How to Help Create an Estate Plan

We all have assets that need to go to someone when we die. Without an estate plan, the decision as to who gets your assets is left to state law, explains Money Talks News’ recent article entitled “Why Everyone Needs an Estate Plan.”

You don’t have to delay until you’re gray to get an estate plan in place. Estate planning can benefit you at any age. No one can predict the future, and if the unexpected occurs and you pass at a young age, an estate plan can designate who will get guardianship of your minor children or the pets you leave behind.

Hiring an experienced estate planning attorney who can write up the necessary legal documents may be smart when you decide to put together an estate plan. You can also take these steps to put your estate plan in place.

  1. Make an inventory of your assets — list your tangible and intangible assets and their estimated value. Tangible assets include your home or other real estate holdings, vehicles, fine jewelry and collectibles. Intangible assets are things such as your bank account, life insurance policies, retirement accounts, investments (stocks, bonds, and mutual funds) and businesses you own.
  2. Review your beneficiaries — make certain your retirement account and life insurance policies have designated beneficiaries and the information is up to date.
  3. Review the estate tax and inheritance tax laws in your state.
  4. Review your estate plan regularly — things in your life may change, so you should reassess your estate plan when these changes happen. Life events, such as marriage, divorce, having a child, losing a loved one, or getting a new job, are all good times to take another scan of your estate plan.

Failing to have an estate plan can cause a lot of stress for your family. They can be torn apart in disputes over the division of assets after a loved one dies.

Life is full of unknowns, so whether you’re a young parent or a senior, having an estate plan in place to carry out your wishes after you die will lessen the burden on those you love and give them time to grieve.

Reference: Money Talks News (Oct. 21, 2022) “Why Everyone Needs an Estate Plan”

What Is a Digital Asset for Estate Planning?

Most of us don’t even realize just how much of our life is lived online, from streaming services and banking to apps to monitor our front door. All of these online accounts are digital assets and need to be included in estate plans says a recent article, “Estate planning and online accounts,” from American Legion.

Start by making a complete list of all of your online accounts, together with information about each account. Your list should include username, password, account number and a description of what each account includes. If you change passwords frequently, as recommended by cybersecurity experts, you’ll need to update your inventory every time.

Digital assets fall into four major types: personal, business, financial and social media. Personal accounts including emails, photos, videos, music and apps used on smart phones or tablets. This information is typically backed up on a computer hard drive or cloud-based storage account.

Financial assets include savings and checking accounts, retirement accounts, investment accounts, utility accounts and shopping and frequent flyer accounts. If you do banking or investing online, or if you own cryptocurrency, you’ll want to include these accounts.

Business related accounts include intellectual property, websites or blogs, written work, photos, videos, musical compositions and software. If your side gig includes selling items on eBay or Esty or similar websites, this information also needs to be included in your digital asset inventory.

Social media accounts include well-known platforms like Facebook, LinkedIn, Twitter, Snapchat, WhatsApp and any other platform where you are actively engaged. Gaming sites, e-sports and gambling sites should also be included.

Storage and protection is the second part of a digital estate plan. This involves saving the list and backing up important files and account information. The inventory itself needs to be secured, as it could easily be used to access your identity and steal your entire online life. The inventory can be as simple as a list on a pad of paper, stored in a secure location. If it is stored in a digital manner, make sure it is encrypted. There are programs to store and encrypt passwords. However, they are only as good as the software used to create them.

Saving the information on a desktop, laptop or tablet is risky, since these devices are hacked and contents are compromised fairly often. An external thumb drive might work. However, what if it was lost?

Select a digital executor and discuss your digital assets with them. Many states have now passed laws governing digital assets. Speak with an experienced estate planning attorney to learn if yours is among them. On some platforms, the executor needs to have been named in advance as a legacy contact before they are legally permitted to access the digital asset. In many cases, having the user’s name and password doesn’t give the executor a legal right to access the accounts according to the Terms of Service Agreement (TOSA) between the user and the platform.

Your estate plan should include a letter of instruction to the digital executor to tell them specifically what you wish to happen to your online accounts and digital assets. It should include recommendations for the distribution of various accounts, assets, files and information to heirs. It may be needed to prove your wishes or directives for digital assets, if there should be a challenge to the executor.

Digital estate planning is a new and changing area of the law. Making provisions for your digital estate will make it possible for your executor to protect your digital assets, as much as a traditional estate plan protects traditional, tangible property.

Reference: American Legion (Dec. 13, 2022) “Estate planning and online accounts

Should Each Child Get Equal Inheritance?

Every estate planning attorney has conversations with their clients about how adult children should inherit. While most people assume siblings should all inherit equally, in many situations, equal is not always appropriate. There are many situations where an equal inheritance might be unfair, says a recent article, “How Should Your Children Inherit? 4 Scenarios Where ‘Equal’ Is Not Appropriate,” from Kiplinger.

The Caretaker Child Lives With the Parent. When one of the children lives with the parent and has taken on most, if not all, of the responsibilities, it may be fair to treat the child differently than siblings who are not involved with the parent’s care. Taking care of paying bills, coordinating health care appointments, driving the parent to appointments and being involved with end-of-life care is a lot of responsibility. It may be fair to leave this child the family home or leave the home to a trust for the child for their lifetime. The parent may wish to leave the caretaking child a larger portion of the inheritance to recognize the additional help they provided.

A Special Needs Child. If the parent has been the primary caregiver for a special needs child, the estate plan must take this into consideration to ensure the child will be properly cared for after the parents die or are unable to care for the child. Depending on what government benefits the child receives, this usually means the parents need to have a Special Needs Trust or Supplemental Needs Trust created. Most government benefits are means-tested. To remain eligible, recipients may not have more than a certain amount of personal assets. The Special Needs or Supplemental Needs trust could receive more or less than an equal amount of the estate the child would have inherited.

In this scenario, siblings are generally understanding. The siblings often know they will be the ones caring for the family member with special needs when the parents can no longer provide care and welcome the help of an elder law estate planning attorney to plan for their sibling’s future.

An Adult Child With Problems. It’s usually not a good idea to leave an equal portion of an inheritance to an adult child who suffers from mental illness, substance abuse, is going through a divorce or has a life-long history of making bad choices. Putting the money into a trust with a non-family member serving as a trustee and strict directions for when and how much money may be distributed may be a better option. In some cases, disinheriting a child is the unpleasant but only realistic alternative.

Wealth Disparities Among the Siblings. When one child has been financially successful and another struggles, it’s fair to bequeath different amounts. However, wealth can change over a lifetime, so review the estate plan and the wealth distribution on a regular basis.

How To Decide What Will Work For Your Family? Every family is different, and every family has different dynamics. Have open and honest discussions with your estate planning attorney, so they can help you plan for your family’s situation. If possible, the same frank discussion should take place with adult children, so no one is taken by surprise at a time when they will be grieving a loss.

Reference: Kiplinger (Dec. 18, 2022) “How Should Your Children Inherit? 4 Scenarios Where ‘Equal’ Is Not Appropriate”

What Is Included in an Estate Inventory?

The executor’s job includes gathering all of the assets, determining the value and ownership of real estate, securities, bank accounts and any other assets and filing a formal inventory with the probate court. Every state has its own rules, forms and deadline for the process, says a recent article from yahoo! Finance titled “What Do I Need to Do to Prepare an Estate Inventory for Probate,” which recommends contacting a local estate planning attorney to get it right.

The inventory is used to determine the overall value of the estate. It’s also used to determine whether the estate is solvent, when compared to any claims of creditors for taxes, mortgages, or other debts. The inventory will also be used to calculate any estate or inheritance taxes owed by the estate to the state or federal government.

What is an estate asset? Anything anyone owned at the time of their death is the short answer. This includes:

  • Real estate: houses, condos, apartments, investment properties
  • Financial accounts: checking, savings, money market accounts
  • Investments: brokerage accounts, certificates of deposits, stocks, bonds
  • Retirement accounts: 401(k)s, HSAs, traditional IRAs, Roth IRAs, pensions
  • Wages: Unpaid wages, unpaid commissions, un-exercised stock options
  • Insurance policies: life insurance or annuities
  • Vehicles: cars, trucks, motorcycles, boats
  • Business interests: any business holdings or partnerships
  • Debts/judgments: any personal loans to people or money received through court judgments

Preparing an inventory for probate may take some time. If the decedent hasn’t created an inventory and shared it with the executor, which would be the ideal situation, the executor may spend a great deal of time searching through desk drawers and filing cabinets and going through the mail for paper financial statements, if they exist.

If the estate includes real property owned in several states, this process becomes even more complex, as each state will require a separate probate process.

The court will not accept a simple list of items. For example, an inventory entry for real property will need to include the address, legal description of the property, copy of the deed and a fair market appraisal of the property by a professional appraiser.

Once all the assets are identified, the executor may need to use a state-specific inventory form for probate inventories. When completed, the executor files it with the probate court. An experienced estate planning attorney will be familiar with the process and be able to speed the process along without the learning curve needed by an inexperienced layperson.

Deadlines for filing the inventory also vary by state. Some probate judges may allow extensions, while other may not.

The executor has a fiduciary responsibility to the beneficiaries of the estate to file the inventory without delay. The executor is also responsible for paying off any debts or taxes and overseeing the distribution of any remaining assets to beneficiaries. It’s a large task, and one that will benefit from the help of an experienced estate planning attorney.

Reference: yahoo! finance (Dec. 3, 2022) “What Do I Need to Do to Prepare an Estate Inventory for Probate”

What Exactly Does an Executor Do?

The executor is usually a spouse, close family member or trusted friend. If no such person is available, a qualified compensated person can be appointed under state law, according to a recent article from The Street entitled “Top Duties of an Estate Executor and How to Carry Them Out.”

The executor needs to be trustworthy and organized, since there are many details involved. Depending on the complexity and size of the estate, the executor’s duties could include additional tasks. However, the following are the five main categories:

  • Filing the will with the court
  • Gathering documents
  • Paying debts and taxes and collecting from any debtors
  • Closing out Social Security accounts, insurance policies and retirement accounts; and
  • Maintaining any real estate property, until it is sold or ownership is transferred to an heir.

Once the will is filed with the court and the will is deemed to be valid, the court will issue Letters Testamentary, and the executor will be empowered to go forward with their tasks as directed by the will.

Gathering documents.

The executor needs to gather documents, including:

  • Death certificates
  • Deeds and titles of ownership
  • Trust documents; and
  • Insurance policies.

Combine assets and close accounts.

The executor needs to contact the decedent’s banks, credit card companies, lenders, leasing companies and any accounts holding assets.

The executor also applies to the IRS for an estate tax ID number, also known as an EIN, and opens an estate bank account. This is where any assets are deposited, including proceeds from the sale of any assets.

The Social Security Administration needs to be notified of the death. Depending on the date of death, the last Social Security deposit may be recouped from the decedent’s bank account. If there is an eligible survivor, the executor may help the spouse or dependent apply for benefits.

Collect money owed and pay debts.

The executor may help beneficiaries file for life insurance proceeds.

The executor needs to examine and adjudicate any outstanding debts owed to the decedent and handle any creditor claims. The debts are not the financial responsibility of the executor and should be paid only from funds in the estate account.

With good planning, the executor can ensure an orderly and uncontested flow of assets from the deceased’s estate to heirs. This includes consultation with the testator while they are still living and can discuss their wishes and plan for a smooth transition. This is certainly not the most comfortable discussion. However, it can make the process easier for all concerned, if done with kindness and care in advance.

Reference: The Street (Dec. 5, 2022) “Top Duties of an Estate Executor and How to Carry Them Out”

Do I Need to Name a Life Insurance Beneficiary?

When a loved one dies, there are questions to address, such as how to pay for a funeral and other death expenses. A life insurance policy may help. However, the deceased must have made sure the proper beneficiary is named.

If a beneficiary isn’t designated, some issues with the estate could arise, or the policy could go to the decedent’s estate. Likewise, the same is true if the one beneficiary preceded the decedent in death.

Yahoo Finance’s recent article entitled “What Happens If I Don’t Name a Life Insurance Beneficiary?” explains that a life insurance policy is a contract you enter into with a life insurance company.

When you set up your life insurance policy, you have the right to name one or more beneficiaries who’ll get the proceeds of the policy when you die. You pay premiums on the policy until your death, to guarantee your beneficiaries that right.

You might designate just one beneficiary to receive all the proceeds. In addition to the primary beneficiary, you can name contingent beneficiaries who will receive the proceeds of the policy if the primary beneficiary predeceases the policyholder.

It is important to add as much identifying information about your beneficiaries as possible, so they can be easily identified. It’s also important to keep your policy up to date on the information of your beneficiaries.

If there are no beneficiaries living, either the proceeds of the policy will enter the probate process, or the life insurance proceeds will pass to the decedent’s heirs-at-law who are those people who are close to the decedent and would probably inherit, if there was a beneficiary designation or will.

Heirs-at-law are also defined as those people who will inherit your assets, if you die intestate.

Dying without a beneficiary in place or leaving your estate as beneficiary of your policy have different rules in each state.

Ask an experienced estate planning attorney about your state’s rules and the rules of the life insurance company when you’re setting up your life insurance policy and will.

Reference: Yahoo Finance (Dec. 10, 2022) “What Happens If I Don’t Name a Life Insurance Beneficiary?”

Can I Contest Dad’s Will While He’s Still Living?

The Maryland Daily Record’s recent article entitled “Wills cannot be challenged until testator dies, Md. appeals court says” explains the Court of Special Appeals said a will or revocable trust is only a draft document until its drafter, or testator, has died.

As a result, those challenging a living person’s will or trust would be merely “presumptive heirs” who have no legal standing to challenge a legal document that’s not yet final.

“Pre-death challenges to wills may be a waste of time – the testator might replace it with a new one, die without property, or the challenger might die before the testator,” Judge Andrea M. Leahy wrote for the Court of Special Appeals.

The appellate court’s decision was the second defeat for Amy Silverstone, whose legal challenge to her mother Andrea Jacobson’s will was dismissed by a Montgomery County Circuit Court judge for lack of standing.

Silverstone argued that it should be declared void based on her claim that her aunt unduly influenced her mother. The mother suffers from dementia and memory impairment.

This undue influence led Silverstone’s mother, Andrea Jacobson, to change her will in 2018 to expressly “disinherit” Silverstone and her son, Silverstone alleged.

The mother’s new will stated that Silverstone and her son shall not “in any way be a beneficiary of or receive any portion of the trust or the grantor’s estate.”

The disinheritance came amid a falling out between mother and daughter, according to court documents.

Silverstone’s challenge to the will and related trust is premature while her mother is alive, the court held.

Reference: The Maryland Daily Record (Dec. 12, 2022) “Wills cannot be challenged until testator dies, Md. appeals court says”

When Is a Family Limited Partnership Needed?

Being able to transfer wealth from one generation to the next is a good thing, especially now, when a big change is coming to the federal estate tax exemption amount, says a recent article titled “The Pros and Cons of Family Limited Partnerships” from The Wall Street Journal.

In 2022, estates valued at up to $12.06 million are exempt from federal taxes. However, on January 1, 2026, the exemption sinks to around $6 million, with adjustments for inflation. As a result, wealthy Americans are now re-evaluating their estate plans and many are turning to the Family Limited Partnership, or FLP, as a tax saving strategy.

An FLP can be tailored to suit every family’s needs. You don’t have to be ultra-wealthy for an FLP to make sense. An upper-middle class family owning a small business or real estate properties they’re not ready to sell could make good use of an FLP, as well as a real estate mogul owning properties in multiple states.

There are some caveats. The cost of setting up an FLP ranges from $8,000 to $15,000. However, it can go higher depending on the state of residence and the complexity of the partnership. There are annual operating costs, tax filings and appraisal fees. The IRS isn’t always fond of FLPs, because there is an institutional belief that FLPs are subject to abuse.

The FLP needs to be drafted with an experienced estate planning attorney, working in consultation with a CPA and financial advisor. This is definitely not a Do-It-Yourself project.

What makes these partnerships different from traditional limited partnerships is that all partners are family members. There are two kinds of partners: general and limited. The parents or grandparents are usually the general partners. They contribute the bulk of the assets, typically a small business, stock portfolio or real estate. Children are limited partners, with interests in the partnership.

The general partners control all of the investment and management decisions and bear the partnership liability, even though their ownership of assets can be as little as 1% or 2%. They make the day-to-day business decisions, including funds allocation and income distribution. The ability of the general partner to maintain control of the transferred assets is one of the FLP’s biggest advantage. The FLP reduces the taxable estate, while maintaining control of the assets.

Once the entity is created, assets can be transferred to the FLP immediately or over time, depending on the family’s plan. The overall goal is to get as much of the property out of the general partners’ taxable estate as possible. Assets in the FLP are divided and gifted to limited partners, although this is often a gift to a trust for the limited partners, who are the general partners’ descendants. Placing the assets in a trust adds another layer of protection, since the gift remains outside of the limited partner’s taxable estate as well.

To avoid a challenge by the IRS, the partnership must be conducted as a business entity. Meetings need to be scheduled regularly, with formal meeting minutes recorded properly. General partners are to be compensated for their services, and limited partners must pay taxes on their share of income from the partnership. The involvement of professionals in the FLP is needed to be sure the FLP remains compliant with IRS rules.

An alternative is to create a Family Limited Liability Company instead of a Family Limited Partnership. These can be created to operate much like an FLP, while also protecting partners from liability.

Partnerships are not for everyone. Your estate planning attorney will advise regarding whether an FLP or an FLLC makes more sense for your family.

Reference: The Wall Street Journal (Dec. 3, 2022) “The Pros and Cons of Family Limited Partnerships”

What’s Is the Best Way to Give to Charity?

Charitable giving plays a valuable role in estate and tax planning. A well-planned donation can also provide a healthy income tax deduction, along with a reduction of estate taxes. Your generous donation could help to maintain financial security, exert control over assets during life and after death and provide for heirs, as explained in a recent article titled “Charitable giving good for heart, 1040” from the Valdosta Daily Times.

To accomplish any of these objectives, you’ll want to work with an experienced estate planning attorney who can help tailor an estate plan to your individual circumstances. Here are some strategies to consider.

Gifts of appreciated property might allow you to avoid capital gains tax owed when the asset is sold and, if planned properly, might allow you to receive an income tax deduction, usually worth the fair market value of the asset.

Removing any assets from your estate reduces the potential estate tax liability.

If you want to make a donation to a charity but you’d like to maintain some control over it, a Charitable Remainder Trust (CRT) might be a good fit. A CRT works best when funded by an appreciated asset, such as real estate or stock in a family owned business.

Once the property is transferred to the CRT, the CRT can sell the appreciated assets it holds without paying capital gains taxes. It then continues to provide income generated by the CRT to the beneficiaries for a period of time, as instructed by the CRT. At the end of this period, the remainder of the CRT is donated to the charity. You avoid capital gains on the assets you donated, an income stream and you also receive a tax deduction.

Another strategy is to use a Charitable Lead Trust or CLT. With a CLT, you give the charity the use of the asset and the right to any income generated for a predetermined time. When the time period ends, the asset reverts to you or is given to whoever you designate in the CLT. Appropriate assets for a CLT could be income-producing stocks and bonds, a valued collection or a painting transferred to a museum for a certain period of time.

You likely receive a current income tax deduction for the value to the charity. However, you receive no other direct benefit during the term. If a CLT is created upon your death, estate tax liability could be reduced.

Early tax planning can help make the most of any charitable giving opportunities and let you take full advantage of any additional benefits. Talk with an experienced estate planning attorney to receive guidance appropriate to your unique situation.

Reference: Valdosta Daily Times (Dec. 4, 2022)  “Charitable giving good for heart, 1040”

How Do You Stop a Sibling from Stealing an Inheritance?

If the parent does not have a will, there may be questions about which sibling should inherit what. This gets complicated fast. State law can define siblings’ rights after parents’ deaths, explains a recent article from yahoo!, “Can a Sibling Take Your Inheritance?”

An estate planning attorney can be a valuable resource, regardless of the size of the estate.

When a parent dies and there are multiple siblings, what they can inherit depends on a few factors:

  • Did the parent leave behind a will or were trusts created?
  • Is there a surviving spouse who can inherit?
  • What are the state’s inheritance laws?

For the most part, state inheritance laws give precedence to a surviving spouse ahead of any children. Some states grant children the legal right to inherit from a parent’s estate, even if they were not included in the will. However, most states allow parents to exclude children from their will, which can block them from inheriting anything.

How does a will determine siblings’ rights after the death of a parent? The will lets the person making the will specify how they want their assets to be distributed upon their death. The will, once deemed valid by the court, serves as the basis for dividing the estate.

If both parents died at the same time their estate would be divided among siblings according to the terms of the will. There are a few different ways this is done.

  • One child inherits the house and the contents, while the other siblings divide any remaining assets in the estate.
  • The executor sells the home and contents then splits the proceeds of the sale among siblings.
  • Each sibling receives specific property or assets from the estate
  • One child receives the entire contents of the estate, to the exclusion of others.

Estate planning becomes more complex when there are children from multiple marriages with different parents. Whether or not half-siblings receive the same inheritance as full siblings depends on state law.

If there is no will, state inheritance laws generally rely on a kinship order. In New York State, the first $50,000 in assets plus half of the remaining assets go to the surviving spouse first. The remainder is then distributed among any bloodline children.

Are siblings entitled to see the contents of wills or trusts? If they are beneficiaries, most states will permit a viewing of the will or trust documents. However, if someone is not listed in the will or a trust as a beneficiary, they don’t have an automatic right to review these documents.

If a sibling doesn’t agree with the terms of a will, or the distribution of assets, they could challenge a will in probate court. They can also petition the court to ask for a larger share of the estate. For instance, if one sibling was the primary caregiver for many years, providing financial and health care support, they would ask the court to take this into consideration.

An estate battle based on the distribution of property by a deceased parent can be avoided by having good communication between parents and siblings about the parent’s estate plan and their wishes. An experienced estate planning attorney creates plans for families to address their unique issues, and this can preclude sibling rivalry, which can sometimes get worse, not better, as the years go by.

Reference: yahoo! (November 30, 2022) “Can a Sibling Take Your Inheritance?”