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and the Surrounding Area

Estate Planning for a Blended Family?

Many people have so-called “blended” families, where one or both spouses have children from a previous marriage.  Estate planning for a blended family is very important, and estate planning can be hard for a spouse in a blended family who wants to provide for a surviving spouse and for children from an ex-spouse.

Fed Week’s recent article entitled “‘Blended’ Families Raise Special Estate Planning Considerations” suggests that one option may be a qualified terminable interest property or “QTIP” trust.

This kind of irrevocable trust is frequently used by those with children from another marriage, and is sometimes a good option when thinking about estate planning for a blended family.

A QTIP trust allows the grantor or maker of the trust to provide for a surviving spouse and maintain control of how the trust’s assets are distributed, once the surviving spouse dies.

Income (and sometimes the principal) generated from the trust is given to the surviving spouse to ensure that the spouse is cared for during the rest of his or her life. Therefore, with a QTIP:

  • At the death of the first spouse, the assets pass to a trust for the survivor. No one else can receive distributions from the trust; then
  • At the death of the second spouse, any assets left in the QTIP trust are passed to beneficiaries named by the first spouse to die. This is usually the children of the first spouse to die.

With a QTIP, estate tax is not imposed when the first spouse’s dies. Rather, estate tax is determined after the second spouse has died.

Moreover, the property within the QTIP providing fund to a surviving spouse qualifies for marital deductions. As such, the value of the trust isn’t taxable after the first spouse’s death.

While this arrangement may appear to address the needs of both sides, in many remarriages the surviving spouse is much younger than the one who died.

In many cases, the surviving spouse may be close to the age of the children of the spouse who died. As a consequence, those children may have to wait a number of years for their inheritance.

To avoid this, a better approach would be to provide for biological children as well as for a surviving spouse at the first death. Assets can be divided at that time.

If an asset division is impractical, the proceeds of a life insurance policy may help to provide some inheritance for all parties.

Reference: Fed Week (May 7, 2021) “‘Blended’ Families Raise Special Estate Planning Considerations”

 

What Does the Executor Do?

estate planning faqThe executor of an estate is the person who manages all the decedent’s financial affairs. If the person wants to have more than one person manage their affairs, like naming two children instead of one, then the term “co-executors” is used, as explained in a recent article “Executor of Estate: What Do They Do?” from Forbes.  A common question that arises is what does an executor do?

The most important characteristic that they  should have, is integrity and good judgment. They are legally required to act in the estate’s best interest, which is called acting as a fiduciary. This is important, especially if an heir serves in this capacity.

They also need to be wise enough to know when they need help from a skilled professional.

They are to follow the directions that are included in the person’s will, including distributing assets to beneficiaries. They also manage the many tasks associated with wrapping up the decedent’s life, including paying creditors, issuing notices of death, filing tax returns and overseeing the sale of homes and automobiles.

In some states, they are called a “personal representative.” The word “executrix” is an old, out-of-date term used when a woman serves as the executor, not commonly used today.

When a proper estate plan is in place, the executor of the estate is named in the decedent’s last will and testament. In cases where the decedent (sometimes referred to as the testator) did not have a will, or the will has been deemed invalid, the probate court judge names someone to serve as executor. This is not always someone who the executor would have named, but when there is no will, the court makes this decision.

If you have been named to settle and an estate and don’t wish to serve, you may decline. If the decedent anticipated that and named an alternative or contingent executor, then the secondary person will serve, or the probate court judge will name someone to serve in this role. The judge can also override the decedent’s choice of an executor, if the person they named has a criminal history, is not of legal age, has a mental disability or a substance abuse problem. The court is not allowed to change the executor simply because the heirs don’t want a person to serve.

The executor has a long list of tasks to accomplish, from obtaining death certificates and securing the home to filing the will with the probate court in the decedent’s county of residence and petitioning the court for probate. Many executors bring in an estate attorney to assist with the legal portion of administering the estate, as an estate and trusts attorney will be familiar with the processes and the deadlines.

The executor must notify the Social Security administration and Medicare, if the person was enrolled in either of these federal programs. The Department of Motor Vehicles, Veterans Affairs and insurance companies must also be notified. The executor is also responsible for filing the person’s final income tax returns and if necessary, filing the state and federal estate tax returns. This is just a partial listing of the many different tasks that must be accomplished. The estate planning attorney may have a checklist to help the executor on track.

Reference: Forbes (May 3, 2021) “Executor of Estate: What Do They Do?”

Suggested Key Terms: Executor, Estate Planning Attorney, Will, Decedent, Deceased, Social Security, Medicare, Fiduciary, Veterans Affairs, Probate Judge, Personal Representative, Executrix, Co-Executors

Do Stepchildren Inherit?

estate planning faqWhen an individual passes away without a will, the state laws of intestacy instruct how the person’s probate estate will be distributed.  In this case a common question is do stepchildren inherit.

Only assets that would have passed through a person’s will are impacted by intestate succession laws. This typically includes only assets owned alone in his or her name.

For instance, in Nebraska, under intestate succession, who inherits depends on whether the deceased had living children, parents, or other close relatives, when he or she died.  The question of whether stepchildren inherit must be answered by looking at state law.

For example, in Nebraska, if the decedent was married and died without a will, what the decedent’s spouse will receive depends on whether the decedent had any living parents or descendants, such as children, grandchildren, or great-grandchildren. If the decedent did not, then his or her spouse inherits all of the intestate property.

Under New Jersey’s intestacy statute, when a decedent is survived by a spouse and children who are not children of the surviving spouse (stepchildren), the surviving spouse is entitled to the first 25% of the intestate estate, but not less than $50,000 nor more than $200,000– plus one-half of the remainder of the intestate estate.

However, nj.com’s recent article entitled “Who gets this house after spouse dies with no will?” explains that the laws of intestacy don’t control the distribution of assets that were jointly owned with a right of survivorship (like a house) or that have a beneficiary designation (like life insurance).

If the house was jointly owned as husband and wife in joint tenancy with the right of survivorship, the surviving spouse solely owns the entire house by operation of law, upon the death of the first spouse. The stepchildren do not have any right to the proceeds of the sale of the house.

However, if the decedent spouse owned the house only in his or her own name or the house was titled by the spouses as “tenants in common,” then the laws of intestacy would apply.

Tenancy in common is an arrangement where two or more people have ownership interests in a property.

The big difference between joint tenants and tenants in common is that joint tenants have the right of survivorship (which gives them ownership of the property when one owner dies), tenants in common do not.

With a tenancy in common, the tenants can own different percentages of the property.

Tenants in common can also gift their share of the property to anyone upon their death.

Reference: nj.com (May 5, 2021) “Who gets this house after spouse dies with no will?”

 

Avoiding Estate Planning Miscues

WMUR’s recent article entitled “Common estate planning mistakes” gives us a few of the most common and potentially costly mistakes, and might help us in avoiding estate planning miscues.

Failing to plan. You delay and you delay. Most Americans don’t have a will and no estate plan. If you die without a will, your assets will be divided according to the intestacy laws of your state. There is no guarantee this would be consistent with your wishes. Whether an estate plan involves a basic will or perhaps a trust, having a plan can help reduce estate taxes, save on estate administrative costs, preserve privacy and speed up disbursement to beneficiaries. An estate plan can help direct how your assets are to be distributed. You can also designate a guardian for your minor children in your will.

Failing to maximize your marital estate exemption. Portability is an estate planning provision that can help with potential estates. Each person gets an $11.7 million federal estate tax exemption in 2021. If one spouse dies without using up his or her $11.7 million, the unused portion may be transferred to the other spouse for use at the survivor’s death. However, portability doesn’t address the appreciation of assets from the first spouse’s estate. It also doesn’t offer creditor protection. There are other documents in a comprehensive estate plan that can address these goals. Discuss the issues with an experienced estate planning attorney.

Failing to consider state estate taxes. You may live in one of the states that has state estate taxes. Twelve states and DC impose estate taxes. These include Hawaii, Washington, Massachusetts, Oregon, New York, Minnesota, Illinois, Vermont, Maine, Rhode Island, Connecticut and Maryland. Keep this in mind when reviewing your strategy and make certain to discuss how portability is elected with your estate planning attorney.

Taking advice from family or friends. Make sure the person you discuss your estate plans with is knowledgeable about the process. Look for an experienced estate planning attorney who knows estate tax law, trust and probate issues. You may also ask this attorney, if they practice in elder law.

You should have your estate documents in place to give you peace of mind that things are going to happen as you wished upon your death.

Reference: WMUR (May 6, 2021) “Common estate planning mistakes”

 

Should You Get Medical POA?

Edmond estate planning when divorcedThe pandemic has created awareness that being suddenly incapacitated by an illness or injury is no longer a hypothetical. The last year has reminded us that health is a fragile gift, regardless of age or any medical conditions, explains the article “Now Is the Time to Protect Your Health Care Decision Making Rights” from Kiplinger. Along with this awareness, comes an understanding that having control over our medical decisions is not assured, unless we have a well-considered health care decision-making plan created by an estate planning attorney, while we are well and healthy.  Since health care decision making is necessary the question arises of should you get a medical POA?

Without such a plan, in the event of incapacity, you will not have the opportunity to convey your wishes or to ensure they will be carried out. This also leaves the family in a terrible situation, where siblings may end up in court fighting against each other to determine what kind of end-of-life care you will receive.

The best way to exercise your medical decision rights will vary to some degree by your state’s laws, but three are three basic solutions to protect you. An estate planning attorney will be needed to prepare these properly, to reflect your wishes and align with your state’s law. Do-it-yourself documents may lead to more problems than they solve.

Living Will. This document is used when you are in an end-stage medical condition or permanently unconscious. It provides clear and written instructions as to the type of treatments you do or do not want to receive, or the treatment you always want to receive in case of incapacity.  The limitations of a living will should be considered when asking should you get a medical POA.

Health Care Durable Power of Attorney. you  In deciding the question should you get a medical POA one should consider that the health care durable POA is broader than a living will. It covers health care decisions in all situations, when you are not able to communicate your wishes. You may appoint one or more agents to make health care decisions, which they will base on their personal knowledge of what your decisions would be if you were able to speak. Just realize that if two people are named and they do not agree on the interpretation of your decision, you may have created a problem for yourself and your family. Discuss this with your estate planning attorney.

Health Care Representative Laws. There are laws in place for what occurs if you have not signed a Health Care Durable Power of Attorney or a Living Will before becoming incompetent. They are intended to fill in the gap, by authorizing certain family members to act on your behalf and make health care decisions for you. They are a solution of last resort, and not the equal of your having had the living will and/or health care durable power of attorney created for you.

If the statute names multiple people, like all of your children, there may be a difference of opinion and the children may “vote” on what’s to happen to you. Otherwise, they’ll end up in court.

The more detailed your documents, the better prepared your loved ones will be when decisions need to be made. Share your choices about specific treatments. For instance, would you want to be taken off a ventilator, if you were in a coma with limited brain function and with no hope of recovery? What if there was a slim chance of recovery? The decisions are not easy. Neither is considering such life or death matters.

Regardless of the emotional discomfort, planning for health-care decisions can provide peace of mind for yourself and loved ones.

Reference: Kiplinger (April 29, 2021) “Now Is the Time to Protect Your Health Care Decision Making Rights”

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What Is a POD Account?

estate planning faqAlso called a “POD” account, a payable on death account can be created at a bank or credit union and is transferrable without probate at your death to the person you name.

Sports Grind Entertainment’s recent article entitled “Payable on Death (POD) Accounts” explains that there are different reasons for including a payable on death account in your estate plan. You should know how they work, when deciding whether to create one. Talk to an experienced estate planning attorney who can help you coordinate your investment goals with your end-of-life wishes.

The difference between a traditional bank account and a POD account is that a POD account has a designated beneficiary. This person is someone you want to receive any assets held in the account when you die. It is really any bank account that has a named beneficiary.

There are several benefits with POD accounts to transfer assets. Assets that are passed to someone else through a POD account are not subject to probate. This is an advantage if you want to make certain your beneficiary can access cash quickly after you die. Even if you have a will and a life insurance policy in place, those do not necessarily guarantee a quick payout to handle things like burial or funeral expenses or any outstanding debts that need to be paid. A POD account could help with these expenses.

Know that POD account beneficiaries cannot access any of the money in the account while you are alive. That could be an issue if you become incapacitated, and your loved ones need money to help pay for medical care. In that situation, having assets in a trust or a jointly owned bank account could be an advantage. You should also ask your estate planning attorney about a financial power of attorney, which would allow you to designate an agent to pay bills and the like in your place.

If you are interested in creating a payable on death account, the first step is to talk to your bank to see if it is possible to add a beneficiary designation to any existing accounts you have, or if you need to create a new account. Next, decide who you want to add as a beneficiary.

Reference: Sports Grind Entertainment (May 2, 2021) “Payable on Death (POD) Accounts”

 

Tax Proposals and Estate Planning

The president’s tax plan proposes to nearly double the top tax rate on capital gains and eliminate a tax benefit on appreciated assets, known as the “step-up in basis.”  The question of what should I do with the tax proposals and estate planning have come up a lot recently.

CNBC’s recent article entitled “Wealthy may face up to 61% tax rate on inherited wealth under Biden plan” reports that the combined tax rate would be the highest in nearly a century.

Some more well-off families could face combined tax rates of as much as 61% on inherited wealth under President Biden’s tax plan.

It is not known if President Biden’s plan can get through Congress, even with changes. Many moderate Democrats are likely to resist his proposal to raise the capital gains rate to 39.6%, as well as the plan to eliminate the step-up. Moreover, just a small number of the wealthiest taxpayers would ever see a rate of 61%. Most of us others would try to avoid this hike with tax and estate planning.

According to analysis by the Tax Foundation, families who own a business or a large amount of stock and want to transfer the assets to heirs could see a dramatic tax change.

For instance, you are an entrepreneur who started a business decades ago, that is now worth $100 million. Under the current tax law, the business would pass to the family without a capital gains tax—the value of the business would be “stepped-up,” or adjusted to its current value and the heirs would only pay a capital gain, if they later sold at a higher valuation. However, under President Biden’s plan, the family would immediately owe a capital gains tax of $42.96 million upon death (capital gains rate of 39.6%, plus the net investment income tax of 3.8%, minus the $1 million exemption).

If the estate tax remains unchanged, the family would also have an estate tax of 40% on the $57.04 million of remaining value of the assets. Including exemptions, the estate tax would amount to $18.13 million.

The combined estate tax and capital gains tax liability would total $61.10 million, reflecting a combined effective tax rate of just over 61% on the original $100 million asset. The rate rises, when including potential state capital gains and estate taxes.

However, experts say that if the step-up is eliminated, Congress would likely eliminate or overhaul the estate tax.

Reference: CNBC (May 3, 2021) “Wealthy may face up to 61% tax rate on inherited wealth under Biden plan 

Should I Create a Trust?

Edmond estate planning when divorcedMost people know that a will instructs your executor regarding where to transfer your assets when you die, but should I create a trust.  There are several things you may want to consider when doing a trust.

Nbcnew25.com’s recent article entitled “Elder law and estate planning: What you need to know” explains that a trust can give you peace of mind that your wishes will be carried out when you pass away. Your property won’t need to go through the probate process, if it’s in a trust. One thing to consider when asking should I create a trust is that your family can focus on the grieving process without having any problems with wrapping up your estate.

In addition, financial and health care powers of attorney should also be part of your estate plan. Ask an experienced estate planning or elder law attorney to help you draft these documents to save your loved ones the worry, if you must be moved into a nursing home and are unable to make decisions for yourself.

Having the correct documents in place before you or a loved one goes into a nursing home is extremely important. With a financial power of attorney, an elder law attorney could design a Medicaid plan for someone entering a nursing home to help protect their assets.

If the correct documents aren’t in place when a loved one enters a nursing home, it could create issues—one of which is the inability to protect their assets. In that case, you may also be required to appear in front of a judge to get permission for an elder law attorney to assist in protecting assets. That request could even be denied by the judge.

For a married couple, 100% of cash assets, plus the home, can be protected, and Medicaid would cover most of the nursing home cost. This is big because the cost of nursing homes can exceed be tens of thousands of dollars every month.

For married couples, in many instances, the income of the spouse who is entering the nursing home may be able to be transferred to the spouse who still lives at home. That’s important because the spouse at home may depend on the other spouse’s income to help make ends meet.

For singles, at least 60% to 70% of cash assets, plus the home, can be protected, so that Medicaid would cover most of the nursing home cost.

Moving a loved one into a nursing home can be stressful enough, without having to worry about the cost. Help yourself and your family, by preparing the proper documents ahead of time to eliminate some of the stress.

Working with an elder law attorney who specializes in Medicaid planning is a wise move. Don’t wait until it is too late.

Have things in order, so you or a loved one can avoid any unnecessary stress and keep the assets that you’ve acquired during your lifetime.

Reference: nbcnew25.com (April 30, 2021) “Elder law and estate planning: What you need to know”

 

What Is the Purpose of a Trust?

estate planning faqWhat is the purpose of a trust, especially an irrevocable trust?  There are advantages and disadvantages of an irrevocable trust, and you’ll want to be fully informed before taking steps that may be costly to undo, explains the article “Understanding your trust” from The Sentinel. Once your home is deeded to an irrevocable trust, you won’t be able to make any changes without getting permission from the beneficiary or beneficiaries named in the trust. Your rights of ownership are transferred to the trust, when you deed it to the trust.

A separate legal agreement with the trustee, the person in charge of the trust, will be needed to give you a legal right to occupy the home also. Any changes could be made but will take time and could be costly. Changes can also only be made, if the beneficiaries agree.

There was a time when lenders inserted clauses into mortgages that any time a sale or transfer of the deed occurred, full payment of the mortgage would be due. This changed, and today the mortgage is not due just because of a change in the deed. However, it may be a challenge to refinance, if the home is held in an irrevocable trust.

For most people, the reason to put a home into an irrevocable trust is to prevent the home from being lost to a creditor, including protecting the home’s equity from the cost of nursing home care, during life or after death. In some states, like Pennsylvania, the state will initiate a collection action against the estate to recover the amount paid for the deceased homeowner’s nursing care costs.

The move to put a home into an irrevocable trust can work as long as the trust remains intact, and the homeowner does not apply for financial assistance for nursing home care for at least five years from the date that the deed was transferred as recorded in the courthouse.

If long-term care needs arise before that time, putting the home into an irrevocable trust may not serve its intended purpose.

There are some tax benefits from an irrevocable trust. If the homeowner lives at least one year after the home is deeded to the trust, in some states no inheritance taxes will be due on the home. Check with a local estate planning attorney to learn what the rules are in your state.

If the trust is prepared by an experienced elder law attorney, it is likely that the capital gain on the sale of the home by the trust after the homeowner’s death will be taxed based on the home’s value at the time of sale, rather than the value at the time it is placed into the trust or on the day of death.

If the home is the only asset in the trust, the taxpayer ID of the trust will be the homeowner’s Social Security number, and no annual tax return is required. If, however, other assets, particularly income-producing assets, are placed in the trust, then the trust needs to have its own EIN (a federal tax identification number) and annual tax returns will need to be paid. Taxes on a trust are normally at a higher rate than individual income rates.

Your estate planning attorney will explain the numerous strategies that can be used to protect your assets and your home from the high cost of long-term care. There are many Medicaid compliant techniques and tools, depending upon the situation of the individual and the family.

Reference: The Sentinel (April 23, 2021) “Understanding your trust”

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A Trust can Protect An Inheritance

Edmond legacy and estate planning for Edmond's blended familiesIt’s always exciting to watch adult children build their lives and select spouses. However, even if we adore the person they love, it’s wise to prepare to protect our children, says a recent article titled “Worried about Your Child’s Inheritance If They Divorce? A Trust Can Be Your Answer” from Kiplinger.  As outlined in the article a trust can protect an inheritance.

After all, why would you want the assets and money that you accumulated over a lifetime to pass to any ex-spouse, if a divorce happens?

With the current federal estate tax exemptions still historically high (although that may change in the near future), setting up a trust to protect wealth from federal estate taxes isn’t the driving force in many estate plans. The bigger concern is how well your children will do, if and when they receive their inheritance.

Some people recognize that their children are simply not up to the task. They worry about potential divorces, or a spendthrift spouse. The answer is estate planning in general, and more specifically, a well-designed trust. By establishing a trust as part of an estate plan, these assets can be protected.

If an adult child receives an inheritance and commingles it with assets owned jointly with their spouse—like a joint bank account—depending upon the state where they live, the inheritance may become a marital asset and subject to marital property division, if the couple divorces.

If the inheritance remains in a trust account, or if the trust funds are used to pay for assets that are only owned in the child’s name, the inherited wealth can be protected. This permits the child to have assets as a financial cushion, if a divorce should happen.

Placing an inheritance in a trust is often done after a first divorce, when the family learns the hard way how combined assets are treated. Wiser still is to have a trust created when the child marries. In that way, there’s less of a learning curve (not to mention more assets to preserve).

Here are three typical situations:

Minor children. Children who are 18 or younger cannot inherit assets. However, when they reach the age of majority, they can. A sudden and large inheritance is best placed in the hands of a trustee, who can guide them to make smart decisions and has the ability to deny requests that may seem entirely reasonable to an 18-year-old, but ridiculous to a more mature adult.

Newlyweds. Most couples are divinely happy in the early years of a marriage. However, when life becomes more complicated, as it inevitably does, the marriage may be tested and might not work out. Setting up a trust after the couple has been together for five or ten years is an option.

Marriage moves into the middle years. After five or ten years, it’s likely you’ll have a clearer understanding of your child’s spouse and how their marriage is faring. If you have any doubts, talk with an estate planning attorney, and set up a trust for your child.

Estate plans should be reviewed every four or five years, as circumstances, relationships and tax laws change. A periodic review with your estate planning attorney allows you to ensure that your estate plan reflects your wishes.

Reference: Kiplinger (April 16, 2021) “Worried about Your Child’s Inheritance If They Divorce? A Trust Can Be Your Answer”

 

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