The Most Important Part of Estate Plan Is Planning for Living

Most people think of estate planning as planning for death. However, a well-titled article “Planning for death probably isn’t the most important part of your estate plan” from Coeur d’Alene/Post Falls Press presents another reason for estate planning in clear terms. Estate planning is planning for the unexpected eventualities of life.

Estate planning documents address how things will work while you are still living but if you have become incapable of making your own decisions. In many cases, this is more important than distributing your worldly possessions.

Yes, you should have a will (last will and testament). But you should also have Power of Attorney documents—one for health care purposes and another for financial purposes.

The Power of Attorney document states who will be your substitute decision maker, or agent, if you are incapacitated or unable to make your own decisions while still living. This should be a personalized document prepared by an estate planning attorney to include the scope of tasks and the limits, if any, you want to set for your agent. The financial POA is an important one, as it gives your chosen agent the legal authority to make financial decisions on your behalf.

The health care power of attorney gives your agent the authority to make health care decisions on your behalf.

With both of these documents properly prepared and available, someone you name will be empowered to serve as your decision maker if necessary.

The will is used to state what happens to your possessions and assets when you die. It is also the legal document used to name your executor—the person who will be in charge of carrying out your instructions. The will tells the probate court how you want your estate to be administered after death.

Why do you need these and other documents? Your will only becomes effective after death. Your POA documents are effective if you become incapacitated. They are both part of your estate plan, which is a collection of legal documents and has nothing to do with whether you reside in a palatial estate.

Here’s how it might work. If you become seriously ill and cannot speak on your own behalf, but you have a Power of Attorney naming your daughter Carol to serve as your POA for healthcare and financial decisions, Carol will be able to pay bills, including paying the mortgage, keeping your car lease up to date, and taking care of all of the financial aspects of your life. If she is also named as your Health Care POA, she will be able to speak with your medical team, be involved in decisions about your course of care and follow the wishes you’ve expressed in your POA.

If you die, and Carol has also been named your executor, she will be able to transition into this new role by representing you through the probate process. She will be able to work with your estate planning attorney to have your will filed with the court and follow your directions for distribution of your assets.

Having only a last will and testament would not protect you while you are living. Having only a Power of Attorney would not protect your wishes after you have died. All of these documents—and there are others not mentioned here—work together to protect you during life and after you’ve passed.

Reference: Coeur d’Alene/Post Falls Press (Aug. 29, 2022) “Planning for death probably isn’t the most important part of your estate plan”

Why Is It Important to have an Estate Plan?

Right now, the federal estate tax exemption is so high as to be a non-issue for most taxpayers, but this will not always be the case, and there are also state estate taxes to consider. Regardless of taxes, there are other reasons why everyone needs to have an estate plan, affirms a recent article from mondaq titled “Do I Really Need an Estate Plan?” The short answer is yes, you definitely do.

The first thing a will does is distribute your assets according to your directions. If you have grandchildren, there are ways for you to gift them assets and minimize taxes, but you’ll need to plan for generation skipping taxes.

If you own a business, you will need a succession plan to align with your estate plan. Will family members become owners, or will the business be sold?

Does the family include a disabled or individual with special needs? A special needs trust can add an extra layer of resources. Guardianship planning needs to be done for the parents and guardians be named for when the parents are no longer able to care for the person.

The will is also used to name an executor, the person to handle all the decisions you express in the will and carry them out.

Gifting is another part of your estate plan. If you have any charitable organizations or individuals outside of your family who you’d like to make a gift to, this can be done through your will or through a number of gifting strategies.

The current federal estate tax exemption is set to end in 2025 and revert back to 2017 levels. Tax planning should be done well in advance to protect your estate and heirs.

A review of life insurance should be part of your estate plan. Do you know who your named beneficiary is on your life insurance policies? If your estate is the beneficiary, your estate’s value may exceed the federal or state estate tax limits.

Many people today create an ethical will. This is not a legally binding document; instead, it is used to express your values and your wishes for heir’s futures. It may also be used to give them insight into how your will was structured and why. If there is controversy in the family, an ethical will or statement of intentions may help bolster your will if there are any legal challenges.

Your retirement benefits and any workplace benefits have beneficiaries named in the event of your death. Do you know who they are, and do you still wish for those named to be your beneficiaries?

Estate planning includes addressing incapacity and illness. You’ll want a Power of Attorney for someone to act on your behalf if you are sick or injured and cannot handle your personal finances. You’ll also need a Health Care Proxy for someone who will be empowered to speak with healthcare personnel and make care decisions for you if you cannot.

Without a comprehensive estate plan, the difficulties facing your loved ones upon your illness and upon your death will be magnified. Yes, you need an estate plan. The sooner, the better. Speak with an estate planning attorney to get the process started.

Reference: mondaq (Aug. 24, 2022) “Do I Really Need an Estate Plan?”

Can Unequal Inheritances Be Fair?

Estate planning attorneys aren’t often asked to create estate plans treating heirs unfairly. However, when they do it, it is usually because a parent is estranged from one child and wishes to leave him or her nothing. When it comes to estate planning, equal isn’t the same as fair, explains the article “Are Unequal Inheritances Fair?” from Advisor Perspectives.

An example of this can be seen in the case of a widow with four adult children who asked an estate planning attorney how to approach distributing her assets. Three of her children were high-income earners, already building substantial net worth. A fourth child had mental health issues, limited education, had been in and out of jail and was unable to hold a job.

She understood that her fourth child needed the financial stability the others did not. She wanted to provide some support for him, but knew any money left directly to him would be gone quickly. She was considering leaving money for him in a trust to provide a monthly income stream, but also wanted to be fair to the other three children.

The trust would be the best option. However, there were problems to consider. If the estate were to be divided in four equal parts, the fourth child’s share of the estate would be small, so trustee fees would take a significant amount of the trust. If she left her entire estate for him, it would be more likely he’d have funding for most, if not all, of his adult life.

The worst thing the mother could do was to leave all the funds for the fourth child in a trust without discussing it with the other three siblings. Unequal inheritances can lead to battles between siblings, sometimes bad enough to lead them into a court battle. This is often the case where one child is believed by others to have unduly influenced a parent, when they have inherited all or the lion’s share of the estate.

Sibling fights can occur even when the children know about and understand the need for the unequal distribution. The children may suppress their emotions while the parent is living. However, after the parent dies and the reality sets in, emotions may fire at full throttle. Logically, in this case the three successful siblings may well understand why their troubled sibling needs the funds. However, grief is a powerful emotion and can lead to illogical responses.

In this case, the woman made the decision to leave her estate in equal shares to each child and giving the three successful siblings the options to share part of their inheritance with their brother. She did this by having her estate planning attorney add language in the will stating if any child wanted to disclaim or refuse any of their inheritance, it would pass to a trust set up for the troubled sibling. This gave each child the opportunity to help or not.

Was it a perfect solution? Perhaps not, but it was the best possible solution given the specific circumstances for this family.

Reference: Advisor Perspectives (Aug. 22, 2022) “Are Unequal Inheritances Fair?”

How Can I Minimize My Probate Estate?

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

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

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

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

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

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

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

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

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

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

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

Why You Need an Estate Plan

Did you think you had to be rich to have an estate? Think again! From a legal perspective, your estate includes everything you own, from tangible property like a car, house, furniture, as well as intangible assets like insurance policies, bank accounts, retirement and investment accounts. You don’t have to be rich to have an estate, says the recent article “How to Plan Your Estate” from The Military Wallet. However, you do need to have an estate plan, and the best time to start planning is right now.

An estate plan is more than simply passing your property along to heirs. It is also how you prepare for the unpleasantries of life, including becoming incapacitated or being unable to make decisions on your own.

Your estate plan protects you and your beneficiaries. Without a will, the court will determine who will get your assets subject to probate, following the laws of your state. With a will, you determine who should receive your probated property, from family members to charities.

Your estate plan protects your children. Your will nominates a guardian who will care for your children if you die before they turn age 18, or, if you have a disabled child with special needs, who will care for them for the rest of their life. Without a will nominating a guardian, the court will make these decisions.

Your estate plan protects your family by preventing conflict. Your wishes are made clear in a will and in other estate planning documents. The more details, the better. No one can say they knew what you really wanted, because what you really wanted is documented and memorialized in your estate plan.

Getting ready to meet with an estate planning attorney will be easier if you take it step by step.

Make an inventory of all assets, including

  • House, land and any real estate property
  • Cars, boats and any other vehicles
  • Bank, investment and retirement accounts
  • Life insurance policies
  • Health savings accounts
  • Jewelry, valuables and collectibles
  • Digital assets, including website URL, username and password
  • Cryptocurrency, including all information for an executor to be able to access accounts

Create a plan for the different scenarios in your life. Who would you want to raise your children if you and your spouse die while children are minors or are unable to care for them because of illness or injury? How will your spouse pay the mortgage if you die unexpectedly?

Make a list of all accounts with designated beneficiaries. This typically includes life insurance, retirement plans and annuities. Any time you have a major life event like marriage, divorce, birth or death, these designations should be reviewed.

You’re now ready to meet with an estate planning attorney. Your estate plan should include a last will and testament, outlining who should receive your property, who will distribute your estate (your executor) and who should raise your children if you die while they are under legal age.

A Health Care Proxy is used to name a person who can make decisions about your healthcare if you cannot. A Living Will outlines the details for medical treatment you want or don’t want when you are near death.

Power of Attorney is a document giving someone else the power to take care of your finances at any point, if you can’t because of illness or incapacity. This avoids your family members having to go to court to obtain a guardianship, which takes time and is a costly proceeding.

Reference: The Military Wallet (Aug. 25, 2022) “How to Plan Your Estate”

Why Does Everyone Need an Estate Plan?

Twenty and thirty-year olds are busy building their lives, starting or growing careers, exploring personal goals, repaying student loans and maybe starting a family. They’re young and healthy and think nothing can happen to them—but that’s not true. A recent article from Kiplinger titled “You’re Not Too Young for an Estate Plan: 7 Essentials for Your 20s and 30s” explains why even a twenty-year old with student loans needs an estate plan.

Student loans. Federal student loans discharge upon death, so no further payments are needed, including any federal Parent PLUS loans parents may have taken out. However, for private student loans, the decision is up to the lender. If the private loan was taken out by the student, the institution may forgive the loan. However, if a parent or another adult co-signed the loan, they might be responsible for paying the entire loan. The exception: if the loan was made after November 20, 2018, the co-signer may be protected by the Economic Growth, Regulatory Relief and Consumer Protection Act. If you took out loans after getting married, the surviving spouse is likely to be required to pay the loan if they co-signed the loan or if you live in a community property state.

Health Care Directive and Health Care Power of Attorney. The Health Care Directive is used to tell your family what you would want if you were near death, whether by injury or illness. Healthcare providers are obligated to follow your directions if they are stated in this document. Without it, you could be kept on life support for many years, regardless of what your family wants.

A Health Care Power of Attorney is used to name someone you trust to act as your “agent,” if you become incapacitated. This document is focused on your care and medical treatments. It also lets your agent speak with your health insurance company, obtain access to medical records and discuss your care with healthcare providers.

Last Will and Testament. This document isn’t just for people with homes, families, and retirement accounts. Young people have property too—your car, your personal possessions, and whatever financial resources you may have accumulated. If you have a will, you can direct who you want to receive what you own. Without one, the court will decide who gets your possessions and your family won’t have any say about it. With a will, you can determine who receives your property, including your digital assets. You’ll also name an executor in the will—the person who is in charge of distributing your property. An estate planning attorney will create a document to comply with your state’s laws. It doesn’t have to be a complicated document, but it is a good way to ensure your loved ones know your wishes.

Retirement Accounts and Beneficiaries. These accounts may not be as robust as they will be later in your life. However, they are still yours. Make sure that you have named beneficiaries who you want to receive them if you die. Singles may name a sibling, parents, partner, or another family member to receive these assets.

Digital Assets. A digital life means you need a digital estate plan. Creating an inventory list of all of your digital accounts, usernames and passwords. If an account has two-factor authentication, indicate how another person might gain access to the account. Don’t include any of this information in your will, as it becomes a public document after being submitted to the court for probate. Tell a trusted family member where the inventory is located. If you own cryptocurrency, research how crypto assets are passed if the original owner dies.

Guardianship. Your will is used to name a guardian for minor children. Without it, the court will appoint a guardian, and it may not be the family member you wish it would be.

Don’t Forget Your Furry Friends. You can add a pet guardianship clause to a will to ensure that your pet stays with a trusted friend or family member who has agreed to care for your pet. You can also set up a pet trust to set aside funds for your pet’s care, including food, veterinary visits, toys, training and treats.

Reference: Kiplinger (Aug. 22, 2022) “You’re Not Too Young for an Estate Plan: 7 Essentials for Your 20s and 30s”

Another Reason Why You Need an Estate Planning Attorney

The saying ‘you don’t know what you don’t know’ is most apt in estate planning. A well-meaning person may create a will with the goal of leaving property to grandchildren, only for the children or their parents to learn after the grandparent’s passing the law does not permit property to be transferred. A recent article titled “The Arcane Law That Could Derail Your Inheritance Plans” from yahoo! entertainment is a good example of the importance of estate planning attorneys to create effective estate plans.

The rule against perpetuities may prevent a property from remaining in the family, if it takes too long for the will’s conditions to be met.

The rule against perpetuities creates a standard for when an interest in land or property must vest. The rule against perpetuities stipulates that a will, estate plan or other legal documents intending to transfer property ownership more than twenty-one years after the death of the primary (decedent) becomes void.

This rule means a person can’t legally guarantee their grandchildren, great-grandchildren or other heirs in the future may retain ownership of the grantor’s property. This may be an obscure law. However, the problem becomes real if and when someone should challenge the will, as this is a legitimate legal argument to be made.

This is an old law dating back to 17th century England, when courts wanted heirs and descendants to be able to buy and sell land without the influence of ancestors who tried to control property over many generations. The United States adopted this law and while many legal authorities see it as being outdated, only some states have drafted modifications or new laws to change it.

In 1986, thirty-one states addressed the problem by drafting a “wait and see” approach, meaning an interest in the property must vest within ninety years of the implementation of a will or life estate. This has alleviated the limit, meaning a will or other transfer of property has nine decades to vest before it becomes void.

If your estate plan includes leaving assets for grandchildren, including real estate property, speak with your estate planning attorney about this admittedly arcane law. If your state is one that has not adopted the “wait and see” approach, you will be glad you prepared.

Reference: yahoo! entertainment (Aug. 20, 2022) “The Arcane Law That Could Derail Your Inheritance Plans”

How Does a Business Owner Create an Exit Strategy?

Letting go of a business is not easy, says a recent article titled “Estate Planning Strategies for Business Owners Planning an Exit” from CEOWorld Magazine. Where the exit is to sell the business or retire, or the result of an unexpected events, its crucial to have an estate and succession plan.

When should you establish a plan? It should be early, perhaps even when you become a CEO. A long-term strategy is as important as short-term decisions. Not having an estate plan could mean your interest in the business goes through probate, which is both public and time consuming. The business may never recover from the distribution of assets and the exposure. No estate plan also means missed changes to leverage discount gifting or any other tax-reduction strategies.

Consider the following when talking with your estate planning attorney:

What is the exit strategy—to sell, be acquired or merged, have a family member take over, or sell to key employees?

How much money to do you need and want at the exit? Do you want to create a stream of income or a lump sum?

Do you have a charitable giving plan to reap tax advantages and support an organization with meaning to you? Structuring a gift far in advance avoids using a reduced fair market value and have it deemed as a cash gift.

Transferring the business to family members instead of selling to outside parties creates many different planning opportunities. With family members, emotions come into play, even though this is not always productive. If some offspring are not involved in the business, will they receive a share of the business? Do you want to equalize your inheritance? Assets can be divided by the use of trusts, for example.

You’ll want to work with an estate planning attorney with experience in creating a succession plan with a tax model. This is often overlooked in succession planning and can cause significant cash flow management issues as well as lost tax benefits.

Determine if you want to make gifts using business interests or sales proceeds early on and whether these gifts will go to family members or charities. The earlier the succession planning occurs, the more you can maximize the income and estate tax benefits.

Clarify your own retirement needs and goals. Business owners often fail to correctly calculate the expected investment income on after-tax proceeds from the sale of the business. Will it be sustainable enough for the lifestyle you want in retirement? If not, is there a way to structure the sale of the business to achieve your financial goal?

It’s never too late to plan for an exit strategy, and the earlier the planning, the higher the likelihood of a successful transition.

Reference: CEOWorld Magazine (Aug. 16, 2022) “Estate Planning Strategies for Business Owners Planning an Exit”

How Can I Choose an Estate Planning Lawyer?

Only about a third of Americans have an estate plan, according to the article “Choosing an estate planning lawyer” from Senior Matters. The number of people with wills is decreasing, rather than increasing, despite the events of recent years. Estate planning is worth doing, for the peace of mind, the personal and financial protection it provides, not to mention leaving a legacy of caring about the future for the next generation.

Estate planning involves making end-of-life decisions, with an emphasis on both finances and health. Most people think of it as “who gets what,” which is accomplished largely through wills and trusts. For people who have amassed significant assets, this can be complex. An estate planning attorney makes it streamlined and will explain the implications of all aspects of the plan.

Estate planning includes gifting, generation skipping transfers, taxes, advance directives, power of attorney, health care proxies, living wills, naming an executor, organ donations, burial preferences, Do Not Resuscitate (DNR) orders and final wishes.

It is a highly personal process. This is why it’s important to find an attorney who is compassionate, as well as technically proficient. Estate planning attorneys tend to be caring individuals who chose this field of law because they sincerely wish to help others. They also know what happens when the planning is not done, because they also help children when their parents fail to do so.

Some people are reluctant to embark on estate planning, in part because they don’t wish to be reminded of their own mortality. Others are concerned about relatives with designs on their estate. However, not having a plan makes it more likely that relatives or others could challenge the estate and end up owning assets and provides protection.

When a person dies without an estate plan and assets subject to probate, their estate is considered to be “intestate.” Only the court will have any control over how the probate assets are distributed. The probate court will simply follow the laws of your state, which frequently are based on kinship. The exact details vary from state to state, and this is known as “intestate succession.”

The intestate laws may result in outcomes completely different than what you wished. An estranged spouse could end up owning everything, or a child with substance issues could inherit a substantial sum which will be gone in months. In most states, minor children may not receive inheritances, so trusts or custodial accounts are needed.

Estate planning is just as important for people of modest means as it is for wealthy people. If a senior owns their own home, the increase in property values could mean their estate is much bigger than they even realize.

Choosing an Attorney isn’t difficult. Ask friends and family for referrals, visit websites and find an estate planning attorney who shares your values, understands your family and feels like a good fit. Once your estate plan is in place, you’ll gain peace of mind.

Reference: Senior Matters (Aug. 17, 2022) “Choosing an estate planning lawyer”

What Jackie Kennedy Knew about CLATs and Estate Planning

What most people don’t know about Jackie Kennedy was her role as an innovative steward of her family’s wealth and philanthropic legacy, reports a recent article from Forbes titled “Elevating Your Estate And Legacy: A Lesson From Jackie Kennedy.” After her husband’s assassination, she was in charge of a $44 million plus estate and her actions spoke volumes about her values and view for the future.  Jackie Kennedy initiated a Charitable Lead Annuity Trust (CLAT), which today many refer to as the Jackie Onassis Trust.

She created a CLAT receptacle through her will, so her children could elect to transfer some or all of their inherited assets in exchange for significant charitable, tax and non-tax benefits. They were not required to do this. However, it was an option for assets including stock, real estate and other capital. The CLAT offered her children three possible benefits: avoiding federal estate tax on all and any assets transferred to the CLAT, tax-efficient philanthropic giving for a limited number of years and continued investment of CLAT assets, which could be ultimately returned to the child or gifted to future generations at the end of the CLAT’s charitable period.

In addition, during the charitable term, the annual payments required to be distributed via the CLAT to charities would have created income tax deductions against the CLAT’s taxable income.

Despite their mother’s recommendations, the first lady’s children opted against funding the CLAT.

According to an article from The New York Times in 1996, if the Jackie Onassis Trust was worth $100 million and if the beneficiaries had executed the CLAT, the family would have inherited approximately $98 million tax-free in 2018, with charities receiving $192 million.

Instead, the children paid $23 million in estate taxes, leaving the estate with $18 million.

Besides the clear adage of “Mother knows best,” this is an example of the potential power of a CLAT to satisfy the charitable and family wealth transfer of the trust creator and individual beneficiaries. Since the 1960s, more sophisticated trust variants have been created to improve on the original CLAT.

One of these is the Optimized CLAT, a tax-planning trust which accomplishes four goals. It generates a dollar-for-dollar tax deduction in the year of funding, returns an expected 1x-5x of the initial contribution back to the contributor, immediately exempts contributed assets from the 40% federal gift and estate tax and exempts the transferred assets from the contributor’s personal creditors.

These complex estate planning strategies will become increasingly popular as federal estate taxes return to lower levels in near future. Your estate planning attorney will guide you as to which type of trust works best for you and your family, for now and for generations to follow.

Reference: Forbes (Aug. 19, 2022) “Elevating Your Estate And Legacy: A Lesson From Jackie Kennedy”