How Do I Do the Most with My Inheritance?

Studies have shown that when people unexpectedly come into money, they’ll treat it differently than the money they’ve earned.

Forbes’ recent article entitled “5 Important Steps To Maximize An Inheritance” says that even the most financially astute consumers can get inundated with their newfound wealth. People can feel pressure to use the cash to purchase new vehicles, bigger homes, or even take their families on dream vacations. Others may feel that they can safely quit their jobs and live the life of luxury.

Many people regret jumping into major purchases after getting an inheritance. Others will give away much of the money or even make bad investments that are completely wrong for their goals and financial needs. If you don’t get expert financial guidance to develop a plan for your inheritance, or take the time to do it yourself, you may find yourself worse off than you were before you became wealthier via an inheritance.

Here are some financial planning tips for anyone who is receiving an inheritance or another windfall.

Do Something Fun. Set aside an amount to splurge on something fun. However, figure out how much you want to spend and on what. Without that, you may find that one small splurge turns into many, and next thing, a big chunk of your inheritance could be spent.

Taxes on Your Inheritance. It’s uncommon for someone to get an inheritance big enough to trigger the federal estate tax. However, estate taxes will vary at the state level, so check with your estate planning attorney. Depending on the type of assets you inherit and how they’re held, you may owe taxes on some of your newfound riches.

Quitting Your Job. This sounds tempting, but before you take this big step, make sure you’ve thought it through and that you have a plan to replace your income. It’s not hard to underestimate how much money you’ll actually need to provide a nice standard of living for the rest of your life.

Take Care of Yourself. When you come into money, you’ll hear from relatives you never knew you had. They’ll all be asking for money. Make sure your own finances are in order, before you commit to take care of others beyond your immediate family.

Consult Experts. An inheritance can be stressful and overwhelming, so talk to an experienced estate planning attorney. He can help with tax filing deadlines and provide strategies to protect that wealth.

Reference: Forbes (Feb. 26, 2020) “5 Important Steps To Maximize An Inheritance”

What are the Main Estate Planning Blunders to Avoid?

There are a few important mistakes that can make an estate plan defective—most of these can be easily avoided by reviewing your estate plan periodically and keeping it up to date.

Investopedia’s article from a few years ago entitled “5 Ways to Mess Up Estate Planning” lists these common blunders:

Not Updating Your Beneficiaries. Big events like a marriage, divorce, birth, adoption and death can all have an effect on who will receive your assets. Be certain that those you want to inherit your property are clearly detailed as such on the proper forms. Whenever you have a life change, update your estate plan, as well as all your financial, retirement accounts and insurance policies.

Forgetting Important Legal Documents. Your will may be just fine, but it won’t exempt your assets from the probate process in most states, if the dollar value of your estate exceeds a certain amount. Some assets are inherently exempt from probate by law, like life insurance, retirement plans and annuities and any financial account that has a transfer on death (TOD) beneficiary listed. You should also make sure that you nominate the guardians of minor children in your will, in the event that something should happen to you and/or your spouse or partner.

Lousy Recordkeeping. There are few things that your family will like less than having to spend a huge amount of time and effort finding, organizing and hunting down all of your assets and belongings without any directions from you on where to look. Create a detailed letter of instruction that tells your executor or executrix where everything is found, along with the names and contact information of everyone with whom they’ll have to work, like your banker, broker, insurance agent, financial planner, etc.. You should also list all of the financial websites you use with your login info, so that your accounts can be conveniently accessed.

Bad Communication. Telling your loved ones that you’ll do one thing with your money or possessions and then failing to make provisions in your plan for that to happen is a sure way to create hard feelings, broken relationships and perhaps litigation. It’s a good idea to compose a letter of explanation that sets out your intentions or tells them why you changed your mind about something. This could help in providing closure or peace of mind (despite the fact that it has no legal authority).

No Estate Plan. While this is about the most obvious mistake in the list, it’s also one of the most common. There are many tales of famous people who lost virtually all of their estates to court fees and legal costs, because they failed to plan.

These are just a few of the common estate planning errors that commonly happen. Make sure they don’t happen to you: talk to a qualified estate planning attorney.

Reference: Investopedia (Sep. 30, 2018) “5 Ways to Mess Up Estate Planning”

Do I Need a Revocable Living Trust?

A revocable living trust is created with a written agreement or declaration that names a trustee to manage and administer the property of the grantor. If you’re a competent adult, you can establish an RLT. As the grantor, or creator of the trust, you can name any competent adult as your trustee, or you can use a bank or a trust company for this role. The grantor can also act as trustee throughout his lifetime.

Investopedia’s article from last fall entitled “Should You Set up a Revocable Living Trust?” explains that after it’s created, you must retitled assets—like investments, bank accounts, and real estate—into the trust. You no longer “own” those assets directly. Instead, they belong to the trust and don’t have to go through probate at your death. However, with a revocable living trust, you retain control of the assets while you’re alive, even though they no longer belong to you directly. A revocable living trust can be changed, and any income earned by the trust’s assets passes to you and is taxable. However, the assets themselves don’t transfer from the trust to your beneficiaries until your death.

Avoiding probate is the big benefit of a living trust, but other benefits like privacy protection and flexibility make it a good choice. A living trust can be used to help control a guardian’s spending habits for the benefit of minor children. It can also instruct another individual to act on your behalf, if you become incapacitated and need someone to make decisions for you. Should you become impaired or disabled, the trust can automatically appoint your trustee to oversee it and your financial affairs without a durable power of attorney.

Although there are several advantages to establishing a revocable living trust, there also some drawbacks:

Expense. Establishing a trust requires legal assistance, which is an expense.

Maintaining Records. Most of the time, you need to monitor it on an annual basis and make adjustments as needed (they don’t automatically adapt to changed circumstances, like a divorce or a new grandchild). There’s the trouble of ensuring that future assets are continuously registered to the trust.

Re-titling Property. When your RLT is established, property must be re-titled in the name of the trust, requiring additional time. Fees can apply to processing title changes.

Minimal Asset Protection. Despite the myth, a revocable living trust offers little asset protection beyond avoiding probate if you retain an ownership interest, such as naming yourself as trustee.

Administrative Expenses. There can also be additional professional fees, such as investment advisory and trustee fees, if you appoint a bank or trust company as the trustee.

There’s No Tax Break. Your assets in the RLT will continue to incur taxes on their gains or income and be subject to creditors and legal action.

Compared to wills, revocable trusts have more privacy, more control and flexibility over asset distribution. With a revocable living trust, you do most of the work up front, making the disposition of your estate easier and faster. However, an RLT requires more effort, and there is an expense in creating and maintaining it.

Work with an experienced estate planning attorney, if you are considering a revocable living trust.

Reference: Investopedia (Oct. 31, 2019) “Should You Set up a Revocable Living Trust?”

What Do Farmers Need to Create an Estate Plan?

Planning for the end of life is intimidating for everyone, but when the plan includes a family business like a farm or ranch, things can get even more challenging. That’s why estate planning, that is, planning for the distribution of assets once you die, is especially important for aging farmers. The details are in the article “How farmers can start an estate plan” from Bangor Daily News.

Death and dying are not easy to talk about, but these conversations are necessary, especially if the family wants to continue as a farming or ranching family. For aging farmers and their families, here are a few tips to demystify the planning process and help get things started.

What are your goals? Think of estate planning as succession planning. This is about making decisions about retirement and handing down a business to the next generation. If you had a regular job, you’d have far less to consider. However, succession planning for a family business owner involves more resources and more people. Having a clear set of goals, makes that transition easier. Add to that list: your fears. What don’t you want to happen? If your children don’t know how much you want them to keep the farm in the family, they may take other actions after you die. Share your goals, hopes and yes, worst case scenarios.

Build a team of professionals. The number of moving pieces in a family farm means you’re going to need a strong team. That includes an estate planning attorney who has worked with other farm families, an accountant, a financial advisor and an insurance professional. Depending on your family’s communication skills, you might even consider bringing a counselor on board.

List out your assets. Don’t assume that anyone in the family knows the value of your assets. That includes deeds to land, titles of ownership for vehicles, information about any property mortgages or loans or leases. If you are leasing land to others, you’ll need the lease agreements as well as property titles. If your lease agreements are based on a handshake, your attorney may request that you formalize them. A verbal agreement may be fine while you are living, but if you should pass and your heirs don’t have the same relationship with your tenant, there could be trouble ahead.

Consider who will be in charge when you are not there. Whether you are planning to work until you die or making a retirement plan, one of the hardest decisions will be to name a successor. Inter-generational politics can be tricky. You’ll need an unbiased evaluation of who the best candidate will be to take things on. However, going into this now is better than hoping for the best. That’s when things go south.

Talk to your estate planning attorney. Just as people should start planning for their retirement as soon as they start working, planning for the transition of the family farm is something that should start when it is years in the future, not when the transition is a few months away. It’s a process that takes a long time to do right.

Reference: Bangor Daily News (March 5, 2020) “How farmers can start an estate plan”

The Coronavirus and Estate Planning

As Americans adjust to a changing public health landscape and historical changes to the economy, certain opportunities in wealth planning are becoming more valuable, according to the article “Impact of COVID-19 on Estate Planning” from The National Law Review. Here is a look at some strategies for estate plans:

Basic estate planning. Now is the time to review current estate planning documents to be sure they are all up to date. That includes wills, trusts, revocable trusts, powers of attorney, beneficiary designations and health care directives. Also be sure that you and family members know where they are located.

Wealth Transfer Strategies. The extreme volatility of financial markets, depressed asset values,and historically low interest rates present opportunities to transfer wealth to intended beneficiaries. Here are a few to consider:

Intra-Family Transactions. In a low interest rate environment, planning techniques involve intra-family transactions where the senior members of the family lend or sell assets to younger family members. The loaned or sold assets only need to appreciate at a rate greater than the interest rate charged. In these cases, the value of the assets remaining in senior family member’s estate will be frozen at the loan/purchase price. The value of the loaned or sold assets will be based on a fair market value valuation, which may include discounts for certain factors. The fair market value of many assets will be extremely depressed and discounted. When asset values rebound, all that appreciation will be outside of the taxable estate and will be held by or for the benefit of your intended beneficiaries, tax free.

Grantor Retained Annuity Trusts (GRATS). The use of a GRAT allows the Grantor to contribute assets into a trust while retaining a right to receive, over a term of years, an annuity steam from the Trust. When the term of years expires, the balance of the Trust’s assets passes to the beneficiaries. The IRS values the ultimate transfer of assets to your intended beneficiaries, based on the value of the annuity stream you retain and an assumed rate of return. The assumed rate of return, known as the 7520 rate comes from the IRS and is currently 1.8%. So, if you retain the right to receive an annuity stream from the trust equal to the value of the assets plus a 1.8% rate of return, assets left in the trust at the end of the term pass to your beneficiaries transfer-tax free.

Charitable Lead Annuity Trusts. Known as “CLATs,” they are similar to a GRAT, where the Grantor transfers assets to a trust and a named charity gets an annuity stream for a set term of years. At the end of that term, the assets in the trust pass to the beneficiaries. You can structure this so the balance of the assets passes to heirs transfer-tax free.

Speak with your estate planning attorney about these and other wealth transfer strategies to learn if they are right for you and your family. And stay well!

Reference: The National Law Journal (March 13, 2020) “Impact of COVID-19 on Estate Planning”

 

Long Term Care Varies, State by State

What if your parents live in Oklahoma, you live in Nebraska and your brothers and sisters live in New York and California? Having the important conversation with your aging parents about what the future might hold if one of them should need long-term care is going to be a challenge, to say the least.

It’s not just about whether they want to leave their home, reports the article “What is the best state for long term care” from The Mercury. There are many more complications. Every state has different availability, levels of care and taxes. If the family is considering a continuing care retirement community, or if the parents already live in one, what are the terms of the contract?

The differences between states vary, and even within a state, there can be dramatic differences, depending upon whether the facility being considered is in a metropolitan, suburban or rural area. There’s also the question of whether the facility will accept Medicaid patients, if the parents have long-term care insurance or any other resources.

Here’s what often happens: you open up a glossy brochure of a senior community in a warm climate, like Florida or Arizona. There are golf courses, swimming pools and a great looking main house where clubs and other activities take place. However, what happens when the active phase of your life ends, slowly or suddenly? The questions to ask concern levels of care and quality of care. Where is the nearest hospital, and is it a good one? What kind of care can you receive in your own apartment? Are you locked into to your purchase, regardless of your wishes to sell and move to be closer to or live with your adult children?

And what happens if you or a “well” spouse runs out of money? That’s the question no one wants to think about, but it does have to be considered.

For people who move to Florida, which has a very generous homestead exemption for property taxes and no state tax, the incentives are strong. However, what if you become sick and need to return north?

For seniors who live in Pennsylvania and receive long-term care and other services, the well spouse’s retirement funds are exempt for Medicaid regardless of the amount. However, if you move over the state’s border to New Jersey, and those accounts will need to be spent down to qualify for Medicaid. The difference to the well spouse could be life changing.

Delaware and New Jersey have Medicaid available for assisted living/personal care. Pennsylvania does not. The Keystone State has strict income limitations regarding “at home” services through Medicaid, whereas California is very open in how it interprets rules about Medicaid gifting.

The answer of where to live when long-term care is in play depends on many different factors. Your best bet is to meet with an estate planning elder care attorney who understands the pros and cons of your state, your family’s  situation and what will work best for you and your spouse, or you as an individual.

Reference: The Mercury (March 4, 2020) “What is the best state for long term care”

C19 UPDATE: Guide to Resources Available for Small Business Disaster Relief

If the coronavirus pandemic has hurt your business, visit the US Chamber of Commerce resource site for a wealth of resources to help your business survive.

Priority reading on this site includes

Other resources include expert articles on business strategy and analysis, technology, managing a remote team, and their Coronavirus Response Toolkit, with shareable graphics and helpful information suitable for posting to social media to help boost your business’s visibility online.

Resource: Coronavirus Small Business Guide, https://www.uschamber.com/co/small-business-coronavirus

C19 UPDATE: CDC Updates Coronavirus Guidance for Businesses

C19 UPDATE: CDC Updates Coronavirus Guidance for Businesses

As we learn more about the coronavirus the Centers for Disease Control (CDC) is updating the guidance they give to business owners and employers. They issued updates on Friday, March 21st to include

  • Updated cleaning and disinfection guidance
  • Updated best practices for conducting social distancing
  • Updated strategies and recommendations to be implement now to respond to COVID-19

If you are a business owner, you may want to bookmark this page and check back regularly for updates: https://www.cdc.gov/coronavirus/2019-ncov/community/guidance-business-response.html

Resource: Interim Guidance for Businesses and Employers to Plan and Respond to Coronavirus Disease 2019 (COVID-19), updated March 21, 2020, https://www.cdc.gov/coronavirus/2019-ncov/community/guidance-business-response.html

Coronavirus News Should Make You Think about Estate Planning

The global Coronavirus (COVID-19) outbreak has many of us thinking about what could happen, if the disease spreads more fully across the general population. We all need to plan for what could possibly happen. To protect yourself and your family, it’s smart to be certain that you have the following these documents prepared and updated, says Motley Fool’s recent article entitled “The Coronavirus Should Have You Thinking About These 4 Things.”

  1. A will or revocable trust. Be sure that your assets will pass to those who you want to receive them after your death. This is critical during crisis times. You don’t want to make things any harder than they need to be. Create an estate plan to avoid potentially expensive and time-consuming processes like probate, which will have greater importance, if your family is confined to their homes in a quarantine situation.

A simple will can cover what happens to your assets at death. This typically works well, especially for modest estates. State laws differ on how complicated a probate process would be with a basic will. Some people opt to use a fully funded revocable trust that doesn’t require probate. For either a will or a revocable trust, make sure that it’s up to date and reflects your current preferences and family circumstances.

  1. Updated beneficiary designations. If you have an IRA, 401(k) account, or life insurance policy, those you name as beneficiaries of that account will receive the proceeds, despite a totally different from arrangement in your will or trust. Many of us also don’t designate any beneficiary for these accounts, which means added complications in the event of death.
  2. Healthcare power of attorney. When we’re in the midst of this Coronavirus, it’s even more urgent that you’ll be able to get the healthcare you need, if you’re hit with this illness. A durable power of attorney for healthcare will give the individuals you choose the ability to make whatever medical decisions you specify on your behalf. An estate planning attorney can help you draft documents that match your specific wishes.
  3. Financial power of attorney. You can designate an agent to help take care of your finances, if you become incapacitated or otherwise unable to handle your financial affairs. A general durable power of attorney for financial matters is another document that lets you delegate responsibility and authority to make financial transactions to the person you name.

Estate planning may not be the highlight of your week, but the Coronavirus outbreak has more people thinking about what they need to do. Make sure your family will have what they need even if something happens to you.

Reference: Motley Fool (March 8, 2020) “The Coronavirus Should Have You Thinking About These 4 Things”

C19 UPDATE: Beware the Rush to Make Your Own Will Online

With COVID-19 affecting more and more Americans, people across the country are scrambling to set up wills and end-of-life directives. Over the last two weeks, online will companies have seen an explosion in users, according to the article, “Coronavirus Pandemic Triggers Rush by Americans to Make Online Wills,” published by CNBC.com.

However, as online wills grow in popularity, estate and elder lawyers increasingly caution against using them, for several reasons.

  • Will the documents be legally valid? Since most of these do-it-yourself wills are created and executed without any oversight from an attorney, a larger number of wills may not be executed in compliance with the proper will formalities, and that could end up invalidating the will.
  • Do you fully understand the questions and consequences of your answers? There are many nuances in estate planning, as well as a good bit of legal jargon. Confusion over the question or the consequences of a decision can result in costly mistakes … and could even mean your will won’t hold up to a challenge in court.
  • What about asset protection? There is more to estate planning than just giving your stuff away after you die. How you transfer ownership of your assets can mean the difference between a protected inheritance and legacy for many generations … or the squandering or loss of a person’s life’s work within a few years … or months … after they pass away.
  • Is there any planning for long-term care? It’s estimated that more than half of people turning age 65 who will need some type of long-term care services in their lifetimes. Proper estate planning should balance the possibility that you will need assistance paying for nursing home care (Medicaid), with other estate planning goals. Mistakes in this area could disqualify you from receiving assistance should you need it.

As COVID-19 keeps people home, meeting with a lawyer to create a will could not be easier. In most states, a lawyer’s services have been deemed “essential,” even during stay-at-home orders. We are doing everything we can to make our services as easy and convenient for you as possible, including meeting over telephone, online video services and other innovative ways to ensure you get the planning you need while complying with all safety measures.

Resource: Coronavirus Pandemic Triggers Rush by Americans to Make Online Wills, https://www.cnbc.com/2020/03/25/coronavirus-pandemic-triggers-rush-by-americans-to-make-online-wills.html