Creating a Letter of Last Instruction

January 26, 2021

It is important to know that a Letter of Last Instruction does not pass through a legal process. It’s an informal but organized method of providing your family with instructions on the decisions related to financial and personal matters that should be made when you die. This can also be an alternative way of ensuring that your family are cared for after your death and to prevent issues that could arise from not probating the will. There are things you need to know when creating a letter of last instruction.

Qrius’ recent article entitled “How to Prepare a Letter of Last Instruction” explains that preparing it can relieve your relatives of added headaches and stress after your death because it can provide crucial information on personal, financial and funeral matters. Here are some ideas as to what to include when creating your letter of last instruction:

Personal info. This is a basic information like your full name, date of birth, father’s name and mother’s maiden name, address, Social Security number and place of birth. Add information about significant people in your life, like family, friends, business partners, clergy and others you’d like to be notified about your death.

Business and Financial Contacts. List the contact info of your business and financial partners, as well as your accountant and investment adviser. Include information on your insurance policies, as well as your bank account details.

Legal Document Location. Make sure your executor can find important legal documents, such as your will, tax returns, marriage license, Social Security card, birth certificates, trust documents, deeds, veteran benefits info and contracts. State the location of those documents in your Letter of Last Instruction.

Loan and Debt Info. Make a list of creditors containing collateral and payment terms, along with any credit card account numbers and loan account numbers. Likewise, list the people who owe you money, including their contact info and collateral and payment terms.

Usernames and Passwords. Include a section with your usernames and passwords for your online banking accounts, social media email, computer, smartphone and other electronics, so your executor or someone responsible for overseeing your estate can be certain your accounts and financial information are not compromised after your death.

Beneficiaries. Make a list of the names and contact details of all your beneficiaries with additional information on specific instructions you may want to give to clarify your intentions on the distribution of the assets.

Funeral Arrangements. Include your desires as to your funeral arrangements, such as the type of flowers, pictures and service music. You can also state the clothes in which you wish to be buried, the type of service and location and other items that will help your family with this task.

Once you have the letter, be sure your executor or at least a close family member knows where it can be located after your death.

Ask an experienced estate planning attorney for pointers on creating your letter of last instruction and keep updating it regularly.

If you would like to learn more about letters of instruction, and other instruments in an estate plan, please visit our previous posts.

Reference: Qrius (Dec. 8, 2020) “How to Prepare a Letter of Last Instruction”

Naming a Guardian for Your Children

November 20, 2020

Many young couples with children and bills to pay may look at you askance, when asked about estate planning and say, “what estate?” However, a critical part of having a will—one frequently overlooked—is naming a guardian for your children. If you don’t name a guardian, it could result in issues for your children after your death. Your child might even be placed in a foster home.

For a young family, naming a guardian for their children is another good reason to draft a will. If you and your spouse die together with no guardian specified in a will, the guardian will be chosen by the court.

In a worst-case scenario, if you have no close family or no one in your family who can take your child, the court will send them to foster care, until a permanent guardian can be named.

The judge will collect as much information as possible about your children and family circumstances to make a good decision.

However, the judge won’t have any intimate knowledge of who you know or which of your relatives would be good guardians. This could result in a choice of one of the last people you might pick to take care of your child.

Try to find common ground when naming a guardian for your children, by agreeing to a set of criteria you want in that person. This could include the following:

The potential guardian’s willingness to be a guardian
The potential guardian’s financial situation
Where the child might live with that person
The potential guardian’s values, religion, or political beliefs
The potential guardian’s parenting skills; and
The potential guardian’s age and health.

Next, make a decision, get the chosen guardian’s consent, write it all down, and then set out to create a will.

Naming a guardian for your children need not be a difficult event. Ask an experienced estate planning attorney to help you do it correctly.

If you would like to learn more about guardianship and other needs for young families, please visit our previous posts.

Reference: Lifehacker (Oct. 27, 2020) “Why You Should Name a Guardian for Your Kids Right Away”

How Do I Keep Money in the Family?

October 26, 2020

That seems like an awfully large amount of money. You might think only the super wealthy need to worry about estate planning, but you’d be wrong to think planning is only necessary for the 1%. So how do I keep money in the family?

US News and World Report’s recent article entitled “5 Estate Planning Tips to Keep Your Money in the Family” reminds us that estate taxes may be only part of it. In many cases, there are income tax ramifications.

Your heirs may have to pay federal income taxes on retirement accounts. Some states also have their own estate taxes. You also want to make certain that your assets are transferred to the right people. Speaking with an experienced estate planning attorney is the best way to sort through complex issues surrounding estate planning. When trying to keep money in the family, here are some things you should cover:

Create a Will. This is a basic first step. However, 68% of Americans don’t take it. Many of those who don’t have a will (about a third) say it’s because they don’t have enough assets to make it worthwhile. This is not true. Without a will, your estate is governed by state law and will be divided in probate court. Ask an experienced estate planning attorney to help you draft a will. You should also review it on a regular basis because laws and family situations can change.

Review Your Beneficiaries. Perhaps the simplest way to keep money in the family. There are specific types of accounts, like retirement funds and life insurance in which the owners designate the beneficiaries, rather than this asset passing via the will. The named beneficiaries will also supersede any directions for the accounts in your will. Like your will, review your account beneficiaries after any major life change.

Consider a Trust. Ask an experienced estate planning attorney about a trust for possible tax benefits and the ability to control when a beneficiary gets their money (after they graduate college or only for a first home, for example). If money is put in an irrevocable trust, the assets no longer belong to you. Instead, they belong to the trust. That money can’t be subject to estate taxes. In addition, a trust isn’t subject to probate, which keeps it private.

Convert to Roth’s. If you have a traditional 401(k) or IRA account, it will help keep money in the family, but it might unintentionally create a hefty tax bill for your heirs. When your children inherit an IRA, they inherit the income tax liability that goes with it. Regular income tax must be paid on distributions from all traditional retirement accounts. In the past, non-spousal heirs, such as children could “stretch” those distributions over their lifetime to reduce the total amount of taxes due. However, now the account must be completely liquidated within 10 years after the death of the owner. If the account balance is substantial, it could necessitate major distributions that may be taxed at a higher rate. To avoid leaving beneficiaries with a large tax bill, you can gradually convert traditional accounts to Roth accounts that have tax-free distributions. The amount converted will be taxable on your income taxes, so the objective is to limit each year’s conversion, so it doesn’t move you into a higher tax bracket.

Make Gifts While You’re Alive. A great way to make certain that your money stays in the family, is to just give it to your heirs while you’re alive. The IRS allows individuals to give up to $15,000 per person per year in gifts. If you’re concerned about your estate being taxable, these gifts can decrease its value, and the money is tax-free for recipients.

Charitable Donations. You can also reduce your estate value, by making charitable donations. Ask an experienced estate planning attorney about setting up a donor-advised fund, instead of making a one-time gift. This would give you an immediate tax deduction for money deposited in the fund and then let you make charitable grants over time. You could designate a child or grandchild as a successor in managing the fund.

Complicated strategies and a constantly changing tax code can make keeping money in the family feel intimidating. However, ignoring estate planning can be a costly mistake for your heirs. Talk to an estate planning attorney. If you would like to learn more about estate tax planning, please visit our previous posts.

Reference: US News and World Report (Sep. 30, 2020) “5 Estate Planning Tips to Keep Your Money in the Family”

Your Estate Plan May Need an Audit

October 22, 2020

You should have an estate plan because every state has statutes that describe how your assets are managed, and who benefits if you don’t have a will. Most people want to have more say about who and how their assets are managed, so they draft estate planning documents that match their objectives. If you created an estate plan years – or even decades ago – your estate plan may need an audit.

Forbes’ recent article entitled “Auditing Your Estate Plan” says the first question is what are your estate planning objectives? Almost everyone wants to have financial security and the satisfaction of knowing how their assets will be properly managed. Therefore, these are often the most common objectives. However, some people also want to also promote the financial and personal growth of their families, provide for social and cultural objectives by giving to charity and other goals. To help you with deciding on your objectives and priorities, here are some of the most common objectives:

Making sure a surviving spouse or family is financially OK
Providing for others
Providing now for your children and later
Saving now on income taxes
Saving on estate and gift taxes in the future
Donating to charity
Having a trusted agency manage my assets, if I am incapacitated
Having money for my children’s education
Having retirement income; and
Shielding my assets from creditors.

Speak with an experienced estate planning attorney about the way in which you should handle your assets. If your plan doesn’t meet your objectives, your estate plan should be revised. This estate planning audit will include a review of your will, trusts, powers of attorney, healthcare proxies, beneficiary designation forms and real property titles.

Note that joint accounts, pay on death (POD) accounts, retirement accounts, life insurance policies, annuities and other assets will transfer to your heirs by the way you designate your beneficiaries on those accounts. Any assets in a trust won’t go through probate. “Irrevocable” trusts may protect assets from the claims of creditors and possibly long-term care costs, if properly drafted and funded.

Another question is what happens in the event you become mentally or physically incapacitated and who will see to your financial and medical affairs. Use a power of attorney to name a person to act as your agent in these situations.

If you have decided that your estate plan needs an audit and you find that your plans need to be revised, follow these steps:

Work with an experienced estate planning attorney to create a plan based on your objectives
Draft and execute a will and other estate planning documents customized to your plan
Correctly title your assets and complete your beneficiary designations
Create and fund trusts
Draft and sign powers of attorney, in the event of your incapacity
Draft and sign documents for ownership interest in businesses, intellectual property, artwork and real estate
Discuss the consequences of implementing your plan with an experienced estate planning attorney; and
Review your plan regularly.

To learn more about estate planning documents such as a trust or will, please visit our previous posts.

Reference: Forbes (Sep. 23, 2020) “Auditing Your Estate Plan”

Do I Have to Accept an Inheritance?

October 1, 2020

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?”

Understanding The Role Of An Executor

July 30, 2020

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

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

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

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

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

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

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

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

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

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

Category: Intestacy

Creating a Letter of Last Instruction

Naming a Guardian for Your Children

How Do I Keep Money in the Family?

Your Estate Plan May Need an Audit

Do I Have to Accept an Inheritance?

Understanding The Role Of An Executor

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