If I Have a Will, Do I Have an Estate Plan?

Estate planning and writing a will are entirely different terms.

An estate plan is a broader plan of action for your assets that may apply during your life, as well as after your death.

However, a will states the way in which your assets will go after you die.

Yahoo Finance’s recent article entitled “Estate Planning vs. Will: What’s the Difference?” explains that a will is a legal document that states the way in which you’d like your assets to be distributed after you die.

A will can also detail your wishes about how your minor children will be cared after your death, and it names an executor who’s in charge of carrying out the actions in your will. Without a will, the state’s probate laws determine how your property is divided.

Estate planning is a lot broader and more complex than writing a will. A will is a single tool. An estate plan involves multiple tools, such as powers of attorney, advance directives and trusts.

Again, a will is a legal document, and an estate plan is a collection of legal documents. An estate plan can also handle other estate planning matters that can’t be addressed in a will.

A will is a good place to start, but you’ll want to create an estate plan to ensure that your family is fully covered in the event of your death.

While having a will is important, it’s only the first step when it comes to creating an estate plan.

To leave your heirs and loved ones in the best position after your death, you should talk to an experienced estate planning attorney about creating a comprehensive estate plan, so your assets can end up where you want them.

Reference: Yahoo Finance (Aug. 10, 2021) “Estate Planning vs. Will: What’s the Difference?”

Should a Charitable Lead Trust Be a Part of My Estate Planning

A charitable lead trust is usually implemented after other basics are done, such as your will, powers of attorney and health care directive, says Tri City Business News’ recent article entitled “Charitable lead trusts do good while reducing estate taxes.”

A charitable lead trust is a separate, standalone trust.

Let’s say there’s a married couple with some extra money who want to benefit a charity. The couple has an attorney draft a Charitable Lead Trust (CLT). The terms of the trust say that, for the lifetime of the couple (or the surviving spouse), the CLT will annually pay 5% of the trust to a qualified charity. At the death of the surviving spouse, the money left in the trust will go to the couple’s children. This is called a “split-interest” gift, where a portion of the gift to the trust goes to charity and a portion will ultimately go to the children.

The current interest rate is used to actuarially set the amount of the gift going to the children, which the parents will use to file a gift tax return.

With a few exceptions, there’s no tax assessed on a gift like that. It’s just required by law to report gifts that size to the IRS.

In a low interest rate environment, the calculated (the actuarially determined) amount going to the children will appear to be lower. However, the actual amount could be much higher, based on the performance of the assets in the trust.

For the calculation, because the amount going to the children appears lower, the calculated amount going to the charity must be higher.

Neither the parents nor the children get anything from the trust during the parents’ lifetime. In that way, it’s like a will where nothing goes to the children until the deaths of the parents. What makes a charitable lead trust attractive is the added ability to give to charity and engage in potential wealth transfer tax mitigation.

In addition, a charitable lead trust has another benefit: it potentially provides a consistent and reliable stream of income to your favorite charity for years to come. As such, in addition to acting as a legallysanctioned wealth transfer technique, it provides a wonderful benefit to worthy organizations.

Reference: Tri City Business News (Aug. 2021) “Charitable lead trusts do good while reducing estate taxes”

What are the Worst Things to Leave in My Estate?
calculator and estate asset document representing the concept of death taxes

What are the Worst Things to Leave in My Estate?

Kiplinger’s recent article entitled “5 of the Worst Assets to Inherit” says that if you’re planning to leave an inheritance to others, you should take care in what you leave them. Some assets can cause problems. However, you can prevent problems with thoughtful estate planning and the help of an experienced estate planning attorney.

Let’s look at five of the worst assets to inherit and what you can do to help manage them before you pass away:

Timeshares. A timeshare is a long-term agreement where you get to use a vacation property. These contracts are notoriously difficult to end. If you pass away, and your children inherit the timeshare, they may be responsible for the ongoing contract costs. Allow your children to decide at your death whether they want to take over the contract. They can refuse to accept it then—even if your will left them the timeshare—by making a formal disclaimer of the asset.

Potentially Valuable Collectibles. This may be a coin collection, rare stamps, or a piece of artwork. Note that the capital gains tax rate on collectibles goes up to 28%, much higher than the maximum 20% long-term gains rate on other investments. When you die, your heirs receive a step-up-in-basis, meaning when they sell they receive tax-free what the collectible was worth on the day you die. Even so, there are some substantial risks to leaving valuable collectibles as an inheritance. One problem with collectibles is that thy may be difficult to value. If you have any valuable collectibles, tell your heirs where they’re located, their estimated value and the dealers they should work with after you’re gone, so they don’t run into trouble.

Guns. Firearms can also get complicated as an inheritance because of the amount of regulation. They aren’t the type of asset that you can simply hand over to a person without the proper registration or permit. There are a number of state and federal rules, depending on your state of residence and the type of gun.

Vacation Properties. Inherited vacation properties can be a potential financial and emotional problem, especially if you’re leaving one to multiple family members. Disagreements can arise over how often each can use the property, who owes what for the repairs, whether they should sell and whether they should buy one of them out and at what value, especially if one heirs is living far away and doesn’t want their share. Even if the siblings are on good terms, a vacation property has expenses, like maintenance, property taxes, insurance and any remaining mortgage. These costs could outweigh the value of the vacation property to your heirs. If you have a vacation home, begin these discussions early with your heirs and determine if they even want the property and, if so, can you get them to agree on the terms.

Any Physical Property (Especially with Sentimental Value). Disagreements among heirs can happen over any type of physical property, like a favorite chair or Mom’s silverware. These sentimental items can be tough to divide. Moreover, it’s harder to tell what some of these items are worth. Avoid these issues and start planning the distribution of your physical property ahead of time. It is important to be clear on who will receive what to prevent arguments.

Reference: Kiplinger (Sep. 14, 2021) “5 of the Worst Assets to Inherit”

Where Do You Score on Estate Planning Checklist?

Make sure that you review your estate plan at least once every few years to be certain that all the information is accurate and updated. It’s even more necessary if you experienced a significant change, such as marriage, divorce, children, a move, or a new child or grandchild. If laws have changed, or if your wishes have changed and you need to make substantial changes to the documents, you should visit an experienced estate planning attorney.

Kiplinger’s recent article “2021 Estate Planning Checkup: Is Your Estate Plan Up to Date?” gives us a few things to keep in mind when updating your estate plan:

Moving to Another State. Note that if you’ve recently moved to a new state, the estate laws vary in different states. Therefore, it’s wise to review your estate plan to make sure it complies with local laws and regulations.

Changes in Probate or Tax Laws. Review your estate plan with an experienced estate planning attorney to see if it’s been impacted by changes to any state or federal laws.

Powers of Attorney. A power of attorney is a document in which you authorize an agent to act on your behalf to make business, personal, legal, or financial decisions, if you become incapacitated.  It must be accurate and up to date. You should also review and update your health care power of attorney. Make your wishes clear about do-not-resuscitate (DNR) provisions and tell your health care providers about your decisions. It is also important to affirm any clearly expressed wishes as to your end-of-life treatment options.

A Will. Review the details of your will, including your executor, the allocation of your estate and the potential estate tax burden. If you have minor children, you should also designate guardians for them.

Trusts. If you have a revocable living trust, look at the trustee and successor appointments. You should also check your estate and inheritance tax burden with an estate planning attorney. If you have an irrevocable trust, confirm that the trustee properly carries out the trustee duties like administration, management and annual tax returns.

Gifting Opportunities. The laws concerning gifts can change over time, so you should review any gifts and update them accordingly. You may also want to change specific gifts or recipients.

Regularly updating your estate plan can help you to avoid simple estate planning mistakes. You can also ensure that your estate plan is entirely up to date and in compliance with any state and federal laws.

Reference: Kiplinger (July 28, 2021) “2021 Estate Planning Checkup: Is Your Estate Plan Up to Date?”

Do I Have to Give My Husband’s Children from First Marriage Anything When He Dies?”

This is a common question with second (or third marriages) and blended families. Questions frequently arise about Social Security, investments and savings, when the husband is divorced from the children’s mother and is paying child support until each child turns 18.

Nj.com’s recent article entitled “Are my husband’s kids from another marriage due assets when he dies?” says that these questions demonstrate why estate planning is critical to revisit after a divorce. You can take action to make certain that you’re taken care of, but if you don’t do this at the time of the divorce, it could be too late.

Let’s look at what you should know about beneficiaries and wills. First, beneficiary designations supersede a will. Make sure that all beneficiaries and contingent beneficiaries are consistent with your wishes. There are beneficiary designations on retirement accounts, pensions, life insurance policies, annuities and other accounts that take precedence over what may be stated in a will.

While New Jersey does not provide for beneficiary designations on certain assets like a house, vehicles, and real estate, many other states do. For assets without a beneficiary, it’s important to determine the way in which they’re titled.

The titling of assets has an effect on how the assets will be distributed after death. Thus, when married again, spouses should review and update their wills to have an idea of how a spouse’s estate would be disbursed at his or her death.

If a husband is paying child support, divorce decrees will often dictate that he purchase life insurance to cover that obligation upon his death. Therefore, there may be a life insurance policy for the children from a first marriage.

With Social Security, if a spouse remains unmarried after the spouse’s death, he or she can claim a survivor spousal benefit as early as age 60, and if he or she is caring for the spouse’s children from the first marriage who are under 16 years of age, he or she may be entitled to receive a payment earlier. The deceased spouse’s unmarried children can also claim a survivor benefit until age 18, or longer if in high school or disabled.

Reference: nj.com (Aug. 4, 2021) “Are my husband’s kids from another marriage due assets when he dies?”

Learn about Estate Planning in Your New State

Did you know that a lot of states—especially the ones that have a state income tax—actively challenge claims by former residents that they’ve moved out of state and changed their tax domicile. These states may try to use any connection a former resident maintains with them to justify their continuing to tax the former resident.

J.P. Morgan’s recent article entitled “Changing your state of residence” says to have your move  respected, you really have to move. Half-measures don’t cut it and could leave you open to claims by your former home state that it should still be able to tax you. Domicile for tax purposes is a matter of intent, and that intent is implied by your actions.

Changing your residence is a legal issue, so consider this checklist of items. There’s no bright-line rul., However, the more of these you can check off, the more likely it is that you’ll be deemed to have changed your residence for tax purposes.

  • Change your driver’s license to your new state and cancel your old state’s driver’s license.
  • Register your vehicles in your new state and notify your insurance company of the move.
  • Register to vote in your new state and cancel your old state’s voter registration.
  • Move your membership to a local house of worship in your new state and make local contributions.
  • Purchase a home in your new state and if possible, sell your home in your old state. If you can’t buy right away, rent with a long-term lease.
  • Claim a homestead exemption in your new state (if applicable), and relinquish any homestead claim in your old state.
  • Revise your estate planning documents (wills, trusts, powers of attorney, health care powers of attorney, advance care directives, etc.) to indicate your new state of residence with a local estate planning attorney.
  • Change your financial accounts to your new state and don’t keep accounts in your former state.
  • Get a library card in your new state.
  • Use local medical professionals and send your medical records to them.
  • Change your address with the IRS and list your new address on your returns; and
  • Focus your activity (economic, social, and financial) in your new state.

As a general rule, you want to stay out of your former state more than 183 days in each calendar year (this number may vary by state). Therefore, the closer you are to this tally, the more likely your former state will want you to prove that you were outside of that state for more than 183 days. You should keep a daily calendar (with receipts) that demonstrates you were outside your former state for each day. In the first year you claim non-resident status in your former state, you may be more likely to experience a residency audit than in future years, no matter how close you are to the threshold.  While you don’t have to be in your new state for more than 183 days, your former state will look at how many days you spent in your new state as a factor in determining if you have established residency in the new state.

Reference: J.P. Morgan (July 22, 2021) “Changing your state of residence”

What are Biggest Mistakes in Estate Planning?

Bankrate’s recent article entitled “Estate planning checklist: 3 key steps to making a successful plan” talks about five things to watch out for with an estate plan. Therefore, as you’re making your estate plan, carefully consider everything, and that means it may take some time to complete your plan. Let’s look at five things to watch out for in that process:

  1. Plan your estate now. Of course, it’s not just the old and infirm who need an estate plan. Everyone needs a last will so that their last wishes are respected, knowing that the unexpected can happen at any time.
  2. Say who will take care of your minor children. While last wills may typically focus on what happens to your financial assets, you’ll also want to specify what happens to any minor children on your passing, namely who takes care of them. If you have underage children, you must state who would be a guardian for that child and where that child will live. Without a last will, a judge will decide who will take care of your children. That could be a family member or a state-appointed guardian.
  3. 3. Ask executors if they’re willing and able to take on the task. An executor carries out the instructions in your last will. This may be a complicated and time-consuming task. It involves distributing money in accordance with the stipulations of the document and ensuring that the estate is moved properly through the legal system. Make sure you designate an executor who’s up to the task. That means you’ll need to speak with them and make certain that he or she is willing and able to act.
  4. Consider if you want to leave it all to your children. Many young families simply give all their assets to their children when they die. However, if the parents pass away when the children are young, and they don’t establish a trust, they have access to all of the money when they reach the age of majority. This could be a great sum of money for a young adult to inherit with no rules on how to use it.
  5. Keep your estate plan up to date. You should review your estate plan regularly, at least every five years to be sure that everything is still how you intend it and that tax laws haven’t changed in the interim. Your plan could be vastly out of date, depending on changes since you first drafted it.

Estate planning can be a process where you demonstrate to your friends and family how much you care about them and how you’ve remembered them with certain assets or property.

TI’s a way to ensure that your loved ones don’t have months of work trying to handle your estate.

Reference: Bankrate (July 23, 2021) “Estate planning checklist: 3 key steps to making a successful plan”

What are the Key Documents in Estate Planning?

A basic estate plan can be fairly straightforward to create with the help of an experienced estate planning attorney.

Here are the main items you need in an estate plan. However, ask your estate planning attorney about what else you may need in your specific circumstances.

Bankrate’s recent article entitled “Estate planning checklist: 3 key steps to making a successful plan” says there are three things you need in every good estate plan: last will, a power of attorney and an advance healthcare directive – and each serves a different purpose. Let’s look at these:

A Last Will. This is the cornerstone of your estate plan. a last will instructs the way in which your assets should be distributed.

Everyone needs a last will, even if it’s a very basic one. If you do nothing else in planning your estate, at least create a last will, so you don’t die intestate and leave the decisions to the courts.

A Power of Attorney (POA). This document permits you to give a person the ability to take care of your affairs while you’re still alive. A financial power of attorney can help, if you’re incapacitated and unable to manage your finances or pay your bills. A medical power of attorney can also help a loved one take care of healthcare decisions on your behalf.

With a financial power of attorney, you can give as much or as little power over your financial affairs as you want. Note that when establishing this document, you should have a conversation with your power of attorney agent, so if called upon, he or she will have a good understanding of what they can and can’t do financially for you. A healthcare power of attorney also allows a person to make healthcare decisions, if you’re unable to do so.

An advance healthcare directive. This document instructs medical staff how you want them to handle your health-related decisions, if you’re unable to choose or communicate. It includes resuscitation, sustaining your quality of life, pain management and end-of-life care.

Reference: Bankrate (July 23, 2021) “Estate planning checklist: 3 key steps to making a successful plan”

No Kids? What Happens to My Estate?

Just because you don’t have children or heirs doesn’t mean you should not write a will. If you decide to have children later on, a will can help protect their financial future. However, even if you die with no children, a will can help you ensure that your assets will go to the people, institutions, or organizations of your own choosing. As a result, estate planning is necessary for everyone.

Claremont Portside’s recent article entitled “What Happens to Your Estate If You Die With No Children” says that your estate will go to your spouse or common-law partner, unless stated otherwise in your will. If you don’t have any children or a spouse or common-law partner, your estate will go to your living parents. Typically, your estate will be divided equally between them. If you don’t have children, a spouse, or living parents, your estate will go to your siblings. If there are any deceased siblings, their share will go to their children.

The best way to make certain your estate goes to the right people, and that your loved ones can divide your assets as easily as possible, is to write a will. Ask an experienced estate planning attorney to help you. As part of this process, you must name an executor. This is a person you appoint who will have the responsibility of administering your estate after you die.

It’s not uncommon for people to appoint one of their children as the executor of their will. But if you don’t have children, you can appoint another family member or a friend. Select someone who’s trustworthy, responsible, impartial and has the mental and emotional resources to take on this responsibility while mourning your death.

You should also be sure to update your will after every major event in your life, like a marriage, the death of one of your intended beneficiaries and divorce. In addition, specifically designating beneficiaries and indicating what they will receive from your estate will help prevent any disputes or contests after your death. If you have no children, you might leave a part (or your entire) estate to friends, and you can also name charities and other organizations as beneficiaries.

It’s important to name who should receive items of sentimental value, such as family heirlooms, and it’s a good idea to discuss this with your loved ones, in case there are any disputes in the future.

Even without children, estate planning can be complicated, so plan your estate well in advance. That way, when something happens to you, your assets will pass to the right people and your last wishes will be carried out. Ask an experienced estate planning attorney for assistance in creating a comprehensive estate plan.

Reference: Claremont Portside “What Happens to Your Estate If You Die with No Children”

What Should Same-Sex Couples Know about Estate Planning?

Proper estate planning can help ensure that your wishes are carried out exactly as intended in the event of a death or a serious illness, says Insurance Net News’ recent article entitled “What Same-Sex Partners Need to Know About Estate Planning.” Having a clearly stated plan in place can give clear instructions and potentially avoid any fights that otherwise might occur. For same-sex couples, this may be even more crucial.

Your estate plan should include a will or trust, beneficiary forms, powers of attorney, a living will and a letter of intent. It’s also smart to include a secure document with a list of your accounts, debts, assets and contact info for any key people involved in those accounts. This list should contain passwords for locked accounts and any other relevant information.

A will is a central component of an estate plan which ensures that your wishes are followed after you pass away. This alleviates your family from the responsibility of determining how to divide your property and takes the guessing and stress out of how to pass along belongings. A will or trust might also state the way in which to transfer your financial assets to your children. You should also make sure your beneficiary forms are up to date with your spouse for life insurance policies, bank accounts and retirement accounts.

For same-sex couples, it is particularly important to create a clear medical power of attorney and create a living will that states your medical directives, if you aren’t able to make those decisions on your own. If you aren’t married, this will give your partner the legal protection he or she needs to make those decisions. It is important for you to take time to have those conversations with your partner, so the plans and directives are clear. You can also draft a letter of intent, which is a written, personal note that can be included to help detail your wishes and provide reasoning for the decisions.

Protecting Your Minor Children. Name a legal guardian for them in your will, in the event both parents die. Same-sex couples must make sure that both parents have equal rights, especially in a case where one parent is the biological parent. If the surviving spouse or partner isn’t the biological parent and hasn’t legally adopted the children, don’t assume they’ll automatically be named guardian.  These laws vary from state to state.

Dissolve Old Unions. There could be challenges, if you entered into a civil union or domestic partnership before your marriage was legalized. Prior to the 2015 marriage equality ruling, some same-sex couples married in states where it was legal but resided in states where the marriage wasn’t recognized. If you and your partner broke up, but didn’t legally dissolve the union, it may still be legally binding. Moreover, some states converted civil unions and domestic partnerships to legal marriages, so you and a former partner could be legally married without knowing it. If a former union wasn’t with your current partner, make certain that you legally unbind yourself to avoid any future disputes on your estate.

Review Your Real Estate Documents. Check your real estate documents to confirm that both partners are listed and have equal rights to home ownership, especially if the home was purchased prior to the legalization of same-sex marriage or if you aren’t married. There are a few ways to split ownership of their property. This includes tenants in common, where both partners share ownership of the property, but allows each individual to leave their shares to another person in their will. There’s also joint tenants with rights to survivorship. This is when both partners are property owners but if one dies, the remaining partner retains sole ownership.

Estate planning can be a complex process, and same-sex couples may have more stress to make certain that they have a legally binding plan. Talk to an experienced estate planning attorney about the estate planning process to put a solid plan to help provide peace of mind knowing your family is protected.

Reference: Insurance Net News (June 30, 2021) “What Same-Sex Partners Need to Know About Estate Planning”