Do You Need an Estate Plan or Will?

No one wants to squander a lifetime of sacrifice and hard work. However, if there is no estate plan, it’s entirely possible for this to occur. The aim of every estate plan, no matter how larger or small the estate, is to protect loved ones. What steps need to be taken are described in the article “Estate Planning for Everyone” from The Street. An estate plan can include almost any of your goals, and it’s not something to postpone.

Think of estate planning as a means of efficiently transferring the assets you’ve accumulated over a lifetime, while protecting your family from unnecessary expenses, stress and yes, taxes. Without an estate plan, the laws of your state and the federal government will determine who receives what, and your estate will be reduced considerably by taxes. The process will take months, or even years. If you have ever been divorced, own property in more than one state, own a business or care for a family member with special needs, the complications and costs grow exponentially.

The core of any estate plan is the answer to a few simple questions: how do you want future generations to carry out your wishes? Who would you like to take care of? And how do you want to be remembered? An estate plan can allow you to set up a roadmap for future generations, manage how and when wealth is distributed, create a legacy for your family and, if you are charitably minded, for your community.

A Will, or Last Will and Testament. This document is used to spell out how your assets should be distributed upon your death. It also includes naming a guardian if you have minor children and names an executor, the person who will be in charge of carrying out the directions in the will. You can also use a will to name gifts to individuals or institutions. Without a will, assets may be distributed in accordance with state law, which may not be the same as your wishes. Heirs will almost assuredly pay more in estate taxes and the family may find themselves battling over personal items.

The will forms the foundation of estate planning, but it is by no means the only document you’ll need.

Living Will. This is a legal document used to communicate end-of-life decisions. In some states, it’s referred to as an Advance Healthcare Directive. It often includes a Do Not Resuscitate (DNR) order, if you do not want life-extending treatments, like a breathing or feeding tube, blood transfusion, dialysis, or pain medication. The living will only work if the family knows where it is and shares it with your healthcare providers. Let loved ones know your wishes and tell them where the living will is located.

Power of Attorney—Healthcare and Financial. Power of Attorney, or POA documents, name people to manage specific tasks for you if you are incapacitated, whether by illness or injury. Don’t make the mistake of using a standard form because it may not reflect your wishes. For instance, you may want to name one person to handle your finances, but you may not want the same person to handle the sale of your home. The POA can be as broad or as narrow as you want, but only if it is created for your needs.

Without a POA, the family will need to go to court and have one or more people named to act as your guardian. This takes time, is expensive and extremely stressful. What if the court names a family member to make all of your decisions, and it is someone you don’t want? The matter will be out of your control.

Trusts are used to avoid certain assets passing through probate, minimize taxes and maintain privacy. Trusts are legal entities, funded with a wide range of assets, which are transferred out of your control and into the trust, where they are the responsibility of the trustee. When the trust is a “revocable living trust,” then you will likely serve as the trustee as long as you are able. The person who receives the assets at the direction of the trust is known as the beneficiary. There are numerous types of trusts, and your estate planning attorney will recommend the one that works best for your purposes.

Reference: The Street (Nov. 4, 2021) “Estate Planning for Everyone”

How Long Is Probate?

Yahoo Finance’s article entitled “How Long Does Probate Take?” gives us an overview of the main things you need to understand about the probate process, so you can prepare.

During probate, a judge determines the way in which to distribute assets to heirs. The court will also authenticate the will (if there is one) and appoint an executor of estate to supervise the probate process. Probate procedures depend to a large part on the state the decedent lived in and the type of estate he or she had.

After authenticating the decedent’s will and appointing an executor, the executor locates and assesses all the property owned by the deceased. If there are any debts, the executor uses estate assets to pay these. The remaining estate is then distributed to the heirs.

The probate process takes time to make certain that everything is done according to the law. As a result, it can take from a few months up to over a year. There’s a long list of variables that can contribute to the duration. A few of the common factors are discussed below.

Estate Size. An estate’s size contributes significantly to the time in probate. Most states use the total value of the estate to determine its size. This depends on state laws and the type of assets included in the estate. Many states now have a small estate probate process, and some waive it altogether for low-value properties. The state may have a small estate limit of a certain dollar amount. The executor or beneficiaries can complete a Small Estate Claim Form or an Affidavit for Transfer of Personal Property to avoid probate for estates below that value.

Multiple beneficiaries. If an estate has a number of heirs, it may gum up the works. Multiple beneficiaries can slow down the probate proceedings because disputes can drag out an otherwise smooth legal process. Disagreements among family members or other heirs can result in delays or even a total halt.

No Will. If a person dies without a will, it means that there’s no guidance from the decedent. As a result, the court and executor have to work through the estate and distribution from scratch.

Debts. Taxes and debts are major factors in the time needed to close an estate. Creditors must be paid before the beneficiaries can receive anything. When a person dies, his or her creditors must receive formal notice. They have a deadline to make a claim for money the estate owed. The longer the claims period, the longer the delay in the probate process.

Taxes. Taxes on an estate also can take a while to process. The estate must receive a closing letter from the IRS and the state taxing authority to close out the probate process. This can take up to six months. An experienced Estate Planning attorney can help you file a probate.

Reference: Yahoo Finance (Sep. 27, 2021) “How Long Does Probate Take?”

Can My Power of Attorney Change My Will?

A power of attorney can’t change a properly written will. But note that an agent can make many changes to the assets in the estate, says Yahoo Finance’s recent article entitled “Can a Power of Attorney Change a Will?”

A power of attorney is a document that grants a person, known as the attorney in fact or agent, the authority to make legally binding decisions on your behalf. This can mean managing financial assets, making choices regarding medical care, signing contracts and other commitments.

Your attorney in fact can access confidential materials and their decisions are as binding as if you had made them yourself. In some instances, you may want your power of attorney to be broad and at other times you may want to limit the authority under your power of attorney by time, scope, or both.

Provided a will is valid, an attorney in fact under a power of attorney can’t modify or rewrite it. It’s not within their scope of authority, even if it specifically says otherwise in their power of attorney assignment.

A will written by a power of attorney is invalid on its face.

The authority of a power of attorney typically ends once the principal (the person granting authority) dies. At that point, the principal’s legal rights transfer to their estate. The executor of the estate takes over and manages all of the deceased’s affairs from that point forward.

Thus, an attorney in fact appointed under a power of attorney can’t change a will while the principal is alive because they don’t have the authority to do so. In addition, they can’t change an estate once the principal dies because their role as attorney in fact under the power of attorney ends with his or her death.

It’s important to understand that a person with a general power of attorney can still change the circumstances surrounding a will. He or she can make changes to your estate—essentially, before it becomes your estate. For example, an attorney in fact can make significant financial decisions on your behalf. As a result, they may be able to restructure your personal finances according to their own best judgment. The effect is that it may invalidate sections of your will if the power of attorney dissolves or changes assets that you had assigned to various heirs. This doesn’t always require bad faith and unfair dealing, but that can also occur.

If you include a general power of attorney as part of your elder care plan, you should discuss your estate wishes with your attorney in fact in advance. Remember that issues such as power of attorney and estate law are highly specific to each state. Talk to an experienced estate planning attorney about a power of attorney.

Reference: Yahoo Finance (Sep. 17, 2021) “Can a Power of Attorney Change a Will?”

Why Is an Estate Plan Important?

There are a number of legal steps necessary to prepare your estate and your family for the future, including the use of a living trust. What is a living trust, and what kind of protection does it offer? The article “An important part of protecting your assets and those you love” from The Times explains how this estate planning tool works.

A living trust is a legal entity created to make it easier to transfer assets like real estate property and other assets after death. Assets held within trusts pass directly to beneficiaries according to the terms of the trust. They do not go through probate. Once a trust is created, it must be funded, which places assets within the protection of the trust. These can include bank accounts, investments, real estate, vehicles, jewelry and other personal property of value.

A living trust is managed by a designated trustee. You can be the trustee of your trust while you are living, and your spouse or partner may be a co-trustee. Every trust should also have a successor trustee to serve as your representative. This person will manage the trust and distribute assets after you die.

Living trusts are useful in real estate ownership, regardless of the size or number of properties owned. Any real estate property is subject to probate upon death if it is not placed inside a trust or other arrangements not taken if available under state law (e.g., transfer-on-death deeds). Dealing with real estate after death is challenging for heirs and executors.

Probate can take a long time. During that time, a building needs to be maintained, property taxes must be paid and insurance coverage needs to continue. Making changes to the property or even renting it out during probate may require permission from the court. If an expensive repair needs to be made, like a heating system or a new roof, and the estate is still in probate, someone has to make sure the repairs are done and pay for them.

Certain assets pass directly to beneficiaries. These include life insurance proceeds, Pay on Death (POD) bank accounts and retirement accounts, like IRAs and 401(k)s. Others, like the family home and personal property, could be bound up in probate for months, or years.

A living trust does more than bypass probate. It allows you to declare how you want your assets to be distributed and when. If you don’t want your children to receive a lot of money in one lump sum at a young age, it can break out the distribution over decades. A trust can also set life goals, like graduating from college, before funds are released.

A living trust and last will and testament are different legal documents and achieve different ends. The living trust is in effect, even when the grantor (person who creates the trust) is living. The will goes into effect only when the grantor dies.

Only assets subject to probate are controlled by a will, while assets in a trust skip probate. Trusts are private documents, while the will becomes part of the public record once it is filed with the court. Anyone can see the entire document, which may not be what you intended.

Assets without a surviving joint owner pass through probate. If you fail to designate a beneficiary to receive an asset, then it also will be subject to probate.

Just as every person is different, every person’s estate plan is different. Talk with an estate planning attorney to learn what options are available and what is best for your family.

Reference: The Times (Oct. 29, 2021) “An important part of protecting your assets and those you love”

Should I Write My Own Will?

Only a third of Americans have estate planning documents, according to a 2021 study. However, the pandemic has caused many to start taking estate planning more seriously. The research saw a 63% increase from last year in adults between the ages of 18 and 34 who have a will or another estate planning document. A total of 24% of all adults surveyed also said that COVID made them see a greater need for estate planning and take action.

Yahoo Life’s recent article entitled “Planning to Write Your Own Will? Here’s What You Need to Know” explains that an online form may be cheaper. However, hiring a lawyer could save you money in the future. If you don’t understand or review the probate laws in your state, when you try to write your will on your own, it can cost you and your loved ones more in the long run. It can mean added court fees, legal fees and stress. If there are any mistakes in your will, it can take a long time for it to clear probate court.

Drafting a will through an attorney is a way to make certain that your assets will be transferred the way you want them to, giving you and your loved ones more peace of mind.

You should hire an experienced estate planning attorney because the state’s probate code and tax laws are constantly changing.

If you write your own will, it is possible that a minor mistake can cause the will to be invalid or contested.

Once you create your will, it is vital that you execute or sign it correctly according to state law. That means having the correct number of witnesses, the right formal language above the will-maker’s signature and the legal requirements of your state.

Even if you decide to write your own will, you should ask an attorney to review it for you.

When you use an experienced estate planning attorney, you can fix any mistakes and know that your will is legally sound.

Many attorneys offer estate plan audits for those who have documents and want to make sure they work the way they think they do.

Reference: Yahoo Life (Sep. 17, 2021) “Planning to Write Your Own Will? Here’s What You Need to Know”

Is It Important to Have a Power of Attorney?

If you have a will, you have a document to tell others what you want to happen with your property after you die. However, if you are incapacitated and cannot make decisions about your finances or health, you need a Power of Attorney, says Ohio News Time in the article “Do I Really Need a Power of Attorney?”

A Power of Attorney (POA) names another person, referred to as an “agent,” to make decisions on another person’s behalf, known as the “principal.” The agent may need to manage the person’s finances, including paying a mortgage, utility bills and handling other money matters.

If there is no POA, the family faces a series of challenges. They will need to go to court and apply to become their loved one’s guardian. This process becomes expensive and time consuming. Anyone applying to become a guardian needs to be vetted by the court and any large decisions made for the ward must be approved by the court. The court is not required to make a family member a guardian, so it is possible for a person the family doesn’t even know to suddenly be empowered to handle their loved one’s finances.

It’s far easier to have a POA created when you have your estate created. When you update your estate plan, you’ll also want to review and update your POA.

A POA should never be a standard form, since few people’s lives fit into a standard format. For instance, you may want a POA to permit your agent to conduct all of your financial matters, but not to sell your home. You may want to name a specific person just to handle the sale of your home, if you are not able to return to living at home but will need to permanently stay in a long-term care facility. The POA is tailored to reflect your wishes and can be as broad or as narrow as you want.

It is also important to name “successor” agents. If the first person you name cannot or does not want to serve in this capacity, naming a successor agent will make the transition easier. In the event the successor does not want to serve, it may not be a bad idea to have a back-up to the back-up.

Speak with the people you are naming to serve as POA to ensure that they know what their responsibilities will be and confirm their willingness to serve. It is also important to be realistic: if they are the same age as you, will they be able to serve? It may be better to name an adult child to take on this role.

In addition to the POA, everyone should have a Health Care Power of Attorney. This permits a named person, also known as an agent, to discuss your health with doctors and other providers and make decisions about your care. You’ll also want a HIPAA Release, so a person you wish has access to medical records.

The POA is often considered a simple add-on to an estate plan. However, it is actually a very important document to protect you while you are living. Without it, your spouse or adult children will have many more barriers to be involved in your care and make decisions on your behalf.

Reference: Ohio News Time (Oct. 15, 2021) “Do I Really Need a Power of Attorney?”

How Does Power of Attorney Work?

Depending on how you structure a power of attorney, an agent can – in some instances – transfer money and property to themselves.

However, it’s uncommon and only allowed in specific circumstances and the laws vary by state.

Yahoo Finance’s recent article entitled “Can a Power of Attorney Transfer Money to Themselves?” explains that a power of attorney is when you assign someone (known as an agent or attorney-in-fact) the authority to make legally binding decisions on your behalf. Most of these documents have a limited grant of authority.

A general power of attorney is a type of durable power of attorney (the other two are special power of attorney and healthcare or medical power of attorney). With this, an agent is permitted to make just about any decisions at all on your behalf while the power of attorney assignment remains valid. However, even a general power of attorney has limits.

An agent typically can’t transfer money, personal property, real estate, or any other assets from the grantee to him or herself, and it’s usually deemed a fraudulent conveyance.

However, a power of attorney can transfer assets to themselves, if they have specific written consent from the grantee (or creator of the document).

The grantee can authorize most forms of property transfer, provided the assets are theirs to give and the authorization is specific.

A grantee can only give this authority to an agent, if he or she is mentally and legally competent.

If you think you’ll want your power of attorney to have this authority at some point, be sure to write it out in the original grant because you may not be able legally to amend this document when the issue comes up in the future. Be sure to speak with your estate planning attorney to make sure your power of attorney is up to date.

Reference: Yahoo Finance (Sep. 21, 2021) “Can a Power of Attorney Transfer Money to Themselves?”

Before They’re Gone—Estate Planning Strategies

As Congress continues to hammer out the details on impending legislation, there are certain laws still in effect concerning estate planning. The article “Last Call for SLATs, GTRATs, and the Use of the Enhanced Gift Tax Exemption?” from Mondaq says now is the time to review and update your estate plan, just in case any beneficial strategies may disappear by year’s end.

Here are the top five estate planning items to consider:

Expect Exemptions to Take a Dive. Estate, gift, and generation-skipping transfer tax exemptions are $11.7 million per person and are now scheduled to increase by an inflationary indexed amount through 2025. Even if there are no legislative changes, on January 1, 2026, this number drops to $5 million, indexed for inflation. Under proposed legislation, it will revert to $6,020,000 and will continue to be indexed for inflation. This is a “use it or lose it” exemption.

Married Couples Have Options Different Than Solos. Married persons who don’t want to gift large amounts to descendants have the option to gift the exemption amount to their spouse using a SLAT—Spousal Lifetime Access Trust. The spouses can both create these trusts for each other, but the IRS is watching, so certain precautions must be taken. The trusts should not be identical in nature and should not be created at the same time to avoid application of the “reciprocal trust” doctrine, which would render both trusts moot. Under proposed legislation, SLATs will be includable in your estate at death, but SLATs created and funded before the legislation is enacted will be grandfathered in. If this is something of interest, don’t delay.

GRATs and other Grantor Trusts May be Gone. They simply won’t be of any use, since proposed legislation has them includable in your estate at death. Existing GRATs and other grantor trusts will be grandfathered in from the new rules. Again, if this is of interest, the time to act is now.

IRA Rules May Change. People who own Individual Retirement Accounts with values above $10 million, combined with income of more than $450,000, may not be able to make contributions to traditional IRAs, Roth IRAs, and defined contribution plans under the proposed legislation. Individuals with large IRA balances may be required to withdraw funds from retirement plans, regardless of age. A minimum distribution may be an amount equal to 50% of the amount by which the combined IRA value is higher than the $10 million threshold.

Rules Change for Singles Too. A single person who doesn’t want to make a large gift and lose control and access may create and gift an exemption amount to a trust in a jurisdiction with “domestic asset protection trust” legislation and still be a beneficiary of such a trust. This trust must be fully funded before the new legislation is enacted, since once the law passes, such a trust will be includable in the person’s estate. Check with your estate planning attorney to see if your state allows this strategy.

Reference: Mondaq (Sep. 24. 2021) “Last Call for SLATs, GTRATs, and the Use of the Enhanced Gift Tax Exemption?”

What a Will Won’t Accomplish

Everyone needs a will. A last will and testament is how an executor is named to manage your estate, how a guardian is named to care for any minor children and how you give directions for distribution of property. However, not all property passes via your will. You’ll want to know what a will can and cannot do, as well as how assets are distributed outside of a will. This was the topic of “The Legal Limits of Your Will” from AARP Magazine.

Retirement and Pension Accounts

The beneficiaries named on retirement accounts, including 401(k)s, pensions, and IRAs, receive these assets directly. Some states have laws about requiring spouses to receive some or all assets. However, if you don’t keep these beneficiary names updated, the wrong person may receive the asset, like it or not. Don’t expect anyone to willingly give up a surprise windfall. If a primary beneficiary has died and no contingency beneficiary was named, the recipient may also be determined by default terms, which may not be what you have in mind.

Life Insurance Policies.

The beneficiary designations on an insurance policy determine who will receive proceeds upon your death. Laws vary by state, so check with an estate planning attorney to learn what would happen if you died without updating life insurance policies. A simpler strategy is to create a list of all of your financial accounts, determine how they are distributed and update names as necessary.

Note there are exceptions to all rules. If your divorce agreement includes a provision naming your ex as the sole beneficiary, you may not have an option to make a change.

Financial Accounts

Adding another person to your bank account through various means—Payable on Death (POD), Transfer on Death (TOD), or Joint Tenancy with Right of Survivorship (JTWROS)—may generally override a will, but may not be acceptable for all accounts, or to all financial institutions. There are unanticipated consequences of transferring assets this way, including the simplest: once transferred, assets are immediately vulnerable to creditors, divorce proceedings, etc.

Trusts

Trusts are used in estate planning to remove assets from a personal estate and place them in safekeeping for beneficiaries. Once the assets are properly transferred into the trust, their distribution and use are defined by the trust document. The flexibility and variety of trusts makes this a key estate planning tool, regardless of the value of the assets in the estate.

Reference: AARP Magazine (Sep. 29, 2021) “The Legal Limits of Your Will”