Attorney & Mediator
Attorney & Mediator
Estate Planning - After the Divorce

Estate Planning – After the Divorce

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.

Estate Planning Disasters – by the “Do It Yourselfers”

Estate Planning Disasters – by the “Do It Yourselfers”

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.

YOU ARE THE AGENT UNDER A POWER OF ATTORNEY AND THE INDIVIDUAL  DIES.  WHAT ARE YOU PERMITTED TO DO THEN?

YOU ARE THE AGENT UNDER A POWER OF ATTORNEY AND THE INDIVIDUAL DIES. WHAT ARE YOU PERMITTED TO DO THEN?

Simple answer: NOTHING.

A Power of Attorney is only good during an individual's lifetime. When the person dies, their Power of Attorney dies as well – that instant.

This means that you are not to run to the bank and withdraw cash using the Power of Attorney. You are not supposed to keep paying bills off of his or her account after the individual dies. You are not to use his or her charge card.

Who has authority over the decedent's money? If they have a trust, their successor trustee will have this power. If they don't have a trust and they have a Will or if they don't have a Will, no one has any authority over their funds and property until a Personal Representative is appointed by the Probate Court.

If you are named as the Personal Representative in a Will, it does not mean that you have authority the minute they die. It is a nomination. It is not effective until the Probate Court says that it is effective.

Estate Planning - Leaving a Roadmap to Assets

Estate Planning – Leaving a Roadmap to Assets

You have a Will or a Trust. You are finished with your estate planning, right? Not quite.

You know what you own, but will your Personal Representative or Trustee?

Make a listing of your assets – better yet – make copies of documents and include these with your estate planning documents so that your Personal Representative or Trustee will have a clear outline of exactly what you own.

Real Estate: How many parcels and where are they located? Make a copy of the deed(s) and a property tax statement for each.

IRA's, 401 K's, Annuities: Prepare a listing of all of your tax deferred assets together with the beneficiary for each. Make a copy of your recent quarterly statement for each so that your Personal Representative or Trustee has the name of the financial institution and the account number.

Life Insurance: Get the policies together. If you don't know where they are, someone else won't either. List the policies with the name of the company, the value and the beneficiary.

Cash Assets: Make a listing of the accounts. Make a copy of your recent quarterly statement for each account showing the name of the financial institution or bank and the approximate value. If you have listed a beneficiary on the account or have a transfer on death (TOD) provision, note that as well.

Vehicles, Boats and Trailers: Make a listing of these items together with their identification numbers, physical location and value. Make copies of the titles for each.

Valuable Personal Property: Precious metals (gold or silver bullion or coins), stamp collections, wine collections, artwork, antiques, should all be listed with identifying information, the physical location of the item and the approximate value. Best is to take a photograph of each item and place the photographs with the listing.

This roadmap will be invaluable for your Personal Representative or Trustee. The death of a loved one is a stressful time. It will ease the burden if your estate is organized.

ESTATE PLANNING - THE PROBLEM OF THE UNFUNDED TRUST.

ESTATE PLANNING – THE PROBLEM OF THE UNFUNDED TRUST.

Carol and Jim had been married for 35 years – their children were grown. Jim took the steps to have an estate plan made – he had trusts made for himself and his wife with pour-over wills. Carol went in to sign the documents though she really didn't pay any attention to what they were for – she trusted her husband to do the right thing.

Jim was only 62 when he unexpectedly died from a massive coronary. Carol came to me to see if she needed to do anything – after all, Jim had set up these trusts that should take care of everything.

What he had failed to do was to fund the trusts. Their real property had not been transferred into the trust. None of their bank accounts, brokerage accounts, or other assets had been transferred.

Since a number of assets were in Jim's name alone, it was necessary to commence a Probate proceeding in order to get the assets into his trust. This cost Carol not only the filing and attorney fees but the inventory fees as well.

Additionally, real property had to be transferred requiring that deeds be prepared and recorded.

How could this have been avoided? At the time the trusts were prepared, all real property should have been transferred into the trusts. Additionally, all bank accounts, brokerage accounts and other assets should have been transferred as well. This follow up is critical to having a revocable trust work smoothly upon the death or disability of the grantor.

Do you really need a trust?

Do you really need a trust?

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.

IRA Mistakes

IRA Mistakes

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.

Choosing a Trustee

Choosing a Trustee

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.

How to help your parents

How to help your parents

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.

ESTATE PLANNING - PROVIDING FOR OUR PETS – Who will care when you’re not there?

ESTATE PLANNING – PROVIDING FOR OUR PETS – Who will care when you’re not there?

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.