Many people think that “estate planning” is only for extraordinarily wealthy families, celebrities and the like. Not so. Every family can benefit from having an estate plan of its own, one designed and implemented by an attorney who focuses on this highly specialized area of the law.
Without your own plan, the state of Arizona will control how your assets are distributed after you pass away. The state does not concern itself with making sure your wishes about “who gets what” are honored. It is not interested in minimizing costs or distributing assets in a timely manner. Instead, the state just follows established guidelines for asset distribution.
Another reason you need a plan of your own is to ensure people of your choosing will have the authority to make financial and medical decisions on your behalf in the event you become incapacitated. Without a customized plan, someone will likely petition the court to gain control over your medical care and hard-earned assets. This could very well be a person you would never have chosen to make important decisions for you. The court processes involved, known as conservatorship and guardianship, are expensive, time-consuming and extremely stressful for your loved ones.
These are but a few examples of the benefits inherent in estate planning. We can design a plan capable of accomplishing a great deal more, depending on your particular needs and goals. For example, your plan could:
- Make sure your minor children will be cared for according to your wishes if tragedy strikes and something happens to you and your spouse
- Ensure you have complete control over your assets while you are alive and after you pass away
- Protect your assets, and your children’s inheritances, against lawsuits, creditors, remarriage and other threats
- Leave what you want to the people you want in the manner you want
- Significantly reduce estate, gift, income, and other taxes
- Keep your financial affairs and family information private
- Pass your values, sense of responsibility and work ethic on to heirs
- Leave a lasting legacy
To accomplish goals like these, we’ll work closely with you and any of your existing advisors. Ultimately, we want you to enjoy the peace of mind that comes from having a well-designed plan in place for the future.
Four Estate Planning Documents You Need
When it comes to estate planning, its never too soon to have all your ducks in a row.
After all, estate planning is not just about death and taxes. It also deals with what happens if you get sick.
There are four critical estate planning documents everyone needs, says an article in the Wall Street Journal.
- A will
A will is the best way to have your wishes fulfilled and it avoids leaving anything up to the courts. Your will should dictate where everything goes and name an executor to manage it. You should also talk to family members to find out if there are heirlooms that they want. Also, avoid using an online will resource. An estate planning attorney is the safest way to go.
- Power of Attorney
It can give someone else the authority to act as your agent and to make legal and financial decisions should you become incapacitated. The person should not just be a devoted friend, but also someone who can manage money. And always name a backup.
- Medical Power of Attorney
This document, also known as a health care proxy, enables someone you designate to make medical decisions on your behalf should you become incapacitated.
- A Living Will
Also known as an advanced health care directive, this document spells out your wishes for end of life care. And let people know information about your doctors and medications.
Three Keys About Estate Planning
In 2015, you can leave gifts to other individuals upon your death worth up to $5.43 million free of any federal estate taxes.
This is the so-called estate-tax exemption. If married, both you and your spouse are entitled to separate $5.43 million exemptions. If one spouse dies and does not use up his or her full exemption, the leftover exemption amount can be left to the surviving spouse.
A post in the Wall Street Journal notes that you can also give away a cumulative total of $5.43 million to relatives, friends, or whoever during your life without owing any federal gift tax.
Gifts made under the $14,000 annual gift-tax exclusion rule will not trigger any federal gift taxes nor will they reduce your federal gift-tax or estate tax exemptions, the post points out.
However, gifts in excess of the $14,000 “freebie” will reduce both exemptions dollar for dollar.
Most people will never reach the point of owing any federal estate taxes.
For those with very large estates, the $5.43 million exemption isn’t enough. That’s where the $14,000 gifts can help. They reduce your taxable estate.
Estate Planning if you don’t have Children
Planning for your care and estate when you are older is more complicated if you don’t have children, since children often fall into the role of caregivers.
Here are some tips to help ensure that you are well prepared if you do not have any children, according to an article in the Houston News.
- Pick your advocates wisely. They must be people you trust. And if they are close to you in age, name younger backups to help you with your medical, financial and estate planning choices.
- Establish a health care proxy. This allows you to appoint someone to make medical decisions for you in case you are unable.
- Think about creating a durable power of attorney document. The person named can make financial decisions for you.
- Figure out how your assets will be distributed. A will can name who gets what.
- Purchase long-term care insurance – before it is too late.
- Set up a gifting plan. You ca give up to $14,000 per person to as many people as you want without tax consequences.
Estate Planning for “nontraditional” families
As a recent article explains, “the definition of a traditional nuclear family has been stretched considerably in the last quarter century.” Now more than ever, it is important for individuals to take the time to sit down and create an estate plan that fits his or her unique needs.
Blended families are families pasted together from broken families. As the U.S. Census Bureau reports, 30% of American marriages include at least one spouse who was already married. Estate planning in blended families is particularly important because the rules of intestate succession – which apply if the person does not leave a will – do not provide for step-children.
For a woman who is not the primary breadwinner in a marriage, it is important that she understand her worth within the family and the home. Marriage is an economic partnership, and anything owned or acquired during the course of a marriage is subject to equal division between the two spouses. Problems often arise when women allow their husbands to complete the financial planning, and are then economically paralyzed after a divorce. Women should not only take part in the financial planning, but also have their own estate plan in place.
Same Sex Couples
Estate planning is vital for same-sex couples because the rules of intestate succession do not apply to same-sex couples in most states. Therefore, it is important for same sex couples to use estate-planning vehicles such as trusts and insurance policies to ensure that their partner is protected.
Estate Planning for Special needs Children
Parents with special needs children need to be careful when drafting their estate plans, to ensure that the plan provides adequate support for their child without causing any negative consequences. As a recent article explains, the most common way to do this is through a Special Needs Trust (“SNT”).
Special needs beneficiaries often receive benefits such as Supplemental Security Income and Medicaid. These programs are need-based, so a large inheritance received outright may cause benefits to cease. The key aspect of a SNT is that it allows a person to transfer money to his or her special needs beneficiary without affecting the beneficiaries Supplemental Security Income and Medicaid benefits. This is because, legally, the trust owns the assets rather than the beneficiary.
Most commonly, parents set up testamentary special needs trusts. These trusts are drafted and put in place, however not funded until the death of the trust creator. This means that the money remains yours until your death. A self-settled trust, on the other hand, requires funding immediately.
In order to set up a SNT, speak with an attorney who can tailor the trust to your individual circumstances. The best trust will address your needs but also remain flexible. Importantly, be sure to select a trustee that is willing and able to handle the responsibilities that come along with being a trustee. If you do not have a family member that would be appropriate, consider hiring a professional.
Estate Planning When Living with a Parent
It is not at all uncommon for a parent to have an adult child live with him or her. This typically occurs for one of two reasons. Either the child is acting as a caregiver for the parent, or the child is unable or unwilling to begin living on his own. No matter the reason that the adult child is living with the parent, this often causes problems with other children and beneficiaries when the parent passes away.
The first issue is, what happens when the parent dies? The other surviving children and grandchildren may want the individual to move out immediately so the property can be sold and the proceeds divided between the heirs. This can often cause tension between family members. If the family member living in the home wants to remain in the home, he or she will need to buy out the other siblings. If the child does not move out of the house immediately after the parent dies, the other heirs may require that child to pay rent.
If you have an adult child living in your residence, and you would like him or her to remain in your residence after your death, consider transferring the residence to him or her, then making comparable gifts or bequests for your other children. Be sure to make a clear plan for the disposition of your home, and share it with your children.
Estate Planning, from google
Many people are now drafting special portions of their estate plans to incorporate their digital assets. A recent article discusses how Google has now incorporated digital estate planning into its long list of offerings in order to make it easier for users to plan for their digital afterlife.
Google has recently announced its “Inactive Account Manager.” Using the manager, users can determine what will happen to their Google data – information stored on Gmail, Blogger, Google Drive, Google+, Picasa, Google Voice, and YouTube – after their account has been inactive for a specified period of time.
Rather than relying on a friend or family to inform Google of your death, the system allows you to set the length of inactivity after which it will be sprung into action. After this time has passed, Google will send you an email or text message warning that you have been inactive for your specified period of time. If you do not respond to the email, Google will either share your data with up to 10 trusted contacts that you previously indicated, or delete all the data stored in your various Google applications.
Retirement accounts and estate plans
Often, people fail to consider how to best handle their retirement accounts when crafting their estate plan. Retirement accounts, however, are typically one of the largest assets in a person’s estate. Therefore, this failure can often prove problematic for beneficiaries. A recent article encourages readers to properly plan for their retirement accounts.
Interestingly, many people forget to even name a beneficiary for their retirement, or update the beneficiary designation after experiencing a death or divorce. As wealth advisor Karen Altfest noted, “We’re always asking clients about these accounts and they look like deer in the headlights.” Recently, Altfest assisted a client who did not realize that she did not name a beneficiary for her retirement account worth a whopping $500,000.
It is especially important for high net worth spouses to revisit their beneficiary designations. This is because newly implemented federal law allows spouses to share their estate tax exemption through an estate-planning maneuver called portability. Therefore, spouses with a combined net worth of over $10 million may wish to consider naming a trust as the beneficiary of their retirement account, rather than a spouse, in order to avoid estate tax consequences. Without planning for their retirement accounts, a policy owner may create higher estate and income tax liability for their heirs.
What if a Parent won’t Discuss his or her Estate Plan
Although estate planners are constantly encouraging family members to discuss their estate plans with one another, some people simply refuse to do so. A recent article discusses what to do if your parents insist on staying mum about his or her estate plan.
It is first important to realize that, as an adult child of your parents, you have no right to access any of their estate planning or financial information. For example, you cannot call you parent’s insurance company to determine what type of insurance your parents have, or call the bank and determine how much your parents have in savings. In order to access any of this information, you must have authority
There are two ways to gain this authority. First, your parents can designate you as their power of attorney. Many power of attorney documents have a springing provision so they do not take effect until your parent becomes incapacitated.
If a parent become incapacitated without first having executed a power of attorney document, you will have to ask a court to grant you a conservatorship in order to tend to his or her financial accounts. It is often difficult for conservators to pick up the pieces of a parent’s financial life, however, because the people who require conservatorships often did not organize information on their financial documents for their conservator.
Six Estate Planning Mistakes to Avoid
One important facet of estate planning is beneficiary designations. These designations are common on documents such as insurance policies and retirement plans. Although it may seem simple to put a name on a designation and forget about it, this can often lead to adverse consequences.
- Failing to Name a Beneficiary: Review all of your assets with beneficiary designations periodically to ensure that a beneficiary is named for each.
- Failing to Name a Contingent Beneficiary: For each beneficiary, name at least one contingent beneficiary in the event that the primary beneficiary predeceases you or disclaims the amount.
- Failing to Put Specifics in Beneficiary Designations: Be as specific as possible, for example, do not simply write “my children,” rather, use their names to avoid confusion that may occur with adopted or step-children.
- Failing to Keep Designations Up to Date: Importantly, review your beneficiary designations once every few years, and after major life events such as a marriage or divorce.
- Failing to Keep Beneficiary Designation Forms on File: Always ask for a copy of any beneficiary designation form so you can keep it with your records.
- Failing to Consider the Financial or Emotional Readiness of Beneficiaries: If you would like to name a young adult on a beneficiary designation form, consider whether it is wise to give them that amount of money with no strings attached.
An Inventory of Assets is Essential to Your Estate Plan
We all have mountains of paperwork we file away each month: bills, retirement account statements, investment statements, life insurance policy value updates. Some of us now also have many accounts online which require passwords and usernames for access instead of paper statements. When someone passes away, finding all the accounts, insurance policies, and necessary information to close an entire estate can be a monumental search for information.
Creating an inventory of assets not only helps the person who is responsible for closing your estate, but it can also be an invaluable learning experience for yourself. You may have more than you realize, and you can’t prepare a thorough estate plan unless you fully understand what you have to give away.
Estate Planning Assets
The best way to stay organized for yourself and your loved ones is to keep an updated list of assets with account numbers, named individuals on the accounts/titles/deeds, and account contact information. You should also have a list of every online account along with username and password information for your own access and that of your personal representative.
Inventories Must be Updated
Many people create an inventory when they go through the process of initially planning their estate but an inventory should be updated annually. One easy way to annually update your inventory is to collect the statements you get in the mail at the end of the year for tax purposes. Place them all in a folder as they come in the mail and use the contents of the folder to write or update your inventory.
Get Legal Help
An experienced estate planning attorney can help you create an inventory of your assets and make a plan for asset preservation and distribution.
Digital Assets as Part of Estate Planning
With people increasingly living their lives online, digital assets are quickly becoming a substantial component of many people’s assets.
Most people assume that Internet users skew toward younger demographics. While this is true for platforms such as Instagram and Twitter, older Americans have quickly caught up with their younger counterparts on other social sites. For example, 72 percent of adults used Facebook in 2015. Breaking that number down even further, Pew Research Center discovered:
- 79 percent of adults aged 30 to 49 use Facebook
- 64 percent of adults aged 50 to 64 use Facebook
- 48 percent of adults aged 65 and up use Facebook
This demonstrates the growing comfort and reliance all Americans feel with digital media.
What are Digital Assets?
Digital assets fall into a number of categories. Yes, it includes digital devices, such as smartphones and computers, but it also includes the files within those devices. These include books, documents, photos and videos, and, yes, your social media accounts.
Beyond this, digital assets encompass your entire online presence, such as:
- Online bank and investment accounts
- Gaming sites
- Customer lists
- Business plans
- Loyalty programs such as frequent flyer miles
Many of these virtual assets hold real-world value, whether monetary or sentimental. What’s more, if left unattended, they may become vulnerable to hackers and present a security risk. As such, they need to be included in your estate planning.
Addressing Digital Assets in Your Estate Plan
With so many digital assets out there, and so many of them holding actual monetary value, knowing what to do with them is vital. As of October 2016, most states have no statutes pertaining to an estate’s digital assets.
Of course, lack of statute does not prohibit you from including digital assets in a will or trust, or even listing them in your power of attorney.
Create a list of your online accounts, including user names, passwords, and security questions. Guard this list carefully, as it contains highly sensitive information. It will probably take some time to come up with every online account you have, but start with:
- Banking institutions
- Email accounts
- Social media accounts
- Online investment accounts
Include instructions for your executor on how you want each account handled, such as whether to delete the account completely.
Assigning an Executor for Your Digital Assets
Your executor is the agent you appoint to distribute your assets after your passing. This must be a person whom you trust to honor your wishes. In addition, you may want a different executor for your digital assets, as he or she will have access to a lot of personal, sensitive information, as well as having the responsibility for handling it.
Common duties for a digital executor include:
- Managing the closing of your social media accounts
- Reviewing and responding to email accounts, or simply deleting them
- Working through photographs and videos on your various devices and determining which should be deleted and which should be shared (and with whom to share them)
Make sure you fully arm your executor to fulfill his or her role by providing all of the information needed to do so. You can use a password management application. Then, include the password to this site with your estate plan. One warning: make sure this is one heck of a strong password.
Is Your Estate Plan a Trojan Horse
On January 31st of 2014, the Chinese celebrated the Year of the Horse. Which got me thinking about famous horses: Black Beauty, Secretariat, Trigger, Sea Biscuit, Silver, the Budweiser Clydesdales, Man O’ War, Pokey, and even the Trojan Horse.
That famous tale, expertly depicted in the Brad Pitt film Troy, recounts how the Greeks hid warriors inside a huge wooden horse they had constructed, left it on the beach, and pretended to sail away. The Trojans unknowingly and arrogantly pulled the horse behind their city walls as a victory trophy. After the Trojans fell asleep, the Greeks climbed out of the horse and opened the city gates and destroyed Troy. Those Greeks were pretty crafty.
Today the term Trojan horse means a trick that induces someone into thinking an object is useful or harmless. There are many Trojan horses in estate planning. Here are three examples.
Legal Zoom documents.
Ever heard the phrase “penny wise, pound foolish?” Or “you get what you pay for?” That is what I think of when I see these do-it-yourself documents that you can purchase at an office supply store or online. Although the majority of these claim they are created to conform to your specific state’s rules, most of the time they are completely deficient. They are the extremely basic in instruction and do not cover a variety of situations.
These documents are a Trojan horse because people believe that since they have created estate planning documents, they and their families are well protected. Nothing could be farther from the truth. In some cases, no planning at all would have better protected their family.
I often hear, “I have a trust so my assets are protected.” No they are not. A revocable living trust provides no asset protection to the trustmaker. Or “I have a will so my family won’t have to go through probate.” Untrue. Whether or not your family goes through probate depends on what assets you have that are probate assets- regardless if you have a will.
Your family and life is not simple and basic. Your estate planning documents shouldn’t be either.
The Internet, Social Media, and your neighbor down the street.
When I do public presentations I tell the audience that other attorneys are not my competition. My competition is your neighbor, hairdresser, or the Google search your son did. Why? Because people seem to readily believe any “legal” information they hear, regardless of the source. The problem is much of the advice is horrible, or because the facts or law would not apply in your particular circumstance.
I recently saw a post on Facebook that stated how she recently wrote a letter to her sister telling her she would like her sister to raise her children should something happen to her. Several people chimed in on how great an idea that was so that a judge wouldn’t decide. Not true, a judge will still who raises this woman’s child because in Arizona the only place to name a legal guardian for your child is in a properly executed will.
Documents prepared by non-estate planning attorneys, paralegals, or document preparers.
As an estate planning attorney, I am smart enough to know I shouldn’t review a real estate transaction contract. Or defend medical malpractice lawsuit. Or prepare corporate merger documents. These are not my areas of specialty.
Last week I heard of a non-estate planning attorney who created a revocable living trust for a couple. The trust was fraught with errors that had major tax consequences as the successor trustee was not a US resident or citizen. The attorney likely did not know that was huge mistake. The client did not know that had a trojan horse.
When I had a partial retina tear and needed eye surgery, I didn’t go see my family nurse practitioner. I went to a surgeon who specialized in eye surgery.
Your estate planning documents should be created by an estate planning attorney. Period. Otherwise what you have is likely a Trojan horse, inducing you to think that the documents are useful, when in reality they may open the gates to the court system.
Incorporating Income Tax Planning into your Estate Plan
As estate-planning attorneys settle into the new tax rules for 2013, the focus of estate planning is beginning to take a marked shift. The $5.25 million federal estate tax exemption means that fewer people will have to plan to avoid federal estate taxes. Therefore, estate-planning attorneys are now shifting their attention to different ways they can utilize estate planning tools to reduce income taxes.
From those who are in the top tier tax bracket, this is a welcomed change. Presently, income taxes are approaching 50 percent for these individuals and families. Unlike the federal estate tax – that only affects those who make over $5.25 million individually – income taxes affect the vast majority of citizens. Therefore, income tax planning is important in terms of helping wealthy Americans to retain more of their wealth.
One poplar income tax planning maneuver is planned loans to family members in low tax brackets. Any income from the loan is taxed in the lower tax bracket, and then the lender receives the full amount of the loan back following the life of the loan. Therefore, rather than paying nearly 50 percent in taxes on the income from invested money, the borrower would pay a mere 15 percent if he or she is in a low tax bracket.
Estate Planning can Save a Bundle
The expense of dying as well as the time leading up to it can be very costly.
Preplanning for your death and the time leading up to it can save you thousands.
The initial step is to speak to an elder law attorney, the article says.
Such an attorney can help prepare you and your family for the financial road ahead, as well as the possible mental or physical incapacitation.
The goal of estate planning is avoiding probate and its expenses, the story says.
Without preparation, your entire life savings and home may be at stake due to the high costs of long-term care.
With proper planning, you can protect your assets, it says.
You should have a living will and designate a medical and financial power of attorney.
While an estate planning attorney will cost money, it could be less expensive than going through probate, the story adds.
And once you handle your estate, it may be time to think about your funeral, it adds.
Estate Planning Questions that May Make you Uneasy
If you are thinking about drawing up an estate plan — and if you don’t already have one, you should be — there are several questions you will need to ask yourself, and some of them may make you uncomfortable.
First, you have to start thinking seriously about your own mortality. Or about the possibility of your developing Alzheimer’s. So you may want to think through some of these questions before you meet with your estate planning attorney, as he or she will likely be asking you most of them, says an article in Forbes Magazine.
- Who is going to bring up your children if both parents die?
- What if your whole family dies in a disaster?
- Are there any major relationships in your life that you have kept secret, such as a mistress?
- Have you had any of your genetic material frozen?
- Who will take care of your pets?
- Are you suffering from any serious or chronic health conditions?
These are just some of the issues you will have to begin thinking about when it comes to drawing up an estate plan. They aren’t easy, but they are necessary. Don’t wait until you are in the office of your estate planning attorney to start thinking about these issues.
Some Estate Planning Myths
There are several myths about estate planning that can cause confusion and, if you believe them, can end up causing problems for your family, says an article on Forbes. com. Among them:
Estate planning is only for the rich.
While there is a $5.34 million exemption this year on the estate tax, you don’t need a multi-million dollar estate to be helped by an estate plan. Estate planning also deals with making sure that your finances are taken care of if you are incapacitated, that decisions about your health care are carried out according to your wishes, and that your heirs are taken care of when the come comes. Estate planning is for everybody.
I’m not old enough for an estate plan.
You never know when you are going to die.
I will have to pay a gift tax if I give anybody more than $14,000 per year.
Any gift that tops $14,000 in a given year reduces the total lifetime gift and estate tax exemption by that amount. Only after you exhaust the total lifetime exemption (currently $5.34 million) will you have to start paying.
If I die without a will, the state gets my assets.
If you pass away without a will, the state will apply its laws of “intestacy” to determine who gets what. You can go to a site called mystatewill.com to see what would happen in your state. If you don’t like it, get a will made out.
Trusts let you avoid estate taxes.
Most trusts do not in and of themselves help you avoid estate taxes. However, certain trusts can be used as part of a strategy to reduce and even avoid tax liability. Check this out with a qualified estate planning attorney.
Estate Planning: Frequently Asked Questions
Estate planning is a very complicated area of the law. This is a rather unfortunate fact when considering that estate planning is an area of the law that applies to virtually everyone. A recent article articulates some questions you should be sure to ask your estate planning attorney.