How Do I Find a Good Estate Planning Attorney?

About 68% of Americans don’t have a will. With the threat of the coronavirus on everyone’s mind, people are in urgent need of an estate plan.

To make sure your plan is proper and legal, consult an experienced estate planning attorney. Work with a lawyer who understands your needs, has years of experience and knows the law in your state.

EconoTimes’ recent article entitled “Top 3 Estate Planning Tips When Seeing An Attorney” provides several tips for estate planning, when seeing an attorney.

Attorney Experience. An estate planning attorney will have the experience and specialized knowledge to help you, compared to a general practitioner. Look for an attorney who specializes in estate planning.

Inventory. List everything you have. Once you start the list, you may be surprised with the tangible and intangible assets you possess.

Tangible assets may include:

  • Cars and boats
  • Homes, land, and other real estate
  • Collectibles like art, coins, or antiques; and
  • Other personal possessions.

Your intangible assets may include:

  • Mutual funds, bonds, stocks
  • Savings accounts and certificates of deposit
  • Retirement plans
  • Health saving accounts; and
  • Business ownership.

Create Your Estate Planning Documents. Prior to seeing an experienced estate planning attorney, he or she will have you fill out a questionnaire and to bring a list of documents to the appointment. In every estate plan, the core documents often include a creating a last will and powers of attorney, as well as coordinating your Beneficiary Designations on life insurance and investment accounts. You may also want to ask about a trust and, if you haver minor children, selecting a guardian for their care, if you should pass away. You should also ask about estate taxes with the attorney.

Reference: EconoTimes (July 30, 2020) “Top 3 Estate Planning Tips When Seeing An Attorney”

Can I Bequeath My Home to My Children without Taxes?

As part of your estate planning, you can pass your house tax-free to an heir. savingadvice.com’s recent article entitled “Use These Tips to Pass Your House to Your Heirs Tax-Free” reminds us that the most important thing is to look at the total value of your entire estate (not just your home). If the value is more than $11.58 million (the unified federal estate gift and estate tax exemption amount for 2020), then your estate will be subject to estate taxes. If it’s under that amount, there’s no worries, and you can pass a house tax-free through a will. However, you may also have state estate taxes on the inheritance.

Ask an experienced estate planning attorney about the potential capital gains taxes your heirs may have to pay, when they sell the property. If you owe any money to Medicaid upon your death, the state can place a lien on your property, which can affect your heirs. Let’s look at some options to discuss with your estate planning attorney:

Irrevocable Trust. If you have an estate that’s more than the $11.58 million amount, you might want to look at putting the house into an irrevocable trust, instead of just including it in your will. Ask your attorney about a qualified personal residence trust. When you die, the house will go to the heir(s) that you’ve designated with the trust. However, if you sell the house, the money goes into the trust and can’t be cashed out if the situation changes. It’s something to consider, if you have a high-value estate and want to pass a house tax-free to your children or other loved ones.

As a Gift. You can gift a house to your children, and there will be no taxes on that, if the value of your home is less than the $11.58 million. However, you must file a gift tax form when you do your annual taxes. As long as the value is below that amount, it should just be a matter of filing the form and not paying any fees.

Look at total value of your estate and your home. File a gift tax form with the IRS in the year that you gift the home and offset the total amount of the gift by first using your annual gift-tax exclusion of $15,000. This is per donee and per donor, so if you and your spouse jointly own the property and you gift it to multiple children, you can up the exclusion amount.

You shouldn’t apply for Medicaid within five years of gifting your home to your child, because there may be a transfer penalty if you gift assets just before applying for Medicaid benefits.

Can You Sell the House and Gift the Money? You can sell the home at current market value, then gift that money to your child. You can do this in a will or trust or give it to them directly. You could also sell the home to your child at a very low price. They’d get the house and can sell it themselves at a higher value when the time is right for them to do so. However, they may have to pay higher taxes when they do.

Selling your Home to Your Child for $1? OK, you’re technically selling the house, so it’s not a gift. However, the remainder of the value of the house is considered a gift, so the gift tax rules still apply. If your child sells the house, they must report the entire difference as a gain, which means capital gains taxes.

If you want to sell your house to your child, you should consider selling it to them with a small down payment as a seller-financed sale. You’ll carry the note for the balance, and your adult child will make affordable payments. You can even offset what they pay you, by gifting them up to $15,000 per year (which is low enough not to trigger the gift tax). Since you’ve sold the home, it’s no longer a part of your estate, so you don’t have to worry about taxes on your end.

Reference: savingadvice.com (July 29, 2020) “Use These Tips to Pass Your House to Your Heirs Tax-Free”

State Laws Have an Impact on Your Estate

Nj.com’s recent article entitled “Will N.J. or Florida’s tax laws affect this inheritance?” notes that first, the fact that the individual from Florida isn’t legally married is important.

However, if she’s a Florida resident, Florida rules will matter in this scenario about the vacation condo.

Florida doesn’t have an inheritance tax, and it doesn’t matter where the beneficiary lives. For example, the state of New Jersey won’t tax a Florida inheritance.

Although New Jersey does have an inheritance tax, the state can’t tax inheritances for New Jersey residents, if the assets come from an out-of-state estate.

If she did live in New Jersey, there is no inheritance tax on “Class A” beneficiaries, which include spouses, children, grandchildren and stepchildren.

However, the issue in this case is the fact that her “daughter” isn’t legally her daughter. Her friend’s daughter would be treated by the tax rules as a friend.

You can call it what you want. However, legally, if she’s not married to her friend, she doesn’t have a legal relationship with her daughter.

As a result, the courts and taxing authorities will treat both persons as non-family.

The smart thing to do with this type of issue is to talk with an experienced estate planning attorney who is well-versed in both states’ laws to determine whether there are any protections available.

Reference: nj.com (July 23, 2020) “Will N.J. or Florida’s tax laws affect this inheritance?”

What Does Pandemic Estate Planning Look Like?

In the pandemic, it’s a good idea to know your affairs are in order. If you already have an estate plan, it may be time to review it with an experienced estate planning attorney, especially if your family’s had a marriage, divorce, remarriage, new children or grandchildren, or other changes in personal or financial circumstances. The Pointe Vedra Recorder’s article entitled “Estate planning during a pandemic: steps to take” explains some of the most commonly used documents in an estate plan:

Will. This basic estate planning document is what you use to state how you want your assets to be distributed after your death. You name an executor to coordinate the distribution and name a guardian to take care of minor children.

Financial power of attorney: This legal document allows you to name an agent with the authority to conduct your financial affairs, if you’re unable. You let them pay your bills, write checks, make deposits and sell or purchase assets.

Living trust: This lets you leave assets to your heirs, without going the probate process. A living trust also gives you considerable flexibility in dispersing your estate. You can instruct your trustee to pass your assets to your beneficiaries immediately upon your death or set up more elaborate directions to distribute the assets over time and in amounts you specify.

Health care proxy: This is also called a health care power of attorney. It is a legal document that designates an individual to act for you, if you become incapacitated. Similar to the financial power of attorney, your agent has the power to speak with your doctors, manage your medical care and make medical decisions for you, if you can’t.

Living will: This is also known as an advance health care directive. It provides information about the types of end-of-life treatment you do or don’t want, if you become terminally ill or permanently unconscious.

These are the basics. However, there may be other things to look at, based on your specific circumstances. Consult with an experienced estate planning attorney about tax issues, titling property correctly and a host of other things that may need to be addressed to take care of your family. Pandemic estate planning may sound morbid in these tough times, but it’s a good time to get this accomplished.

Reference: Pointe Vedra (Beach, FL) Recorder (July 16, 2020) “Estate planning during a pandemic: steps to take”

What Happens If I Don’t Fund My Trust?

Trust funding is a crucial step in estate planning that many people forget to do.

However, if it’s done properly, funding will avoid probate, provide for you in the event of your incapacity and save on estate taxes.

Forbes’s recent article entitled “Don’t Overlook Your Trust Funding” looks at some of the benefits of trusts.

Avoiding probate and problems with your estate. If you’ve created a revocable trust, you have control over the trust and can modify it during your lifetime. You are also able to fund it, while you are alive. You can fund the trust now or on your death. If you don’t transfer assets to the trust during your lifetime, then your last will must be probated, and an executor of your estate should be appointed. The executor will then have the authority to transfer the assets to your trust. This may take time and will involve court. You can avoid this by transferring assets to your trust now, saving your family time and aggravation after your death.

Protecting you and your family in the event that you become incapacitated. Funding the trust now will let the successor trustee manage the assets for you and your family, if your become incapacitated. If a successor trustee doesn’t have access to the assets to manage on your behalf, a conservator may need to be appointed by the court to oversee your assets, which can be expensive and time consuming.

Taking advantage of estate tax savings. If you’re married, you may have created a trust that contains terms for estate tax savings. This will often delay estate taxes until the death of the second spouse, by providing income to the surviving spouse and access to principal during his or her lifetime while the ultimate beneficiaries are your children. Depending where you live, the trust can also reduce state estate taxes. You must fund your trust to make certain that these estate tax provisions work properly.

Remember that any asset transfer will need to be consistent with your estate plan. Your beneficiary designations on life insurance policies should be examined to determine if the beneficiary can be updated to the trust.

You may also want to move tangible items to the trust, as well as any closely held business interests, such as stock in a family business or an interest in a limited liability company (LLC). Ask an experienced estate planning attorney about the assets to transfer to your trust.

Fund your trust now to maximize your updated estate planning documents.

Reference: Forbes (July 13, 2020) “Don’t Overlook Your Trust Funding”

Can I Protect My Estate with Life Insurance?

With proper planning, insurance money can pay expenses, such as estate tax and keep other assets intact, says FedWeek’s article entitled “Protect Your Estate With Life Insurance.”

The article provides the story of “Bill” as an example. He dies and leaves a large estate to his daughter Julia. There are significant estate taxes due. However, most of Bill’s assets are tied up in real estate and an IRA. Julia may not want to hurry into a forced sale of the real estate. If she taps the inherited IRA to raise cash, she’ll be forced to pay income tax on the withdrawal and lose a valuable opportunity for extended tax deferral.

A wise move for Bill would be to purchase life insurance on his own life. The policy’s proceeds could be used to pay the estate tax bill. Julia will then be able to keep the real estate, while taking only the Required Minimum Distributions (RMDs) from the inherited IRA. If Julia owns the insurance policy or it’s owned by a trust, the proceeds probably will not be included in Bill’s estate and won’t help with the estate tax obligation.

However, there are a few common life insurance errors that can damage an estate plan:

Designating the estate as beneficiary. If you make this move, you put the policy proceeds in your estate, where the money will be exposed to estate tax and your creditors. Your executor will also have additional paperwork, if your estate is the beneficiary. Instead, be certain to name the appropriate people or charities.

Designating a single beneficiary. Name at least two “backup” or contingency beneficiaries. This will eliminate some confusion in the event the primary beneficiary should predecease you.

Placing your life insurance in the “file and forget” file. Be sure to review your policies at least once every three years. If the beneficiary is an ex-spouse or someone who has passed away, you need to make the appropriate change and get a confirmation, in writing, from your life insurance company.

Inadequate insurance. You may not have enough life insurance. If you have a young child, it may require hundreds of thousands of dollars to pay all of his or her expenses, such as college tuition and expenses, in the event of your untimely death. Skimping on insurance may hurt your surviving family. You also don’t need to be so thrifty, because today’s term insurance costs are very low.

Reference: FedWeek (June 11, 2020) “Protect Your Estate With Life Insurance”

What Parts of Estate Plan Should Be Reviewed in the Pandemic?

Forbes’ April article entitled “6 Parts Of Your Estate Plan You Should Review Now” discusses several items in your plan that should be examined, in light of the coronavirus pandemic.

In this pandemic, who will make important financial and medical decisions for you, if you’re unable to make them for yourself?

Make certain that you’ve designated a person who is trustworthy and reliable. Don’t forget to name a back-up for your power of attorney and health care proxy.

Look at your will. Make sure the person you’ve named as the executor of your estate is current. This is the individual who’ll attend to your affairs after you die and take care of probating your will, if necessary. She will also file income and tax returns on behalf of the estate. If you have minor children, name a guardian for them in the will.

Review your trust. Your revocable living trust usually benefits you while you’re alive. It can also be used to benefit others, such as a spouse and children. Name those who will receive the assets at your death. If your beneficiaries are minors or not mature enough to handle a sizeable sum, you might hold assets for them in trust, until they’re old enough to handle the money themselves. Review your decision regarding your trustee and see that this is the right person to administer the trust, based on your wishes.

Be sure to fund the trust. This will avoid probate of the assets on your death and lets the successor trustee control the assets for your benefit, if you’re incapacitated. If you fail to do so, it will create a host of problems after you’re gone. Your heirs will need court authority to access your assets, which can be an expensive and time-consuming endeavor.

Update your beneficiary designations. This includes the beneficiary designations on your life insurance policies, retirement accounts and any brokerage accounts that are payable on death to a beneficiary.

Ask your estate planning attorney about taking advantage of estate tax opportunities. It is important to have everything in order in the pandemic.

Reference: Forbes (April 15, 2020) “6 Parts Of Your Estate Plan You Should Review Now”

How Do I Avoid the Three Biggest Estate Planning Mistakes?

After you die, your last will and testament must be approved by the local probate court. The judge will determine if the document is the last will of the deceased, review the inventory of the estate and confirm who will administer the estate proceeds. It’s known as “executing” a will.

Wealth Advisor’s recent article entitled “Avoid these 3 estate-planning mistakes and make probate cheaper and easier for your loved ones” discusses some mistakes that people make and how to avoid them.

  1. You don’t have a will, or you have a will that was written in another state. You also should have a current will. Life changes, and you need a will for where you live in now. Residency is defined differently in each state, and an out-of-state will delays the probate process, because it fails to satisfy state requirements. Worse yet, it may even be declared invalid.

If there is no will, the deceased is said to have died “intestate,” and his estate must go through probate. However, an administrator will be named by the judge to distribute assets, according to state law. It can be a lengthy and often costly process.

Some people don’t want to hire an attorney to create their estate plan or write a will, because they believe it’s too expense or they never get around to doing it. However, if you die without a will, the legal costs will be even more and that will be paid by your estate—that decreases what’s left to give to your heirs.

  1. Mixing up estate taxes with probate. Your estate may be too small to be subject to federal tax, if it is less than the $11.58 million exemption. However, you still will be subject to probate and possibly a state estate tax. Therefore, you still need an estate plan.
  2. Disregarding easy things to keep some assets from probate. Most states have a “mini-probate” that is expedited for small estates. With this process, heirs may have fewer fees, less paperwork and shorter waiting.

You can also create a living trust (revocable trust) to avoid probate altogether, if done correctly. This is a legal vehicle to which all of your assets pass upon your death. Ask an estate planning lawyer to help you create a trust, because they can be complicated. Whether you need a trust, a will, or both, an experienced estate planning attorney has worked through a variety of situations and will have sound and creative ideas. Investing time and money with an attorney makes life easier for you now and for your family later.

Reference: Wealth Advisor (Feb. 18, 2020) “Avoid these 3 estate-planning mistakes and make probate cheaper and easier for your loved ones”

Should I Give My Kid the House Now or Leave It to Him in My Will?

Transferring your house to your children while you’re alive may avoid probate, the court process that otherwise follows death. However, gifting a home also can result in a big, unnecessary tax burden and put your house at risk, if your children are sued or file for bankruptcy.

Further, you also could be making a big mistake, if you hope it will help keep the house from being used for your nursing home bills.

MarketWatch’s recent article entitled “Why you shouldn’t give your house to your adult children” advises that there are better ways to transfer a house to your children, as well as a little-known potential fix that may help even if the giver has since passed away.

If you bequeath a house to your children so that they get it after your death, they get a “step-up in tax basis.” All the appreciation that occurred while the parent owned the house is never taxed. However, when a parent gives an adult child a house, it can be a tax nightmare for the recipient. For example, if the mother paid $16,000 for her home in 1976, and the current market value is $200,000, none of that gain would be taxable, if the son inherited the house.

Families who see this mistake in time can undo the damage, by gifting the house back to the parent.

Sometimes people transfer a home to try to qualify for Medicaid, the government program that pays health care and nursing home bills for the poor. However, any gifts or transfers made within five years of applying for the program can result in a penalty period, when seniors are disqualified from receiving benefits.

In addition, giving your home to someone else also can expose you to their financial problems. Their creditors could file liens on your home and, depending on state law, get some or most of its value. In a divorce, the house could become an asset that must be sold and divided in a property settlement.

However, Tax Code says that if the parent retains a “life interest” or “life estate” in the property, which includes the right to continue living there, the home would remain in her estate rather than be considered a completed gift.

There are specific rules for what qualifies as a life interest, including the power to determine what happens to the property and liability for its bills. To make certain, a child, as executor of his mother’s estate, could file a gift tax return on her behalf to show that he was given a “remainder interest,” or the right to inherit when his mother’s life interest expired at her death.

There are smarter ways to transfer a house. There are other ways around probate. Many states and DC permit “transfer on death” deeds that let people leave their homes to beneficiaries without having to go through probate. Another option is a living trust.

Reference: MarketWatch (April 16, 2020) “Why you shouldn’t give your house to your adult children”

How to Keep the Family Vacation Home in the Family

If this winter-like weather plus pandemic have left you wondering about how to get started on passing the family vacation home to the family or preparing to sell it in the future, you’ll need to understand how property is transferred. The details are shared in a useful article titled “Exit strategy for keeping the cabin in the family” from The Spokesman Review.

Two options to consider: an outright sale to the adult children or placing the cabin in a qualified personal residence trust. Selling the vacation home and renting it back from the children, is one way that parents can keep it in the family, enjoy it without owning it, and help the children out with rental income.

One thing to bear in mind: the sale of the vacation home will not escape a capital gains tax. It’s likely that the vacation home has appreciated in value, especially if you’ve owned it for a long time. If you have made capital improvements over that time period, you may be able to offset the capital gains.

The actual gain is the difference between the adjusted sales price (that is, the selling price minus selling expenses) and their adjusted basis. What is the adjusted basis? That is the original cost, plus capital improvements. These are the improvements to the property with a useful life of more than one year and that increase the value of the property or extend its life. A new roof, a new deck, a remodeled kitchen or basement or finished basement are examples of what are considered capital improvements. New curtains or furniture are not.

Distinguishing the difference between a capital improvement and a maintenance cost is not always easy. An estate planning attorney can help you clarify this, as you plan for the transfer of the property.

Another way to transfer the property is with the use of a qualified personal residence trust (QPRT). In this situation, the vacation home is considered a second residence, and is placed within the trust for a specific time period. You decide what the amount of time would be and continue to enjoy the vacation home during that time. Typical time periods are ten or fifteen years. If you live beyond the time of the trust, then the vacation home passes to the children and your estate is reduced by the value of the vacation home. If you should die during the term of the trust, the vacation home reverts back to your estate, as if no trust had been set up.

A QPRT works for families who want to reduce the size of their estate and have a property they pass along to the next generation, but the hard part is determining the parent’s life expectancy. The longer the terms of the trust, the more estate taxes are saved. However, if the parents die earlier than anticipated, benefits are minimized.

The question for families considering the sale of their vacation home to the children, is whether the children can afford to maintain the property. One option for the children might be to rent out the property, until they are able to carry it on their own. However, that opens a lot of different issues. They should do so for period of one year at a time, so they receive the tax benefits of rental property, including depreciation.

Talk with a qualified estate planning attorney about what solution works best for your estate plan and your family’s future. There are other means of conveying the property, in addition to the two mentioned above, and every situation is different.

Reference: The Spokesman Review (April 19, 2020) “Exit strategy for keeping the cabin in the family”