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What Is Involved with Serving as an Executor?

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

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

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

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

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

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

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

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

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

 

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Gifting Can Help Heirs Reach Goals

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

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

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

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

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

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

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

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

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

 

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Adult Guardianship and Autistic Children

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

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

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

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

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

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

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

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

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

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

 

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Finding The Right Elder Law Attorney

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

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

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

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

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

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

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

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

 

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Keeping The Family Farm In The Family

Most American farms or ranches are family businesses, started by one generation with the hope that the business will be transferred to the next generation. Keeping the family farm in the family matters. However, surveys show that only 20% of farm and ranch owners are confident they have a good plan in place for the transition, reports High Plains Journal in the article “Don’t wait to secure the future of your farm or ranch.” A common reason is that owners just aren’t ready, or they don’t have the time, or the right advice. They could also be put off by the complexity of the process.

Transition planning is possible. There are solutions for every farm, ranch or business, whether the goal is to ensure that your legacy continues, minimize taxes or provide for heirs who are and who are not involved with the business.

Understand that the process can take at least a year. A good estate planning attorney who is familiar with family businesses like yours will be an important help. The process will include both estate and succession planning. Here are some basic steps to help:

Reaching consensus. You’ll need to have discussions to clarify what the senior generation wants, and what their heirs want. Discuss how management and task-focused work is currently divided and who is going to step to up take what tasks.

Keeping the family farm in the family requires developing a plan. How will the operation go forward, and how will assets be distributed? What kind of coaching will be needed to ensure that the next generation has the tools and knowledge to succeed?

Estate planning is the paper and financial part of the process that will provide ways for the operation to mitigate estate taxes and prepare for wealth and asset management.

The succession plan involves the “people” side of the business, including developing vital business management and leadership skills, passing down the values of the founding owners and providing clarity for the family throughout this process.

Implementing the plan. This will be different for every scenario, but might include:

  • Splitting the operation into two entities: one that will operate ranch operations, another that will own the land.
  • Stipulating the owners with two types of ownership: voting and non-voting.
  • Voting ownership—deciding if it is to be retained individually or controlled by a trust.
  • Should non-voting ownership be transferred to trusts to reduce estate taxes?
  • Transfer strategies must be evaluated: gift, sale or stock options.

Here’s the most important concept: start now. Waiting to talk with an estate planning attorney could leave heirs in a situation where they can’t continue the family legacy. A failure to plan could mean they are forced to sell the land that’s been in the family for generations. If you would like to learn more about succession planning, please visit our previous posts.

Reference: High Plains Journal (Aug. 14, 2020) “Don’t wait to secure the future of your farm or ranch”

 

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What Is a Caregiver Agreement?

What is a caregiver agreement? The idea that a family member or trusted friend may be paid to take care of an aging parent or sibling is a welcome one. However, most family members don’t understand the legal complexity involved in privately paying for care, says the recent article “Paying a family member for care” from The Times Herald. Payments made to a family caregiver or a private caregiver can lead to a world of trouble from Medicaid and the IRS.

This is why attorneys create caregiver agreements for clients. The concept is that the care and services provided by a relative or friend would otherwise be performed by an outside person at whatever the going rates are within the person’s community. The payment should be considered a fully compensated transfer for Medicaid eligibility purposes and should not result in any penalty being imposed if it is done correctly.

This is more likely to be avoided with a formal written caregiver agreement. In some states, like Pennsylvania, a caregiver agreement is required to be sure that the payments made to the caregiver are not deemed to be a gift under Medicare rules.

The caregiver agreement must outline the services that are being provided and the rate of pay, which can be in the form of weekly, monthly or a lump sum payment. This is where it gets sticky: that payment should not be higher than what an outside provider would be paid. An excessively high payment would trigger a red flag for Medicaid and could be viewed as a gift.

Medicaid has a five-year look back period, where the applicant’s finances are examined to see if there were efforts to minimize the person’s financial assets to qualify for Medicaid. If any transfers of property or assets are made that are higher than fair market value, it’s possible that it will be viewed as creating a period of ineligibility. That is why it’s so important to have a contract or written agreement in place, when a family member or other person is hired to provide those services and is paid privately.

There are also income tax consequences. The caregiver is considered a household employee by the IRS. They are not considered to be an independent contractor and should not be issued a 1099 to reflect their payment. If that is done, it could be considered to be tax evasion.

Speak with an estate planning attorney about crafting a caregiving agreement and how to handle the tax issue, when privately paying for care. They will help avoid putting Medicaid eligibility in jeopardy, as well as avoiding problems with the IRS.

Reference: The Times Herald (Aug. 13, 2020) “Paying a family member for care”

 

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What Happens If You Don’t Fund Your Trust?

What happens if you don’t fund your trust? Trust funding is a crucial step in estate planning that many people forget to do. However, if it’s done properly, funding will avoid probate, provide for you in the event of your incapacity and save on estate taxes.

Forbes’s recent article entitled “Don’t Overlook Your Trust Funding” looks at some of the benefits of trusts.

Avoiding probate and problems with your estate. If you’ve created a revocable trust, you have control over the trust and can modify it during your lifetime. You are also able to fund it, while you are alive. You can fund the trust now or on your death. If you don’t transfer assets to the trust during your lifetime, then your last will must be probated, and an executor of your estate should be appointed. The executor will then have the authority to transfer the assets to your trust. This may take time and will involve court. You can avoid this by transferring assets to your trust now, saving your family time and aggravation after your death.

Protecting you and your family in the event that you become incapacitated. Funding the trust now will let the successor trustee manage the assets for you and your family, if your become incapacitated. If a successor trustee doesn’t have access to the assets to manage on your behalf, a conservator may need to be appointed by the court to oversee your assets, which can be expensive and time consuming.

Taking advantage of estate tax savings. If you’re married, you may have created a trust that contains terms for estate tax savings. This will often delay estate taxes until the death of the second spouse, by providing income to the surviving spouse and access to principal during his or her lifetime while the ultimate beneficiaries are your children. Depending where you live, the trust can also reduce state estate taxes. You must fund your trust to make certain that these estate tax provisions work properly.

Remember that any asset transfer will need to be consistent with your estate plan. Your beneficiary designations on life insurance policies should be examined to determine if the beneficiary can be updated to the trust.

You may also want to move tangible items to the trust, as well as any closely held business interests, such as stock in a family business or an interest in a limited liability company (LLC). Ask an experienced estate planning attorney about the assets to transfer to your trust.

Fund your trust now to maximize your updated estate planning documents. To learn more about trusts, how they work, and if they are right for you, please read our previous posts. 

Reference: Forbes (July 13, 2020) “Don’t Overlook Your Trust Funding”

 

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What Is a Testamentary Trust?

What is a testamentary trust? It is a legal document that’s part of your will. It goes into effect after your death. This trust holds property for your heirs’ benefit and comes into effect when three criteria are met:

  • the testator has died
  • the will goes through probate; and
  • and the terms of the trust are still relevant.

US News and World Report’s recent article entitled How Do I Create A Testamentary Trust? explains that a frequent reason to create a testamentary trust, is to provide for your children after your death.

Testamentary trusts are not the same as living trusts. Those trusts become effective while you’re still alive. The main purpose of a living trust is to allow assets within the trust to avoid the legal proceedings associated with administering the will in the probate process.

With a testamentary trust, assets are transferred to the trust at your death through your will. As a result, they’re subject to probate proceedings.

A living trust can be revocable. That means it can be modified at any time. There’s also an irrevocable trust, which means that it can’t be changed once it’s finalized. A testamentary trust can be changed up, until the creator’s death.

A testamentary trust is often used when the creator has minor children and wants to provide some financial control over the assets, if both parents die while the children are minors. It can arrange management of those assets by a trustee.

You can also employ a testamentary trust for Medicaid planning. State law has a lot to do with how this works, so it is best to speak with an experienced estate planning attorney or elder law attorney.

Generally speaking, if you have a beneficiary who needs Medicaid government benefits, a supplemental needs trust or Medicaid trust can help the beneficiary afford needed expenses, without disqualifying them from the program’s benefits.

Note that Medicaid benefits are available to people who own few assets and eligibility is income-based.

If you would like to learn more about the different types of trusts, please visit our previous posts.

Reference: US News and World Report (Aug. 6, 20201) “How Do I Create A Testamentary Trust?”

 

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What Is a Qualified Personal Residence Trust?

What is a Qualified Personal Residence Trust? It takes your personal residence out of your estate, and has some advantages, especially when it comes to taxes. The QPRT is a type of irrevocable trust, so once it is created, it is permanent and cannot be reversed. The QPRT is also a type of grantor trust, meaning that the trust creator or grantor may take advantage of gift tax exemptions for property placed in the trust, explains the article “Qualified Personal Residence Trust (QPRT)” from yahoo! finance.com.

As a grantor, you can live in the home for a period of time, with a retained interest in the property. Once the QPRT term ends, ownership of the property gets transferred to the beneficiaries of the trust.

When you establish a QPRT, you take your personal residence, a primary or secondary home, out of your estate and place it in the trust. While the trust is in place, you and your family may live in the home, and you continue to be responsible for maintaining the property’s upkeep. You also still have to pay property taxes.

Any appreciation that occurs after the transfer takes place is also removed from your estate. Because you retain an interest in the residence, you can reduce the amount of property’s value that is subject to estate and gift taxes from your estate.

However, there is one rule you need to know before setting up the QPRT—you must outlive the term of the trust. If you don’t, the entire value of the residence may be included in your estate, which destroys the key reason for setting up the trust.

This is a complex tool for estate planning, and it isn’t for everyone. A QPRT can be good for creating a financial legacy for beneficiaries, helps your estate avoid taxes after your death and if you are paying rent to trust beneficiaries, creates another path to minimize estate taxes.

On the other hand, a QPRT is irrevocable. Therefore, if your circumstances change, it may not be useful for you but you won’t be able to undo it. If you die before the end of the term, any benefits for gift or estate taxes are lost. If there is a mortgage on the property, mortgage payments might be counted against gift tax exemptions.

Attempting to refinance a home that’s owned by a QPRT is difficult, and in many circumstances, not even possible. You don’t own the home, the trust does. Therefore, the property cannot be used as collateral. Selling a home that is owned by a QPRT is also far more complicated than selling the property if you owned it outright.

An estate planning attorney will analyze your estate and tax situation to determine if a QPRT is a useful tool for you and your family. To learn more about QPRTs and other types of trusts, please read our previous posts.

Reference: yahoo! finance.com (July 29, 2020) “Qualified Personal Residence Trust (QPRT)”

 

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Different Trusts for Different Estate Planning Needs

There are a few things all trusts have in common, explains the article “All trusts are not alike,” from the Times Herald-Record. They all have a “grantor,” the person who creates the trust, a “trustee,” the person who is in charge of the trust, and “beneficiaries,” the people who receive trust income or assets. There are different trusts for different estate planning needs. Here’s an overview of the different types of trusts and how they are used in estate planning.

“Revocable Living Trust” is a trust created while the grantor is still alive, when assets are transferred into the trust. The trustee transfers assets to beneficiaries, when the grantor dies. The trustee does not have to be appointed by the court, so there’s no need for the assets in the trust to go through probate. Living trusts are used to save time and money, when settling estates and to avoid will contests.

A “Medicaid Asset Protection Trust” (MAPT) is an irrevocable trust created during the lifetime of the grantor. It is used to shield assets from the grantor’s nursing home costs but is only effective five years after assets have been placed in the trust. The assets are also shielded from home care costs after assets are in the trust for two and a half years. Assets in the MAPT trust do not go through probate.

The Supplemental or Special Needs Trust (SNT) is used to hold assets for a disabled person who receives means-tested government benefits, like Supplemental Security Income and Medicaid. The trustee is permitted to use the trust assets to benefit the individual but may not give trust assets directly to the individual. The SNT lets the beneficiary have access to assets, without jeopardizing their government benefits.

An “Inheritance Trust” is created by the grantor for a beneficiary and leaves the inheritance in trust for the beneficiary on the death of the trust’s creator. Assets do not go directly to the beneficiary. If the beneficiary dies, the remaining assets in the trust go to the beneficiary’s children, and not to the spouse. This is a means of keeping assets in the bloodline and protected from the beneficiary’s divorces, creditors and lawsuits.

An “Irrevocable Life Insurance Trust” (ILIT) owns life insurance to pay for the grantor’s estate taxes and keeps the value of the life insurance policy out of the grantor’s estate, minimizing estate taxes. As of this writing, the federal estate tax exemption is $11.58 million per person.

A “Pet Trust” holds assets to be used to care for the grantor’s surviving pets. There is a trustee who is charge of the assets, and usually a caretaker is tasked to care for the pets. There are instances where the same person serves as the trustee and the caretaker. When the pets die, remaining trust assets go to named contingent beneficiaries.

A “Testamentary Trust” is created by a will, and assets held in a Testamentary Trust do not avoid probate and do not help to minimize estate taxes.

An estate planning attorney in your area will know which of these trusts will best benefit your situation.

Reference: Times Herald-Record (August 1,2020) “All trusts are not alike”