What Estate Planning Documents Should I Have for My Child Who’s at College?

Kiplinger’s recent article, “Documents that Parents and College Students Need,” explains that many parental rights are no longer applicable, when a child legally reaches adulthood (age 18 in most states).

However, with a few estate planning documents, you can still be involved in your child’s medical and financial affairs. Many parents don’t know that they need these documents. They think they can access a child’s medical and other information because their son or daughter is still on the family’s insurance plan and the parents are paying the medical and tuition bills.

Here are four documents you and your son or daughter will need.

HIPAA Authorization Form. This is a federal law that protects the privacy of medical records. You child must sign a HIPPA authorization form to let you to receive information from health care providers, such as the college’s health clinic, about their health and treatment. If your son or daughter doesn’t want to share her entire medical record, he or she can set restrictions on what information you can receive.

Medical Power of Attorney. This lets your son or daughter name a person to make medical decisions if they are incapacitated and unable to make medical decisions. Your child should select both a primary agent and a secondary agent in the event the first one is unavailable.

Durable Power of Attorney. This lets your son or daughter authorize a person to handle financial or legal matters on his or her behalf. A durable power of attorney is usually written so it takes effect when a person becomes incapacitated. However, if your child would like you to manage his or her financial accounts or file tax returns while away at school, they can make the document effective immediately.

Family Education Rights and Privacy Act Waiver. Once your child is an adult, you’re no longer entitled to see their grades without express permission. It seems a bit crazy that you can be paying for tuition but you don’t have access to their academic records. This waiver signed by your child will allow you permission to receive his or her academic record. Many colleges provide this form, or you can find it online.

You need to contact an experienced estate planning attorney to have these documents prepared correctly. One you get these documents make sure you have ready access to them, if required.

Reference: Kiplinger (September 24, 2019) “Documents that Parents and College Students Need”

 

How Do I Set Up a Living Trust?

For those who want to spare heirs the hassle and cost of the probate process, you may consider transferring your assets to a living trust.

Yahoo! Finance’s recent article, “How to Create a Living Trust in Tennessee” explains that creating a living trust is mostly the same, regardless of where you live in the U.S.

Let’s look at the basic steps you’ll need to take, with the help of a qualified estate planning attorney:

  1. List the assets that should go into the trust. There are some assets, such as 401(k) plans and IRAs, which must be in an individual’s name. Other items like bank accounts, securities and life insurance policies can but don’t need to provided you designate your beneficiaries. Usually real estate and business interests are shielded with living trusts.
  2. Select the right type of living trust. If you use a revocable trust, you can remove assets or cancel the trust. With an irrevocable trust, you don’t have this luxury. If you’re not married, you can create a single trust. If you’re married, a Tennessee Community Property Trust will hold what you own jointly without having to split property or say who owns what. However, this type of trust isn’t a good option, if you’re in a later marriage with separate assets and children from previous relationships.
  3. Name a trustee. The trustee will manage the trust. With revocable trusts, you can also be the trustee, or in the case of a joint trust, you and your spouse can be co-trustees. If you name yourself, name a successor trustee for when you pass away.
  4. Create a trust agreement. It’s best to hire an experienced estate planning attorney to create the trust, because it must be done correctly and legally. If the trust is found to be invalid, there may be penalties, taxes and added costs.
  5. Sign and notarize the trust document.
  6. Transfer property into the trust. The law states that the trust won’t be effective unless and until property is retitled in the name of the trust.

Trusts and their rules can be complicated. Use an experienced estate planning attorney to do it right.

Reference: Yahoo! Finance (September 27, 2019) “How to Create a Living Trust in Tennessee”

 

A Will is the Way to Have Your Wishes Followed

A will, also known as a last will and testament, is one of three documents that make up the foundation of an estate plan, according to The News Enterprises’ article “To ensure your wishes are followed, prepare a will.” As any estate planning attorney will tell you, the other two documents are the Power of Attorney and a Health Care Power of Attorney. These three documents all serve different purposes and work together to protect an individual and their family.

There are a few situations where people may think they don’t need a will, but not having one can create complications for the survivors.

First, when spouses with jointly owned property don’t have a will, it is because they know that when the first spouse dies, the surviving spouse will continue to own the property. However, with no will, the spouse might not be the first person to receive any property that is not jointly owned, like a car.  Even when all property is jointly owned—that means the title or deed to all and any property is in both person’s names –upon the death of the second spouse, a case will have to be brought to court through probate to transfer property to heirs.

Secondly, any individuals with beneficiary designations on accounts transfer to the beneficiaries on the owner’s death, with no court involvement. However, the same does not always work for POD, or payable on death accounts. A POD account only transfers the specific account or asset.

Other types of assets, such as real estate and vehicles not jointly owned will have to go through probate. If the beneficiary named on any accounts has passed, their share will go into the estate forcing distribution through probate.

Third, people who do not have a large amount of assets often believe they don’t need to have a will because there isn’t much to transfer. Here’s a problem: with no will, nothing can be transferred without court approval. Let’s say your estate brings a wrongful death lawsuit and wins several hundred thousand dollars in a settlement. The settlement goes to your estate, which now has to go through probate.

Fourth, there is a belief that having a power of attorney means that they can continue to pay the expenses of property and distribute property after the grantor dies. This is not so. A power of attorney expires on the death of the grantor. An agent under a power of attorney has no power, after the person dies.

Fifth, if a trust is created to transfer ownership of property outside of the estate, a will is necessary to funnel unfunded property into the trust upon the death of the grantor. Trusts are created individually for any number of purposes. They don’t all hold the same type of assets. Property that is never properly retitled, for instance, is not in the trust. This is a common error in estate planning. A will provides a way for property to get into the trust upon the death of the grantor.

With no will and no estate plan, property may pass unintentionally to someone you never intended to give your life’s work to. Having a will lets the court know who should receive your property. The laws of your state will be used to determine who gets what in the absence of a will and most are based on the laws of kinship. Speak with an estate planning attorney to create a will that reflects your wishes, and don’t wait to do so. Leaving yourself and your loved ones unprotected by a will, is not a welcome legacy for anyone.

Reference: The News Enterprise (September 22, 2019) “To ensure your wishes are followed, prepare a will.”

 

How to Choose an Estate Planning Attorney

Estate planning is a critical part of financial planning, but it is something that many Americans prefer to procrastinate about. However, drafting a will, health care proxy, and power of attorney are too important to leave to chance, says Next Avenue in the article “How to Find a Good Estate Planner.” An experienced estate planning attorney can help prevent critical mistakes and help you adjust your plan as circumstances change.

Here are a few tips:

Look for an estate planning attorney. An attorney who practices real estate law is not going to be up on all of the latest changes to estate and tax laws.

Next, determine if the attorney deals with families who are in similar situations to yours. An attorney who works with family-owned businesses, for instances, will be more helpful in creating an estate plan that includes tax and succession planning.

Experience matters in this area of the law. The laws of your state are just one of the many parts that the attorney needs to know by heart. The estate planning attorney who has been practicing for many years, will have a better sense of how families work, what problems crop up and how to avoid them.

Ask about costs. Don’t be shy. You want to be clear from the start what you should expect to be spending on an estate plan. The attorney should be comfortable having this discussion with you and your spouse or family member. Remember that the attorney will be able to understand the scope of work, only after they speak with you about your situation. What may seem simple to you, may be more complicated than you think.

If a trust is added, the fees are likely to increase. A trust can be used to avoid or minimize estate taxes, avoid probate, save on time and court fees and create conditions for the distribution of assets after you die.

Don’t neglect to have the attorney create a Power of Attorney form and any other advance directives you need. These vary by state, and you don’t want them to get too old, or they may become out of date.

Recognize that this is an ongoing relationship. Make sure that you are comfortable with the attorney, how the practice is run and the people who work there—receptionist, paralegals and other associates at the firm are all people you may be working with at one point or another during the process. You will be sharing very personal information with the entire team, so be sure it’s a good fit.

This is also not a one-and-done event. Having an estate plan is a lot like having a home—it requires maintenance. Every four years or so, or when large events occur in your life, you’ll need to have your will reviewed.

Your estate planning attorney should become a trusted advisor who works hand in hand with your accountant and financial advisor. Together, they should all be looking out for you and your family.

Reference: Next Avenue (September 10, 2019) “How to Find a Good Estate Planner”

 

Do It Yourself Wills Go Wrong–Fast

What happens when a well-meaning person decides to create a will, after reading information from various sources on the internet? There’s no end of problems, as described in the Glen Rose Reporter’s article “Do-it-yourself estate plan goes awry.”

The woman started her plan by deeding her home to her three children retaining a life estate for herself.

By doing so, she has eliminated the possibility of either selling the house or taking out a reverse mortgage on the home, if she ever needs to tap its equity.

Since she is neither an estate planning attorney nor an accountant, she missed the tax issue completely.

By deeding the house, the transfer has caused a taxable transaction. Therefore, she needs to file a gift tax return because of it. At the same time, her life estate diminishes the value of the gift, and her estate is not large enough to require her to actually pay any tax.

She was puzzled to learn this, since there wasn’t any tax when her husband died and left his share of the house to her. That’s because the transfer of community property between spouses is not a taxable event.

However, that wasn’t the only tax issue to consider. When the house passed to her from her husband, she got a stepped-up basis meaning that since the house had appreciated in value since she bought it, she only had to pay taxes on the difference in the increased value at the time of her husband’s death and what she sold the property for.

By transferring the house to the children, they don’t get a stepped-up basis. This doesn’t apply to a gift made during one’s lifetime. When the children get ready to sell the home, the basis will be the value that was established at the time of her husband’s death, even if the property increased in value by the time of the mother’s death. The children will have to pay tax on the difference between that value, which is likely to be quite lower, and the sale price of the house.

There are many overlapping issues that go into creating an estate plan. The average person who doesn’t handle estate planning on a regular basis (and even an attorney who does not handle estate planning on a regular basis), doesn’t know how one fact can impact another.

Sitting down with an experienced estate planning attorney, who understands the tax issues surrounding estate planning, gifting, real estate, and inheritances, will protect the value of the assets being passed to the next generation and protect the family. It’s money well spent.

Reference: Glen Rose Reporter (September 17, 2019) “Do-it-yourself estate plan goes awry”

 

Should I Get an Attorney if I Have to Fight Over my Mom’s Estate?

Blended families are common these days. With blended families may come some estate planning issues. One of these is when a step-sister is appointed as executor of your mom’s will.

nj.com’s recent article, “I’m fighting with my mom’s executor. What can I do?”, looks at this situation where there are two homes involved—one in which the executor sister lives and the executor’s other sister lives in the second house. The daughter here has been denied access to anything other than a few photos, she must share with her only full sister.

While many people believe they can’t afford an attorney, in a battle over an estate, you’re probably going to need one.

Let’s assume the daughter is an heir entitled to a portion of her mother’s estate.

While the daughter says she’s been denied access to the homes, an estate planning attorney will check to see if the will gives her a right to possession and/or ownership.

If the daughter doesn’t have a copy of the will, the executor must provide one to her.

She can also get a copy from the surrogate’s office or county court where the will was probated.

The will likely describes what her rights are and the appropriate action the attorney can take on her behalf.

The will might provide her stepsisters with the right to live in the homes, it may provide them with ownership of the homes, or it may simply provide that the estate is to be divided between the beneficiaries in certain percentages or dollar amounts.

The first step is to retain a qualified estate planning attorney and to take a look at the terms of the will.

Reference: nj.com (September 19, 2019) “I’m fighting with my mom’s executor. What can I do?”

 

What Is a Pour-Over Will?

If the goal of estate planning is to avoid probate, it seems counterintuitive that one would sign a will, but the pour-over will is an essential part of some estate plans, reports the Times Herald-Record’s article “Pour-over will a safety net for a living trust.”

If a person dies with assets in their name alone those assets go through probate. The pour-over will names the trust as the beneficiary of probate assets so the trust controls who receives the inheritance. The pour-over will works as a backup plan to the trust and it also revokes past wills and codicils.

Living trusts became more widely used after a 1991 AARP study concluded that families should be using trusts rather than wills and that wills were obsolete. Trusts were suddenly not just for the wealthy. Middle class people started using trusts rather than wills, to save time and money and avoid estate battles among family members. Trusts also served to keep financial and personal affairs private. Wills that are probated are public documents that anyone can review.

Even a simple probate lasts about a year, before beneficiaries receive inheritances. A trust can be settled in months. Regarding the cost of probate, it is estimated that between 2—4% of the cost of settling an estate can be saved by using a trust instead of a will.

When a will is probated, family members receive a notice, which allows them to contest the will. When assets are in a trust, there is no notification. This avoids delay, costs and the aggravation of a will contest.

Wills are not a bad thing and they do serve a purpose. However, this specific legal document comes with certain legal requirements. The will was actually invented more than 500 years ago, by King Henry VIII of England. Many people still think that wills are the best estate planning document but they may be unaware of the government oversight and potential complications when a will is probated. Your personal information is exposed. There were no estate planning attorneys at that time.

Speak with an experienced estate planning attorney to talk about how probate may impact your heirs and see if they believe the use of a trust and a pour-over will would make the most sense for your family.

Reference: Times Herald-Record (Sep. 13, 2019) “Pour-over will a safety net for a living trust.”

 

Your Spouse Just Died … Now What?

There are several steps to take while both spouses are alive and well, to help reduce the chance of the surviving spouse finding themselves in a “financial deadlock” situation, or worse. The preparations require the non-financially dominant partner to be involved as much as possible, says Barron’s in the article “How to Avoid Financial Deadlock—or Worse—After One Spouse Dies”

Step one is to prepare the financial equivalent of a “go-bag,” like the ones people are supposed to have when they must leave their home in a crisis. That means a list of all financial contacts, advisors, estate planning attorney, accountants, insurance professionals and copies of all beneficiary designations. There should also be a list or a spreadsheet of all the couple’s assets and liabilities, including digital assets and passwords to these accounts. The spouse should also note the location of financial records, including insurance policies, wills, trusts and any other critical legal documents.

Each partner must have access to checking and cash independently of the other, and the spouses need to review together how assets and accounts are titled.

It is especially important for both spouses to be on the deed to their home so that the surviving spouse can easily prove that they are the sole owner of the home after the spouse dies. Otherwise, they may not be able to communicate with the mortgage company. If a surviving spouse must go to court and file probate in order to deal with the home it can become costly and more stressful.

It’s not emotionally easy to go through all this information but it is critical for the surviving spouse’s financial security.

Any information that will be needed by the surviving spouse should be documented in a way that is easily accessible and understandable for the spouse. Even if someone is very organized and has a well-developed description of their assets and estate plan it may not be as easily understood for someone whose mind works differently. This is especially true if the couple has had years where the non-financial spouse was not involved with the family’s assets and is suddenly digesting a lot of new information.

It is wise for the non-financial spouse to meet with key advisors and take on some of the tasks like bill paying, reviewing insurance policies and reconciling accounts well before either spouse experiences any kind of cognitive decline. Ideally, the financially dominant partner takes the time to train the other spouse and then lets them take the lead, until they are both comfortable managing all the details.

Each spouse needs to understand how the death of the other will impact the household income. If one spouse has a pension without survivor benefits and that spouse is the first to die, the surviving spouse may find themselves struggling to replace that income. They also need to consider daily aspects of their lives, like if one spouse is highly dependent upon the other for caregiving.

Spouses are advised not to make any big financial or life decisions within a year or so of a spouse’s death. The surviving spouse is often not in a good emotional state to make smart decisions and this is the time that they are most at risk for senior financial abuse.

Both spouses should sit down with their estate planning attorney and discuss what will happen when they are widowed. It is a difficult topic but planning ahead will make the transition less traumatic from a financial and legal perspective.

Reference: Barron’s (Sep. 15, 2019) “How to Avoid Financial Deadlock—or Worse—After One Spouse Dies”

 

How Do I Find a Great Estate Planning Attorney?

Taking care of important planning tasks will limit the potential for family fighting and possible legal battles, in the event you become incapacitated, as well as after your death. An experienced estate planning attorney can help you avoid mistakes and missteps and assist you in adjusting your plans as your individual situation and the laws change.

Next Avenue’s recent article “How to Find a Good Estate Planner” offers a few tips for finding one:

Go with a Specialist. Not every lawyer specializes in estate planning so look for one whose primary focus is estate and trust law in your area. After you’ve found a few possibilities, ask him or her for references. Speak to those clients to get a feel for what it will be like to work with this attorney as well as the quality of his or her work.

Ask About Experience.  Ask about the attorney’s trusts-and-estates experience. Be sure your attorney can handle your situation whether it is a complex business estate or a small businesses and family situation. If you have an aging parent, work with an elder law attorney.

Be Clear on Prices. The cost of your estate plan will depend on the complexity of your needs, your location and your estate planning attorney’s experience level. When interviewing potential candidates, ask them what they’d charge you and how you’d be charged. Some estate planning attorneys charge a flat fee. If you meet with a flat-fee attorney, ask exactly what the cost includes and ask if it’s based on a set number of visits or just a certain time period. You should also see which documents are covered by the fee and whether the fee includes the cost of any future updates. There are some estate planning attorneys who charge by the hour.

It’s an Ongoing Relationship. See if you’re comfortable with the person you choose because you’ll be sharing personal details of your life and concerns with them.

Reference: Next Avenue (September 10, 2019) “How to Find a Good Estate Planner”

 

What Do I Need to Know About Powers of Attorney?
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What Do I Need to Know About Powers of Attorney?

People frequently devote their efforts to their wills and trusts. Choosing a person to serve as their power of attorney is often a last-minute decision.

Forbes’ article, “9 Things You Need To Know About Power Of Attorney,” reminds us that it’s an important decision and not one that should be taken lightly. Let’s look at what you need to know to get your POA right.

Understand what it means. With a POA, you select a person as your attorney-in-fact (or agent) to make financial decisions for you. This gives your agent control over any assets held in your name alone.

Look at your options. There are two types of powers of attorney. A durable power of attorney is effective when you sign it. It survives your incapacity. A springing power of attorney goes into effect when you’re incapacitated. A springing power of attorney is more difficult to use. Your agent must prove that you’re incapacitated usually through some written confirmation by one or more physicians. Even though the document states how to do that, banks frequently are hesitant to make that determination. Thus, most attorneys advise you to execute a durable power of attorney and often will hold the original POA until it is needed, as an extra protection.

Make a wise decision. You may wonder if your agent can steal your money, and unfortunately the answer is “yes.” Your agent will have access to your financial accounts and could use your funds for his own benefit. The agent has a fiduciary duty to use the assets only for your benefit or as you direct in the document so you could later sue the agent for theft and misuse of your funds.

Abuse. Depending on the terms of the power of attorney, your agent may have the ability to amend the ownership of your bank accounts or change your beneficiary designations. This is common in second marriages. The transfer often occurs right before the spouse passes away, typically when the husband is dying in the hospital. If the husband’s will leaves his large bank accounts to his children from his first marriage, the second wife with power of attorney can add herself as a joint owner of the account. When the husband dies, she’s the surviving joint owner and liquidates the account. Siblings also do this to direct mom’s assets away from their brothers or sisters.

Designate an alternate. If your agent dies before you or is incapacitated, you should appoint a back-up who can act.

Read through the document. Take a look though the powers listed in the document and make sure you’re comfortable with what it allows.

The POA dies with you. Once you pass away, the POA is no longer valid. Your will then controls what happens to your assets.

Your revocable trust should be funded. If you fund your trust during your lifetime, you may not need to use your power of attorney. However, you should still have one just in case. Ask an experienced estate planning attorney about this.

Reference: Forbes (September 12, 2019) “9 Things You Need To Know About Power Of Attorney”