helps seniors and others pay for long term care. However, it’s not always free, explains the article “What Is Medicaid Estate Recovery?” from AOL.com. The Medicaid Estate Recovery Program (MERP) is used by states to recover costs from estates with funds. The goal of Medicaid estate recovery is to make the program affordable for the government, but it can have a severe impact on the beneficiaries of Medicaid recipients. An estate planning elder law attorney should be contacted, if you believe you or a loved one may need Medicaid.

Seniors are eligible for Medicare when they turn 65. This program pays for many healthcare expenses, but not for long-term care in a nursing home. Medicaid is used when someone does not have long term care insurance or enough money to pay for long-term care out of pocket. Medicaid can also be used for long-term or nursing home care, if steps have been taken to protect assets. This usually includes strategies, like trusts and Medicaid Asset Protection Trusts (MAPT).

A federal law passed in 1993 (the Omnibus Budget Reconciliation Act) requires states to attempt to seek reimbursement from a Medicaid beneficiary’s estate after they have died. Some of the costs that the state will try to recover include:

  • Nursing home costs
  • Home and community-based services
  • Medical services received through a hospital where the recipient is a long-term care patient
  • Prescription drug services for long-term care recipient

The recovery program lets Medicaid pursue any eligible assets owned by the estate. While this depends upon where you live, any assets that are part of the probate estate could be attached, including:

  • Bank accounts
  • Your home or other real estate
  • Vehicles or other real property

In addition, some states allow Medicaid to recover assets that are not subject to probate, including jointly held accounts, Payable-On-Death (POD) bank accounts, real estate owned in joint tenancy with right of survivorship, living trusts and any other assets that the Medicaid recipient had a legal interest in.

An estate planning elder care attorney in your state will know what types of assets your state tends to pursue and will help you understand what can and cannot be used for Medicaid benefit recovery.

Note that while Medicaid cannot take the primary residence while the recipient is still living, they can place a lien on the home. If the recipient passes away and a beneficiary inherits the home, they will not be able to sell the property until the lien has been satisfied.

For beneficiaries, Medicaid recovery means a smaller inheritance. However, that’s not the only thing to be mindful of. There are laws known as “filial responsibility laws” that allow healthcare providers to sue the children of long-term care recipients to recover nursing care costs. This is not commonly done as of this writing, but the costs of COVID may change this in the near future.

Strategic planning can help you or loved ones avoid the financial impact of Medicaid estate recovery. If you are eligible and can afford to buy a long-term care policy, that may help to cover most of the cost of care. Another option is to remove as many assets from the probate process as possible. An estate planning attorney will be able to help you create a plan to protect your assets.

Reference: AOL.com (February 5, 2021) “What Is Medicaid Estate Recovery?”

 

How Do You Handle Probate?

While you are living, you have the right to give anyone any property of your choosing. If you give your power to gift your property to another person, typically through a Power of Attorney, then that person is your agent and may give away your property, according to an article “Explaining the basic aspects probate” from The News-Enterprise. When you die, the Power of Attorney you gave to an agent ends, and they are no longer in control of your estate. Your “estate” is not a big fancy house, but a legal term used to define the total of everything you own.

Property that you owned while living, unless it was owned jointly with another person, or had a beneficiary designation giving the property to another person upon your death, is distributed through a court order. However, the court order requires a series of steps.

First, you need to have had created a will while you were living. Unlike most legal documents (including the Power of Attorney mentioned above), a will is valid when it is properly signed. However, it can’t be used until a probate case is opened at the local District Court. If the Court deems the will to be valid, the probate proceeding is called “testate” and the executor named in the will may go forward with settling the estate (paying legitimate debts, taxes and expenses), before distributing assets upon court permission.

If you did not have a will, or if the will was not prepared correctly and is deemed invalid by the court, the probate is called “intestate” and the court appoints an administrator to follow the state’s laws concerning how property is to be distributed. You may not agree with how the state law directs property distribution. Your spouse or your family may not like it either, but the law itself decides who gets what.

After opening a probate case, the court will appoint a fiduciary (executor or administrator) and may have a legal notice published in the local newspaper, so any creditors can file a claim against the estate.

The executor or administrator will create a list of all of the property and the claims submitted by any creditors. It is their job to ensure that claims are valid and have been submitted within the correct timeframe. They will also be in charge of cleaning out your home, securing your home and other possessions, then selling the house and distributing your personal furnishings.

Depending on the size of the estate, the executor or administrator’s job may be time consuming and complex. If you left good documentation and lists of assets, a clean file system or, best of all, an estate binder with all your documents and information in one place, it can alleviate a lot of stress for your executor. Estate fiduciaries who are left with little information or a disorganized mess must undertake an expensive and burdensome scavenger hunt.

The executor or administrator is entitled to a fiduciary fee for their work, which is usually a percentage of the estate.

Probate ends when all of the property has been gathered, creditors have been paid and beneficiaries have received their distributions.

With a properly prepared estate plan, your property will be distributed according to your wishes, versus hoping the state’s laws will serve your family. You can also use the estate planning process to create the necessary documents to protect you during life, including a Power of Attorney, Advance Medical Directive and Healthcare proxy.

Reference: The News-Enterprise (Feb. 2, 2021) “Explaining the basic aspects probate”

What You Should Never, Ever, Include in Your Will

A last will and testament is a straightforward estate planning tool, used to determine the beneficiaries of your assets when you die, and, if you have minor children, nominating a guardian who will raise your children. Wills can be very specific but can’t enforce all of your wishes. For example, if you want to leave your niece your car, but only if she uses it to attend college classes, there won’t be a way to enforce those terms in a will, says the article “Things you should never put in your will” from MSN Money.

If you have certain terms you want met by beneficiaries, your best bet is to use a trust, where you can state the terms under which your beneficiaries will receive distributions or assets.

Leaving things out of your will can actually benefit your heirs, because in most cases, they will get their inheritance faster. Here’s why: when you die, your will must be validated in a court of law before any property is distributed. The process, called probate, takes a certain amount of time, and if there are issues, it might be delayed. If someone challenges the will, it can take even longer.

However, property that is in a trust or in payable-on-death (POD) titled accounts pass directly to your beneficiaries outside of a will.

Don’t put any property or assets in a will that you don’t own outright. If you own any property jointly, upon your death the other owner will become the sole owner. This is usually done by married couples in community property states.

A trust may be the solution for more control. When you put assets in a trust, title is held by the trust. Property that is titled as owned by the trust becomes subject to the rules of the trust and is completely separate from the will. Since the trust operates independently, it is very important to make sure the property you want to be held by the trust is titled properly and to not include anything in your will that is owned by the trust.

Certain assets are paid out to beneficiaries because they feature a beneficiary designation. They also should not be mentioned in the will. You should check to ensure that your beneficiary designations are up to date every few years, so the right people will own these assets upon your death.

Here are a few accounts that are typically passed through beneficiary designations:

  • Bank accounts
  • Investments and brokerage accounts
  • Life insurance polices
  • Retirement accounts and pension plans.

Another way to pass property outside of the will, is to own it jointly. If you and a sibling co-own stocks in a jointly owned brokerage account and you die, your sibling will continue to own the account and its investments. This is known as joint tenancy with rights of survivorship.

Business interests can pass through a will, but that is not your best option. An estate planning attorney can help you create a succession plan that will take the business out of your personal estate and create a far more efficient way to pass the business along to family members, if that is your intent. If a partner or other owners will be taking on your share of the business after death, an estate planning attorney can be instrumental in creating that plan.

Funeral instructions don’t belong in a will. Family members may not get to see that information until long after the funeral. You may want to create a letter of instruction, a less formal document that can be used to relay these details.

Your account numbers, including passwords and usernames for online accounts, do not belong in a will. Remember a will becomes a public document, so anything you don’t want the general public to know after you have passed should not be in your will.

Reference: MSN Money (Dec. 8, 2020) “Things you should never put in your will”

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 protection

Act Quickly to Protect an Estate

For most families, the process of estate administration or the probate of a will starts weeks after the death of a loved one.  However, before that time, there are certain steps that need to be taken immediately after death, according to a recent article “Protecting an estate requires swift action” from The Record-Courier. It is not always easy to keep a clear head and stay on top of these tasks but pushing them aside could lead to serious losses and possible liability.

The first step is to secure the deceased’s home, cars and personal property. The residence needs to be locked to prevent unauthorized access. It may be wise to bring in a locksmith, so that anyone who had been given keys in the past will not be able to go into the house. Cars should be parked inside garages and any personal property needs to be securely stored in the home. Nothing should be moved until the trust administration or probate has been completed. Access to the deceased’s digital assets and devices also need to be secured.

Mail needs to be collected and retrieved to prevent the risk of unauthorized removal of mail and identity theft. If there is no easy access to the mailbox, the post office needs to be notified, so mail can be forwarded to an authorized person’s address.

Estate planning documents need to be located and kept in a safe place. The person who has been named as the executor in the will needs to have those documents. If there are no estate planning documents or if they cannot be located, the family will need to work with an estate planning attorney. The estate may be subjected to a probate proceeding.

One of the responsibilities that most executors don’t know about, is that when a person dies, their will needs to be admitted to the court, regardless whether they had trusts. If the deceased left a will, the executor or the person who has possession of the will must deliver it to the court clerk. Failing to do so could result in large civil liability.

At least five and as many as ten original death certificates should be obtained. The executor will need them when closing accounts. As soon as possible, banks, financial institutions, credit card companies, pension plans, insurance companies and others need to be notified of the person’s passing. The Social Security Administration needs to be notified, so direct deposits are not sent to the person’s bank account. Depending on the timing of the death, these deposits may need to be returned. The same is true if the deceased was a veteran—the Veteran’s Affairs (VA) need to be notified. There may be funeral benefits or survivor benefits available.

It is necessary, even in a time of grief, to protect a loved one’s estate in a timely and thorough manner. Your estate planning attorney will be able to help through this process.

Reference: The Record-Courier (Oct. 17, 2020) “Protecting an estate requires swift action”

protect estate plan

Protect Your Estate with Five Facts

It is true that a single person who dies in 2020 could have up to $11.58 million in personal assets and their heirs would not have to pay any federal estate tax. However, that doesn’t mean that regular people don’t need to worry about estate taxes—their heirs might have to pay state estate taxes, inheritance taxes or the estate may shrink because of other tax issues. That’s why U.S. News & World Report’s recent article “5 Estate Planning Tips to Keep Your Money in the Family” is worth reading.

Without proper planning, any number of factors could take a bite out of your children’s inheritance. They may be responsible for paying federal income taxes on retirement accounts, for instance. You want to be sure that a lifetime of hard work and savings doesn’t end up going to the wrong people.

The best way to protect your family and your legacy, is by meeting with an estate planning attorney and sorting through all of the complex issues of estate planning. Here are five areas you definitely need to address:

  1. Creating a last will and testament
  2. Checking that beneficiaries are correct
  3. Creating a trust
  4. Converting traditional IRA accounts to Roth accounts
  5. Giving assets while you are living

A last will and testament. Only 32% of Americans have a will, according to a survey that asked 2,400 Americans that question. Of those who don’t have a will, 30% says they don’t think they have enough assets to warrant having a will. However, not having a will means that your entire estate goes through probate, which could become very expensive for your heirs. Having no will also makes it more likely that your family will challenge the distribution of assets. As a result, someone you may have never met could inherit your money and your home. It happens more often than you can imagine.

Checking beneficiaries. Once you die, beneficiaries cannot be changed. That could mean an ex-spouse gets the proceeds of your life insurance policy, retirement funds or any other account that has a named beneficiary. Over time, relationships change—make sure to check the beneficiaries named on any of your documents to ensure that your wishes are fulfilled. Your will does not control this distribution and is superseded by the named beneficiaries.

Set up a trust. Trusts are used to accomplish different goals. If a child is unable to manage money, for instance, a trust can be created, a trustee named and the account funded. The trust will include specific directions as to when the child receives funds or if any benchmarks need to be met, like completing college or staying sober. With an irrevocable trust, the money is taken out of your estate and cannot be subject to estate taxes. Money in a trust does not pass through probate, which is another benefit.

Convert traditional IRAs to Roth retirement accounts. When children inherit traditional IRAs, they come with many restrictions and heirs get the income tax liability of the IRA. Regular income tax must be paid on all distributions, and the account has to be emptied within ten years of the owner’s death, with limited exceptions. If the account balance is large, it could be consumed by taxes. By gradually converting traditional retirement accounts to Roth accounts, you pay the taxes as the accounts are converted. You want to do this in a controlled fashion, so as not to burden yourself. However, this means your heirs receive the accounts tax-free.

Gift with warm hands, wisely. Perhaps the best way to ensure that money stays in the family, is to give it to heirs while you are living. As of 2020, you may gift up to $15,000 per person, per year in gifts. The money is tax free for recipients. Just be careful when gifting assets that appreciate in value, like stocks or a house. When appreciating assets are inherited, the heirs receive a step-up in basis, meaning that the taxable amount of the assets are adjusted upon death, so some assets should only be passed down after you pass.

Reference: U.S. News & World Report (Sep. 30, 2020) “5 Estate Planning Tips to Keep Your Money in the Family”

 

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?”