Estate Planning Blog

Estate Planning Blog

Elisabeth Pickle Law, P.L.C.
What Are the Five “Must Have” Legal Documents?
Five must have estate planning docuuments

What Are the Five “Must Have” Legal Documents?

WTHR 13’s recent article, “The 5 legal documents every adult should have” lists the five key legal documents involved in estate planning.

  1. General Durable Power of Attorney. This document states who you want to make decisions, if you’re unable to do so for yourself. Without it, your family may have to petition the courts to become your legal guardian, which can be time consuming and expensive. A power of attorney allows the person whom you select, to pay your mortgage or rent and your bills.
  2. Health Care Power of Attorney. This document plans for the situation, if you are unable to make your own health care decisions. You name someone you trust, like family members or friends, to do this on your behalf.
  3. Will. This says that when you pass away, here’s what I want to happen. A will states who will get your assets after your death. If you don’t have a valid will in place, the state laws of intestacy will govern what will happen to your estate—which may not be what you want.
  4. Living Will. This is the document in which you state your instructions for end-of-life care, such as life support. This legal document is used to make certain that your family and physicians know what you want your end-of-life care to be. A living will is much different than a will.
  5. Revocable Living Trust. This document can be important, if you’re a parent with young children and would like your assets passed down properly to your children, if you die. Typically, if children are under 18 or 21, they’re legally minors and can’t receive assets. A trust can help coordinate their receiving your property.

An experienced estate planning attorney can help you with the creation of these legal documents, while creating an overall plan so that your wishes are followed, your legacy is protected and your family is secure.

Reference: WTHR 13 (April 17, 2019) “The 5 legal documents every adult should have”

 

Irrevocable Trusts: Can I Revoke It?
Under what circumstances can I revoke an irrevocable trust?

Irrevocable Trusts: Can I Revoke It?

A trust can be revocable or irrevocable, says nj.com’s article, “Can an irrevocable trust be revoked?”

A revocable trust is a living trust that’s created with a written agreement between the person creating the trust (also called the grantor or settlor) and the trustee. That’s the person who will manage the assets in the trust. The person who creates the trust, can also name herself as the trustee for her lifetime, and the trust agreement may say that the grantor can revoke or dissolve the trust. That’s why it’s called a revocable trust.

However, with an irrevocable trust, the grantor doesn’t reserve the right to revoke the trust. In effect, once the assets of an irrevocable trust are re-titled and placed in the trust, they belong to the trust beneficiaries, not the grantor. Nonetheless, an irrevocable trust can still be revoked in some states. The grantor may be able to terminate an irrevocable trust, by following the state laws on dissolution. The laws of each state vary in this area. For example, Arizona has adopted an Arizona Trust Code (“ATC”), which stipulates that an irrevocable trust can be terminated by consent of the trustee and the beneficiaries.

In The Grand Canyon state, an irrevocable trust may be terminated by a court, provided that the termination isn’t inconsistent with a material purpose of the trust.  The court can also terminate the trust if continuance of the trust is not necessary to carry out the Grantor’s purposes. A basis for a petition to the court could be that the trust operation is uneconomic, or there are unanticipated circumstances that impede the ability of the trust to carry out the Grantor’s intent. The court may grant the petition, even if all of the beneficiaries are not represented, as long as it appears that the unrepresented parties’ interests are protected by the proposed changes.

In addition, the ATC provides that a Trustee can, upon notice to all “qualified” beneficiaries, terminate an irrevocable trust with a value of $100,000.00 or less, provided the assets are distributed in a manner consistent with the purposes of the trust. Also, the Trustee or another party can petition the court to distribute the assets of an irrevocable trust in a similar manner where the assets in the trust are not sufficient to allow the trust to continue in operation. A reminder is in order: Married persons who have revocable living trusts are reminded, on the death of the first spouse, that the interest of the deceased spouse becomes “irrevocable” under the vast majority of trusts. In other words, after the first spouse dies, the ATC will require notices to children and grandchildren. It should be noted that under the ATC there are some types of notices and disclosures which may not be overridden by the trust instrument. If the issue of notice to children or grandchildren is a concern, then one should carefully review the trust’s notice provisions with counsel.

Please contact Elisabeth Pickle Law in Scottsdale, Arizona, if you have questions about revocable and irrevocable trusts.

Reference: nj.com (March 25, 2019) “Can an irrevocable trust be revoked?”

 

Shared Housing: What Those ‘Golden Girls’ Got Right

A 75-year-old woman realized that she had reached the point, where she couldn’t live alone anymore. Deborah Knox had Parkinson’s disease, and needed help, if she was going to stay in her three-bedroom house. However, when her new roommate came in with a coffee table and insisted it be featured in the living room, the two had to work things out.

Knox lost the living room battle, but said she’d rather do that, than look at her coffee table in an assisted living setting, as explained in AARP Bulletin’s article “Housemate Wanted. Must Lift Heavy Objects.”

This is not unusual for the newest retirement dynamic — senior housemates. Older Americans are seeking companionship, mutual care and in some cases, a less expensive living situation. The number of households headed by renters 65 and older is expected to balloon by 80%, according to the Joint Center for Housing Studies at Harvard University.

A small industry has emerged from this need. There are companies that match housemates, doing background checks and matching up older renters. There are also companies that focus on older homeowners with housemates, who can also help with chores.

The Golden Girls model is alive and well. The trend is more common among women, possibly because women tend to live longer than men and may feel more comfortable living in a communal setting. However, there are challenges. Living with a housemate isn’t without issues. A renter may feel unsettled by the lack of control, while a homeowner may feel agitated at having to share possessions and space.

Sharing houses may not be the American dream, but it may present a solution for seniors who want to maintain their independence.

Shared housing takes work. It also benefits from rules that are written down and agreed upon in advance. One woman purchased an eight-bedroom house in Portland and rented rooms to women who were like her — 55 and older and single. The tenants make their house rules and collectively decide who joins the community. So far, all but three rooms are filled.

Finding a roommate who isn’t family to live with, requires some caution, advise experts. Some services offer a two-week trial and prepare for a confrontation if it does not work for you. Explore all issues, especially the thorny ones, in your first interviews. If your politics or spiritual practices are vastly different, there may be no way to overcome that. You should also discuss the details. Does one person like to watch television all the time, at full blast? If you prefer a quiet house, that’s not going to work out.

Put it in writing, from how costs will be divided to how bills will be paid. Who will be responsible for what chores? Are overnight guests permitted? Does the homeowner have the ultimate say? The more details you can cover, the less room for quarrels.

Remember to focus on the good too: a communal dinner, weekly or daily, and regular outings, can foster friendships in this new phase of life.

Reference: AARP Bulletin (March 14, 2019) “Housemate Wanted. Must Lift Heavy Objects

Will Contests: What’s Happening to Tom Petty’s Estate?

Rocker Tom Petty’s widow, Dana York Petty, planned to include unreleased tracks from her late husband’s celebrated 1994 solo album as part of a 25th anniversary edition box set.

However, Tom’s daughters Adria and Annakim, his children from a previous marriage, are engaged in a will contest, have blocked the release, according to iHeartRadio’s article, “Tom Petty’s Widow, Daughters Battling Over His Estate.”

Dana says the daughters are interfering with her ability to manage Tom’s legacy. She’s reportedly requested that a judge name a day-to-day manager for the estate.

Adria argues that she and her sister were promised an equal share of control in their father’s estate, according to his will. She says her father’s “artistic property” was supposed to be placed into a separate company to be jointly administered by the three women. However, Dana disagrees.

Annakim seems to reference the battle in a recent Instagram post. She displayed a photo of her father with the caption, “We don’t sell out. No Vampires 2019.”

A subsequent reply in the comments section mentions Petty’s will.

Wildflowers was initially designed to be a double album, with Petty completing more than 25 songs in the initial sessions. However, he was convinced by his record label to take some some songs off for the final version.

Throughout the years, a few of the extra songs were released on various collections. However, Tom never relinquished his idea of releasing the set as a double LP.

Petty was reportedly planning a Wildflowers tour, before his death in October of 2017, to showcase all the leftover material.

Reference: iHeartRadio (April 3, 2019) “Tom Petty’s Widow, Daughters Battling Over His Estate” 

The Family Business: Tips On Passing To The Next Generation
Smooth transition of the family business

The Family Business: Tips On Passing To The Next Generation

Creating a succession plan for a family business needs awareness of more than just spreadsheets, says the article “How to plan for a smooth transition of your family business” from North Bay Business Journal. Family owned vineyards or farms face challenges, when one or two children have chosen to work in the family business. Sometimes there is preferential treatment, either with economics or voting and control of the business.

Estate planning attorneys can serve as sounding boards in creating a balance between what will be best for the family business and what will work to maintain peace and cohesiveness in the family. With experience in guiding families through this process, they are able to provide an unbiased view and can be helpful, when hard decisions need to be made.

Another part of the plan is having the family and the estate planning attorney meet with other professionals, such as a wealth manager and CPAs. This is especially helpful when the owners are reluctant to talk about what is happening in the family business with their children, before clarifying their own thoughts about the business.

Taking time to step back and gain some perspective before holding a family meeting where decisions are made, will give the owners more clarity.

A succession plan often starts a business plan. Once there is a plan for the future of the business, it’s an easier transition to financial and estate planning. Taking these steps, can help the business’ success. Any family business will run better when the numbers and projections for future growth are in place. Banks and other lenders look favorably on a company that has its financial reports in place.

This also permits tax planning to be done properly. In some cases, transferring a family business or other asset, while the owner is still living, can be beneficial in the long run, even with today’s higher federal estate tax exemptions.

Lifetime gifts can be a way to reduce estate taxes because making a gift today before there has been substantial appreciation, is one way to leverage the gift and estate tax exemption. Let’s say an asset is valued at $1 million, but at the time of your death it may be valued at $8 million. By giving it today, you can use less of your lifetime exemption.

To transfer the family business to one or more children and give them an opportunity to succeed on their own, through their own efforts, consider bringing them in as a responsible manager with some ownership.

A gradual approach in transferring control of a family business is a wise move, say experts. One family put their real estate holdings into an entity that gave some ownership interests to each of their children, but one of them was appointed as the manager.

Reference: North Bay Business Journal (April 9, 2019) “How to plan for a smooth transition of your family business”

 

What About an Ethical Will?

When the discussion turns to ethical wills, people often sigh and say they wish they had such a document from a parent or a grandparent. No one has ever told Debby Mycroft, who is described by Next Avenue in “The Ethical Will: Life Is About More Than Your Possessions,” that they wouldn’t want to read an ethical will from a beloved family member.

Unlike a legal will, an ethical will, which is sometimes called a legacy letter, is not written by attorneys, but by individuals. They include life lessons, family stories, values, define hopes for the future for loved ones, apologies to anyone they have hurt and gratitude to those who haven’t been thanked enough. The letters were once written by parents, to be read after their parent’s death. However, now anyone can write a legacy will, and it can be directed to anyone.

Mycroft is a writer who focuses on helping people write their legacy letters.

People without children create ethical wills to share them with the friends who have become their family. In one instance, Mycroft’s client was a woman who had been placed in child protective services, because her parents were not able to care for her. She wanted to write a letter to other foster children to share her story and let them know that they too could overcome a rough start to life.

Whoever you are, you have a story to tell. You don’t have to be a war hero or win a Nobel Prize to have a story that will be loved by your family, friends, or even strangers. Every one of us has a unique journey through life, and we all have lessons, stories and values to share.

The process of writing an ethical will can bring great peace of mind. By writing an ethical will, you’ve created a legacy that will live on, long after you are gone. For some people, writing a legacy letter to share their values fosters clarity of their values. That leads them to start living their life more intentionally.

If you aren’t sure how to start writing a legacy letter, there are websites and books about this topic, including online templates. Unlike an online will, there are no legal requirements for a legacy will. Therefore, you are free to create a document any way you want.

Do you need to work with a professional? For a regular will and an estate plan, yes, you need an experienced estate planning attorney. However, with a legacy will, you can do it on your own or work with a professional writer. But don’t worry too much about format or grammar in your legacy letter. Whether your legacy letter is elegant or rough, simple or complex, as long as it contains the truth, it will be a wonderful gift.

Tell stories to share your values; they are better than lists of what matters to you. One woman wrote a story about signing a contract for a job that she thought was clerical but turned out to be factory work. She fumed about it, but her parents explained that she had signed a contract and made a commitment. She stuck with the job, learning about integrity, persistence and diligence. After that job was completed, the employment agency sent her on great assignments, because they knew she was reliable and stuck to her word. That’s a life lesson to share.

There are some things that should be left out of a legacy letter. Criticism, judgments, regrets and family secrets need to be given serious consideration. What are you trying to accomplish with a letter that will be shared among generations? You don’t want to leave behind a legacy of destruction. If you write such a letter, read it a few times over a period of time to see, if that’s really how you want to be remembered. You can always tear it up and start over again.

Ask a trusted friend to have a look at your legacy letter. They may see omissions that hurt the ones you love, like the woman who wrote about her two children, but devoted pages to one and not the other. An objective reader will be able to help you avoid some pitfalls.

Videos and recordings are great.  However, remember that technology changes, and the phone that you record your video on may not work in five, ten, or fifty years. Include a hard copy of the letter and add hard copy family photos. Those will work, regardless of changes to technology.

Finally, consider sharing the letter with members of the family before you die. What a wonderful gift to share. This way you can expand on the stories, mend wounds, answer questions and grow closer.

When is the best time to create your legacy letter? How about now? Mycroft recalls her own mother, who was the only one who knew the stories of the family. She had given her mother a fill-in-the-blanks family history book, hoping to preserve the history. When she cleaned out her mother’s house, she found the book — and it was completely blank. If you have a living relative, sit down with them to write or record the history, before it’s too late.

Reference: Next Avenue (April 11, 2019) “The Ethical Will: Life Is About More Than Your Possessions”

 

Forgot to Update Your Beneficiary Designations? Your Ex Will be Delighted

Your will does not control who inherits all your assets when you die. This is something that many people do not know. Instead, many of your assets will pass by beneficiary designations, says Kiplinger in the article “Beneficiary Designations: 5 Critical Mistakes to Avoid.”

The beneficiary designation is the form that you fill out, when opening many different types of financial accounts. You select a primary beneficiary and, in most cases, a contingency beneficiary, who will inherit the asset when you die.

Typical accounts with beneficiary designations are retirement accounts, including 401(k)s, 403(b)s, IRAs, SEPs, life insurance, annuities and investment accounts. Many financial institutions allow beneficiaries to be named on non-retirement accounts, which are most commonly set up as Transfer on Death (TOD) or Pay on Death (POD) accounts.

It’s easy to name a beneficiary and be confident that your loved one will receive the asset, without having to wait for probate or estate administration to be completed. However, there are some problems that occur and mistakes get expensive.

Here are mistakes you don’t want to make:

Failing to name a beneficiary. It’s hard to say whether people just forget to fill out the forms or they don’t know that they have the option to name a beneficiary. However, either way, not naming a beneficiary becomes a problem for your survivors. Each company will have its own rules about what happens to the assets when you die. Life insurance proceeds are typically paid to your probate estate, if there is no named beneficiary. Your family will need to go to court and probate your estate.

When it comes to retirement benefits, your spouse will most likely receive the assets. However, if you are not married, the retirement account will be paid to your probate estate. Not only does that mean your family will need to go to court to probate your estate, but taxes will be levied on the asset. When an estate is the beneficiary of a retirement account, all the assets must be paid out of the account within five years from the date of death. This acceleration of what would otherwise be a deferred income tax, must be paid much sooner.

Neglecting special family considerations. There may be members of your family who are not well-equipped to receive or manage an inheritance. A family member with special needs who receives an inheritance, is likely to lose government benefits. Therefore, your planning needs to include a SNT — Special Needs Trust. Minors may not legally claim an inheritance, so a court-appointed person will claim and manage their money until they turn 18. This is known as a conservatorship. Conservatorships are costly to set up. They must also make an annual accounting to the court. Conservators may need to file a bond with the court, which is usually bought from an insurance company. This is another expensive cost.

If you follow this course of action, at age 18 your heir may have access to a large sum of money. That may not be a good idea, regardless of how responsible they might be. A better way to prepare for this situation is to have a trust created.  The trustee would be in charge of the money for a period of time that is determined by the personality and situation of your heirs.

Using an incorrect beneficiary name. This happens quite frequently. There may be several people in a family with the same name. However, one is Senior and another is Junior. The person might also change their name through marriage, divorce, etc. Not only can using the wrong name cause delays, but it could lead to litigation, especially if both people believe they were the intended recipient.

Failing to update beneficiaries. Just as your will must change when life changes occur, so must your beneficiaries. It’s that simple, unless you really wanted to give your ex a windfall.

Failing to review beneficiaries with your estate planning attorney. Beneficiary designations are part of your overall estate plan and financial plan. For instance, if you are leaving a large insurance policy to one family member, it may impact how the rest of your assets are distributed.

Take the time to review your beneficiary designations, just as you review your estate plan. You have the power to determine how your assets are distributed, so don’t leave that to someone else.

Reference: Kiplinger (April 5, 2019) “Beneficiary Designations: 5 Critical Mistakes to Avoid”

 

Lifetime and Charitable Giving: A Generous Spirit is a Good Thing

Many people give generously throughout the year, for birthdays, to help children or grandchildren with college costs or just because they want to help family or friends. However, according to the New Hampshire Union Leader’s article “Lifetime (noncharitable) giving has many advantages—and not just for tax purposes.”

Lifetime giving means that you are more involved with giving, than if your giving occurs after you have died. Perhaps the best part of gifting with warm hands, is that you are able to enjoy seeing the recipient (donee) benefit from your gift. It’s a good feeling to see a person have his life enriched by your generosity.

It should also be noted that sometimes, giving away something can be a way of liberating yourself. With less property, there’s less for you to manage, insure or provide upkeep.

If you die with no will, the intestacy laws of your state will determine who gets what. With a will, you have the opportunity to make your intentions known clearly. However, since you will not be alive, you won’t be able to see the actual transfer of property. A beneficiary might decide that they don’t want an asset. It is also possible that someone who always told you that he loved the painting in the foyer of your home, may decide to sell it, instead of keeping it.

Lifetime giving lets you react to changing circumstances and provides some control over how your assets are distributed.

After your death, your property and your estate may go through probate, which in some states can be a lengthy process. Lifetime giving also reduces the costs associated with probate and estate administration, because they won’t be included in your estate at the time of death. Assets that come out of the probate estate, reduces the likelihood of estate creditors or dissatisfied heirs. Lifetime gifts are private, while probate is public.

However, there are also tax advantages. If your gifting program is structured correctly by an experienced estate planning attorney, income and estate taxes can be decreased. Generally, a gift is not taxable income to the donee. However, any income earned by the gift property or capital gain subsequent to the gift, is usually taxable. The donor holds the responsibility of paying state or federal transfer taxes imposed on the gift. There are four taxes to be aware of: the state gift tax, the state generation-skipping transfer tax, federal gift and estate taxes and the federal generation-skipping transfer tax.

Many people give, because they want to support charitable causes or help friends and family enjoy a higher quality of life. The need to reduce the size of an estate to lower estate taxes is now less prominent, since the federal estate tax exemption is so high. It should be kept in mind that the new tax laws regarding federal estate taxes end in 2025. That may seem far away, but it will be here soon enough.

Another way to give, is to help with college expenses. Any gift must be made directly to a qualified institution. Similarly, if you’d like to help a friend or family member with medical expenses, a gift needs to be made directly to the healthcare provider. Not only are these types of transfers exempt from federal gift and estate taxes, but they are outside of the $15,000 annual gift exclusion gift you can make to an individual in any given calendar year.

This is a simple overview of gifting. An estate planning attorney should be consulted to create a plan for giving, that aligns with your overall estate plan and tax management plan.

Reference: New Hampshire Union Leader (April 7, 2019) “Lifetime (noncharitable) giving has many advantages—and not just for tax purposes”

 

Why Is a Revocable Trust So Valuable in Estate Planning?
Five must have estate planning docuuments

Why Is a Revocable Trust So Valuable in Estate Planning?

There’s quite a bit that a revocable trust can do to solve big estate planning and tax problems for many families.

As Forbes explains in its recent article, “Revocable Trusts: The Swiss Army Knife Of Financial Planning,” trusts are a critical component of a proper estate plan. There are three parties to a trust: the owner of some property (settler or grantor) turns it over to a trusted person or organization (trustee) under a trust arrangement to hold and manage for the benefit of someone (the beneficiary). A written trust document will spell out the terms of the arrangement.

One of the most useful trusts is a revocable trust (inter vivos) where the grantor creates a trust, funds it, manages it by herself, and has unrestricted rights to the trust assets (corpus). The grantor has the right at any point to revoke the trust, by simply tearing up the document and reclaiming the assets, or perhaps modifying the trust to accomplish other estate planning goals.

After discussing trusts with your attorney, he or she will draft the trust document and re-title property to the trust. The assets transferred to a revocable trust can be reclaimed at any time. The grantor has unrestricted rights to the property. During the life of the grantor, the trust provides protection and management, if and when it’s needed.

Let’s examine the potential lifetime and estate planning benefits that can be incorporated into the trust:

  • Lifetime Benefits. If the grantor is unable or uninterested in managing the trust, the grantor can hire an investment advisor to manage the account in one of the major discount brokerages, or he can appoint a trust company to act for him.
  • Incapacity. A trusted spouse, child, or friend can be named to care for and represent the needs of the grantor/beneficiary. She will manage the assets during incapacity, without having to declare the grantor incompetent and petitioning for a guardianship. After the grantor has recovered, she can resume the duties as trustee.
  • This can be a stressful legal proceeding that makes the grantor a ward of the state. This proceeding can be expensive, public, humiliating, restrictive and burdensome. However, a well-drafted trust (along with powers of attorney) avoids this.

The revocable trust is a great tool for estate planning because it bypasses probate, which can mean considerably less expense, stress and time.

In addition to a trust, ask your attorney about the rest of your estate plan: a will, powers of attorney, medical directives and other considerations.

Any trust should be created by a very competent trust attorney, after a discussion about what you want to accomplish.

Reference: Forbes (February 20, 2019) “Revocable Trusts: The Swiss Army Knife Of Financial Planning”

 

Estate Planning: Do My Debts Die with Me?

When you die, your debts do not. Your executor will be required to pay them using your assets. That means that any unpaid debt can reduce the wealth you’ve left behind for your heirs. In some cases, your family members could even need to pay your debt.

Reader’s Digest’s recent article, “This Is What Happens to Your Debt When You Die,” explains that not all debt is created equal. With secured debt, like a mortgage or car loans, your estate can either pay off your debts in full or continue making installment payments. Another option is to sell the property or turn it over to the lender to satisfy the debt.

However, any unsecured debt, such as credit cards, bills, or personal loans, is typically just paid from the estate. The estate is everything you own, such as assets, bank accounts, real estate and other property.

Note that student loans are the exception, but there are some caveats. Most federal student loans, along with private loans without a cosigner, are discharged with proof of death. Thus, your heirs won’t be responsible for those loans. However, if your private student loan was cosigned, that person will be required to pay it off. There are also some loans, like PLUS loans, that while technically forgiven, could leave the parent who took it out with higher taxes.

The way to protect both yourself and your family, is to speak with an experienced estate planning attorney to get your affairs in order.

Creating an action plan for your outstanding debt is a critical component of the estate planning process. You also need to ask about other end-of-life plans, like medical directives, wills and trusts to manage your assets, when you pass away.

You should also review your life insurance policy to make certain that it’s up-to-date, and don’t forget to review your named beneficiaries.

If your beneficiaries are assigned correctly, some of your assets may bypass probate and be protected from creditors. Therefore, anyone who’s listed on your policy won’t be forced to hand over their money to satisfy your debt.

Reference: Reader’s Digest “This Is What Happens to Your Debt When You Die”