If I Buy a House, Should I have an Estate Plan?

There’s been an unprecedented surge in home sales during the pandemic. A recent National Association of Realtors report revealed that since July, existing home sales have increased year over year reaching a pandemic high of over 25% in October. Forbes’s recent article entitled “Pandemic Home Buyers: Have You Set Up Your Estate Plan?” asks the important question: How has this past year’s surge in home sales impacted estate planning?

Estate planning is a way to protect your assets and your loved ones, no matter your age or income level. If you place your home into a trust, you ensure that the ownership of your home will be properly and efficiently transferred to a loved one, if anything happens to you unexpectedly. If your home isn’t included in your estate plan, it will go through probate. However, consider the potential pitfalls of a trust:

  1. Creating a trust, when you really only need a will. If you have less than $150,000 in assets and you don’t own a home, a trust likely isn’t really needed.
  2. Thinking that you automatically have asset protection. A trust can help to avoid probate. So, an irrevocable trust may be the right option for people who really need true asset protection.
  3. Not taking trust administration into account. The trustee must do many tasks when the creator of the trust dies. These aren’t much different from what an executor does, but it can be extra work.

If you already have an estate plan, you should review your estate planning documents every three to five years. Moreover, purchasing a home should also make you revisit your documents. When doing a review, take a look at the terms of the trust. Make certain that you have your house referenced by address and that you transfer the house to your spouse by name.

Most mortgages have a “due on sale” clause. This means if you terminate your ownership of your home, you have to immediately pay back the mortgage proceeds to the bank. If you place your home in a revocable trust, it lets you smoothly transfer ownership to your beneficiary. This prevents the bank from demanding payment, and your beneficiary would keep making the mortgage payments after you’re gone. However, it may be prudent to contact the lender in advance of the transfer, if you want to be sure.

If you bought a home in the pandemic and have not placed it in a trust yet, talk to an experienced estate planning attorney sooner rather than later.

Reference: Forbes (June 2, 2021) “Pandemic Home Buyers: Have You Set Up Your Estate Plan?”

 

Estate Planning Matters for Singles

If you’re not married and you have relatives or friends to whom you would like to pass certain assets, then you need an estate plan, says the article “Estate planning important even if you’re not married” from Rocky Mountain Telegram.

If you die without a last will and testament or other estate planning documents in place, a probate court will make the decisions about how to distribute assets according to the laws of your state. That may not be what you wanted, but it will be too bad—and too late.

If you want to leave assets to family members or close friends, you’ll need to plan for this with a last will and testament. The same goes for any donations you may wish to leave to one or more charitable organizations. You could just name organizations in your will, but there are many different ways to give to charity and some have tax benefits for you and your heirs.

One way to leave assets to charity is a Charitable Remainder Trust. Your estate planning attorney will help guide you through the steps. Appreciated assets, like stocks, mutual funds, or other investment securities, are transferred into an irrevocable trust. You get to name the trustee—you could be the trustee, if you prefer—and then you can sell the assets at full market value, avoiding any capital gains taxes that you’d pay if you sold them as an individual.

If you itemize your income taxes, you might be able to claim a charitable deduction on taxes. With the proceeds, the trust can purchase income-producing assets and provide an income stream for the rest of your life. When you die, the assets remaining in the trust will go to the charity or charities that you have named.

Family members and charities aren’t the only ones to consider in an estate plan for a single person. You need to prepare to protect yourself. With the absence of an immediate family, being protective of your financial and health care decisions requires a durable power of attorney and a health care proxy, among other documents.

The durable power of attorney authorizes a person of your choice to manage finances, if you were to become incapacitated. This is especially important when there is no spouse to take on this role. Your health care proxy, also known as a medical power of attorney, authorizes someone you name to make health care decisions on your behalf, if you are unable.

Estate planning can be complex. An experienced estate planning attorney will be an invaluable resource as you go through the process. Who will be the best candidate to select as your power of attorney? What other documents do you need to ensure that your assets go to the people or charities you want? Once this is done, you’ll be prepared for the future—and protected.

Reference: Rocky Mountain Telegram (June 6, 2021) “Estate planning important even if you’re not married”

 

Why Is Estate Planning So Important?

“Estate planning” will be your family’s guidebook once you have passed away. The Big Easy Magazine’s recent article entitled “Estate Planning Is Essential and Here’s Whyexplains that estate planning is similar to writing a last will. HOwever, writing one is not limited to what happens to your house, car, possessions, or other assets after you pass away. It also entails the question of who will take care of your minor children, if they are left without a parent, as well as your instructions for burial and other items.

If you fail to leave specific instructions, the state’s intestacy laws will apply at your death, meaning that the court will decide who gets what. There is no guarantee this will be in your best interest. Let’s look at the consequences of not writing your will:

  • If you prefer cremation or a traditional burial, your family may not know and decide based on their preferences or convenience.
  • Your properties will be managed by someone you do not necessarily trust, if you do not name an executor to your will.
  • Some of your loved ones may not get an inheritance if there is no will. State law may not carry out your intentions, and some people may be left out.
  • Your favorite charity may not receive donations. For those committed to leaving a legacy, your organization of choice should be listed in the will.
  • The court will assign guardians for your minor children, and social services will appoint a guardian. You can avoid this, by naming a trusted person in your will.

Aside from avoiding these consequences, estate planning can also save your family a lot of headaches and expense. A detailed will with your instructions will alleviate the stress and provide them with comfort, while they recover emotionally from their loss. Here are the top reasons why you need to plan these things:

  • You can avoid inheritance taxes and federal estate taxes with proper estate planning.
  • You can name who will care for you, if you are unable to make your own decisions because of illnesses, infirmity, or old age. With a power of attorney, you can name someone you trust to manage your finances.
  • If your minor children are orphaned, you can name someone you trust to be their guardian in your will.
  • Some family members are greedy, so you can exclude them from your will. With an estate plan created by an experienced estate planning attorney, you can ensure that the people you love will receive what you intend.

Estate planning is essential to securing a comfortable life for your loved ones. Work with an experienced estate planning attorney to set things up correctly.

Reference: The Big Easy Magazine (May 17, 2021) “Estate Planning Is Essential and Here’s Why”

 

What are Top ‘To-Dos’ in Estate Planning?

Spotlight News’ recent article entitled “Estate Planning To-Dos” says that with the potential for substantial changes to estate and gift tax rules under the Biden administration, this may be an opportune time to create or review our estate plan. If you are not sure where to begin, look at these to-dos for an estate plan.

See an experienced estate planning attorney to discuss your plans. The biggest estate planning mistake is having no plan whatsoever. The top triggers for estate planning conversations can be life-altering events, such as a car accident or health crisis. If you already have a plan in place, visit your estate planning attorney and keep it up to date with the changes in your life.

Draft financial and healthcare powers of attorney. Estate plans contain multiple pieces that may overlap, including long-term care plans and powers of attorney. These say who has decision-making power in the event of a medical emergency.

Draft a healthcare directive. Living wills and other advance directives are written to provide legal instructions describing your preferences for medical care, if you are unable to make decisions for yourself. Advance care planning is a process that includes quality of life decisions and palliative and hospice care.

Make a will. A will is one of the foundational aspects of estate planning, However, this is frequently the only thing people do when estate planning. A huge misconception about estate planning is that a will can oversee the distribution of all assets. A will is a necessity, but you should think about estate plans holistically—as more than just a will. For example, a modern aspect of financial planning that can be overlooked in wills and estate plans is digital assets.  It is also recommended that you ask an experienced estate planning attorney about whether a trust fits into your circumstances, and to help you with the other parts of a complete estate plan.

Review beneficiary designations. Retirement plans, life insurance, pensions and annuities are independent of the will and require beneficiary designations. One of the biggest estate planning mistakes is having outdated beneficiary designations, which only supports the need to review estate plans and designated beneficiaries with an experienced estate planning attorney on a regular basis.

Reference: Spotlight News (May 19, 2021) “Estate Planning To-Dos”

 

Do Unrecorded Deeds Help or Hurt Estate Planning?

Using an unrecorded deed to transfer property without probate sounds like an easy way to transfer ownership of the family home, but is it asking for trouble? That’s the topic of an article from NWI Times entitled, “Estate Planning: Are unrecorded deeds a good idea?” The fact that the idea came from a family’s attorney makes the question even more important. The attorney told the parents the children could record the deed after their deaths and transfer the property without probate.

Most estate planning attorneys haven’t seen this technique used in a long time, and some may never have heard of it. There’s probably a good reason for this—it’s an estate mess waiting to happen.

First of all, what if the deed itself goes missing? One of the most common questions estate planning attorneys hear is “What do I do because Mom lost the_____?” Fill in the blanks—the deed, the title to the car, the bank statement, etc. Important documents often get lost. If a deed is missing and can’t be recorded, title can’t be transferred. Hoping an important piece of paper doesn’t get lost is not an estate plan.

Until the deed is recorded, and title transferred, the holders of the title still own the property. They can mortgage the property or sell it. The plan for the children to receive and record the deed may not have legal authority.

Laws about how deeds must be created change. Indiana made a change to the law in 2020 that required signatures on deeds to be witnessed. Without the witness, the deeds can’t be recorded. If the adult child is holding a deed for the recording and it’s not witnessed because the parents have died, it can’t be recorded.

There are better ways to transfer ownership of the family home that adhere to the general principles of estate planning.

There are also different types of deeds that are more commonly used in estate planning to transfer home ownership without going through probate. One is a Transfer on Death Deed (TOD Deeds). A TOD deed allows a person to name beneficiaries on their real estate property without giving up any rights of ownership. The TOD deed is recorded, so there’s no worry about mom or pop losing the paperwork.  The TOD deed can also be changed by recording another deed or using an affidavit.

Trusts can also be used to transfer home ownership and keep the transaction out of probate. An estate planning attorney will be able to explain the different types of trusts used to transfer a home. State laws vary, and allowable trusts vary, so talking with a local estate planning attorney is the best option.

Reference: NWI Times (May23, 2021) “Estate Planning: Are unrecorded deeds a good idea?”

 

What Is Elder Law?

With medical advancements, the average age of both males and females has increased incredibly.  The issue of a growing age population is also deemed to be an issue legally. That is why there are elder law attorneys.

Recently Heard’s recent article entitled “What Are the Major Categories That Make Up Elder Law?” explains that the practice of elder law has three major categories:

  • Estate planning and administration, including tax issues
  • Medicaid, disability, and long-term care issues; and
  • Guardianship, conservatorship, and commitment issues.

Estate Planning and Administration. Estate planning is the process of knowing who gets what. With a will in place, you can make certain that the process is completed smoothly. You can be relieved to know that your estate will be distributed as you intended. Work with an experienced estate planning attorney to help with all the legalities, including taxes.

Medicaid, Disability, and Long-Term Care Issues. Elder law evolved as a special area of practice because of the aging population. As people grow older, they have more medically-related issues. Medicaid is a state-funded program that supports those with little or no income. The disability and long-term care issues are plans for those who need around-the-clock care. Elder law attorneys help coordinate all aspects of elder care, such as Medicare eligibility, special trust creation and choosing long-term care options.

Guardianship, Conservatorship, and Commitment Matters. This category is fairly straightforward. When a person ages, a disability or mental impairment may mean that he or she cannot act rationally or make decisions on his or her own. A court may appoint an individual to serve as the guardian over the person or as the conservator the estate, when it determines that it is required. The most common form of disability requiring conservatorship is Alzheimer’s, and a court may appoint an attorney to be the conservator, if there is no appropriate relative available.

Contact a local estate planning or elder law attorney if you have questions.

Reference: Recently Heard (May 26, 2021) “What Are the Major Categories That Make Up Elder Law?”

 

Do Estate Planning before Golden Age Ends

Unfortunately, the changes that may be coming to estate planning are likely to be felt by not just ultra-high-net-worth families, but by upper middle-class families whose net worth is comfortable, but not in the stratosphere. Estate planning lawyers are talking with their clients now about how to plan for transferring assets to families without overly aggressive tax avoidance strategies, according to the article “Are We Leaving a ‘Golden Age’ For Estate Planning?” from Financial Advisor Magazine.

The lifetime gift and estate tax exemption is $11.7 million per person and $23.4 million for couples for 2021, which touched only the extremely wealthiest Americans. However, new tax policies are being debated in Congress, including the possible rollback of those estate tax exemptions. Tax-aware estate planning has already gotten underway for many Americans who are not in the top 1%.

There are two proposed changes that may push more families into using trusts and other planning strategies. The first is a proposed increase in the capital gains tax rate for high earners to bring it more in line with their income tax bracket. That would mean they might lose the advantage of deriving income from investments versus a salary.

The second is the possible elimination of step-up in cost basis for assets upon death. Other changes under discussion have been the elimination or decrease of valuation discounting within an estate.

The rush to change estate plans has begun. Estate plans are being revised, trusts are being created and giving strategies are being planned to remove assets from the grantor generations’ estates and take advantage of the current high tax exemption.

Congress is still figuring out what changes will be made. In addition, no one knows if these changes will be retroactive to 2021 if they are made in the third quarter of 2021, or if they will be enacted on January 1, 2022.

Without knowing what the final changes will be, any planning now should be made with a long-term framework for the family.

Estate planning can be considered in three steps:

The grantor generation needs to consider the purpose of their wealth. Do they want to continue a family business, give the majority of their wealth to a charitable organization, or pass it all to their children and grandchildren?

What does it mean to treat beneficiaries fairly? If one child is teacher, while the other has built and grown a highly successful business, do both children inherit the same amount? What if one of the children has a child with Special Needs?

The grantor generation needs to communicate with their heirs. Heirs often don’t learn about their parent’s intentions, tax planning or charitable giving, until after they have passed. It’s far better to talk about the parent’s wishes and their reasoning while they are living. Without these conversations, families suffering from loss must add sibling quarrels and sometimes, estate litigation, to an already difficult time. Contact an experienced estate planning attorney who can directly you.

Financial Advisor Magazine (May 20, 2021) “Are We Leaving a ‘Golden Age’ For Estate Planning”

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Can Family Members Contest a Will?

Estate planning documents, like wills and trusts, are enforceable legal documents, but when the grantor who created them passes, they can’t speak for themselves. When a loved one dies is often when the family first learns what the estate plans contain. That is a terrible time for everyone. It can lead to people contesting a will. However, not everyone can contest a will, explains the article “Challenges to wills and trusts” from The Record Courier.

A person must have what is called “standing,” or the legal right to challenge an estate planning document. A person who receives property from the decedent, and was designated in their will as a beneficiary, may file a written opposition to the probate of the will at any time before the hearing of the petition for probate. An “interested person” may also challenge the will, including an heir, child, spouse, creditor, settlor, beneficiary, or any person who has a legal property right in or a claim against the estate of the decedent.

Wills and trusts can be challenged by making a claim that the person lacked mental capacity to make the document. If they were sick or so impaired that they did not know what they were signing, or they did not fully understand the contents of the documents, they may be considered incapacitated, and the will or trust may be successfully challenged.

Fraud is also used as a reason to challenge a will or trust. Fraud occurs when the person signs a document that didn’t express their wishes, or if they were fooled into signing a document and were deceived as to what the document was. Fraud is also when the document is destroyed by someone other than the decedent once it has been created, or if someone other than the creator adds pages to the document or forges the person’s signature.

Alleging undue influence is another reason to challenge a will. This is considered to have occurred if one person overpowers the free will of the document creator, so the document creator does what the other person wants, instead of what the document creator wants. Putting a gun to the head of a person to demand that they sign a will is a dramatic example. Coercion, threats to other family members and threats of physical harm to the person are more common occurrences.

It is also possible for the personal representative or trustee’s administration of a will or trust to be challenged. If the personal representative or trustee fails to follow the instructions in the will or the trust, or does not report their actions as required, the court may invalidate some of the actions. In extreme cases, a personal representative or a trustee can be removed from their position by the court.

An estate plan created by an experienced estate planning lawyer should be prepared with an eye to the family situation. If there are individuals who are likely to challenge the will, a “no-contest” clause may be necessary. Open and candid conversations with family members about the estate plan may head off any surprises that could lead to the estate plan being challenged.

One last note: just because a family member is dissatisfied with their inheritance does not give them the right to bring a frivolous claim, and the court may not look kindly on such a case.

Reference: The Record-Courier (May 16, 2021) “Challenges to wills and trusts”

 

When Should an Estate Plan Be Reviewed?

If your parents don’t remember when they last reviewed their estate plan, then chances are it’s time for a review. Over the years, wishes, relationships and circumstances change, advises the recent article, “5 Reasons To Have Your Parents’ Estate Plan Reviewed,” from Forbes. An out-of-date estate plan may not achieve your parent’s wishes, or be declared invalid by the court. Having an estate planning attorney review the estate plan may save you money in the long run, not to mention the stress and worry created by an estate disaster. If you need reasons, here are five to consider.

Financial institutions are wary of dated documents. Banks and other financial institutions look twice at documents that are not recent. Trying to use a Power of Attorney that was created twenty years ago is bound to create problems. One person tried to use a document, but the bank insisted on getting an affidavit from the attorney who prepared it to be certain it was valid. While the son was trying to solve this, his mother died, and the account had to be probated. A “fresh” power of attorney would have solved the problem.

State laws change. Things that seem small become burdensome in a hurry. For example, if someone wants to leave a variety of personal effects to many different people, each and every one of the people listed would need to be located and notified. Many states now allow a separate writing to dispose of personal items, making the process far easier. However, if the will is out of date, you may be stuck with a house-sized task.

Legal document language changes. The SECURE Act changed many aspects of estate planning, particularly with regard to retirement accounts. If your parents have retirement accounts that are payable to a trust, the trust language must be changed to comply with the law. Not having these updates in the estate plan could result in an increase in income taxes or costly fees to fix the situation.

Estate tax laws change. In recent years, there have been many changes to federal tax laws. If your parents have not updated their estate plan within the last five years, they have missed many changes and many opportunities. It is likely that your parents’ assets have also changed over the years, and the documents need to reflect how the estate taxes will be paid. Are their assets titled so that there are enough funds in the estate or trust to cover the cost of any liability? Here’s another one—if all of the assets pass directly to beneficiaries via beneficiary designations, who is going to pay for the tax bills –and with what funds?

Older estate plans may contain wishes from decades ago. For one family, an old will led to a situation where a son did not inherit his father’s entire estate. His late sister’s children, who had been estranged from him for decades, received their mother’s share. If the father and son had reviewed the will earlier, a new will could have been created and signed that would have given the son what the father intended.

These types of problems are seen daily in your estate planning attorney’s office. Take the time to get a proper review of your parent’s estate plan, to prevent stress and unnecessary costs in the future.

Reference: Forbes (May 25, 2021) “5 Reasons To Have Your Parents’ Estate Plan Reviewed”