Will the Girlfriend Get the Life Insurance or the Wife?

Nj.com’s recent article entitled “Who will get my boyfriend’s property if he dies? Me or his wife?” says that a couple that’s lived together for some time where one is still married to another can create some issues. If the boyfriend has a life insurance policy and 401(k) with the girlfriend as beneficiary, they should draft a will to make certain that the estranged wife does not get that money.

Despite the fact that the girlfriend is the named beneficiary of the life insurance and the 401(k), there is more you need to think about.

Without a will, probate assets (the assets held by individuals in their own name without a beneficiary designation or assets held in joint names as tenants in common) will be transferred by the laws of intestacy.

The laws of intestacy provide first to a spouse and/or children of the deceased, without regard to whether the couple are living together.  If the deceased had no spouse or children, state intestacy laws say that property passes to parents then siblings.

As far as the life insurance policy and 401(k), absent a valid waiver, the boyfriend’s spouse will certainly have a legal right to the 401(k) and may have a contractual claim on the life insurance either through a premarital agreement or a property settlement agreement.

Therefore, even if the assets are paid out to the girlfriend, the contractual claim may provide the spouse with a successful action against her.

A spouse may also have rights to the policy or part of the 401(k) as a result of the marriage in a future divorce proceeding.

Contact an experienced estate planning attorney to prepare your estate planning documents.

Reference: nj.com (June 21, 2021) “Who will get my boyfriend’s property if he dies? Me or his wife?”

 

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”

 

What is not Covered by a Will?

A last will and testament is one part of a holistic estate plan used to direct the distribution of property after a person has died. A recent article titled “What you can’t do with a will” from Ponte Vedra Recorder explains how wills work, and the types of property not distributed through a will.

Wills are used to inform the probate court regarding your choice of guardians for any minor children and the executor of your estate. Without a will, both of those decisions will be made by the court. It’s better to make those decisions yourself and to make them legally binding with a will.

Lacking a will, an estate will be distributed according to the laws of the state, which creates extra expenses and sometimes, leads to life-long fights between family members.  Property distributed through a will necessarily must be processed through a probate, a formal process involving a court. However, some assets do not pass through probate. Here’s how non-probate assets are distributed:

Jointly Held Property. When one of the “joint tenants” dies, their interest in the property ends and the other joint tenant owns the entire property.

Property in Trust. Assets owned by a trust pass to the beneficiaries under the terms of the trust, with the guidance of the trustee.

Life Insurance. Proceeds from life insurance policies are distributed directly to the named beneficiaries. Whatever a will says about life insurance proceeds does not matter—the beneficiary designation is what controls this distribution, unless there is no beneficiary designated.

Retirement Accounts. IRAs, 401(k) and similar assets pass to named beneficiaries. In most cases, under federal law, the surviving spouse is the automatic beneficiary of a 401(k), although there are always exceptions. The owner of an IRA may name a preferred beneficiary.

Transfer on Death (TOD) Accounts. Some investment accounts have the ability to name a designated beneficiary who receives the assets upon the death of the original owner. They transfer outside of probate.

Here are some things that should NOT be included in your will:

Funeral instructions might not be read until days or even weeks after death. Create a separate letter of instructions and make sure family members know where it is.

Provisions for a special needs family member need to be made separately from a will. A special needs trust is used to ensure that the family member can inherit assets but does not become ineligible for government benefits. Talk to an elder law estate planning attorney about how this is best handled.

Conditions on gifts should not be addressed in a will. Certain conditions are not permitted by law. If you want to control how and when assets are distributed, you want to create a trust. The trust can set conditions, like reaching a certain age or being fully employed, etc., for a trustee to release funds.

Reference: Ponte Vedra Recorder (April 15, 2021) “What you can’t do with a will”

 

Should Young Families have an Estate Plan?

Young families are always on the go. New parents are busy with diapers, feeding schedules and trying to get a good night’s sleep. As a result, it’s hard to think about the future when you’re so focused on the present. Even so, young parents should think about estate planning.

Wealth Advisor’s recent article entitled, “Why Young Families Should Consider an Estate Plan,” explains that the word “estate” might sound upscale, but estate planning isn’t just for the wealthy. Your estate is simply all the assets you have when you die. This includes bank accounts, 401(k) plan, a home and cars. An estate plan helps to make certain that your property goes to the right people, that your debts are paid and your family is cared for. Without an estate plan, your estate must go through probate, which is a potentially lengthy court process that settles the debts and distributes the assets of the decedent.

Estate planning is valuable for young families, even if they don’t have extensive assets. Consider these key estate planning actions that every parent needs to take to make certain they’ve protected their child, no matter what the future has in store.

Purchase Life Insurance. Raising children is costly, and if a parent dies, life insurance provides funds to continue providing for surviving children. For most, term life insurance is a good move because the premiums are affordable, and the coverage will be in effect until the children grow to adulthood and are no longer financially dependent.

Make a Will and Name a Guardian for your Children. For parents, the most important reason to make a will is to designate a guardian for your children. If you fail to do this, the courts will decide and may place your children with a relative with whom you have not spoken in years. However, if you name a guardian, you choose a person or couple you know has the same values and who will raise your kids as you would have.

Review Your Beneficiaries. You probably already have a 401(k) or IRA that makes you identify who will inherit it if you die. You’ll need to update these accounts, if you want your children to inherit these assets.

Consider a Trust. If you die before your children turn 18, your children can’t directly assume control of an inheritance, which can be an issue. The probate court could name an individual to manage the assets you leave to your child. However, if you want to specify who will manage assets, how your money and property should be used for your children and when your children should directly receive a transfer of wealth, consider asking an experienced estate planning attorney about a trust. With a trust, you can name a designated person to manage money on behalf of your children and provide direction regarding how the trustee can use the money to help care for your children as they grow. Trusts aren’t just for the very well-to-do. Anyone may be able to benefit from a trust. Contact an experienced estate planning attorney to assist you.

Reference: Wealth Advisor (April 13, 2021) “Why Young Families Should Consider an Estate Plan”

 

Why are Beneficiary Designations Important in Estate Planning?

Not having your beneficiary designations set up correctly can cause a lot of trouble after you pass away. A designated beneficiary is named on a life insurance policy or on a financial account as the person who will receive those assets, in the event of the account holder’s death. This person usually must file a claim with a copy of the death certificate to receive the assets.

NJ Money Help’s recent article entitled “Beneficiary designation – specific or not?” says that naming a beneficiary takes a little consideration. When naming the beneficiaries on your accounts or insurance policies, you should always consider a primary and secondary (or contingent) beneficiary. The owner of a policy or account can name multiple beneficiaries. The proceeds or assets can be divided among more than one primary beneficiary. Likewise, there can also be more than one secondary beneficiary.

The primary beneficiary or beneficiaries are the first ones to receive the asset. The secondary beneficiary is second next in line, if the primary beneficiary dies before the owner of the asset, can’t be found, or refuses to accept the asset. Note that simply naming beneficiaries in generic terms, such as “wife,” “spouse”’ or “children,” may create legal issues, if there’s a divorce or in case someone becomes disenfranchised. It is always best to name your beneficiaries specifically and if they are minors, make certain you have designated a guardian.

Because our lives are constantly changing, you should review your life insurance policies, IRAs, 401(k)s, and any other instruments that require beneficiary designations every couple of years to make certain that everything is exactly the way you want. Contact an experienced estate planning attorney to discuss any changes you wish to make as it may affect the outcome.

Reference: NJ Money Help (Oct. 2017) “Beneficiary designation – specific or not?”

 

Estate Planning and a Second Marriage

In California, a community property state, a resident can bequeath (leave) 100% of their separate property assets and half of their community property assets. A resident may only bequeath the entirety of a community property asset to someone other than their spouse with their spouse’s consent or acquiescence. This can be extremely important to those in second marriages with prior children.

Wealth Advisor’s recent article entitled “Estate planning for second marriages” asks, first, does the individual’s (the testator) spouse even need support? If they don’t, a testator typically leaves his or her separate property assets directly to his or her own children. However, because the surviving spouse is an heir of the testator, his or her will and/or trust must acknowledge the marriage and say that the spouse is not inheriting. Otherwise, the surviving spouse as heir may be entitled either to a one-half or one-third share in the testator’s separate property, along with all of the couple’s community property assets. The surviving spouse would inherit, if the testator died intestate (with no will) or he or she passed with an outdated will he or she signed before this marriage that left out the current spouse.

If the spouse needs support, consider the assets and family relationships. Determine if the assets are the surviving spouse’s separate property from prior to marriage or from inheritance while married. It is also important to know if the testator’s spouse and children get along and whether it’s possible for the beneficiaries to inherit separate assets. If the testator’s surviving spouse and children aren’t on good terms and/or are close in age, and if it’s possible for separate assets to go to each party, perhaps they should inherit separate assets outright and part company. If not, it can get heated and complicated quickly. For example, the testator’s house could be left to his or her children and a retirement plan goes to the testator’s spouse.

If that type of set-up doesn’t work, a testator might consider making the spouse a lifetime beneficiary of a trust that owns some or all of an individual’s assets. A trust requires careful drafting, so work with an experienced estate planning attorney.

Next, determine if the children need support, and if so, what kind of support, such as Supplemental Security Income. Also think about whether the children can manage an outright inheritance or if a special needs or a support trust is required.

This just scratches the surface of this complex topic. Talk to an experienced estate planning attorney about your specific situation.

Reference: Wealth Advisor (Feb. 23, 2021) “Estate planning for second marriages”

 

Why Do I Need Estate Planning?

Many people who failed to plan their estate with the help of an experienced estate planning attorney have their assets tied up in lengthy, and often messy, legal battles that were decided by people not of their choosing.

Forbes’ recent article entitled “Everyone Needs An Estate Plan: Here’s What You Need To Know” says that although many of us don’t have quite as much at stake financially, it doesn’t mean that estate planning is any less important. In fact, leaving a legacy, passing down wealth and helping family aren’t things that are just for the ultra-rich.

The biggest misstep is not creating an estate plan at all. This is more than just a last will and includes powers of attorney, healthcare directives, a living will and a HIPAA waiver. People put this important responsibility off because they do not want to contemplate their own death. They try to avoid the subject. Some others may have complex family dynamics, and still others are hesitant to confide their complicated relationships with a lawyer. However, all these are just excuses.

We know that life is full of changes, and people get married, divorced, have children and grandchildren, relocate to different states, change careers and get inheritances. Each of these events could make you reconsider your goals. This may necessitate an update to your estate plan.

You need to review the beneficiaries on your IRAs, life insurance policies and pensions. You should look at how you want your heirs to receive your assets and any charitable or philanthropic notions. With powers of attorney, healthcare directives, living wills and HIPAA waivers, you need to think about who you’ll entrust to make important medical and financial decisions for you, if you become incapacitated. You see these critical questions and many others are fluid and prone to change every few years as your life changes.

Remember that your assets receive different treatment from the IRS based on the type and who owns legally owns them. For example, individual retirement accounts (IRAs), Roth IRAs, traditional brokerage accounts, life insurance policies and bank accounts are different than the family home. Therefore, it’s important to be mindful of which assets are left to whom.

Don’t wait. Speak to an experienced estate planning attorney to be certain that you give this process the attention it deserves for the well-being of you and your family.

Reference: Forbes (Feb. 26, 2021) “Everyone Needs An Estate Plan: Here’s What You Need To Know”

 

Should I Add that to My Will?

In general, a last will and testament is an easy and straightforward way to state who gets what when you die and designate a guardian for your minor children, if you (and your spouse) die unexpectedly.

MSN’s recent article entitled “Things you should never put in your will” explains that you can be specific about who receives what. However, attaching strings or conditions may not work because there’s no one to legally enforce the terms. If you have specific details about how a person should use their inheritance, whether they are a spendthrift or someone with special needs, a trust may be a better option because you’ll have more control, even from beyond the grave.

Keeping some assets out of your will can actually benefit your future heirs because they’ll get their inheritance faster. When you pass on, your will must be “proven” and validated in a probate court prior to distribution of your property. This process takes some time and effort, if there are issues—including something in your will that doesn’t need to be there. For example, property in a trust and payable-on-death accounts are two types of assets that can be distributed to your beneficiaries without a will.

Don’t put anything in a will that you don’t own outright. If you jointly own assets with someone, they will likely become the new owner. For example, this applies to a property acquired by married couples in community property states.

Property in a revocable living trust. This is a separate entity that you can use to distribute your assets which avoids probate. When you title property into the trust, it is subject to the trust’s rules.  Because a trust operates independently, you must avoid inconsistencies and not include anything in your will that the trust addresses. Contact an experienced estate planning attorney to discuss.

Assets with named beneficiaries. Some financial accounts are payable-on-death or transferable-on-death. They are distributed or paid out directly to the named beneficiaries. That makes putting them in a will unnecessary (and potentially troublesome, if you’re inconsistent). However, you can add information about these assets in your letter of instruction (see below). As far as bank accounts, brokerage or investment accounts, retirement accounts and pension plans and life insurance policies, assign a beneficiary rather than putting these assets in your will.

Jointly owned property. Property you jointly own with someone else will almost always directly pass to the co-owner when you die, so do not put it in your will. A common arrangement is joint tenancy with rights of survivorship.

Other things you may not want to put in a will. Businesses can be given away in a will, but it’s not the best plan. Wills must be probated in court and that can create a rough transition after you die. Instead, work with an experienced estate planning attorney on a succession plan for your business and discuss any estate tax issues you may have as a business owner.

Adding your funeral instructions in your will isn’t optimal. This is because the family may not be able to read the will before making arrangements. Instead, leave a letter of instruction with any personal wishes and desires.

Reference: MSN (Dec. 8, 2020) “Things you should never put in your will”

 

What are the Biggest Estate Planning Mistakes?

One of the largest wealth transfers our nation has ever seen is about to occur, in the next 25 years, roughly $68 trillion of wealth will be passed to succeeding generations. This event has unique planning opportunities for those who are prepared, and also big challenges due to the ever-changing legal and tax world of estate planning.

Fox Business’ article “5 estate planning disasters you’ll want to avoid,” discusses the biggest estate planning errors to avoid.

Failing to properly name beneficiaries. This common estate planning mistake is easily overlooked, when setting up a retirement plan for the first time or when switching investment companies. A big advantage of adding a beneficiary to your account, is that the account will avoid probate and pass directly to your beneficiaries.

Any account with a properly listed beneficiary designation will override what is written in your will or revocable living trust. Therefore, you should review your investment and bank accounts to make certain that your beneficiaries are accurate and match your intentions.

Naming a minor as a beneficiary. This can be a problem, if they are still minors when you die. A minor won’t have the legal authority to take control of inheritance or investment accounts until they reach the age of 18 or 21 (depending on state law). When a minor receives an asset as a beneficiary, a court-appointed guardianship will be created to supervise and manage the assets on behalf of the minor. To avoid this mistake, you can name a guardian for the minor child in your will.

Forgetting to fund a trust. Creating a trust is the first step, but many people don’t properly fund their trust after it’s established. Contact an estate planning attorney to assist you with this.

Making a tax mess for your heirs. A significant advantages of passing on real estate or other highly appreciated investments or property, is that your beneficiaries receive what is known as a “step-up” in basis, so that they aren’t responsible for any income taxes on the appreciated assets when they are received. The exception is when inheriting retirement accounts, such as 401k’s and traditional IRAs. Except for a surviving spouse, inheriting a traditional IRA or 401k means that you are now responsible for the taxes owed. With the recent passage of the SECURE Act, most non-spouse beneficiaries must totally withdraw a 401k or IRA within 10 years. It is deemed to be ordinary income for beneficiaries, which could result in a huge tax bill for your heirs. To avoid this, you can convert some or all of your retirement account assets to a Roth IRA during your lifetime, which lets you to pay the conversion taxes at your current income tax rate—a rate that may be much lower than your children or grandchildren’s tax rate. When you pass away, any money that is passed inside a Roth IRA goes tax-free to your heirs.

Failing to create a comprehensive estate plan. Properly establishing your estate plan now, will care for your loved ones financially, and can also save them a lot of emotional stress after you’re gone.

Talk to an experienced estate planning attorney about planning now. It can really affect your family for generations. It is one of the best gifts that you can leave your family.

Reference: Fox Business (Nov. 12, 2020) “5 estate planning disasters you’ll want to avoid”

 

The Biggest Estate Planning Mistakes and How to Avoid Them “”

Heirs who are prepared to inherit wealth, with families who talk about wealth and have an estate plan, will do better than those who do not, says the West Haven Observer’s recent article “5 Estate planning disasters you’ll want to avoid.” A constantly changing legal and tax environment presents significant challenges, but a few simple steps may save your beneficiaries from the expense and stress of these common estate planning mistakes.

  1. Not designating beneficiaries properly. This is one of the most common mistakes, and one that cannot always be fixed. It’s easy to forget whose name you put on a pension or life insurance plan thirty years ago. However, failing to check those beneficiaries, especially if your life has undergone big changes, can lead to the wrong people enjoying the proceeds.

Using beneficiary designations is an excellent way to bypass the process of probate, since assets that pass this way are not subject to probate. Depending upon where you live, probate can be a long, drawn out process. A beneficiary designation is far simpler and more efficient.

Failing to name a beneficiary when setting up bank accounts, opening CDs, and savings accounts is a common error. This can be fixed by making these accounts “TOD,” or Transfer on Death, and the account goes directly to your beneficiary.

Your will does not control any beneficiary designations. That’s why this step is so important.

2-Designating a minor as a beneficiary. You love your grandchildren, but unless they are adults, they cannot inherit assets until they are 18 or 21, depending on the laws of your state. If a minor does receive an asset, the court appoints a guardian to supervise and manage the assets. Your estate planning attorney will advise you on your individual situation, but one alternative is to list a guardian for the minor child inside the will, so the court appoints the person who you choose to manage the property until the child becomes of age.

Another means of providing for young children or grandchildren is to create a trust. The trust names a trustee who is usually a trusted friend or relative who is knowledgeable and responsible. They manage the assets on behalf of the child. The trust also permits assets to pass without probate.

3-Failing to fund a trust. All too often, this is the weak link that breaks the estate. Placing assets within the trust is called funding. Usually this means changing the ownership of bank accounts or real estate from being owned by an individual to being owned by the trust. If the trust is not funded and the will has instructions that seemingly contradict the trust, the asset will need to go through probate and the trust instructions will be ignored.

4-Leaving a tax nightmare for heirs. One of the many advantages of passing on real estate or other assets that appreciate that beneficiaries get a “step up” in basis. That means the heirs are not responsible for any income taxes on the appreciated assets. This can be a very big benefit. There are exceptions—inherited IRAs and 401(k)s don’t have this advantage. However, the recent passage of the SECURE Act has taken away many tax benefits for IRA heirs. Most non-spouse beneficiaries must fully withdraw the entire amount from the IRA or 401(k) within ten years, and the withdrawal is considered ordinary income. It could leave your heirs with a huge, unexpected tax bill.

There is a workaround. By converting some or perhaps all of your retirement accounts to a Roth IRA during your lifetime, you can pay the taxes when converting the IRA to a Roth IRA at your current tax rate, which may be lower than your children or grandchildren’s rate. When you die, any money in the Roth IRA goes to heirs completely tax free.

5-The biggest mistake of all is not having an estate plan. Thinking about your legacy plan, mortality and incapacity is not fun for anyone. However, by spending the time and resources in creating an estate plan, you spare your loved ones from an inordinate amount of stress and expenses, which they will appreciate. One of the best gifts you can give your loved ones is a well-thought out, properly created and executed estate plan. Contact and experienced estate planning attorney.

Reference: West Haven Observer (Nov. 12, 2020) “5 Estate planning disasters you’ll want to avoid”

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