Estate Planning Blog Articles

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Aging Parents and Blended Families Create Estate Planning Challenges

Law school teaches about estate planning and inheritance, but experience teaches about family dynamics, especially when it comes to blended families with aging parents and step siblings. Not recognizing the realities of stepsibling relationships can put an estate plan at risk, advises the article “Could Your Aging Parents’ Estate Plan Create A Nightmare For Step-Siblings?” from Forbes. The estate plan has to be designed with realistic family dynamics in mind.

Trouble often begins when one parent loses the ability to make decisions. That’s when trusts are reviewed for language addressing what should happen, if one of the trustees becomes incapacitated. This also occurs in powers of attorney, health care directives and wills. If the elderly person has been married more than once and there are step siblings, it’s important to have candid discussions. Putting all of the adult children into the mix because the parents want them to have equal involvement could be a recipe for disaster.

Here’s an example: a father develops dementia at age 86 and can no longer care for himself. His younger wife has become abusive and neglectful, so much so that she has to be removed from the home. The father has two children from a prior marriage and the wife has one from a first marriage. The step siblings have only met a few times, and do not know each other. The father’s trust listed all three children as successors, and the same for the healthcare directive. When the wife is removed from the home, the battle begins.

The same thing can occur with a nuclear family but is more likely to occur with blended families. Here are some steps adult children can take to protect the whole family:

While parents are still competent, ask who they would want to take over, if they became disabled and cannot manage their finances. If it’s multiple children and they don’t get along, address the issue and create the necessary documents with an estate planning attorney.

Plan for the possibility that one or both parents may lose the ability to make decisions about money and health in the future.

If possible, review all the legal documents, so you have a complete understanding of what is going to happen in the case of incapacity or death. What are the directions in the trust, and who are the successor trustees? Who will have to take on these tasks, and how will they be accomplished?

If there are any questions, a family meeting with the estate planning attorney is in order. Most experienced estate planning attorneys have seen just about every situation you can imagine and many that you can’t. They should be able to give your family guidance, even connecting you with a social worker who has experience in blended families, if the problems seem unresolvable.

Reference: Forbes (June 28, 2021) “Could Your Aging Parents’ Estate Plan Create A Nightmare For Step-Siblings?”

What’s the Right Age to Start Estate Planning?

Okay, you just hit 40 and you’re thinking about what your life will be like now that you are middle-aged. You better start thinking about retirement.  Your children will need money to go to college one day.

So, you’re not even considering the possibility of estate planning because that’s something that you do when you’re old, like in your 60s, right?

Wrong, says Reality Biz News’ recent article entitled “When is the right time to consider estate planning?” While the life expectancy for the average American might be between 80 and 85, stuff happens, and so does death. You should be certain that your family is provided for, if you pass away unexpectedly.

It’s much easier to plan for the inevitable when you are young and healthy.  However, many people wait until they’re in the hospital to begin considering estate planning. Let’s look at some signs you should begin estate planning:

If you are in your twenties and living from paycheck to paycheck, it might not make much sense to plan for the distribution of your estate. Your bestie knows she’s getting your Beats, and your vintage records are going to your significant other. However, you should start planning your estate, when you begin saving money and making investments. Talk to an experienced estate planning attorney, if you fall into one of these categories:

You have a savings account. If you have a savings account with a few thousand dollars, you might want to think about who you want the money to go to if you pass away.

Have you recently been married? If you recently wed (or divorced), you and your spouse will want to start making a plan for who will get your joint assets when you’re no longer around. If you’re divorced, you should remove your ex from your will.  If you don’t have a will, your property will go directly to your spouse when you die. However, there are a few exceptions, including the fact that you can leave a bank account to a payable on death beneficiary. This will avoid probate and have the funds in that account go directly to that designated beneficiary.

You have assets of over $100,000. If you have some significant savings, you should ask an experienced estate planning attorney about creating a trust for anyone who may be dependent upon you.

You want to travel. Before you plan your ascent of Mount Everest, update your will. If you have minor children, you will want to nominate a guardian for them, in the event that you fall off the mountain and do not return.

You own property. If you own a house, a car, a boat, or other real estate but aren’t married and have no children, make a will. That way you can leave those assets to whomever you want.

Reference: Reality Biz News (April 23, 2021) “When is the right time to consider estate planning?”

Can Your Pandemic Pet Be in Your Estate Plan?

America’s love affair with pets grew during the pandemic, a heartfelt solution for individuals who are older and living without the comfort of seeing family on a regular basis. However, adopting a puppy when you are in your sixties or seventies must include some thought about the pet’s future. The Pittsburgh Post-Gazette’s article “So, you’ve got a pandemic support pet. Now what?” provides answers.

Let’s say you become ill or disabled and can’t care for your pet. Neither your family nor friends want the pet. A starting point is to have a general power of attorney created that is limited to the care of your pet. Make sure the person (or persons) you have selected to care for your pet are willing and able, of course. Tell them how and what you would like them to do with your pet. Should they try to find another home? Is there a no-kill shelter you would want your pet to go to? Write out your wishes, so they know exactly what you want.

However, what happens if you die?

All states now accept the use of a pet trust, which can be in your will or in a separate document. A pet trust is created to provide for the care of an animal that is living during your lifetime. The trust ends when the pet dies, or, if your trust is for more than one pet, then the trust lasts until the last pet dies.

Selecting the trustee for a pet trust is just as important as naming a trustee for any kind of trust. You might decide to designate more than one trustee if the original trustee is unable to fulfill their role.

The trustee is legally responsible for following your directions as expressed in the trust. That also means the assets in the trust are for the pet’s benefit. Therefore, you want to be specific about what kind of care you want your pet to have.

In some states, you can name another person who will monitor the care of your pets and require annual veterinary checkups. If this role is appointed in the trust, they may be able to remove the trustee if they deem that the person is not taking good care of the pet.

Deciding how to fund the trust is an important decision. How old is your pet, and how long do you expect them to live? A large dog won’t likely live for as long as a large bird, for instance. How much money will be needed for the care of a pet that might live several decades after you pass?

Consider a fee to be paid to the guardian from the trust. Caring for some pets is a long-term commitment, and they will appreciate an acknowledgment of their dedication to your beloved animal companion.

Reference: Pittsburgh Post-Gazette (May 20, 2021) “So, you’ve got a pandemic support pet. Now what?”

Do QTIP Trusts Help avoid Estate Taxes?

Using a QTIP trust allows one spouse to create a trust to benefit the surviving spouse, while providing the surviving spouse with up to nine months to decide how to treat the gift for tax purposes, explains a recent article “How Certain Trusts Soften The Blow Of Estate Tax Increases” from Financial Advisor. This flexibility is just one reason for this trust’s popularity. However, while the QTIP election can be made on the 2021 gift tax return, which is filed in 2022, the choice as to how much of the transfer will be subject to tax can be made in 2022.

The current estate and gift tax exemption of $11.7 per individual is slated to sunset in 2025, but the current legislative mood may curtail that legislation sooner. Right now, flexibility is paramount.

The surviving spouse is named as the primary beneficiary of the trust and must be the only beneficiary of the trust during the lifetime of the surviving spouse, in terms of both receiving income or principal from the trust.

If the decision is made to treat the trust as a QTIP trust, a gift to the trust is eligible for the marital deduction and is not taxable. It does not use up any of the donor’s gift tax exclusion. That flexibility to make a transfer today and decide later whether it uses any lifetime exemption is something most people don’t know about. A QTIP can also protect the recipient spouse and the principal from any creditors.

There are conditions and limitations to this strategy. If the QTIP election is not made, all net trust income must be distributed to the beneficiary spouse. There’s also no flexibility for the trust income to be accumulated or distributed directly to descendants.

The property over which the QTIP election is made is included in the estate of the surviving spouse.

The election can be made over the entire asset or only a portion of the asset transferred to the trust. The option to apply only a portion of the transfer makes it more tax efficient. For generation skipping-trust purposes, an election can be made to use the transferor spouse’s GST exemption when the decision about the QTIP election is made.

QTIPs are not the solution for everyone, but they may be the best option for many people while the people in Washington, D.C. determine the immediate future of the estate tax.

There are many Americans who are moving forward with making gifts using the current gift tax exclusion, using spousal lifetime access trusts (SLATs). However, the QTIP elections remain a way to hedge against the risk of being on the hook for a substantial gift tax, if there is a reduction in the federal estate tax exemptions.

Speak with an estate planning attorney to learn if a QTIP or another type of trust is appropriate for you. Note that these are complex planning strategies, and they must work in tandem with the rest of your estate plan.

Reference: Financial Advisor (May 24, 2021) “How Certain Trusts Soften The Blow Of Estate Tax Increases”

What Is the Purpose of an Estate Plan?

No one wants to think about becoming seriously ill or dying, but scrambling to get an estate plan and healthcare documents done while in the hospital or nursing home is a bad alternative, says a recent article titled “The Essentials You Need for an Estate Plan” from Kiplinger. Not having an estate plan in place can create enormous costs for the estate, including taxes, and delay the transfer of assets to heirs.

If you would like to avoid the cost, stress and possibility of your spouse or children having to go to court to get all of this done while you are incapacitated, it is time to have an estate plan created. Here are the basics:

A Will, a Living Will, Power of Attorney and a Beneficiary Check-Up. People think of a will when they think of an estate plan, but that’s only part of the plan. The will gives instructions for what you want to happen to assets, who will be in charge of your estate—the executor—and who will be in charge of any minor children—the guardian. No will? This is known as dying intestate, and probate courts will make all of these decisions for you, based on state law.

However, a will is not enough. Beneficiary designations determine who receives assets from certain types of property. This includes life insurance policies, qualified retirement accounts, annuities, and any account that provides the opportunity to name a beneficiary. These instructions supersede the will, so make sure that they are up to date. If you fail to name a beneficiary, then the asset is considered part of your estate. If you fail to update your beneficiaries, then the person you may have wanted to receive the assets forty years ago will receive it.

Some banks and brokerage accounts may have an option of a Transfer on Death (TOD) agreement. This allows you to plan out asset distribution outside of the will, speeding the distribution of assets.

A Living Will or Advance Directive is used to communicate in advance what you would want to happen if you are alive but unable to make decisions for yourself. It names an agent to make serious medical decisions on your behalf, like being kept on life support or having surgery. Not having the right to make medical decisions for a loved one requires petitioning the court.

Financial Power of Attorney names an attorney in fact to manage finances, paying bills and overseeing investments. Without a POA, your family can’t take action on your financial matters, like paying bills, overseeing the maintenance of your home, etc. If the court appoints a non-family member to manage this task, the family may see the estate evaporate.

Creating a trust is part of most people’s estate plan. A trust is a means of leaving assets for a minor child, or someone who cannot be trusted to manage money. The trust is a legal entity that inherits money when you pass, and a trustee, who you name in the trust documents, manages everything, according to the terms of the trust.

Today’s estate plan needs to include digital assets. You need to give someone legal authority to manage social media accounts, websites, email and any other digital property you own.

The time to create an estate plan, or review and update an existing estate plan, is now. COVID has awakened many people to the inevitability of severe illness and death. Planning for the future today protects the ones you love tomorrow.

Reference: Kiplinger (April 21, 2021) “The Essentials You Need for an Estate Plan”

unintended heirs

How to Protect Your Estate from Unintended Heirs

Disinheriting a child as an heir happens for a variety of reasons. There may have been a long-running dispute, estrangement over a lifestyle choice, or not wanting to give assets to a child who squanders money. What happens when a will or trust has left a child without an inheritance is examined in an article from Lake County News, “Estate Planning: Disinherited and omitted children.”

Circumstances matter. Was the child born or adopted after the decedent’s estate planning documents were already created and executed? In certain states, like California, a child who was born or adopted after documents were executed, is by law entitled to a share in the estate. There are exceptions. Was it the decedent’s intent to omit the child, and is there language in the will making that clear? Did the decedent give most or all of the estate to the other parent? Did the decedent otherwise provide for the omitted child and was there language to that effect in the will? For example, if a child was the named beneficiary of a $1 million life insurance policy, it is likely this was the desired outcome.

Another question is whether the decedent knew of the existence of the child, or if they thought the child was deceased. In certain states, the law is more likely to grant the child a share of the estate.

Actor Hugh O’Brien did not provide for his children, who were living when his trust was executed. His children argued that he did not know of their existence, and had he known, he would have provided for them. His will included a general disinheritance provision that read “I am intentionally not providing for … any other person who claims to be a descendant or heir of mine under any circumstances and without regard to the nature of any evidence which may indicate status as a descendant or heir.”

The Appellate Court ruled against the children’s appeal for two reasons. One, the decedent must have been unaware of the child’s birth or mistaken about the child’s death, and two, must have failed to have provided for the unknown child solely because of a lack of awareness. The court found that his reason to omit them from his will was not “solely” because he did not know of their existence, but because he had no intention of giving them a share of his estate.

In this case, the general disinheritance provision defeated the claim by the children, since their claim did not meet the two standards that would have supported their claim.

This is another example of how an experienced estate planning attorney creates documents to withstand challenges from unintended outcomes. A last will and testament is created to defend the estate and the decedent’s wishes.

Reference: Lake County News (Aug. 22, 2020) “Estate Planning: Disinherited and omitted children”

Suggested Key Terms: Estate Planning Attorney, Disinheritance, Omitted, Decedent, Will, Trust, Appellate Court, Unknown Child, Last Will and Testament, Appeal

cryptocurrency in estate planning

How Do I Incorporate Cryptocurrency into My Estate Planning?

Planning for cryptocurrency has been neglected. It means that, in some cases, the cryptocurrency has been lost. There have been people who tossed their computer hard drives with thousands of bitcoins (now worth millions). They then spend days sifting through tons of garbage. To save your family from this trouble and embarrassment after you die, add your cryptocurrency into your estate plan to preserve the benefits and avoid the risks of cryptocurrency.

Wealth Advisor’s recent article entitled “Estate Planning When You Own Cryptocurrency” says, first, you must preserve the benefits of your cryptocurrency.

Cryptocurrency is highly secure. However, that security is in danger, if the private key is carelessly recorded or discarded. With the private key, anyone can access the cryptocurrency. As a result, your planning and procedures must address how to secure this information. Just like cash, cryptocurrency isn’t traceable. In fact, there’s no electronic or paper trail connecting the parties in a transaction involving cryptocurrency. Therefore, in order to preserve that privacy, you’ll need to plan so the other documentation in the transaction doesn’t reveal these identities, or at least keep that information privileged. Remember that transferring cryptocurrency takes only seconds.

Because cryptocurrency, like precious metals and other commodities, can fluctuate wildly in value even during the course of a day, it must be treated like stock in a private company and other assets that are volatile in nature. Cryptocurrency also isn’t subject to government regulation, so no government is responsible for losses from fraud, theft or other malfeasance.

Trusts and other planning devices have a tough time with cryptocurrency, especially if the Prudent Investor Rule applies. Without specific language, the trust won’t be capable of holding cryptocurrency. If that language is written too broadly, the trustee may be exempt from damages due to willful neglect.

Cryptocurrency is also taxed as property not as currency by the IRS, which means that the fair market value is set by conversion into U.S. dollars at “a reasonable exchange rate” and transactions involving cryptocurrency are subject to the capital gains tax regulations. As a result, you must have specific tax provisions in trusts, partnerships, LLCs, and other entities. Therefore, if you, or your business, own bitcoin or any other cryptocurrency, your estate, business succession, and financial plans need to address it specifically. Ask an experienced estate planning attorney for help.

Reference:  Wealth Advisor (August 4, 2020) “Estate Planning When You Own Cryptocurrency”

trust funding

That Last Step: Trust Funding

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

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

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

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

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

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

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

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

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

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