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”

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”

Read more about the article What’s the Best Way to Organize Your Estate Plan?

What’s the Best Way to Organize Your Estate Plan?

If you already have an estate plan, congratulations. However, do you remember where you put it? Does anyone but you know where it is? According to a recent article from The Press-Enterprise, “2023 check list: How to organize your estate plan,” most people take their estate plan and put the binder or file folder someplace they deem safe and then never look at it again.

Your estate plan should include a set of documents—a will, trust, health care directive, HIPAA form and a power of attorney—to be reviewed and updated regularly over the years. If you don’t remember where these documents are, you’re more likely to forget about having regular updates done.

Powers of attorney and health care directives are needed in emergency situations, like when there’s been an accident, health care crisis or dementia. If the people caring for you can’t find the documents, they’re not of much use.

Start by locating the documents and determining when they were completed. If they’re more than three to five years old, it’s time for a review with your estate planning attorney. The same goes for any trusts created before 2012. There have been many changes to laws about trusts since then and your trusts may no longer serve their original purpose.

Who needs to know where the documents are located? Someone besides you and your spouse. At your death or incapacity, the person you’ve named to act in your will or power of attorney will need the original documents.

In the past, estate planning attorneys kept wills in their offices, in safes. However, with the advent of digital documents, this is no longer the case. If your will or trust was done a long time ago and is in the attorney’s office, you should contact the office and obtain the originals.

Most estate planning attorneys provide documents to clients in an organized binder and often they also put documents on a thumb drive. However, where should you keep your original estate planning documents?

Don’t put them in a safe deposit box at your bank. If the bank’s not open and you’re in the Emergency Room, your health care proxy won’t be able to help you. A safe at home is an option, but only if the person can get into your home and access the safe. A filing cabinet could work. However, the person will need to get into your house and know where to look.

One idea: put the binder on a bookshelf or in a drawer, and make sure to tell the person where the documents are. Some people put the binder in an upper shelf in their hall closet so it can be quickly grabbed as needed. In some situations, a health care proxy or DNR is posted on the refrigerator or kitchen bulletin board so it’s immediately available to first responders.

What about fires or floods? If there’s a fire and the documents don’t survive, the fire will be evidence of the documents not being revoked and then the copies you’ve placed in other locations can be used.

When you have your own estate planning documents organized, it’s a good time to check in with your family members. Do you know where your parent’s estate planning documents, wills, trusts, powers of attorney and health care directives are, and do you know if they are updated?

Having the documents is step one—ensuring they are readily at hand is step two. Once these documents are updated and in the right place, you can focus on other tasks, like cleaning out the long-overlooked sock drawer.

Reference: The Press-Enterprise (Jan. 8, 2023) “2023 check list: How to organize your estate plan”

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”

Can I Protect My Family after Death?

Can I Protect My Family after Death?

Estate planning involves a close look at personal and financial goals while you are living and after you have died, as explained in a recent article titled “Professional Advice: Secure your future with estate planning” from Northwest Indiana Business Magazine. Having a comprehensive estate plan ensures that your wishes will be carried out and loved ones protected.

Your last will and testament identifies the people who should receive an inheritance—heirs—who will manage your estate—executor—and who will take care of your minor children—guardian. Without a valid will, the state will rely on its own laws to distribute assets and assign a guardian to minor children. The state laws may not follow your wishes. However, there won’t be anything your family can do if you didn’t prepare a will.

Assets with beneficiary designations can be passed to heirs without going through probate. Certain assets, like life insurance policies and retirement accounts, allow a primary and secondary beneficiary to be named. These assets can be transferred to the intended beneficiaries swiftly and efficiently.

Many people use trusts to pass assets for a variety of reasons. For example, a trust can be created for a family member with special needs, protecting their eligibility to receive government benefits. Depending on the type of trust you create, you might be able to eliminate estate taxes. Certain trusts are also useful in protecting assets from creditors and lawsuits, and ensure that assets are distributed according to your wishes.

Revocable living trusts provide protection in case of incapacity, avoid probate and ancillary probate and may provide asset protection for beneficiaries. If you are the creator of a trust—grantor—you will need to appoint a successor trustee to manage the trust if you are the original trustee and become incapacitated. Upon death, a revocable trust usually becomes irrevocable. Assets placed in the trust avoid probate, the court proceeding used to settle an estate, which can be both time-consuming and costly.

A Power of Attorney allows you to name a person who will handle your financial affairs and protect assets in the event of incapacity. That person—your agent—may pay bills, sell assets and work with an elder law estate planning attorney on Medicaid planning. The POA should be customized to your personal situation. you may give the agent broad or narrow powers.

Everyone should also have a Health Care Proxy, which gives the person named the legal right to make health care decisions on your behalf if you are unable to. You’ll also want to have a HIPAA Release Form (Health Insurance Portability and Accountability Act), so your agent can speak with all health care providers, access medical records and speak with the health insurance company on your behalf.

A Living Will is the document used to convey your wishes regarding end-of-life care if you are unable to do so yourself. It is certainly not pleasant to contemplate. However, it should be thought of as a kindness to your loved ones. Without knowing your wishes, they may be forced to make a decision and will never know if it was what you wanted. A Living Will also avoids conflicts between health care providers and family members and makes a stressful time a little less so.

Having a comprehensive estate plan provides protection for the individual and their family members. It avoids costly and stressful problems arising from the complex events accompanying illness and death. Every three to five years (or when life or financial circumstances warrant), meet with an estate planning attorney to keep your estate plan on track.

Reference: Northwest Indiana Business Magazine (Dec. 27, 2022) “Professional Advice: Secure your future with estate planning”

Why Professionals and High Net Worth Families Need Estate Planning

Why Professionals and High Net Worth Families Need Estate Planning

Even those whose daily tasks bring them close to death on a daily basis can be reluctant to consider having an estate plan done. However, any high-income earner needs to plan their estate to protect assets and prepare for incapacity. Estate planning also makes matters easier for loved ones, explains a recent article titled “Physician estate planning guide” from Medical Economics. An estate plan gets your wishes honored, minimizes court expenses and maintains family harmony.

Having an estate plan is needed by anyone, at any age or stage of life. A younger professional may be less inclined to consider estate planning. However, it’s a mistake to put it off.

Start by meeting with an experienced estate planning attorney in your home state. Have a power of attorney drafted to give a trusted person the ability to make decisions on your behalf should you become incapacitated. Not having this legal relationship leads to big problems. Your family will need to go to court to have a conservatorship or guardianship established to do something as simple as make a mortgage payment. Having a POA is a far better solution.

Next, talk with your estate planning attorney about a last will and testament and any trusts you might need. A will is a simpler method. However, if you have substantial assets, you may benefit from the protection a trust affords.

A will names your executor and expresses your wishes for property distribution. The will doesn’t become effective until after death when it’s reviewed by the court and verified during probate. The executor named in the will is then appointed to act on the directions in the will.

Most states don’t require an executor to be notified in advance. However, people should discuss this role with the person who they want to appoint. It’s not always a welcome surprise, and there’s no requirement for the named person to serve.

A trust is created to own property outside of the estate. It’s created and becomes effective while the person is still living and is often described as “kinder” to beneficiaries, especially if the grantor owns their practice and has complex business arrangements.

Trusts are useful for people who own assets in more than one state. In some cases, deeds to properties can be added into one trust, streamlining and consolidating assets and making it simpler to redirect after death.

Irrevocable trusts are especially useful to any doctor concerned about being sued for malpractice. An irrevocable trust helps protect assets from creditors seeking to recover assets.

Not being prepared with an estate plan addressing incapacity and death leads to a huge burden for loved ones. Once the plan is created, it should be updated every three to five years. Updating the plan is far easier than the initial creation and reflects changes in one’s life and in the law.

Reference: Medical Economics (Nov. 30, 2022) “Physician estate planning guide”

Planning for Crypto and NFT Assets in Estate Plan

Planning for Crypto and NFT Assets in Estate Plan

People generally don’t like to deal with their own mortality. However, assets need the protection of an estate plan. If they are digital assets, planning is even more important. According to a recent article from nft.now titled “What Happens to Your Crypto and NFTs When You Die?”, Bitcoin’s total circulation is unlikely to reach its stated limit of 21 million due to early adopters who either died without an estate plan or lost their private keys and access to their bitcoin permanently.

The challenge of digital asset distributions is built into the decentralized nature of the blockchain. The core of the Web3 security is not to give away private keys, even to friends or loved ones, since there’s no centralized authority to address any wrongdoing. Striking a balance between security and accessibility about crypto asset management and inheritance is still an evolving process.

Estate planning attorneys know doing nothing is the worst thing to do. While state laws account for intestacy (what happens when there’s no will), and state law will be applied by the court to distribute assets if there’s no will, one option is to put digital assets into a will. However, there are potential pitfalls.

A will becomes a public document during probate. If the purpose of owning crypto is to keep the existence of the crypto wealth private, a will is not the best option. Wills are useful for many assets, but in the eyes of many, trusts are the preferred means of transferring crypto assets.

Managing digital inheritances with trusts offers many benefits, since the trusts bypass the courts and do not become public documents. Trusts are managed by a trustee, during life and after death.  Therefore, the trustee can act quickly if managing NFTs or crypto. The volatile nature of cryptocurrencies makes speed and easy access a necessity to protect digital fortunes.

When setting up a trust to manage cryptocurrency or NTFs, be sure that the trustee is well-versed in digital assets. If they don’t know how to manage your wallet, the assets could be lost. One means of overcoming this is to add a provision in the trust to allow the trustee to hire someone who has expertise with cryptocurrency and NFTs, so they will be properly managed.

Trusts do have some vulnerabilities. Estate planning for crypto requires some sharing of private keys or transferring digital assets. However, the typical crypto investor is usually loathe to hand over this information. It may be more acceptable for them to leave behind instructions on where the trustee can find the information. However, this creates another layer of vulnerability.

Solutions to the issue of digital asset dispersal in the event of incapacity or death are still evolving. There are a number of commercial solutions, some of which are as technical to the layperson as cryptocurrency is to the non-user.

An experienced estate planning attorney will be able to guide you in planning for digital and traditional assets, so they are not lost in the real world or in cyberspace. Prior planning is needed to protect wealth, whatever form it takes.

Reference: ntf.now (Oct. 27,2022) “What Happens to Your Crypto and NFTs When You Die?”

Top 10 Success Tips for Estate Planning

Top 10 Success Tips for Estate Planning

Unless you’ve done the planning, assets may not be distributed according to your wishes and loved ones may not be taken care of after your death. These are just two reasons to make sure you have an estate plan, according to the recent article titled “Estate Planning 101: 10 Tips for Success” from the Maryland Reporter.

Create a list of your assets. This should include all of your property, real estate, liquid assets, investments and personal possessions. With this list, consider what you would like to happen to each item after your death. If you have many assets, this process will take longer—consider this a good thing. Don’t neglect digital assets. The goal of a careful detailed list is to avoid any room for interpretation—or misinterpretation—by the courts or by heirs.

Meet with an estate planning attorney to create wills and trusts. These documents dictate how your assets are distributed after your death. Without them, the laws of your state may be used to distribute assets. You also need a will to name an executor, the person responsible for carrying out your instructions.

Your will is also used to name a guardian, the person who will raise your children if they are orphaned minors.

Who is the named beneficiary on your life insurance policy? This is the person who will receive the death benefit from your policy upon your death. Will this person be the guardian of your minor children? Do you prefer to have the proceeds from the policy used to fund a trust for the benefit of your children? These are important decisions to be made and memorialized in your estate plan.

Make your wishes crystal clear. Legal documents are often challenged if they are not prepared by an experienced estate planning attorney or if they are vaguely worded. You want to be sure there are no ambiguities in your will or trust documents. Consider the use of “if, then” statements. For example, “If my husband predeceases me, then I leave my house to my children.”

Consider creating a letter of intent or instruction to supplement your will and trusts. Use this document to give more detailed information about your wishes, from funeral arrangements to who you want to receive a specific item. Note this document is not legally binding, but it may avoid confusion and can be used to support the instructions in your will.

Trusts may be more important than you think in estate planning. Trusts allow you to take assets out of your probate estate and have these assets managed by a trustee of your choice, who distributes assets directly to beneficiaries. You don’t have to have millions to benefit from a trust.

List your debts. This is not as much fun as listing assets, but still important for your executor and heirs. Mortgage payments, car payments, credit cards and personal loans are to be paid first out of estate accounts before funds can be distributed to heirs. Having this information will make your executor’s tasks easier.

Plan for digital assets. If you want your social media accounts to be deleted or emails available to a designated person after you die, you’ll need to start with a list of the accounts, usernames, passwords, whether the platform allows you to designate another person to have access to your accounts and how you want your digital assets handled after death. This plan should be in place in case of incapacity as well.

How will estate taxes be paid? Without tax planning properly done, your legacy could shrink considerably. In addition to federal estate taxes, some states have state estate taxes and inheritance taxes. Talk with your estate planning attorney to find out what your estate tax obligations will be and how to plan strategically to pay the taxes.

Plan for Long Term Care. The Department of Health and Human Services estimates that about 70% of Americans will need some type of long-term care during their lifetimes. Some options are private LTC insurance, government programs and self-funding.

The more planning done in advance, the more likely your loved ones will know what to do if you become incapacitated and know what you wanted when you die.

Resource: Maryland Reporter (Sep. 27, 2022) “Estate Planning 101: 10 Tips for Success”

Can a Trust Be Created to Protect a Pet?

Can a Trust Be Created to Protect a Pet?

For one woman in the middle of preparing for a no-contest divorce, the idea of a pet trust was a novel one. She was estranged from her sister and didn’t want her ex-husband to gain custody of her seven horses, three cats and five dogs if she died or became incapacitated. Who would care for her beloved animals?

The solution, as described in the article “Create a Pet Estate Plan for Your Fur Family” from AARP, was to form a pet trust, a legally sanctioned arrangement providing for the care and maintenance of companion animals in the event of a person’s disability or death.

Creating a pet trust and establishing a long-term plan requires state-specific paperwork and funding mechanisms, which are different from leaving property and assets to human family members. An experienced estate planning attorney is needed to ensure that the protections in place will work.

Shelters nationally are seeing a big increase in animals being surrendered because of COVID or people who are simply not able to take care of their pets. Suddenly, a companion pet accustomed to being near its human owner 24/7 is left alone in a shelter cage.

When pet parents have not made plans for their pets, more often than not these pets end up in shelters. However, not all animal shelters are no-kill shelters. In 2021, data from Best Friends Animal Society shows an increase in the number of pets euthanized in shelters for the first time in five years.

For pet owners who can’t identify a caregiver for their companions, the best option may be to find an animal sanctuary or a shelter providing perpetual care.

The woman described above had a pet trust created and funded it with a long-term care and life insurance policy. The trust was designed with a board of three trustees to check and balance one another to determine how the money will be allocated and what will happen to her assets. Her horse property could be sold, or a long-term student or trainer could be brought in to run her barn.

It is not legally possible to leave money directly to an animal, so setting up a trust with one trustee or a board is the best way to ensure that care will be given until the animals themselves pass away.

The stand-alone pet trust (which is a living trust) exists from the moment it is created. A dedicated bank account may be set up in the name of the pet trust or it could be named as the beneficiary of a life insurance or retirement plan.

A pet trust can also be set up within a larger trust, like a drawer within a dresser. The trust won’t kick in until death. These plans prevent the type of delays typical with probate but is problematic if the person becomes incapacitated.

If a trust is created as part of another trust, there can still be delays in accessing the month, if the pet trust is getting money from the larger trust.

With costlier animals likes horses and exotic birds, any delay in funding could be catastrophic.

How long will your pet live? A parrot could live for 80 years, which would need an endowment to invest assets and earn income over decades. A long-living pet also needs a succession of caregivers, as a tortoise with a 150 year lifespan will outlive more than one caregiver.

Reference: AARP (Sep. 14, 2022) “Create a Pet Estate Plan for Your Fur Family”