The Receiving End of Estate Planning
March 29, 2010
We publish a lot on this blog about preparing your estate plan: writing a will, setting up a trust, choosing beneficiaries and nominating guardians; but there is another side to estate planning, a fun side… the receiving end.
You may assume that the receiving end of estate planning is the fun and easy part, but that is not always the case. Coming into an inheritance presents its own questions and challenges; financial, logistical, and personal.
Financial
Receiving an inheritance always means you have to think about taxes. Estate taxes, income taxes, property taxes… The estate tax this year is not as clear as it has been in the past, and you will probably want to have an attorney or accountant help you with it. Whether or not you have help, you will absolutely want to keep paperwork on everything. This includes paperwork from any transfers of inherited property received by you, as well as any and all of the original paperwork you can find for the acquisition of the inherited assets.
Logistical
There is a lot more to an inheritance than simply getting money and spending it. Are you the nominated guardian of young children, holding those assets in trust for their benefit? Or perhaps you are the beneficiary of a trust, and your receipt of the assets is subject to the terms of that trust. Do you have to use the money for school? Do you need the approval of a trustee before you can spend it? Hopefully you are working with a trustee you know and trust, but if you and the trustee disagree you may need mediation or even your own attorney to assist with resolution of any dispute.
Personal
Inherited assets are often very personal and fraught with emotion. Should you really sell the house grandma lived in for decades and use the money to take a cruise? (If so, wait until after taxes, if any, are determined before you buy the tickets.) Would your parents have wanted you to use the money to pay for a wedding, or save it for your own retirement? Do you want to take the summer home that’s been in your family for generations and own it jointly with your new spouse, or keep the property on your side of the family?
Whatever you choose to do with your inheritance, it’s likely you’ll need some guidance from a knowledgeable and trustworthy professional. Your estate planning or elder law attorney can help. His or her knowledge of the probate system, estate taxes, and how to protect your newly inherited assets can be very valuable to you at the receiving end of your loved one’s estate plan.
Do You Need A Will Or A Trust?
March 14, 2010
When it comes to estate planning there are two major vehicles for the distribution of property: A will and a trust. Both are very useful tools and can accomplish specific goals—but how do you know which one is best for your family? Which document you will need depends on a number of factors, some of which may seem completely irrelevant at first: the size of your estate, your goals for that estate, the age of your children, your marital status, your retirement account, and many, many more. But the first step to understanding which tool may be right for you is to understand what each document does.
A Will: A will is a formal declaration of your wishes. It is a document you create to declare the extent of your privately held property (it does not cover jointly owned property) and what your wishes are for the distribution of that property. You name an executor to carry out your wishes, and you can even include a nomination of guardian for young children in your will. A will does not go into effect until after you die; before then it is simply a piece of paper containing your private wishes. However, once you have passed away your will no longer remains private, it now becomes a matter of public record, available to anybody who would like to view it, and overseen by the court in a sometimes lengthy and expensive process called probate.
A Trust: A trust is a far more extensive tool than a will. In fact, there are many different kinds of trusts, each of which may be used for specific situations. Most trusts created for estate planning purposes are revocable living trusts (or RLTs.) An RLT is a document created not simply to distribute your property, but to own your property on your behalf, to be invested and spent for your benefit or the benefit of your named beneficiaries. As such, a trust takes effect as soon as you sign it and your property is protected by and subjected to the trust parameters as soon as you place them in the name of your trust. There is a lot of flexibility available with a trust, and yours can be created to fit your unique situation. Most RLTs name the trust creators as the initial trustees, nominating individuals or banks to take over as trustee when the creator becomes incapacitated or passes away. The benefit of a trust is that when the creator passes away, property is not merely distributed and that’s the end of it; the creator can instruct the trustee to distribute the money slowly and in any number of ways, even to the extent of creating new trusts for each beneficiary. Trusts can last for generations, as evidenced by the enduring Kennedy trusts.
Wills and trusts are necessary tools in estate planning, each one working in unique situations. Your attorney will be able to tell you which one is best for your family.
The Shortest Will: It May Hold the Record, But It Won’t Hold Water
December 12, 2009
Have you ever wondered just how little you could get away with in your last will and testament? Aletta Stager of Brooklyn, NY holds the distinction of having executed one of the shortest wills on record—a mere 2 lines long!
“Nov. 29, 1895. I give to my cousin, Nettie M. Cowan, all money that I have in the Bowery Savings Bank.
Aletta Stager, 131 Berkeley Place, Brooklyn, N.Y.”
Of course, things have changed in the probate and estate planning world in the one hundred plus years since Ms. Stager executed her will. A glaring omission from the two lines above is the nomination of an executor. If you don’t nominate an executor in your will the court may choose one for you. Also, even if you have only one person in mind as your beneficiary, you’ll want to include secondary beneficiaries, who can include charities and non-profits if you don’t have any family or friends to whom you’d like to leave your estate.
Even back in 1895 Aletta Stager’s property ended up going to the state of New York when no heirs—including the named beneficiary—could be found. Perhaps if Ms. Stager had included a couple more lines in her will her estate could have gone to benefit her favorite charity instead of being swallowed up by the state.
Test Your Knowledge: An Estate Planning Quiz
December 2, 2009
How much do you know about estate plans? And how do you know when you need one?
Many people have a vague feeling that they should execute some kind of estate plan eventually, but think (hope) that they really don’t need one right now. On our blog we spend a lot of time telling people that they do need an estate plan, and they probably need one right now—or yesterday!—and we hope we do a good job of explaining why you need one. But maybe it’s time for you to decide when the time is right. This quiz will help you determine just when (and if) you need to do some estate planning.
1. Do you own a house?
Owning your own home means you have at least one significant asset, which affects your need for planning in a number of ways: First, a piece of property cannot be split between people, it will have to be sold (which can take months or longer) and the proceeds divided among your heirs—often at a loss, especially if the house was undervalued to sell quickly. Second, many people who feel they have “small estates and won’t have to worry about Probate or the estate tax” are surprised when they find that the value of their home does indeed push their estate over the line. Third, if you are married, you may need to make provisions for your spouse if you would like them to be able to continue to live in your home, especially if it is partly your own separate property acquired before marriage.
2. Do you have minor children?
If you have minor children and have not made provisions for them in case of your death or incapacity the court will make decisions about their futures. If there are no suitable family members who are willing to step forward and would be suitable guardians, your children might be placed in the care of foster parents or become wards of the state. That is not a chance you want to take.
3. Do you want your heirs to have to wait months (or years) before receiving an inheritance, diminished by the cost of probate?
Probate is sometimes a long and expensive process. Without a plan in place your assets may have to be probated before they can be distributed. Not only does this often take a long time, but the probate fees (which can be considerable) are taken out of your estate—leaving less for your heirs.
4. Do you know how you want to spend your final moments?
Most people don’t die quickly and quietly at the ripe old age of 98. Most people fall victim to accidents, illness or dementia—unable to make their own health care decisions. Without a healthcare directive or living will that specifically outlines your wishes and instructions for your health care and nominates an agent to carry out those wishes, you could end up in a Terri Schiavo situation—costing your loved ones both financially and emotionally.
(NOTE: There is much that goes into your estate plan decision-making; this is only a partial quiz, and not a planning tool. We suggest meeting with your attorney for an in depth interview to determine what kind of planning will be best for you and your family.)
Executors Have Options When It Comes to Final Medical Expenses
November 16, 2009
Most people die in a hospital; sometimes after a long and slow decline, sometimes after a quick and unexpected tragedy. If you are an executor of the deceased’s estate this is significant because it means that there are usually final medical bills to be paid. What most executors do not know is that these final medical bills are not necessarily just like all the other final expenses, especially when it comes to filing a final tax return for the estate: they may either be taken as deductions on the decdent’s final Income Tax Return (From 1040) or , if the decedent’s estate is valued at more than $3.5 Million (2009 exclusion), on the Estate Tax Return (Form 706). This article from The Wall Street Journal explains why.
“…When a person incurs medical expenses and dies before they are paid, the executor of the decedent’s estate can elect to treat those medical expenses as if they were paid when incurred – as long as the estate pays the expenses within one year after the date of death. In other words, this election allows those expenses to be deducted on the decedent’s final Form 1040, even though they were not paid by the date of death.”
Many executors may not think of this option because medical expenses can only be deducted if they exceed a certain percentage of the deceased’s adjusted gross income (7.5% to be exact); but health care being what it is, final medical expenses can quite often reach this point. If so, they can be deducted on the Form 1040, even if not paid until after the decedent died.
This sounds easy, but be careful if the deceased’s estate exceeds the $3.5 million estate tax exemption—you may want to look into other options. The Wall Street Journal suggests that in this case it might be beneficial to “forgo the election and count the unpaid medical expenses as liabilities on the estate tax return.”
As the executor of an estate you may have more options than you are aware of when it comes to taxes, probate, and achieving the best results for the beneficiaries. If you are unsure, contact a professional who can help advise you on all angles of the trustee or probate process.
What To Do If You Suspect Foul Play
October 27, 2009
The movies have given people certain expectations when it comes to a death in the family and probating a will; this Hollywood portrayal includes an attorney, a book-lined office, and the entire family assembled for a formal reading of the will which ends in shocked gasps as the entire fortune goes to an unknown and unlikely character. Inevitably, there is some intrigue surrounding a possible forgery of the will.
This Hollywood portrayal may be completely off base, but the basic premise is based on the very real feelings that come with the death of a loved one: helplessness, confusion, familial bonds, and sometimes even betrayal. Forged or secret wills may not be as common as the movies may have us believe, but as recent events and this article in the Wall Street Journal reveal, they aren’t completely unheard of either.
So what should you do if you suspect that the will of a loved one has been forged or tampered with? First of all, don’t try to deal with the situation alone. Dealing with the death of a loved one is stressful and emotional, and everyone—including you—is likely to be quicker than usual to react without thinking. Instead, seek the advice of a trusted third party, someone who can help you distance yourself and look at the situation objectively.
As mentioned in the article above, will forgeries are very rare, but incidents of testators (especially elderly testators) being unduly influenced are sadly not rare enough. If you suspect foul play was involved in the creation of a loved one’s will, make an appointment with an estate or probate specialist. With professional guidance, you can better work through your suspicions in a safe environment and explore your options should you feel the need to take action.
Keeping Financial Stability After the Loss of Your Spouse
October 11, 2009
Losing a spouse is one of the most difficult experiences life has to offer. Even continuing to take one day at a time seems almost impossible when you’ve lost your partner, your mate, the love of your life. Many people who have lost a spouse describe feeling as though the rug has been pulled out from under their feet; they feel like a child again, having to re-learn how to interact in the world without their other half.
The emotional loss is only part of this confusion, especially if—like most partnerships—you and your spouse ran your household and finances with a division of labor, each partner taking on the responsibilities that they most enjoyed and were most suited to perform… this includes the financial responsibility. The emotional impact of losing a spouse is hard enough, but in today’s complex financial world what do you do if the spouse you’ve lost was the family “Chied Financial Officer” ?
The first and most important step, according to this article from the Chicago Tribune, is organization. Knowing what your bank balance is, what your expenses are, and where important documents are located is absolutely key to getting through the rough patches. The second step—and this one may be the hardest—is taking stock of your new financial situation and adjusting your lifestyle and spending. Losing a portion of your family’s income is a shock, and people often go through the motions of their previous lives because they simply can’t yet face the reality of their loss. In addition, death comes with its own set of expenses which can make a substantial dent in your savings.
If you feel you just don’t have the strength or focus to deal with financial issues immediately following the death of your spouse, ask someone to help you temporarily. Eventually, when the grieving process has run its course, you will surface again; and when that happens you don’t want to find that the life you knew has been buried under debt.
Do Life Insurance or Retirement Benefits Have to Go Through Probate?
October 3, 2009
We may acquire many assets over the course of our lives now—bank accounts, stocks, real property, life insurance, retirement, and more—it’s almost impossible to know what has to go through probate and what doesn’t.
The answer to the question in the title, above, is “no”; life insurance and retirement benefits do not have to go through probate if the account has a named beneficiary. Benefits from life insurance accounts can be paid directly to the named beneficiary, and money from IRAs, Keoghs, and 401(k) accounts transfer automatically to the named beneficiaries of those accounts as well. The persons named as beneficiary, however, will most likely want to consult with a financial advisor before drawing these benefits, as there may be tax ways of handling these accounts which minimize tax to the beneficiary.
Yet another type of account that is not subject to probate is a “pay on death” (or POD) account, the money from which can pass directly to the named beneficiary upon the death of the owner.
Probate laws vary from state to state, so contact our office—or your own local attorney who specializes in probate—for more information.
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