What Documents are in an Estate Plan?

What Documents are in an Estate Plan?

Understanding how estate planning documents work is central to creating an estate plan for each individual’s unique situation. An estate planning attorney needs to know the details of your life, not because they’re nosy. It is because this is how they can create a plan tailored to protect you during your lifetime, plan for long-term care and distribute assets upon your death. A recent article, “Understanding estate planning documents” from Lake Country Record-Bee, explains in broad strokes what each estate plan needs to include.

The will nominates an executor to administer the decedent’s estate, including the distribution of specific gifts and other assets. Depending on your state of residence, the will must be witnessed by one or two people who have no interest in the outcome of your will. At death, the distribution of assets only applies to those in the estate and not to those who receive property transferred under a trust, through a designation of death beneficiary form or a joint tenancy title.

A trust controls and manages assets placed in the trust during life and after death. Assets held in a living trust are used to avoid conservatorships, should become incapacitated during life. Assets in trusts do not go through probate.

Assets transferred into a living trust must belong to the person to establishes the trust, known as the settlor. A married couple may establish a joint trust to receive community property, if they live in a community property state. Each spouse may choose to transfer his or her own separate property assets into a joint trust, or keep their separate property assets in separate trusts.

Trust assets are titled for ownership and control to the trustee. The trustee is a fiduciary, meaning they are the legal representative of the trust and administer the provisions of the trust as directed in the trust documents.

You should always have a successor trustee for a trust, who takes office when the last initial trustee resigns, becomes incapacitated, or dies. How and when the transfer to the successor trustee takes place is included in the trust documents. Some trusts include a specific method to fill a trustee vacancy, if no nominated successor trustee accepts the role.

Living trusts can be changed by the settlor. The incapacity or death of the settler makes a living trust an irrevocable trust. A joint trust, however, sometimes allows either settlor acting alone to amend the living trust. Your estate planning attorney will help you determine whether a joint trust makes sense for your family.

Powers of attorney (POA) allows a person (the principal) to authorize another person (the agent) to act as a representative over some or all of the principal’s own legal and financial affairs. The POA does not have any power over a trust; the trustee is in charge of the trust. A POA can be effective on signing or effective upon incapacity of the principal. POA forms do not always reflect specific individual wishes, so it’s best to have one created by an estate planning attorney.

The Advance Health Care Directive (AHCD) delegates authority to an agent to make decisions and act on the principal’s needs in health care. The AHCD must be created and be in place before incapacity occurs. An incapacitated person cannot sign legal documents.

Reference: Lake County Record-Bee (Feb. 18, 2023) “Understanding estate planning documents”

Can a Power of Attorney Withdraw Money from Bank Account?

Can a Power of Attorney Withdraw Money from Bank Account?

A power of attorney, or POA, is a legal document giving another person the legal authority to make financial and legal decisions on your behalf. Known as an agent or attorney-in-fact, you should only name someone to be your POA, if you trust them implicitly and believe they will always manage your affairs with your best interest in mind, according to the recent article titled “Can A Power Of Attorney Transfer Money To Themselves?” from Washington Independent.

There are different types of power of attorney and ethical and legal considerations surrounding the transfer of money. The two main types of POA are general POA and durable POA. A general POA gives the agent broad authority to handle financial and other matters on your behalf, and the power ends if you become incapacitated. A durable POA remains in effect, if you become incapacitated and continues until your death or until it is revoked.

The powers given to an agent vary widely depending on the state laws governing the document, and also vary depending on the specific document. In general, an agent can use the POA to handle a wide range of financial matters, including paying bills, managing investments, buying and selling real property and signing legal documents.

Using non-state specific blank forms downloaded from the web leads almost always leads to complicated (read: costly and time-consuming) problems for an agent. The specific powers granted to the agent need to be spelled out in the document. For example, you may wish for your POA to manage paying household bills, but not to sell the house.

There are also ethical considerations. While the POA gives the agent the authority to transfer money on your behalf, they are fiduciaries and are held to a higher standard of ethics. They must act in your best interest at all times.

Transferring money from your account to the agent’s account for their benefit would be a clear violation and could result in legal consequences, including criminal charges. The transfer could be challenged in court and the agent could be held accountable for any damages.

If you are concerned about a person abusing this role, there are steps to take to minimize the risk.

  • Chose a trustworthy and reliable person to serve as your agent.
  • Limit the powers granted by having a customized Power of Attorney drafted by an experienced estate planning attorney. The document could specify that the agent is not permitted to transfer money to themselves or use your funds for their personal benefit.
  • Monitoring the action of the agent. If you are incapacitated, name a person to monitor the agent and provide them with contact information for your estate planning attorney if there are any questions.

Reference: Washington Independent (Feb. 7, 2023) “Can A Power Of Attorney Transfer Money To Themselves?”

How Does a Trust Work?

How Does a Trust Work?

You’ve worked hard to accumulate financial assets. You’ll need them to support your retirement. However, what if you also want to pass them on to loved ones? Trusts are used to pass assets to the next generation and have many benefits, says a recent article titled “Passing assets through a trust—What to know” from the Daily Bulldog.

“Funded” trusts don’t go through probate, which can be time-consuming, costly, and public. Your last will and testament becomes a public document when it is filed in the courthouse. Anyone can see it, from people wanting to sell your home to thieves looking for victims. Trust documents are not public, so no one outside of the grantor and the trustee knows what is in the trust and when distributions will be made. A trust also gives you the ability to be very specific about who will inherit assets in the trust, and when.

An estate planning attorney will help establish trusts, ensuring they are compliant with state law. There are three key questions to address during the trust creation process.

Who will serve as a trustee? There are several key roles in trusts. The person who creates the trust is the grantor of the trust. They name the trustee—the person or company charged with managing the trust’s assets and carrying out the instructions in the trust. You might choose a loved one. However, if they don’t have the knowledge or experience to manage the responsibilities, you could also name a corporate fiduciary, such as a bank or trust company. These entities charge for their services and usually require a minimum.

When will distributions be made? As the grantor, you get to decide when assets will be distributed and the amount of the distribution. You might want to keep the assets in the trust until the beneficiary reaches legal age. You could also structure the trust to make distributions at specific ages, i.e., at 30, 35 and 40. The trust could even hold the assets for the lifetime of the beneficiary and only distribute earned income. A large part of this decision has to do with how responsible you feel the beneficiaries will be with their inheritance.

What is the purpose of the trust? The grantor also gets to decide how trust assets should be used. The trust could designate broad categories, such as health, education, maintenance and support. The trust can be structured so the beneficiary needs to ask the trustee for a certain amount of assets. Other options are to structure the trust to provide mandatory income, once or twice a year, or tie distributions to incentives, such as finishing a college degree or purchasing a first home.

An estate planning attorney will explain the different types of trusts and which one is best for your unique situation. There are many different types of trusts. You’ll want to be sure to choose the right one to protect yourself and your loved ones.

Reference: Daily Bulldog (Dec. 24, 202) “Passing assets through a trust—What to know”

What Is Included in an Estate Inventory?

What Is Included in an Estate Inventory?

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

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

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

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

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

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

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

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

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

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

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

Factors to Consider when Picking Executor, Trustees and POAs

Factors to Consider when Picking Executor, Trustees and POAs

Having your estate planning documents created with an experienced professional is important, as is naming the people who will be putting your plan into action. A key sticking point is often deciding who is the right person for the role, says an article from Nasdaq titled “Estate Planning: 5 Tips to Pick Trustees, Executors and POAs.” It helps to stop thinking about how people will feel if they are not selected and focus instead on their critical thinking and decision making abilities.

Consider who will have the time to help. Having adult children who are highly successful in their professions is wonderful. However, if they are extremely busy running a business, leading an organization, etc., will their busy schedules allow the flexibility to help? A daughter with twins may love you to the moon and back. However, will she be able to handle the tasks of estate administration?

Take these appointments seriously. Selecting someone on an arbitrary basis is asking for trouble. Just because one child is older doesn’t necessarily mean they are capable of managing your estate. Making a decision based on gender can be equally flawed. Naming agents and executors with financial acumen is more important than giving your creative child the chance to learn how to manage money through your estate.

Don’t make the process more complicated. There are many families where parents name all the siblings to act on their behalf, so no one feels left out. This usually turns into an estate disaster. An odd number of siblings can lead to one group winning decisions by sheer numbers, while aggressive, win-at-all-costs siblings—even if it’s just two of them—can lead to delayed decisions and family divisions.

Name the right person for right now. Younger people who don’t yet have children often aren’t sure who their best agent might be. Picking a parent may become problematic, if the parent becomes sick or dies. Naming a close friend in your thirties may need updating if your friendship wanes. Make it simple: appoint the best person for today, with the caveat of updating your agents and documents as time goes on and circumstances change. Remember, circumstances always change.

Consider the value of a professional trustee or fiduciary. The best person to be a trustee, executor or power of attorney may not always be a family member or friend. If a trustee is one sibling and the beneficiary of the trust is another sibling who can’t manage money, the relationship could suffer. If a large estate includes generational trusts and complex ownership structures, a professional may be better suited to deal with management and tax issues.

The value of having an estate plan cannot be overstated. However, the importance of who will be appointed to oversee and administer the estate is equally important. The success of an estate plan often rests on the people who are assigned to handle their respective tasks.

Be candid when speaking with an experienced estate planning attorney about the people in your life and their abilities to manage the roles.

Reference: nasdaq (Sep. 4, 2022) “Estate Planning: 5 Tips to Pick Trustees, Executors and POAs”

What are Alternatives to Guardianship?

What are Alternatives to Guardianship?

Guardianships are drastic and very invasive. They strip individuals of their legal autonomy and establish the guardian as the sole decision maker. To become a guardian requires strong evidence of legal incapacity, and approval by a judge, explains an article titled “Guardianships Should Be a Last Resort–Consider These Less Draconian Options First” from Kiplinger. They should not be undertaken unless there is a serious need to do so. Once they’re in place, guardianships are difficult to undo.

If an elderly person with dementia failed to make provisions durable powers of attorney for health care and for financial matters before becoming ill, a guardianship may be the only ways to protect the person and their estate. There are also instances where an aging parent is unable to care for themselves properly but refuses any help from family members.

Another scenario is an aging grandparent who plans to leave funds for minor beneficiaries. Their parents will need to seek guardianships, so they can manage the money until their children reach the age of majority.

Laws vary from state to state, so if you might need to address this situation, you’ll need to speak with an estate planning attorney in the elderly parent or family member’s state of residence. For the most part, each state requires less restrictive alternatives to be attempted before guardianship proceedings are begun.

Alternatives to guardianship include limited guardianship, focused on specific aspect of the person’s life. This can be established to manage the person’s finances only, or to manage only their medical and health care decisions. Limited guardianships need to be approved by a court and require evidence of incapacity.

Powers of attorney can be established for medical or financial decisions. This is far less burdensome to achieve and equally less restrictive. A Healthcare Power of Attorney will allow a family member to be involved with medical care, while the Durable General Power of Attorney is used to manage a person’s personal financial affairs.

Some families take the step of making a family member a joint owner on a bank, home, or an investment account. This sounds like a neat and simple solution, but assets are vulnerable if the co-owner has any creditor issues or risk exposure. A joint owner also doesn’t have the same fiduciary responsibility as a POA.

An assisted decision-making agreement creates a surrogate decision-maker who can see the incapacitated person’s financial transactions. The bank is notified of the arrangement and alerts the surrogate when it sees a potentially suspicious or unusual transaction. This doesn’t completely replace the primary account holder’s authority. However, it does create a limited means of preventing exploitation or fraud. The bank is put on notice and required to alert a second person before completing potentially fraudulent transactions.

Trusts can also be used to protect an incapacitated person. They can be used to manage assets, with a contingent trustee. For an elderly person, a co-trustee can step in if the grantor loses the capacity to make good decisions.

Planning in advance is the best solution for incapacity. Talk with an experienced estate planning attorney to protect loved ones from having to take draconian actions to protect your best interests.

Reference: Kiplinger (July 7, 2022) “Guardianships Should Be a Last Resort–Consider These Less Draconian Options First”

What Happens to Investment Accounts when Someone Dies?

What Happens to Investment Accounts when Someone Dies?

Taking responsibility for a decedent’s probate or trust estate often involves managing significant amounts of wealth, whether they are brokerage accounts or cash assets. Today’s volatile markets add another level of complexity to this responsibility. The article “Estate Planning: Investments during administration of decedent’s estate” from Lake County News explains what estate administrators, executors and trustees need to know as they take on these tasks.

Investment account values are in a constant state of change and may include assets now considered too risky because they are owned by the estate and not the individual. The administrator will need to evaluate the accounts in light of debts owed by the decedent, the costs in administering the estate and any gifts to be made before the estate will be closed.

At the same time, too much cash on hand could mean unproductive assets earning less than they could, losing value to inflation. If there is a long time between the death of the owner and the date of distribution, depending on markets and interest rates, having too much cash could be detrimental to the beneficiaries.

The personal representative or trustee, as relevant, may determine that the cash should be invested, shift how existing investments are managed, or decide to sell investments to generate cash needed for debts, expenses and distributions to beneficiaries.

A personal representative is not expected or required to be a stock market expert. Their duties are to manage estate assets as a person making prudent decisions for the betterment of the estate and heirs. They must put the interest of the estate above their own and not make any speculative investments. With the exception of checking accounts, the expectation is for estate accounts to earn something, even if it is only interest.

If the personal representative has the authority to do so, they may invest in very low-risk debt assets. If the will includes investment powers and if certain conditions safeguarding payment of the decedent’s debts and expenses are satisfied, the personal representatives may invest using those powers. In some instances, a court order may be needed. An estate planning attorney will be able to advise based on the laws of the state in which the decedent resided.

For a trust, the trustee has a fiduciary duty to invest and manage trust assets for beneficiaries. Assets should be made productive, unless the trust includes specific directions for the use of assets prior to distribution. The longer the trust administration takes and the larger the value of the trust, the more important this becomes.

In all scenarios, investment decisions, including balancing risk and reward, must be made in the context of an overall investment strategy for the benefit of heirs. Investments may be delegated to a professional investment advisor, but the selection of the advisor must be made cautiously. The advisor must be selected prudently and the scope and terms of the selection of the advisor must be consistent with the purposes and terms of the trust. The trustee or executor must personally monitor the advisor’s performance and compliance with the overall strategy.

Reference: Lake County News (June 11, 2022) “Estate Planning: Investments during administration of decedent’s estate”

What If You Don’t have a Will?

What If You Don’t have a Will?

A will is a written document stating wishes and directions for dealing with the property you own after your death, also known as your “estate,” explains a recent article “Placing the puzzle pieces of long-term care and planning a will” from Pittsburgh Post-Gazette. The COVID pandemic has reinforced the importance of having an estate plan in place. With almost one million deaths attributed to COVID to date, many families have learned this lesson in the hardest possible way.

When someone dies without a will, property is distributed according to their state’s intestacy laws. If your next of kin is someone you loathe, or even just dislike, they may become an heir, whether you or the rest of your family likes it or not. If you are part of an unmarried couple, your partner has no legal rights, unless you’ve created a will and an estate plan to provide for them.

In general, intestacy laws distribute property to a surviving spouse or certain descendants. A much better solution: speak with an experienced estate planning attorney to have a will and other estate planning documents prepared to protect yourself and those you love.

Start by determining your goals and speaking with family members. You may be surprised to learn an adult child doesn’t need or want what you want to leave them. If you have a vacation home you want to leave to the next generation, ask to see if they want it.

A family meeting, attended by an objective person, like an estate planning attorney, may be helpful in clarifying your intentions and setting expectations for heirs. It may reveal new information about your family and change how you distribute your estate. A grandchild who has already picked out a Ferrari, for instance, might make you consider setting up a trust with distributions over time, so they can’t blow their inheritance in one purchase.

Determining who will be your executor is another important decision for your will. The executor is like the business manager of your estate after you have passed. They are a fiduciary, with a legal obligation to put the estate’s interest above their own. They need to be able to manage money, make sound decisions and equally important, stick to your wishes, even when your surviving loved ones have other opinions about “what you would have wanted.”

You’ll need to speak with this person to make sure they are willing to take on the task. If there is no one suitable or willing, your estate planning attorney will have some suggestions. Depending on the size of the estate, a bank or trust company may be able to serve as executor.

The will is just the first step. An estate plan includes planning for incapacity. With a Will, a Power of Attorney, Health Care Proxy, and Living Will (also known as an Advance Directive), you and your loved ones will be better positioned to address the inevitable events of life.

Reference: Pittsburgh Post-Gazette (April 24, 2022) “Placing the puzzle pieces of long-term care and planning a will”

How to Handle Digital Assets in a Will

How to Handle Digital Assets in a Will

Now that cryptocurrency has become almost commonplace, it is necessary to incorporate it into estate plans and their administration, according to the article “Estate planners want to keep the crypt out of cryptocurrency” from Roll Call.

One advantage of using cryptocurrencies in estate planning is the ease of transference—if all parties know how crypto works. Unlike a traditional bank, which typically requires executors to produce an original death certificate and other documents to take control of accounts in the estate, cryptocurrency only requires the fiduciary to have passcodes to gain access to accounts.

The passcode is a complex, multicharacter code appearing to be a long string of unrelated numbers and letters. It is stored in a digital wallet, which can only be accessed through the use of the 64-digit passcode, also known as a key.

While the passcode is simple, it is also very vulnerable. If the key is lost, there is no way to retrieve it. The executor must know not just where the key is physically located if it has been written down on paper, or if it is kept in a digital wallet, but how to access the digital wallet. There are also different kinds of digital wallets.

People do not usually share their passwords with others. However, in the case of crypto, consider storing it in a safe but accessible location and telling a trusted person where it may be found.

People who own cryptocurrency need to give someone access info. If someone is named an executor at one point in your life and they have the information about digital assets, then at some point you change the executor, there is no way to guarantee the former executor might not access the account.

How do you protect digital assets? Using “cold storage,” an account passcode is stored and concealed on a USB drive or similar device, allowing the information to be shared without the user needing to learn the passcode to access the account. The cold storage USB drive can be given from one fiduciary to the successor fiduciary without either knowing the passcode.

Many bills have been introduced in Congress addressing cryptocurrency and blockchain policies. The IRS has issued a number of notices and publications regarding taxes on digital currency transactions. Crypto is no longer an “invisible” asset.

In addition to policies and regulations, litigation concerning estates and cryptocurrency is still relatively new to the judiciary. Planning for these assets to ensure they are passed to the next generation securely is very important as their use and value continues to grow.

Reference: Roll Call (Feb. 22, 2022) “Estate planners want to keep the crypt out of cryptocurrency”

Who Is the Best Choice for Power of Attorney?

Who Is the Best Choice for Power of Attorney?

Picking a person to serve as your Power of Attorney is an extremely important part of your estate plan, although it is often treated like an afterthought once the will and trust documents are completed. Naming a POA needs to be given the same serious consideration as creating a will, as discussed in this recent article “Avoid powers of attorney mistakes” from Medical Economics.

Choosing the wrong person to act on your behalf as your Power of Attorney (POA) could lead to a host of unintended consequences, leading to financial disaster. If the same person has been named your POA for healthcare, you and your family could be looking at a double-disaster. What’s more, if the same person is also a beneficiary, the potential for conflict and self-dealing gets even worse.

The Power of Attorney is a fiduciary, meaning they are required to put your interests and the interest of the estate ahead of their own. To select a POA to manage your financial life, it should be someone who you trust will always put your interests first, is good at managing money and has a track record of being responsible. Spouses are typically chosen for POAs, but if your spouse is poor at money management, or if your marriage is new or on shaky ground, it may be better to consider an alternate person.

If the wrong person is named a POA, a self-dealing agent could change beneficiaries, redirect portfolio income to themselves, or completely undo your investment portfolio.

The person you name as a healthcare POA could protect the quality of your life and ensure that your remaining years are spent with good care and in comfort. However, the opposite could also occur. Your healthcare POA is responsible for arranging for your healthcare. If the healthcare POA is a beneficiary, could they hasten your demise by choosing a substandard nursing facility or failing to take you to medical appointments to get their inheritance? It has happened.

Most POAs, both healthcare and financial, are not evil characters like we see in the movies, but often incompetence alone can lead to a negative outcome.

How can you protect yourself? First, know what you are empowering your POAs to do. A boilerplate POA limits your ability to make decisions about who may do what tasks on your behalf. Work with your estate planning attorney to create a POA for your needs. Do you want one person to manage your day-to-day personal finances, while another is in charge of your investment portfolio? Perhaps you want a third person to be in charge of selling your home and distributing your personal possessions, if you have to move into a nursing home.

If someone, a family member, or a spouse, simply presents you with POA documents and demands you sign them, be suspicious. Your POA should be created by you and your estate planning attorney to achieve your wishes for care in case of incapacity.

Different grown children might do better with different tasks. If your trusted, beloved daughter is a nurse, she may be in a better position to manage your healthcare than another sibling. If you have two adult children who work together well and are respected and trusted, you might want to make them co-agents to take care of you.

Your estate planning attorney has seen all kinds of family situations concerning POAs for finances and healthcare. Ask their advice and don’t hesitate to share your concerns. They will be able to help you come up with a solution to protect you, your estate and your family.

Reference: Medical Economics (Feb. 3, 2022) “Avoid powers of attorney mistakes”