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”

What Is Probate Court?

What Is Probate Court?

Probate court is a part of the court system that oversees the execution of wills, as well as the handling of estates, conservatorships and guardianships. This court also is responsible for the commitment of a person with psychiatric disabilities to institutions designed to help them.

Investopedia’s recent article entitled “What Is Probate Court?” also explains that the probate court makes sure all debts owed are paid and that assets are distributed properly. The court oversees and usually must approve the actions of the executor appointed to handle these matters. If a will is contested, the probate court is responsible for ruling on the authenticity of the document and the cognitive stability of the person who signed it. If no will exists, the court also decides who receives the decedent’s assets, based on the laws of the state.

Each state has rules for probate and probate courts. Some states use the term “surrogate’s court”, “orphan’s court”, or “chancery court.”

Probate is usually required for property titled only in the name of the person who passes away. For example, this might include a family home that was owned jointly by a married couple after the surviving spouse dies. However, there are assets that don’t require probate.

Here are some of the assets that don’t need to be probated:

  • IRA or 401(k) retirement accounts with designated beneficiaries
  • Life insurance policies with designated beneficiaries
  • Pension plan distributions
  • Living trust assets
  • Payable-on-death (POD) bank account funds
  • Transfer-on-death (TOD) assets
  • Wages, salary, or commissions owed to the deceased (up to allowable limit)
  • Vehicles intended for immediate family (under state law); and
  • Household goods and other items intended for immediate family (under state law).

Investopedia (Sep. 21, 2022) “What Is Probate Court?”

What Should I Know About Probate Costs?

What Should I Know About Probate Costs?

The cost of probate depends on several factors. One of the most important is the state where the decedent lived. The cost of probate varies from state to state, depending on the general cost of living in the state and state probate laws. Other factors also impact the cost of probate.

Nasdaq.com’s recent article entitled “How Much Does Probate Cost?” provides a breakdown of fees associated with probate. The process of probating an estate will settle the estate after the decedent’s death and following their last will and testament. It’s also used for those who die without a will or intestate. Assets owned only by the decedent are usually addressed in the will and are distributed according to the decedent’s wishes. An executor is usually named in the will, and an administrator of the estate is appointed in the case of a decedent dying intestate. The executor takes an inventory of the decedent’s assets, pays the decedent’s outstanding debts and presents the inventoried estate to the court for settlement. If there are no objections to the will, the estate is closed. If there are objections, the probate judge is responsible for settling them. The longer the probate process drags on, the more expensive it will be.

Probate can be a time-consuming process. A modest estate may take six to 24 months to settle. Larger estates can take even longer, if they’re complex.  It also necessary to add in more time if the will’s contested or beneficiaries can’t be found. The longer the process, the more expensive it becomes. Probate costs in 2021 run about 3% to 8% of the value of the estate. Let’s look at the key costs of probate:

Court Costs. This includes filing fees. Some states require the same filing fee for all estates, while others have a graduated scale depending on the size and complexity of the estate. The more complex the estate, the higher the court costs.

Executor Costs. The executor of a will is typically paid at least a nominal fee. Fees are mandated by state law, unless the decedent specifies in his or her will what the executor should be paid. Some states permit a flat and “reasonable” fee which may be determined by the court. Other states require a graduated fee, such as a certain percent of the estate for the first $100,000 and so on. If the will doesn’t state the executor’s fee or if the decedent dies intestate, the court determines the executor’s fee.

Accounting Fees. Accounting costs can be high with more complex estates. If the decedent has complicated business affairs to sort out or owns many stocks and other securities, the complexity will require higher accounting fees. The accountant will also have to file federal and state taxes in the form of a final return.

Attorney Fees. When the executor believes an attorney is needed, the attorney is paid out of the estate. Attorney’s fees can be state-mandated, determined by the court, or set by the attorney depending on the anticipated workload.

Estate Administration Fees. The executor will often incur significant costs of administering the estate, such as property appraisals, and a real estate agent may have to be hired and paid to dispose of property or businesses. A property may also have to be managed until it’s sold or the estate is closed.

Reference: Nasdaq.com (Feb. 2, 2023) “How Much Does Probate Cost?”

Busting Some Estate Planning Myths

Busting Some Estate Planning Myths

An estate plan consists of four basic documents: a last will, a living trust, a financial power of attorney and a medical power of attorney and advance directive, according to the article titled “Common Estate Planning Myths” from The Street.

These documents need to be well-integrated, funded and aligned with your financial plan. There are many common misconceptions about how these documents work together to create a roadmap for your legacy. Let’s explore them.

A last will is a legal document outlining how you want your assets to be collected and distributed after death. The last will is also used to name an executor, who is responsible for managing assets, paying debts and distributing what is left to beneficiaries you specify. A last will also designates a guardian to care for minor children upon your death.

Myth: “If you have a trust, you don’t need a will.” Fact: Even if you have a trust, you still need a will.

For a trust to be effective, it must be funded, which means transferring assets from individual ownership to the trust ownership. People often forget to transfer assets or something unexpected occurs. For example, if a person creates a trust but becomes incapacitated before assets are transferred, the last will controls the distribution of assets.

Myth: “Trusts are only for ultra-high net worth people.” Fact: Everyone can benefit from a trust.

Trusts are used to retain privacy, control assets, plan for incapacity and avoid probate. Trusts can also be useful when family dynamics are challenging, or if you want to assert control over assets even after death. Consider a married couple with a net worth of $1 million who die prematurely with two children in their 20s. Each child inherits $500,000. Twenty-somethings may not be ready to handle large sums of money. A trust would allow the heirs to receive smaller amounts over the course of years and not all at once.

Myth: “I have a trust, so I don’t need a power of attorney.” Fact: You need a power of attorney.

Some assets cannot be owned by a trust, including IRAs, which must be owned by an individual. If you became incapacitated and do not have a power of attorney, there will be no one able to oversee investment management, Required Minimum Distributions or pay bills. Your spouse or other family member will have to petition the court to appoint a conservator to manage financial affairs.

Myth: “My loved one is in the hospital. However, I’m their spouse/daughter/sibling, so of course the hospital will tell me about their medical status and let me make decisions for them.” Fact: Protecting patient confidentiality is the law and healthcare facilities are very mindful of adhering to all state and federal guidelines.

An 18 year old who suffers an illness or injury is legally an adult, and parents have no legal right to medical information or decision-making without a medical power of attorney and a HIPAA release form. They cannot speak with the insurance company, doctors or make decisions about their loved one’s care.

A comprehensive estate plan, including a last will, financial power of attorney and health care proxy is something every adult should have. Speak with an experienced estate planning attorney to protect those you love and prepare for the future.

Reference: The Street (Jan. 6, 2023) “Common Estate Planning Myths”

Do You Need a Revocable or an Irrevocable Trust?

Do You Need a Revocable or an Irrevocable Trust?

It’s not always obvious which type of trust is the best for an individual, says a recent article titled “Which is Best for Me: A Revocable or Irrevocable Trust?” from Westchester & Fairfield County Business Journals.

In a revocable living trust (RLT), the creator of the trust, known as the “grantor,” benefits from the trust and can be the sole Trustee. While living, the grantor/trustee has full control of the real estate property, bank accounts or investments placed in the trust. The grantor can also amend, modify and revoke the trust.

The goal of a revocable trust is mainly to avoid probate at death. Probate is the process of admitting your last will and testament in the court in the county where you lived to have your last will deemed legally valid. This is also when the court appoints the executor named in your last will. The executor then has access to the estate’s assets to pay bills and distribute funds to beneficiaries as named in the last will.

Probate can take six months to several years to complete, depending upon the complexity of the estate and the jurisdiction. Once the estate is probated, your estate is part of the public record.

A revocable living trust and the transfer of assets into the trust can accomplish everything a last will can. However, distribution of assets at the time of death remains private and the court is not involved. Distribution of assets takes place according to the instructions in the trust.

By comparison, irrevocable trusts are not easily revoked or changed. Most irrevocable trusts are used as a planning tool to transfer assets for the benefit of another person without making an outright gift, or for purposes of Medicaid or estate tax planning. An Irrevocable Medicaid Asset Protection Trust is used to allow an individual to protect their life savings and home from the cost of long-term care, while allowing the trust’s creator to continue to live in their home and benefit from income generated by assets transferred into the irrevocable trust.

The grantor may not be a trustee of an irrevocable trust and the transfer of assets to a Medicaid Asset Protection trust starts a five-year penalty period for Nursing Home Medicaid and a two-and-a-half-year penalty period for Home Care Medicaid for applications filed after March 1, 2024. After the penalty (or “look back”) periods expire, the funds held by the trust are protected and are not considered countable assets for Medicaid.

An irrevocable trust can also be used to transfer assets for the benefit of a loved one, friend, child, or grandchild. Assets are not controlled by the beneficiaries but can be used by the trustee for the beneficiary’s health, education, maintenance and support.

Trusts are used to reduce the size of the taxable estate, to plan for the well-being of loved ones, and to protect the individual and couple if long-term care is needed. Speak with an estate planning attorney about which trust is best for your unique situation.

Reference: Westchester & Fairfield County Business Journals (Jan. 26, 2023) “Which is Best for Me: A Revocable or Irrevocable Trust?”

You Need a Digital Estate Plan

You Need a Digital Estate Plan

Laws about intangible assets used to be a legal niche practice area. However, today’s estate planning attorney addresses digital assets as much as tangible assets, according to the article “How to Start Digital Estate Planning in 2023” from yahoo! Social media, emails, websites, photos and even the contents of a hard drive contain a vast amount of digital assets. Managing these assets is known as digital estate planning.

Digital estate planning is the process of including online and digital assets, a simple concept but one which is quite complicated. Assets in your digital estate include (but are by no means limited to):

  • Social media accounts
  • Websites and domain names
  • Online stores and businesses
  • Software and code
  • Pictures, video, and other media
  • Financial records or financial assets owned digitally
  • Contents of hard drives, phones, tablets and other devices
  • Contents of cloud storage

Today, your digital assets can be some of the most important assets left behind. Photos are the photo books of today, and websites are often the family’s business. Neglecting to plan for digital assets is the equivalent of putting family heirlooms, photos, stock certificates and cash into a storage unit and neglecting to tell anyone of the existence of the storage unit, or how to access it.

Passwords and logins. The sheer volume of passwords, combined with the increase in two-factor authentication, makes it difficult to keep track of information for users. Imagine what your executor will face when trying to locate digital assets. You need to have a secure record of accounts, including the platform, your user name, login and password information. Keeping an old-school logbook of important user names and passwords is an option, since online password storage sites themselves are occasionally hacked.

Legal authority for access. There are a surprising number of laws about who is allowed to access your digital access. Your last will needs to be clear in directing your executor as to what you want to happen to specific digital assets. Make it clear who is to inherit the account and what you want them to do with it.

Distribution and rights. One of the growing problems with digital assets is that often companies are selling indefinite licenses disguised as purchases. You may think you own something, only to find you simply rented it. On Amazon Prime, the button may say “Buy,” but you are actually downloading a licensed product and the company retains the right to end your access at its discretion. Such licenses typically expire upon the death of the buyer, with no ability to transfer the data or product to anyone else.

Your estate planning attorney will be able to explain how to prepare your digital estate, so it is as protected as your traditional assets. While making a complete inventory of digital assets may be overwhelming, consider the value of such assets as family photos and videos. Chances are, they’re worth passing down to your descendants.

Reference: yahoo! (Jan. 28, 2023) “How to Start Digital Estate Planning in 2023”

What You Need to Know About Inheritance

What You Need to Know About Inheritance

Receiving an inheritance is a mixed blessing. It usually comes after a loved one has passed, while you are grieving and trying to figure out how to navigate finances. If you have received or anticipate receiving an inheritance, a recent article titled “Getting an Inheritance? Here are 4 Things to Consider” from Kiplinger, has some helpful information.

It takes time to settle an estate and distribute assets. When a decedent’s affairs weren’t prepared properly in advance, it takes even longer. A recent Gallup poll found less than half of all Americans have a will.

The probate process can be avoided if assets are held in trust. However, even trust distributions may have time-consuming complexities. It can take several months to a year or more to settle an estate.

Being aware of this will help manage heirs’ expectations. Plans for a big purchase should never be keyed to an inheritance, until after the assets are received.

The executor, the person named to administer the estate, must notify beneficiaries and interested parties, pay outstanding bills, close accounts, make an inventory of assets and discern how many of the assets must pass through probate.

They also have to file tax returns with the IRS for the estate and for the decedent’s last year of life. Only after all of this is completed can assets be distributed.

Getting an inheritance often leads to spending the money, not always wisely. Factors such as where the money came from and its intended use influence how it’s spent. However, every dollar inherited should be valued as much as every dollar you earn. Many people treat their inheritances like “fun money” and spend it without careful consideration. Consider using it to bolster your emergency fund, pay off high-interest debt and put some towards long-term savings goals. If there’s still money left over after you’ve covered the basics, then it may be time to spend it on a family trip or support a cause you believe in.

Seek professional advice. Inheritances often come with complications. For instance, there are times when an heir may have a step-up-in-basis provision for taxes. This allows heirs to have the valuation of their inheritance property be equal to its fair market value at the date of death, instead of the lower price at which it was first purchased. This helps minimize capital gains taxes on inherited assets that have appreciated over time. An estate planning attorney will be able to confirm whether this potential benefit applies to you, and what you’ll need to do to navigate any tax issues.

Take time to review your own estate plan. As an heir, or as an executor, you’re likely to be learning a lot about the estate planning process. This should motivate you to address your own estate planning and make it as easy as possible for your own heirs.

This includes keeping clear records of all accounts, along with creating any necessary estate planning documents, including wills, trusts, powers of attorney and advance health care directives. Keeping documents in a place accessible to those administering your estate will help your heirs, as will talking with your family while you are living about your finances, your estate plan and your wishes. The best inheritance of all is one that results from proper planning with an experienced estate planning attorney.

Reference: Kiplinger (Jan. 3, 2023) “Getting an Inheritance? Here are 4 Things to Consider”

What Is Inheritance Theft?

What Is Inheritance Theft?

Inheritance theft is sometimes a very real issue for those who inherit money, property, or other assets. Inheritance theft laws exist to protect heirs and beneficiaries. If you’re going to receive an inheritance or have received one that was stolen from you, it’s important to know your legal rights and how to get those assets back.

Yahoo’s recent article entitled “Someone Stole My Inheritance. What Are My Options?” says inheritance theft can take different forms, and some are more obvious than others. Some common examples of inheritance theft or inheritance hijacking include:

  • An executor of a will who steals or attempts to conceal assets from the estate inventory
  • A trustee who diverts assets from a trust for their own use or benefit
  • Executors who charge excessive fees for their services
  • Abuse of power of attorney status
  • Use of coercion or undue influence to force a will-maker or trust grantor to change the terms of their will or trust; and
  • Fraud or forgery related to the will or trust document or the destruction of the documents.

Inheritance theft can also occur on a more personal level. Perhaps your sister and you share caregiving duties for your aging mother. Your sister has access to your mother’s bank accounts and—without your knowledge—takes out a large sum while your mother is still living. Your mother then names you as the executor of her will. When she dies, you create an inventory of her assets, as required. While doing so, you discover the missing funds from her bank accounts. If you and your sister were supposed to have inherited those assets jointly, this could be a violation of state inheritance theft laws.

People who commit inheritance theft may be subject to both criminal and civil penalties. A caregiver who steals money from someone’s bank accounts or coerces them into signing over other assets could also be charged with a felony or misdemeanor crime.

The injured heirs or beneficiaries may also opt to pursue a civil claim against someone they believe has stolen their inheritance.

Reference: Yahoo (Jan. 18, 2023) “Someone Stole My Inheritance. What Are My Options?”

Why Everyone Needs an Estate Plan

Why Everyone Needs an Estate Plan

Estate planning means making plans to manage and distribute assets and caring for loved ones in the event of a person’s death or incapacity. It also involves the creation of legally binding documents to outline a person’s wishes for health care and financial matters. Estate planning ensures your wishes are carried out and is also used as a means to minimizes taxes, as explained in the article “Why Estate Planning Is Important Even If You Don’t Have Assets” from The LA Progressive.

Even if you don’t have significant assets, you still need to make decisions about your health care, which is done as part of an estate plan. Here are the fundamentals to get you started.

Will. This is a legal document with specific instructions regarding how your assets are to be distributed after death and who should be named as a guardian to care for minor children. The will is also used to name a person to serve as executor of your estate to carry out your wishes and manage distribution of assets.

Trust. A trust is a legal entity holding property or other assets on behalf of another person, known as the beneficiary. There are many different types of trusts, including revocable, irrevocable and charitable trusts.

The revocable trust allows you to maintain control over assets in the trust during your lifetime. After death, the assets in the trust are distributed according to the terms in the trust. An irrevocable trust can’t be changed or amended once it’s established. Charitable trusts are used to provide for a nonprofit organization.

Trusts are used to manage and distribute assets during a person’s lifetime and after their death. They are also used to remove assets from the taxable estate and can also be used to manage expenses associated with the distribution of one’s estate.

Healthcare Power of Attorney. This document allows you to name someone to make medical decisions on your behalf if you are incapacitated and can’t make decisions for yourself. These should be created with your personal situation in mind; a standard form may not permit the nuances you want to convey to another person. With a customized healthcare POA, you can specify the type of decisions your healthcare agent may make and describe any limitations you want over their authority.

Financial Power of Attorney. The financial POA allows you to name a person, called your “agent” or “attorney in fact,” to manage finances if you are too sick or injured to do so. This should also be a customized document, as you may want to limit your agent’s authority to pay bills or allow them to do everything from paying bills to managing investment accounts. The POA expires upon your death and the agent can’t perform any tasks once you have passed away.

Without an estate plan, the care of minor children and distribution of assets takes place according to state laws, which isn’t how most people want their decisions made. The solution is actually quite easy: talk with a local estate planning attorney and get started on creating your estate plan.

Reference: LA Progressive (Jan. 11, 2023) “Why Estate Planning Is Important Even If You Don’t Have Assets”