What Should Small Business Owners Know about Estate Planning?

Not having an estate plan can place business owners and entrepreneurs in jeopardy because they may face difficulties in keeping the business running, if they have to withdraw from the business at any point in time.

Legal Reader’s recent article entitled “What Small Business Owners Should Know about Doing Estate Planning” explains that estate planning is necessary to ensure business continuity. Think about who can take control when you’re no longer around to have the business continue according to your wishes contained in your estate plan. An experienced estate planning attorney can help business owners create a comprehensive estate plan, so things do not become chaotic for their family in the event of premature death or any permanent disability. Consider these steps when it comes to good estate planning for business owners.

Create an estate plan if you haven’t got one. A will is designed to detail your wishes about how you want the business to run and the manner of sharing your property at your death. A power of attorney allows an entrusted individual to undertake your business transactions and manage your finances, if you are incapacitated by injury or illness. A healthcare directive permits a trusted agent to make medical decisions on your behalf when you can’t do so yourself.

Plan for taxes. Tax planning is a major component of estate planning. Our tax laws keep changing frequently, so you have to stay in constant touch with your attorney to develop strategies for decreasing your tax liability, as well as creating a strategy for minimizing inheritance/estate taxes.

Buy life and disability insurance. Small business owners should think about purchasing life insurance, so their families can have a source of income after their death.

Create a succession plan. In addition to estate planning, a business owner should have a succession plan that specifies exactly how your company, and your family will prepare for a transition of ownership. The purpose of a well thought out succession plan is to keep the business operating or to take steps to sell it. This plan also includes the organizational structure of the business in case of maintaining business continuity.

Finally, you should keep everyone impacted by your decisions apprised of your estate plan and your business succession plan.

Reference: Legal Reader (Aug. 26, 2021) “What Small Business Owners Should Know about Doing Estate Planning”

Is It Better Not to Have a Will?

When a person dies, estate and probate law govern how assets are distributed. If the person who has died has a properly prepared will, they have set up a “testate inheritance.” Their last will and testament will guide the distribution of their assets. If they die without a legitimate will, they have an “intestate estate,” as explained in a recent article titled “Testate vs. Intestate: Estate Planning” from Yahoo! Finance.

In an “intestate estate,” assets are distributed according to the laws of inheritance in the specific legal jurisdiction. The decedent’s wishes, or the wishes of their spouse or children, are not considered. The law is the sole determining power. You have no control over what happens to your assets.

Having a will prepared by an experienced estate planning attorney who is familiar with the law and your family’s situation is the best solution. The will must follow certain guidelines, including how many witnesses must be present for it to be executed property. A probate court reviews the will to ensure that it was prepared properly and if there are any doubts, the will can be deemed invalid.

Having a will drafted by an attorney makes it more likely to be deemed valid and enforced by the probate court. It also minimizes the likelihood of illegal or unenforceable provisions in the will.

Debts become problematic. If you owned a home and had unpaid property taxes or a mortgage and gave the house to someone in your will, they must pay the property taxes and either take over the mortgage or get a new mortgage and pay off the prior mortgage before taking ownership of the property. Otherwise, the executor may sell the home, pay the debts and give any remaining money to the heir.

Liabilities reduce inheritances. If someone has a $50,000 debt and very kindly left you $100,000, you’ll only receive $50,000 because the debt must be satisfied before assets are distributed. If the debt is higher than the value of the estate, heirs receive nothing.

Note that a person may use their will to distribute debts in any way they wish. Family members erroneously believe they are “entitled” by their blood relationship to receive an inheritance. This is not true. Anything you own is yours to give in any manner you wish—if you have a will prepared.

Another common problem: estates having fewer assets than expected. Let’s say someone gives a donation of $500,000 to a local charity, but their entire estate is only worth $100,000. In that case, the $100,000 is distributed in a pro-rata basis according to the terms of the will. The generous gift will not be so generous.

If there is no will, the probate code governs distribution of assets, usually based on kinship. Close relatives inherit before distant relatives. The order is typically (but not always, local laws vary) the spouse, children, parents of the decedent, siblings of the decedent, grandparents of the decedent, then nieces, nephews, aunts, uncles and first cousins.

Another reason to have a will: estranged or unidentified heirs. Settling an estate includes notifying all and any potential heirs of a death and they may have legal rights to an inheritance even if they have never met the decedent. Lacking a will, an estate is more vulnerable to challenges from relatives. Relying on state probate law to distribute assets is hurtful to those you love, since it creates a world of trouble for them.

Reference: Yahoo! Finance (Sep. 22, 2021) “Testate vs. Intestate: Estate Planning”

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?”

Is My Will Void If I Get Divorced?

If you neglect to update your estate plan after a divorce, everything you gave to your ex in your original will could very well add up to a nice post-divorce inheritance. Even in the most amicable divorces, it’s probably not what you had intended. Yet, as reported in the article “Rewriting Your Will After Divorce” from Investopedia, people do this.

Depending on where you live, there might be a law that automatically revokes gifts to a former spouse listed in a will. In Florida, there is a statute addressing this. In Texas, a law revokes gifts to the former spouse and their relatives. However, unless you know the laws of your state as well as an estate planning attorney, it’s best to let the estate planning attorney protect your estate.

What happens if you die before you are legally divorced?

If your will leaves everything to your surviving spouse and you are currently in the process of separating and divorcing, it’s time for a new will, as soon as possible.

Don’t forget assets passing outside of the will. Assets with beneficiary designations, like life insurance, investment accounts and some retirement plans, go directly to the beneficiary listed on the account. If the beneficiary is your ex, you should also make those changes as soon as possible.

Your estate plan must also update any property gained or lost during the divorce. If any assets are specifically identified in your will, be sure to update them.

The executor (the person named in your will to oversee the distribution of assets) probably has to be changed as well. If you had previously named your ex-spouse, it’s time to name a new executor.

Your will is also used to name a guardian for minor children. If you have children with your ex, you will want to appoint a guardian in case both you and your ex are not alive to raise them. If you die unexpectedly, your spouse will raise them, but you should still name a guardian. If a surviving parent has a serious problem, like addiction, child abuse or incarceration, naming a guardian in your will and documenting the reasons you believe your ex is an unfit parent may be a deciding factor in how a judge awards custody.

A will can be updated by writing a codicil, which is an amendment to a previous or a prior will. However, since there may be many changes to a will in a divorce, it is better to tear up the old one—literally—and start over. A prior will is revoked by physically tearing up and destroying the original and including language in the new will that it will revokes all prior wills. Your attorney will know how to do this properly.

Your ex may have the legal right to challenge your will. This is why an estate planning attorney is so necessary to create a new will. There are provisions in some states that may give your ex more rights than in other states. In a divorce situation, the use of an experienced estate planning attorney can make the difference in your ex receiving a windfall and your new spouse or children receiving their rightful inheritance.

Reference: Investopedia (September 14, 2021) “Rewriting Your Will After Divorce”

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?”

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”

How Does Probate Work?

Probate is a court-directed process to examine the last will and testament, authorize the executor named in the last will and give the “all clear” to the executor to go ahead and carry out all of the directions in the last will. However, it’s not always that simple—and sometimes, it can get extremely complicated.

A probate judge also oversees cases when there is no last will, explains the article “How Do Probate Judges Administer Estates?” from Yahoo! Finance. If there is no last will, the estate is considered “intestate,” and the court appoints an administrator to manage the estate.

Most probate cases are decided using the laws of the state. The probate judge may also be involved in guardianship and mental competency cases. In some states, the probate court oversees adoption cases instead of a family court. However, the main responsibility of the probate judge is overseeing estates.

Probate includes the process of determining the last will’s validity, ensuring that bills and taxes are paid and property is distributed according to the deceased’s wishes. However, if there is no last will and no family member petitions the court to contest the last will, the probate judge’s involvement in the estate (and the family’s life) becomes far more extensive.

Here’s how it works.

The executor of the estate files the last will with the probate court. The probate court has to be sure there are no objections to the last will, like a possibility that someone may claim that the last will was not knowing and voluntarily made by the decedent. In the most intense cases, the judge may have to declare the need for litigation. However, if there are no objections, the executor is approved. The next step is for the executor to get a tax ID number from the IRS and open an estate bank account.

The executor next notifies all interested parties about the last will. This is done by placing classified ads in local newspapers. All possible heirs must be notified, whether they are mentioned in the last will or not, and if they can be found. Creditors have a specific time period to submit claims against the estate through the probate court.

Inventory of all assets must be done, and a total value assigned to the estate on the date of death. The inventory is filed with the probate court and provided to heirs. This is a lot of work, and the executor must be diligent. It may be necessary to hire professionals to value assets, like real estate. Many people work with an estate planning attorney to ensure that the estate is properly valued.

If the last will is contested, the probate judge reviews evidence and hears arguments. The process can take years, depending on the complexity of the estate. The probate judge issues rulings and opinions.

If there is no last will, the judge appoints an administrator of the estate to conduct the duties of the executor as described above. With no last will, the probate judge invokes the law of intestate succession, which in most states, means that the order of inheritance is based on the relationship between the deceased and the next of kin. If there are estranged family members, they may end up inheriting most of the estate, regardless of their relationship with the decedent.

Having a last will prepared by an experienced estate planning attorney permits you to make the decisions about your property, spares your family from potentially losing everything you have worked to attain and saves your loved one’s time, money and emotional hardship.

Reference: Yahoo! Finance (Aug. 31, 2021) “How Do Probate Judges Administer Estates?”

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”