Whether you have a new child or grandchild, or they are a little older, it is probably a good time to think about options available for your children’s or grandchildren’s college education.
The 529 Plan is a college funding plan, sponsored by the state. It permits you to make cash contributions to this investment account and the earnings are not taxed federally so long as the withdrawal is made for qualified higher education expenses. Those would include tuition, books, supplies, computer equipment, and some room and board.
You may make gifts of up to $15,000 per recipient (or $30,000 for married couples) per year without triggering gift taxes without using any of your lifetime exemption. Additionally, 529 Plans permit you to “bunch” five (5) years’ worth of annual gifts into a single year. Therefore, you may gift $75,000 per recipient ($150,000 for married couples) in the first year. Once you do this, you may not make another contribution to the plan until year #6.
There are a few disadvantages. One is that the contribution must be cash. You cannot gift stocks or real estate. Additionally, the money may be counted if the student is seeking financial aid.
If the child or grandchild decides to forego college, the beneficiary can be changed to another child or grandchild.
While a 529 Plan may not be ideal for everyone, it merits a closer look when you are planning for your child or grandchild’s future.
You have met with your financial advisor and determined that you are ready economically to retire. The finances are in place. You are already planning how to spend your newly created free time.
Have you updated all of your estate planning documents and made certain that all of your legal matters are ready for this next phase of your life?
I know that many people are very private about their financial and personal information. I urge you to share information with your children even if it feels uncomfortable. They will be able to assist you in getting all your matters organized. In so doing, they will then be able to help you in the future when you need that help.
Make a listing of all accounts, where they are held. Check to see if there are the appropriate transfer on death or beneficiary designations on the accounts. Don’t assume that you did it. Check!
This might be a good time to streamline your finances – make it easy on yourself. Consolidate accounts to one bank and one financial adviser. This will make administration easier and it will give you a better idea of what you own.
This is a good time to streamline bill paying. Set up automatic bill paying where possible. You can still check your statements monthly, but it will eliminate the need to keep track of all the due dates.
If you have insurance, this is the time to review. Are the policies appropriate? Are you over or under insured? Are the correct beneficiaries on each policy?
If you are uncertain, set up a meeting with your insurance advisor to review the policies.
When was the last time you looked at your estate planning documents? Review all of them. Are the choices you made when you executed the documents the ones that you want today? Maybe things have changed.
Do you have up to date Durable Power of Attorneys and Patient Advocate Designations? These are so important. Without them, your family may have to go to the Probate Court to obtain a Guardianship or Conservatorship in the case of an emergency. This takes time and money.
Is your Will or Trust up to date? Take a look. Are the distributions correct? Are the agents (Personal Representative or Trustee) appropriate?
What is your plan as you age? Is your current living situation working? What would you want to do if you became ill and could not live independently?
It is important to discuss this with your family members. They should be informed as to your wishes. Without that knowledge, they cannot assist you in the way you would want.
Is there money to pay for an illness contingency? You need a plan.
Make a listing of all your doctors, their addresses and phone numbers. Also list what they are treating you for.
Make a listing of your medications and the dosage. These are important facts your family may need to pass on in the case of an emergency hospitalization.
Make copies of your health care cards.
Discuss with your family what your treatment wishes are – today while you are healthy. Let them know what you want and what you do not want. It simply is not fair to leave them guessing.
By taking the time to organize this information and share it with trusted family members, you will be positioning yourself for a steady future.
This is a question that I get quite often. There is no correct answer.
First, your assets are your business. You have no obligation to tell your children how you are spending your money, nor to tell them how you plan on distributing those assets at your death.
Next, legally, you do not have any requirement to give your assets to your children upon your death. You cannot totally disinherit your spouse, however, you can leave your children either individually or collectively nothing. It is not their inheritance until you have passed away.
This leads to the issue of what to tell your children. If you are going to give them copies of your estate plan, then you need to continue to do this as you update the plan. Children who believe that they are getting a certain percentage of an estate because they saw a Will or a Trust years ago will be difficult and angry if the plan was changed, they did not see the changes, and they get less upon the distribution of the estate. This is the type of situation that leads to litigation. Therefore, if you distribute copies of your Will or Trust to your children, make sure that you keep them updated as you make changes.
If you choose not to give them copies of your estate planning documents, what do you tell them? Simply inform them that you have had an estate plan prepared and where you have secured the original of the Will or the Trust.
If you are planning on giving some of your estate to charity or to friends, you might want to mention this fact to your children. Again, surprises are the situations that create anger and litigation. If your children know that you will be giving some of your estate to charities or friends, they may not like it, but they will learn to accept it.
Clients often ask this question. Certainly, you should look at the documents at least every five years. As you read through your trust or will, durable power of attorney and patient advocate designation, you should ask yourself the following questions. Has anything changed? Do I still want to appoint the same people? Are these the people that I want to give my estate to?
Also, you should review all of your estate planning documents when any of the following happens:
Most young people do not think about executing Wills. They usually owe more than they own. This can especially be true for the young married couple.
When they have a child of their own, it is time for some thoughtful consideration of their child's future. If something happened to them, who would care for their child.
Tom and Nancy were married and had a child, Max. Nancy had been raised in a very strict family. Her parents were affluent. She had a difficult relationship with them – they had not approved of her selection of Tom as a husband, nor of her choice of a profession – social work. Nancy did not look upon her childhood fondly – she felt that it had been too strict, her parents too judgmental and controlling.
Tom's family was large and easy going. He had a great childhood and a really close relationship with his brothers and sisters and his parents. Although they live in another state, Tom and Nancy see them frequently and check in with them weekly on the telephone. Tom's choice to be a teacher made his parents proud.
Tom and Nancy did not execute a Will – they had little – a new home with a mortgage, cars with loans, little in the bank. If asked, both Tom and Nancy would have desired that Max live with Tom's parents or one of his siblings if anything were to happen to them. This was not written down. Tom and Nancy were killed in an automobile accident when Max was only five years old.
Since they lived locally, Nancy's parents immediately took Max into their care. Additionally, they filed Probate proceedings for Nancy's estate and for Guardianship of Max. While Tom's parents also requested to be considered for Guardianship of Max, they were out of state and had few monetary resources. Issues for the court to consider included whether it would be good for Max to be removed from the school and the community that he lived in to be taken across the country when there were relatives here ready and willing to raise him.
How could this have been avoided?
Tom and Nancy should have executed simple Wills. While a young couple may not have many monetary assets to worry about, their most important "asset" – their son – was at risk. A Will sets forth who a couple wants to be the guardian and the conservator of their children in the event of their death. While most never face this situation – it does happen. It is worth taking the time to make provisions for children in the event of their parents' death.
When you are establishing a Last Will and Testament – one of the issues that you confront is the selection of a Personal Representative. If you are part of a couple, you will usually select one another. Yet, you really need to select an alternative to serve if the person you have chosen is not able to serve.
While it may seem logical to select a family member to serve in this capacity – his or her expertise will determine how quickly and/or smoothly the process is completed. If the individual selected has limited bookkeeping or money management skills or is very busy – the process could be slowed down. Additionally, the selection of one family member could place him or her in the middle of a family disagreement.
If the assets of the estate are depleted without leaving sufficient funds to pay the inventory fee or the estate taxes, the Personal Representative could be personally liable.
It should be remembered that this is less of an honor and more of a job than most people anticipate. It is time consuming and it is an enormous responsibility.
The qualities of a good Personal Representative include:
· Trustworthy – this individual will be entrusted with property and cash assets
· Fair – he or she should not show favoritism to one beneficiary over another
· Common sense – this is a must – the individual should show practical common sense for getting the job done
· Strong and/or tough – this individual may be placed in the center of debates and arguments concerning the distribution of your estate and he or she must be able to make the hard decision and stick with it.
Some individuals hoping to avoid the probate court process make their relatives joint tenants upon their assets. I see this commonly for an elderly parent who is single and wishing to avoid probate. He or she will make one child joint on a checking account, another on a savings account and all the children joint on the house.
Will this work? It can and does work effectively much of the time; however, you should be aware of the risks.
For real property such as your home, you are giving away a valuable property right by making someone a joint tenant. While you are doing this for estate planning purposes, that is not the way the law sees it. That joint tenant now has as much right to the property as you do – the right to use it, the right to encumber it.
Most often the issue will come up with a home in an attractive location such as lakefront property. Having placed the property in joint tenancy with children, the parent is now required to ask their permission to sell the property if they no longer feel that they can care for the property. If these children were counting on the fact that this property would be available for their use into the future, they may refuse to sign a purchase agreement or a deed.
Also of concern for jointly held assets, whether cash or real property, is the fact that the joint tenant child could have creditors – perhaps he or she has a business that goes awry or is involved in an accident that is not entirely covered by insurance. The creditors of that child will seek payment of the judgment from your money.
While the Joint Tenant method of estate planning may save you money today – it could cost you valuable assets in the future.
At the conclusion of a divorce proceeding, both parties are sick of the legal system, lawyers and legal fees. This is understandable. None the less, it is important to address a change in your estate planning documents immediately after the divorce is final.
During your marriage – you had joint ownership of many assets which has now been dissolved. You named one another as the Personal Representative of your estate upon your death, the agent under your Durable Power of Attorney and the Patient Advocate under your Designation of Patient Advocate (Medical Power of Attorney).
Do you really want your ex-spouse to serve in these capacities?
It is time to select new agents for each of these estate planning documents. You will want your health care and finances to be controlled by someone else in the event of your incapacity. As a now single individual, there is no one that has any authority to assist with your medical issues unless you draft and sign a Designation of Patient Advocate (Medical Power of Attorney).
For individuals with minor children, there are post-divorce estate planning concerns as well. You cannot name a third party as the guardian of your child upon your death instead of the remaining parent. Your ex-spouse will have the first opportunity to raise your child(ren) if you die prior to their 18th birthday unless he/she is unavailable, doesn't chose to do it, or is totally unsuitable due to prior abuse or serious criminal activity.
You can, however, name a conservator for your children. This individual would be responsible for the money you leave for the care of these children. Unless you would like your ex-spouse to control the money, it is important to name someone who would be willing to assume this duty and would do it honestly and carefully.
During your divorce, you became independent and you negotiated for your fair share. It is important that you assure that your fair share is passed on to those you choose.
I’m a do it yourselfer. This is okay when you are painting the bathroom or planting bushes. I wouldn’t try to re-roof my house or install a new driveway.
There are times to do it yourself, and there are times to get professional assistance. Without that assistance, a disaster can result. This is penny wise and pound foolish.
The most common disaster involves the desire by an elderly parent to avoid probate. Accordingly, he or she transfers real estate to the children during his or her lifetime. Did this avoid probate? Yes. But it creates a disastrous capital gains nightmare for the children.
Assume that dad purchased a home long ago for $50,000. Today, it is worth $350,000.
If the property were transferred to the children at the death of dad, they would take the property at the date of death value of $350,000. Therefore, if they were to sell it soon afterward, there would be no capital gain on the sale of the home.
If, however, dad transfers the property to the children prior to his death, to avoid probate, they will receive the property with a basis of dad’s $50,000 purchase price. If they sell shortly after dad’s death for $350,000, they will have $310,000 of capital gain, and will have to pay income tax upon that gain.
A little bit of professional advice could have saved these beneficiaries a bundle.
Another common mistake when trying to place the property into joint names is to forget to state, “joint tenants with rights of survivorship.” Without this language, it is tenants in common and when dad dies, his estate still owns an interest in the property. The property will have to go through the probate court process with all the costs associated with it. Again, a little advice could save thousands.
This is a topic that causes family feuds. Can you charge your parents if they are living in your home? This is like walking across a field that is full of land mines. There are two sides to every coin.
First, why are you moving mom or dad in with you and where are you moving them from? Do all your siblings know? This is critical. If you are making this decision by yourself, without input from your siblings, you will be criticized.
Are you moving them from assisted living to save money? Is this because they will run out of money or because you are trying to preserve your inheritance? This is an important distinction.
Assuming you have informed the rest of the family that you are moving mom or dad in with you, what can you charge for?
Can you charge to remodel parts of your home for them? It depends on what you are remodeling. Are you changing a bathroom so that it accommodates a wheelchair? or are you adding on that extra bedroom and bathroom that you always wanted? Are you putting a ramp on so that there is wheelchair access or are you finally paving the driveway after 10 years? The remodeling must be for their benefit, not yours.
What about charging for room and board? Isn't it cheaper for them to live with you at a reduced rate than to pay for assisted living? And, aren't they eating your food and using your electricity?
There are two sides to this coin. From the perspective of the family member with whom the parent is residing, there is an increase in cost for food and utilities. Additionally, the family member is "on duty" 24/7. They would pay so much more at assisted living and your time is valuable. After all, aren't these other siblings miles away and not assisting with this what so ever?
From the perspective of the other siblings, it may not make as much sense. They may look at you charging mom or dad room and board and say "who does that?" – "who charges their parent for their food?" They may also see this as your attempt to get a larger piece of the inheritance pie by getting paid up front.
How do you resolve this? Conversation. Talk this over, in advance, with all other family members. Discuss the pros and cons. Get input from everyone and put all the issues on the table. While everyone may not agree in the end, they will not feel they were blind-sided and cheated.
Once everyone is on-board, execute a care givers agreement. This will spell out exactly what you will be charging for and will establish that it is agreed upon by your parent(s) and siblings. This is a must to minimize arguments later on.