What You Need to Know about Drafting Your Will

A last will and testament is just one of the legal documents that you should have in place to help your loved ones know what your wishes are, if you can’t say so yourself, advises CNBC’s recent article entitled, “Here’s what you need to know about creating a will.” In this pandemic, the coronavirus may have you thinking more about your mortality.

Despite COVID-19, it’s important to ponder what would happen to your bank accounts, your home, your belongings or even your minor children, if you’re no longer here. You should prepare a will, if you don’t already have one. It is also important to update your will, if it’s been written.

If you don’t have a valid will, your property will pass on to your heirs by law. These individuals may or may not be who you would have provided for in a will. If you pass away with no will —dying intestate — a state court decides who gets your assets and, if you have children, a judge says who will care for them. As a result, if you have an unmarried partner or a favorite charity but have no legal no will, your assets may not go to them.

The courts will typically pass on assets to your closest blood relatives, despite the fact that it wouldn’t have been your first choice.

Your will is just one part of a complete estate plan. Putting a plan in place for your assets helps ensure that at your death, your wishes will be carried out and that family fights and hurt feelings don’t make for destroyed relationships.

There are some assets that pass outside of the will, such as retirement accounts, 401(k) plans, pensions, IRAs and life insurance policies.

Therefore, the individual designated as beneficiary on those accounts will receive the money, despite any directions to the contrary in your will. If there’s no beneficiary is listed on those accounts, or the beneficiary has already passed away, the assets automatically go into probate—the process by which all of your debt is paid off and then the remaining assets are distributed to heirs.

If you own a home, be certain that you know the way in which it should be titled. This will help it end up with those you intend, since laws vary from state to state.

Ask an estate planning attorney in your area — to ensure familiarity with state laws—for help with your will and the rest of your estate plan.

Reference: CNBC (June 1, 2020) “Here’s what you need to know about creating a will”

What Should I Keep in My Safety Deposit Box?

A safe deposit box isn’t a smart choice for everything. Kiplinger’s recent article entitled “9 Things You’ll Regret Keeping in a Safe Deposit Box” advises that there are some items you might not want to lock up in your bank, which isn’t open nights, holidays, or weekends. zin this pandemic, hours of operation for many businesses are reduced. In fact, some financial institutions, like Bank of America, have temporarily closed some locations. There are other banks that require an appointment for in-branch services, like accessing your safe deposit box. This would create a headache for you in your attempt to retrieve important documents or items when you need them.

Here are some important items you should store elsewhere, because you’ll need to access more often or on short notice. Maybe they should be in a fireproof safe that’s secured to the floor in your home.

Cash. Keeping a wad of cash in a safe deposit box, isn’t a good idea because if you need it in a pinch and the bank is closed, you’re out of luck. In addition, that cash will lose its buying power over time because of inflation and some banks don’t allow cash in a safe deposit box. Finally, cash in a safe deposit box isn’t protected by the FDIC. To have FDIC insurance (covering up to $250,000 per depositor per insured bank), your cash needs to be deposited in a qualifying deposit account, such as a checking account, savings account, or CD.

Your Passport. OK, most of us don’t need your passport in hand at a moment’s notice. However, you may need to take an emergency trip, which will happen during non-banking hours. Without your passport handy, there’s not much you can do about those calls in the middle of the night requiring you to dash.

The Original Copy of Your Will. You may want to keep a copy of your own will, your spouse’s and any in which you’re named the executor in a safe deposit box. However, don’t store the original copy of your will there, particularly if you’re the only owner of the safe deposit box. That’s because after your death, the bank will seal the safe deposit box, until your executor can prove she has the legal right to access it. This could mean a long and potentially expensive delay before your will is executed and your assets can be disbursed to the intended heirs. Keep the original copy of your will with your estate planning attorney or in a location where your executor can get to it without any legal hassles.

Letters of Instruction. Many people write a letter of instruction to accompany their will. This letter can describe whether you want to be buried or cremated and the type of service you want. This letter can include details on specific bequests of sentimental items, but it’s no help if its’ locked in your safe deposit box.

Durable Power of Attorney (POA). This document gives a trusted friend, family member, or professional adviser the authority to financial make decisions on your behalf. However, if your POA is in a safe deposit box that no one can access, the person you’re depending on to protect you at your time of need could find her hands tied. Keep the original POA with the original copy of your will and give copies to those who may need it one day.

Advance Directives. A living will and a health care proxy are sometimes collectively known as advance directives, but each has a unique purpose. A living will states your wishes for end-of-life care, and a health care proxy (also known as a health care power of attorney) names a person to make medical decisions for you, if you can’t make them yourself. Neither is any good locked away in an inaccessible safe deposit box.

Uninsured Jewelry and Collectibles. Heirloom jewelry and your valuable stamp collection and rare coins are good candidates for a safe deposit box, but they must be properly insured. The FDIC doesn’t insure safe deposit box contents, and neither does the bank, unless it’s stated in your agreement.

Any Illegal or Dangerous Items. Your bank should provide you with a list of items that are not permissible to keep in a safe deposit box. This will include things like firearms, illegal drugs and hazardous materials.

Reference: Kiplinger (June 1, 2020) “9 Things You’ll Regret Keeping in a Safe Deposit Box”

What You Need to Do after a Loved One Dies

The Dallas Morning News’ recent article entitled “Three things to do on the death of a loved one” explains the steps you should take, if you are responsible for a family member’s assets after they die.

Be sure the property is secured. A deceased person’s property becomes a risk in some instances. Friends and family will help themselves to what they think they should get, including the deceased’s personal property. Once it is gone, it is hard to get it back and into the hands of the individual who’s legally entitled to receive it.

Criminals also look at the obituaries, and while everyone is at the funeral or otherwise unoccupied, burglars can break into the house and steal property. Assign security or ask someone to stay at the house to protect the property. You can also change the locks. Credit cards, debit cards, and checks need to be protected. The deceased’s mail must be collected, and cars should be locked up.

Make funeral plans. If you’re lucky, the deceased left a written Appointment of Burial Agent with detailed instructions, which can make your job much easier.

For example, Texas law lets a person appoint an agent to be in charge of funeral arrangements and to describe the arrangements. An estate planning attorney can draft this document as part of an estate plan. You should see if this document was included. If you’re listed as the agent, present the paper to the funeral home and follow the instructions. If there are no written instructions, the law will say who has the authority to make arrangements for the disposition of the body and to plan the funeral.

Talk to an experienced attorney. When a person dies, there is often a lapse in authority. The decedent’s power of attorney is no longer in effect, and the executor designated in the will doesn’t have any authority to act, until the will is admitted to probate and the executor is appointed by the probate judge and qualifies by taking the oath of office and filing a bond, if required. Direction is needed earlier rather than later, on what you’re permitted to do. The probate of a will takes time.

It is best to get started promptly, so that there’s an executor in place with power to handle the affairs of the decedent.

Reference: Dallas Morning News (April 10, 2020) “Three things to do on the death of a loved one”

What Should My Estate Plan Include?

The Huffington Post’s recent article entitled “A Guide To Estate Planning During The Coronavirus Pandemic” says that almost everyone should have an estate plan—even if there’s no major health threat. If you don’t have one, right now is a great time to put it together.

In the COVID-19 pandemic, the two most critical documents to have are medical and financial powers of attorney. You should name someone to do your banking or make your medical decisions, if you are quarantined in your home, admitted to the hospital, or become incapacitated. When you have those in place, you need to create a comprehensive estate plan. Let’s look at the documents you should have and what they mean.

  1. A Financial Power of Attorney. This is a legal document that gives your agent authority to take care of your financial affairs and protect your assets by acting on your behalf. For example, your agent can pay bills, write checks, make deposits, sell or purchase assets, or file your tax returns. Without an FPOA, there’s no one who can act on your behalf. Family members will have to petition the probate court to appoint a guardian to have these powers, and this can be a time-consuming and expensive process.
  2. A Health Care Power of Attorney. Like a financial power of attorney, this legal document gives an agent the power to make health care decisions on your behalf, if you become incompetent or incapacitated. If you’re over the age of 18 and don’t have an HCPOA, your family members will have to ask the probate court to again appoint a guardian with these powers.
  3. A Living Will (Advance Health Care Directive). This allows you to legally determine the type of end-of-life treatment you want to receive, in the event you become terminally ill or permanently unconscious and cannot survive without life support. Without a living will, the decision to remove life support is thrust upon your health care agent or family members, and it can be an extremely stressful decision. If you draft a living will, you detail your wishes and take that decision out of their hands.
  4. A HIPAA Waiver. An advance health care directive will likely contain language that allows your agent to access your medical records, but frequently hospitals will refuse access to medical information without a separate HIPAA waiver. This lets your agents and family members access your medical data so they can speak freely with your physicians, if there is a medical emergency or you become incapacitated.
  5. A Will. A last will and testament is a legal document through which you direct how you want your assets disbursed when you pass away. It also allows you to name an executor to oversee the distribution of your assets. Without a will, the distribution of your assets will be dictated by state law, and the court will name someone to oversee the administration of your estate. A will also lets you name a guardian to take care of your minor children.
  6. A Living Trust. A revocable living trust is a legal tool whereby you create an entity to hold title to your assets. You can change your trust at any time, and you can set it up to outlive you. In the event you become incapacitated or are unable to manage your estate, your trust will bypass a court-appointed conservatorship. A trust also gives you privacy concerning the details of your estate, because it avoids probate, which is a public process. A living trust can also help provide for the care, support, and education of your children, by releasing funds or assets to them at an age you set. A living trust can also leave your assets to your children in a way that will lessen the ability of their creditors or ex-spouses to take your children’s inheritance from them.

Reference: The Huffington Post (April 7, 2020) “A Guide To Estate Planning During The Coronavirus Pandemic”

Estate Planning Options to Consider in Uncertain Times

Now is a good time to reach out to an estate planning attorney to review and update beneficiaries, named executors, financial and healthcare powers of attorney, wills and trusts, advises the article “Planning Strategies During Market Uncertainty & Volatility: Estate Planning and Debt Usage” from Traders Magazine. There are also some strategic estate planning tools to consider in the current environment.

Intentionally Defective Grantor Trusts (IDGTs): These are irrevocable trusts that are structured to be “intentionally defective.” They are gifts to grantor trusts for non-grantor beneficiaries that allow contributed assets to appreciate outside of the grantor’s estate, while the income produced by the trust is taxed to the grantor, and not the trust. The external appreciation requires the grantor to use non-trust assets to pay the trust’s income taxes, which equals a tax-free gift to the beneficiaries of the trust, while reducing the grantor’s estate. Trust assets can grow tax-free, which creates additional appreciation opportunities for trust beneficiaries. IDGTs are especially useful to owners of real estate, closely held businesses or highly-appreciating assets that are or will likely be exposed to estate tax.

Grantor Retained Annuity Trusts (GRATs): GRATs allow asset owners to put assets irrevocably into trusts to benefit others, while receiving fixed annuity payments for a period of time. GRATs are especially effective in situations where low asset values and/or interest rates are present, because the “hurdle rate” of the annuity payment will be lower, while the price appreciation is potentially greater. GRATs are often used by asset owners with estate tax exposure who want to transfer assets out of their estate and retain access to cash flow from those assets, while they are living.

Debt strategies: Debt repayment represents an absolute and/or risk-adjusted rate of return that is often the same or better than savings rates or bond yields. Some debt strategies that are now useful include:

Mortgage refinancing: Interest rates are likely to be low for the foreseeable future. People with long-term debt may find refinancing right now an advantageous option.

Opportunistic lines of credit: The low interest rates may make tapping available lines of credit or opening new lines of credit attractive for investment opportunities, wealth transfer, or additional liquidity.

Low-rate intra-family loans: When structured properly, loans between family members can be made at below-interest, IRS-sanctioned interest rates. An estate planning attorney will be able to help structure the intra-family loan, so that it will be considered an arms-length transaction that does not impose gift tax consequences for the lender.

High-rate intra-family or -entity loans: This sounds counter-intuitive, but if structured properly, a high-rate intra-family or -entity loan can charge a higher but tax-appropriate rate that increases a fixed income cash flow for the borrower, while avoiding gift and income tax.

All of these techniques should be examined with the help of an experienced estate planning attorney to ensure that they align with the overall estate plan for the individual and the family.

Reference: Traders Magazine (May 6, 2020) “Planning Strategies During Market Uncertainty & Volatility: Estate Planning and Debt Usage”

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”

Why Do I Need an Advanced Healthcare Directive?

During the prime of our lives, we typically don’t give much attention to thoughts about becoming seriously ill or about the end of life. Conversations about sickness and your own mortality aren’t easy topics to raise. However, it’s important for us to approach these heavy topics with our families, so we rest easy knowing their needs will be met if or when our health fails.

Rome News-Tribune’s recent article entitled “Things to know before drafting a living will” explains that an advanced healthcare directive, also called a living will, is a legal document in which you can detail the specific types of medical care and comfort treatment that you want, if you are unable to make decisions for yourself because of illness or incapacity. A living will can state whether life support should be used and whether pain medication should be administered.

A living will is separate and distinct from a traditional will. A will is a legal document that states how you would like your assets distributed after you pass away.

A living will is not always required, if you don’t have any strong feelings about the decisions made on your behalf while you are incapacitated. However, if you do want to provide instruction about your treatment and care, a living will is the best way to be certain that your choices will be carried out. Here are some other questions you may want to ask yourself about a living will.

  • Do I want to eliminate the stress of difficult decisions from my family? A living will can relieve your grieving family of the responsibility of making very tough decisions of invoking lifesaving (“heroic”) measures.
  • Do I have strong feelings about life-saving methods? A living will allows you to state your exact preferences on feeding tubes, life support when brain function is minimal and many other circumstances.
  • Do I have a trusted person who is able to carry out wishes? A health care proxy is an individual that you name and give the power to make decisions for you, if you are unable to express your preferences for medical treatment. Along with a living will, the health care proxy or “durable medical power of attorney” can fulfill your wishes accordingly.

Ask your estate planning attorney about this important component of medical and estate planning.

Reference: Rome News-Tribune (March 7, 2020) “Things to know before drafting a living will”

How Do Farmers Start an Estate Plan?

The Bangor Daily News explains in its article “How farmers can start an estate plan” that we all know we’re going to die, but it’s not our favorite thing to talk about. However, it’s important to start these conversations.

The article helps aging farmers who want to get started with the estate planning process, by sharing some tips to clear up some of the confusion, eliminate questions in the process and motivate you to begin your estate planning journey.

One expert described the process as a business transition. It is not unlike retirement decisions that somebody might make for a job. However, it is much more complicated, because there are many more resources to address (and perhaps many more people).

Clearly defined goals will make that transition much easier for everyone involved. Memorialize your goals by writing them down, along with your dreams for the transfer of the farm. Don’t forget to include your fears.

A basic estate plan can be as simple as a will, a medical directive and a power of attorney. Work with an experienced estate planning attorney to facilitate the various elements of estate planning.

Make a complete inventory of all assets you own, including the deeds to all the tracts of land in your possession.

Identify a successor, so you know who will take over the farm when you die. It’s essential to ensuring the longevity of the farm business you worked so hard to create. As far as transferring your assets in family farm businesses, inter-generational politics can be dicey, when it comes to estate planning. It really boils down to the succession of your farm from one generation to another.

You must be certain to do this in an orderly way to make sure the needs of both generations are met.

If you don’t have a family member interested in taking over the farm, there are local agencies that can help you find young farmers to whom you can sell and who would be able to take over the business.

When it comes to estate planning, it is never too early to begin.

Reference: Bangor Daily News (March 5, 2020) “How farmers can start an estate plan”

When Should I Update My Estate Plan?

Forbes’ recent article entitled “Do You Need A Trust? 8 Important Goals A Trust Can Help You Achieve” discusses eight ways a trust can help you achieve specific legacy planning goals. The first step is to meet with an experienced estate planning attorney.

Everybody needs a will, but not everyone requires a trust. A trust provides greater flexibility and control over how your property and assets are distributed. Many people create a trust to avoid probate. As a result, it’s faster and easier for your named trustee(s) to distribute your assets to your heirs. There are a many different types of trusts with advantages and disadvantages. Talk about what will be best for you with your estate planning attorney.

  1. No probate. This process can take months or more to complete, and it can be very expensive. A trust is designed to settle your estate in a timely and relatively inexpensive manner.
  2. Privacy and confidentiality. Probate is public, so your will and other private financial and business info is available to everyone. However, a trust maintains privacy and confidentiality.
  3. Protection for beneficiaries. A trust can shield beneficiaries from lawsuits, creditors, or divorce. A trust can also protect the interests of a minor, by including direction for when distributions are made.
  4. Provide for children with special needs. This type of trust provides for the health care and personal needs of a minor child or adult who has special needs and won’t impact their eligibility for Medicaid benefits.
  5. Flexibility. As the creator of the trust, you determine the terms of the trust, and can put restrictions on how trust assets are managed. For instance, the trust could state that assets may only be used by the beneficiary to purchase a home or to pay medical bills but may not be distributed directly to the beneficiary.
  6. Preserve family wealth. Divorce and remarriage can result in assets that were supposed to stay in the family wind up leaving with the ex-spouse. A trust can make certain that your estate is preserved for grandchildren.
  7. Family values. A trust can be a wonderful way to pass down family values concerning education, home ownership, land conservation, community service, religious beliefs and other topics.
  8. Lessening family conflict. Challenging a trust is difficult and costly. Having a trust in place that clearly articulates your wishes for your family, reduces the potential for misunderstanding.

Whether you have a trust in place or are thinking about creating one, it’s important to meet regularly with your estate planning attorney to be certain your strategy and estate planning documents reflect any new state and federal tax laws, as well as any changes in your goals and circumstances.

Reference: Forbes (Feb. 24, 2020) “Do You Need A Trust? 8 Important Goals A Trust Can Help You Achieve”

What are Some Good Estate Planning Ideas in the Pandemic?

With the COVID-19 pandemic, many people are looking to execute estate plans they’ve delayed in finalizing and signing. Others are ready to get going on their estate plans that they should’ve started years ago.

Forbes’ recent article entitled “Eight Estate Planning Strategies In A COVID-19 World” lists some things you should know.

Most estate planning can be done at home. While you may be restricted from physically seeing your attorney, you can still create, update, or finalize your estate plan. Attorneys are working remotely and are available via email, telephone and video conferencing to help you.

Get your estate planning in order. The odds are you now have some time to consider the issues you’ve placed on the back burner for a long time. Leverage this time to address your estate planning.

New options for signing document. Many attorneys are approaching estate plan document signings on a case-by-case basis. You may be able to sign in the attorney’s office or at your home, while practicing social distancing and wearing gloves and masks. Some law firm are even offering drive-up will signings.

Some states now permit online notarization of certain types of documents.

These new laws allow for remote online notarization (RON), a process by which notarization is conducted via video conferencing. In this process, the signing party (the “principal”) must undergo an identity-proofing process that differs by state.

In most states, the principals are required to answer several personal questions. They also must show valid ID, which in many states, must be examined and verified by a third-party security service. Once the principal’s identity is confirmed, she signs the document with a digital signature. The remote online notary witnesses the document, by affixing an electronic seal as they stream the live, audio-visual conference.

Talk to an experienced estate planning attorney about how you should proceed with your estate planning, in light of this new (and hopefully temporary) reality.

At least, you can get all your documents organized and ready to sign when it is safe to venture outside.

Reference: Forbes (March 23, 2020) “Eight Estate Planning Strategies In A COVID-19 World”