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Have a Plan for Life

How Will Changes in the Law Impact my Estate Plan?

Wealth Advisor recently published an article—“Tune-Up Your Estate Plan in Light of Changing Conditions”—that asks if your estate plan is still appropriate, in light of several changes in the law.

The federal estate tax gift and estate tax exemption amount is now $11.4 million, indexed for inflation, which is an all-time high. A married couple can transfer twice that amount to children or others, or $22.8 million, without any federal gift and estate tax. The federal exemption amount is also now “portable” between spouses. It means that the first spouse to die, can transfer any unused exemption to the surviving spouse, without the need of a “credit shelter trust.”

Note that the enhanced federal exemption amount is scheduled to “sunset” in 2026, returning back down to $5.6 million (indexed for inflation).

As far as state law changes, the New York estate tax exemption amount is $5.74 million. However, that exemption isn’t portable. The estate tax exemption is also phased out, if your taxable estate is 5% more than that amount. For a New York taxable estate of about $6 million, there’s no exemption and the New York estate tax is about $500,000. The New York estate tax on a $10 million taxable estate is more than $1 million. Since New York has no gift tax, lifetime gifts don’t decrease the estate tax exemption for state tax purposes. However, gifts made within three years of death, would be clawed back under a pending bill.

In New Jersey, they’ve repealed the estate tax but kept the inheritance tax. Connecticut raised its estate and gift tax exemption amount. In the state of Illinois, the estate tax exemption amount is only $4 million and isn’t portable. This makes flexibility in your estate plan very desirable. For residents in the Land of Lincoln (that’s Illinois), the estate tax savings are less dramatic, since the exemption is smaller than in New York, but the potential savings through proper planning are still major.

Another consideration to note includes the fact that surrogate’s courts and probate courts—which have always moved at a snail’s pace—have become even slower.

Some of these changes may impact your current estate plan. You may want to take advantage of the enhanced federal exemption amount, before it goes away.

Talk to an experienced estate planning attorney to see how you can shelter your savings from a state estate tax, if you are married and live in a state with an estate tax like New York, Connecticut, or Illinois. This could save you a lot of money that you can then pass on to your heirs.

Reference: The Wealth Advisor (June 17, 2019) “Tune-Up Your Estate Plan in Light of Changing Conditions”

 

Business Owners Need Estate Plan and a Succession Plan

Business owners get so caught up in working in their business, that they don’t take the time to consider their future—and that of the business—when sometime in the future they’ll want to retire. Many business owners insist they’ll never retire, but that time does eventually come. The question The Gardner News article asks of business owners is this: “Do you have a business succession strategy?”

It takes a very long time to create a succession plan that works. Therefore, planning for such a plan should begin long before retirement is on the horizon. That’s because there are as many different ways to map out a succession plan, as there are types of business. A business owner could sell the business to a family member, an outsider, a key employee or to all the employees. The plan could be implemented while the business owner is still alive and well and working, or it could be set up to take effect, only after the owner passes.

The decision of how to handle a succession plan needs to be made with a number of issues in mind: family dynamics and interest in the business (or lack of interest), the nature of the business, the success of the business and the owner’s overall financial situation.

Here are a few of the more popular strategies:

Selling the business outright. There are business owners who don’t need the money and feel that no one else will care as much as they do about their business. Therefore, they sell it. There needs to be a lot of planning to minimize tax liability, when this is the choice.

Using a buy-sell arrangement to transfer the business. This can be structured in whatever way works best for both parties. It allows a slower transition to new ownership. Some families use the proceeds of a life insurance policy to fund the buy-sell agreement, so family owners could use the death benefit to buy the owner’s stake.

Buying a private annuity. This permits the owner to transfer the business to family members, or someone else, who then makes payments to the owner for the rest of their life, or maybe their life and another person, like a surviving spouse. It has the potential to provide a lifetime stream of income and removes assets from the owner’s estate, without triggering gift or estate taxes.

The plan for succession needs to align with the business owner’s estate plan. This is something that many estate planning attorneys who work with business owners have experience with. They can help facilitate the succession planning process. Talk with your estate planning attorney when you have your regular meeting to review your estate plan about what the future holds for your business.

Reference: The Gardener News (June 4, 2019) “Do you have a business succession strategy?”

 

Think of Estate Planning as Stewardship for the Future

Despite our love of planning, the one thing we often do not plan for, is the one thing that we can be certain of. Our own passing is not something pleasant, but it is definite. Estate planning is seen as an unpleasant or even dreaded task, says The Message in the article “Estate planning is stewardship.” However, think of estate planning as a message to the future and stewardship of your life’s work.

Some people think that if they make plans for their estate, their lives will end. They acknowledge that this doesn’t make sense, but still they feel that way. Others take a more cavalier approach and say that “someone else will have to deal with that mess when I’m gone.”

However, we should plan for the future, if only to ensure that our children and grandchildren, if we have them, or friends and loved ones, have an easier time of it when we pass away.

A thought-out estate plan is a gift to those we love.

Start by considering the people who are most important to you. This should include anyone in your care during your lifetime, and for whom you wish to provide care after your death. That may be your children, spouse, grandchildren, parents, nieces and nephews, as well as those you wish to take care of with either a monetary gift or a personal item that has meaning for you.

This is also the time to consider whether you’d like to leave some of your assets to a house of worship or other charity that has meaning to you. It might be an animal shelter, community center, or any place that you have a connection to. Charitable giving can also be a part of your legacy.

Your assets need to be listed in a careful inventory. It is important to include bank and investment accounts, your home, a second home or any rental property, cars, boats, jewelry, firearms and anything of significance. You may want to speak with your heirs to learn whether there are any of your personal possessions that have great meaning to them and figure out to whom you want to leave these items. Some of these items have more sentimental than market value, but they are equally important to address in an estate plan.

There are other assets to address: life insurance policies, annuities, IRAs and other retirement plans, along with pension accounts. Note that these assets likely have a beneficiary designation and they are not distributed by your will. Whoever the beneficiary is listed on these documents will receive these assets upon your death, regardless of what your will says.

If you have not reviewed these beneficiary designations in more than three years, it would be wise to review them. The IRA that you opened at your first job some thirty years ago may have designated someone you may not even know now! Once you pass, there will be no way to change any of these beneficiaries.

Work with an experienced estate planning attorney to create your last will and testament. For most people, a simple will can be used to transfer assets to heirs.

Many people express concern about the cost of estate planning. Remember that there are important and long-lasting decisions included in your estate plan, so it is worth the time, energy and money to make sure these plans are created properly.

Compare the cost of an estate plan to the cost of buying tires for a car. Tires are a cost of owning a car, but it’s better to get a good set of tires and pay the price up front, than it is to buy an inexpensive set and find out they don’t hold the road in a bad situation. It’s a good analogy for estate planning.

Reference: The Message (June 14, 2019) “Estate planning is stewardship.”

 

What Do I Need to Know About Trusts?

A trust is a fiduciary arrangement that lets a third party (the “trustee”) hold assets on the behalf of a beneficiary. Trusts can be drafted in a variety of ways and can specify exactly how and when the assets pass to the beneficiaries.

Because trusts usually avoid probate, the beneficiaries can get access to these assets more quickly than they might if the assets were transferred using a will. If it’s an irrevocable trust, it may not be considered part of the taxable estate, which means there will be fewer taxes due at your death.

FedWeek’s recent article, “The Basics of Trusts,” explains some of the benefits of having a trust in your estate plan. Trusts can offer the following:

  • Protection for possible incompetency. You can form a trust and transfer your assets into it. You can be the trustee, and you’ll have control of the trust assets and keep the income. A successor trustee will assume control, if you’re incapacitated.
  • Avoiding probate. The assets held in trust avoid probate, which can be expensive and time-consuming. In the trust documents, you can direct the trust and provide how the trust assets will be distributed at your death.
  • Protection for heirs. After death, a trustee can keep trust assets from being spent all at once or lost in a divorce, with specific instructions in the trust document.

A trust can be revocable or irrevocable. A revocable trust has to be created during your lifetime. If you change your mind, you can cancel the trust and reclaim the assets. With a revocable trust you can enjoy incapacity protection and probate avoidance—but not tax reduction. In contrast, an irrevocable trust can be created while you’re alive or at your death (a revocable trust becomes irrevocable at your death).

Assets transferred to an irrevocable trust during your lifetime may be shielded from creditors and divorce settlements. The same is true for the assets put into an irrevocable trust at your death.

Your heirs can be the beneficiaries of an irrevocable trust. The trustee you’ve designated will be tasked with distributing funds to the beneficiaries. The trustee will be responsible for protecting trust assets.

Contact an experienced trust attorney with your questions about possibly creating a trust for your situation.

Reference: FedWeek (May 9, 2019) “The Basics of Trusts”

 

What Should I Look for in a Trustee?

Selecting a trustee to manage your estate after you pass away is an important decision. It’s common for people to choose either a friend or family member, a professional trustee or a trust company or corporate trustee for this critical role. Depending on the type of trust you’re creating, the trustee will be in charge of overseeing your assets and the assets of your family.

Forbes’s recent article, “How To Choose A Trustee,” helps you identify what you should look for in a trustee.

If you go with a family member or friend, she should be financially savvy and good with money. You want someone who is knows something about investing, and preferably someone who has assets of their own that they are investing with a qualified professional investment advisor.

A good thing about selecting a friend or family member as trustee, is that they’re going to be most familiar with you and your family. They will also understand your family’s dynamics.  Family members also usually don’t charge a trustee fee (although they are entitled to do so).  However, your family may be better off with a professional trustee or trust company that has expertise with trust administration. This may eliminate some potentially hard feelings in the family. Another negative is that your family member may be too close to the family and may get caught up in the drama.They may also have a power trip and like having total control of your beneficiary’s finances.

The advantage of an attorney serving as a trustee, is that they have familiarity with your family, if you’ve worked together for some time. There will, however, be a charge for their time spent serving as trustee.

Trust companies will have more structure and oversight to the trust administration, including a trust department that oversees the administration. This will be more expensive, but it may be money well spent. A trust company can make the tough decisions and tell beneficiaries “no” when needed. It’s common to use a trust company, when the beneficiaries don’t get along, when there is a problem beneficiary or when it’s a large sum of money. A drawback is that a trust company may be difficult to remove or become inflexible. They also may be stingy about distributions, if it will reduce the assets under management that they’re investing. You can solve this by giving a neutral third party, like a trusted family member, the ability to remove and replace the trustee.

Talk to your estate planning attorney and go through your concerns to find a solution that works for you and your family.

Reference: Forbes (May 31, 2019) “How To Choose A Trustee”

 

Is My Spouse Responsible for My Auto Lease When I Die?

A recent nj.com article asks “What happens to my car lease when I die?” According to the article, in New Jersey the laws are not on the side of the wife. She may be at the mercy of the car dealership and its financing company.

Remember that a vehicle lease is a contract, so if you’re the executor who’s managing the deceased person’s affairs, you should review the terms of the vehicle lease. In some instances, death may be classified as an “early termination” of the lease, and payment obligations may continue.

If there is a co-signer on the lease, such as the deceased’s spouse, he or she may be liable for future payments. If not, typically they’re likely to be the responsibility of the deceased’s estate.

In 2017, the New Jersey Assembly passed a bill that would permit early termination of an auto lease upon the death of the lessee and prohibit the imposition of fees as a result. However, that piece of legislation didn’t make it out of the state Senate. There are plans to reintroduce the bill this session, but nothing has been done as of this date.

As a result, there is no law in New Jersey that keeps a car company from charging fees for early termination upon the death of the lessor.

While some car companies have policies allowing for early termination upon death, in many instances, because a lease is a contract, it continues. The deceased lessee’s estate is liable for making the payments. Therefore, if the written lease doesn’t have a clause dealing with early termination without fees, the lessee’s estate may be required to continue making the payments.

California and New York laws say the same thing: leasing companies can legally claim unpaid obligations from the estate of the deceased.

The car dealer isn’t required to, but it’s not unheard of for a sympathetic car company to be compassionate and just put the car up for sale, so actual losses would be minimal.

The executor should speak to an experienced estate planning attorney to see what options they might have in their specific situation.

Reference: nj.com (May 24, 2019) “What happens to my car lease when I die?”

 

Top Four Facts to Know about Estate Planning

Estate planning can save your family the stress of court cases and family feuds before the process of settling your estate begins. A plan that you create will provide tremendous peace of mind to those who are left behind. The sorrow of losing a loved one is more than enough for a family to experience, says NewsGram, in the article 4 Things You Must Know About Estate Planning.” You had better to have a plan to ensure that your estate is executed with as little acrimony as possible.

Estate planning focuses on planning for how an individual’s assets will be preserved, managed and distributed after their death. It also addresses how the person’s financial life, including their property, is to be managed, in the event they become incapacitated because of an accident or an illness. This is done with the help of an experienced estate planning attorney.

The core of estate planning while you are living, is to protect your assets, protect your estate from having to pay unnecessary taxes and protects you and your wishes, if you are incapacitated or pass away. Here are four key things everyone should keep in mind while preparing their estate plan.

Age should not be a factor. Anyone who is of legal age and owns anything has an estate. An estate refers to anything of value that you own. It does not mean a $10 million mansion. A home, a car, bank accounts, retirement accounts and personal possessions make up an estate, regardless of their size or value. Once you have assets, you need an estate plan. We don’t know when we are going to die, but we can be sure that if you have no estate plan, the state will determine who receives your assets. You may want to make those decisions for yourself. That’s what an estate plan does.

You need an estate planning attorney. Estate planning crosses into several different legal practice areas. Asset management, tax planning, real estate, guardianship and other areas need to be addressed by a legal professional who understands how these elements all work together. An estate planning attorney has a professional responsibility to help you document your wishes for incapacity and death.

However, they do more than that. The estate planning attorney will help you fine-tune your wishes, gain clarity on what you want to happen during life and death and translate that into the legal language that ensures that your wishes are achieved.

Planning helps avoid or minimize probate. Depending on where you live, probate can be a simple process or one that takes a long time. The estate planning attorney will help you plan to pass your assets to your spouse or the next generation to avoid going through the court process known as probate. This is a process of authenticating your will, verifying that the assets in the will are correctly named, paying off any outstanding tax balances and approving the distribution of the assets. With a good estate plan, you can make this a simple process.

An estate plan works to minimize family squabbles. Disagreements over estates, including personal possessions as well as money, routinely tears families apart. You don’t have to be wealthy or even a celebrity to have a family that is fractured over a misunderstanding or someone feeling like they were not treated fairly. This is another area where an experienced estate planning attorney can help bring you through the process of distributing assets, with a deep dive into how your decisions may be received by various family members.

To get started, contact an experienced estate planning attorney in your community. If you have an estate plan but haven’t reviewed it in more than four years, it’s time for an update. A number of laws have changed on the federal level that may require some changes to your estate plan. If you have had any major life events, you also need a review.

Reference: NewsGram (June 5, 2019) 4 Things You Must Know About Estate Planning.”

 

Here’s Why a Basic Form Doesn’t Work for Estate Planning

It’s true that an effective estate plan should be simple and straightforward, if your life is simple and straightforward. However, few of us have those kinds of lives. For many families, the discovery that a will that was created using a basic form is invalid leads to all kinds of expenses and problems, says The Daily Sentinel in an article that asks “What is wrong with using a form for my will or trust?”

If the cost of an estate plan is measured only by the cost of a document, a basic form will, of course, be the least expensive option — on the front end. On the surface, it seems simple enough. What would be wrong with using a form?

Actually, a lot is wrong. The same things that make a do-it-yourself, basic form seem to be attractive, are also the things that make it very dangerous for your family. A form does not take into account the special circumstances of your life. If your estate is worth several hundreds of thousands of dollars, that form could end up putting your estate in the wrong hands. That’s not what you had intended.

Another issue: any form that is valid in all 50 states is probably not going to serve your purposes. If it works in all 50 states (and that’s highly unlikely), then it is extremely general, so much so that it won’t reflect your personal situation. It’s a great sales strategy, but it’s not good for an estate plan.

If you take into consideration the amount of money to be spent on the back end after you’ve passed, that $100 will becomes a lot more expensive than what you would have invested in having a proper estate plan created by an estate planning attorney.

What you can’t put into dollars and cents, is the peace of mind that comes with knowing that your estate plan, including a will, power of attorney, and health care power of attorney, has been properly prepared, that your assets will go to the individuals or charities that you want them to go to, and that your family is protected from the stress, cost and struggle that can result when wills are deemed invalid.

Here’s one of many examples of how the basic, inexpensive form created chaos for one family. After the father died, the will was unclear, because it was not prepared by a professional. The father had properly filled in the blanks but used language that one of his sons felt left him the right to significant assets. The family became embroiled in expensive litigation, and became divided. The litigation has ended, but the family is still fractured. This was not what their father had intended.

Other issues that are created when forms are used: naming the proper executor, guardians and conservators, caring for companion animals, dealing with blended families, addressing Payable-on-Death (POD) accounts and end-of-life instructions, to name just a few.

Avoid the “repair” costs and meet with an experienced estate planning attorney in your state to create an estate plan that will suit your needs.

Reference: The Daily Sentinel (May 25, 2019) “What is wrong with using a form for my will or trust?”

 

Long-Term Care Costs and Your Estate Plan

There are many misunderstandings about long-term or nursing home care and how to plan from a financial and legal standpoint. The article “Five myths about nursing home costs and estate planning” from The Sentinel seeks to clarify the facts and dispel the myths. Some of the truths may be a little hard to hear, but they are important to know.

Myth One: Before any benefits can be received for nursing home care, a married couple must have spent at least half of their assets and everything but $120,000. If the person receiving nursing home care is single, they must spend almost all assets on the cost of care, before they qualify for aid.

Fact: Nursing homes have no legal duty to advise anyone before or after they are admitted about this myth.

Several opportunities to spend money on items other than a nursing home, include home improvements, debt retirement, a new car and funeral prepayment. An elder law attorney will know how to use a Medicaid-compliant annuity to preserve assets, without spending them on the cost of care, depending on state law.

There are people who say that an attorney should not help a client take advantage of legally permitted methods to save their money. If they don’t like the laws, let them lobby to change them. Experienced elder law and estate planning attorneys help middle-class clients preserve their life savings, much like millionaires use CPAs to minimize annual federal income taxes.

Myth Two: The nursing home will take our family’s home, if we cannot pay for the cost of care.

Fact: Nursing homes do not want and will not take your home. They just want to be paid. If you can’t afford to pay, the state will use Medicaid money to pay, as long as the family meets the eligibility requirements. The state may eventually attach a collection lien against the estate of the last surviving homeowner to recover funds that the state has used for care.

A good elder law attorney will know how to help the family meet those requirements, so that the adult children are not sued by the nursing home for filial responsibility collection rights, if applicable under state law. The attorney will also know what exceptions and legal loopholes can be used to preserve the family home and avoid estate recovery liens.

Myth Three. We’ve promised our parents that they’ll never go to a nursing home.

Fact: There is a good chance that an aging parent, because of dementia or the various frailties of aging, will need to go to a nursing home at some point, because the care that is provided is better than what the family can do at home.

What our loved ones really want is to know that they won’t be cast off and abandoned, and that they will get the best care possible. When home care is provided by a spouse over an extended period of time, often both spouses end up needing care.

Myth Four: I love my children equally, so I am going to make all of them my legal agent.

Fact: It’s far better for one child to be appointed as the legal agent, so that disagreements between siblings don’t impact decisions. If health care decisions are delayed because of differing opinions, the doctor will often make the decision for the patient. If children don’t get along in the best of circumstances, don’t expect that to change with an aging parent is facing medical, financial and legal issues in a nursing home.

Myth Five. We did our last will and testament years ago, and nothing’s changed, so we don’t need to update anything.

Fact: The most common will leaves everything to a spouse, and thereafter everything goes to the children. That’s fine, until someone has dementia or is in a nursing home. If one spouse is in the nursing home and receiving government benefits, eligibility for the benefits will be lost, if the other spouse dies and leaves assets to the spouse who is receiving care in the nursing home.

A fundamental asset preservation strategy is to make changes to the will. It is not necessary to cut the spouse out of the will, but a well-prepared will can provide for the spouse, preserve assets and comply with state laws about minimal spousal election.

When there has been a diagnosis of early stage dementia, it is critical that an estate planning attorney’s help be obtained as soon as possible, while the person still has legal capacity to make changes to important documents.

The important lesson for all the myths and facts above: see an experienced estate planning elder law attorney to make sure you are prepared for the best care and to preserve assets.

Reference: The Sentinel (May 10, 2019) “Five myths about nursing home costs and estate planning”

 

What Does ‘Getting Your Affairs in Order’ Really Mean?
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What Does ‘Getting Your Affairs in Order’ Really Mean?

That “something” that happens that no one wants to come out and say is that you are either incapacitated by a serious illness or injury or the ultimate ‘something,’ which is death. There are steps you can take that will help your family and loved ones, so they have the information they need and can help you, says Catching Health’s article “Getting your affairs in order.”

Start with the concept of incapacity, which is an important part of estate planning. Who would you want to speak on your behalf? Would that person be the same one you would want to make important financial decisions, pay bills and handle your personal affairs? Does your family know what your wishes are, or do you know what your parent’s wishes are?

Financial Power of Attorney. Someone needs to be able to pay your bills and handle financial matters. That person is named in a Financial Power of Attorney, and they become your agent. Without an agent, your family will have to go to court and get a conservatorship. This takes time and money. It also brings in court involvement into your life and adds another layer of stress and expense.

It’s important to name someone who you trust implicitly and whose financial savvy you trust. Talk with the person you have in mind first and make sure they are comfortable taking on this responsibility. There may be other family members who will not agree with your decisions, or your agent’s decisions. They’ll have to be able to stick to the course in the face of disagreements.

Health Care Directive, Health Care Proxy or Living Will. The name of these documents and what they serve to accomplish does vary from state to state, so speak with an estate planning attorney in your state to determine exactly what it is that you need.

Health Care Proxy. This is the health care agent who makes medical decisions on your behalf, when you can no longer do so. In Maine, that’s a health care advance directive. The document should be given to the named person for easy access. It should also be given to doctors and medical providers.

DNR, or Do Not Resuscitate Order. This is a document that says that if your heart has stopped working or if you stop breathing, not to bring you back to life. When an ambulance arrives and the EMT asked for this document, it’s because they need to know what your wishes are. Some folks put them on the fridge or in a folder where an aide or family member can find them easily. If you are in cardiac arrest and the DNR is with a family member who is driving from another state to get to you, the EMT is bound by law to revive you. You need to have that on hand, if that is your wish.

How Much Should You Tell Your Kids? While it’s really up to you as to how much you want to share with your kids, the more they know, the more they can help in an emergency. Some seniors bring their kids with them to the estate planning attorney’s office, but some prefer to keep everything under wraps. At the very least, the children need to know where the important documents are, and have contact information for the estate planning attorney, the accountant and the financial advisor. Many people create a binder with all of their important documents, so there are no delays caused in healthcare decisions.

Reference: Catching Health (May 28, 2019) “Getting your affairs in order.”