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Trust Administration

What is the Probate Process?

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Probate is the legal process for authenticating a deceased person’s will, reviewing their assets, paying their outstanding debts and taxes, and distributing what remains to their inheritors. After an asset-holder dies, the court will appoint a valid will’s executor to administer the probate process. In the absence of a will, the court will appoint a state administrator to handle probate. Probate law varies by state, but there are steps in the process that are common.

First, an executor is appointed and is normally the person named in the will. It is the executor’s responsibility to initiate the probate process. An executor can be a family member, a financial advisor, or any person the testator deemed capable of administering their estate. The executor files the will with the probate court, which initiates the probate process. A court officially appoints the executor as named in the will, giving the executor legal authority to act on the testator’s behalf.

The executor’s function is to locate and oversee all of the estate’s assets and to determine each asset’s value. The majority of the deceased’s assets are subject to the probate court, where the deceased lived at the time of their death. Real estate is an exception, and probate may extend to any county where the real estate is located.

The executor will pay any taxes and debts owed by the deceased from the estate. A notice of death is published and creditors are given a limited time to make claims against the estate for any money owed to them. If the executor rejects the claim, the creditor may take them to court, where a probate judge will determine the debt’s validity. The executor is responsible for filing the deceased’s final, personal income tax returns. The executor’s last task, via court authorization, is to distribute what remains of the estate to the beneficiaries.

Probate is required for any asset or account that does not have a joint owner or beneficiary named.  If a joint owner or beneficiary is named then title changes automically and probate becomes unnecessary.

If a person dies without a will, they are said to have died intestate. An estate can also be deemed instate if the will presented to the court is found to be invalid. The decedent’s assets of an intestate estate follow a similar probate process, beginnign with the appointment of an administrator. An administrator functions like an executor, receiving all legal claims against the estate, paying outstanding debts, and the decedent’s taxes.

Administrators must also seek out legal heirs, including surviving spouses, parents, and children. The probate court will determine the distribution of the estate among its legal heirs. In the absence of any family or other heirs, remaining assets go to the state.

The more complex or contested an estate is, the longer the probate process can take to finalize. The longer the process, the higher the cost. Probate without a will typically costs more than probate with a valid will, but neither scenario is inexpensive. Probate court files an estate’s assets as a matter of public record, so if you want to keep your estate private, it is best to pursue other estate planning options such as a trust.

As estate planning attorneys, we can help you determine what planning tools are best for you. Contact us to schedule time for a private conversation to further determine how we can help.

Understanding the Differences Between Wills and Trusts

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Wills and trusts have specific and quite different benefits for estate planning purposes. Each state has specific laws and regulations governing these legal documents. You can have both a will and a trust; however, the information in each should compliment the other. As a standalone, it is not accurate to say one is better than the other. The better choice for you, or a blend of both documents, depends on your assets and life circumstances. Begin by assessing your situation, goals, and needs, and understanding what wills and trusts do to guide your decision making. Then, along with an attorney, you will be able to identify the solution that best suits and protects your family.

At its most basic level, a will allows you to appoint an executor for your estate, name guardians for your children and pets, designate where your assets go, and specify final wishes and arrangements. A will is only enacted upon your death. It has some limitations regarding the distribution of assets, and wills are also subject to a probate process (which occurs in court and is overseen by a judge) and, as such, are part of public records.

Types of Wills for Your Estate Plan

The last will and testament designates a person’s final wishes about bank accounts, real estate, personal property, and who should inherit these items. A personal will outlines how to distribute possessions, whether to another person, a group, or donate them to charity. It also deems responsibility to others for custody of dependents and management of accounts and other interests. Accounts can include digital assets with a tangible or monetary value associated with it, such as funds in a PayPal account.

A pour-over will ensures an individual’s remaining assets will automatically transfer to a previously established trust upon their death. This type of will always accompanies a trust.

A living will or advance directive specifies the type of medical care that an individual prefers if they cannot communicate their wishes.

A joint will and mutual will is meant for a married couple to ensure that their property is disposed of in an identical manner. A mirror will is two separate but identical wills, which may or may not also be mutual wills.

A holographic or handwritten will is valid in about half of the states and must meet the specific state’s requirements. Authentication of this will type for acceptance to the probate process also varies by state. There is always the possibility that a court will not accept a holographic will. Even if you have limited assets, your best strategy is to have your will professionally documented by an attorney. A video of your final wishes does not create a valid will.

Trusts are somewhat more complicated than wills, and the many different trust types can greatly benefit your estate and beneficiaries. Generally, a trust provides for the distribution and management of your assets during your lifetime and after death. Trusts can apply to any asset you hold inside the trust and offer more control over when and how your assets are distributed. There are many different trust forms and types, far more than wills.

However, the creation of a trust is only the beginning of the process. You must fund your trust by legally transferring assets into it, making the trust the owner of those assets. This process makes creating a trust a bit more complicated to set up; however, a trust is often enacted to minimize or completely avoid probate, thus keeping personal records private. Avoiding probate is a huge advantage for some people and often justifies the additional complex legal work of setting up a trust. There are nearly as many types of trusts as issues to address in your estate planning, and each offers different protections. However, trusts generally fall into three basic categories.

Basic Trust Types For an Estate Plan

A revocable living trust is, by far, the most commonly implemented trust type. The person who creates and funds the trust is known as the grantor and will typically act as the directing trustee during their lifetime. The grantor may undo the trust, change its terms, and move property and assets in and out of the trust’s ownership as they deem desirable. Revocable living trusts are designed to switch to an irrevocable trust upon the death of the grantor.

An irrevocable living trust is legally binding on its date of designation and allows very few provisions for change. The trust grantor funds the irrevocable living trust with property and assets, and the trust property is then under the care and control of the individual the grantor names as trustee. The grantor cannot change their mind and “undo” the trust. There are unique tax implications and other benefits to an irrevocable trust, including protecting a person’s home and savings from the high costs of long term care. These benefits can make relinquishing control worthwhile.

A testamentary trust is a provision within a will, appointing a trustee to manage the deceased’s assets. This trust is often used when the beneficiaries are minor children or someone who is receiving public benefits. This trust type is also used to reduce estate tax liabilities and ensure professional asset management. A testamentary trust is not a living trust. It only exists upon the death of the testator (the writer of the will). The executor of the deceased’s estate would follow the terms of the trust (called administering the trust) as part of the probate process.

Things to put into a trust include but are not limited to:

·      Stocks, bonds, mutual funds

·      Money market accounts

·      Brokerage accounts

·      Patents, copyrights, and royalty contracts

·      House and other real estate

·      Business interests and notes payable to you

·      Jewelry and precious metals

·      Works of art or other valuable collections

Assets that are not affected by trusts include but are not limited to:

·      Life insurance proceeds

·      Payable on death bank accounts

·      Retirement accounts

·      Jointly owned assets

·      Real estate subject to transfer-on-death deed

The many benefits that proper estate planning with wills and trusts can provide to your family are worth some thoughtful contemplation, legal counsel, and properly drafted documents.  We would be happy to meet with you and discuss which options are best for your particular situation.

Six Social Security Changes Taking Effect on January 1, 2021

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The Social Security Administration (SSA) publishes upcoming changes to its social security program every October that take effect on January 1 of the next year. These changes can make a difference in how you plan for or live during your retirement years. It is good practice to create what is known as a “my Social Security” account with the SSA here by clicking the “Create Your Account Today” button. Your account is an online gateway that provides interactive content and secure access to many online social security services. Your account allows you to check your social security statement, verify your earnings as reported, estimate your future benefits, change your address, and more. All of this information is relevant to you, whether you are retired or not.

The first notable change for the year 2021 is that beneficiaries will receive a 1.3 percent cost-of-living adjustment (COLA) increase to their monthly benefits. This annual adjustment to your benefit is designed to keep pace with inflation based on the CPI-W provided by the Bureau of Labor Statistics. The increase matches the same amount as the CPI-W if it increases more than .1 percent year to year between last years, and this year’s third quarter. In 2019 the COLA increase was 2.8 percent, while 2020 saw 1.6 percent. For the year 2021, the average social security recipient will receive an additional 20 dollars per month.

The maximum taxable earnings rate rose from 137,700 dollars to 142,800 dollars. The rate of social security tax that employees are required to pay remains at 6.2 percent. Note that the employer matches this payment unless you are self-employed, where the rate is 12.4 percent. The change is the income cap taxable amount, which has increased to 142,800 dollars. As this taxable amount increases, so does the SSA’s maximum earnings amount to calculate retirement benefits. Maximum earnings increase the longer you hold out to receive your benefits. Recipients can max out their payments at age 70 rather than the regular full retirement age, with a 32 percent increase.

The age of full retirement continues to rise. The earliest you can take your benefits is age 62; however, claiming your social security before full retirement age results in a permanently reduced payout. In 2021, if you turn 62, your full retirement age will be age 66 and ten months. Unless there are changes to the current law, anyone born in 1960 or later will reach full retirement age at 67. Benefit increases continue until the age of 70, at which point there is no incentive to delay receiving your social security benefit.

There is an increase in 2021 to the amount of money working social security recipients can earn before benefit reduction. The SSA can temporarily withhold all or part of your benefits if you are working while receiving social security. In 2021 before your full retirement age, you will be able to earn up to 18,960 dollars. You will have one dollar deducted from your benefits for every two dollars that exceed this allowable earnings amount. The 2021 annual limit is an increase of 720 dollars over the 2020 limit.

If you reach your full retirement age in 2021, you may earn up to 50,520 dollars, up from last year’s 48,600 dollars. However, for every 3 dollar earnings over the limit, your benefits will be reduced by one dollar. This situation only applies to money earnings in the months before hitting the full retirement age. At full retirement age, no benefits will be withheld for continuing to work.

There is also a small rise in disability benefits in 2021 for the nearly ten million Americans receiving these benefits. Legally blind recipients can receive a maximum of 2,190 dollars a month, which is an increase of 80 dollars, while non-blind recipients will have a maximum benefit increase of 50 dollars a month to 1,310 dollars.

Finally, the credit earning threshold is increasing by 60 dollars from 2020. If you were born in 1929 and beyond, you must earn a minimum of 40 credits (max of four per year) over your working life to qualify for social security benefits. This increase means for the year 2021; it will take 1,470 dollars in earnings per credit. The credit number required for disability still depends on your age and at what age you became disabled.

Planning for retirement is more complex and challenging than ever before. While all of these numbers are accurate from the SSA today, looking ahead to the year, 2035 could see a dramatic shift in your benefits unless Congress intervenes to protect social security. In the most recent Social Security and Medicare Boards of Trustees annual report, projections are that both social security and disability trust funds will be depleted by 2035. If this happens, beneficiaries will receive about 75 percent of their scheduled benefits in 2035 until at least the year 2093.

There is a lot to consider regarding social security benefits and your retirement. Payouts, rules, and percentages are always changing, which is why having a my Social Security is so beneficial for you. The tools available allow you to try different retirement scenarios and see how it will impact your bottom line of benefits. Accurately keeping up with all of the changes is a daunting task. It is very helpful to contact an elder law attorney specializing in a wide range of legal matters that affect older or disabled adults, including social security benefits and other important issues. We would be happy to help you with any questions, and welcome the opportunity to meet with you.

When is Disinheriting a Child a Mistake?

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Most parents choose to treat their children equally when it comes to inheriting property or money. But sometimes, parents intentionally choose to not leave anything to a child, and the reasons for doing so may vary. One reason could be that a child who is more financially successful than the others and the parent doesn’t feel it’s necessary to leave anything. Another reason may be a desire to prevent a child with special needs from losing government benefits. Or a parent may not want to leave an inheritance to an irresponsible or drug-dependent child for fear the inheritance will be wasted.

The Effects of Disinheriting a Child

Regardless of the reason, disinheriting a child can negatively affect that child’s relationship with his or her siblings. The courts are full of siblings who sue each other over inheritances but even if they don’t sue, it is highly unlikely they will be a close family unit. Money aside, there is symbolic meaning to receiving something from a parent’s estate.

Disinheriting a child for what may seem to be a valid reason may actually be completely unnecessary. For example:

  • A child who appears to be more successful financially may have trouble behind the scenes. The child may not be as well of as he or she appears. Finances can change, marriages can collapse, and people can become ill. And unless specific provision is made for them, grandchildren from this child will also be disinherited.
  • A spouse, child, sibling, parent or other loved one who is physically, mentally or developmentally disabled—from birth, illness, injury or even substance abuse—may be entitled to government benefits now or in the future. And if that loved one is receiving government benefits that are needs-based, please know you do not have to disinherit this person. A special needs trust can be carefully designed to supplement and not jeopardize benefits provided by local, state, federal or private agencies.
  • A child who is irresponsible with money or is under the influence of drugs or alcohol may not be the ideal candidate to receive an inheritance of any size in a lump sum. Instead of disinheriting the child, you can establish a trust and give the trustee discretion in providing or withholding financial assistance. You can dictate any requirements you want the child to meet before receiving funds, and you can choose who the trustee is who will make sure that child receives funds under the appropriate circumstances.

How we choose to include our children in our estate plans has lasting effects, both positive and negative. Choosing not to disinherit a child who has caused grief and heartache sends a message of love and forgiveness, while disinheriting a child, even for what seems to be good cause, can convey a lack of love, anger and resentment.

If you have previously disinherited a child and you have since reconciled, update your plan immediately. If you wish to disinherit a child, it may be wise to tell that child and explain the reasons why. Doing so may help deter the child from blaming siblings later and may prevent a costly court battle.

Regardless of your desires about how you want to leave an inheritance to your children, grandchildren or other loved ones, we can help. Give us a call to schedule time for a private conversation about your wishes, and we will make sure your wishes are properly documented.

Things You Should Know About Completing Your Estate Plan Online

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As you have probably heard by now, keeping physical distance between us is crucial to stop this virus. Call or email us to find out how we can help you complete your estate plan without taking a single step outside your safe home.

Formerly, most states required that important legal documents must be signed in person. During the course of this epidemic, then, we have been doing all we can to follow that law, to get your documents signed in person and still protect your health.

Recently, however, an increasing number of governors have issued emergency orders to change that law. Ask us whether our state is one of those that has suspended the requirements for in-person signing. If so, we can offer you the entire estate-planning process, start to finish, all completed while you stay safe at home and connected with us by internet instead.

Please consider that especially under these circumstances, it would be most wise to get your plan done. You will have made sure that trusted people can step in for you, to take care of bills and health-care decisions if you become unable. At the same time, you will have taken care of your heirs, to protect your family’s legacy as smoothly as possible when the time comes.

How quickly things change. It may be that now we can do it all by internet, to get you to the peace of mind that doesn’t change. You will know that a trusted person can pick up the reins for you, so you or your loved ones get the care you need, and you will know that your estate legacy will be preserved and protected.

Call or email us to see whether we can get the whole process done using video. There’s nothing “remote” about that.

 

Estate Planning Checkup Article: Alzheimer’s Disease

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There is currently no cure for the more than 5 million Americans who have Alzheimer’s disease. Projections by the Alzheimer’s Association (alz.org) are that by 2050 more than 14 million Americans will suffer from this disease. What can you do if you are medically diagnosed with Alzheimer’s? Aside from following the advice of your medical doctor an important step in your overall estate plan is an advanced directive to ensure your future wishes are met when you are no longer able to think or communicate clearly because of your disease progression. Having an advanced directive that accurately and legally reflects your financial and health care wishes allows you to focus on enjoying your life knowing you are doing all that you can to address your future circumstances.

You may already have advanced directives. It is a general term for various documents like a living will, instruction directive, health care power of attorney, and health care proxy. Now that Alzheimer’s disease is the 6th leading cause of death in the US, a newer advance directive specifically addressing dementia is becoming more common and is called the Alzheimer’s Disease and Dementia Mental Health Advance Directive.

An advanced dementia directive takes a comprehensive look at living with Alzheimer’s. Issues like where you will live, coping with profound changes in intimate relationships, how to finance your care, your preferred caregiver and healthcare agent, care of your pets, when you stop driving, and more. The essence of a dementia directive is to make life decisions that will span the course of time you survive with the disease. Life expectancy after a diagnosis of Alzheimer’s can range from as short as three years, with an average of eight to ten years, and as long as twenty years. Your advanced dementia directive provides you a measure of control and a sense of relief that your intentions are known when the time comes when you can no longer communicate them effectively. This document also serves as a detailed guideline for your loved ones to follow.

Some advanced dementia directives may even include an end of life strategy known as “voluntarily stopping eating and drinking” or VSED.  A VSED is considered a legitimate way to hasten death and is used in cases of terminally ill patients. Originally a VSED addressed a patient experiencing physical decline while maintaining cognitive function. In the case of Alzheimer’s, a VSED addresses the opposite issue of cognitive decline. Most people, when faced with a future of being mentally unfit in a body that will not quit, prefer to find an exit strategy they consider has a modicum of dignity. A VSED can prevent distressing situations for yourself and your family system.

Though requests for VSED are currently uncommon there is a groundswell of patient-driven need. This need says that if incapacitated through dementia, their choice is not to endure what can be a long physical decline while cognitively absent. Most people do not want life prolonged beyond the point where they are participating in it. Still, state and federal laws have to catch up to VSED as, by law, long term care facilities are required to offer daily meals with feeding assistance if necessary.

A directive that addresses Alzheimer’s disease and other forms of dementia does not replace the more standard advance health care directive. Most conventional health care directives address cardiopulmonary resuscitation, the use of ventilators, artificial hydration (intravenous fluids) and nutrition (feeding tube), participation in research and clinical trials, organ donation, comfort care, and pain relief services. Having both advanced medical and dementia directives in place not only assures you but also provides relief to your family. Your clearly defined choices can lighten the suffering your own family will feel when you can no longer communicate with or recognize them. Reconciling end of life scenarios is always challenging, but once handled, it frees you up to get on with the joy of living.

We would be happy to help you determine the correct advanced directives for your needs and desires. Please contact us if you would like to discuss this matter further.

The Social Security Administration and E-Signature Problems

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Electronic signature laws during the COVID-19 pandemic are playing a more significant role than ever before. The laws outlining acceptable electronic transaction standards that have the same effect as paper and ink signatures are the state Uniform Electronic Transactions Act (UETA) and the federal Electronic Signatures in Global and National Commerce Act (E-SIGN).

The US Social Security Administration (SSA) is struggling to modernize its IT infrastructure to support the American people’s current and future workloads, including e-signature acceptance. There are significant and ever-increasing service requirements and data storage responsibilities. The data includes sensitive information, susceptible to hacking, on nearly every citizen in the US, whether living or deceased, including their medical and financial records. While the SSA encourages agency interaction through their various online services, the truth is the agency’s outdated and poorly integrated computer systems make modern methods of e-signature acceptance a problem.

What is an e-signature? It is quite simply a digital file or symbol that attaches to places on an electronic file or contract, guaranteeing a person’s intent to sign the file or contract. E-signing has different formats. A signer can type their name into a signature area; they can paste in a scanned version of the signer’s signature, click on the “I accept” button, or even employ cryptographic scrambling technology. The security of these e-signatures varies across the formats.

What is a digital signature? This type of signature is considered more sophisticated and secure than the e-signature counterpart. This form of signature uses digital identification to authenticate the signer, which then becomes electronically bound to the document using encryption. Programs such as DocuSign, SignNow, Adobe, and others, offer easy ways to create a digital signature securely.

The National Federation of the Blind (NFB) and four individual plaintiffs are suing the SSA for their refusal to accept electronic signatures. The advent of COVID-19 is precluding many Americans who have compromised immune systems from applying for disability benefits because their existing condition makes them especially vulnerable. The argument is that the safest way for these at-risk individuals to apply is to fill out an online application at home with an e-signature since leaving home or interacting with paper mail presents an avoidable danger.

In the case of Timothy Cole, currently being treated for non-Hodgkins lymphoma, he is unable to submit his application for disability benefits because he plans to hire an attorney to help him navigate the complicated application process. Why would hiring an attorney preclude the SSA from accepting an application for disability benefits? Ultimately Mr. Cole is unable to submit his application online because the attorney or other authorized representative must sign a paper copy of their client’s application. So even though it is allowable for Mr. Cole to e-sign his application, his attorney may not even though the SSA maintains an online application process where e-signatures are reportedly secure, accessible, and federally approved.

The lawsuit is also seeking that the court order the SSA to permit blind people to fill out their Supplemental Security Income (SSI) application online. The SSA explicitly disallows blind people from applying online for this benefit. The lawsuit further asks the court to require e-signature acceptance on paperwork when a current beneficiary is subject to a CDR or continuing disability review.

The president of the National Federation of the Blind Mark Riccobono states, “The Social Security Administration regularly interacts with hundreds of thousands of blind people and other consumers with disabilities. Yet policies like this one persist, although the SSA has both the authority and the capability to accept electronic signatures. It is both unlawful and unconscionable that this agency continues to place blind and disabled consumers at a severe disadvantage, especially during a life-threatening global pandemic. The government should innovate, not discriminate.”

Therein lies the disconnect of expected service with the SSA. While consumers are looking for innovation and ease of use, the SSA’s continued dependence on outdated technology creates a focus on the behemoth project to migrate to a relational database that can allow for hardware alternatives with greater performance and interoperability at a much lower cost. Beyond these hardware infrastructure updates, data modernization and consolidation, and application modernization must also experience updates to be user friendly. Until these updates are in place, the SSA can expect to contend with more lawsuits as e-signatures become a need rather than a want during the COVID-19 pandemic.

If you have questions or would like to discuss your particular situation, please don’t hesitate to reach out.

What Is the Role of a Probate Attorney?

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Whether you are the Executor or an heir of the probate estate, knowing the lawyer’s role is one of the first steps you should take at the beginning of the probate process. One of the biggest sources of conflict in probating the estate is understanding the role of the lawyer hired by the Executor of a probate estate. Many Executors do not understand the probate process and leave the tasks up to the lawyer. The heirs of the estate may hear only from the lawyer or may hear the Executor say, “This is what the lawyer says we have to do.” This often raises the question, does the lawyer owe a fiduciary duty to the heirs of the estate since the Executor owes a fiduciary duty to the heirs?

The answer to that question depends on the state in which the estate is being probated. To be clear, this question is specifically about whether a lawyer owes the heirs of a probate estate a fiduciary duty, and not whether a lawyer owes a fiduciary duty in other contexts, such as to the beneficiaries of a trust when hired by a trustee, or a ward when hired by a guardian or conservator. The answer varies depending on each different circumstance.

Also, before answering the question, it is helpful to have an idea of some common activities created by fiduciary duties in the context of probating an estate:

  • Duty to communicate: a duty to notify the beneficiaries the estate exists, identify the Executor, provide a copy of the inventory, provide copies of court filings, generally explain documents that require a beneficiary’s signature, etc. This duty to communicate is not the same thing as an attorney-client relationship, which means there is no attorney-client privilege and the attorney cannot give legal advice.
  • Duty to account: provide regular estate accountings, which includes explaining funds paid out of estate accounts for expenses.
  • Duty to treat all beneficiaries equal: distribute estate funds at the same time, if a question arises as to how something in the Will is to be interpreted the attorney cannot interpret it, the court must interpret it.

Turning back to the question, whether the lawyer owes a fiduciary duty the heirs of a probate estate depends on the state in which the estate is being probated. Only a few states require the lawyer to meet the same fiduciary duty to the estate heirs as the Executor. These states believe that since the Executor owes a fiduciary duty to the heirs and the lawyer owes a fiduciary duty to the Executor, the duty flows from the Executor to the lawyer.

Most states, however, take the position that the lawyer does not owe a fiduciary duty to the estate heirs. These states view the fiduciary duty owed by the Executor to the heirs as unique from the fiduciary duty owed by the lawyer to the Executor. Also, these states want to maintain the Executor’s ability to have protected communication with the attorney.

There is a small third set of states, including California, New Mexico, and Illinois, that apply a balancing test to determine who was the actual intended beneficiary of the attorney-client relationship, the Executor or the heirs? Each state has established their own test criteria, but some common questions the courts ask include: who was the intended beneficiary of the attorney’s services, the Executor or the heirs; what was the foreseeability of the harm to the heirs as a result of the malpractice; and what was the proximity of the misconduct and the damage to the heirs?

If you are the Executor hiring the attorney, ask what the law is. If you are an heir of the estate, the lawyer should give you some guidance. If the probate estate is in one of the majority states, the first letter from the attorney should start with a sentence that reads, “I have been retained by Mr. Smith, Executor of the Estate of Ms. Smith. It is important that you understand I do not represent you.”  Otherwise, call and ask.

Everyone’s goal should be for the settling of the probate estate to go smoothly. Understanding the lawyer’s role will go a long way towards achieving that goal.

If you have questions or would like to discuss your personal situation, please don’t hesitate to reach out.

How to Effectively Talk to Kids About Inheritance

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For many families, it may be uncomfortable talking to discuss wealth and inheritance. Talking about how much money or property you have is usually viewed as taboo.  Asking someone else about what they have is often considered impolite. But failing to talk to kids about how much they may inherit could leave them unprepared to handle even a modest amount, and often results in the money being squandered quickly.

Baby boomers are considered the wealthiest generation and are set to pass that wealth on to their children. It’s estimated that $68 trillion will be passed down from boomers within the next few decades. By 2030, millennials will hold five times as much wealth as they do today.

Many who have substantial wealth are concerned that if their children know the extent of their wealth, this will take away any motivation for the children to be productive and involved citizens. Parents with substantial wealth often want their children to learn how to live in the world as “normal” people, and to be productive and successful in their own right. Some may go so far as to hide their wealth to encourage their children to work and build their own wealth.

But the degree of wealth is relative. Even those who are not as wealthy may not want their children to know how much they have. With the rising costs of health care, they are concerned that all of their savings will be needed for retirement, medical expenses, and long term care. If this becomes a reality their kids would not receive an inheritance they may have been counting on.

Failing to prepare children for what they may inherit can hinder their ability to handle money wisely. Many find they suddenly feel separated from their friends, isolated, even confused about how to handle relationships. Others will be wasteful and spend their new found money irresponsibly. Those who inherit even a modest amount are likely to be just as irresponsible; stories of inheritances being squandered on an expensive sports car, lavish vacations, and fast living are all too common.

Experts agree it is important to talk to children about money and wealth during their adult years to help them learn how to be better stewards of wealth. This doesn’t mean parents have to take a show their children all of their bank accounts, business interests and other evidence of wealth. Instead, experts suggest talking to children about their values, the opportunities money can provide and what you as parents want to accomplish with the money you have. Most parents want their children to think about helping others, and many want to encourage entrepreneurship. It can be helpful to give children a small amount of money at a young age to teach them how to save and invest, spend wisely, and to show them the importance of supporting charities.

One of the most effective ways to teach children about values and spending and investing money is to be an example. Parents need to let their children see them using their money in ways that reinforce their values. Some parents show how they value family relationships by spending their money on family vacations or buying a second home where the entire family can gather for summers and holidays. Others involve their children in choosing charities to support and provide children their own money to donate. If your children see you living your values, chances are they will adopt similar values as well.

We help families determine how to leave money to children in a beneficial way, how to plan for unexpected health care issues, and how to make sure appropriate people are named to step in and help if needed. We welcome the opportunity to talk to you about your planning needs.

 

An Estate Plan Takes Care

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Planning an estate takes care and precision. There are many different ways that a plan which is not drafted appropriately may not achieve the client’s goals. The estates may be large or small. Most people understand that clients with large, complicated estates with tax issues require careful consideration and drafting of the plan. But, we’ll look at several examples of clients of more middle class means who had goals in mind whose goals were not achieved by their plan.

In the first situation, Bob had assets of approximately $900,000 and he had three children, Bob, Jr., Cindy, and Derek. One of his children, Bob, Jr., was estranged from Bob due to a fight they had decades earlier. Bob wanted to leave all his assets to Cindy and Derek, with whom he was very close. Bob decided to draft his own plan and made sure it was “legal” and executed with the correct formalities. He left 50% of his estate to Cindy and 50% to Derek. When Bob, Jr. learned of Bob’s death, he was surprised that he was not to receive any part of his father’s estate and contested the plan. In Bob’s state, the omission of a disposition for, or any mention of, Bob, Jr. caused him to be a “pretermitted” or forgotten heir. As a result, in his state, Bob, Jr., had a right to the share he would have received had Bob died with no plan at all. Thus, Bob, Jr. received $300,000, the same as Cindy and Derek who had been close to Bob. Thus, Bob did not achieve his goal of disinheriting Bob, Jr.

In the second situation, John and Betty were married in a jurisdiction without community property. Betty had children from a prior relationship and wanted to leave all her assets to them. While Betty earned most of the money and owned most of the assets, John had sufficient assets of his own and didn’t object to this idea when Betty mentioned it. Betty had a plan drafted that left all her assets to her two children and nothing to John. Unlike in Bob’s case, she specifically disinherited John. At her death, John decided he wanted some of her estate after all. He contested her plan and received 1/3 of her estate due to the spousal right of election in the state. Just like in Bob’s case, Betty’s plan did not achieve her goal.

In the third situation, Walter and Ivy were married and had recently celebrated their 50th wedding anniversary. The two cared deeply for each other. Walter had most of the money they had accumulated during life. Ivy’s health was failing. Ivy’s family had a history of Alzheimer’s and it seemed she was headed down that terrible path. Walter wanted to make sure Ivy had funds to care for her needs. Walter’s plan left everything to Ivy at his death. Unfortunately, since Ivy was in a nursing home, those assets were used to pay for nursing home care before she was allowed back on Medicaid. Walter’s plan did not achieve his goals, either.

In the fourth situation, Jerry and Liz met in college. They graduated together and got good jobs at the same employer. The jobs had good retirement plans. They married and all was great for many years. Then, they grew apart and the bitter arguments grew more frequent and the loving moments grew less frequent. After trying for many months, they got divorced. Jerry knew to revise his Will and Trust, which had left everything to Liz, until they got divorced. Now, he revised the Will and Trust to leave everything to his sister, Sally. Jerry had about $500,000, including a condo and assets in his retirement plan. He was thinking all his assets would go to Sally. Jerry was walking to work one day and died when a car swerved onto the sidewalk. Unfortunately, not all his assets went to Sally. The majority of his assets were in his retirement plan. Jerry had forgotten to change the beneficiary on his retirement plan. Unfortunately, his Will and Trust do not control his retirement plan. Nor does his divorce cancel the beneficiary designation. Liz ended up getting more of Jerry’s assets than Sally did. Thus, contrary to his goals, Jerry’s sister did not get everything and his ex-wife got the lion’s share of his assets.

In each of these four situations, the client could have planned in a manner which would have achieved their goals, had they only gone to an experienced estate planning attorney who focused in estate planning. In the first case, Bob could have specifically disinherited Bob, Jr. In the second case, in many states, Betty could have had John sign a post-nuptial agreement or reduced the size of the portion of her estate against which John’s spousal right of election applied. In the third case, Walter could have left his assets to Ivy in a Testamentary Special Needs Trust for her benefit. If done properly, the assets which Walter left Ivy in the Special Needs Trust created at his death would not have been considered available resources for Medicaid purposes. Thus, they would not have needed to have been used to pay the nursing home. The assets could have been available for Ivy’s special needs, including weekly massages, movie outings, and other things to improve her quality of life. Finally, Jerry could have designated Sally (or a Trust for her benefit) as the beneficiary of his retirement plan. An attorney experienced in estate planning could have helped to achieve the goals in each of these circumstances.

The attorneys in our firm are experienced in all aspects of estate planning. As a member of the American Academy of Estate Planning Attorneys, our firm is kept up-to-date with information regarding all types of estate planning strategies and tools. You can receive more information about a complimentary review of your clients’ estate plans by calling our office.