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”

How to Protect Valuable Assets in Estate Planning

How to Protect Valuable Assets in Estate Planning

If you fail to take the necessary measures, you can lose your assets and property, which might cause financial challenges when you will not be working in retirement.

Legal Reader’s recent article entitled “How to Legally Protect Your Assets” says there are different strategies you can use to protect your personal assets.

This will help you to prepare for any eventuality. Let’s look at some of them:

A Family Trust. This may be one of the best strategies to protect your personal assets. A trust will help protect your assets when you lose all your money. A family trust can also provide tax benefits to family members in lower tax brackets. However, talk to an experienced estate planning attorney before setting up the trust to make the right decisions.

Start a Company. This may be an alternative to setting up a family trust, since your property will be more secure than when operating a sole proprietorship or a partnership business. This gives you a more secure future, even when you face financial challenges. However, there are many legalities in starting a company, so talk to an attorney.

Register Your Most Valuable Assets in the Name of the Low-risk Spouse. This tactic will make it difficult for a trustee or liquidator to gain access to the property in case of bankruptcy. However, ask an attorney to help you to structure the purchase to make certain that the low-risk partner’s name appears on the legal documents. An experienced estate planning attorney can also help you access benefits, such as Social Security and Medicaid.

These laws keep changing. You might miss an opportunity of getting long-term care planning, if you keep postponing a review with an experienced estate planning attorney.

As you spend your hard-earned cash, take some time to learn how to protect what you buy.  You should also use the legal strategies above to keep your property secure.

Reference: Legal Reader Jan. 26, 2022) “How to Legally Protect Your Assets” 

What Should Not Be Included in Trust?

What Should Not Be Included in Trust?

Whether you have a will or not, assets may go through the probate process when you die. People use trusts to take assets out of their probate estate, but they don’t always understand the relationship between wills and trusts. This is explored in a recent article “What Assets Should be Included in Your Trust?” from Kiplinger.

Probate can be a long and expensive process for heirs, taking from a few months to a few years, depending on the size and complexity of the estate. Many people ask their estate planning attorney about using trusts to protect and preserve assets, while minimizing the amount of assets going through probate.

Revocable trusts are used to pass assets directly to beneficiaries, under the directions you determine as the “grantor,” or person making the trust. You can set certain parameters for assets to be distributed, like achieving goals or milestones. A trust provides privacy: the trust documents do not become part of the public record, as wills do, so the information about assets in the trust is known only to the trustees. If you become incapacitated, the trust is already in place, protecting assets and fulfilling your wishes.

Estate planning attorneys know there’s no way to completely avoid probate. Some assets cannot go into trusts. However, removing as many assets as possible (i.e., permitted by law) can minimize probate.

Once trust documents are signed and the trusts are created, the work of moving assets begins. If this is overlooked, the assets remain in the probate estate and the trust is useless. Assets are transferred to the trust by retitling or renaming the trust as the owner.

Assets placed in a trust include real estate, investment accounts, life insurance, annuity certificates, business interests, shareholders stock from privately owned businesses, money market accounts and safe deposit boxes.

Funding the trust with accounts held by financial institutions is a time-consuming process. However, it is necessary for the estate plan to achieve its goals. It often requires new account paperwork and signed authorizations to retitle or transfer the assets. Bond and stock certificates require a change of ownership, done through a stock transfer agent or bond issuer.

Annuities already have preferential tax treatment, so placing them in a trust may not be necessary. Read the fine print, since it’s possible that placing an annuity in a trust may void tax benefits.

Certificates of Deposit (CDs) are usually transferred to a trust by opening a new CD but be mindful of any early termination penalties.

Life insurance is protected if it is placed in a trust. However, there are risks to naming the living trust as a beneficiary of the insurance policy. If you are the trustee of your revocable trust, all assets in the trust are considered to be your property. Life insurance proceeds are included in the estate’s worth and could create a taxable situation, if you reach the IRS threshold. Speak with your estate planning attorney to determine the best strategy for your trust and your insurance policy.

Should you put a business into a trust? Transferring a small business during probate presents many challenges, including having your executor run the business under court supervision. For a sole proprietor, transfers to a trust behave the same as transferring any other personal asset. With partnerships, shares may be transferred to a living trust. However, if you hold an ownership certificate, it will need to be modified to show the trust as the shareowner instead of yourself.  Some partnership agreements also prohibit transferring assets to living trusts.

Retirement accounts may not be placed in a trust. Doing so would require a withdrawal, which would trigger income taxes and possibly, extreme penalties. It is better to name the trust as a primary or secondary beneficiary of the account. Funds will transfer upon your death. Health or medical savings accounts cannot be transferred to a living trust, but they can be named as a primary or secondary beneficiary.

Careful consideration needs to be made when determining which assets to place within a trust and which should remain as part of your probate estate. Your estate planning attorney will know what is permitted in your state and what best suits your situation.

Reference: Kiplinger (Jan. 16, 2022) “What Assets Should be Included in Your Trust?”

Choose Wisely and Protect Yourself When Naming a Power of Attorney

Choose Wisely and Protect Yourself When Naming a Power of Attorney

Deciding who to name as your power of attorney, or “agent” is not an easy decision. However, it is a necessary appointment, says this article “Ways to protect yourself when appointing a power of attorney” from The Mercury. Disaster and disability strike without advance notice, so it’s important to make this decision while you are well and can think it through.

If you don’t have a power of attorney in place and the unexpected occurs, the only way for your family to obtain legal authority to act on your behalf is through a guardianship procedure. Even when not contested, guardianship is expensive, time consuming and can limit personal freedom. Not every court will award guardianship to a family member, so the end result could be a stranger taking control of your decisions and property.

Having a power of attorney is a far better alternative, but there are seniors who are concerned about the power of a POA and how it might be abused. Here are some tips to keep you in control of your life even with a POA:

Choose wisely when you are well. Choose your agent when you are of sound mind and body. A common “test” is the checkbook test: could you, right now, hand this person your checkbook without a second thought? Do you believe this person would act responsibly, in your own best interest, follow through in paying bills, ask for help in areas they may not understand, record transactions and be scrupulously honest? If you hesitate to give them your checkbook today, you aren’t likely to trust them to run your life in the future.

Many people choose an agent based on whether the person is the oldest child or if there would be hurt feelings if the person was named. These are not good reasons. A person who has problems managing money, for whatever reason, is not a good candidate. Their own stress might make access to your funds too great to resist.

Name a secondary Power of Attorney. There should always be a back-up person named, if the person you name is not able to serve. The same goes for trustees and beneficiaries. Discuss these alternatives with your estate planning attorney to ensure the attorney knows the identities of the primary and secondary choices.

Have a Power of Attorney customized to your personal needs. Not all Powers of Attorney are the same, and one that is great for a friend may be a disaster for you. Limited powers, unlimited powers, powers to gift or powers only for a specific task or period of time are all options when creating a Power of Attorney. You may have a business to run or a partnership to dissolve. Gifting might be permitted to limit estate taxes, if that is your wish. Limited gifting generally means $15,000 a year, although your estate planning attorney can provide guidance on how to best structure gifting for you. If you own life insurance policies, you may want to permit your agent to cash in insurance policies but not allow the agent to change the named beneficiaries.

Two agents or one agent? Not all banks or investment companies will accept two agents. If they do, will the two people you select be able to work together? If not, naming two could create a financial and legal firestorm.

Financial Power of Attorney and Health Care Power of Attorney can be two separate roles. One person might be terrific with managing money, while another could be better at understanding and managing healthcare providers. Naming different people for each task will allow both to participate in caring for you and draw on their unique skillsets.

Fire when necessary. You always have the right to remove someone from their role as your agent. Your attorney will know how to do this properly to protect you and other agents.

Reference: The Mercury (Aug. 3, 2021) “Ways to protect yourself when appointing a power of attorney”

How to Keep the Vacation Home in the Family

How to Keep the Vacation Home in the Family

There are several ways to protect a vacation home so it remains in the family and is not overly burdensome to any one member or couple in the family, according to the article “Estate planning for vacation property” from Pauls Valley Daily Democrat.

To begin, families have the option of creating a legal entity to own the asset. This can be a Family LLC, a partnership or a trust. The best choice depends upon each family’s unique situation. For an LLC, there needs to be an operating agreement, which details management and administration, conflict resolution, property maintenance and financial matters. The agreement needs to include:

Named management—ideally, two or three people who are directly responsible for managing the LLC. This typically includes the parents or grandparents who set up the LLC or Trust. However, it should also include representatives from different branches in the family.

Property and ownership rules must be clarified and documented. The property’s use and rules for transferring property are a key part of the agreement. Does a buy-sell agreement work to give owners the right to opt out of owning the property? What would that look like: how can the family member sell, who can she sell to and how is the value established? Should there be a first-right-of refusal put into place? In these situations, a transfer to anyone who is not a blood descendent may require a vote with a unanimous tally.

There are families where transferring ownership is only permitted to lineal descendants and not to the families of spouses who marry into the family.

Finances need to be spelled out as well. A special endowment can be included as part of the LLC or as a separate trust, so that money or investments are set aside to pay taxes, upkeep, insurance and future capital requirements. Anyone who has ever owned a house knows there are always capital requirements, from replacing an ancient heating system to fixing a roof after decades of a heavy snow load.

If the endowment is not enough to cover costs, create an agreement for annual contribut6ions by family members. Each family will need to determine who should contribute what. Some set this by earnings, others by how much the property is used. What happens if someone fails to pay their share?

Managing use of the property when there is a legal entity in place is more than a casual “Who calls Mom and Dad first.” The parents who establish the LLC or Trust may reserve lifetime use for themselves. The managers should establish rules for scheduling.

For parents or grandparents who create an LLC or Trust, be sure it works with your estate plan. If they intend to keep the property in the family and wish to leave a bequest for its maintenance, for instance, the estate planning attorney will be able to incorporate that into the LLC or Trust.

Reference: Pauls Valley Democrat (July 29, 2021) “Estate planning for vacation property”

Why Estate Planning is Essential for Small Business Owners

Why Estate Planning is Essential for Small Business Owners

For the entrepreneurial-minded person, nothing beats the excitement of having a vision for a business, and then making that dream come true. However, have you ever wondered what will happen to that business after you are gone?

A comprehensive estate plan, says Bakersfield.com, in the recent article “Estate planning tips for small business owners,” provides a plan that can protect your life’s work.

It makes sense. You’ve likely spent decades building your business throughout your working life. You’re proud of what you have accomplished, and you should be. You should then protect it with a well-thought-out plan. Your estate planning attorney will be able to help you design a two-pronged plan for your business and your personal life. For business owners, these two are intertwined.

Can you avoid taxes? Reviewing your personal and business assets, as part of an estate plan, is the best way to minimize the tax exposure of your estate and facilitate an organized sale or succession plan for your business. You can’t completely avoid taxes, but good planning will help them from being excessive.

There are a number of IRS sections that can help, and your estate planning attorney will know them. For example, Section 6166 gives your loved ones more time to pay the tax, by paying in ten annual installments. Another Section, 303, lets your family redeem stock with few tax penalties. Talk with your attorney and CPA to find out if your business is eligible for either of these strategies. Create a plan and talk about it in detail with survivors to help them navigate the transition.

Do you have a buy-sell agreement in place? This is critical, if more than one person owns the business. The buy-sell agreement dictates how the partnership or LLC is distributed upon the death or incapacity of one of the owners. Without one, family members may be stuck owning a company they don’t want or don’t know anything about. Alternatively, your former partners may find themselves partnered with people with whom they never intended to go into business.

The buy-sell agreement creates a plan so, when an owner passes, the shares of the company must be bought out by the other owners at a fair market price. The agreement can even establish a sale price, so family members will know exactly what they can expect to receive from the sale. In addition, a buy-sell agreement can be used to block certain individuals from taking a role in the business. For many family businesses, that’s enough of a reason to make sure to have a buy-sell agreement.

How are life insurance policies used by small business owners? Maybe you want the business to die with you. Some small businesses provide a stable income for the owner, but there’s no plan for the business to be passed to another family member or to survive the passing of the owner. If that is your situation, and you want your family to have income, you’ll need a life insurance policy.

A life insurance policy can also be used to help partners with the capital they’ll need to purchase your shares, if that is how your buy-sell agreement has been set up.

As a small business owner and a family breadwinner, you want to be sure your family and your business are prepared for your passing. Talk with your estate planning attorney to make sure both are protected, in the event of your passing.

Reference: Bakersfield.com (July 15, 2019) “Estate planning tips for small business owners”