The estate tax is gone for all but the wealthy as the estate tax exemption has increased to beyond $11.4 Million dollars for each of us.
You may not be wealthy. You may not have businesses or multi-million-dollar assets to dispose of.
Therefore, do you really need to consider a trust?
First, it will avoid probate court proceedings and make the assets immediately available to the beneficiaries.
Next, it can assure that bills are paid, and financial matters are handled appropriately during an individual’s lifetime if he/she becomes disabled. More and more individuals are suffering from dementia or Alzheimer’s.
If you are in a second marriage situation, it may be critical. A Will cannot allow for the care of your spouse until his/her death and then the balance to your own children. This can only be done within the provisions of a trust.
If you have children under the age of 30, or if they are older but are not financially savvy, it may be very important. This will permit the distribution of assets over time and possibly for specific purposes, eliminating the risk of the money being wasted.
If you have a child with special needs who is on government benefits, it is absolutely necessary. If such child receives a distribution of assets, it will disqualify him/her from the government benefits until the inheritance is exhausted.
While Trusts are more expensive to establish, it is better not to be penny wise and pound foolish.
The rules for IRA distributions can be confusing. Many errors are made by beneficiaries after the death of the IRA owner. Here are a few to watch out for.
Owner’s Last RMD. If the decedent owner was over the age of 70 ½ and had not taken the RMD prior to death, the designated beneficiaries must take the distribution. The income tax will be reportable to each of the beneficiaries on a pro-rata basis.
RMD Failed Distribution: There is a 50% penalty for failing to take an RMD.
Roth IRAs: The owner and spouse are not required to take RMDs. Beneficiaries must take RMDs. If they fail, there will be a 50% penalty.
Rollovers: These are only available to the surviving spouse. There are no roll overs for beneficiaries.
Inherited IRAs: The beneficiaries cannot contribute to an inherited IRA. Inherited IRAs from different parents cannot be combined. An inherited IRA cannot be mixed with other retirement assets in an account.
Inherited IRAs are not Creditor Protected: While there is protection for IRAs for the owner from creditors, there is not protection for inherited IRAs. Therefore, inherited IRAs are available to the beneficiary’s creditors.
Probate Court cannot fix IRA problems: The IRS will not recognize state court orders that alter or fix IRA problems.
The rules are complex. If you are inheriting an IRA, get advice. This is not a good subject to do-it-yourself.
When choosing a Trustee, individuals often look to family members or friends. There are many reasons for this. They are the ones who know what the grantor wants. Also, they will probably not charge for their services.
Do they have the right skills? It is not a bargain to appoint a family member or friend because they will not charge, if they create a mess when handling the trust.
Even if they are skilled, are they the right person? Will it cause resentments with other family members? Do they have a conflict of interest? If the trust’s primary intent is to care for the current beneficiaries (children?), and then distribute the remaining residue to beneficiaries of whom the Trustee is one, will he/she knowingly or unconsciously refuse to make reasonable distributions to preserve money?
Or, alternatively, will the family member be too nice? Will they be able to stand up to the pressure of the primary beneficiaries’ requests for funds?
It can work best when there is only one child. If he/she is the Trustee, it makes the most sense.
If there are multiple siblings, naming them as co-trustees can work, if they can work together. If not, it can be a mess. It can become unworkable.
For these reasons, Grantors will often name a Corporate Trustee (bank or Trust Company) to administer the trust.
The downsides are the fiduciary fees that they charge and their tendency to be conservative when it comes to investments.
The upsides are many. The Corporate Trustee will easily handle unreasonable beneficiaries. They will also go on forever so there is no concern with the Trustee dying.
There is no “right” answer for choosing a Trustee. Family dynamics and finances may direct the choice. It is important for the Grantor to consider all of these issues without automatically defaulting to the oldest son or daughter.
There may not be a more sensitive topic than this.
Some parents are open about finances and decision making; others however are from the school of privacy. They do not discuss their finances with anyone and that includes their children.
None the less, children feel a duty to assist their parents as they are aging. Grilling them about their bank balances will not achieve the desired success. Another approach may be to offer guidance.
Explain first that in the event of a medical emergency, how important it would be for you to know where to access their information. Could they perhaps list the names and addresses of their bank accounts and financial institutions? Additionally, could they list their bill that are regularly paid such as utilities, mortgages, medical insurance, etc? Explain that this would assist you in helping them in the event of a hospitalization.
If your parents own a safety deposit box, it is vitally important that an additional person be on the signature card. Without that, the family would be unable to access important documents.
A good way to approach this might be to let them know that you have recently done this and wonder if they have also done the same.
It might be a good time to suggest that streamlining might make life easier for them and for their family. If they have multiple accounts scattered all over town, it might be time to consolidate those accounts at one financial institution.
This might be the time to ask if they have updated Wills, Durable Power of Attorneys and Patient Advocate Designations. Try to explain the importance of these documents, stressing that you are not attempting to influence their decision making, take away their power or nose into their business.
While you are at their home, try to notice if things are all running smoothly. Are there piles of unanswered mail and bills?
Discuss with your parents the scams and frauds that are common today. Millions of older Americans are victims of these scams. Explain that the IRS does not call people on the phone. People asking for social security numbers or bank account information cannot be trusted. Be careful not to lecture. Explain that everyone is vulnerable to these scams, not just seniors.
If your parents do name you on their Durable Power of Attorney or place your name as a signer on their checking account, remember that it is not your money. You must keep accurate records as if you were a disinterested third party (think bank). Never co-mingle money. Never borrow money from their accounts.
This is an area loaded with land mines. Tread carefully and be patient.
When doing estate planning, one issue often overlooked is the care of our beloved pets. It’s not something that is on the typical information questionnaire that clients fill out at their estate planning attorney’s office. If your consultation with counsel doesn’t touch on the issue of your pet, it make end up overlooked.
Many of us feel that our beloved pets are a member of our family. They depend on us.
So, what would happen to our furry friends waiting at our homes if something happens to us. While we would like to think that our family members would step in and take care of our friend for his or her lifetime, it may be best not to leave it to chance.
Family members may not want to take in a pet, or additional pets. Annually many animals end up at animal shelters when the owner passes away. If you love your friend, this is not the future you want for him or her.
Reaching out from the grave to protect pets used to be for eccentric rich people like Leona Helmsley who famously left $12 million to her pampered pooch Trouble.
Now ordinary animal lovers are taking action to care for their furry loved ones. Funds for Muffin’s lifetime care may be as small as $5,000, or be much more.
The idea of leaving a substantial sum for a pet may not appeal to the other members of the family, especially if they think that it is money they should rightfully be inheriting. Legal battles may be fought when parents leave substantial money to their pets instead of the money going to their children. Accordingly, it may be better not to tell your kids in advance because you will endure an endless stream of complaining and lobbying.
To avoid court challenges, or to avoid a judge from altering the terms of your estate plan, it is best to keep the amount left for your pets modest.
In setting the amount, estimate how much your furry friend will require by adding up the annual expenses for food, vet visits, grooming and toys. Multiply that by your pet’s life expectancy. Then adjust. Be realistic and consider what a prudent person would spend on their pets.
This amount can be left by Will or by Trust to the individual that will care for the pet. If it is by your Will, you will need to update your Will frequently to take into account the changing amount that will be required. Alternatively, Pet Trusts are legal arrangements that set money aside for a pet’s care and designate a trustee to fulfill an owner’s wishes. In this way, you may leave an annual amount to be distributed during the lifetime of the pet.
You may want to invest in a life insurance policy to fund this expense. Such a policy will assure your children that the amount of their inheritance is not being diminished in order to take care of your cat or dog.
You will also name a guardian or custodian for your pets when you are no longer present to care for them. It goes without saying that you must have a realistic conversation with the proposed pet guardian to assure that he or she is genuinely interested in caring for your pets.
Clients are always interested in how to transfer their property to their heirs without the need to go through probate court at the time of their death. Another goal is to assure that the property taxes on long held real property do not uncap upon the transfer to the next generation.
For a period of time, we have been unable to accomplish both of these goals using a Lady Bird or enhanced life estate deed. This is due to the fact that while the amendments to the property tax laws had provided for transfers by jointly held property and transfers by a revocable trust to pass to the next generation without uncapping the taxes, it did not provide for the same result specifically for enhanced life estate deeds. Because of this, the state of Michigan and all local assessors would uncap property if held under a Lady Bird or enhanced life estate deed when the original owners died.
The law has now been amended to include Lady Bird or enhanced life estate deeds. The application of the law is retroactive to December 31, 2014. Therefore, these deeds are now effective for a transfer to the next generation upon the death of the original owners who die on or after January 1, 2015. The property will transfer without the need for probate and the property taxes will not uncap.
This is great news for clients who are not interested in a trust and have worked out most of their post-death transfers using beneficiary designations and transfers on death. They now can take advantage of a Lady Bird Deed to transfer their property to their children leaving little or nothing to run through the probate process.
The holidays are upon us. Most people are planning for the Christmas holidays and nothing could be further from their mind than estate planning and legal affairs.
Many of our snowbirds have already flown south for the winter; however, there are a number that stay here until the holidays are over. If so, don’t wait until the Monday before you are ready to leave to address those estate planning issues that were on your mind last month.
If you are taking copies of your documents with you, do you know where they are? Now is the time to look.
When you find them, take a quick look at them to see if they are accurate. If changes need to be made, now is the time to call your attorney for an appointment. There is still plenty of time to make amendments to your documents.
Scrambling at the last minute is not pleasant for anyone. A little planning now will assure that you are all ready to fly south after the holidays.
the school year. If you have ever had kids, you know that this is really the beginning of the “new” year.
Summer fun is over for the most part, we are getting ready for autumn – closing up the garden, putting things away. The holiday season is still a distance off.
This is the time to pull out the “to do” list. What did you mean to get done during summer – but the summer fun got in the way? What is still sitting there – nagging at you. Things that you know you should get to – but they never seem like front burner issues. It is time to get down to business before you are once again too busy and too full of excuses to tackle these nagging, yet important issues.
One of these is estate planning and financial planning. It is time to make an appointment with your financial planner if you have one – and if you don’t you need to find one. It is also time to make an appointment with an estate planning attorney.
If you don’t have an estate plan – it’s time to get one done – young or old, rich or poor, healthy or sick. You need a plan! It might be a very simple plan – or it may be quite complex involving trusts. In either case, this is the time to get down to business and get started. In this way, you will have it completed in plenty of time to get ready for the holidays. If you don’t, it will continue to nag at you as an undone to do.
What do you need to know to get started? The hardest part is deciding who. Who will be your Personal Representative or Trustee? Who will be your Agent under your Durable Power of Attorney? Who will be your Patient Advocate under your Durable Power for Health Care?
Once that is decided, the rest will fall into place. Your estate planning attorney will give you options and various tools to accomplish your goals and purposes.
If you don’t get started – you will never be done. No more excuses! Make an appointment to get started today.
Many individuals never get around to doing their estate planning – because they are waiting for the “right time”.
For many, this is a magic age – they think they need to be over 50 or over 60 years old to need an estate plan. Others wait even longer.
So what is the right time?
For those in their 60’s through their 70’s
Now is the right time. You have acquired property and wealth. While you are hoping for longevity, it is possible that you will not live into your 80’s and 90’s. Accidental injury leading to death can take any of us at any time. A serious and severe illness could strike and with the urgency of the medical issues you may not have the time or energy to thoughtfully devote to planning.
It is also more important than ever to have Powers of Attorney in place to assist you if you are disabled and unable to handle your business or financial affairs or your medical affairs.
For those in their 50’s
Now is the right time. Your children may be over 18 but are not wise enough to handle the inheritance of your assets. You are now accumulating wealth and property – hoping to add to that wealth. While it is less likely that you will pass away, as with any age, there is no magic ball to tell us what our future brings. Longevity? or illness and disability? or accidental death?
For those in their 30’ and 40’s
Now is the right time. Your children are minors. It is important to make the difficult decision concerning their care if you are not there to raise them. Who would they live with? Who would raise them according to your values? Who would manage the money that you leave behind for their benefit?
How your children would be cared for is a far more important issue than who gets the family piano. This is not an inevitability, and somewhat unlikely. However, it is not unheard of for minor children to lose both parents. Take the time to plan for their future.
For those in their 20’s
Now is the right time. You think that you own nothing but debt. You may not have any children. So why do any planning?
It is at a minimum important for you to have Durable Power of Attorneys for financial and legal matters as well as for medical matters. If you are single, who would care for these matters if you were unable to do so? While your parents may want to assist, they could not legally do so without these important documents in place.
So, when is the right time to do estate planning? Now is the right time, young or old. Get this item off of your bucket list and achieve a peace of mind knowing that you have tied up the loose ends and planned for your family.
For many with pets – dog and cats – consideration of who gets our beloved furry friends has become an important estate planning issue. Who will care when you’re not there?
It is important to plan for a home and care for these pets. Selecting a kind and caring individual that you trust is critical to the continued well-being of your dog or cat. Yet, this is less complex than larger animals – after all, the animal can be taken into a home and cared for becoming part of a new family. The amount to set aside for food, care and veterinarian fees is fairly modest.
This becomes more complex for horse owners. While you may love your horse as much as the dog or cat owner loves their animals, it isn’t as easy as taking the animal into another home. Horses require property and a constant, daily care that is more complex and time consuming than feeding a cat.
Have you planned for a disability? If you are temporarily disabled and in the hospital, do you have someone who will step in immediately to care for your equine friends? A well-meaning friend that is not familiar with the care of horses may not understand what is required. After all, this involves more than putting out a bowl of kibble once a day.
Are there funds available to pay for supplies, food, and vet bills that can immediately be accessed? Have you appointed an individual to immediately step in and take over this financial component?
Upon your death, how will your horse be cared for? Have you discussed this issue with the individual(s) that you would select to care for the horse? Are they willing and able to assume this responsibility? A large dog may only live for 10 years while a horse may live to 20 or 25 years.
How will the financial responsibility be taken care of? If you leave a stipend in your Will to the individual, the money may be distributed; however, there will be no continued oversight after your estate is closed. There will be no legal assurance that the caregiver will actually continue to care for your horse.
You may want to consider having a trust in which the trustee is able to pay for the ongoing costs associated with the upkeep and care of your horse so long as it is cared for. If the ownership is transferred to yet another individual, the trustee can then continue to make funds available to that new owner.
Who will care when you’re not there? Responsible loving owners of horses as well as dogs and cats must plan for the care of their beloved friends if they are not available due to disability or death.