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digital assets need to be included

What Does an Executor Do?

Being asked to serve as the executor of a loved one’s estate is flattering, but it is also a big responsibility and a lot of work. So what does an executor do? As the executor, you are responsible for taking care of all of the financial and legal matters of the estate, explains the article “An executor’s guide to settling a loved one’s estate” from Review Times. The job will require a lot of time and, depending upon the complexity of the estate and the family situation, could be challenging.

Some of the tasks of an executor include:

  • Filing court papers to start the probate process to determine whether the will is valid.
  • Making a complete inventory of everything in the estate.
  • Obtaining an estate tax ID number, opening an estate bank account and using the estate funds to pay bills, including funeral costs and medical bills.
  • If the estate includes a home, maintaining the home and paying the mortgage, taxes, etc.
  • Terminating credit cards, notifying banks and government agencies—including Social Security—and the post office.
  • Preparing and filing income tax returns for the last year of the person’s life, unless they filed them already, and for the estate.
  • Distributing assets, as directed by the will.

Your first task as an executor is to locate the will and any important documents and financial information. You will need the will, deeds, titles, brokerage statements, insurance policies, etc.

If the estate is complicated, you will want to work with an estate planning attorney, who can guide you through the process. The estate pays for the attorney, and the executor works closely with them. Every state has its own laws and timetables for the executor’s responsibilities, which the attorney will be familiar with.

If possible, find out if there are any family conflicts, before the loved one passes. If there are potential problems, it may be better for the loved one to tell who will be inheriting what before they die. If there is no plan for asset distribution, the person who is asking you to be the executor needs to meet with an estate planning attorney as soon as possible and have a plan created, with all of the documents necessary for your state.

The executor is entitled to be paid a fee, which is paid by the estate. In most states, that fee is set at a percentage of the estate’s value, depending on the size and complexity of the estate. If you are both an executor and a beneficiary, you may want to forgo the fee, because fees are taxable, but in most states, inheritances are not.

If you would like to learn more about the role of the executor, please visit our previous posts. 

Reference: Review Times (Sep. 6, 2020) “An executor’s guide to settling a loved one’s estate”

 

digital assets need to be included

Do I Have to Accept an Inheritance?

Do I have to accept an inheritance? That is a phrase many estate planning attorneys hear. Most people don’t use a disclaimer because they’re not entitled to other assets to offset the value of the asset disclaimed. They don’t get to decide who gets their disclaimed asset.

MarketWatch’s recent article entitled “Can I reject an inheritance?” explains that the details can be found in Internal Revenue Code §2518. However, here are some of the basics about disclaimers.

In most states, a qualified disclaimer can be filed within nine months of an asset owner’s death. This disclaimer is irrevocable. Therefore, once it’s done, it’s done. This can create problems with IRAs because they have beneficiary designations, and the death claim can be processed with a few forms. As soon as the funds are transferred to an inherited IRA, disclaiming is no longer an option.

When a person declines to accept an inheritance, the assets are distributed as though that beneficiary had died prior to the date of the benefactor’s death. Therefore, with an IRA, it is pretty simple. If you disclaim all or a part of the IRA, the funds pass on, based on the beneficiary designation.

The IRA usually has a secondary beneficiary named. If the beneficiaries in line to inherit the account are who you would want to inherit the account, disclaiming should transfer the account to them. However, if they’re not who you want to get the funds, you have little leverage to do anything about it.

If there are no other beneficiaries and you disclaimed an inheritance, the money goes back into the decedent’s estate.

The funds would go through probate and be directed based upon his will. If there was no will (intestacy), the probate laws of the decedent’s state will dictate how the assets are distributed.

Having an IRA go through an estate is inefficient, time consuming and adds additional costs beyond the taxes.

All these drawbacks can be avoided, by properly designating beneficiaries.

Being wise with your beneficiary designations, also provides flexibility in your estate plan.

For example, you can set up beneficiary designations to purposely give an inheritor the option to disclaim to other family members if they choose not to accept an inheritance, which is done when the primary beneficiary can disclaim to a family member that is in greater need of funds or is in a lower tax bracket.

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

Reference: MarketWatch (Aug. 25, 2020) “Can I reject an inheritance?”

 

digital assets need to be included

What Should You Look For In A Trustee?

You have begun the task of creating an estate plan. You have selected beneficiaries for your assets, but now comes the naming of a trustee. What should you look for in a trustee? The trustee is tasked with caring for the assets in the trust for one or more beneficiaries. It is the trustee who handles all the necessary paperwork and sees that tax returns are filed.

FedWeek’s recent article entitled “Your Options for Selecting a Trustee” explains that probate and trust law creates a fiduciary responsibility, so the trustee is accountable to the trust beneficiaries and must serve the beneficiaries’ best interests. Here are the types of trustee one can select:

Individual trustee: this can be a friend or relative who’s probably familiar with everyone involved and may well make the decisions desired by you, the trust creator. If you decide to go with an individual, make sure you choose someone who is trustworthy. It’s the most important qualification of a trustee. Ask yourself if this a is person who I can trust unconditionally to carry out my wishes when I’m gone. You also need to be certain that your trustee is financially responsible. The reason is that a trustee’s duties will include handling your financial accounts and being responsible for your investments. Therefore, finding a person who’s proven themselves to be financially responsible is critical. A trustee needs to deal with financial accounts, as well as the responsibility of accounting to the trust beneficiaries regarding all assets, income and expenses of a trust. Therefore, basic record keeping skills are required. Finally, you need someone who’s available. Choose a trustee who’s likely to be available when the need for his or her services arises. Age, health, job demands and location are all things to take into account, when selecting a trustee.

Institutional trustee: a local bank or trust company might have the resources to manage your assets. They also will have the staying power to handle long-term trusts.

You can also set up a combination of the two. You could designate an institution and an individual as co-trustees. That way, you may get financial expertise and personal attention. If discretionary decisions are permitted, you can leave instructions that both co-trustees must agree.

You can also add “trustee removal” powers into the terms of the trust to reduce the risk that a trustee will prove to be unsatisfactory. A majority vote of adult income beneficiaries may be enough to get a new trustee. That person must be an unrelated person or institution.

When you name an individual as trustee or co-trustee, again make certain that he or she is qualified to do the job, then get his or her consent.

When you have found what you were looking for in a trustee, you should also designate a successor trustee. Just in case your first choice is unable or unwilling to serve.

If you would like to learn more about trusts and how they work, please visit our previous posts. 

Reference: FedWeek (Aug. 13, 2020) “Your Options for Selecting a Trustee”

 

digital assets need to be included

Disinheriting A Child As An Heir

Disinheriting a child as an heir happens for a variety of reasons. There may have been a long-running dispute, estrangement over a lifestyle choice, or not wanting to give assets to a child who squanders money. What happens when a will or trust has left a child without an inheritance is examined in an article from Lake County News, “How to Protect Your Estate from Unintended Heirs.”

Circumstances matter. Was the child born or adopted after the decedent’s estate planning documents were already created and executed? In certain states, like California, a child who was born or adopted after documents were executed, is by law entitled to a share in the estate. There are exceptions. Was it the decedent’s intent to omit the child, and is there language in the will making that clear? Did the decedent give most or all of the estate to the other parent? Did the decedent otherwise provide for the omitted child and was there language to that effect in the will? For example, if a child was the named beneficiary of a $1 million life insurance policy, it is likely this was the desired outcome.

Another question is whether the decedent knew of the existence of the child, or if they thought the child was deceased. In certain states, the law is more likely to grant the child a share of the estate.

Actor Hugh O’Brien did not provide for his children, who were living when his trust was executed. His children argued that he did not know of their existence, and had he known, he would have provided for them. His will included a general disinheritance provision that read “I am intentionally not providing for … any other person who claims to be a descendant or heir of mine under any circumstances and without regard to the nature of any evidence which may indicate status as a descendant or heir.”

The Appellate Court ruled against the children’s appeal for two reasons. One, the decedent must have been unaware of the child’s birth or mistaken about the child’s death, and two, must have failed to have provided for the unknown child solely because of a lack of awareness. The court found that his reason to omit them from his will was not “solely” because he did not know of their existence, but because he had no intention of giving them a share of his estate.

In this case, the general disinheritance provision defeated the claim by the children, since their claim did not meet the two standards that would have supported their claim.

This is another example of how an experienced estate planning attorney creates documents to withstand challenges from unintended outcomes. A last will and testament is created to defend the estate and the decedent’s wishes. If you would like to learn more about inheritance and how to distribute assets to your heirs, please visit our previous posts.

Reference: Lake County News (Aug. 22, 2020) How to Protect Your Estate from Unintended Heirs.

 

digital assets need to be included

How 401(K) Beneficiaries Work

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

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

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

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

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

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

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

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

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

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

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

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

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

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

digital assets need to be included

Estate Planning Needs for Every Stage

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

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

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

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

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

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

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

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

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

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

 

digital assets need to be included

Life Changes Mean Changes For Your Estate

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

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

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

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

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

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

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

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

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

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

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

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

 

digital assets need to be included

What Needs to Happen after a Spouse Dies?

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

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

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

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

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

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

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

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

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

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

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

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

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digital assets need to be included

Digital Asset Laws Are Now More Common

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

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

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

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

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

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

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

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

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

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

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

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

 

digital assets need to be included

How Do I Handle My Inheritance?

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

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

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

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

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