What is the Best Way to Leave an Inheritance to a Grandchild?
Gifts to Grandchildren

What is the Best Way to Leave an Inheritance to a Grandchild?

Leaving money or real estate to a child under the age of 18 requires careful handling, usually under the guidance of an estate planning attorney. The same is true for money awarded by a court, when a child has received property for other reasons, like a settlement for a personal injury matter.

According to the article “Gifts from Grandma, and other problems with children owning property” from the Cherokee-Tribune & Ledger News, if a child under age 18 receives money as an inheritance through a trust, or if the trust states that the asset will be “held in trust” until the child reaches age 18, then the trustee named in the will or trust is responsible for managing the money.

Until the child reaches age 18, the trustee is to use the money only for the child’s benefit. The terms of the trust will detail what the trustee can or cannot do with the money. In any situation, the trustee may not benefit from the money in any way.

The child does not have free access to the money. Children may not legally hold assets in their own names. However, what happens if there is no will, and no trust?

A child could be entitled to receive property under the laws of intestacy, which defines what happens to a person’s assets, if there is no will. Another way a child might receive assets, would be from the proceeds of a life insurance policy, or another asset where the child has been named a beneficiary and the asset is not part of the probate estate. However, children may not legally own assets. What happens next?

The answer depends upon the value of the asset. State laws vary but generally speaking, if the assets are below a certain threshold, the child’s parents may receive and hold the funds in a custodial account. The custodian has a duty to manage the child’s money, but there isn’t any court oversight.

In Arizona, the threshold is $10,000. Check with a local estate planning attorney to determine your state’s limitations.

If the asset is valued at more than $10,000, or whatever the threshold is for the state, the probate court will exercise its oversight. If no trust has been set up, then an adult will need to become a conservator, a person responsible for managing a child’s property. This person needs to apply to the court to be named conservator, and while it is frequently the child’s parent, this is not always the case.

The conservator is required to report to the probate court on the child’s assets and how they are being used. If monies are used improperly, then the conservator will be liable for repayment. The same situation occurs, if the child receives money through a court settlement.

Making parents go through a conservatorship appointment and report to the probate court is a bit of a burden for most people. A properly created estate plan can avoid this issue and prepare a trust, if necessary, and name a trustee to be in charge of the asset.

Another point to consider: turning 18 and receiving a large amount of money is rarely a good thing for any young adult, no matter how mature they are. An estate planning attorney can discuss how the inheritance can be structured, so the assets are used for college expenses or other important expenses for a young person. The goal is to not distribute the funds all at once to a young person, who may not be prepared to manage a large inheritance.

Reference: Cherokee-Tribune & Ledger News (March 1, 2019) “Gifts from Grandma, and other problems with children owning property”

 

When Do I Need a Revocable Trust?
Revocable Living Trust

When Do I Need a Revocable Trust?

A will is a legal document that states how your property should be distributed when you die.  It also names guardians for any minor children. Whatever the size of your estate, without a will, there’s no guarantee that your assets will be distributed, according to your wishes. For those with substantial assets, more complicated situations, or concerns of diminished capacity in later years, a revocable trust might also be considered, in addition to a will.

Forbes’ recent article, “Revocable Trusts And Why Should You Consider One,” explains that a revocable trust, also called a “living trust” or an inter vivos trust, is created during your lifetime. On the other hand, a “testamentary trust” is created at death through a will. A revocable trust, like a will, details dispositive provisions upon death, successor and co-trustees, and other instructions. Upon the grantor’s passing, the revocable trust functions in a similar manner to a will.

A revocable trust is a flexible vehicle with few restrictions during your lifetime.  you usually designate yourself as the trustee and maintain control over the trust’s assets. You can move assets into or out of the trust, by retitling them. This movement has no income or estate tax consequences, nor is it a problem to distribute income or assets from the trust to fund your current lifestyle.

A living trust has some advantages over having your entire estate flow through probate. The primary advantages of having the majority of your assets avoid probate, is the ease of asset transfer and the lower costs. Another advantage of a trust is privacy, because a probated will is a public document that anyone can view.

Even with a revocable trust, you still need a will. A “pour over will” controls the decedent’s assets that haven’t been titled to the revocable trust, intentionally or by oversight. These assets may include personal property. This pour-over will generally names the revocable trust—which at death becomes irrevocable—as the beneficiary.

Another reason for creating a revocable trust is the possibility of future diminished legal capacity, when it may be better for another person, like a spouse or child, to help with your financial affairs. A co-trustee can pay bills and otherwise control the trust’s assets. This can also give you financial protection, by obviating the need for a court-ordered guardianship.

Talk to an experienced estate planning attorney about the best options for your situation to protect your estate and provide the peace of mind that your family will receive what you intended for them to inherit, with the least possible costs and stress.

Reference: Forbes (March 11, 2019) “Revocable Trusts And Why Should You Consider One”

 

Should Pets Be Part of Your Estate Plan?
Pet Trust

Should Pets Be Part of Your Estate Plan?

Most of us don’t have the luxury (or the need) to leave our pets $12 million, but to make sure that our pets are cared for, having a legally enforceable trust for a pet, which is allowed in New York State, can provide peace of mind. That is part of the answer to the question posed by the Times Herald-Record in the article “Who’ll care for your pets when you’re gone?”

A will is a document used in a court proceeding called probate, if you die with assets that are only in your name. When the will goes through probate, it becomes a public document. A trust, on the other hand, is a document that does not become part of the public record, unless it was created under a will. Some people use trusts for their beloved pets, to pay for their care and maintain their lifestyle. Some pets lead fancier lives than others!

Most people leave the care of pets in the hands of friends or relatives and hope for the best. Visit any animal shelter and you’ll see the animals whose owners could not take care of them, or whose friends or family members intended to take care of them, but for whatever reasons, could not care for them. Putting a pet trust into your estate plan, is a better way to care for pets, if you outlive them.

The pet trust has several steps, and an estate planning attorney will be able to set it up for you. First, you need to appoint a trustee of the trust funds. This person is in charge of the financial aspect of the trust, from paying vet bills, making sure pet health insurance premiums are paid, to providing money for the caretaker to buy supplies. It’s a good idea to have a secondary trustee, just in case.

Next, you name a caretaker of the pet. This person can be the same as the trustee, although it may be better to name a different person, to create some checks and balances on the funds. You can, if you like, give the trustee the right to appoint a caregiver or a back-up caregiver. Make sure you discuss all of these details with the trustee and the caregiver and their back-ups to be sure that everyone understands their roles, and all are willing to take on these responsibilities. Some pets can live a long time, and you want to have everyone understand what they are undertaking.

Third, you’ll need to designate the amount of money to be held in trust for the pets for medical care, daily living costs and support until the pet dies. Don’t forget to include the cost of burial or cremation.

Finally, name the persons or organizations you wish to receive any remaining funds.

An informal letter of instruction to both the trustee and the caregiver would be very helpful. Provide details on the pet’s personality, quirky behavior, preferences for food, treats, play and any information that will help all the parties get along well. You should also provide information on your pet’s vet, any registration numbers for microchips, medical and dental records, medications, etc.

Reference: Times Herald-Record (March 9, 2019) “Who’ll care for your pets when you’re gone?”

 

Are You Retiring in 2019? Here’s What You Need to Know
Preparing for retirement

Are You Retiring in 2019? Here’s What You Need to Know

There are more than few steps you’ll need to complete, before packing up your desk, cubicle or locker and saying good bye to your work family. Even if your 401(k) and IRA is in order, there are things you need to during the last few months of working, says Next Avenue in the article “Tips to Prepare for Retiring This Spring or Summer.”

There’s detailed planning, organization of documents, and additional financial details that need attending. You may also want to start creating your “bucket list” — a list of things you’ve always wanted to do, but never had the time to do while you were working. Getting all of this in order, will speed your waiting time and prepare you better, when the last day of your working life does finally arrive.

Whether you are three months or six months from retirement, here are some tips for your to-do list:

Social Security. Figure out when the best time for you to take Social Security benefits will be. Can you delay it until age 70? That’s when you’ll get the biggest payout. The earlier you start collecting benefits, the smaller your monthly check will be. Take it early, and you are locked in to this lower rate.

Health Care. Figuring out how to manage health care costs, is the single biggest worry of retirement for most Americans. An injury that puts you in a nursing care facility can make a huge dent in your retirement funds, even if it’s just for a short while. This is the time of your life, when focusing on your health is most important, even if you’ve been careless in earlier decades. Evaluate your health status and get check ups with your regular physician and your dentist.

Investments. Check with your HR department about when you’ll need to roll over your 401(k) plan. If you transfer the funds into a low-cost IRA, you may save in fees. Work with your financial advisor to determine what your withdrawal rate will be. You may need to reevaluate some of your retirement goals or consider working part time during retirement for a few years.

Medicare. If you’re almost 65, you can start enrolling in Medicare now. The government lets you start the process within three months of your 65th birthday. Start this process, so you are covered, once you are not on the company’s health care plan.

Expectations. The first six months to a year of retirement can be both wonderful and terrible. While enjoying freedom, many people find it hard to withdraw money from the same accounts they spent so many years building. What if they don’t have enough for a long life? Take a realistic look at your lifestyle, budget, and spending habits, before you retire to make sure you are financially ready to do so. If you think you might work part time, look into the positions that are available in your area and what they pay.

Lifestyle. Often, we are so busy planning for the financial side of retirement, that we forget to plan for the “soft” side: what will you do in retirement? Will you volunteer with an organization that has meaning for you? Write the novel you’ve started on a dozen times? Spend more time with your grandchildren? Travel? What will make you feel like your time is being well-spent, and what will make you fulfilled?

Don’t forget the legal plan. Retired or not, you need to have a will, power of attorney, and health care power of attorney to protect your family, whether you are preparing for retirement or in the middle of your career. Speak with an estate planning attorney to ensure that these important documents are in place.

Reference: Next Avenue (March 6, 2019) “Tips to Prepare for Retiring This Spring or Summer”

 

Smart Women Protect Themselves with Estate Planning
Women and estate planning

Smart Women Protect Themselves with Estate Planning

The reason to have an estate plan is two-fold: to protect yourself, while you are living and to protect those you love, after you have passed. If you have an estate plan, says the Boca Newspaper in the article titled “Smart Tips for Women: Estate Planning,” your wishes for the distribution of your assets are more likely to be carried out, tax liabilities can be minimized and your loved ones will not be faced with an extended and expensive process of settling your estate.

Here are some action items to consider, when putting your estate plan in place:

If you have an estate plan but aren’t really sure what’s in it, it’s time to get those questions answered. Make sure that you understand everything. Don’t be intimidated by the legal language: ask questions and keep asking until you fully understand the documents.

If you have not reviewed your estate plan in three or four years, it’s time for a review. There have been new tax laws that may have changed the outcomes from your estate plan. Anytime there is a big change in the law or in your life, it’s time for a review. Triggering events include births, deaths, marriages, and divorces, purchases of a home or a business or a major change in financial status, good or bad.

If you don’t have an estate plan, stop postponing and make an appointment with an estate planning attorney, as soon as possible.

Your estate plan should include advance directives, including a Durable Power of Attorney, Health Care Surrogate, and a Living Will. You may not be capable of executing these documents during a health emergency and having them in place will make it possible for those you name to make decisions on your behalf.

Anyone who is over the age of 18, needs to have these same documents in place. Parents do not have a legal right to make any decisions or obtain medical information about their children, once they celebrate their 18th birthday.

Make a list of your trusted professionals: your estate planning attorney, CPA, financial advisor, your insurance agent and anyone else your executor will need to contact.

Tell your family where this list is located. Don’t ask them to go on a scavenger hunt, while they are grieving your loss.

List all your assets. You should include where they are located, account numbers, contact phone numbers, etc. Tell your family that this list exists and where to find it.

If you have assets with primary beneficiaries, make sure that they also have contingent beneficiaries.

If you have assets from a first marriage and remarry, be smart and have a prenuptial agreement drafted that aligns with a new estate plan.

If you have children and assets from a first marriage and want to make sure that they continue to be your heirs, work with an estate planning attorney to determine the best way to make this happen. You may need a will, or you may simply need to have your children become the primary beneficiaries on certain accounts. A trust may be needed. Your estate planning attorney will know the best strategy for your situation.

If you own a business, make sure you have a plan for what will happen to that business, if you become incapacitated or die unexpectedly. Who will run the business, who will own it and should it be sold? Consider what you’d like to happen for long-standing employees and clients.

Smart women make plans for themselves and their loved ones. An estate planning attorney will be able to help you navigate through an estate plan. Remember that an estate plan needs upkeep on a regular basis.

Reference: Boca Newspaper (March 4, 2019) “Smart Tips for Women: Estate Planning”

 

As a New Parent, Have You Updated (or Created) Your Estate Plan?
New parents

As a New Parent, Have You Updated (or Created) Your Estate Plan?

You just had a baby. Now you’re sleep-deprived, overwhelmed, and frazzled. Having a child dramatically changes one’s legacy plan and makes having a plan all the more necessary, says ThinkAdvisor’s recent article, “5 Legacy Planning Basics for New Parents.”

Take time to talk through two high-priority items. Create a staggered checklist—starting with today—and set attainable dates to complete the rest of the tasks. Here are five things to put on that list:

  1. Will. This gives the probate court your instructions on who will care for your children, if something happens to both you and your spouse. A will also should name a guardian to be responsible for the children. Parents also should think about how they want to share their personal belongings and financial assets. Without a will, the state decides what goes to whom. Lastly, a will must name an executor.
  2. Beneficiaries. Review your beneficiary designations when you create your will, because you don’t want your will and designations (on life insurance policies and investments) telling two different stories. If there’s an issue, the beneficiary designation overrides the will. All accounts with a beneficiary listed automatically avoid probate court.
  3. Trust. Created by an experienced estate planning attorney, a trust has some excellent benefits, particularly if you have young children. Everything in a trust is shielded from probate court, including property. This avoids court fees and hassle. A trust also provides some flexibility and customization to your plan. You can instruct that your children get a sum of money at 18, 25 or 30, and you can say that the money is for school, among other conditions. The trustee will distribute funds, according to your instructions.
  4. Power of Attorney and Health Care Proxy. These are two separate documents, but they’re both used in the event of incapacitation. Their power of attorney and health care proxy designees can make important financial and medical decisions, when you’re incapable of doing so.
  5. Life Insurance. Most people don’t think about purchasing life insurance, until they have children. Therefore, if you haven’t thought about it, you’re not alone. If you are among the few who bought a policy pre-child, consider increasing the amount so your child is covered, if something should happen.

Reference: ThinkAdvisor (March 7, 2019) “5 Legacy Planning Basics for New Parents”

 

Beverly Hills 90210 Star Luke Perry Did Have an Estate Plan
Luke Perry

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”

 

How Do I Plan for a Blended Family?
How do I plan for a blended family?

How Do I Plan for a Blended Family?

A blended family (or stepfamily) can be thought of as the result of two or more people forming a life together (married or not) that includes children from one or both of their previous relationships, says The Pittsburgh Post-Gazette in a recent article, “You’re in love again, but consider the legal and financial issues before it’s too late.”

Research from the Pew Research Center study reveals a high remarriage rate for those 55 and older—67% between the ages 55 and 64 remarry. Some of the high remarriage percentage may be due to increasing life expectancies or the death of a spouse. In addition, divorces are increasing for older people who may have decided that, with the children grown, they want to go their separate ways.

It’s important to note that although 50% of first marriages end in divorce, that number jumps to 67% of second marriages and 80% of third marriages end in divorce.

So if you’re remarrying, you should think about starting out with a prenuptial agreement. This type of agreement is made between two people prior to marriage. It sets out rights to property and support, in case there’s a divorce or death. Both parties must reveal their finances. This is really helpful, when each may have different income sources, assets and expenses.

You should discuss whose name will be on the deed to your home, which is often the asset with the most value, as well as the beneficiary designations of your life insurance policies, 401(k)s and individual retirement accounts.

It is also important to review the agents under your health care directives and financial powers of attorney. Ask yourself if you truly want your stepchildren in any of these agent roles, which may include “pulling the plug” or ending life support.

Talk to an experienced estate planning attorney about these important documents that you’ll need, when you say “I do” for the second (or third) time.

Reference: Pittsburgh Post-Gazette (February 24, 2019) “You’re in love again, but consider the legal and financial issues before it’s too late”

 

Why Should I Create a Trust If I’m Not Rich?
Why should I create a trust if I'm not rich?

Why Should I Create a Trust If I’m Not Rich?

It’s probably not high on your list of fun things to do, considering the way in which your assets will be distributed, when you pass away. However, consider the alternative, which could be family battles, unnecessary taxes and an extended probate process. These issues and others can be avoided by creating a trust.

Barron’s recent article, “Why a Trust Is a Great Estate-Planning Tool — Even if You’re Not Rich,” explains that there are many types of trusts, but the most frequently used for these purposes is a revocable living trust. This trust allows you—the grantor—to specify exactly how your estate will be distributed to your beneficiaries when you die, and at the same time avoiding probate and stress for your loved ones.

When you speak with an estate planning attorney about setting up a trust, also ask about your will, healthcare derivatives, a living will and powers of attorney.

Your attorney will have retitle your probatable assets to the trust. This includes brokerage accounts, real estate, jewelry, artwork, and other valuables. Your attorney can add a pour-over will to include any additional assets in the trust. Retirement accounts and insurance policies aren’t involved with probate, because a beneficiary is named.

While you’re still alive, you have control over the trust and can alter it any way you want. You can even revoke it altogether.

A revocable trust doesn’t require an additional tax return or other processing, except for updating it for a major life event or change in your circumstances. The downside is because the trust is part of your estate, it doesn’t give much in terms of tax benefits or asset protection. If that was your focus, you’d use an irrevocable trust. However, once you set up such a trust it can be difficult to change or cancel. The other benefits of a revocable trust are clarity and control— you get to detail exactly how your assets should be distributed. This can help protect the long-term financial interests of your family and avoid unnecessary conflict.

If you have younger children, a trust can also instruct the trustee on the ages and conditions under which they receive all or part of their inheritance. In second marriages and blended families, a trust removes some of the confusion about which assets should go to a surviving spouse versus the children or grandchildren from a previous marriage.

Trusts can have long-term legal, tax and financial implications, so it’s a good idea to work with an experienced estate planning attorney.

Reference: Barron’s (February 23, 2019) “Why a Trust Is a Great Estate-Planning Tool — Even if You’re Not Rich”