Some clients prefer not to put a revocable trust in place – they may have minimal assets, they find it too complex, they might find it too costly. But, if the primary estate planning document is a Will – the estate will go through probate court.
Is there a way to minimize this issue? Yes, although there are some limitations.
Real Estate. Your home if owned in one name alone at the time of death would need to go to Probate Court. The alternative is to transfer ownership of the real property into joint ownership (with the right of survivorship). In this way, upon the death of one co-owner, the property will transfer to the survivors by operation of law.
Is there a downside? If you transfer the property from Mom to Mom and children, joint tenants with the right of survivorship, the children have an ownership interest in the property. This means that their approval and signatures would be needed to sell the property. Additionally, if they have creditors, the property could become subject to their legal obligations.
The alternative? A “Lady Bird Deed”. In this type of deed, the property is transferred from Mom to Mom and children, joint tenants with the right of survivorship, however, Mom retains a life estate with the right to transfer the property and keep the proceeds. The allows for the transfer by operation of law from Mom to her children upon her death without the need for Probate. It also gives Mom the control of her property until she dies.
Financial Assets. Many banks and financial institutions will allow for a Transfer on Death (TOD). This is similar to beneficiary designations. In this way, the assets are transferred upon death to the named beneficiaries without the need for Probate.
Are there drawbacks? This may not present the flexibility that a Will or a Trust can provide for contingencies. In a Will or a Trust, the grantor can provide for distribution to individuals, but also provide for alternative beneficiaries in the event that the primary beneficiary fails to survive the grantor. This may not be possible with Transfer on Death provisions.
Will Still Needed. If an individual executes a Lady Bird Deed and puts Transfer on Death provisions for his or her assets, a Will is still a good idea. There are assets that can be missed, there can be unanticipated income to the individual after his or her death that will be in his or her name alone. Where is that income to go?
The Will becomes a safety net to assure that all of the assets are directed to the correct individuals.
Is a Lady Bird Deed and Transfer on Death provisions on your assets enough for your estate planning needs? It is important to discuss these issues with a professional to evaluate what is best for you and your estate. One size doesn’t fit all.
An often overlooked issue when people engage in estate planning is their pets. While technically they are personal property, most pet owners see their beloved four-legged friends as much more. They are a part of the family.
There are two times that the care of your pets come into play: upon your incapacity and upon your death.
How should you protect your pets upon your death? Unfortunately, a provision in a Will may not provide the correct amount of protection for your pet. You can leave a pet to a person upon your death, and you can provide money for its upkeep and care. There is no mechanism in a Will or in the probate process to assure that the individual(s) who accepts the pet will actually care for and provide for your animal in the manner you anticipated. In other words, you could leave your car to a friend but you cannot require that he or she keep it washed and tuned up.
In the probate process, once the estate is closed, all court supervision is ended. Additionally, Wills are often not probated for weeks or months after an individual has passed away. An animal cannot wait that long for care.
The better legal provision is a pet trust or a pet provision inside your revocable trust. A trust is ongoing and can have care provisions that lay out the manner you want your pet to be cared for. Additionally, a provision can be made for ongoing payments for the care, feeding, maintenance and medical needs of your pet.
Is it necessary to provide financial assistance to the individual who will be caring for your pet? While perhaps not legally required, it is the appropriate way to provide for your pet. The individual you select to care for your beloved pet may not expect to be compensated; however, responsible pet ownership involves the expenditure of money for veterinary bills, vaccinations, high quality food. If a friend or family member is willing to give his or her time and love to care for your pet, he or she should not be financially burdened as well.
How should you protect your pets during a time of incapacity? This is the most overlooked issue. Before an emergency arises, give serious
Once you have identified the individual(s) and have discussed the issue with them, write out your pet’s care plan. When are they fed? What are they fed? When are they exercised? Where do they sleep? Who is the vet that cares for them? What are special medical or behavioral issues? Is there medication to be given? These are essential to a smooth transition in the event of your disability.thought to the most likely individual(s) to care for your four-legged friends. Next, have a conversation with the individual(s). Don’t assume anything. You may believe that your children or neighbors would be happy to take in your pet, however, they may not be in a position to do so. Try to remember that just because you love your cat or dog, doesn’t mean that others feel the same way.
A pet is similar to a small child in that they are totally dependent upon you for their love and care and they cannot express preferences or concerns. Be a loving and responsible owner and be prepared.
Estate planning usually involves the planning by an individual for the distribution of wealth. Often overlooked is how to handle the inheritance once it is received.
First, it should be noted that inheritance money from an estate, trust, or life insurance is not income to the recipient. Therefore, there will be no income tax due upon it.
The exception to this rule is money received from IRA’s, 401K’s, annuities, and similar retirement accounts. The money is income to the beneficiary and tax is due. This is not because it is an inheritance but because no tax was ever paid on the money. Accordingly, whether the individual who earned the money withdraws it, or beneficiaries receive the money after his or her death – tax must be paid.
This is important to remember because more than one individual has received inheritance that at least in part was from a retirement plan, used the money for a very large purchase, and then has been left scrambling at tax time.
Next, in Michigan, a gift or inheritance to an individual is not marital property. In other words, if one partner receives an inheritance, he or she will not be forced to share that money in the event of a divorce. This is true so long as the beneficiary does not co-mingle the funds.
While this can create discord in a marriage, it is important for the beneficiary spouse to keep the money in his or her own name alone and not place it in joint ownership. Once the money is put into joint ownership, its character changes from “mine” to “ours”. The same is true if the money is used or a jointly owned asset, such as the down-payment for a home that is in joint ownership.
These are important concepts to remember when receiving an inheritance. It is also an important item to discuss with your children when you are preparing your estate plan. Let them know what the rules are so that they will wisely use the gifts that you leave them.
Some families are confused as to whether they should seek professional assistance upon the passing of a loved one. It may be a prudent move to have a consultation with an attorney and accountant to evaluate what you may need assistance with.
These are the legal and tax procedures that the lawyer will assist with in probating and administering the decedent’s estate.
- Review and analyze the provisions of the Trust and/or Will.
- Submit the Will to the Probate Court, if necessary.
- Arrange for termination of joint tenancy assets so that surviving joint tenants get the assets
- File petition for Probate and Appointment of Personal Representative of will, if appropriate
- Assist in the collection of insurance policies, wage claims and retirement benefits
- Guide and counsel the Personal Representative in administering the decedent’s estate:
- Opening Personal Representative bank account
- Locating assets
- Valuing the assets
- Preparation of death tax returns
- Payment of death taxes
- Payment of debts
- Financial and investment decisions
- Income tax and death tax decisions
- Sale or exchange of property
- After death tax planning
- Elections under tax laws
- Timing of distributions and closing estate
- Disclaimers by survivors and beneficiaries.
- Lawsuits on behalf of decedent
- Management of property
- Continuation or liquidation of business
- Prepare and file decedent’s final income tax returns
- Review with family members the impact of decedent’s death on their estate planning. Redraft wills, trusts, make gifts and review documents.
- Review duration of administration and probate, and explain all procedures to family members and personal representatives.
Most people are in a state of confusion when a death occurs. What should they do? First, second, and so on.
Things for the family to do:
- Evaluate the emotional effect of the death on the surviving spouse, children or close relatives.
- If necessary, decide on procedures to care for dependent children and surviving spouse, if incapacitated.
- Evaluate the need for security at decedent’s residence and personal property.
- Cancel home deliveries
- Notify post office to hold mail.
- Decide on funeral arrangements
- Contact clergy
- Discuss donation of bodily organs to an organ bank.
- Arrange for mortuary and burial or cremation.
- Prepare obituary for publication.
- Consult the family lawyer or the lawyer the family wants to retain as either a legal counselor or as probate lawyer to handle the estate’s legal and tax matters.
- Evaluate the survivor’s cash needs for the next three (3) months.
- Evaluate the existence of and need to care for or sell perishable property.
- Keep records of all payments for funeral and other expenses
- Locate original Will and/ or Trust.
- Locate safe-deposit box.
- Locate life insurance policies.
- Meet with the lawyer you have selected
- Go to the safe-deposit box with the key. At least two bank officers will be at the box opening.
- Open the box
- List all contents in detail on letter size paper or on a form provided by the bank.
- Have all personals sign at the bottom of the list and date.
- Put contracts back, except for will, life insurance policies and Trust.
- If there is any danger of a Will contest or a conflict of interest between personal representative, family members or beneficiaries, do not go to the safe-deposit box without an attorney.
- Social security benefits
- Life insurance collection
- Union death benefits
- Veterans burial allowance
- Veterans benefits
- Employee payroll benefits including:
- Accrued vacation pay
- Employee death benefit
- Final wages
- Ira Accounts
- Retirement plan death benefits
- Deferred compensation
- Medical reimbursements to help pay for hospital and doctor bills.
- Refunds on insurance or canceled subscriptions or any refunds.
- Check for Keogh plan/ IRA accounts
- Meet with C.P.A. as to tax and financial planning issues
- Get death certificates, usually from funeral director. Depending on the situation, may need as many as 10 – 12.
- Meet with life insurance agent to collect proceeds or consider payment options.
- Notify liability insurance agent about fire, theft and public liability insurance on decedent’s assets.
- Do not pay any of decedent’s debts until the lawyer you have selected discusses them with family members or with the duly appointed personal representative.
Your child is months away from his or her 18th birthday, what should you as a parent do?
Just as you wouldn’t have allowed them to drive the family car without taking driver’s education, there are some important steps that your son or daughter should take when that birthday arrives.
In this day and age, 18 year olds are most often still dependent upon their parents – they live at home (often for years), they remain on your medical insurance, you still support them. In the eyes of the law, however, they are adults. They need to understand the responsibilities that come with this new status.
Financial matters are critical. While they can now sign contracts, obtain loans, open checking and savings accounts without your authorization, they are now solely responsible for the consequences. Without specific authorization, you will be unable to negotiate for them with creditors, banks or insurance companies. If your son or daughter is a student who lives away from home, this can make assistance from you difficult.
The solution is for your son or daughter to sign a Durable Power of Attorney naming you as his or her Agent. With this document in place, you will be able to assist with negotiations with financial institutions, insurance companies and creditors.
Medical matters are another area of concern. If your son or daughter were ill or injured after his or her 18th birthday, and if unable to communicate due to the illness or injury, you would not be legally permitted to intervene and direct the medical care. In fact, doctors and medical personnel would not be permitted to discuss the medical status of your loved one. You would be forced to go to Probate Court to obtain a Guardianship in order to have access to his or her medical information or direct medical care.
The solution is for your son or daughter to sign a Designation of Patient Advocate or Durable Power of Attorney for Health Care. This would legally enable you to assist him or her in a time of need.
These two documents can help you to assist your son or daughter in the early years of adulthood when your help is still sorely needed.
Most young families don’t do estate planning. They believe that since they are young and healthy they don’t need to. Or, they think they can’t affording it.
Unfortunately, illness and death can strike the young as well as the old. While it is less common for a young person to have such a tragedy, it can happen. How would this affect your family? Your spouse? Your young children?
Estate planning does not have to be expensive. The young family can start with basic estate planning documents: Wills, Durable Power of Attorneys and Patient Advocate Designations. It is a good time to look at affordable term insurance. As your family situation and wealth change, you can update and/or upgrade your estate plan to meet your needs.
What you will need to consider:
- Who will be your Personal Representative (Executor)? This individual will be responsible for handling all of your final financial affairs. He or she should be trustworthy, capable and willing to take on this responsibility. Also, if you are naming your spouse, you need a back-up person. We travel together and the same accident could affect both of you.
- Who will be the Guardian for your Children? This is the most difficult question that parents confront and what often prevents them from finishing an estate plan. If you don’t appoint someone, the Court would be forced to do it in your absence, without your input and without knowing much about your life or your children.
- How should your assets be distributed and/or used? If your spouse survives, this is not an issue; however, if both parents die, the children need to be provided for.
- Who would be the Conservator for the Children? While the Guardian is the individual who raise the children, someone needs to manage the assets for them. This might not be the same individual. It must be someone who is financially savvy and willing to do this for a number of years.
- Do you need insurance? Do you have life insurance through your employer(s)? Would it be enough? If one parent is a “stay-at-home” parent, insurance is definitely needed. While there is no salary to replace, there will be significant costs to take over his or her responsibilities.
If you are a young family, with children, it is important to plan for the “what if”. A basic estate plan can set your mind at ease by setting up the financial framework and individuals to care for your family if you are not there.
Many people think they do not need any estate planning as they have little to pass on – you may disagree after you read this – it actually happened.
Mary had two daughters – Sarah and Anne. Anne got married and had two sons – unfortunately, she died at the age of 40. Without her, the boys grew apart from their grandmother Mary and their aunt Sarah.
Mary was widowed young. Her daughter Sarah undertook her care – living most of her life in the home of her mother – caring for her. Sarah worked at a job early on – but as her mother progressed into her 80′s she was ill and needed full time care – Sarah didn’t mind – she devoted herself to her mother’s care.
Mary owned the home that she and her husband had purchased some 60 years ago and that Sarah had grown up in – while in a declining condition – it was her major asset. She had a small bank account with a few thousand dollars.
Mary never thought about estate planning – she assumed that when she passed away, Sarah would at least get the house and the few thousand dollars that were left.
I met Sarah after Mary’s death – she needed to open a probate estate so that she could access the money in her mother’s savings account to pay for the funeral and so that she could change the deed to her home.
Since her mother did not have a will and since the title to the home was in Mary’s name alone, the estate could only pass according to the intestate laws of Michigan. Sadly, while Anne had passed away, her sons were entitled to her share of her mother’s estate. This meant that Sarah would have to split the money and the home with her two nephews unless they would agree otherwise. She was shocked as she had devoted her life to her mother’s care and had not made provisions for herself.
Upon contacting her two nephews, who she did not know that well, she found that as young men in their 20′s, they were delighted to learn that they were to receive a portion of their grandmother’s estate. They were not interested in giving up this inheritance so that their aunt, who they had very little contact with over the past years, could have the house. They were unconcerned that she had cared for their grandmother, nor that this was all she had.
Sarah was forced to sell the house and split the proceeds and the bank account with her two nephews.
How could this have been prevented?
Clearly, a Will that gave all Mary had to her daughter Sarah would have been ideal. But there are other short-cuts that could have been taken that would have been inexpensive and effective.
Mary could have listed her daughter on her bank account as a transfer on death beneficiary. This costs nothing to do and is common at most banks.
Mary could have executed and recorded a Quit Claim Deed that transferred her home from herself to herself and Sarah. Then upon Mary’s death the home would have been Sarah’s by operation of law. The preparation and recording of the deed would have cost less than $150.
It is important for people engaged in planning for their senior years to understand the difference in the types of long-term care that are needed or are available.
Most think of long term care as nursing home care. In some instances this is true. This type of care is Skilled Nursing Home Care. It means that the individual is unable to meet and care for certain life activities and skills. This is the type of care that is covered by long term care insurance and once an individual qualifies by Medicaid.
There is, however, often a gap between the elderly individual who is able to reside in his or her home independently and the need for skilled nursing care. This is assisted care. In such a circumstance, the individual moves into an assisted living situation which may be similar to an apartment like setting. Certain of his or her needs are taken care of, however, he or she is relatively independent.
This type of living is NOT covered by insurance. Neither long term care insurance nor Medicaid covers this type of care.
This distinction is very important. It is a circumstance that should be carefully discussed by the entire family when the time comes for planning. If an individual is no longer able to live independently but is not eligible for long term nursing care, where is he or she to live? Most importantly, if the assets and income of the individual are limited, who will pay for this care?
This is a gap that catches many people by surprise and unaware.
I remember paying my monthly bills before the internet. I would once a month, gather the stack of bills, write out a check for each one, enter it into my check register, put the check and the payment stub into the envelope, put on a stamp and mail. Sometimes, this took a couple of hours.
Now, most bills are automatically debited from my checking account or are charged to a credit account. For the few that do not have this feature, I go on line to the creditor, click a “pay amount due” button and the payment is made. This now takes a few minutes per month.
This is great! But not if you become disabled or die without leaving a roadmap.
How would your family know which bills are automatically debited? and from which account?
How would they know if the bill is automatically charged to a credit card? and to which one?
How would they know which bills need to be paid by going to a website? There is no notification received in the mail.
Once they go to the website, how would they access your account information? What is the user name? the password?
Where are your bank accounts? What are the user names and passwords for those?
While this is a great convenience for those of us who love the on-line ease of bill paying, this is also a nightmare for agents under a Durable Power of Attorney or a Personal Representative or Trustee.
For this reason, it is vitally important that you leave a listing of all accounts, including the name of the institution, its website address, your account number(s), the user name and passwords. Also, you must list whether the billing is automatically paid, and from what account. If a bill must be manually paid, that must be listed as well.
These lists must be kept up to date when you change your passwords.
Finally, if you have a password to get onto your laptop or desk computer, that needs to be written down as well. Put this information in a secure place, but tell your agent(s) and family where the information is so that it can be accessed in the event of need.
Leave a roadmap.