Choosing a Trustee: Family or Professional?

Selecting a trustee to manage your estate after you pass away is an important decision. Depending on the type of trust you’re creating, the trustee will be in charge of overseeing your assets and the assets of your family. It’s common for people to choose either a friend or family member, a professional trustee or a trust company or corporate trustee for this critical role.

Forbes’s recent article, “How To Choose A Trustee,” helps you identify what you should look for in a trustee.

If you go with a family member or friend, she should be financially savvy and good with money. You want someone who is knows something about investing, and preferably someone who has assets of their own that they are investing with an investment advisor.

A good thing about selecting a friend or family member as trustee, is that they’re going to be most familiar with you and your family. They will also understand your family’s dynamics.  Family members also usually don’t charge a trustee fee (although they are entitled to do so).

However, your family may be better off with a professional trustee or trust company that has expertise with trust administration. This may eliminate some potentially hard feelings in the family. Another negative is that your family member may be too close to the family and may get caught up in the drama.They may also have a power trip and like having total control of your beneficiary’s finances.

The advantage of an attorney serving as a trustee, is that they have familiarity with your family, if you’ve worked together for some time. There will, however, be a charge for their time spent serving as trustee.

Trust companies will have more structure and oversight to the trust administration, including a trust department that oversees the administration. This will be more expensive, but it may be money well spent. A trust company can make the tough decisions and tell beneficiaries “no” when needed. It’s common to use a trust company, when the beneficiaries don’t get along, when there is a problem beneficiary or when it’s a large sum of money. A drawback is that a trust company may be difficult to remove or become inflexible. They also may be stingy about distributions, if it will reduce the assets under management that they’re investing. You can solve this by giving a neutral third party, like a trusted family member, the ability to remove and replace the trustee.

Talk to your estate planning attorney and go through your concerns to find a solution that works for you and your family.

Reference: Forbes (May 31, 2019) “How To Choose A Trustee”

 

Legal Documents For Graduates

It is wonderful to bring up the children, make sure they are educated and see that 18th birthday come along. However, it is important to recognize that many things change from a legal standpoint, according to grbj.com in “Give your graduate the gift of legal documents.”

Here are recommended steps to take so parents can still be involved in their children’s lives when they are needed:

Health care proxy/medical power of attorney. Even if you are the person paying for health insurance, you are not legally permitted to make decisions on their behalf. Have your child sign a proxy/POA form designating who has the primary authority to make health decisions, if he or she is unable to do so. This is especially important when parents are divorced: both parents need to have the proper forms. Your estate planning attorney will be able to prepare these for you.

Durable power of attorney. If your child has signed a durable POA, you will be able to handle their financial matters, especially if your child becomes incapacitated.

HIPAA authorization. Medical providers may not disclose a patient’s medical status, unless they have legal permission. Your child should sign a HIPAA authorization with each of their providers, giving the parent access to all their information. This is especially necessary for a child with health or mental issues.

FERPA waivers. This one takes many parents by surprise. Even if you are the one paying for tuition and all college expenses, the college will not provide academic records, including grades and tuition bills, due to the Family Education Rights and Privacy Act. Contact the college and find out exactly what forms they need to be sure you have access to all of your children’s information, including any health and mental health treatment.

Wills and trusts. If a child has assets and no descendants, they need a will or revocable trust to protect the parent’s taxable estate and allow someone to manage these assets, if they die prematurely.

Medical records. Make sure the child has access to their medical records, including medications, allergies, immunizations, etc.

Insurance. See if the family’s medical, homeowner’s and auto insurance coverage extend to a child living away at school and in another state. If the child is renting a house or apartment, make sure they have renter’s insurance.

Proof of identity. Make sure the child has access to their passport, birth certificate or Social Security card so they can get an internship or a job.

Bank accounts and credit cards. If the family’s regular bank does not have a branch where the child is attending school, the parents should consider opening a basic checking account at a local branch. Both parents and child should be on the account.

Registration. It’s time to register to vote and sons will need to register with Selective Service.

An estate planning attorney can advise you on the proper documents needed for your family.

Reference: grb.com (June 7, 2019) “Give your graduate the gift of legal documents.”

Talk To Your Kids About Their Inheritance
Talk to your children about their inheritance.

Talk To Your Kids About Their Inheritance

For some parents, it can be difficult to discuss family wealth with their children. You may worry that when your kid learns they’re going to inherit a chunk of money, they’ll drop out of college and devote all their time to their tan.

Kiplinger’s recent article, “To Prepare Your Heirs for Future Wealth, Don’t Hide the Truth,” says that some parents have lived through many obstacles themselves. Therefore, they may try to find a middle road between keeping their children in the dark and telling them too early and without the proper planning. However, this is missing one critical element, which is the role their children want to play in creating their own futures.

In addition to the finer points of estate planning and tax planning, another crucial part of successfully transferring wealth is honest communication between parents and their children. This can be valuable on many levels, including having heirs see the family vision and bolstering personal relationships between parents and children through trust, honesty and vulnerability.

For example, if the parents had inherited a $25 million estate and their children would be the primary beneficiaries, transparency would be of the utmost importance. That can create some expectations of money to burn for the kids. However, that might not be the case, if the parents worked with an experienced estate planning attorney to lessen estate taxes for a more successful transfer of wealth.

Without having conversations with parents about the family’s wealth and how it will be distributed, the support a child gets now and what she may receive in the future, may be far different than what she originally thought. With this information, the child could make informed decisions about her future education and how she would live. Do you or your spouse have children from a prior marriage or relationship? Read more about planning for blended families.

Heirs can have a wide variety of motivations to understand their family’s wealth and what they stand to inherit. However, most concern planning for their future. As a child matures and begins to assume greater responsibility, parents should identify opportunities to keep them informed and to learn about their children’s aspirations, and what they want to accomplish.

The best way to find out about an heir’s motivation, is simply to talk to them about it. Talk to your kids about their inheritance.

Reference: Kiplinger (May 22, 2019) “To Prepare Your Heirs for Future Wealth, Don’t Hide the Truth”

 

Are “Digital Assets” Part Of My Estate?
Don't forget about your digital assets.

Are “Digital Assets” Part Of My Estate?

Most of us have digital assets and online accounts. It’s time to think about what will happen to them when we die.

Estate planning attorneys are now talking with clients about their digital assets and leaving specific instructions about what to do with these online accounts and social media, after they pass.

There’s a trend of creating video messages to loved ones and posting them online for the family to see after they pass. Facebook has a feature that allows the page owner to set a legacy contact to manage the account, after the account owner has died. Other technologies are emerging to allow you to gather your digital assets and assign an individual or individuals to manage them after you die.

It is now just as important to think about what you want to happen to your digital assets, as it is to your tangible, earth-bound assets when you die. What’s also important: considering what you want to happen to your data, how accessible and enduring you want it to be and how it will be protected.

People in their older years have seen amazing leaps and changes in technologies. We’ve moved from transistor radios to VHS to DVD to Blu-Ray. We’ve gone from land line home phones to smart phones that have the same computing power or more than a desktop. The first social media site was launched in 1997, and websites like Myspace have come and gone.

Will the current websites and software still be available and commonly used in five, ten, fifty, or one hundred years? It’s impossible to know what the world will look like then. However, unless a plan is made for digital legacies, it’s unlikely that your digital assets will be accessible to others in the near and far future.

Here’s the problem: even if your executor does succeed in memorializing your Facebook page, will there be things on the page that you don’t want anyone to see after you’ve gone? There’s a wealth of data on social media to sift through, including items you may not want to be part of your digital legacy.

Consider the comparison to people who lived during previous ages. We may not be able to see their lives online, but they have left behind physical artifacts—letters, diaries, photographs—that we can hold in our hands and that tell us their stories. These artifacts will survive through the generations.

A digital estate plan can ensure that your data is managed by someone you trust. Talk with your estate planning attorney to learn how to put such a plan in place, when you are creating your legacy. Your last will and testament is a starting point in today’s digital world.

Reference: The Scotsman (May 16, 2019) The ghost in the machine—what will happen to online you after death?”

 

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”

 

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”

 

Vacation Home: What’s the Best Way to Pass to the Next Generation?

The generous exclusion that allows wealthy individuals to gift up to $11.4 million and not get hit with federal estate taxes, came from the Tax Cut and Jobs Act of 2017. However, it’s not expected to last forever, according to the article “What to Know When Gifting the Family Vacation Home” from Barron’s Penta. Those who can, may want to take advantage of this window to be extra-magnanimous before the exemption sunsets to about $5 million (adjusted for inflation) in 2025.

At issue for potentially giving, is that when someone transfers property, the recipients must account for it, according to the original price paid for the property. This is known as the basis. For example, shares of stock valued at $5 million today that were originally purchased for $1 million 10 years ago, would be subject to income taxes only on $4 million, if the recipient were to sell the stock.

Advice given to wealthy individuals is to make use of that higher estate tax exclusion while it’s still in place, and that may include property that they expect to gift to beneficiaries. The most likely asset would be the family vacation home, whether it’s a ski chalet or a beach house.

First, make sure your children want the property. There’s no sense going through all the processes, unless they plan on enjoying the vacation home. Next, figure out the best way to gift the home, while making the most of the high exclusion.

A nice point: you won’t have to give up the use or control of the house during this process. Experts advise not making an outright gift. This can lead to less control or the loss of a share to a child’s spouse, in the event of a marital split.

Another option: transfer the property into a trust. There are several kinds that would work for this purpose. Another is to consider a Limited Liability Corporation, which also serves to protect the family’s assets against any claims, if someone were to be injured on the property. The parents would transfer the property into the LLC and give children interests in the company.

A fairly common structure for vacation home ownership is called a Qualified Personal Residence Trust (QPRT). These are used by families who want to retain the right to continue using the home, usually for the rest of their lives. The property is transferred to the designated beneficiaries at death. If it is set up properly, a QPRT avoids any income or estate taxes.

A trust also lets an individual or a couple be very specific in how the property will be used, who can use it and any rules about how they want the home maintained. Making sure that a beloved family vacation home is well-cared for and not rented out for college parties, for instance, can provide a lot of comfort for a couple who have poured their hearts into creating a lovely vacation home.

Speak with an experienced estate planning attorney to learn how you can take advantage of the current federal estate tax exemption to pass your family’s vacation home on to the next generation.

Reference: Barron’s Penta (March 31, 2019) “What to Know When Gifting the Family Vacation Home”