What are Typical Estate Planning Documents?

For many people, eight documents form the foundation of an estate plan. It’s not that difficult a project as it seems, explains the article “8 Documents That Are Essential to Planning Your Estate” from msn.com. When you’ve completed your estate plan, you’ll also gain the peace of mind of knowing that you’ve done what was needed to protect your family. It’s well worth the effort.

Last will and testament. This is the basic document that gives you the ability to tell your family what you want to happen with your assets. It is used to name an executor—a person who will be in charge of managing your estate. Your will is also where you name a guardian who will be in charge of raising minor children. You can use the will to convey funeral instructions, but you may want to do that in a separate document, in case your will isn’t found right away. Your estate planning attorney will help you figure out the best way to handle that.

What happens if you don’t have a will? In that case, a probate court will determine who will be your executor. It might be a spouse, a grown child, or someone you don’t know or would not want to handle your estate. It’s best to have a will and select your executor yourself. When your estate goes through probate, all of the information in your will becomes part of the public record, so don’t put anything in your will, like passwords or account numbers.

Revocable living trust. Trusts are used to pass assets and property without going through probate. Your estate planning attorney will help create the trust and you’ll decide who will be in charge of it upon your death. You can be the trustee while you are living, but then you lose any estate tax benefits. If you have substantial property or wealth, trusts are a good tool to control assets and save on estate taxes.

Beneficiary designations. Any time you purchase a new insurance policy or a retirement plan, you are asked to name a beneficiary. If your first job came with a retirement plan, you likely also named a beneficiary for that plan. These designations allow the assets to pass directly to the beneficiary upon your death. They aren’t included in your will and they don’t go through probate. The biggest problem with beneficiary designations? Neglecting to update them through the many changes in life. Review and update your beneficiary designations on a regular basis.

Durable power of attorney. This document allows you to name the person to act on your behalf, if you become incapacitated because of illness or injury. They can manage your legal and financial affairs. Here’s an important point: if you become incapacitated, you cannot assign this role to someone. It needs to be done when you are legally competent.

Health care power of attorney and living will. The health care power of attorney lets someone else make medical decisions on your behalf, if you are too sick to do so yourself. The living will gives you the opportunity to explain what kind of care you do or do not want if you are close to death. If the idea of staying alive on a heart machine makes you unhappy, for instance, you can document your wishes, so loved ones don’t have to wonder what you want.

Digital assets. Much of our lives are lived online, and we have assets that won’t be found in a search of the attic or basement. Each online platform that you use may have a directive process, where you can clearly state who you want to have access to your digital assets and what you would like to have happen to them upon your death.

A letter of intent. Writing a letter of intent is a way to convey your wishes to loved ones for what you’d like to happen after you die. It may not be legally enforceable, like a will or a trust, but your loved ones will appreciate knowing what you want for funeral planning or a memorial service.

List of important documents. Sparing your family a post-mortem scavenger hunt is a gift to the living. Make a list of documents and make sure they know where important documents can be found. Include a list of routine bills, the professionals you rely on, including contact information and account numbers. Some families use a briefcase to store the important papers, but a fireproof and waterproof safe is more secure.

Contact an experienced estate planning attorney if you have not prepared your estate plan.

Reference: msn.com (June 19, 2021) “8 Documents That Are Essential to Planning Your Estate”

 

Can I Create a Stress-free Asset Transfer?

We can all agree that end-of-life planning is a sensitive topic. Nonetheless, taking the time to consider a loved one’s estate and distribution of wealth can set the family at ease and also make certain that there is a smooth transition of assets, without unnecessary legal hurdles or headaches.

MarketWatch’s article entitled “3 tips for navigating estate planning with loved ones” explains that, if you’re thinking about starting the process of estate planning with a close family member, like an elderly parent or a new spouse, read these recommendations:

  1. Stress the ultimate benefit of peace of mind. Estate planning helps the transfer of assets in an efficient and less stressful manner. It also minimizes estate tax liability of your assets when you die. Most of all, your loved ones will benefit with the peace of mind.
  2. Be as open as you can. Be honest and communicate openly about your loved one’s wishes on how they would like to distribute their estate and wealth either during life or death. Many assumptions can be made about end-of-life financial planning, like parents who assume their children will not fight when dividing their assets. This can put a lot of stress on surviving siblings, so communicate clear expectations during the planning process. It is also important to take some time to consider trustees and executors, and to encourage your parent or spouse to name an executor who is organized and thorough. Once this individual is named, be sure he or she understands the location of all of your loved one’s assets.
  3. Use care with beneficiary selections. Naming beneficiaries can have important tax implications. It is common to name a trust as the beneficiary of an IRA account, when your children are young. However, as they grow up, this can be an issue. When an IRA is distributed to a trust, it triggers taxes. The assets will be taxed immediately before being distributed to beneficiaries. Name children as direct beneficiaries of their IRA, so that they have other options available to them. Many of these may provide significant tax savings.

One more thought: using “transfer on death” designations for individual accounts is similar to a beneficiary designation for a retirement account. However, it permits your parent or spouse to name beneficiaries when they pass and prevents their money from going through a lengthy and expensive probate.

The best time to discuss estate planning with your parents is now. Work with an experienced estate planning attorney to guide you through this process.

Reference: MarketWatch (June 5, 2021) “3 tips for navigating estate planning with loved ones”

 

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?”

 

Should a Trust Be a Component of My Estate Planning?

Let’s say that there’s a young father with a wife and young son, who owns a home and a Roth IRA account, with a few stock investments. On the stock investments, he’s filled out the beneficiary designation forms passing all his assets to his wife and son, should anything happen to him.  This father owns his home is joint tenancy with right of survivorship with his wife.  Does he need to set up a separate trust, if most of his assets pass through beneficiary designations?

Nj.com’s recent article entitled “Do I need a trust in case something happens to me?” says that leaving assets outright to a minor is typically a bad move. The son’s guardian and/or the court would take custody of the assets, both of which require significant court oversight and involvement.

The minor would also receive the assets upon attaining the age of majority, which in most states is age 18.

No one can tell what a young child will be like at the age of 18, especially after suffering the loss of their parents. Even if there are no significant issues, such as drug addiction or special needs, parents should think about what they’d have done with that much money at that age.

The best option is to leave assets in trust for the benefit of the minor son.

The trustee can manage and use the assets for the benefit of the young boy with limited court involvement.

The terms of the trust can also delay the point at which the assets can be distributed and ultimately paid over to the beneficiary, if at all.

For example, it’s not uncommon for a trust to stipulate that the beneficiary gets a third of the assets at 25, half of the remaining assets at 30 and the rest at age 35. However, other trusts don’t provide for such mandatory distributions and can hold the assets for the beneficiary’s lifetime, which has its advantages.

In some instances, the terms of the trust are included in a will. This creates a trust account after death, which is also called a testamentary trust.

Talk to an experienced estate planning attorney, who can assess your specific situation and provide guidance in creating an estate plan. The attorney can also make certain that trust assets are correctly titled and that beneficiary designations of retirement accounts and life insurance are correctly prepared, so the trust under the will receives those assets and not the minor individually.

Reference: nj.com (June 14, 2021) “Do I need a trust in case something happens to me?”

 

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”

 

Your Will and Estate Planning Checklist

Dying without a last will creates additional costs and eliminates any chance your wishes for loved ones will be followed after your death. Typically, people think about last wills when they marry or have children, and then do not think about last wills or estate plans until they retire. While a last will is important, there are other estate planning documents that are just as important, says the recent article “10 Steps to Writing a Will” from U.S. News & World Report.

Most assets, including retirement accounts and insurance policy proceeds, can be transferred to heirs outside of a will, if they have designated beneficiaries. However, the outcome of an estate may be more impacted by Power of Attorney for financial matters and Medical Power of Attorney documents.

Here are ten specific tasks that need to be completed for your last will to be effective. Remember, if the will does not comply with your state’s estate law, it can be declared invalid.

  1. Find an estate planning attorney who is experienced with the laws of your state.
  2. Select beneficiaries for your last will.
  3. Check beneficiaries on non-probate assets to make sure they are current.
  4. Decide who will be the executor of your last will.
  5. Name a guardian for minor children, if yours are still young.
  6. Make a letter describing possessions and who you want to receive them. Be very specific.

There are also tasks for your own care while you are living, in case of incapacity:

  1. Name a person for the Power of Attorney role. They will be your representative for legal and financial matters, but only while you are living.
  2. Name a person for the Medical Power of Attorney to make decisions on your behalf, if you cannot.
  3. Create an Advance Directive, also known as a Living Will, to explain your wishes for medical care, particularly concerning end-of-life care.
  4. Discuss these roles and their responsibilities with the people you have chosen, and make sure they are willing to serve.

Be realistic about the people you are naming to receive your property. If you have a child who is not good with managing money, a trust can be set up to distribute assets according to your wishes: by age or accomplishments, like finishing college, going to rehab, or maintaining a steady work history.

Do not forget to tell family members where they can find your last will and other estate documents. You should also talk with them about your digital assets. If accounts are protected by passwords or facial recognition, find out if the digital platform has a process for your executor to legally obtain access to your digital assets.

Finally, do not neglect updating your last will every three to four years or anytime you have a major life event. An estate plan is like a house: it needs regular maintenance. Old last wills can disinherit family members or lead to the wrong person being in charge of your estate. An experienced estate planning attorney will make the process easier and straightforward for you and your loved ones.

Reference: U.S. News & World Report (May 13, 2021) “10 Steps to Writing 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?”

 

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”

 

How Does the Generation-Skipping Transfer Tax Work in Estate Planning?

The generation-skipping transfer tax, also called the generation-skipping tax, can apply when a grandparent leaves assets to a grandchild—skipping over their parents in the line of inheritance. It can also be triggered, when leaving assets to someone who’s at least 37½ years younger than you. If you are thinking about “skipping” any of your heirs when passing on assets, it is important to know what that may mean tax-wise and how to fill out the requisite form. An experienced estate planning attorney can help you and counsel you on the best way to pass along your estate to your beneficiaries.

KAKE.com’s recent article entitled “What Is the Generation-Skipping Transfer Tax?” says the tax code imposes both gift and estate taxes on transfers of assets above certain limits. For 2020, you can exclude gifts of up to $15,000 per person from the gift tax, with the limit twice as much for married couples who file a joint return. Estate tax applies to estates larger than $11,580,000 for 2020, increased to $11,700,000 in 2021.

The gift tax rate can be as high as 40%, and the estate tax is also 40% at the top end. The IRS uses the generation-skipping transfer tax to collect its portion of any wealth that is transferred across families, when not passed directly from parent to child. Assets subject to the generation-skipping tax are taxed at a flat 40% rate.  Note that the GSTT can apply to both direct transfers of assets to your beneficiaries and to assets passing through a trust. A trust can be subject to the GSTT, if all trust beneficiaries are considered to be skip persons who have a direct interest in the trust.

The generation-skipping tax is a separate tax from the estate tax, but it applies alongside it. Similar to the estate tax, this tax begins when an estate’s value exceeds the annual exemption limits. The 40% GSTT would be applied to any transfers of assets above the exempt amount, in addition to the regular 40% estate tax.  That is the way the IRS gets its money on wealth, as it moves from one person to another. If you passed your estate to your child, who then passes it to their child then no GSTT would apply. The IRS would just collect estate taxes from each successive generation. However, if you skip your child and leave assets to your grandchild, it eliminates a link from the taxation chain, and the GSTT lets the IRS replace that link.

You can use your lifetime estate and gift tax exemption limits, which can help to offset how much is owed for the generation-skipping tax. However, any unused portion of the exemption counted toward the generation-skipping tax is lost when you pass away.

If you’d like to minimize estate and gift taxes as much as possible, there are several options. Your experienced estate planning attorney might suggest giving assets to your grandchildren or another generation-skipping person annually, rather than at the end of your life. That’s because you can give up to $15,000 per person each year without incurring gift tax, or up to $30,000 per person if you’re married and file a joint return. Just keep the lifetime exemption limits in mind when planning gifts.

You could also make payments on behalf of a beneficiary to avoid tax. For instance, to help your granddaughter with college costs, any direct payments you make to the school to cover tuition would generally be tax-free. The same is true for direct payments made to healthcare providers, if you’re paying medical expenses on behalf of another.

Another option may be a generation-skipping trust that lets you transfer assets to the trust and pay estate taxes at the time of the transfer. The assets you put into the trust must stay there during the skipped generation’s lifetime. Once they die, the trust assets can be passed on tax-free to the next generation.

There’s also a dynasty trust. This trust can let you pass assets to future generations without triggering estate, gift, or generation-skipping taxes. However, they are meant to be long-term trusts. You can name your children, grandchildren, great-grandchildren and subsequent generations as beneficiaries and the transfer of assets to the trust is irrevocable. Therefore, when you place the assets in the trust, you will not be able to take them back out again. You can see why it’s so important to understand the implications, before creating this type of trust.

The generation-skipping tax can make a big impact on the assets you’re able to leave to heirs. If you’re considering using this type of trust to pass on assets or you’re interested in exploring other ways to transfer assets while minimizing taxes, speak to an experienced estate planning attorney.

Reference: KAKE.com (Feb. 6, 2021) “What Is the Generation-Skipping Transfer Tax?”