Do You Have to Probate an Estate when Someone Dies?

June 7, 2021

Do You Have to Probate an Estate when Someone Dies? That is a question estate planning attorneys here almost every day. Probate is a Latin term meaning “to prove.” Legally, a deceased person may not own property, so the moment a person dies, the property they owned while living is in a legal state of limbo. The rightful owners must prove their ownership in court, explains the article “Wills and Probate” from Southlake Style. Probate refers to the legal process that recognizes a person’s death, proves whether or not a valid last will exists and who is entitled to assets the decedent owned while they were living.

The probate court oversees the payment of the decedent’s debts, as well as the distribution of their assets. The court’s role is to facilitate this process and protect the interests of all creditors and beneficiaries of the estate. The process is known as “probate administration.”

Having a last will does not automatically transfer property. The last will must be properly probated first. If there is a last will, the estate is described as “testate.” The last will must contain certain language and have been properly executed by the testator (the decedent) and the witnesses. Every state has its own estate laws. Therefore, to be valid, the last will must follow the rules of the person’s state. A last will that is valid in one state may be invalid in another.

The court must give its approval that the last will is valid and confirm the executor is suited to perform their duties. Texas is one of a few states that allow for independent administration, where the court appoints an administrator who submits an inventory of assets and liabilities. The administration goes on with no need for probate judge’s approval, as long as the last will contains the specific language to qualify.

If there was no last will, the estate is considered to be “intestate” and the laws of the state determine who inherits what assets. The laws rely on the relationship between the decedent and the genetic or bloodline family members. An estranged relative could end up with everything. The estate distribution is more likely to be challenged if there is no last will, causing additional family grief, stress and expenses.

The last will should name an executor or administrator to carry out the terms of the last will. The executor can be a family member or a trusted friend, as long as they are known to be honest and able to manage financial and legal transactions. Administering an estate takes time, depending upon the complexity of the estate and how the person managed the business side of their lives. The executor pays bills, may need to sell a home and also deals with any creditors.

The smart estate plan includes assets that are not transferrable by the last will. These are known as “non-probate” assets and go directly to the heirs, if the beneficiary designation is properly done. They can include life insurance proceeds, pensions, 401(k)s, bank accounts and any asset with a beneficiary designation. If all of the assets in an estate are non-probate assets, assets of the estate are easily and usually quickly distributed. Many people accomplish this through the use of a Living Trust.

Do You Have to Probate an Estate when Someone Dies? It depends on how your estate plan was created. Every person’s life is different, and so is their estate plan. Family dynamics, the amount of assets owned and how they are owned will impact how the estate is distributed. Start by meeting with an experienced estate planning attorney to prepare for the future.

If you are interested in learning more about probate and trust administration, please visit our previous posts.

Reference: Southlake Style (May 17, 2021) “Wills and Probate”

Consider a QTIP trust for your Blended Family

June 3, 2021

Many people have so-called “blended” families, where one or both spouses have children from a previous marriage. 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. Consider a QTIP trust for your blended family.

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.

A QTIP trust allows the grantor of the blended family 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 trust, 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 funds 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. It might be time to consider a QTIP trust for your blended family. 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.

If you would like to learn more about estate planning for blended families, please visit our previous posts.

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

When Should Children Receive an Inheritance?

June 2, 2021

Should an inheritance remain an inheritance, given to children only after their parents die, or should parents use some of the money to help their kids out while they are still living? When should children receive an inheritance? That’s a question that many families grapple with, reports a recent article “When to Give Inheritance Money to Your Kids,” from The Wall Street Journal.

Not every family can afford to give their children an advance on their inheritance, but for those who can, there are some things to consider:

Some financial advisors believe that “gifting with warm hands” is a better way to go. Parents can enjoy seeing their children and grandchildren benefit from having the help, based on when it is needed. Decoupling an inheritance children receive from parental death is a happier scenario than the alternative.

Others believe that current financial needs, taxes and the tax situations of the parents and children ought to be the deciding factor. First, is there enough money for the parents to live comfortably in retirement? That includes being prepared for the cost of an unexpected health crisis that might lead them to need short- and long-term care. Follow that by understanding the tax situation of both parents and heirs. Once those answers are fully formed, then a discussion about gifting can move forward.

Another school of thought is to stop saving every penny and enjoy life to its fullest right here, right now. Some people are more concerned with maxing out their 401(k) plans than enjoying their lives. A healthy balance between protecting assets for later years, creating wealth for the next generation and having some fun too is the goal for many families.

Regardless of how you see your situation, one thing is sure: if you have any concerns about how your children will handle an inheritance, make a gift while you are living. You’ll get to see how they handle it, responsibility or recklessly. This may inform your planning for the future, including the use of spendthrift trusts.

The pandemic has forced many people to confront their own mortality and consider how they really want to spend the rest of their lives, as well as their assets. Many parents are preparing to make changes in their estate and gifting plans to accommodate needs that have arisen as a result of COVID’s economic impact.

Talk with your children about finances—yours and theirs. Discuss their needs, especially if they have been unemployed for an extended period of time. If they need money for something critical, like paying for health insurance or catching up on student loans, the gift should be made with a clear understanding of its intended purpose.

When should children receive an inheritance? It is really determined by what you think is right. Your estate planning attorney can help create a plan that works while you are living and after you have passed. Trusts may be a strategic plan for sharing assets while you are alive, with some tax advantages.

If you would like to read more about inheritance, please visit our previous posts.

Reference: The Wall Street Journal (April 30, 2021) “When to Give Inheritance Money to Your Kids”

The Monthly Two Minutes – Blended Families

June 1, 2021

The Monthly Two Minutes – Blended Families

We’ve started a new monthly video series that we are calling the The Monthly Two Minutes and are excited to share the latest edition – Blended Families. The second episode deals with the complexity of blended families. Second marriages and step-children can make investment and estate planning more difficult. We discuss what financial advisors need to know.

As a reminder, we now have a our own Podcast, The Estate of the Union! It’s “Estate Planning Made Simple” and we tackle all kinds of topics relating to the board spectrum of estate planning. We’ve got four already posted and more to come. We hope you will enjoy them enough to share it with others. It’s available on Apple, Spotify and other podcast outlets.

Brad Wiewel is a Board Certified Texas estate planning attorney with a state-wide practice. Mr. Wiewel is an AV Rated attorney, which is the highest distinction for practicing attorneys in the legal world. Brad is licensed by both the Supreme Court of the United States and the Supreme Court of Texas. He received a B.A. from the University of Illinois, and graduated from St. Mary’s School of Law in San Antonio with distinction (Top 10%).

A SLAT allows You to Protect Assets

June 1, 2021

Interest in SLATs, or Spousal Lifetime Access Trusts, has picked up as the new administration eyes possible revenue sources from estate and gift taxes. According to a recent article titled “What Advisors Should Know About SLATs” from U.S. News & World Report, even if no changes to exemption levels happen now, the current federal lifetime gift and estate tax exclusion of $11.7 million will expire in 2026. When that happens, the exemption will revert to the pre-2018 level of about $6 million, adjusted for inflation. First, what is a SLAT? It’s an estate planning strategy where one spouse gifts assets to an irrevocable trust for the benefit of the other spouse. A SLAT allows you to protect assets by removing them from a joint estate, but the donor spouse may still indirectly retain access to the assets. The SLAT typically also benefits a secondary recipient, usually the couple’s children.

It’s important to work with an estate planning attorney who is knowledgeable about this type of planning and tax law to ensure that the SLAT follows all of the rules. It is possible for a SLAT that is poorly created to be rejected by the IRS, so experienced counsel is a must.

The attorney and the couple need to look at how much wealth the family has and how much the family members will need to enjoy their quality of life for the rest of their lives. The funds placed in the SLAT are, ideally, funds that neither of the couple will need to access.

If a donor spouse can be approved for life insurance, that’s a good asset to place inside a SLAT. Tax-deferred assets are also good assets for SLATs. Trust tax rates can be very high. If securities are placed into the trust and they pay dividends, taxes must be paid. When life insurance pays out, the proceeds are estate-tax and income-tax free.

SLATs also protect assets from creditors.

There are pitfalls to SLATs, which is why an experienced estate planning attorney is so important. Married couples with large estates may set up separate SLATs for each other, but they must take into consideration the “reciprocal trust doctrine.” SLATs cannot be funded with identical assets and they cannot be set up at the same time. The IRS will collapse trusts that violate this rule. One SLAT can be done one year, and the second SLAT done the following year, and they should be funded with different assets.

There’s also a trade-off: while the SLAT gets assets out of the estate, they will not receive a step-up in basis at the time of the donor spouse’s death. Basis step-ups occur when the deceased spouse’s share in the cost basis of assets is stepped up to their value on the date of death.

Divorce or the death of the recipient spouse means the donor spouse loses access to the SLAT’s assets.

The SLAT requires coordination between the estate planning attorney and the financial advisor, so anyone considering this strategy should act now so their attorney has enough time to take the family’s entire estate plan into account. There also needs to be a third-party trustee, someone who is not the recipient and not related or subordinate to the recipient.

Assets don’t have to be placed into the SLATs immediately after they are created, so there is time to figure out what the couple wants to put into the SLAT. A SLAT can be beneficial because it allows you to protect assets, however, forgetting to fund the SLAT, like neglecting to fund any other trust, defeats the purpose of the trust.

If you would like to read more about SLATs and other types of tools to protect assets, please visit our previous posts.

Reference: U.S. News & World Report (May 3, 2021) “What Advisors Should Know About SLATs”

Items Medicare Doesn’t Cover

May 28, 2021

Medicare is wonderful program that helps seniors with the expense of medical bills later in life. Yet, there are items Medicare doesn’t cover and you need to be aware of them prior to entering the program. AARP’s recent article entitled “7 Things Medicare Doesn’t Cover” talks about some needs that aren’t part of the program — and how you might pay for them.

Opticians and eye exams. Original Medicare will cover opthalmologic expenses like cataract surgery, but it doesn’t cover routine eye exams, glasses, or contacts. In addition, it’s usually not covered by Medigap plans (supplemental insurance available from private insurers to augment Medicare coverage). Some Medicare Advantage plans cover routine vision care and glasses. As such, it may be wise to purchase a vision insurance policy for a few hundred dollars a year for the expense of glasses or contact lenses.
Hearing aids. Medicare covers ear-related medical conditions, but original Medicare and Medigap plans won’t pay for routine hearing tests or hearing aids. You may need to purchase insurance or a membership in a discount plan that helps cover the cost of such hearing devices.
Dental care. Original Medicare and Medigap policies don’t cover dental care like routine checkups, dentures, or root canals. Some Medicare Advantage plans offer dental coverage, but if yours doesn’t, or if you opt for original Medicare, you may want to get an individual dental insurance plan or a dental discount plan.
Care When Overseas . Original Medicare and most Medicare Advantage plans offer next to no coverage for medical costs incurred outside the U.S. However, there are a few Medigap policies that cover certain overseas medical costs. However, if you travel a lot, you might want this option. In addition, some travel insurance policies provide basic health care coverage. You should also look at medical evacuation (medevac) insurance for your time abroad. This is an inexpensive policy that will transport you to a nearby medical facility or back home to the U.S. in an emergency.
Podiatry. Routine medical care for feet, such as callus removal, isn’t covered. Medicare Part B does cover foot exams or treatment, if it’s linked to nerve damage because of diabetes, or care for foot injuries or ailments. Therefore, you may want to set up a separate savings program for this expense.
Cosmetic surgery. Elective cosmetic surgery isn’t included in Medicare. This includes procedures, such as face-lifts or tummy tucks. However, Medicare will cover plastic surgery in the event of an accidental injury. So, if you face these costs, you also may want to set up a separate savings program for them.
Nursing home care. Medicare pays for limited stays in rehab facilities. This may be a situation where you have a hip replacement and need inpatient physical therapy for a few weeks. However, if you become so frail or sick that you must move to an assisted living facility or nursing home, Medicare doesn’t cover your custodial costs.

Having planning in place to address the items Medicare doesn’t cover is a prudent decision. Work closely with an elder law attorney who has familiarity managing Medicare expenses.

If you are interested in learning more about Medicare, please visit our previous posts.

Reference: AARP (Oct. 1, 2020) “7 Things Medicare Doesn’t Cover”

Prevent Fighting over Personal Property

May 27, 2021

Estate plans often don’t include sentimental items. These day-to-day objects can cause some of the worst arguments among survivors. A photograph, dads’ baseball mitt, or mom’s Bible can sometimes have greater sentimental value than we realize. In addition, it can be tricky to determine what is fair, when dividing personal items. So, how do you prevent fighting over personal property?

The wisest path on such decisions about personal property is to talk with heirs, while you are still alive and in good health.

Ask your adult children what they might want and why and ask what other family members should have and why.

You might discover, for instance, that your adult daughter thinks her brother should inherit their dad’s baseball glove because they were the ones who played catch. You might be left with the New Kids On The Block CDs because you are the music aficionado.

The other big plus for discussing personal property is that the would-be beneficiaries can have the opportunity to hear stories and memories that are connected to these gifts. You can even write the stories down. Here are some other questions to consider:

Do you want to include in-laws in the decision-making?
What happens to personal items, if a parent remarries?
When is the best time to begin the actual transfer (the worst time is right after a funeral when family members are not at their best)?

Take the time to address those items you know your family will treasure. Talk to an experienced estate planning attorney about how to prevent fighting over personal property. The attorney may suggest you draft what is known as a “personal property memorandum.” It is a list of items and the people selected to inherit them. You should mention the existence of the document in your will, but the memo can be changed as often as you want without having to update your will.

If you are interested in reading more about personal property, please visit our previous posts.

Reference: Wall Street Journal (May 3, 2021) “You Don’t Want Your Heirs to Fight Over Your Assets? Here’s What to Do Now”

Protecting Loved Ones from Elder Abuse

May 26, 2021

Predators had an open season on the elderly during the pandemic, as isolation necessitated by COVID severely limited family member’s ability to visit in person. In some instances, caregivers themselves were the predators, and manipulation on important legal documents, including durable power of attorney, trusts, wills and ownership of homes has occurred. All this was reported the article “Warning: Isolation Of Your Aging Parent May Be A Red Flag” from Forbes. The enforced isolation has created worrisome situations for all concerned. There are some basic steps to consider when protecting loved ones from elder abuse.

If you haven’t seen your parents or grandparents for a year or more, and are all fully vaccinated, one expert strongly encourages visitation, as soon as is possible. Use the visit to review all of their legal matters and talk about how to increase engagement and end the isolation.

Consider the following a checklist of what needs to be done to identify signs of elder abuse at that first visit:

Look for any signs that anyone who had access to loved ones may have taken advantage of their isolation during the past year. Don’t assume the best behavior of everyone around them. It’s not how we like to think, but caution needs to be exercised in this situation.

Check on their will and trusts. The pandemic has reminded everyone that life is fragile, and it’s important to go over legal documents or, if they don’t exist, create them. Find out if anyone has pressured family members to change legal documents—if they have been changed in the last year and you weren’t told about it, find out what happened.

If aging parents do not have a will or trusts, or these documents were altered in your absence, speak with an estate planning attorney who can create a new estate plan. Make sure all copies of older wills are destroyed. At the same time, this would be a good time to have their powers of attorney, healthcare proxy and living wills updated.

If your parent or grandparent lives on their own, find out if they are now in need of any caregiving. A year is a long time, and elderly people who started out fine during the epidemic may have had changes in their health or ability to live independently. Go see for yourself how they are managing. Is the house clean? Are the stairs too steep to be managed?

Not everyone will be able to return to “normal” without some help. Senior centers, gyms and recreational facilities have been shut down for a long time. They may need some help getting back into a routine of socializing and exercising.

The end of enforced isolation can also mean the end of an easy cover for anyone who was using isolation as a protection for financial elder abuse or any other type of abuse.

Isolation itself is a form of abuse, including not allowing others to visit in person or speak with a parent alone. You can protect loved ones from elder abuse by being engaged with family members on a regular basis, by phone, video visits or, if you are able to, more frequent in person visits.

If you would like to learn more about elder abuse and related topics, please visit our previous posts.

Reference: Forbes (April 23, 2021) “Warning: Isolation Of Your Aging Parent May Be A Red Flag”

Including a POD Account in your Estate Plan

May 25, 2021

Also 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 POD 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. A POD account 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 including a payable on death account in your estate plan, 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.

If you would like to learn more about POD accounts and other banking issues related to estate planning, please visit our previous posts.

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

Maximize your Use of the Roth IRA

May 24, 2021

It’s been called the gold medal of retirement accounts, and for good reason. The Roth IRA is an excellent tool for savers who want to make the most of money they’ve already paid taxes on to invest in assets to supercharge their investments. Here’s how to maximize your use of the Roth IRA:

Gain potentially tax-free income during retirement. This is one of the major attractions of a Roth IRA. As long as your income falls below the limits and you’ve earned income during the year, you may continue to contribute to your account, generating more tax-free growth.

When contributions come directly out of a paycheck or are made by you later, you’ve already paid the taxes on the assets that fund the Roth IRA. The funds grow tax-free, and there’s no taxes on withdrawals.

There are, however, limits to your annual contributions. For 2021, the most you can deposit into a Roth is $6,000 for anyone under age 50 and $7,000 if you are 50 plus. You also can’t contribute more than you’ve earned for the year.

There is no tax or penalty to withdrawing, whenever you want. You don’t want to be careless with your retirement accounts, but the flexibility makes the Roth IRA compelling. Let’s say you contribute $5,000 to your Roth and the market soars. Your investment grows to $7,000. And for whatever reason, you’re a little tight on cash. You can take out the original $5,000, whenever you want, tax free. Withdrawing the earnings in the account would trigger taxes and penalties. But the original $5,000 is yours whenever you need it. One more detail: you can’t put that $5,000 back.

No Required Minimum Distributions. When you are in your 70s, and non-Roth accounts require that you take RMDs, you’ll appreciate this more. RMDs are mandated minimum amounts that must be taken from tax-deferred retirement plans. They are considered income and taxable. Too big a withdrawal could also push you into a higher tax bracket. If you are lucky enough to have multiple sources of income and don’t want to take out the withdrawals, well, too bad. That’s the tax law.

With a Roth, you can leave it in the account as long as you like. As long as you qualify, you’re good to save and let the money grow.

Roth IRAs are Easy to Pass to Heirs. If your estate plan includes leaving a legacy and assets to your beneficiaries, your Roth IRA is a solid choice. With no RMDs, you can let it grow for years or decades, and then leave it to heirs through the use of beneficiary designations.

Speak with your estate planning attorney about how you can maximize your use of the Roth IRA, how it fits into your overall estate plan and complements the trusts and other tools used to secure your legacy. If you don’t have an estate plan in place, save your heirs from a legal and financial disaster by making an appointment with an estate planning attorney as soon as possible.

If you are interested in learning more about IRAs, please visit our previous posts.

Reference: The Motley Fool (April 24, 2021) “4 Incredible Benefits of a Roth IRA”

Blog Articles

Do You Have to Probate an Estate when Someone Dies?

Consider a QTIP trust for your Blended Family

When Should Children Receive an Inheritance?

The Monthly Two Minutes – Blended Families

A SLAT allows You to Protect Assets

Items Medicare Doesn’t Cover

Prevent Fighting over Personal Property

Protecting Loved Ones from Elder Abuse

Including a POD Account in your Estate Plan

Maximize your Use of the Roth IRA

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