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Can You Refuse an Inheritance?

No one can be forced to accept an inheritance they don’t want. However, what happens to the inheritance after they reject, or “disclaim” the inheritance depends on a number of things, says the recent article “Estate Planning: Disclaimers” from NWI Times.

A disclaimer is a legal document used to disclaim the property. To be valid, the disclaimer must be irrevocable, in writing and executed within nine months of the death of the decedent. You can’t have accepted any of the assets or received any of the benefits of the assets and then change your mind later on.

Once you accept an inheritance, it’s yours. If you know you intend to disclaim the inheritance, have an estate planning attorney create the disclaimer to protect yourself.

If the disclaimer is valid and properly prepared, you simply won’t receive the inheritance. It may or may not go to the decedent’s children.

After a valid qualified disclaimer has been executed and submitted, you as the “disclaimor” are treated as if you died before the decedent. Whoever receives the inheritance instead depends upon what the last will or trust provides, or the intestate laws of the state where the decedent lived.

In most cases, the last will or trust has instructions in the case of an heir disclaiming. It may have been written to give the disclaimed property to the children of the disclaimor, or go to someone else or be given to a charity. It all depends on how the will or trust was prepared.

Once you disclaim an inheritance, it’s permanent and you can’t ask for it to be given to you. If you fail to execute the disclaimer after the nine-month period, the disclaimer is considered invalid. The disclaimed property might then be treated as a gift, not an inheritance, which could have an impact on your tax liability.

If you execute a non-qualified disclaimer relating to a $100,000 inheritance and it ends up going to your offspring, you may have inadvertently given them a gift according to the IRS. You’ll then need to know who needs to report the gift and what, if any, taxes are due on the gift.

Persons with Special Needs who receive means-tested government benefits should never accept an inheritance, since they can lose eligibility for benefits.

A Special Needs Trust might be able to receive an inheritance, but there are limitations regarding how much can be accepted. An estate planning attorney will need to be consulted to ensure that the person with Special Needs will not have their benefits jeopardized by an inheritance.

The high level of federal exemption for estates has led to fewer disclaimers than in the past, but in a few short years—January 1, 2026—the exemption will drop down to a much lower level, and it’s likely inheritance disclaimers will return.

Reference: NWI Times (Nov. 14, 2021) “Estate Planning: Disclaimers”

How Do I Stop Heirs from Foolishly Wasting Inheritance?

This is a problem solved by a trust—a “spendthrift” trust. With a spendthrift provision in a testamentary trust created under a will or an inheritance trust created under a revocable living trust, the trustee makes all decisions about distributions. This can be an effective means of controlling the flow of money.

A spendthrift trust, according to the article “Possible to spendthrift-proof a trust” from Record Courier, is created for the benefit and protection of a financially irresponsible person.

For a spendthrift trust, it may be better not to choose a family member or trusted friend to serve as the trustee. Such person might not live long enough or have the capacity to serve as trustee for as long as required, especially if the heir is a young adult. Conflicts among family members are common, when money is involved. An independent and well-established trust company or bank may be a better choice as a trustee. Large estates often go this route, since their services can be expensive. However, some retail banks do have a private wealth division. All options need to be explored.

Another benefit to a spendthrift trust—funds are protected against current or future creditors of the beneficiary. Let’s say a parent wants to leave money to a child, but knows the child has credit card debt already. Unless they are co-signers, the parent and their estate do not have a duty to pay an adult child’s debts. The spendthrift trust will not be accessible to the credit card company.

It is difficult to set up a spendthrift trust to protect one’s own money from creditors. This is something that must be approached only with an experienced estate planning attorney. This is because the rules are complex and there are significant limitations. If you wanted to create a spendthrift trust for yourself, you would have to completely give over control of assets to the trustee. There is no way to predict whether a court will consider the person to have relinquished enough control to make the trust valid.

This type of spendthrift trust may not be created with an intent to defraud, delay or hinder creditors. Doing so may make the trust invalid and any possible protection will be lost.

A spendthrift provision in a will is a clause used to protect a beneficiary from a creditor attaching prior debts against the beneficiary’s future inheritance. This means that the creditor may not force an heir or the estate’s executor to pay the beneficiary’s inheritance to the creditor, instead of the beneficiary. It also prevents the beneficiary from procuring a debt based on a future inheritance.

It is important to be aware that a spendthrift provision in a will or a spendthrift trust has limitations. The assets are only protected when they are in the trust or in the estate. Once a distribution is received, creditors can seek payment from the assets owned by the beneficiary.

Another qualifying factor: the spendthrift provision in the will must prevent both the voluntary and involuntary transfer of a beneficiary’s interest. The beneficiary may not transfer their interest to someone else.

The spendthrift trust and clause are mainly intended to protect a beneficiary’s interests from present and future creditors. They are not valid if their intent is to defraud others and may not be created to avoid paying any IRS debts.

Reference: Record Courier (July 10, 2021) “Possible to spendthrift-proof a trust”

What Happens If You Inherit a House with a Mortgage?

Nothing in life is certain, except death and taxes, says the old adage. The same could be said about mortgages. Did you know that the word “mortgage” is taken from a French term meaning “death pledge?” A recent article titled “What happens to your mortgage when you die?” from bankrate.com explains the options for homeowners who wonder what might happen to their home, mortgage and loved ones, after they die.

When a homeowner dies, their mortgage lives on. The mortgage lender still needs to be repaid, or the lender could foreclose on the home when payments stop, regardless of the reason. The same is true if there are outstanding home equity loans or lines of credit attached to the property.

If there is a co-borrower or co-signer, the other person must continue making payments on the mortgage. If there is no co-signer, the executor of the estate is responsible for making mortgage payments from estate assets.

If the home is left to an heir through a will, it’s up to the heir to decide what to do with the home and the mortgage. If the lender and the terms of the mortgage allow it, the heir can assume the mortgage and make payments. The heir might also arrange for the property to be sold.

A sole heir should reach out to the mortgage company and discuss their options, after conferring with the family’s estate planning attorney. To assume the loan, the mortgage must be transferred to the heir. If the property is sold, proceeds from the sale are used to pay off the loan.

Heirs do not need to requalify for the mortgage on a loan they inherited. This can be a good opportunity for someone with bad credit to repair that credit, if they can stay current on the mortgage. If the heir wants to change the terms of the mortgage, they will need to qualify for a new loan and meet all of the lending institution’s eligibility requirements.

Proof that a person is the rightful inheritor of the property or executor of the estate may be required. The mortgage lender will typically have a process to specify what documents are needed. If the lender is not cooperative or balks at any requests, the estate planning attorney will be able to help.

If you own a home, it is very important to plan for the future and that includes making decisions about what you want to happen to your home, if you are too ill to manage your affairs or for when you die. You’ll need to document your wishes,

Reference: Bankrate.com (July 9, 2021) “What happens to your mortgage when you die?”

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?”

Tackling Estate Plan Quarter by Quarter

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

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

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

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

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

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

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

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

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

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?”

Estate Planning Meets Tax Planning

Not keeping a close eye on tax implications, often costs families tens of thousands of dollars or more, according to a recent article from Forbes, “Who Gets What—A Guide To Tax-Savvy Charitable Bequests.” The smartest solution for donations or inheritances is to consider your wishes, then use a laser-focus on the tax implications to each future recipient.

After the SECURE Act destroyed the stretch IRA strategy, heirs now have to pay income taxes on the IRA they receive within ten years of your passing. An inherited Roth IRA has an advantage in that it can continue to grow for ten more years after your death, and then be withdrawn tax free. After-tax dollars and life insurance proceeds are generally not subject to income taxes. However, all of these different inheritances will have tax consequences for your beneficiary.

What if your beneficiary is a tax-exempt charity?

Charities recognized by the IRS as being tax exempt don’t care what form your donation takes. They don’t have to pay taxes on any donations. Bequests of traditional IRAs, Roth IRAs, after-tax dollars, or life insurance are all equally welcome.

However, your heirs will face different tax implications, depending upon the type of assets they receive.

Let’s say you want to leave $100,000 to charity after you and your spouse die. You both have traditional IRAs and some after-tax dollars. For this example, let’s say your child is in the 24% tax bracket. Most estate plans instruct charitable bequests be made from after-tax funds, which are usually in the will or given through a revocable trust. Remember, your will cannot control the disposition of the IRAs or retirement plans, unless it is the designated beneficiary.

By naming a charity as a beneficiary in a will or trust, the money will be after-tax. The charity gets $100,000.

If you leave $100,000 to the charity through a traditional IRA and/or your retirement plan beneficiary designation, the charity still gets $100,000.

If your heirs received that amount, they’d have to pay taxes on it—in this example, $24,000. If they live in a state that taxes inherited IRAs or if they are in a higher tax bracket, their share of the $100,000 is even less. However, you have options.

Here’s one way to accomplish this. Let’s say you leave $100,000 to charity through your IRA beneficiary designations and $100,000 to your heirs through a will or revocable trust. The charity receives $100,000 and pays no tax. Your heirs also receive $100,000 and pay no federal tax.

A simple switch of who gets what saves your heirs $24,000 in taxes. That’s a welcome savings for your heirs, while the charity receives the same amount you wanted.

When considering who gets what in your estate plan, consider how the bequests are being given and what the tax implications will be. Talk with your estate planning attorney about structuring your estate plan with an eye to tax planning.

Reference: Forbes (Jan. 26, 2021) “Who Gets What—A Guide To Tax-Savvy Charitable Bequests”

estate plan

Despite Pandemic, Many Still Don’t Have an Estate Plan

It’s true—many people still believe that they don’t have enough assets so they don’t need a will, or that their money will automatically go to a next of kin. Both of these beliefs are wrong. While the title of this CNBC article is “More people are creating wills amid the pandemic,” the story’s focus is on the fact that most Americans don’t have a will. If you belong to this group, here’s what happens when you die.

The state you live in has laws about who will receive your assets if you die without a will, known as intestacy. Let’s say you live in New York. Your surviving spouse and children will receive your assets. However, in Texas, your assets will be entered into the state’s intestacy probate process, and your relatives will divide up your assets. Want to be in charge of who inherits your property? Have a will created with an experienced estate attorney.

Young adults think they don’t need a will, but Covid-19 has taken the lives of many healthy, young people. Every adult over age 18 needs a will. If you don’t have one, your loved ones—even if it’s your parents—will inherit a legal mess that will take time and money to fix.

If you have children and no will, there’s no way to be sure who will raise your children. The court will decide. Choose your guardians, name them in your will and be sure to name additional choices just in case the first guardian can’t or won’t serve. You should also appoint someone to be in charge of your children’s money.

What if you had a will created 10 or twenty years ago? That’s another big mistake. Your life changes, the law changes, and so do relationships. Life insurance policies, retirement plans, and transfer-on-death instruments are all legally binding contracts. The last will you made will be used, and if you haven’t updated your will or other documents, then the old decisions will stand. Remember that contracts supersede wills, so no matter how much you don’t want your ex to receive your life insurance proceeds, failing to change that designation won’t help your second spouse. You should review and update all documents.

Doing it yourself is risky. You won’t know if your will is valid and enforceable, if you do it from an online template. Your heirs will have to fix things, which can be expensive. The cost of an estate plan depends on the complexity of your situation. You may only need a will, power of attorney and advance directive. You may also need trusts to pass property along with minimal taxes. An estate planning attorney will be able to give you an idea of how much your estate plan will cost.

Talking about death and planning for it is a difficult topic for everyone, but a well-planned estate plan is one of the most thoughtful gifts you can give to your loved ones.

Reference: CNBC (Oct. 5, 2020) “More people are creating wills amid the pandemic”

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”

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