Estate Planning Blog Articles

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How Can I Minimize My Probate Estate?

Having a properly prepared estate plan is especially important if you have minor children who would need a guardian, are part of a blended family, are unmarried in a committed relationship or have complicated family dynamics—especially those with drama. There are things you can do to protect yourself and your loved ones, as described in the article “Try these steps to minimize your probate estate” from the Indianapolis Business Journal.

Probate is the process through which debts are paid and assets are divided after a person passes away. There will be probate of an estate whether or not a will and estate plan was done, but with no careful planning, there will be added emotional strain, costs and challenges left to your family.

Dying with no will, known as “intestacy,” means the state’s laws will determine who inherits your possessions subject to probate. Depending on where you live, your spouse could inherit everything, or half of everything, with the rest equally divided among your children. If you have no children and no spouse, your parents may inherit everything. If you have no children, spouse or living parents, the next of kin might be your heir. An estate planning attorney can make sure your will directs the distribution of your property.

Probate is the process giving someone you designate in your will—the executor—the authority to inventory your assets, pay debts and taxes and eventually transfer assets to heirs. In an estate, there are two types of assets—probate and non-probate. Only assets subject to the probate process need go through probate. All other assets pass directly to new owners, without involvement of the court or becoming part of the public record.

Many people embark on estate planning to avoid having their assets pass through probate. This may be because they don’t want anyone to know what they own, they don’t want creditors or estranged family members to know what they own, or they simply want to enhance their privacy. An estate plan is used to take assets out of the estate and place them under ownership to retain privacy.

Some of the ways to remove assets from the probate process are:

Living trusts. Assets are moved into the trust, which means the title of ownership must change. There are pros and cons to using a living trust, which your estate planning attorney can review with you.

Beneficiary designations. Retirement accounts, investment accounts and insurance policies are among the assets with a named beneficiary. These assets can go directly to beneficiaries upon your death. Make sure your named beneficiaries are current.

Payable on Death (POD) or Transferable on Death (TOD) accounts. It sounds like a simple solution to own many accounts and assets jointly. However, it has its own challenges. If you wished any of the assets in a POD or TOD account to go to anyone else but the co-owner, there’s no way to enforce your wishes.

An experienced, local estate planning attorney will be the best resource to prepare your estate for probate. If there is no estate plan, an administrator may be appointed by the court and the entire distribution of your assets will be done under court supervision. This takes longer and will include higher court costs.

Reference: Indianapolis Business Journal (Aug. 26,2022) “Try these steps to minimize your probate estate”

Your Cryptocurrency and NFTs Need to Be Included in Your Estate Plan

As more people continue to purchase cryptocurrencies and non-fungible tokens (NFTs), digital assets are becoming a bigger part of the investment world and of people’s estate plans. If you want to pass these assets to loved ones upon death, you’ll need to plan for it, says the article “Got Cryptocurrency or NFTs? They Need to Be in Your Estate Planfrom Kiplinger. Otherwise, securing, transferring and gifting crypto and NFTs can create unsolvable problems and lost assets.

There are many different kinds of crypto and NFTs, with Bitcoin, Ethereum, Binance Coin, Thether among them. An NFT is a unique, collectable, and tradable digital asset, like digital art or a photo. NFTs are purchased through a bidding process in this universe and in the metaverse, an online world where people are buying homes, real estate and more in the shape of NFTs. Sales of NFTs are estimated to have reached more than $17 billion in 2021. For better or worse, the future is here.

Cryptocurrency is accessed through a private key. This is a series of alphanumeric characters known only to the owner and stored in cold storage or a digital wallet. Whoever has possession of the key can buy, sell and spend the digital currency. If you have crypto, your family or fiduciary needs to know what you have, where to find the assets and what to do with them.

One option is to share the private key or place crypto assets and NFTs in custody, using a software application or a hardware wallet. There are a number of companies now offering these services. An old-school option for this new world asset is to create a secure spreadsheet of your digital assets and list the login protocols for each account.

For now, it is difficult to open crypto accounts and NFTs in the name of a revocable or irrevocable trust. However, digital wallets allowing you to open an account in the name of a trust do exist, if the company handling the digital asset permits. This is a very new, rapidly evolving asset class. Beneficiaries may not yet be named for crypto accounts. However, this may change in the future.

With no trust account and no named beneficiary, what happens to your crypto and NFTs when you die? For now, they must pass through your probate estate under the will. Your estate planning attorney will make sure your estate plan includes the correct way to give digital asset powers for the fiduciary handling your estate and include digital asset powers in your will, trust, and durable power of attorney.

If your state has adopted the Uniform Fiduciary Access to Digital Assets Act (UFADAA) or the Revised Uniform Fiduciary Access to Digital Assets Act (RUFADAA)—46 states have—then it will be easier for loved ones to manage digital assets in case of incapacity or when you pass, as long as your estate plan addresses them.

Reference: Kiplinger (May 23, 2022) “Got Cryptocurrency or NFTs? They Need to Be in Your Estate Plan

What about House Contents when Someone Dies?

Probate law does not allow anyone to take items from a loved ones’ home after they die, until the will has been probated. Learning about probate, what it entails and how to prepare for it may make it a little easier when a family member dies, says a recent article titled “Can you empty a house before probate? from Augusta Free Press. Knowing what to expect can avoid common pitfalls and mistakes, some of which often lead to family fights and even litigation.

Probate is a court-supervised period when the estate of the decedent is on pause. Assets may not be distributed, including personal items in the home. The goal is to ensure that assets are distributed only after the will has been ruled valid by the court and following the instructions in the will.

Probate includes the legal appointment of the executor, who is named in the will with specific statutory responsibilities, to include ultimately distributing assets.

For many people, estate planning includes preparing assets to avoid the probate process. An estate plan includes a review of the entire estate to see which assets are best suited to be taken out of the estate. Living trusts, joint ownership, transfer-on-death (TOD) and many other estate planning strategies can be used, depending on the person’s finances.

Certain tasks can be accomplished during probate relating to the home and other property. This includes changing the locks on the home to protect it from criminals and unauthorized people who have keys. The decedent’s mail can be forwarded to the executor or another family member’s address. A review of the decedent’s bills, especially monthly payments, can take place. If there’s a mortgage on the home, the mortgage company needs to be contacted and the payments need to be made.

As the end of the probate period nears, it may be time to contact an appraiser to get an unbiased, professional appraisal of the home’s value. This will be needed if the home is to be sold, or if the estate plan needs a valuation of the home.

Probate is often a necessary process. It can create challenges for the family, especially if no estate planning has been done. In some jurisdictions, probate is quick and painless, while in others it is a long and expensive process. Prior planning by an experienced estate planning attorney prevents many of the issues presented by probate.

After probate has been completed, the executor distributes the assets, including the personal property in the home. Personal property with sentimental value often sparks more family fights than assets of greater value. Administering an estate when emotions are running high is a challenge for all concerned.

Another reason to have an estate plan in place is to delineate very specifically what you want to occur after your death. That way there is no room for family members to stake a claim and do something contrary to your wishes.

Reference: Augusta Free Press (May 13, 2022) “Can you empty a house before probate?

Can a Vacation Home Be Kept in the Family for Generations?

Many family traditions include gatherings at vacation homes. However, leaving these properties to the next generation is not always in the best interest of the family. Some people try to make a simple solution work for a complex problem, leading to more challenges, as explained in the article “Succession planning for the family lakehouse” from NH Business Review.

Joint ownership among siblings can lead to disputes about how the home is used, operated and maintained. Some children want to continue using the house, while others may see it as an income stream for a rental property. There may be siblings who cannot afford to participate in the house’s upkeep and need the cash more than the tradition. When joint ownership is presented as a surprise in a will, the adult children may find themselves fighting about the vacation home, with no parent around to tell them to knock it off.

Making matters more complicated, if the siblings live in different states and the house is in a neighboring state, ownership of the real estate at death may subject the decedent’s estate to estate taxes where the property is located. As a result, the property may need to go through probate in an additional state. Every state has its own tax rules, so the transfer of joint property will have to be analyzed by an estate planning attorney knowledgeable about the laws in each state involved.

A sensible alternative is creating a Limited Liability Corporation, ideally while the original owners—the parents—are still living. The organizational documents include a certificate of organization to file with the Secretary of State and an operating agreement. The LLC will need its own taxpayer identification number, or EIN.

The operating agreement governs the management of the property and addresses the operating expenses and maintenance of the property. It should also address the process for a child to cash in on their ownership to other children. LLC operating agreements often include these items:

  • Responsibilities for operating expenses
  • Process to transfer member units or interests
  • Duties for regular maintenance, budgeting and approval of property improvements
  • Development of a property use schedule
  • Establishing rules for the home’s use

There are some costs associated with creating an LLC, including annual filing requirements. However, these will be small, when compared to the cost of family fights and untangling joint ownership.

An LLC can also offer personal liability protection from lawsuits brought by renters, creditors, or any litigants. If there is an accident resulting from work being done on the property, the owners may be shielded from the liability because they do not personally own the property, the LLC does.

In the case of divorce, bankruptcy filing, or a large judgement being filed against one of the children, the LLC will protect their interest in the property.

The real estate owned by the LLC is not part of the owner’s probate estate. This avoids the need for a second probate in the state where the property is located. Some states have adopted the Uniform Transfer on Death Security Registration Act, and the LLC membership interest can be assigned along to the terms of the beneficiary designation.

Planning for what will happen to a vacation home after death provides peace of mind for all in the family. Speak with an experienced estate planning attorney to ensure that the property and the family’s peace is preserved.

Reference: NH Business Review (March 23, 2022) “Succession planning for the family lakehouse”

Is It Important for Physicians to Have an Estate Plan?

When the newly minted physician completes their residency and begins practicing, the last thing on their minds is getting their estate plan in order. Instead, they should make it a priority, according to a recent article titled “Physicians, get your estate in order or the court will do it instead” from Medical Economics. Physicians accumulate wealth to a greater degree and faster than most people. They are also in a profession with a higher likelihood of being sued than most. They need an estate plan.

Estate planning does more than distribute assets after death. It is also asset protection. An estate planning attorney helps physicians, dentists and other medical professionals protect their assets and their legacies.

Basic estate planning documents include a last will and testament, financial power of attorney and a medical power of attorney. However, the physician’s estate is complex and requires an attorney with experience in asset protection and business succession.

During the process of creating an estate plan, the physician will need to determine who they would want to serve as a guardian, if there are minor children and what they would want to occur if all of their beneficiaries were to predecease them. A list should be drafted with all assets, debts, including medical school loans, life insurance documents and retirement or pension accounts, including the names of beneficiaries.

The will is the center of the estate plan. It will require naming a person, typically a spouse, to be the executor: the person in charge of administering the estate. If the physician is not married, a trusted relative or friend can be named. There should also be a second person named, in case the first is unable to serve.

If the physician owns their practice, the estate plan should be augmented with a business succession plan. The will’s executor may need to oversee decisions regarding the sale of the practice. A trusted friend with no business acumen or knowledge of how a medical practice works may not be the best executor. These are all important considerations. Special considerations apply when the “business” is a professional practice, so do not make any moves without expert estate planning assistance.

The will only controls assets in the individual’s name. Assets owned jointly, or those with a beneficiary designation, are not governed by the will.

Without a will, the entire estate may need to go through probate, which is a lengthy and expensive process. For one family, their father’s lack of a will and secrecy took 18 months and cost $30,000 in legal fees for the estate to be settled.

Trusts are an option for protecting assets. By placing assets in trust, they are protected from creditors and provide control in complex family situations. The goal is to create a trust and fund it before any legal actions occur. Transferring assets after a lawsuit has begun or after a creditor has attached an asset could lead to a physician being charged with fraudulent conveyance—where assets are transferred for the sole purpose of avoiding paying creditors.

Estate planning is never a one-and-done event. If a doctor starts a family limited partnership to transfer wealth to the next generation but neglects to properly maintain the partnership, some or all of the funds may be vulnerable.

An estate plan needs to be reviewed every few years and certainly every time a major life event occurs, including marriage, divorce, birth, death, relocation, or a significant change in wealth.

When consulting with an experienced estate planning attorney, a doctor should ask about the potential benefits of revocable living trust planning to avoid probate, maintain privacy and streamline the administration of the estate upon incapacity or at death.

Reference: Medical Economics (Feb. 22, 2022) “Physicians, get your estate in order or the court will do it instead”

Does the Executor Control Bank Accounts?

Executors administering probate assets usually have to deal with several different financial institutions. If good planning has been done by the decedent, the executor has a list of assets, account numbers, website addresses and phone numbers. Otherwise, the personal representative or successor trustee starts by gathering information and identifying the accounts, as described in a recent article “Dealing with the back offices of banks and brokerages” from Lake Country News.

The accounts must be identified, retitled to become part of the estate, or liquidated and moved into the estate account.

If the decedent had a financial advisor who handled all of their investments, the process may be easier, since there will only be one person to deal with.

If there is no financial advisor who can or will personally manage the assets, the executor starts by contacting the back office department of the institution, often referred to as the “estates department.” The contact info can usually be found on the institutions’ website or on the paper statements, if there are any.

Expect to spend a lot of time on hold, especially in the beginning of the week. It may be better to call on a Wednesday or Thursday.

The first call is to introduce the executor, advise of the death of the decedent and learn about the company’s procedures for transferring, retitling, or otherwise gaining control of the account. The bank usually assigns a case number, to be used on all future communications.

If possible, obtain their name, direct dial, and direct email of whoever you speak with. It may only be with one assigned representative, or a different person every time. It depends upon the organization. Take careful notes on every interaction. You may need them.

Some of the documents needed to complete these transactions include an original death certificate, a court certified letter of administration or trustee’s certification of trust and a letter of authorization signed by the client to allow the institution to communicate with the executor or successor trustee.

Financial institutions will often only accept their own forms, which then need to be prepared for completion and signature. Expect to be asked to notarize some documents. In many cases, the institution will require a new account be opened and the assets transferred to the new account.

Be organized—you may find yourself needing to submit the documents multiple times, depending on the financial institution. If hard copy documents are sent, use registered or express mail requiring a signature on delivery. If documents are sent by email, they should only be sent via an encrypted portal to protect both estate and executor.

This is not a quick process and requires diligent follow up, with multiple emails and phone calls. If the value of the estate is large and the assets are complex, it may be better to have the estate planning attorney handle the process.

Reference: Lake Country News (Jan. 15, 2022) “Dealing with the back offices of banks and brokerages”

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”

Is Prince’s Estate Settled Yet?

The long-running estate battle over Prince’s estate may be coming to a close, according to a recent article from Yahoo! News, “Minnesota probate court set to discuss ‘final distribution’ of Prince estate in February.” The Carver County probate court has set a date to start talking about Prince’s assets with heirs and beneficiaries.

Prince died of a fentanyl overdose in April 2016, with no estate plan. Administering the estate and coming up with a plan for its distribution among heirs has cost tens of millions of dollars, in an estate estimated at more than $100 million. One of many obstacles in settling the estate: a complicated dispute with the IRS over the value of Prince’s assets.

The estate will be almost evenly split between a music company—Primary Wave—and the three oldest of the pop icon’s eldest six heirs or their families.

Primary Wave bought out all or most of the interests of Prince’s three youngest siblings, one of whom died in August 2019. Three older siblings, including one who died in September 2021, rejected the offers from Primary Wave.

Comerica Bank & Trust, the administrator of the estate, settled with the IRS over the value of the estate, according to a late November filing in the U.S. Tax Court. The Carver County probate court has to approve this agreement.

Another tax dispute, this one between Prince’s estate and the state of Minnesota, has not yet been resolved.

Last year, the IRS set a value of $163.2 million on Prince’s estate. Comerica valued the estate at $82.3 million—nearly half of the IRS value. The value was so low the IRS penalized the estate with a $6.4 million “accuracy-related penalty.” Comerica followed by suing the IRS in U.S. Tax Court, saying the IRS calculations were loaded with mistakes. With the settlement now underway, the tax trial has been cancelled. The estate and the IRS have been ordered to file a status report on the case in February 2022.

The IRS and Comerica agreed on the value of Prince’s real estate holdings at $33 million. The harder task was to place a value on intangible assets, like Prince’s music rights.

The full IRS settlement most likely led to the probate court setting a date for a hearing. With the settlement, certain parts of the estate may move forward.

However, don’t expect it to be quick. It may be months before the court approves any distributions.

The lesson from Prince’s estate: everyone needs an estate plan, whether the estate is modest or includes multi-million assets and multiple heirs. Tens of millions in legal fees plus a $6.4 million penalty from the IRS adds up, even when the estate is this big.

Reference: Yahoo! News (Dec. 22, 2021) “Minnesota probate court set to discuss ‘final distribution’ of Prince estate in February”

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 Taxes Have to Be Paid When Someone Dies?

The last thing families want to think about after a loved one has passed are taxes, but they must be dealt with, deadlines must be met and challenges along the way need to be addressed. The article “Elder Care: Death and taxes, Part 1: Tax guidance for administering a loved one’s estate” from The Sentinel offers a useful overview, and recommends speaking with an estate planning attorney to be sure all tasks are completed in a timely manner.

Final income tax returns must be filed after a person passes. This is the tax return on income received during their last year of life, up to the date of death. When a final return is filed, this alerts federal and state taxing authorities to close out the decedent’s tax accounts. If a final return is not filed, these agencies will expect to receive annual tax payments and may audit the deceased. Even if the person didn’t have enough income to need to pay taxes, a final return still needs to be filed so tax accounts are closed out. The surviving spouse or executor typically files the final tax return. If there is a surviving spouse, the final income tax return is the last joint return.

Any tax liabilities should be paid by the estate, not by the executor. If a refund is due, the IRS will only release it to the personal representative of the estate. An estate planning attorney will know the required IRS form, which is to be sent with an original of the order appointing the person to represent the estate.

Depending on the decedent’s state of residence, heirs may have to pay an Inheritance Tax Return. This is usually based on the relationship of the heirs. The estate planning attorney will know who needs to pay this tax, how much needs to be paid and how it is done.

Income received by the estate after the decedent’s death may be taxable. This may be minimal, depending upon how much income the estate has earned after the date of death. In complex cases, there may be significant income and complex tax filings may be required.

If a Fiduciary Return needs to be filed, there will be strict filing deadline, often based on the date when the executor applied for the EIN, or the tax identification number for the estate.

The estate’s executor needs to know of any trusts that exist, even though they pass outside of probate. Currently existing trusts need to be administered. If there is a trust provision in the will, a new trust may need to be started after the date of death. Depending on how they are structured, trust income and distributions need to be reported to the IRS. The estate planning attorney will be able to help with making sure this is managed correctly, as long as they have access to the information.

The decedent’s tax returns may have a lot of information, but probably don’t include trust information. If the person had a Grantor Trust, you’ll need an experienced estate planning attorney to help. During the Grantor’s lifetime, the trust income is reported on the Grantor’s 1040 personal income tax return, as if there was no trust. However, when the Grantor dies, the tax treatment of the trust changes. The Trustee is now required to file Fiduciary Returns for the trust each year it exists and generates income.

An experienced estate planning attorney can analyze the trust and understand reporting and taxes that need to be paid, avoiding any unnecessary additional stress on the family.

Reference: The Sentinel (Dec. 3, 2021) “Elder Care: Death and taxes, Part 1: Tax guidance for administering a loved one’s estate”