Common Estate Planning Mistakes to Avoid

Estate planning attorneys see them all the time: the common estate planning mistakes that people make when they try to create an estate plan or a will by themselves. They learn about it, when families come to their offices trying to correct mistakes that could have been avoided just by seeking legal advice in the first place. That’s the message from the article “Five big estate planning ‘don’ts’” from Dedham Wicked Local.

Here are the five estate planning mistakes that you can easily avoid:

Naming minors as beneficiaries. Beneficiary designations are a simple way to avoid probate and be certain that an asset goes to your beneficiary at death. Most life insurance policies, retirement accounts, investment accounts and other financial accounts permit you to name a beneficiary. Many well-meaning parents (and grandparents) name a grandchild or a child as a beneficiary. However, a minor is not permitted to own an asset. Therefore, the financial institution will not name the minor child as the new owner. A conservator must be appointed by the court to receive the asset on behalf of the child and they must hold that asset for the minor’s benefit, until the minor becomes of legal age. The conservator must file annual accountings with the court reflecting activity in the account and report on how any funds were used for the minor’s benefit, until the minor becomes a legal adult. The time, effort, and expense of this are unnecessary. Handing a large amount of money to a child the moment they become of legal age is rarely a good idea. Leaving assets in trust for the benefit of a minor or young adult, without naming them directly as a beneficiary, is one solution.

Drafting a will without the help of an estate planning attorney. The will created at the kitchen table or from an online template is almost always a recipe for disaster. They don’t include administrative provisions required by the state’s laws, provisions are ambiguous or conflicting and the documents are often executed incorrectly, rendering them invalid. Whatever money or time the person thought they were saving is lost. There are court fees, penalties and other costs that add up fast to fix a DIY will.

Adding joint owners to bank accounts. It seems like a good idea. Adding an adult child to a bank account, allows the child to help the parent with paying bills, if hospitalized or lets them pay post-death bills. If the amount of money in the account is not large, that may work out okay. However, the child is considered an owner of any account they are added to. If the child is sued, gets divorced, files for bankruptcy or has trouble with creditors, that bank account is an asset that can be reached.

Joint ownership of accounts after death can be an issue, if your will does not clearly state what your intentions are for that account. Do those funds go to the child, or should they be distributed between heirs? If wishes are unclear, expect the disagreements and bad feelings to be directly proportionate to the size of the account. Thoughtful estate planning, that includes power of attorney and trust planning, will permit access to your assets when needed and division of assets after your death in a manner that is consistent with your intentions.

Failing to fund trusts. Funding a trust means changing the ownership of an asset, so the asset is owned by the trust or designating the trust as a beneficiary. When a trust is properly funded, assets funding the trust avoid probate at your death. If your trust includes estate tax planning provisions, the assets are sheltered from estate tax at death. You have to do this before you die. Once you’re gone, the benefits of funding the trust are gone. Work closely with your estate planning attorney to make sure that you follow the instructions to fund trusts.

Poor choices of co-fiduciaries. If your children have never gotten along, don’t expect that to change when you die. Recognize your children’s strengths and weaknesses and be realistic about their ability to work together, when deciding who will make financial decisions under a power of attorney, health care decisions under a health care proxy and who will best be able to settle your estate. If you choose two people who do not get along, or do not trust each other, it will take far longer and cost more to settle your estate. Don’t worry about birth order or egos.

The sixth biggest estate planning mistake people make, is failing to review their estate plan every few years. Estate laws change, tax laws change and lives change. If it’s been a while since your estate plan was reviewed, make an appointment to meet with your estate planning attorney for a review.

Reference: Dedham Wicked Local (May 17, 2019) “Five big estate planning ‘don’ts’”

 

Do I Need to Update My Estate Plan if I Relocate for Retirement?

Anyone who moves to another state, for retirement, a new job or to be closer to family, needs to have a look at their estate plan to make sure it is valid in their new state, advises the Boca Newspaper in the recent article “I’ve Relocated To Florida…Should I Update My Estate Plan?”

If an estate plan hasn’t been created, a relocation is the perfect opportunity to get this important task done. Think of it as preparation for your new life in your new home.

Because so many retirees do relocate to Florida, there are some general rules that make this easier. For one thing, most wills that are valid in another state are recognized in Florida. There’s a specific law in the Florida statutes that confirms that “other than a holographic or nuncupative will, executed by a nonresident of Florida… is valid as a will in this state if valid under the laws of the state or country where the will was executed.”

In other words, if the estate plan was prepared by an estate planning attorney and is legally valid in the prior state, it will be valid in Florida. Exceptions are a holographic will, which is a handwritten will that is signed by the person with no witnesses, or a nuncupative will, which is a verbal statement made in front of witnesses.

However, just because your will is recognized in Florida, does not mean that it doesn’t need a review.

There are distinctions in Florida law that may make certain provisions invalid or change their meaning. In one well-known case, a will was missing one sentence—known as a “residual clause,” a catch-all that distributes assets that are otherwise not specified. The maker of the will wanted everything to go to her brother. However, without that one clause, property acquired after the will was created was not included. The court determined that the property that was acquired after the will was created, would go to other relatives, despite the wishes of the decedent.

Little details mean a lot when it comes to estate plans.

It’s important to ensure that the last will and testament properly expresses intentions under the laws of your new home state. As you review or begin the process, this might be the time to speak with your estate planning attorney about whether any trusts are applicable to your estate. A revocable living trust, for example, would avoid the assets placed in the trust having to go through probate.

This is also the time to review your Durable Power of Attorney, designation of a Health Care Surrogate, Living Will and nomination of a pre-need Guardian.

Estate planning gives peace of mind, knowing that the legal side of your life is all taken care of. It avoids stress and unnecessary costs and delays to your family. It should be reviewed and updated, if needed, at big events in your life, including a relocation, the sale or purchase of a home or when you retire. You should contact an experienced estate planning attorney in your area.

Reference: Boca Newspaper (May 1, 2019) “I’ve Relocated To Florida…Should I Update My Estate Plan?”

 

Communicate Your Wishes and Have the Documents in Place

Without a will or other estate planning documents, your property is distributed according to the law of intestate succession in the state where you live at the time of your death. That means any wishes you might have as to how your assets are distributed will not be considered, says the article “Make Your Wishes Known” from the Concord Monitor.

If you want to have a say in what happens to your property, including financial accounts and personal items, you need a will. However, that’s not the only document you need. Here’s a list of the documents that are part of an estate plan.

Last will and testament. This transfers property through the probate process. It ensures that you get to tell others how you want your assets distributed. It may include naming a guardian to be responsible for a minor or incapacitated heir’s personal care and assets.

If you have minor children, you may wish to include a testamentary trust so assets can be managed, and their distribution controlled. If your family includes an individual with special needs, you’ll want a Special Needs Trust (SNT), so they do not lose their eligibility for government benefits.

There are many different types of trusts, and they serve different purposes.

Revocable Trust. This can distribute property without going through probate. It also preserves privacy, since documents do not become public. To avoid probate, the trust must be funded during your lifetime, by changing the title on assets from your name to the name of your revocable trust. That may include bank and investment accounts, personal property and real estate. Income, dividends, gains and losses continue to be reported on your tax returns, while you are living.

If you own a business, talk with your estate planning attorney about whether the ownership of the business should be transferred to a trust.

Married couples should speak with their estate planning attorney about having a joint trust together, or if they should each have separate trusts for estate tax planning, creditor protection, protecting children from prior marriages, or ensuring the continuation of a family business.

You may need a pour-over will with your revocable trust, so assets may be transferred into the revocable trust that are outside of the trust at the time of your death. Your estate planning attorney will be able to discuss this in detail, to see if it is a good option.

Joint ownership. If assets are owned in joint tenancy, property automatically transfers upon death to the surviving joint owner. It is not affected by your will and is a way to avoid probate. However, there may be a loss of control and there may be gift, estate, or income tax consequences.

Beneficiary designations. Life insurance, retirement assets, annuities and other Pay on Death accounts all have a person named to receive the asset upon the death of the owner. Every asset you own with a beneficiary designation should be checked every few years to make sure the right person is set to receive the asset. The beneficiary designation supersedes anything written in your will. There should always be a primary and a secondary beneficiary named, just in case the primary predeceases you or does not want to accept the asset.

Power of Attorney. Everyone should have a Power of Attorney, in the event of incapacity. This permits someone to act as your agent in any financial matters. There is also the Health Care Power of Attorney, which gives another person the authority to make health care decisions on your behalf, if you are not able to communicate your wishes.

All these documents should be the foundation of your estate plan. Each person’s situation is different, but an experienced estate planning attorney will help determine what you need.

Reference: Concord Monitor (April 22, 2019) “Make Your Wishes Known”

 

Wills v. Trusts: What’s Right for You?

It’s a good idea to take the time and make the effort to create an estate plan to take care of your estate — no matter if it’s a condo apartment and a housecat or a big house and lots of money in the bank — just in case something unexpected occurs tomorrow. That’s the advice from AZ Big Media in the article “The pros and cons of wills vs. trusts.”

Estate planning is the area of the law that focuses on the disposition of assets and expenses, when a person dies. The goal is to take care of the “business side” of life while you are living, so your family and loved ones don’t have to pick up the pieces after you are gone. It’s much more expensive, time-consuming and stressful for the survivors to do this after death, than it is if you plan in advance.

You have likely heard the words “trust” and “will” as part of estate planning. What are the differences between the two, and how do you know which one you need?

A will is the most commonly used legal document for leaving instructions about your property after you die. It is also used to name an executor — the person who will be in charge of your assets, their distribution, paying taxes and any estate expenses after you die. The will is very important, if you have minor children. This is how you will name guardians to raise your children, if something unexpected occurs to you and your partner, spouse or co-parent. The will is also the document you use to name the person who you would like to care for your pets, if you have any.

Burial instructions are not included in wills, since the will is not usually read for weeks or sometimes months after a person passes. It’s also not the right way to distribute funds that have been taken care of through the use of beneficiary designations or joint ownership on accounts or assets.

Another document used in estate planning is a trust. There are many different types of trusts, from revocable trusts, which you control as long as you are alive, and irrevocable trusts, which are controlled by trustees. There are too many to name in one article, but if there is something that needs to be accomplished in an estate plan, there’s a good chance there is a special trust designed to do it. An estate planning attorney will be able to tell you if you need a trust, and what purpose it will serve.

Trusts can be used by anyone with assets or property.

A will can be a very simple document. It requires proper formats and formalities to ensure that it is valid. If you try to do this on your own, your heirs will be the ones to find out if you have done it properly.  If it is not done correctly, the court will deem it invalid and your estate will be “intestate,” that is, without a will.

Many people believe that they should put all their assets into a trust to avoid probate. In some cases, this may be useful. However, there are many states where probate is not an onerous process, and this is not the reason for setting up trusts.

A trust won’t eliminate taxes completely, nor will it eliminate the need for any estate administration. However, it may make passing certain assets to another person or another generation easier. Your estate planning attorney will be able to guide you through this process.

Whether you use a will or a trust, or as is most common, a combination of the two, you need an estate plan that includes other documents, including power of attorney and health care power of attorney. These two particular documents are used while you are living, so that someone you name can make financial decisions (power of attorney) and medical health decisions (health care power of attorney) if you should become incapacitated, through illness or injury.

Speak with an estate planning attorney. Every person’s situation is a little different, and an estate planning attorney will create an estate plan that works for you and protects your family.

Reference: AZ Big Media (March 21, 2019) “The pros and cons of wills vs. trusts”

Suggested Key Terms: Estate Plan, Will, Trusts, Power of Attorney, Health Care, Incapacitated, Executor,

Surviving Spouse Needs An Estate Plan

When one spouse dies after meticulously titling assets to pass through joint tenancy to the surviving spouse, estate planning attorneys flinch. There are occasions when everything works smoothly, but they are the exception. As this article from the Santa Cruz Sentinel warns “After husband’s death, wife needs to create revocable trust.” Actually, she needs more than a revocable trust: she needs an estate plan.

Most of the assets in the plan created by her husband, in this case, did pass to the wife outside of probate. However, there are a number of details that remain. She needs to obtain date-of-death values for any non-IRA securities the couple owned, and she should also have their home’s value determined, so that a new cost basis for the house will be established. She also needs an appointment with an estate planning attorney to create a will and an estate plan.

If she dies without a will, her children will inherit the estate in equal shares by intestate succession. However, if any of her children pass before she does, the estate could be distributed to her grandchildren. If they are of legal age, there is no control over how the assets will be managed.  Making matters worse, if a child or grandchild is disabled and receiving government benefits, an inheritance could make them ineligible for Social Security and Medicaid benefits, unless the inheritance is held within a Special Needs Trust.

Another reason for an estate plan: a will details exactly how assets are distributed, from the set of pearls that great aunt Sarah has kept in the family for decades to the family home. A durable power of attorney is also part of an estate plan, which lets a named family member or trusted friend make financial decisions on your behalf, if you become incapacitated. An estate plan also includes an advance health care directive, so a loved one can make medical decisions on your behalf if you are not able.

These are the basics of an estate plan. They protect loved ones from having to go to court to obtain the power to make decisions on your behalf, as well as protect your family from outsiders making claims on your estate.

A revocable trust is one way to avoid probate. An estate planning attorney will be able to evaluate your own unique situation and determine what the best type of trust would be for your situation, or if you even need a trust.

You may be thinking of putting your home, most families’ biggest asset, into joint tenancy with your children. What if one or more of your children have a divorce, lawsuit or bankruptcy? This will jeopardize your control of your home. A revocable trust will allow your assets to remain in your control.

The last piece in this estate is the IRA. If you are the surviving spouse, you’ll want to roll over your spouse’s IRA into your own. Make sure to update the beneficiary designation. If you neglect this step and the IRA pays into your estate when you pass, then the IRA has to be cashed in within five years of your death. Your children will lose the opportunity to stretch IRA distributions over their lifetimes.

An estate planning attorney can help guide you through this entire process, working through all the details. If your goal is to avoid probate, they can make that happen, while protecting you and your loved ones at the same time.

Reference: Santa Cruz Sentinel (March 24, 2019) “After husband’s death, wife needs to create revocable trust”

 

Where There’s A Will, There’s a Better Future for Family

There’s a better future for family if you had a will. The plain truth is, everyone needs a will. The value of someone’s personal property has very little to do with the need for a will or estate plan. Without one, the process of settling an estate and having heirs receive their inheritance could be delayed for many months, or even years, says the article “Where there’s a will, there is a plan in place” from The Advertiser. For wills to be legally acceptable, there are certain things that need to be included:

Identification of the person making the will, also known as the testator. The will must contain the person’s name, address, state their intention to create a distribution process for assets and the statement that this will is intended to be their last will and testament and all other wills are revoked. The will must also be dated to be sure to know hold old it is, with regard to other wills.

Outstanding debt payment. The will needs to explain how any outstanding bills will be paid, including funeral costs, medical costs, taxes owed, and any other expenses that a person may have at the time of their death. This may vary by state, so speak with a local estate planning attorney to find out what your state’s laws are.

Name any heirs and what they are being given. You may give your property to whomever you want, or to a charity. The bequest needs to be carefully written, so it is very specific and there are no misunderstandings. Since it may be hard to know what will be left after final expenses are paid, it may be wise to give percentages of assets, rather than specific figures. An estate planning attorney will know how to best handle this aspect of a will.

Chose an executor and name them in the will. The executor is responsible for carrying out the wishes of the testator and is in charge of paying debts, taxes, distributing assets and any tasks assigned in the will. Choosing the right person for this task is very important. They need to be able to handle the responsibility and be able to execute your wishes, without being bullied by family members or friends. Always name a secondary executor, in case the first predeceases you, or if the person is unable or unwilling to serve.

Name a guardian for minor children. This is why parents of young children must have a will. If there is no will, the court will determine who should raise the children, following the laws of kinship of your state. You may not agree with the court’s decision. Select a person (or couple) you believe will raise the children, as close as possible to how you would raise the children.

Plan for your funeral. This is a kindness to your loved ones. If you don’t plan in advance, your loved ones may spend more than you would wish on an elaborate funeral. The opposite may also happen. A simple paragraph may do the job, or you could visit the local funeral home and prepay, selecting everything so that it will be done according to your own wishes.

In addition to a will, you’ll want a power of attorney and health care power of attorney in place to protect you, in case of incapacity. This way, someone will be able to take care of your finances and someone else will be able to make health care decisions, if you can’t.

An estate planning attorney can work with you to make sure that all these documents are properly prepared according to your state’s laws.  They have worked with many others, know what kind of issues crop up and how to prepare for them. This is especially important with blended families or families where there are complicated histories. Think of the estate plan as a gift to your heirs, a chance to express your wishes and a way to create a legacy for your loved ones.

Reference: The Advertiser (March 10, 2019) “Where there’s a will, there is a plan in place”

 

Hurt Feelings, Family Battles and A Royal Mess

Without an estate plan in place, and that includes a will, power of attorney, and health care directives, dividing up an estate gets messy, fast. Preparing a will does not really take that much time, but it does require you to do some work, like making a list of your assets and sitting down with an estate planning attorney.

The title of this article from Zing! says it all: “What Happens If You Die Without a Will? You Might Leave Behind Hurt Feelings, Legal Battles and Chaos.” Dying without a will, means that your estate is “intestate,” and the rules of your state will dictate exactly what happens to your assets. You may not want your kid brother or the man you were divorcing to get anything but depending on your state’s laws and your marital state, that could happen.

In most states, your assets will pass to your kids and your spouse. If you don’t have any, your assets are passed on to your nearest living relatives. If your kids are minors, the court will decide who will raise them. A will is also about naming a guardian for your minor children and naming a person who will be in charge of your money to look after them.

When there’s no will, everything is decided by the court.

Having a complete estate plan is like a gift to your survivors. It tells them exactly what you want to have happen to your possessions, who you want to make decisions on your behalf for medical care if you are unable to, who you would want to raise your children and even what kind of funeral you want to have.

Here’s an example, let’s say that an adult is financially supporting a parent, even though the adult does not live with their parent. In New York State, if that person dies, their spouse inherits everything. If that person has a spouse and children, the spouse inherits the first $50,000 plus half the balance of the estate. The children inherit everything else.

The parent who was dependent upon the adult child, is left on their own. The parent would have to hope that her daughter-in-law (or son-in-law) would be willing to continue to help them. Basic estate planning could have set up a trust or other mechanism to support that adult.

Another concern: if you die without a will, it is more likely that people you don’t know, may try to fraudulently make claims on your estate. There may be bitter resentment, if one family member steps up to try to take charge of the process. That person will have to apply to the court to be appointed as the estate administrator. When that happens, your assets will be frozen. If no one wants to become the executor, the court will appoint a public trustee.

What if there’s not enough money to support the family and the family home needs to be sold? That would become a legal and financial nightmare for all concerned.

By sitting down with an experienced estate planning attorney, you protect yourself, your assets and your family and loved ones. You can determine how you want your assets to be distributed. You can also determine who you want to be in charge of your financial life and your health, if you should become incapacitated. With a will, power of attorney, power of attorney for healthcare, and other documents that are used, depending upon your unique situation, you can have a say in what happens and spare your family the legal, financial, and emotional stress that occurs when there is no will.

Reference: Zing! (March 4, 2019) “What Happens If You Die Without a Will? You Might Leave Behind Hurt Feelings, Legal Battles and Chaos”

 

Beverly Hills 90210 Star Luke Perry Did Have an Estate Plan

Luke Perry’s death at age 52 from a condition that we think of as something that happens to older people, has made many people thinks differently about strokes. As reported in the Forbes article “Luke Perry Protected His Family With Estate Planning” Perry was savvy enough to do the proper estate planning, which made a difficult situation easier for his family.

Perry was heavily sedated following the first stroke and five days later, his family made the difficult decision to remove life support. It had become obvious that he was not going to recover, following a second stroke. He was surrounded by his children, 18-year-old Sophie, 21-year-old Jack, Perry’s fiancé, ex-wife, mother, siblings and others.

The decision to allow Luke Perry to die, when only a week earlier he had been alive and vibrant, could not have been easy. It appears that he had the correct legal documents in place, since the hospital allowed his family to make the decision to end life support. In California, those wishes are made in writing, using an Advance Directive or Power of Attorney. Without those documents, his family would have needed to obtain an order from a probate court to permit the hospital to terminate life support, especially if there was any disagreement about this decision from family members.

That would have been a public and painful experience, making things harder for his family.

Perry reportedly had a will created in 2015 leaving everything to his two children. Earlier that year, he had become a spokesperson for screening for colorectal cancer. He had undergone a colonoscopy and learned that he had precancerous growths, which led him to advise others to do the same testing. According to friends, it was after this experience that Perry had a will created to protect his children.

It is thought (but not yet verified) that Perry had a reported net worth of around $10 million, so it’s likely that he created a revocable living trust, in addition to a simple will. If he had only a will, then his estate would have to go through probate court. It’s more likely that he had a trust, and if it was properly funded, then his assets could pass onto his children without any court involvement.

The only question at this time, is whether he made any provisions for his fiancé, Wendy Madison Bauer. Since the will was done in 2015, it’s unlikely that he included her in his estate plan. If they had married, she would have received rights that would not have been automatic but would have depended upon the wording of his will or trust, as well as whether the couple had signed any prenuptial agreements. If they had married and documents did not include an intent to exclude Bauer, she would have been entitled to one-third of his estate.

Luke Perry’s tragic death provides an important lesson for all of us. No one should wait until they are old enough to do estate planning. Perry’s cancer scare, in 2015, gave him the understanding of how quickly life can change, and by having an estate plan in place, he helped his family through a difficult time.

Reference: Forbes (March 8, 2019) “Luke Perry Protected His Family With Estate Planning”

 

When Should You Have Your Estate Plan Done?

But don’t pat yourself too much — you’re not done yet. A will is not a static instrument, says The Item in its recent article “Don’t wait until high noon.” If laws change, which happens regularly, or your life changes, you need to review your will and be aware of any significant changes that may have an impact on your will and its goals.

Marriage, divorce, birth, adoption and death are some of the key trigger events in life that call for a review of your will. Some of these events seem very obvious, but others aren’t. That is when problems can arise. For instance, if a widow or widower remarries, the will needs to be updated to clarify how the new spouse and the children from prior marriages are to be provided for.

Welcoming a new child into the family is an event to celebrate, whether by birth or adoption. The will needs to add the new child. However, there’s another step that may be even more important. A will is used to name a guardian for the child, so the parents may name a person to rear their child in their absence. If a guardian is not named, then the court will select someone who might have not been the parent’s first (or even second) choice.

The death of an executor, beneficiary, guardian or trustee named in the will also means that the will needs to be updated. If the person who has died is a beneficiary, their name needs to be removed.  You may want to reconsider how assets are distributed. For executors, guardians or trustees, remember to add a secondary person for each role.

What if you inherit an unexpected fortune? You’ll definitely need to review your will, since your estate tax liability may have changed. Even if you don’t owe federal estate taxes, there may be state estate taxes to plan for. If you suffer a large financial loss, you’ll need to review your will, since the generous gift you had planned on leaving to a nonprofit. may no longer be available.

Some changes to wills occur because people change their minds about how they want to distribute their assets, or who they want to handle their post-mortem responsibilities. If you have a falling out with an executor, for instance, that change needs to be made in a timely manner.

If you have not reviewed the beneficiaries who are named on your life insurance policies and retirement accounts, and any other accounts where beneficiaries are named, you’ll want to do that too. If your will says cousin Andrew gets your life insurance policy proceeds, but his sister Stella is the one named as the beneficiary, then only Stella receives the proceeds. The named beneficiary is a contract that cannot be challenged or changed, regardless of what your will says.

If you don’t yet have a will, now is the time to make an appointment to meet with an estate planning attorney in your community. Remember that estate laws are set by the state of your residence, so an experienced estate planning attorney in your area is your best source.

Reference: The Item (Feb. 15, 2019) “Don’t wait until high noon”