How 401(K) Beneficiaries Work

September 28, 2020

For anyone who thinks that their will or trust can be used to distribute assets in a 401(k) after they pass, think again. It is important to understand how 401(k) beneficiaries work with your estate plan. The beneficiaries listed in a 401(k), insurance policy or any account with the option to name a beneficiary supersede whatever directions are placed in a will or a trust. If you’re not careful, warns the article “What You Should Know About 401(k) Beneficiaries” from The Motley Fool, your assets could end up in the wrong hands.

Here are some basics about beneficiaries that you need to know.

After you die, your estate goes through probate, which can be a costly and lengthy process. However, assets like 401(k) plans that have named beneficiaries are typically passed to heirs outside of probate. The asset goes directly to the beneficiary.

When you opened a 401(k), you were almost certainly directed to name a beneficiary in the paperwork used to establish the account. That person is usually a spouse, child or a domestic partner. The beneficiary is sometimes a trust (a legal entity that manages assets for the benefit of beneficiaries).

If no beneficiary was named and you were married when you established the account, most 401(k) plans designate your spouse as the default beneficiary. The surviving spouse is allowed to treat the account as if it is their own when they inherit it—they can delay withdrawing money until they are 72, when the IRS requires withdrawals to begin. The surviving spouse uses their own life expectancy, when calculating future withdrawals.

If someone other than a spouse was listed as the beneficiary, the assets are to be transferred into an inherited 401(k) and the amounts received are based on the percentage listed on the beneficiary designation form. Most plans give the beneficiaries the option to roll over an inherited 401(k) into an inherited IRA. This gives the account owners greater control over what they can do with their inheritance.

Once you have named a beneficiary on these accounts, it’s wise to list contingent beneficiaries, who will inherit the accounts, if the primary beneficiary is deceased. For most families, the children are the contingent beneficiaries and the spouse is the primary beneficiary.

The list of mistakes made when naming beneficiaries is a long one, but here are a few:

Setting up a trust to keep IRA or 401(k) assets from going to a minor or to protect services for a special needs child, then failing to list the trust as a beneficiary.
Not naming anyone as a beneficiary on an IRA or 401(k) plan.
Neglecting to check beneficiary names every few years or after big life changes.

If you set up a trust for your beneficiaries, you must list the trust as the beneficiary. If you don’t specifically list the trust, the account will pass to any person listed as a beneficiary, or the accounts will go through probate.

If you have had more than a few jobs and have more than a few 401(k) accounts, it can be challenging to track the accounts and the beneficiaries. Consolidating the accounts into one 401(k) account makes it easier for you and for your heirs.

If you do list a trust as a beneficiary, talk with your estate planning attorney about how to do this correctly. The trust’s language must take into consideration how taxes will be handled. This could have big costs for your heirs.

If you would like to learn more about beneficiaries, please visit our previous posts.

Reference: The Motley Fool (Aug. 24, 2020) “What You Should Know About 401(k) Beneficiaries”

Estate Planning Needs for Every Stage

September 25, 2020

Many people decide they need an estate plan when they reach a certain age, but when an estate plan is needed is less about age than it is about stages in life, explains a recent article “Life stages dictate estate planning needs” from The News-Enterprise. There are estate planning needs for every stage of life. These stages can be broken into four groups, young with limited assets, young parents, getting close to retirement and post-retirement life.

Every adult should have an estate plan. Without one, we can’t determine who will take care of our financial and legal matters, if we are incapacitated or die unexpectedly. We also don’t have a voice in how any property we own will be distributed after death.

The first stage—a young individual with limited assets—includes college students, people in the early years of their careers and young couples, married or not. They may not own real estate or substantial assets, but they need a fiduciary and beneficiary. Distribution of assets is less of a priority than provisions for life emergencies.

Once a person becomes a parent, he or she needs to protect minor children or special needs dependents. Lifetime planning is still a concern, but protecting dependents is the priority. Estate planning is used in this stage to name guardians, set up trusts for children and name a trustee to oversee the child’s inheritance, regardless of size.

Many people use revocable living trusts as a means of protecting assets for minor dependents. The revocable trust directs property to pass to the minor beneficiary in whatever way the parents deem appropriate. This is typically done so the child can receive ongoing care, until the age when parents decide the child should receive his or her inheritance. The revocable trust also maintains privacy for the family, since the trust and its contents are not part of the probated estate.

The third estate planning stage of life includes people whose children are adults, who have no children or who are near retirement age and addresses different concerns, such as passing along assets to beneficiaries as smoothly as possible while minimizing taxes. The best planning strategy for this stage is often dictated by the primary type of asset.

For people with special situations, such as a beneficiary with substance abuse problems, or a person who owns multiple properties in multiple states or someone who is concerned about the public nature of probate, trusts are a critical part of protecting assets and privacy.

For people who own a primary residence and retirement assets, an estate plan that includes a will, a power of attorney and medical power of attorney may suffice. An estate planning attorney guides each family to make recommendations that will best suit their needs.

If you would like to learn more about what type of estate planning stage you are in and what is right for you, please view our previous posts.

Reference: The News-Enterprise (Aug. 25, 2020) “Life stages dictate estate planning needs”

Life Changes Mean Changes For Your Estate

September 24, 2020

Federal News Network’s recent article entitled “Divorced, kids grown, moving? Time for a pre-checkout checkup!” says life changes mean changes for your estate, like when your children grow up and leave the home.

Let’s review some of the key components of a complete estate plan.

A basic estate plan includes powers or attorney and some mechanism for distributing your assets, in the event of death.

If you become seriously ill or injured, perhaps even in a vegetative state, you should let your family and the hospital know if you want heroic measures to be taken to keep you alive.

An advance medical directive, also known as a health care power of attorney, is essential. This document addresses two important issues. It designates an individual that you select to make health care decisions for you, if you’re unable to make these decisions for yourself.

It also includes end of life instructions (called a living will) that details what actions you wish to have taken on your behalf if you are terminally ill, in a vegetative state and if you are unlikely to recover. For example, many living wills discuss whether to be kept alive by artificial means, such as with the use of a ventilator.

Another important tool in any estate plan is a general durable financial power of attorney. This lets your agent manage your financial affairs, if you’re incapable of managing them on your own.

When most people think of estate planning, they think about a will.

While a will is very important, most people have many assets that will not be impacted by their wills. This includes assets such as jointly owned property, and assets for which a beneficiary is designated, like life insurance, TSP and annuities.

The important point to know is that everyone needs to state exactly how they want to have their assets distributed following their death. This can be via a will, a trust, or by beneficiary designations. Many different events will shape your life and these changes mean you need to keep changing and updating your estate plan to keep up.

If you would like to learn more about estate planning and the different options available to you, please read our previous posts.

Reference: Federal News Network (August 31, 2020) “Divorced, kids grown, moving? Time for a pre-checkout checkup!”

What Needs to Happen after a Spouse Dies?

September 23, 2020

What needs to happen after a spouse dies? Making funeral arrangements, paying medical bills and closing down accounts are just the start of the tasks that a surviving spouse must take charge of, advises the recent article “Checklist for Handling the Death of a Spouse” from U.S. News & World Report. It can be overwhelming, especially with the intense emotions that come with such a large loss.

Having a checklist of specific tasks after a spouse dies may make this difficult time less stressful. This is because you will be able to see what has been accomplished, and what is yet to come.

Start by getting organized. Make a list of what you need to do and add to it as you think of new tasks. You should also track what you are doing, using a notebook to keep a record of who you spoke with and when. If you need help, don’t be afraid to ask a family member or trusted friend. Being organized is a big help, when there are so many things that need to be done during such a hard time.

Review your spouse’s will and estate plan. Gather all the documents, from their last will and testament to insurance policies, trust paperwork and related documents. Call your estate planning attorney, since she can help you with settling the estate.

Identify the executor. If you are the executor, then you are the person in charge of managing the estate, including distributing assets. If someone else has been named, contact the person and be sure they are still willing and able to undertake the responsibilities.

Obtain original death certificates. All of the financial, legal and property matters will require an original death certificate, with a raised seal. It’s easier to have more than you need, so order ten to fifteen.

Talk with other professionals. The financial advisor, CP, and insurance broker, in addition to the estate planning attorney, will need to know that your spouse has passed. You will also need to notify the Social Security Administration. If your spouse was receiving benefits, depending upon when in the month they died, you may need to return money.

Avoid any big decisions. This is not the time to sell the house, move to another state or make any other large decisions, unless you must for financial reasons.

Carry out your spouse’s wishes. There is comfort in carrying out your loved one’s wishes. Giving money to a charity as per the will’s direction or handing a prized possession to a family member who will treasure it can be heartwarming, since it reminds you of the values that your spouse held dear.

Take time for yourself and your loved ones. Mourning and healing from loss are not easy times. Take the time to process the loss and grieve with other family members. Find comfort from those you love.

If you would like to learn more about how to handle an estate after a loved one dies, please visit our previous posts.

Reference: U.S. News & World Report (Aug. 28, 2020) “Checklist for Handling the Death of a Spouse”

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Digital Asset Laws Are Now More Common

September 22, 2020

More and more of our lives are lived online. However, what happens when we become disabled or die and our executor or a fiduciary needs to access these accounts? Digital asset laws are now more common than ever. Pennsylvania recently joined many states that have passed a law intended to make accessing these accounts easier, reports the Pittsburgh Post-Gazette in the article “New Pa. law recognizes digital assets in estates.”

The official name of the law is the Revised Uniform Fiduciary Access to Digital Assets Act, or RUFADAA. Pennsylvania is one of the last states in the nation—48^th—to adopt this type of legislation, with the passage of Act 72 of 2020. Until now, the Keystone state didn’t allow concrete authority to access digital information to fiduciaries. The problem: the ability to access the information is still subject to the agreement that the user has with the online provider. That’s the “yes” we give automatically, when presented with terms of service agreement every time we open a new app on our phones.

Online service providers give deference to “legacy” contacts that a user can name, if authority to a third party to access their accounts is given. However, most people don’t name a successor to have access, and most apps don’t have a way to do this.

It’s worse than dying without a will. If you die with no will, the state has a process to identify legal heirs and distribute your estate. However, with digital assets, first you have to locate the person’s digital assets (and chances are good you’ll miss a few). There’s no shoebox of old receipts, or letters and bills coming in the mail to identify digital property. The custodians of the online information (Facebook, Instagram, TikTok, Google, etc.) still rely on those contracts between the user and the digital platform.

However, with the adoption of the new digital asset law, if the user does not make use of the online tool to name a successor, or if one is not offered, then the user can dictate the terms of access or non-access to the online accounts through estate planning documents, including a will, trust or power of attorney.

Here are some tips to clarify your wishes to disclose (or not) digital assets:

Make a list of all your online accounts, their URL address, usernames and passwords. Share the list only with someone you trust. You will be surprised at just how many you have.

Review the terms of service for each account to see if you have the ability to provide a name for a person who is authorized to access the account on your behalf.

Make sure your estate planning documents are aligned with your service contract preferences. Does your Power of Attorney mention access to your digital accounts? Depending on the potential value, sentimental and otherwise, of your digital assets, you may need to revise your estate plan.

Remember to never put anything in your will, like account numbers, URLs, usernames or passwords, since your will becomes a public document once it is probated. Now that digital asset laws are more common nationwide, you need to work with an estate planning attorney. They will know how to best accomplish documenting your digital assets, while protecting them.

If you would like to learn more about digital assets and other vital parts of an estate plan, please visit our previous posts.

Reference: Pittsburgh Post-Gazette (Aug. 24, 2020) “New Pa. law recognizes digital assets in estates.”

How Do I Handle My Inheritance?

September 18, 2020

How do I handle my inheritance? The loss of a close loved one can make it very hard to think clearly and function effectively. Add to that the fact that you may have to make important decisions about an inheritance, and it can be an overwhelming time.

Motley Fool’s recent article entitled “5 Considerations for Managing an Inheritance” discusses some ways to be a responsible steward of the money you’ve received and how to handle your inheritance and integrate it into your larger financial plan.

Stop and organize your thoughts. After the funeral or memorial service, take time to grieve and reflect on the loss of your loved one. You should also not make any sudden, large changes to your life, if you’ve inherited a considerable amount of money or a valuable asset. After some time has passed, you should speak with the estate’s executor or court-appointed administrator about next steps.
Create a plan and act on it. While the executor is tasked with winding up the deceased’s affairs, you might ask if you can help with an inventory of his or her assets in the estate. This should include both probate (assets without a named beneficiary) and non-probate (assets with a named beneficiary). It’s helpful to make sure that you verify and then cancel your loved one’s subscription services and recurring household expenses (i.e., cable and electric). The executor will make that decision, but you may be able to help with some phone calls or emails to these companies. After the estate’s final expenses are paid, you should create an action plan and assign responsibilities. You’ll then be ready when the executor distributes the estate assets to heirs.
Integrate to avoid mental accounting. After time has passed and you’ve received your inheritance, any new funds should be integrated into your own financial plan, as if it were earned income. If you don’t yet have a written financial plan, talk to a fee-only financial planner who charges by the hour or on a fixed-rate.
Make certain that your financial priorities are met. Your inheritance creates a critical chance to possibly change the trajectory of your net worth. You might use it to pay off or reduce long-standing debts, like student loans. Build your emergency fund — at least six months’ worth of living expenses — that will cushion you from unforeseen circumstances (like this pandemic!). You should also make sure that Roth contributions are made for the year.
Get creative! If you’ve inherited non-financial assets, like a car, artwork or antiques, you should make sure you know their value and decide whether you’ll keep or sell them. You might also swap an item with another heir, or if you aren’t ready to absolutely part with an inherited item, you might offer them to other family or friends. It can be nice to know that an unused item is being put to good use by people you know. Another option is to repurpose the item or donate it.

Losing a close loved one is difficult enough, but the need to properly handle your inheritance will be a big task. Follow these steps to help with that process. If you would like to learn more about the various roles involved in administering an estate, please read our previous posts.

Reference: Motley Fool (Aug. 8, 20020) “5 Considerations for Managing an Inheritance”

What Is Involved with Serving as an Executor?

September 17, 2020

What is involved with serving as an executor? Serving as the executor of a relative’s estate may seem like an honor, but it can also be a lot of work, says The (Fostoria, OH) Review Times’ recent article entitled “An executor’s guide to settling a loved one’s estate.”

As an executor of a will, you’re tasked with settling her affairs after she dies. This may sound rather easy, but you should be aware that the job can be time consuming and difficult, depending on the complexity of the decedent’s financial and family situation. Here are some of the required duties:

Filing court papers to initiate the probate process
Taking inventory of the decedent’s estate
Using the decedent’s estate funds to pay bills, taxes, and funeral costs
Taking care of canceling her credit cards and informing banks and government offices like Social Security and the post office of her death
Readying and filing her final income tax returns; and
Distributing assets to the beneficiaries named in the decedent’s will.

Every state has specific laws and deadlines for an executor’s responsibilities. To help you better understand what is involved with serving as an executor, work with an experienced estate planning attorney and take note of these reminders:

Get organized. Make certain that the decedent has an updated will and locate all her important documents and financial information. Quickly having access to her deeds, brokerage statements and insurance policies after she dies, will save you a lot of time and effort. With a complex estate, you may want to hire an experienced estate planning attorney to help you through the process. The estate will pay that expense.

Avoid conflicts. Investigate to see if there are any conflicts between the beneficiaries of the decedent’s estate. If there are some potential issues, you can make your job as executor much easier, if everyone knows in advance who’s getting what, and the decedent’s rationale for making those decisions. Ask your aunt to tell her beneficiaries what they can expect, even with her personal items because last wills often leave it up to the executor to distribute heirlooms. If there’s no distribution plan for personal property, she should write one.

Executor fees. You’re entitled to an executor’s fees paid by the estate. In most states, executors are allowed to take a percentage of the estate’s value, which can be from 1-5%, depending on the size of the estate. However, if you’re a beneficiary, it may make sense for you to forgo the fee because fees are taxable, and it could cause rancor among the other beneficiaries.

If you are interested in learning about the role of a beneficiary in an estate plan, please view our previous posts.

Reference: The (Fostoria, OH) Review Times (Aug. 19, 2020) “An executor’s guide to settling a loved one’s estate”

Gifting Can Help Heirs Reach Goals

September 16, 2020

Gifting can help heirs reach their goals. The applicable exclusion amount for gift/estate tax purposes is $11.58 million in 2020, a level that makes incorporating gifting into estate plans very attractive for high net-worth families. If a donor’s taxable gift—one that does not qualify for the annual, medical or education exclusion—is in excess of this amount, or if the value of the donor’s aggregate taxable gifts is higher than this amount, the federal gift tax will be due by April 15 of the following year. The current gift tax rate is 40%.

This presents an opportunity, as described in detail in the article “The Case for Gifting Now (or At Least Planning for the Possibility” from The National Law Review.

If the exclusion is used during one’s lifetime, it reduces the amount of the exemption available at death to shelter property from the estate tax. With proper planning, spouses may currently gift or die with assets totally as much as $23.16 million, with no gift or federal estate tax.

To gain perspective on how high this exclusion is, in 2000-2001, the applicable exclusion amount was $675,000.

The exclusion amount will automatically decrease to approximately $6.5 million on January 1, 2026, unless changes are made by Congress before that time to continue the current exclusion amount. Now is a good time to have a conversation with your estate planning attorney about making gifts in advance of the scheduled decrease and/or any changes that may occur in the future. The following are reasons why this exemption may be lowered:

Trillions of dollars in federal stimulus spending necessitated by the COVID-19 pandemic and the severe economic downturn in the U.S.
Past precedent of passing tax legislation mid-year and applying it retroactively to January 1.
A possible change in party control for the presidency and/or the Senate
The use of the budget reconciliation process to pass changes to taxes.

In the 100-plus year history of the estate tax, the exemption has never gone down. However, the exemption has also never been this high. The possibility of a compressed time frame for family business owners and wealthy individuals to implement lifetime gifts before any legislative change may make a tidal wave of gifting transactions challenging between now and December 31, 2020. Now is the time to start gift planning and take action to utilize the exclusion amount and help your heirs reach their goals.

If you would like to learn more about ways to reduce your estate taxes, please view our previous posts.

Reference: The National Review (Aug. 20, 2020) “The Case for Gifting Now (or At Least Planning for the Possibility”

Adult Guardianship and Autistic Children

September 15, 2020

For parents of autistic children, the coming of an 18^th birthday is the time when hard decisions need to be made regarding adult guardianship. It allows parents to continue to make important decisions for their child, but it does severely limit the child’s rights and freedoms. State laws often require that less restrictive alternatives be considered before a guardianship is ordered, says the article “Adulthood And Autism: A Crossroads In Life” from Autism Key.com.

An adult guardianship is a court proceeding that appoints another person to make decisions about a person’s health, safety, support, care and residence. The procedure varies from state to state. However, the process generally starts with an interested party filing a petition, with the court stating why guardianship for the person, known as the “ward,” is necessary. The person who has filed for guardianship and others, including parents, spouses, or relatives, all receive a copy of the petition. An independent evaluator assesses the ward and reports on their capacity. There is a hearing and the court determines whether guardianship is needed. The ward has the right to hire counsel, or the court can provide counsel.

Once the guardian is appointed, the court may limit or completely terminate the ward’s ability to make decisions regarding medical treatment, where they live and other important decisions. The guardian is required to make decisions that are always in the best interest of their ward and to encourage the ward to participate in decisions. A report must be filed with the court every year to advise of the ward’s status.

Most states have a law known as the Uniform Adult Guardianship and Protective Proceedings Jurisdiction Act, which makes it easier for states to transfer guardianship from one state to another, if the person moves. Florida, Kansas, Texas and Michigan do not have this law.

Adult Guardianship is an emotional decision for parents to make. They want their autistic child to be protected, at the same time they hope their child can reach a certain level of independence, within the limits of their capacity.

An individual facing a guardianship petition has the right to an attorney and in some states, that attorney must advocate for the best interest of the person, which may be to have more independence.

A case involving a young woman with Down’s Syndrome named Jenny Hatch in 2013 led to changes in guardianship proceedings. Jenny was a high school graduate, worked at a thrift shop and volunteered in local political campaigns. At her parent’s request, a court put her into temporary guardianship and placed her in a group home, where her cell phone and laptop were taken away. She was not permitted to socialize with friends or go to work. After a year of litigation, she won the right to make her own decisions through Supported Decision-Making, a process in which a team of allies help the disabled to make key decisions about their life. Jenny became a national hero for the rights of the disabled and speaks publicly about her experience. A number of states now have Supported Decision-Making laws to give the disabled freedom, while providing them with a network of support.

There is a lot of information to consider as a parent facing the prospect of an ASD child becoming a legal adult. Each person has his or her own strengths and challenges. Review the laws of your state to consider what options there may be, in addition to guardianship.

If you would like to learn more about adult guardianship and other issues related to autism, please read our previous posts.

Reference: Autism Key.com (July 28, 2020) “Guardianship And Autism: A Crossroads In Life”

Finding The Right Elder Law Attorney

September 14, 2020

Elder law attorneys specialize in legal affairs that uniquely concern seniors and their adult children, says Explosion’s recent article entitled “The Complete Guide to Elder Law” Finding the right elder law attorney can be a big task. However, with the right tips, you can find an experienced elder law attorney who is knowledgeable, has the right connections and fits your budget.

While, technically, a general practice attorney will be able to handle your retirement, Medicaid and even your estate planning, an elder law lawyer is deeply entrenched in elder law. This means he or she will have extensive knowledge and experience to handle any case within the scope of elder law, like the following:

Retirement planning
Long-term care planning and insurance
Medicaid
Estate planning
Social Security
Veterans’ benefits; and
Other related areas of law.

While a general practice lawyer may be able to help you with one or two of these areas, a competent elder law lawyer knows that there’s no single formula in elder law that applies across the board. That’s why you’ll need a lawyer with a high level of specialization and understanding to handle your specific circumstances. An elder law attorney is best suited for your specific needs.

A referral from someone you trust is a great place to start. When conducting your elder law lawyer search, stay away from attorneys who charge for their services by the hour. For example, if you need an elder law attorney to work on a Medicaid issue, they should be able to give you an estimate of the charges after reviewing your case. That one-time flat fee will cover everything, including any legal costs, phone calls, meetings and court fees.

When it comes to elder law attorneys, nothing says more than experience. An experienced elder law lawyer has handled many cases similar to yours and understands how to proceed. Reviewing the lawyer’s credentials at the state bar website is a great place to start to make sure the lawyer in question is licensed. The website also has information on any previous ethical violations.

In your search for an elder law attorney, look for a good fit and a high level of comfort. Elder law is a complex area of law that requires knowledge and experience. To learn more about Elder law issues, please visit our previous posts.

Reference: Explosion (Aug. 19, 2020) “The Complete Guide to Elder Law”

Blog Articles

How 401(K) Beneficiaries Work

Estate Planning Needs for Every Stage

Life Changes Mean Changes For Your Estate

Digital Asset Laws Are Now More Common

How Do I Handle My Inheritance?

What Is Involved with Serving as an Executor?

Gifting Can Help Heirs Reach Goals

Adult Guardianship and Autistic Children

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