Can I Disinherit Anyone I Want?

August 6, 2020

Can I disinherit anyone I want? If there’s someone you believe is more deserving or needs more of your help, that may mean someone else in your life may receive little or nothing from you when you die. However, be careful—disinheriting an heir is not as simple as leaving them out of your will, explains the article “How to Disinherit an Heir” from smart asset.

Disinheriting an heir means you’ve prevented them from receiving a portion of your estate, when you die. A local estate planning lawyer will know what your state requires, and every state’s laws are different.

One way is by leaving the person out completely. However, this could also leave your will up for interpretation, as there may be questions raised about your intent. A challenge could be raised that you didn’t mean to leave them out—and that could create stress, expenses and family fights.

You may also disinherit a person, by stating in your will that you do not wish to leave anything to this specific person. You might even provide information about why you are doing this, so your intent is clear. There could still be challenges, even with your providing reasons for cutting the person out of your will.

Disinheriting someone can be a tricky thing to do. It requires professional help. Working with an experienced estate planning attorney who has experience in will contests, may be your best choice for an estate planning attorney.

There are instances where relatives known and unknown to you are entitled to make a claim on your estate. An experienced estate planning attorney may suggest a search for relatives to ensure that no surprises come out of the woodwork, after your passing.

There are some relatives who cannot be disinherited, even in a legally binding last will and testament. In many states, you may not disinherit your spouse or children. Most states protect spouses from being disinherited, and in some states, children are legally entitled to a certain amount of your property. However, in most states, you may disinherit parents, if they outlive you.

There are many reasons you may want to disinherit someone. You may have been estranged from a child or a cousin for many years, or you may believe they have enough financial resources and want someone else to receive an inheritance from you.

Many high-profile individuals have declared that their children will not receive an inheritance, preferring to give their assets to charitable foundations or organizations working for causes they support.

Whatever your reasons for disinheriting someone, make sure you go about it with professional help to ensure that your wishes are followed after you die. To learn more about inherited assets and how they work, please read our previous posts.

Reference: smart asset (June 1, 2020) “How to Disinherit an Heir”

Can You Protect Your Estate with Life Insurance?

August 5, 2020

Can you protect your estate with life insurance? With proper planning, insurance money can pay expenses, such as estate tax and keep other assets intact, says FedWeek’s article entitled “The Role of Life Insurance in Estate Planning.”

The article provides the story of “Bill” as an example. He dies and leaves a large estate to his daughter Julia. There are significant estate taxes due. However, most of Bill’s assets are tied up in real estate and an IRA. Julia may not want to hurry into a forced sale of the real estate. If she taps the inherited IRA to raise cash, she’ll be forced to pay income tax on the withdrawal and lose a valuable opportunity for extended tax deferral.

A wise move for Bill would be to purchase life insurance on his own life. The policy’s proceeds could be used to pay the estate tax bill. Julia will then be able to keep the real estate, while taking only the Required Minimum Distributions (RMDs) from the inherited IRA. If Julia owns the insurance policy or it’s owned by a trust, the proceeds probably will not be included in Bill’s estate and won’t help with the estate tax obligation.

While you may be able to protect your estate with life insurance, there are a few common life insurance errors that can damage an estate plan:

Designating the estate as beneficiary. If you make this move, you put the policy proceeds in your estate, where the money will be exposed to estate tax and your creditors. Your executor will also have additional paperwork, if your estate is the beneficiary. Instead, be certain to name the appropriate people or charities.

Designating a single beneficiary. Name at least two “backup” or contingency beneficiaries. This will eliminate some confusion in the event the primary beneficiary should predecease you.

Placing your life insurance in the “file and forget” file. Be sure to review your policies at least once every three years. If the beneficiary is an ex-spouse or someone who has passed away, you need to make the appropriate change and get a confirmation, in writing, from your life insurance company.

Inadequate insurance. You may not have enough life insurance. If you have a young child, it may require hundreds of thousands of dollars to pay all of his or her expenses, such as college tuition and expenses, in the event of your untimely death. Skimping on insurance may hurt your surviving family. You also don’t need to be so thrifty, because today’s term insurance costs are very low.

To learn more about estate planning in general, please visit our previous posts here.

Reference: FedWeek (June 11, 2020) “The Role of Life Insurance in Estate Planning”

When a Bank Declines a Power of Attorney

August 4, 2020

It is frustrating when a bank or other financial institution declines a Power of Attorney. It might be that the form is too old, the bank wants their own form to be used, or there seems to be a question about the validity of the form. A recent article titled “What to know if your bank refuses your power of attorney” from The Mercury discusses the best way to prevent this situation, and if it occurs, how to fix it.

The most important thing to know is just downloading a form from the internet and hoping it works is always a bad idea. There are detailed rules and requirements about notices and acknowledgments and other requirements. Specific language is required. It is different from state to state. It’s not a big deal if the person who is giving the power of attorney is alive, well and mentally competent to get another POA created, but if they are physically or legally unable to sign a document, this becomes a problem.

There have been many laws and court cases that defined the specific language that must be used, how the document must be witnessed before it can be executed, etc. In one case in Pennsylvania, a state employee was given a power of attorney to sign by her husband. She was incapacitated at the time after a car accident and a stroke. He used the POA to change her retirement options and then filed for divorce.

At issue was whether she could present evidence that the POA was void when she signed it, invalidating her estranged husband’s option and his filing for her benefits.

The Pennsylvania Supreme Court found that a third party (the bank) could not rely on a void power of attorney submitted by an agent, even when the institution did not know that it was void at the time it was accepted. For banks, this was a clear sign that any POAs had to be vetted very carefully to avoid liability. There was a subsequent fix to the law that provided immunity to a bank or anyone who accepts a POA in good faith and without actual knowledge that it may be invalid. However, it includes the ability for a bank or other institution or person to request an agent’s certification or get an affidavit to ensure that the agent is acting with proper authority.

It may be better to have both a POA from a person and one that uses the bank or financial institution’s own form. It’s not required by law, but the person from the bank may be far more comfortable accepting both forms, because they know one has been through their legal department and won’t create a problem for the bank or for them as an employee.

There are occasions when it is necessary to fight the bank or financial institution’s decision. This is especially the case, if the person is incapacitated and your POA is valid.

If there is any doubt about whether the POA would be accepted by the bank, now is the time to check and review the language and formatting with your estate planning or elder law attorney to be sure that the form is valid and will be acceptable. To learn more about how POAs work, please read our previous post, What is so important about Powers of Attorney?

Reference: The Mercury (July 7, 2020) “What to know if your bank refuses your power of attorney”

Balancing Retirement with Special Needs Planning

August 3, 2020

Balancing retirement with special needs planning can be difficult for a family with a special needs child. Many government benefits are “means tested,” which can put financial restrictions on how much money the individual can have in their name. Careful estate and financial planning is important, advises the article “How Having A Child With Special Needs Impacts Your Retirement Planning” from Forbes.

In most instances, providing financially for children ends a year or two after college. However, for the family with a special needs family member, the financial assistance does not end. It’s also likely that the child will live with their parents well into the parent’s retirement. The family will need more money during retirement to provide for their child’s needs, including therapies, transportation and hobbies.

The family may choose to have the child live in a group home setting, but those costs are substantially higher, depending on the home and the level of care required.

Parents are often more focused on planning to care for their disabled family member and overlook their own retirement planning. It is important to find the balance between both.

Social Security planning is a bigger factor for the family with a special needs family member. If parents decide to collect their Social Security benefits, they need to map out what different scenarios could mean, including delaying when to take benefits and spend down assets.

If the disability of a child with special needs began before age 22, the child may be eligible for Social Security Disability Insurance, generally half of the last surviving parent’s Social Security payment in retirement (in addition to what the parent receives). When that parent dies, the amount increases to three-quarters of the parent’s benefits. This must be calculated in terms of income now for the child while the parents are living and after the parents pass.

It’s critical for the parents of an individual with special needs to do a careful budget analysis of their own retirement income and what they will need to care for their child. Once they understand these numbers, they can figure out what assets and income streams will make the most sense. A professional financial advisor can be very helpful for this process.

The family may need to set up a special needs trust (SNT), which is best done with an experienced estate planning elder law attorney. Life insurance may be purchased to fund a child’s lifetime needs and be placed in the SNT.

The family will also need to address tax planning. Traditional 401(k) plans and IRA accounts are not taxed until withdrawals are taken. There have been a number of changes to the law in recent months, not the least of which is the CARES Act, which allows withdrawals to be made from retirement accounts with no extra penalties. For additional information, please read our previous post on special needs planning.

Reference: Forbes (July 1, 2020) “How Having A Child With Special Needs Impacts Your Retirement Planning”

Understanding The Role Of An Executor

July 30, 2020

Have you been named an executor of an estate? Like many people, you may not have any idea what you are supposed to do. An estate executor or executrix is the person who has been named to administer the estate of a deceased person. Understanding the role of an executor is vital to ensuring an estate is properly managed and distributed.

The executor is appointed by the testator of the will (the person who makes the will) or by a court, when there was no prior appointment (and the individual dies intestate).

As the executor, you take a chance in distributing the estate before everyone has approved a final accounting and signed a Refunding Bond and Release.

This means that the heirs accept their distribution and release the executor from any claims concerning his or her administration of the estate.

Nj.com’s recent article entitled “Can I distribute inheritances now or do I have to wait?” says that if one of the beneficiaries doesn’t accept the executor’s form of accounting and his or her purported share, the executor will need to bring an action in court seeking its approval of a formal accounting and release as executor.

This process can be very expensive and, if there is no misfeasance by the executor found by the court, the expenses are usually paid for from estate funds. This reduces the total pay-out to heirs. As a result, it reduces all the beneficiaries’ distributive shares.

An executor has a fiduciary duty to the beneficiaries of the estate, which means he or she must manage the estate as if it were their own and manage the assets prudently. Thus, an executor can’t do anything that intentionally harms the interests of the beneficiaries.

If the executor decides to pay some beneficiaries before all of the named beneficiaries agree to the distributions, he or she may not have the funds to bring the formal accounting action in court.

It’s usually a best practice to wait until everyone approves the accounting and provides the necessary paperwork, before making any distributions to any heirs. To learn more about drafting a will, consider our previous post, What You Need To Know About Drafting Your Will.

Reference:nj.com (May 8, 2020) “Can I distribute inheritances now or do I have to wait?”

How Do I Protect an Inheritance from Taxes?

July 29, 2020

How do I protect an inheritance from taxes? Inheritances aren’t income for federal tax purposes, whether you inherit cash, investments or property. However, any subsequent earnings on the inherited assets are taxable, unless it comes from a tax-free source. Therefore, you must include the interest income in your reported income.

The Street’s recent article entitled “4 Ways to Protect Your Inheritance from Taxes” explains that any gains when you sell inherited investments or property are usually taxable. However, you can also claim losses on these sales. State taxes on inheritances vary, so ask a qualified estate planning attorney about how it works in your state.

The basis of property in a decedent’s estate is usually the fair market value (FMV) of the property on the date of death. In some cases, however, the executor might choose the alternate valuation date, which is six months after the date of death—this is only available if it will decrease both the gross amount of the estate and the estate tax liability. It may mean a larger inheritance to the beneficiaries.

Any property disposed of or sold within that six-month period is valued on the date of the sale. If the estate isn’t subject to estate tax, the valuation date is the date of death.

If you are concerned about protecting your inheritance from taxes, you might create a trust to deal with your assets. A trust lets you pass assets to beneficiaries after death without probate. With a revocable trust, the grantor can remove the assets from the trust, if necessary. However, in an irrevocable trust, the assets are commonly tied up until the grantor dies.

Let’s look at some other ideas on the subject of inheritance:

You should also try to minimize retirement account distributions. Inherited retirement assets aren’t taxable, until they’re distributed. Some rules may apply to when the distributions must occur, if the beneficiary isn’t the surviving spouse. Therefore, if one spouse dies, the surviving spouse usually can take over the IRA as their own. RMDs would start at age 72, just as they would for the surviving spouse’s own IRA. However, if you inherit a retirement account from a person other than your spouse, you can transfer the funds to an inherited IRA in your name. You then have to start taking RMDs the year of or the year after the inheritance, even if you’re not age 72.

You can also give away some of the money. Another way to protect an inheritance from taxes is give some of it away. Sometimes it’s wise to give some of your inheritance to others. It can assist those in need, and you may offset the taxable gains on your inheritance with the tax deduction you get for donating to a charitable organization. You can also give annual gifts to your beneficiaries, while you’re still living. The limit is $15,000 without being subject to gift taxes. This will provide an immediate benefit to your recipients and also reduce the size of your estate. Speak with an estate planning attorney to be sure that you’re up to date with the frequent changes to estate tax laws.

Reference: The Street (May 11, 2020) “4 Ways to Protect Your Inheritance from Taxes”

Probate versus Trust Administration

July 28, 2020

Probate versus trust administration. What are differences? Are they the same? Many people get these two things confused. A recent article, “Appreciating the differences between probate and trust administration,” from Lake County News clarifies the distinctions.

Let’s start with probate, which is a court-supervised process. To begin the probate process, a legal notice must be published in a newspaper and court appearances are needed. However, to start trust administration, a letter of notice is mailed to the decedent’s heirs and beneficiaries. Trust administration is far more private, which is why many people chose this path.

In the probate process, the last will and testament and any documents in the court file are available to the public. While the general public may not have any specific interest in your will, estranged relatives, relatives you never knew you had, creditors and scammers have easy and completely legal access to this information.

If there is no will, the court documents that are created in intestacy (the heirs inherit according to state law), are also available to anyone who wants to see them.

In trust administration, the only people who can see trust documents are the heirs and beneficiaries.

There are cost differences between probate and trust administration. In probate, a court filing fee must be paid for each petition. There are also at least two petitions from start to finish in probate, plus the newspaper publication fee. The fees vary, depending upon the jurisdiction. Add to that the attorney’s and personal representative’s fees, which also vary by jurisdiction. Some are on an hourly basis, while others are computed as a sliding scale percentage of the value of the estate under management. For example, each may be paid 4% of the first $100,000, 3% of the next $100,000 and 2% of any excess value of the estate under management. The court also has the discretion to add fees, if the estate is more time consuming and complex than the average estate.

For trust administration, the trustee and the estate planning attorney are typically paid on an hourly basis, or however the attorney sets their fee structure. Expenses are likely to be far lower, since there is no court involvement.

There are similarities between probate and trust administration. Both require that the decedent’s assets be collected, safeguarded, inventoried and appraised for tax and/or distribution purposes. Both also require that the decedent’s creditors be notified, and debts be paid. Tax obligations must be fulfilled, and the debts and administration expenses must be paid. Finally, the decedent’s beneficiaries must be informed about the estate and its administration.

The use of trusts in estate planning can be a means of minimizing taxes and planning for family assets to be passed to future generations in a private and controlled fashion. This is the reason for the popularity of trusts in estate planning.

It should be noted that a higher level of competency—mental comprehension—must be possessed by an individual to execute a trust than to execute a will. A person whose capacity may be questionable because of Alzheimer’s or another illness may not be legally competent enough to execute a trust. Their heirs may face challenges to the estate plan in that case.

Reference: Lake County News (July 4, 2020) “Appreciating the differences between probate and trust administration”

Who Will Care for the Children?

July 27, 2020

One of the biggest nightmares for parents is who will care for the children if they both pass. To make certain that parents’ wishes are followed, they should create a will that designates a guardian and a conservator in case both parents die, counsels The Choteau (MT) Acantha article entitled “Plan for children’s future when making out a will.”

A guardianship provides for the care of the children, until they reach adulthood (usually age 18) and gives the guardian the authority and responsibility of a parent. A guardian makes decisions about a child’s well-being, education and health. A conservatorship is designed to manage and distribute funds and assets left to children, until they’re age 18. A single individual can be appointed to do both roles, or separate people can be designated as guardian and conservator.

Frequently, the toughest decisions parents have is agreeing who they want to have the responsibility of raising their children and managing their money. Usually they select a person with similar values, lifestyle and child rearing beliefs.

It can be important to talk about the issue with older children, because some states (like Montana) permit children ages 14 and older to ask a court to appoint a guardian, other than the person named in parents’ wills.

You should also name a backup guardian and conservator, in case their first choices aren’t up to the task and review your choices periodically.

In many states, the law stipulates that when children attain the age of 18, they are able to get the property that was in the care of a conservator, no matter what their capability to manage it. Another option is to leave the assets in a trust, rather than a conservatorship.

Parents can provide in their wills the property that they want to pass directly to the trust, which is also called a testamentary trust. These assets can include life insurance payments, funds from checking accounts, stocks, bonds, or other funds. Parents can create a trust agreement with an experienced estate planning attorney that provides their named trustee with the power to manage the trust assets and use the income for their children’s benefit.

The trust agreement goes into effect at the death of both parents. It says the way in which the parents want the money to be spent, who the trustee should be and when the trust ends. The trustee must follow the parents’ instructions for the children.

Reference: Choteau (MT) Acantha (May 13, 2020) “Plan for children’s future when making out a will”

Your Estate Plan Needs to Be Customized

July 23, 2020

The only thing worse than having no estate plan, is an estate plan created from a ‘fill-in-the-blank’ form, according to the recent article “Don’t settle for a generic estate plan” from The News-Enterprise. Your estate plan needs to be customized. Compare having an estate plan created to buying a home. Before you start packing, you think about the kind of house you want and how much you can spend. You also talk with real estate agents and mortgage brokers to get ready.

Even when you find a house you love, you don’t write a check right away. You hire an engineer to inspect the property. You might even bring in contractors for repair estimates. At some point, you contact an insurance agent to learn how much it will cost to protect the house. You rely on professionals, because buying a home is an expensive proposition and you want to be sure it will suit your needs and be a sound investment.

The same process goes for your estate plan. You need the advice of a skilled professional–the estate planning lawyer. Sometimes you want input from trusted family members or friends. There other times when you need the estate planning lawyer to help you get past the emotions that can tangle up an estate plan and anticipate any family dynamics that could become a problem in the future.

An estate planning attorney will also help you to avoid problems you may not anticipate. If the family includes a special needs individual, leaving money to that person could result in their losing government benefits. Giving property to an adult child to try to avoid nursing home costs could backfire, making you ineligible for Medicaid coverage and cause your offspring to have an unexpected tax bill.

Your estate planning lawyer should work with your team of professional advisors, including your financial advisor, accountant and, if you own a business, your business advisor. Think of it this way—you wouldn’t ask your real estate agent to do a termite inspection or repair a faulty chimney. Your estate plan needs to be created and updated by a skilled professional: the estate planning lawyer.

Once your estate plan is completed, it’s not done yet. Make sure that the people who need to have original documents—like a power of attorney—have original documents or tell them where they can be found when needed. Keep in mind that many financial institutions will only accept their own power of attorney forms, so you may need to include those in your estate plan.

Medical documents, like advance directives and healthcare powers of attorney, should be given to the people you selected to make decisions on your behalf. Make a list of the documents in your estate plan and where they can be found.

Preparing an estate plan is not just signing a series of fill-in-the-blank forms. Your estate plan needs to be customized. It is a means of protecting and passing down the estate that you have devoted a lifetime to creating, no matter its size.

Reference: The News-Enterprise (June 23, 2020) “Don’t settle for a generic estate plan”

Making Social Security Benefits Work

July 22, 2020

How does Social Security benefits work in my estate planning? A financial power of attorney (POA) is a critical element of an estate plan. This document makes certain that a person you named takes care of your finances, when you are unable. Part of managing your finances is coordinating your Social Security benefits—whether you already are getting them or will apply for them down the road.

However, what many people don’t realize, is that the Social Security Administration (SSA) doesn’t recognize POAs. Instead, as part of your estate plan, you need to contact the SSA and make an advance designation of a representative payee, according to Forbes’ article entitled “The Surprising But Essential Estate Planning Step For Social Security Benefits.”

This feature lets an individual select one or more people to manage their Social Security benefits. The SSA then, in most situations, must work with the named individual or individuals. You can designate up to three people as advance designees and list them in order of priority. If the first one isn’t available or is unable to perform the role, the SSA will move to the next one on your list.

A person who’s already getting benefits may name an advance designee at any point. Someone claiming benefits can name the designee during the claiming process. You can also change the designees at any time.

When you name a designee, the SSA will evaluate him or her and determine the person’s suitability to act on your behalf. Once he or she is accepted, a designee becomes the representative payee for your benefits. They will get the Social Security benefits on your behalf and are required to use the money to pay for your current needs.

A representative payee typically is an individual. However, it can also be a social service agency, a nursing home, or one of several other organizations recognized by the SSA to serve in this capacity.

If you don’t name designated appointees, the SSA will designate a representative payee on your behalf, if it feels you need help managing your money. Relatives or friends can apply to be a representative payee, or the SSA can choose a person. When a person becomes a designated payee, he or she is required to file an annual report with SSA as to how the benefits were spent.

Being a designated representative doesn’t give that person any legal authority over any other aspect of your finances or personal life. You still need the financial POA, so they can manage the rest of your finances.

Reference: Forbes (April 17, 2020) “The Surprising But Essential Estate Planning Step For Social Security Benefits”

Blog Articles

Can I Disinherit Anyone I Want?

Can You Protect Your Estate with Life Insurance?

When a Bank Declines a Power of Attorney

Understanding The Role Of An Executor

How Do I Protect an Inheritance from Taxes?

Probate versus Trust Administration

Who Will Care for the Children?

Your Estate Plan Needs to Be Customized

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