Think Strategically when Creating Estate Plan

Think Strategically when Creating Estate Plan

Mindful estate planning can create tax and investment efficiencies and help ensure that your wishes are fulfilled, says a recent article titled “Estate planning basics: Tips for strategic preparation” from Atlanta Business Chronicle. Before creating a plan, it may be helpful to understand the components of a comprehensive plan, how assets can be transferred and how to get started.

Thoughtful estate planning starts with key documents. Your last will and testament provides details on wishes about property distribution and assets after death. The will creator names an executor, who oversees and manages the estate until its final distribution, including payment of any outstanding debts or taxes.

The will has no impact on insurance proceeds, retirement assets, or transfer-on-death investment accounts. A will can be amended during the creator’s lifetime and should be reviewed every three years or so to ensure that it still aligns with the testator’s wishes.

Trusts are legal entities allowing a third party—the trustee—to manage assets on behalf of beneficiaries. There are many different kinds of trusts, depending on the family’s needs. The grantor, who is the person creating the trust, can define how and when assets pass to beneficiaries. They can be revocable, meaning the grantor can amend the trust as long as they are living, or irrevocable, meaning the grantor cannot amend the trust after its creation.

A letter of intent can accompany a will and is published to the executor, trustees and beneficiaries. This provides detail from the decedent on their wishes but is not legally enforceable.

Power of Attorney is used when the person creating it is physically or mentally disabled due to illness or injury. It allows an agent to manage financial and legal affairs, can be temporary or permanent and is revoked upon the death of the principal.

Advance directives for health care provide detailed guidance to caretakers and medical professionals regarding wishes for healthcare when the person is unable to communicate their own wishes.

Transferring assets to beneficiaries occurs in several different ways, including designations, jointly held accounts and property, probate, or trusts. Beneficiary designations are typically used with life insurance policies, annuity contracts, retirement accounts and investment accounts.

Some assets are owned through Joint Tenancy With Rights Of Survivorship (JTWROS). They pass by title or registration to a surviving co-owner. This type of ownership is usually used with bank and investment accounts, real estate property, vehicles, or boats. The asset automatically transfers to the surviving owner. Be sure to avoid conflicting instructions in wills or trusts when assets are owned with JTWROS.

Probate is the method through which the estate is approved by the court and assets are distributed using the will as guidance. The court also authorizes the executor to manage the estate.

Assets held in trust are maintained by trustees who hold the assets on behalf of beneficiaries. They are passed on based on the trust agreement and don’t go through probate.

Once you have created an inventory of all assets and properties, meet with an experienced estate planning attorney to draft the documents needed to carry out the plan. The attorney will help refine goals and clarify key issues. Assets may need to be retitled and trusts may need to be funded. Executors, trustees and beneficiaries should be notified, so they understand their role in your estate plan.

Reference: Atlanta Business Chronicle (March 1, 2023) “Estate planning basics: Tips for strategic preparation”

Why Do I Need a Will?

Why Do I Need a Will?

J.P Morgan Wealth Management’s recent article entitled, “Estate planning: Why everyone should have a will,” explains that your will doesn’t just control who gets your money; it also controls when they get it and who’s in charge of the process. For those with young children, a will is also the only place where you can tell a judge who should be your children’s guardian if something happens to you and you have no spouse — or if something happens to both of you at the same time.

A will is a legal document that determines what happens to your assets and liabilities after you pass away. This includes your money, real estate, other investments, personal belongings, collectibles, autos and more.

If you have children, it permits you to designate guardians if your children are under 18.

A will can even include funeral arrangements. However, you should note that it may take time for your family to locate your will, so you may want to state the wishes for your funeral in a separate document.

Among other things, you can:

  • Determine who inherits your assets;
  • Decide under what conditions your heirs can control their inheritance;
  • Designate guardians for your minor children; and
  • Decide who will be in charge of overseeing your estate until your heirs receive their inheritance.

Estate planning is the process of preparing for what happens after you die (and potentially for any incapacity beforehand).

This entails not only drafting your will, but also how you own assets (asset titling), who can make decisions for you if you’re unable to make your own decisions, and what kind of legacy you want to leave.

This may involve the help of an experienced estate planning attorney who can help crystallize the issues you should consider and guide you to a strategy once you’re clear on your goals and objectives.

If you don’t have a will that details the distribution of your assets, state law will do this for you.

Reference: J.P Morgan Wealth Management (Jan. 27, 2023) “Estate planning: Why everyone should have a will”

Do I Need a Will If I’m Leaving Insurance Policy to a Beneficiary?

Do I Need a Will If I’m Leaving Insurance Policy to a Beneficiary?

If you aren’t thorough with your estate planning, you could create conflict, even with the best of intentions, says a recent article from yahoo! Entertainment titled “Life Insurance Beneficiary vs. Will: Do I Need Both?”

Your life insurance beneficiary designation supersedes your will, so you’ll need to have your life insurance policy and your will aligned to save heirs from stress, confusion, and possible litigation. You can use both life insurance beneficiaries and wills to bequeath assets to others when you die. However, they can work together or against each other, so meticulous planning is key.

Here’s how they work, and which takes precedence.

A life insurance beneficiary is the person or entity, like a charity, named to receive proceeds from your life insurance policy when you die. Your beneficiary will receive payment from the life insurance policy according to the terms of the policy. Who you designate as a beneficiary doesn’t have anything to do with who receives other assets from your estate, such as property or financial accounts.

A will is a legal document declaring who should receive your possessions after death. The will does not define the destination of one specific asset, like a life insurance beneficiary. Instead, it contains a list of the beneficiaries who you wish to receive your assets.

If you have minor children, a will is also used to assign legal guardians, the people who you wish to raise your children in your absence.

Your will needs to go through probate court before beneficiaries receive anything. The probate process confirms your will’s authenticity, interprets the language in the will and authorizes the named executor to carry out your intentions. Your life insurance policy goes directly to your beneficiary without probate review.

Does a life insurance policy override a will? If you designate one person to receive your life insurance policy proceeds and then name a different person in the will to receive the proceeds, the person named in the life insurance policy will win. Any intentions in the will don’t influence or have any legal power over what’s in the will.

Your beneficiary designation in the policy is the sole determining factor, with one exception. If the beneficiary passes away before you and there is no contingent beneficiary named, the life insurance proceeds will go to your estate. Your executor will then disburse assets from the estate according to the beneficiaries named in your will.

Do you need a will? While a will has no influence over your life insurance, it’s a critical part of your estate plan. Probate court uses the will to determine who receives assets and name an executor. Just be sure that your will, any trusts and named beneficiaries on life insurance and other accounts are aligned to avoid creating friction between loved ones. It’s best to have a will to bring cohesion to your estate plan, instead of relying on separate beneficiary designations.

Reference: yahoo! entertainment (Feb. 6, 2023) “Life Insurance Beneficiary vs. Will: Do I Need Both?”

Do Family Secrets Hurt Estate Planning?

Do Family Secrets Hurt Estate Planning?

A study by the financial services research firm reveals just how big a problem family secrets can be, as reported in Financial Advisor’s recent article “Family Wealth Transfers Undermined by Secrecy.” Most asset holders plan to share their wishes and intentions with family members before they die. However, the research reveals only about half actually do so.

The survey looked at two demographics: affluent investors with more than $250,000 in investable assets and near affluent, investors under age 45 with earnings more than $125,000. Responses were weighted to reflect the distribution of households within these segments, which are wealthier and older than the average U.S. population.

Estate planning attorneys understand the complexity of multi-generational families and are experienced with nuances in family dynamics and the hesitancy of families to share their financial details. After a lifetime of not discussing wealth, it can be difficult to know where to begin.

When asked how well informed heirs are about their parent’s desires and plans for bequests, only 26% said their heirs were very well informed. The greater the wealth, the more likely conversations had taken place. About a third of respondents with more than $1 million in investable assets said heirs knew of their plans.

Those with less than $250,000 to pass on were not sure if heirs knew their wishes or, worse, admitted their heirs had absolutely no idea.

Although skipping generations offers tax advantages, most heirs receive inheritances directly from a parent upon their death. Having an estate plan in order, including wills and trusts agreements, ensures an orderly transfer of wealth.

A key component of successful wealth transfer is communication. However, this survey found a full 25% of respondents never intend to share information about their assets while they are living. This prevents comprehensive planning from taking place, since a number of aspects of wealth planning require active planning and other people to be involved during the parent’s lifetime.

Planning for incapacity requires the involvement of siblings, spouses, and heirs. Advanced directives, power of attorney, health care power of attorney and related documents need to be shared with family members, so they can act on the parent’s behalf. Lacking these documents creates emotional and financial burdens on loved ones.

Because healthcare costs later in life can quickly erode assets, talk with your estate planning attorney about health care and Medicaid planning for long term care to help manage expenses and preserve as much wealth as possible.

Reference: Financial Advisor (Feb. 22, 2023) “Family Wealth Transfers Undermined by Secrecy”

Probate: What Is it? How Does it Work?

Probate: What Is it? How Does it Work?

Many times, the word probate carries a negative connotation and it’s often positioned as something to avoid at all costs. According to a recent article “The Legal Corner: Pros and Cons of Probate” from The Huntsville Item, it’s important to understand the role probate plays in the estate planning and administration process. A comprehensive estate plan can minimize the probate process, and in some instances, it is a convincing reason to have a professionally created estate plan.

In cases where there is no will, the probate system ensures that all accounts and property are distributed in accordance with state law. There are potential benefits to having an estate go through probate in the administration of a decedent estate, including:

  • Probate provides a reliable procedure for the distribution of the deceased’s property in the absence of a will.
  • If a will exists, probate validates and enforces the wishes of the decedent.
  • Probate ensures that taxes and valid debts are paid, so beneficiaries are not left with an uncertain feeling regarding the decedent’s affairs.
  • If there were debts or unpaid bills, probate provides a means of limiting the amount of time creditors have to file claims, which may result in debt discharge, reduction, or other advantageous settlements.
  • It allows for third-party oversight by a court, potentially reducing family conflicts and in certain instances, encouraging family members to act properly.

There are also reasons to avoid probate. An experienced estate planning attorney can create an estate plan where wealth and property pass directly to beneficiaries, avoiding or minimizing all or part of the estate going through probate. These include:

  • Privacy is a big benefit of avoiding probate. Probate is a matter of public record, so certain documents, including personal and financial information, are accessible to the public. This is why wills should never have specific account names and numbers included.
  • Probate means that your estranged family member will be able to find out how the estate was distributed and read the will, even if you didn’t wish this to happen.
  • Probate can be costly. Probate requires court fees, attorney fees and executor fees, which are then deducted from the value of assets intended for loved ones.
  • Probate can be time-consuming, depending on where you live. In some jurisdictions, probate courts run smoothly. However, this is not always the case. If the family is depending on receiving assets quickly, for example, if funds are needed in order to maintain the decedent’s house so it can be sold, probate will require them to find other resources.

An estate planning attorney will be able to review the estate and determine which assets can be transferred to heirs through other means to avoid having the entire estate go through probate. They will also be familiar with the courts in your local jurisdiction and know how long it will take, if the estate needs to go through probate.

Reference: The Huntsville Item (Feb. 12, 2023) “The Legal Corner: Pros and Cons of Probate”

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”

Beneficiary Battle over Presley Estate Reveals Possible Problems in Estate Planning

Beneficiary Battle over Presley Estate Reveals Possible Problems in Estate Planning

This is the situation facing the estate of Lisa Marie Presley, whose estate is being challenged by her mother, Priscilla Presley, as described in a recent article, “Presley beneficiary battle sets example of poor estate planning practices” from Insurance NewsNet. These situations are not uncommon, especially when there’s a lot of money involved. They serve as a teachable moment of things to avoid and things to absolutely insist upon in estate planning.

Lisa Marie’s estate is being challenged because of an amendment to the trust, which surfaced after she died. The amendment cut out two trustees and named Lisa Marie’s children as executors and trustees.

At stake is as much as $35 million from three life insurance policies, with at least $4 million needed to settle Lisa Marie’s debts, including $2.5 million owed to the IRS.

When this type of wealth is involved, it makes sense to have professional trustees hired, rather than appointing family members who may not have the skills needed to navigate family dynamics or manage significant assets.

A request to change a will by codicil or a trust by amendment happens fairly often. However, some estate planning attorneys reject their use and insist clients sign a new will or restate a trust to make sure their interests are protected. In the case of Lisa Marie, the amendment might be the result of someone trying to make changes without benefit of an estate planning attorney to make the change correctly.

The origins of the estate issues here may go back to Elvis’ estate plan. His estate was worth $5 million at the time of this death, $20 million if adjusted for inflation. His father was appointed as the executor and a trustee of the estate. His grandmother, father and Lisa Marie were beneficiaries of the trust. Lisa Marie was just nine when her famous father died, and her inheritance was held until she turned 25.

When his father died, Priscilla was named as one of three trustees. When his grandmother died, Lisa Marie was the only surviving beneficiary. She inherited the entire amount on her 25th birthday—worth about $100 million largely at the time because of Priscilla’s skilled management.

Terminating such a large trust and handing $100 million to a 25 year old is seen by many estate planning attorneys as a big mistake. Distribution at an older age or over the course of the beneficiary’s lifetime could have been a smarter move. Lisa Marie reportedly blew through $100 million as an adult and was millions of dollars in debt, despite the estate having plenty of cash because of two large life insurance policies.

In 1993, Lisa Marie established a trust naming her mother and former business manager as trustees. The amendment in question seems to have been written in 2016, removing Priscilla and business manager Siegel as trustees, appointing Lisa Marie’s daughter and son as trustees, and naming her son and her fourteen year old twin sons as beneficiaries.

Priscilla’s attorneys say they had no prior knowledge of the change. Certain changes in estate plans require written notification of people with interest in the estate, which did not occur. They are also challenging the amendment’s authenticity, saying it was neither witnessed nor notarized. Priscilla’s name is misspelled and Lisa Marie’s signature is not consistent with other signatures of hers.

The estate is being contested, with a preliminary hearing on the matter scheduled for April 13.

Any changes to an estate plan, particularly those involving changes to the will, trusts or beneficiaries, should be done with the help of an experienced estate planning attorney. When large changes are made, or large assets are involved, a simple codicil or amendment could lead to complicated problems.

Reference: Insurance NewsNet (Feb. 17, 2023) “Presley beneficiary battle sets example of poor estate planning practices”

Read more about the article What Strategies Minimize Estate Taxes?

What Strategies Minimize Estate Taxes?

The gift and estate tax benefits from the Tax Cuts and Jobs Act (TCJA) are still in effect. However, many provisions will sunset at the end of 2025, according to a recent article “Trust and estate planning strategies” from Crain’s New York Business.

The most important aspect for estate planning was the doubling of the estate, gift and generation-skipping transfer tax exemptions. Adjusted for inflation, the current federal estate, gift and GST exclusion is $12.92 million in 2023. This is more than double the pre-TCJA amount, which will return in 2026, unless Congress makes any changes.

While these levels are in effect, there are strategies to consider.

  • Maximize gifting up to the 2023 annual exclusion of $17,000 per taxpayer, or $34,000 for married couples.
  • Depending on the value of the entire estate, consider strategies to keep it below the current exemption among of $12.92 million or $25.84 (married). If the estate is less than the exemption amount, no federal estate tax will need to be paid.
  • Plan charitable giving, including charitable IRA rollovers to make the most of the deduction on 2023 income tax returns. Qualified charitable distributions made directly from an IRA could be used to satisfy Required Minimum Distributions (RMDs) and exclude them from taxable income.
  • Set up 529 Plan accounts for children and/or grandchildren and consider making five years of annual exclusion gifts. Take into account any gifts made during the year to children and/or grandchildren when doing this.
  • Submit tuition or any non-reimbursable medical expenses directly to the school or medical provider to avoid having these amounts count towards the annual or lifetime gift tax exemption.
  • Discuss the use of a Grantor Retained Annuity Trust (GRAT), an irrevocable trust created for a certain period of time. Assets are placed in the trust and an annuity is paid out every year. When the trust expires and the last annuity payment is made, assets pass to beneficiaries outright or remain in a trust for beneficiaries.
  • Ask your estate planning attorney if a Qualified Personal Residence Trust is a good fit for you. This is an irrevocable trust allowing homeowners to transfer their home at a significantly discounted rate.
  • Explore intrafamily lending, which is used to transfer partial earnings to family members without lowering the lifetime estate tax exemption or triggering gift taxes.
  • Re-evaluate insurance coverage, which can provide opportunities to defer or avoid income taxes, or both, and provide assets to pay estate taxes or replace assets used to pay estate taxes.

Not all of these steps will be appropriate for everyone. However, understanding the options and discussing with your estate planning attorney will ensure that you are using the most effective strategies to achieve wealth preservation.

Reference: Crain’s New York Business (Feb. 13, 2023) “Trust and estate planning strategies”

Does Divorce Have an Impact on Estate Planning?

Does Divorce Have an Impact on Estate Planning?

Even the most amicable divorce requires a review and update of your estate plan, as explained in a recent article from yahoo! finance, “I’m Divorcing. Will That Impact My Estate Planning?” This includes your will, power of attorney and other documents. Not getting this part of divorce right can have long-term repercussions, even after your death.

Last will and testament. If you don’t have a will, you should get this started. Why? If anything unexpected occurs, like dying while your divorce is in process, the people you want to receive your worldly goods will actually receive them, and the people you don’t want to receive your property won’t. If you do have a will and an estate plan and if your will leaves all of your property to your soon-to-be ex-spouse, then you may want to change it. Just a suggestion.

State laws handle assets in a will differently. Therefore, talk with your estate planning attorney and be sure your will is updated to reflect your new status, even before your divorce is finalized.

Trusts. The first change is to remove your someday-to-be ex-spouse as a trustee, if this is how you set up the trust. If you don’t have a trust and have children or others you would want to inherit assets, now might be the time to create a trust.

A Domestic Asset Protection Trust (DAPT) could be used to transfer assets to a trustee on behalf of minor children. The assets would not be considered marital property, so your spouse would not be entitled to them. However, a DAPT is an irrevocable trust, so once it’s created and funded, you would not be able to access these assets.

Review insurance policies. You’ll want to remove your spouse from insurance policies, especially life insurance. If you have young children with your spouse and you are sharing custody, you may want to keep your ex as a beneficiary, especially if that was ordered by the court. If you received your health insurance through your spouse’s plan, you’ll need to look into getting your own coverage after the divorce.

Power of Attorney. If your spouse is listed as your financial power of attorney and your healthcare power of attorney, there are steps you’ll need to take to make this change. First, you have to notify the person in writing to tell them a change is being made. This is especially urgent if you are reducing or eliminating their authority over your financial and legal affairs. You may only change or revoke a power of attorney in writing. Most states have specific language required to do this, and a local estate planning attorney can help do this properly.

You also have to notify all interested parties. This includes anyone who might regularly work with your power of attorney, or who should know this change is being made.

Divide Retirement Accounts. How these assets are divided depends on what kind of accounts they are and when the earnings were received. The court must issue a Qualified Domestic Relations Order (QDRO) before defined contribution plans can be split. The judge must sign this document, which allows plan administrators to enforce it. This applies to 401(k) plans, 403(b) plans and any plans governed under ERISA (Employment Retirement Income Security Act of 1974).

Divorce is stressful enough, and it may feel overwhelming to add estate planning into the mix. However, doing so will prevent many future problems and unwanted surprises.

Reference: yahoo! finance (Feb. 3, 2023) “I’m Divorcing. Will That Impact My Estate Planning?”

How Do I Leave Assets for Heirs?

How Do I Leave Assets for Heirs?

How to distribute assets to beneficiaries isn’t always a simple decision. Not only do you want to consider how best to distribute assets, you also want to consider how and when beneficiaries should be able to access inheritances and then ensure this is all documented in your estate plan. A recent article from Kiplinger, “Estate Planning? Four Strategies for Leaving Assets to Your Heirs,” offers a few general considerations. Keep in mind what works for one family may not work for another, even when circumstances appear to be the same.

Strategy 1—Leaving Assets Outright. This is the simplest way to leave assets. However, it holds the potential for problems. If a family has significant wealth, heirs may be likely to live off their inheritance rather than become productive members of society. Risks like divorce or falling prey to scammers must also be considered. This approach is generally discouraged when families with significant wealth are planning to leave money to heirs, unless they have devoted a great deal of time and effort to teaching their children about handling large resources.

Strategy 2—Distributing Assets in Stages. By distributing assets in stages, a family can manage their wealth without putting entire inheritances at risk all at once. Families distributing assets in stages often use trusts to distribute assets at either certain ages or milestones, such as getting married, buying a home, or the arrival of children. Another is to pay a certain percentage of the trust to the beneficiary at specific ages, such as 10% at age 30, 20% at age 40, etc.

Strategy 3—A Discretionary Lifetime Trust. This type of trust maintains assets for the lifetime of the heirs. It offers the highest level of protection from outside risks like divorce, poor money management or lawsuits. The discretionary lifetime trust also creates a legacy for future generations. The trustee has the discretion to make distributions, but the grantor can also include instructions for the trustee, such as allowing the trustee to provide funds for certain uses, such as a down payment on a home.

Strategy 4—A Combination of Distribution Strategies. A combination of the above strategies may work best for families, so beneficiaries may receive some of their inheritance and leave the balance in trust. This allows heirs full access to a certain amount of money to support their lifestyle while pursuing their own ambitions, preventing them from being dependent on the success of their family.

There are many different tools used to achieve one or more of these goals. An experienced estate planning attorney is the best source for creating a plan to serve the family and the individual.

Reference: Kiplinger (Feb. 8, 2023) “Estate Planning? Four Strategies for Leaving Assets to Your Heirs”