Should I Start Estate Planning Now?

The coronavirus has taken a toll on our finances, as well as our physical and mental health. As a result, it’s important to plan appropriately for your health care and financial needs in an estate plan to provide much-needed peace of mind, say Yahoo Finance’s recent article entitled “Estate Planning During a Pandemic – Quit Stalling.” The article lists the important components of a comprehensive estate plan:

Advance Health Care Directive. This is a written plan that states your wishes, in the event you can’t speak for yourself. Your wishes need to be in writing, and the document should be updated as your health changes. Review your advance health care directive with your doctor and the person you select as your health care proxy to be certain it’s completed correctly.

Health Care Power of Attorney. This legal document lets you name someone who can review your medical records and make decisions, such as how and where you should be treated. This would be applicable, if you were incapacitated and unable to make medical decisions for yourself.

Living Will. A living will is a type of advance health care directive that specifically states your end-of-life decisions in the event you are terminally ill or permanently unconscious. This covers specific medical treatments, like CPR, ventilation, pain management, tube feeding and organ and tissue donation.

Financial Power of Attorney. This document lets you name someone to help with your finances, if you become incapacitated and unable to do so. You can state how much control your power of attorney will have, like accessing accounts, selling stock and managing real estate.

Trusts. Ask an experienced estate planning attorney about creating a trust to protect your assets as you pass them down to your heirs. If your children or grandchildren aren’t old enough or mature enough to handle their inheritance, you can set up a trust that provides them with a small amount of money each year, increasing that amount as they get older. You can also direct that the money be specifically used for an adult child’s mortgage or student loans.

Beneficiaries. Many people forget to update their life insurance policies, bank, brokerage accounts and retirement plans. These all have beneficiary forms, which supersede a will. These should be updated, along with your estate plan, every few years and after every major life change. That’s something like a marriage, divorce, death, adoption, or birth.

Make certain that you are reviewing and updating your estate plan when you review your retirement plan each year or so.

Reference: Yahoo Finance (Oct. 31, 2021) “Estate Planning During a Pandemic – Quit Stalling”

When Should a Trust Be Reviewed?

Life changes, and laws change too. The great trust created two decades ago may not be a good idea today and may no longer be suitable for you or your beneficiaries. As a general rule, you should review your estate plan and trust every other year, according to the article “Revisit trust on a regular basis” from the Santa Cruz Sentinel.

Start with the Table of Contents, if there is one. There should be language concerning “Successor Trustees.” Are the trustees you named still alive? Are they still part of your life, and do you still trust them? How are their money skills? If they don’t get along with the rest of the family, or if they have been embroiled in a series of petty disputes, they may not be appropriate to manage your trust. Don’t be afraid to make changes. Your estate planning attorney will know how to do this smoothly and properly.

Next, find the paragraph that discusses “Disposition on Death” or “Disposition on Death of Surviving Spouse.” Does it still make sense for your loved ones? Have any children or family members who are listed as receiving benefits died? Are any heirs disabled and receiving government benefits? Have any of your children developed addictions, problems handling money, married people you don’t trust, or are preparing to divorce their spouses? Changes can be made to protect your children from themselves and from others in their lives.

Look for a “Schedule of Trust Assets.” When was the last time this was updated? If you’ve moved and the trust still lists your last residence, you need to change it. Is your new home in the trust? Are retirement accounts correctly listed? Do you have new assets you’ve never placed in the trust? This is a common, and costly, oversight.

If married, how does the trust address what occurs between the death of the first spouse and the surviving spouse? Do you have an A/B trust to divide everything between a Survivor’s Trust and a Bypass Trust or Exemption Trust? Maybe you don’t need or want an A/B trust anymore. Talk with your estate planning attorney to be sure this is structured properly for your life right now.

How is your health? If you or a spouse are in a nursing home or if one of you is ill and likely to needs nursing home care, it may be time to start planning for a Medicaid Asset Protection Trust.

While you’re reviewing your trusts, trustees and beneficiaries, don’t forget to review the people named as beneficiaries for your retirement accounts and life insurance policies. These should be reviewed regularly as well.

Reviewing your trust and estate plan on a regular basis is just as necessary as an annual physical. Leaving your accumulated assets unprotected is easily fixed, while you are alive and well.

Reference: Santa Cruz Sentinel (Nov. 20, 2021) “Revisit trust on a regular basis”

How Important Is an Estate Plan?

Estate planning is preparing for two things: incapacity and death. It includes making sure you’ve conveyed your wishes about medical care in the case of a serious or terminal illness, who you want to receive your possessions when you pass and a series of documents to tell your loved ones your wishes. A recent article from The Street, “Everyone Needs an Estate Plan,” explains how to make this happen.

The foundation of the estate plan is your will, aka Last Will and Testament. It’s used to name several individuals for key roles. One is a guardian for minor children—if you don’t have a will or fail to name a guardian, a court will decide who should raise your children. Another is the executor, the person who will be in charge of overseeing your estate and your instructions. If you have animal companions, you may name a person to be their caretaker. However, you may want to go a step further and create a pet trust to provide funds for their maintenance.

You’ll also want a Living Will. This is a document conveying your wishes, if you are no longer able to make healthcare decisions for yourself. It focuses on end of life care. Do you want to be kept alive with artificial means, and if so, which ones are acceptable? How would you want pain management to be handled? Do you want to donate your organs? Yes, it’s a little scary, but imagine your loved ones in a highly emotional state having to guess what you would have wanted. It’s better for you and your family to know what you would want.

A personalized Power of Attorney. Naming a person as a Power of Attorney lets them handle your financial affairs and act as your agent or representative. However, here’s a pitfall: using a standardized form can lead to trouble. You may want your POA to be able to manage your day-to-day finances, but there may be some things you’d prefer them not to do. A customized POA can be as broad or as narrow as you wish.

Healthcare Power of Attorney and HIPAA Authorization. Information and decision making about healthcare today is complicated today. Your representatives will need to have these documents to speak with your medical care providers, to make decisions and to gain access to your medical records. Without a HIPAA form, you won’t be able to see their medical records, even if you are a sibling or spouse. It’s best to have these documents in place long before they are needed.

The laws about these and other estate planning documents vary from state to state. Therefore, you’ll need to work with an experienced estate planning attorney in your area to make sure that all of your documents are valid. If you own a business or have a complex financial situation, there are many legal methods to protect your assets and convey them to your heirs.

Reference: The Street (Nov. 22, 2021) “Everyone Needs an Estate Plan”

Do Young Adults Need Estate Planning?

Estate planning has an image problem, particularly with younger generations, says The Financial Post’s November 15th article entitled, “The case for estate planning in your 20s: At any age, some things are dear to you.”

If your 22 and don’t own a home, aren’t married and don’t have any dependent children, writing a will may seem like a waste of time and money. However, if you ask yourself “what do you want to see happen to your treasures if you pass away?

With no estate plan, a young adult will have no say over what happens to their treasures one day.

A recent survey shows very few young adults have an up-to-date will. It is less than 20%.

One reason for this poor result is that the term “estate planning” makes the process seem inaccessible or irrelevant for anyone not of a certain age or with significant assets.

However, considering your wishes earlier in life when your needs are simpler can make the process feel more natural and manageable when your life — and needs — become more complex as you get older.

The pandemic is a reminder that none of us knows for sure if we will have a later.

Drafting a will gives you the power to decide where everything from your savings and investments to your sentimental belongings and even your pets will go when you pass away.

Many people wait until they get married, buy a house, or have kids to draft a will. However, every adult needs one. Think about what would happen to your assets and property, if something happens to you.

People with spouses often mistakenly assume everything will go to that person, if they have no will in place.

However, state law will dictate exactly what assets will go to their spouse, and what might go to other relatives, such as their parents. If that’s not how you would have wanted it to go, you’re out of luck.

Leaving an up-to-date record of your wishes is the best thing you can do for your family. An experienced estate planning attorney can determine whether your estate plan is up to date with your families needs.

Reference: Financial Post (Nov. 15, 2021) “The case for estate planning in your 20s: At any age, some things are dear to you”

Who Should I Name as Trustee?

When a revocable living trust is created, the grantor (person who creates the trust) names a successor trustee, the person who will take charge of the trust when the grantor dies. One of the biggest sticking points in creating a trust is often selecting a successor trustee. A recent article, “Be careful when choosing your successor trustee,” from Los Altos Town Crier explains what can go wrong and how to protect your estate.

When the grantor dies, the successor trustee is in charge of determining the value of the trust and distributing assets to named beneficiaries. If there are unclear provisions in the trust, the trustee is required by law, as a fiduciary, to use good judgment and put the interest of the beneficiaries ahead of the trustee’s own interests.

When considering who to name as a successor trustee, you have many options. Just because your first born adult child wants to be in charge doesn’t mean they are the best candidate. You’ll want to name a reliable, responsible and organized person, who will be able to manage finances, tax reporting and respects the law.

The decision is not always an easy one. The child who lives closest to you may be excellent at caregiving, but not adept at handling finances. The child who lives furthest away may be skilled at handling money, but will they be able to manage their tasks long distance?

A trustee needs to be able to understand what their role is and know when they need the help of an estate planning attorney. Some trusts are complicated and tax reporting is rarely simple. The trustee may need to create a team of professionals, including an estate planning attorney, a CPA and a financial advisor. Someone who thinks they can manage an estate on their own with zero experience in the law or finance may be headed for trouble.

If there are no family members or trusted friends who can serve in this role, it may be best to consider a professional fiduciary to serve as a successor trustee. An estate planning attorney may also serve as a successor trustee.

The next option is a financial institution or trust company. Some banks have trust departments and take on this role, but they often have steep minimums and will only work with estates with significant value. Fees are also likely to be higher than for a professional fiduciary or other professional. Be sure to inquire how they evaluate your needs and ensure quality of care, if you become incapacitated. What processes are in place to protect grantors?

Another alternative is to identify a nonprofit with a pooled trust that accepts trustee responsibilities for individuals with special needs and for others who would prefer to have a nonprofit in this role.

Your estate planning attorney will be able to help you identify the best candidate for this role, as you work through the creation of the trust. Don’t be shy about asking for help with this important matter.

Reference: Los Altos Town Crier (Nov. 17, 2021) “Be careful when choosing your successor trustee”

Estate Planning when So Much Is Uncertain

Negotiations in Washington continue to present a series of changing scenarios for estate planning. Until the ink is dry in the Oval Office, taxpayers face an uncertain legislative environment, says a recent article titled “Estate Planning in an Uncertain Time” from CPA Practice Advisor. Many people hurried to use lifetime gifting strategies because of estate tax provisions contained in earlier versions of the infrastructure bill, but even with these provisions dropped (for now), there are still good reasons to use lifetime gifting strategies.

The current $11.7 million estate/gift tax exemption will still be reduced on January 1, 2026, even if Congress takes no other action. Taxpayers who have not taken advantage of this “extra” exemption before then will lose the opportunity forever.

Any post-appreciation transfer on gifted assets accrues outside of the taxpayer’s estate. For younger individuals and for transferred assets with high potential for appreciation, this could have a major impact. Taxpayers who reside in states with a state estate tax, but no state gift tax, may find that lifetime gifting could reduce state estate tax liability.

For those who have already used all of their estate/gift tax exemption, the current low interest rate environment makes certain advanced estate planning techniques more appealing. Sales to IDGTS (Intentionally Defective Grantor Trusts, a type of irrevocable trust), intra-family loans and GRATS (Grantor Retained Annuity Trusts) are more effective when interest rates are low.

The two interest rates to watch for these strategies are the federal Section 7520 rate and the short-term, mid-term and long-term applicable federal rate (AFR). If transferred assets appreciate faster than the benchmark interest rate, any excess appreciation passes without any estate/gift tax exemption being used.

Interest rates have increased in recent months. However, by historical standards, they remain low.

IDGTs are expected to remain popular for making lifetime transfers. They are a type of trust outside the taxpayer’s estate for estate tax purposes and are considered to belong to the grantor for income tax purposes. The grantor is responsible for paying the income tax of the trust, which permits the grantor to make a tax-free gift, while the assets of the IDGT may grow without income taxes.

The grantor may also sell assets to an IDGT without creating a realization event for income tax purposes. Congress may consider this a little too effective for estate taxes, but for now, this strategy is still available.

Speak with an experienced estate planning attorney to review your current lifetime gifting plan and see if it needs to be revised. Of course, if you don’t have an estate plan, now is the time to get that underway.

Reference: CPA Practice Advisor (Nov. 17, 2021) “Estate Planning in an Uncertain Time”

Will I Be Ready for Long-Term Care?

Too many people brush off the need for long-term care, whether in a nursing home or assisted living. However, The Street’s recent article entitled “Long-Term Care: Ready or Not, Here it Comes” says that some people will be unable to perform two or more of the six “ADLs” – activities of daily living. ADLs are used to measure someone’s fundamental skills needed to live independently. They include eating, bathing and hygiene, dressing, grooming, mobility and toileting and continence. These are considered predictors of someone’s use of paid home care, need for alternative living arrangements and admission to nursing homes or hospitalization.

The Cost of Long-Term Care. Americans are living longer. The Social Security Administration website has a tool called a “longevity visualizer.” It looks at different ages and tells you how long you might live. However, that extra longevity means people are living with chronic health issues. Therefore, it’s easy to underestimate the long-term care costs they might face, even if they have planned for them. Genworth Financial reports that the national median price for a private room in a nursing home facility is more than $105,000 per year. Upward pressure will continue as baby boomers age: prices are projected to double in the next 20 years.

Long-Term Care Insurance. In the past, many of these costs were covered through long-term care insurance, but the industry’s structure has changed considerably over the past 20 years. As a result, many insurers were forced to abandon the business. Those that remained raised premiums dramatically, while limiting benefits. A newer solution to the traditional “use it or lose it” frustration was the advent of a hybrid long-term care insurance policy. This combines long-term care coverage with life insurance benefits. These policies can be purchased with a one-time, lump-sum payment or on a payment plan. However, premiums can be two or three times those of traditional policies. If you die before you use the long-term care coverage, your designated beneficiaries will receive the death benefit. If you need long-term care coverage, the policy will pay out as a traditional one would. The payout will reflect your chosen daily benefit, elimination period, term and total cap. The death benefit, however, is lowered or eliminated altogether, depending on how much you use.

Veterans’ Benefits. Although the Department of Veterans Affairs isn’t the easiest system to navigate, it has some valuable programs for those who qualify. Once you’re approved, benefits are paid retroactively to the date of your application.

Self-Funding. If long-term care is needed, and you haven’t made plans to cover the cost, you’ll likely start by making a list of all available financial resources, such as personal savings, pensions, IRAs, 401(k)s, investments and any assets you can borrow against, including the equity in your home to support a home equity loan or a reverse mortgage.

Medicare versus Medicaid. Most people think that Medicare picks up the cost of long-term care. However, it doesn’t. It only covers short-term care after a hospitalization but nothing beyond that. For those who can’t pay for care for themselves, the federal government pays for those services through the Medicaid system. This is only available if you have limited income and limited countable assets.

An experienced estate planning attorney can help prepare a Medicaid application if you or a family member needs long term care.

Reference: The Street (Nov. 10, 2021) “Long-Term Care: Ready or Not, Here it Comes”

Do Grandchildren Get Some of the Estate If Their Dad Dies before Me?

It’s not that uncommon that a child dies before a parent. The question then arises about who gets that share. Is it the children of the decedent child (the will maker’s grandchildren), or do the will maker’s other children split the share of the decedent child?

Nj.com’s recent article entitled “Who gets this inheritance if a beneficiary dies?” explains that the language of the will itself governs what happens with each beneficiary’s share in the event one of the adult children dies before his or her parents.

Some wills divide the remainder among the will maker’s children who are still living. With this, the surviving siblings would receive the entire estate.

This is called “per capita,” which is a Latin phrase that translates literally to “by head.” In a per capita distribution, each designated beneficiary receives an inheritance only if they’re living when the inheritance vests (at the will maker’s death).

If a beneficiary dies before this, that beneficiary’s share is divided among the surviving named beneficiaries. As a result, the children of the decedent beneficiary get nothing, unless they are specifically designated as beneficiaries.

However, the more common approach is for a will to state: “I give, devise and bequeath my residuary estate to my descendants, per stirpes.”

Per stirpes is a Latin phrase that translates literally to “by roots” or “by branch.” A per stirpes distribution means that a beneficiary’s share passes to their lineal descendants if the beneficiary dies before the inheritance vests. Per stirpes effectively designates a class of beneficiaries to receive estate property, rather than designating only specific individuals to inherit property.

Therefore, providing this language in the will means that if a child predeceases the testator and the predeceased child has surviving descendants, that predeceased child’s share will go to that predeceased child’s descendants … that would be the will maker’s grandchildren.

Ask an experienced estate planning attorney about how each of these designations would work in your specific situation, when you draft or update your will.

Reference: nj.com (Oct. 28, 2021) “Who gets this inheritance if a beneficiary dies?”

Does a Trust Protect You From a Lawsuit?

If you have a trust, plan to create one or are the beneficiary of one, you’ll want to understand whether or not a trust can be sued. It’s not a simple yes/no, according to a recent article titled “Estate Planning: Can You Sue a Trust?” from Yahoo! Finance. For instance, a trust generally cannot be sued, but a trustee can.

Understanding when a lawsuit can be brought against a trust should be considered when creating an estate plan, a good reason to work with an experienced estate planning attorney.

A trust is a legal entity used to hold and manage assets on behalf of one or more beneficiaries. A trustee can be a person or business entity responsible for managing the trust and the assets it holds. Trusts can be revocable, meaning the person who created them (the grantor) can make changes, or irrevocable, meaning transfer of assets is permanent (for the most part).

Trusts are used to manage assets while the grantor is living and after they have died. There are many different types of trusts, from a Special Needs Trust (SNT) used to manage assets for a disabled person, or a CRT (Charitable Remainder Trust) used for charitable giving.

A trust cannot always protect the grantor or beneficiaries from litigation. If a person has debt and creditors want to be paid, they can sue a revocable trust, as you have not given up much in the way of control using this type of trust—you still directly own the assets in the trust!

Irrevocable trusts provide more protection. Once assets are in the trust, the grantor has given up control of the assets. However, if the trust was created mainly to protect assets from creditors, a court could determine the trust was created fraudulently, and rule against the grantor, leaving all of the assets in the trust vulnerable to creditor lawsuits.

Can you sue a trust directly? Generally, no, but you can sue the trustee of a trust. You can also sue beneficiaries of a trust.

Here’s an example. If you transfer a car into a revocable living trust and cause an accident leading to the death or serious injury of another driver, the driver or their family could sue the trust for damages indirectly, by suing you as the trustee.

Trustees are bound as fiduciaries to manage the trust assets as directed by the grantor and for the best interest of the beneficiaries. The trustee can be sued if someone, typically a beneficiary, believes the trustee is not carrying out their duties. A beneficiary might sue a trustee, if they were supposed to receive a certain amount of money at a specific time, but the trustee has not distributed the funds. This is known as a “breach of fiduciary duty.”

Trustees are also prevented from self-dealing or using trust assets for their own benefit. If a beneficiary believes a trustee is taking money from the trust for their own benefit, they can sue the trustee.

A trust can also be “contested,” which is different from suing. Contesting a trust occurs when someone believes the grantor was coerced or subjected to undue influence in creating the trust. It also happens if someone believes the trust or amendments to the trust were the result of elder financial abuse, or if it appears trust documents have been forged or fraudulently altered.

Before a trust can be contested, there needs to be a valid suspicion the trust is somehow in violation of your state’s estate planning laws. You also have to have legal standing to bring a claim. The court may or may not side with you, so there are no guarantees.

Reference: Yahoo! Finance (Nov. 17, 2021) “Estate Planning: Can You Sue a Trust?”