Blog

Law Office of Michael D. DellaMonaca

Have a Plan for Life

Should I Use a Trust to Protect My Children’s Inheritance?

Parents with savings have several options for their children’s future inheritances.

nj.com’s recent article answers this question: “We have $1.5 million. Should we get a trust for our children’s inheritance?” According to the article, parents could create lifetime trusts or trusts in their wills for the benefit of the surviving spouse during the spouse’s lifetime.  After that they can have the remainder of the assets pass in trusts for each of the children until they reach a certain age or ages.

A lifetime trust or living trust is a type of trust that’s created during an individual’s lifetime. This is different from a testamentary trust which is a trust created after a person’s lifetime through the operation of that person’s will.

Usually the individual who settles the trust (the “Grantor”) will retain control over the assets in the trust, including the right to revoke the assets during his or her lifetime. These forms of lifetime trusts are known as grantor trusts.

Another option is to have these types of trusts continue for the benefit of the grandchildren. The grandchildren’s trusts can have instructions that the assets and income are to be used for the health, maintenance, education and support of the child.  The parents would need to name a trustee or co-trustee. This is the person who’s responsible for investing the assets, filing tax returns and paying taxes (if necessary). He or she will also distribute the assets according to the terms of the trust.

Trusts are complicated business, so meet with an experienced estate planning attorney to determine the best strategies based on your circumstances and goals.

Reference: nj.com (October 16, 2019) “We have $1.5 million. Should we get a trust for our children’s inheritance?”

 

The Downside of an Inheritance

As many as 1.7 million American households inherit assets every year. However, almost seventy-five percent of those heirs lose their inheritance within a few years and more than a third see no change or even a decline in their economic standing, says Canyon News in the article “Three Setbacks Associated With Receiving An Inheritance.” Receiving an inheritance should be a positive event, but that’s often not the case. What goes wrong?

Family battles. A survey of lawyers, trust officers, and accountants conducted by TD Wealth found that at 44 percent of family conflicts are the biggest cause for inheritance setbacks. Conflicts often arise when individuals die without a properly executed estate plan. Without a will, asset distributions are left to the law of the state and the probate court.

However, there are also times when even the best of plans are created and problems occur. This can happen when there are issues with trustees. Trusts are commonly used estate planning tools, a legal device that includes directions on how and when assets are to be distributed to beneficiaries. Many people use them to shield assets from estate taxes which is all well and good. However, if a trustee is named who is adverse to the interests of the family members or not capable of properly managing the trust, lengthy and expensive estate battles can occur. Filing a claim against an adversarial trustee can lead to divisions among beneficiaries and take a bite out of the inheritance. Contact an experienced estate planning attorney to discuss creating documents to avoid issues such as above.

Poor tax planning. Depending upon the inheritance and the beneficiaries there could be tax consequences including:

  • Estate Taxes. This is the tax applied to the value of a decedent’s assets, properties and financial accounts. The federal estate tax exemption as of this writing is very high—$11.4 million per individual—but there are also state estate taxes. Although the executor of the estate and not the beneficiary is typically responsible for the estate taxes, it may also impact the beneficiaries.
  • Inheritance Taxes. Some states have inheritance taxes which are based upon the kinship between the decedent and the heir, their state of residence and the value of the inheritance. These are paid by the beneficiary and not the estate. Six states collect inheritance taxes: Iowa, Kentucky, Maryland, Nebraska, New Jersey and Pennsylvania. Spouses do not pay inheritance taxes when their spouse’s die. Beneficiaries who are not related to decedents will usually pay higher inheritance taxes.
  • Capital Gains Tax. In certain circumstances, heirs pay capital gains taxes. Recipients may be subject to capital gains taxes if they make a profit selling the assets that they inherited. For instance, if someone inherits $300,000 in stocks and the beneficiary sells them a few years later for $500,000, the beneficiary may have to pay capital gains taxes on the $200,000 profit.

Impacts on Government Benefits. If an heir is receiving government benefits like Social Security Disability Insurance (SSDI), Supplemental Social Security (SSS) or Medicaid, receiving an inheritance could make them ineligible for the government benefit. These programs are generally needs-based and recipients are bound to strict income and asset levels. An estate planning attorney will usually plan for this with the use of a Special Needs Trust, where the trust inherits the assets, which can then be used by the heir without losing their eligibility. A trustee is in charge of the assets and their distributions.

An experienced estate planning attorney can work with the entire family planning for the transfer of wealth and helping educate the family so that the efforts of a lifetime of work are not lost in a few years’ time.

Reference: Canyon News (October 15, 2019) “Three Setbacks Associated With Receiving An Inheritance”

 

Why Do Seniors Get Scammed by Family Members?

The Detroit Free Press’ recent article entitled “Elderly getting scammed by their own family members — and one group wants to stop it” says that the average victim can lose $120,000 to financial exploitation according to AARP research. Repeated, out-of-the-ordinary cash withdrawals are a big sign of exploitation and scams.

“People are literally being robbed every day through scams or financial exploitation from members of their own family,” said Debra Whitman, executive vice president and chief public policy officer at AARP.  As part of the battle, AARP has launched a new online training module for bank and credit union employees, who work with customers on the front lines, as a way to prevent financial exploitation.

Instances of elder financial abuse can increase during the holidays because more family members and friends are around.  Financial exploitation has included abusing the relationship with an older relative or friend to force him or her into giving them a big portion of savings that’s in a bank or transferring property to someone else. It may begin with withdrawing just a few hundred dollars from a bank account and then build to repeated requests for more money. This type of exploitation may include misusing a power of attorney, denying an elderly person access to his or her own money and withdrawing money out of a senior’s bank account.

Many perpetrators are known to the victim, such as family members, caregivers, or other workers in the home. In addition to losing a life’s savings, seniors who are victims of scammers or loved ones can have a more rapid decline in health, because of the emotional stress from being a victim of financial abuse.

According to a report called “Suspicious Activity Reports on Financial Exploitation: Issues and Trends” released in February by the Consumer Financial Protection Bureau, older adults lost an average of $48,300, when the activity involved a checking or savings account. This type of suspicious activity on average took place over a four-month period. Suspicious activity reports for elder financial exploitation quadrupled from 2013 to 2017. In 2017, this activity totaled 63,500 incidents. These reports may also be only a fraction of actual incidents, which may go unreported by victims.

AARP is promoting an online training effort called BankSafe that trains bank tellers and other front-line staff to take more direct action when they suspect a case of financial exploitation. They are encouraged to ask the customer probing questions when they see a possible red flag and even mention the situation to a supervisor who may be able to intervene.

AARP’s BankSafe pilot program was launched for six months at nearly 500 branches of banks and credit unions in 11 states. Nearly $1 million was protected when front line employees who participated in the pilot program intervened and stopped criminals from stealing money from the accounts of seniors. In some instances, the bank employee who stopped someone from being exploited, refused or delayed a suspicious transaction, put a hold on the account, or explained concerns to the customer who was a potential victim.

The average victim was a woman between 70 and 79 with less than $20,000 in her bank account, according to the new AARP research. The estimated cost of financial exploitation varies but may be more than $2.9 billion a year.

Reference: Detroit Free Press (October 16, 2019) “Elderly getting scammed by their own family members — and one group wants to stop it”

 

What are the Biggest Estate Planning Errors to Avoid?

Nobody likes to plan for events like aging, incapacity, or death. However, failing to do so can cause families burdens and grief, thousands of dollars and hundreds of hours.

Fox Business’ recent article, “Here are the top estate planning mistakes to avoid,” says that planning for life’s unexpected events is critical. However, it can often be a hard process to navigate. Let’s look at the top estate planning mistakes to avoid, according to industry experts:

  1. Failing to sign a will (or one that can be located). The biggest mistake is simply not having a will. Estate planning is critically important to protect you, your family and your hard-earned assets—during your lifetime, in the event of your incapacity, and upon your death. We all need estate planning, no matter the amount of assets you have. In addition to having a will it needs to be findable. The Wall Street Journal says that the biggest estate planning error is simply losing a will. Make sure your family has access to your estate planning documents and you name the estate planning attorney who prepared the documents for you. The attorney may have more information on your loved one that you think.
  2. Failing to name and update beneficiaries. An asset with a beneficiary designation supersedes any terms in a will. Review your 401(k), IRA, life insurance, and any other accounts with beneficiaries after any significant life event. If you don’t have the proper beneficiary designations, income tax on retirement accounts may have to be paid sooner. This may lead to increased income tax liability and the designation of a beneficiary on a life insurance policy can affect whether the proceeds are subject to creditors’ claims.

There’s another mistake that impacts people with minor children which is naming a guardian for minor children and then naming that person as beneficiary of their life insurance instead of leaving it to a trust for the child. A minor child can’t receive that money. It also exposes the money to the beneficiary’s creditors and spouse.

  1. Failing to consider powers of attorney for adult children. When your children reach age 18, they are adults in the eyes of the law. If something unfortunate happens to them, you may be left without any say in their treatment. In the event that an 18-year-old becomes ill or has an accident, a hospital won’t consult with their parents if a power of attorney for health care isn’t in place. Unless a power of attorney for property is signed, a parent may not be able to take care of bills, make investment decisions and pay taxes without the child’s signature. This could create an issue when your child is in college—especially if he or she is attending school abroad. It is very important that when your child turns 18 that you have powers of attorney put into place. Contact an experienced estate planning attorney and get a power of attorney prepared.

Reference: Fox Business (October 15, 2019) “Here are the top estate planning mistakes to avoid”

 

How Do I Change My Will?

Many parents have wills that were drafted years ago. Now they want to leave some specific items to people. Those are items not specifically mentioned in the will.  How can he change his will? Can he just write this list and sign it in front of a notary or does he need to have his will changed?

If you’re the executor and don’t want your father to have to spend more money to add these items to the will, how is it done?  Dad can keep it simple, says nj.com’s recent article, “Does my dad need to pay money to get a new will?” However, doing so will likely cause more trouble for the executor.

The father can create a written list that disposes of tangible personal property, not otherwise identified and disposed of by the will.

The list must either be in the testator’s handwriting and signed by the testator. This list also must describe the item and the recipient clearly. This list can be created before or after the will is signed.

This list can be amended or revoked. It should be kept with the will or given to the executor, so he or she knows about it and can ensure it is followed.

This list isn’t legally enforceable. The executor may elect to honor such a distribution assuming the beneficiaries of the other tangible personal property and/or residuary estate agree. That’s so, even if the will doesn’t reference the written list but the testator nevertheless leaves the list.

However, it would not be in the interest of the executor and may be perceived as a breach of fiduciary duty to honor such a list and make such a distribution if the beneficiaries named in the will object. No one wants to cause a fight over the items on the list after the parent is gone.

As a result, it would be wiser to invest in having the items added to a revised will to protect the father’s wishes. If some of the beneficiaries got into a quarrel over the items on the list it could result in a family fight that a properly drafted and executed revision or amendment could prevent. In order to protect the testators wishes it is suggested that you contact an estate planning attorney and have the will reviewed.

Reference: nj.com (October 14, 2019) “Does my dad need to pay money to get a new will?”

 

Be Prepared: Death Happens when We’re Not Looking

There are hard topics like sickness and death, that estate planning prepares for. Then there’s the unexpected, says Wicked Local Dedham in the article “Five Things to consider before getting hit by the bus.” Without an estate plan in place families have to cope with the pain of a sudden loss in addition to managing a funeral and estate minus any advance planning. It makes a bad situation worse.

The solution is relatively simple: have an estate plan and a “just in case” plan ready.

Access to money for expenses. If your family needed to get funds to pay bills and funeral expenses, how would they do that? If you don’t have close family nearby who you can count on, who will take care of these things for you? Note that today, when most banking statements and billing payments are done online, you’ll also need to have a list of online accounts and either name someone to manage your digital property or list your passwords. Plan for how someone you trust, will access this information.

Life insurance and other assets with beneficiaries. If you have one or more life insurance policies, does anyone but you know about them? Do your beneficiaries know that they are your beneficiaries? If your employer or former employer offers life insurance, disability insurance or any other benefits, make sure that someone else besides you knows about them. If you receive a pension, does your pension get transferred to your spouse, or do the payments stop when you die? Do you know what your Social Security benefits would be to a surviving spouse, or family members?

End-of-life medical decisions. If you don’t have an Advance Directive in place, it’s time to speak with an estate planning attorney and add this to your estate plan. If you don’t have a will, Health Care Power of Attorney or other documents prepared, now would be the time to get these plans in place.

You should have a named Health Care Agent, named in your Health Care Power of Attorney, who understands your wishes for end-of-life care, if you should suffer a stroke, be critically injured in an accident or experience an illness that leaves you incapacitated. These conversations are not just for you but for your loved ones. It will give them peace of mind to know that they are following your wishes, if a hard decision like removing you from life support needs to be made.

Final arrangements. Does anyone know your wishes for burial or cremation? Do you want a traditional funeral or a memorial service? Who should be notified of your passing? Making this information available for those who will be in charge, is a kindness to them. If they need to get names and emails from your computer, make sure they know how to log into your system. You could also print out a list and tell them where you are placing it.

Last will and testament. The first question is, do you have a will? The second is, does your family know where it is located? Tell your family and the person you have selected as the executor about the existence of your will, where it can be found and where other important documents are located. If you haven’t had your will created or haven’t reviewed your will in three or four years, it’s time. You should contact an experienced estate planning attorney and have this document prepared.

Death does not come without a lot of paperwork. For some people, a bad health diagnosis serves as a wake-up call and that’s when they decide to put their affairs in order. For others, the death of a close family member or friend is the trigger. Whatever motivates you, speak with an experienced estate planning attorney to have an estate plan created.

Reference: Wicked Local Dedham (Oct. 10, 2019) “Five Things to consider before getting hit by the bus.”

 

Why A Health Care Power of Attorney Makes Sense

Having a Health Care Power of Attorney (Health Care Proxy) in place before it is needed, is one of the best ideas of estate planning, along with having a Durable Power of Attorney in place before it is needed. Why? This is because taking a pro-active approach to both of these documents means that when the unexpected occurs and that is exactly how things occur—unexpectedly—the person or persons you have named for these important roles will be able to step in quickly and made decisions.

Time is often of the essence, when these documents are needed.

According to the article “Medical guardianship versus power of attorney” from The News Enterprise, a health care power of attorney or health care proxy is a document that grants another person the power to make medical decisions for you, when you no longer have the ability to make those decisions for yourself. It is known by a few other names, depending on the state where you live: a medical power of attorney or a health care surrogate.

It needs to have HIPAA-compliant language, which will allow the person you name the ability to review medical information and discuss protected health information with your health care providers.

A health care power of attorney may also include language for an advance medical directive which gives instructions for end-of-life decisions. This is often called a “living will,” and is your legal right to reject medical treatment, decisions about feeding tubes and the number of doctors required to determine the probability of recovery and pain management.

A health care power of attorney does not generally empower another person to make decisions until you are unable to do so. Unlike a general durable power of attorney which permits another person to make financial or business decisions with you while you are living, as long as you are able to understand your medical situation, you are still in charge of your medical decisions.

A guardianship is completely different from these documents. A guardian may only be appointed if a judge or jury finds you wholly or partially disabled in such a way that you cannot manage your own finances or your health. The appointment of a guardian is a big deal. Once someone has been appointed your guardian, you do not have any legal right to make decisions for yourself.  A court will also appoint a legal fiduciary, who will make your financial decisions.

There are record-keeping requirements with a guardianship that do not exist for a power of attorney. The court-appointed representative is responsible for reporting to the court any actions that they have taken on your behalf.

To have power of attorney documents executed, the person must be capable of understanding what they are signing. This means that someone receiving a diagnosis of dementia needs to have these documents prepared as soon as they learn that their capacity will diminish in the near future.

If the documents are not prepared and executed in a timely fashion, a guardianship proceeding may be the only option. Planning in advance is the best way to ensure that the people you trust are the ones making decisions for you. Speak with an experienced estate planning attorney now to have these documents in place.

Reference: The News-Enterprise (Oct. 13, 2019) “Medical guardianship versus power of attorney”

 

Estate Plan—or Lack of One—Will Have an Impact on How You are Remembered

You have a will, even if you never make the effort to have one. However, it may not be the one you wanted, explains an article from The Washington Post titled “You will die. Don’t exit leaving a hot mess behind.” When someone dies without a will the laws of their state determine how assets are distributed to their heirs.

We read many news articles about celebrities who die without wills. One of the most notable was Aretha Franklin, who died last year. She actually left behind three hand-written wills including one found under a couch cushion. Her four children are now tangled in an expensive court battle. The fight has gotten so heated that a judge put the estate’s administration under court supervision.

The rich and famous aren’t the only ones who leave messes behind for their heirs to deal with. The stories told by the woman in charge of funeral services at a Maryland church are so sad. Try these on for size, the next time you want to put off creating or revising your will:

A woman has four children. She dies with no will. Two children wanted to have her cremated, the other two wanted to honor her wishes for a burial. The matter ends up in court where it is revealed that she had purchased a cemetery plot for herself. The family remains divided.

An older gentleman dies leaving a $125,000 life insurance policy to his much younger girlfriend of two years. His adult children had no idea she was the beneficiary. The girlfriend refused to contribute to the funeral or burial. That was her right. However, the children were furious. When she tried to attend the funeral the police were called.

Heard enough? Here’s one that will send you to the phone to make an appointment with your estate planning attorney right now:

A man died and his current wife did not want either his children from his first marriage nor his first wife to have anything to do with the funeral. However, the man never took his first wife’s name off of the house title or as the beneficiary of his insurance policy. The ex-spouse got everything. The first wife paid for the funeral and buria, but she also reclaimed the house that was rightfully hers. The widow went to live with her mother.

Do yourself, your children and your current spouse a favor. Make an appointment with an estate planning attorney, check the beneficiaries on your insurance policies, retirement and investment accounts and get your affairs in order. We never know when we will pass only that we will pass. Be remembered as the person who took care of their loved ones.

Reference: The Washington Post (Oct. 5, 2019) “You will die. Don’t exit leaving a hot mess behind”

 

Why Should I Pair my Business Succession and Estate Planning?

A successful business exit plan can accomplish three important objectives for a business owner: (i) financial security, because the business sale or transfer provides income that the owner and owner’s family will need after the owner’s exit; (ii) the right person where the business owner names his or her successor; and (iii) income-tax minimization.

Likewise, a successful estate plan achieves three important personal goals: (i) financial security for the decedent’s heirs; (ii) the decedent (not the state) chooses who receives his or her estate assets; and (iii) estate-tax minimization.

Business owners will realize that the two processes have the same goals, therefore, they can leverage their time and money and develop their exit plans into the design of their estate plans. The Phoenix Business Journal’s recent article “Which comes first for Arizona business owners: estate planning or exit planning?” explains that considering exit and estate planning together, lets a business owner ask questions to bring their entire picture into focus. Here are some questions to consider:

  1. If a business owner doesn’t leave her business on the planned business exit date, how will she provide her family with the same income stream they would’ve enjoyed if she had?
  2. How can a business owner be certain that her business retains its previously determined value?
  3. Regardless of whether an owner’s exit plan involves transferring part of the business to her children, does her estate plan reflect and implement her wishes, if she doesn’t survive?
  4. If an owner dies before leaving the business, can she be certain that her family will still get the full value of the business?

Another goal of the exit planning process is to protect assets from creditors during an owner’s lifetime and to minimize tax consequences upon a transfer of ownership.

Because planning exits from both business and life are based on the same premises, it can be relatively easy to develop a consistent outcome. There isn’t only one correct answer to the “estate or exit planning” question. A business owner must act on both fronts, since a failure to act in either case creates ongoing issues for owners and for their businesses and families. Consider speaking with an experienced estate planning attorney to discuss your exit planning.

Reference: Phoenix Business Journal (October 8, 2019) “Which comes first for Arizona business owners: estate planning or exit planning?”

 

It’s Like Going to the Dentist: You Need to Get Your Estate Plan Ready

This is one of those things that you know you should do but you keep finding reasons not to. After all, says the article Estate planning: How to quit stalling and write your willfrom The Orange County Register, none of us likes to think about dying or what might occur that would require someone else to raise our children.

What do you need to get motivated and stop procrastinating?

Remember who you are creating a will for. Think of it as a love letter to those you leave behind. You want to provide specific instructions for the people you love about what you want to happen to your minor children, beloved pets and possessions. You are saving them the worries of trying to guess what you would have wanted and the cost of having to pay attorneys to clean up a mess after you have died.

Legal visualization. Think about what will happen in the absence of a will. Without an estate plan, a court will decide who will raise your children. State law determines who inherits your possessions and maybe the laws won’t follow your wishes. Every estate planning attorney has stories of people who die without planning. A spendthrift heir can easily spend a lifetime’s work in less than two years. A trust can be used to control how and when money is distributed.

Simple works. Don’t let the term “estate plan” throw you. A basic estate plan is not as complicated or as expensive as you might think. An experienced estate planning attorney will guide you through the process. You should also think about the short-term: what do you want to happen, if you die sometime in the next five years? You can always update the plan, if things change.

Give yourself a realistic timeline. Setting specific dates for tasks to be done and breaking the project out into smaller parts, can make this easier to address. Start by getting an appointment with an attorney on your calendar. Then set a date to have a conversation with your family members about guardians, charities and other intentions for your legacy. That might take place around Thanksgiving, when families have extended time together. By December 1, clarify and confirm that you want your documents drafted by an experienced estate planning attorney and set hte ball in motion to get the documents prepared and signed. You should also make sure to retitle any assets that are being moved into trusts.

If you were to start today, you could be done by New Year’s Day, 2020. Wouldn’t that feel great?

Reference: The Orange County Register (October 1, 2019) Estate planning: How to quit stalling and write your will