Category: Retirement Accounts

Use Qualified Disclaimer to avoid Inheriting IRA

Use Qualified Disclaimer to Avoid Inheriting IRA

The rules governing inherited Individual Retirement Accounts (IRAs) have changed over the years. They have become even more complex since the passage of the original SECURE Act. The inheritor of an IRA may be required to empty the account and pay taxes on the resulting income within 10 years. In some situations, beneficiaries might choose to use a Qualified Disclaimer to avoid inheriting the IRA, according to a recent article, “How to Opt Out of Inheriting an IRA” from Think Advisor.

Paying taxes on the distributions could put a beneficiary into a higher tax bracket. In some situations, beneficiaries may want to execute a Qualified Disclaimer and avoid inheriting both the account and the tax consequences associated with the inheritance.

Individuals who use a Qualified Disclaimer are treated as if they never received the property at all. Of course, you don’t enjoy the benefits of the inheritance but don’t receive the tax bill.

Suppose the decedent’s estate is large enough to trigger the federal estate tax. In that case, generation-skipping transfer tax issues may come into play, depending on whether there are any contingent beneficiaries.

An experienced estate planning attorney is needed to ensure that the disclaimer satisfies all requirements and is treated as a Qualified Disclaimer. It must be in writing, and it must be irrevocable. It also needs to align with any state law requirements.

The person who wishes to disclaim the IRA must provide the IRA custodian or the plan administrator with written notice within nine months after the latter of two events: the original account owner’s death or the date the disclaiming party turns 21 years old. The disclaiming person must also execute the disclaimer before receiving the inherited IRA or any of the benefits associated with the property.

Once you use the qualified disclaimer to avoid inheriting the IRA, it must pass to the remaining beneficiaries without the disclaiming party’s involvement. The disclaiming party cannot directly decide who will receive their interests, such as directing the inherited IRA to go to their child. If the disclaiming party’s child is already named as a beneficiary, their interest will be received as intended by that child.

The person inheriting the account must execute the disclaimer before receiving any benefits from the account. Even electing to take distributions will prevent the disclaimer from being effective, even if the person has not received any funds.

In some cases, you may be able to disclaim a portion of the inherited IRA. However, these are specific cases requiring the experience of an estate planning attorney. If you would like to learn more about inherited IRAs, please visit our previous posts. 

Reference: Think Advisor (Feb. 8, 2024) “How to Opt Out of Inheriting an IRA”

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Divorce Impacts your Estate Plan

Divorce Impacts your Estate Plan

Divorce is a life-altering event that significantly impacts various aspects of life, including your estate plan. Clients either going through a divorce or have recently finalized one often feel uncertain about how the divorce will affect their estate. This article shares crucial aspects of revising your estate plan after a divorce, ensuring that your assets and loved ones are protected according to your current wishes.

When you get divorced, updating your estate plan is imperative, as your ex-spouse may still be entitled to certain benefits. Your estate, which includes all assets owned, might still be accessible to your ex-spouse unless changes are made. Revising your estate plan ensures that your assets are distributed according to your updated preferences. Updating your will is essential after a divorce. Your ex-spouse may still be named as the executor or beneficiary. By revising your will, you can ensure that your estate is administered by someone you trust and that your assets are distributed according to your latest intentions.

Revoking your power of attorney is a critical step post-divorce. Your ex-spouse may be able to make financial and care decisions on your behalf. It’s advisable to appoint someone you trust to handle these matters, ensuring that your affairs are managed according to your current preferences.

Beneficiary designations are often overlooked during estate planning after divorce. It’s crucial to revise these as your ex-spouse might still be listed as a beneficiary on life insurance policies, retirement accounts and other financial instruments. Updating these designations is a simple yet essential step in ensuring that your estate is distributed according to your current wishes. Your ex-spouse is likely named as a trustee or beneficiary if you have a living trust. Post-divorce, you need to revise this document to reflect your current wishes. This might include appointing a new trustee or changing the beneficiaries.

If you have minor children, your estate plan probably includes guardianship designations. Post-divorce, reassess these choices. You might want to name someone other than your ex-spouse as the guardian, ensuring that your children’s care aligns with your current wishes.

State law and the terms of your divorce decree can impact your estate plan. Understanding these implications and ensuring that your estate plan complies with legal requirements is important. An experienced estate planning attorney can provide valuable insights and guidance.

Don’t wait until the divorce is finalized. Start updating your estate plan as soon as the divorce is pending. This proactive approach ensures that your interests are protected throughout the divorce process.

Divorce significantly affects your estate plan, and it’s crucial to take timely action to revise it. Remember, updating your estate plan post-divorce is not just a legal necessity; ensuring that your assets and loved ones are protected according to your current wishes is crucial. Don’t hesitate to seek professional assistance to navigate this complex process. If you would like to read more about estate planning post divorce, please visit our previous posts. 

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Integrating Retirement Accounts into your Estate Plan

Integrating Retirement Accounts into your Estate Plan

Retirement accounts, such as IRAs and 401(k)s, play a pivotal role in many estate plans. They are not just savings vehicles for retirement; they are also crucial assets that can be passed on to beneficiaries. An effective estate plan should integrate retirement accounts seamlessly, supporting your overall retirement and estate objectives.

When incorporating retirement accounts into an estate plan, it’s essential to understand the tax implications and the rules governing beneficiary designations. These factors can significantly impact how your retirement assets are distributed and taxed upon your death. Retirement accounts are subject to income tax and, in some cases, estate tax.

Retirement accounts, such as IRAs and 401(k)s, typically bypass the probate process, as they are transferred directly to the named beneficiaries. This direct transfer can simplify the estate settlement process and provide quicker access to funds for your beneficiaries. It’s important to understand that while retirement accounts may avoid probate, they are still part of your overall estate for tax purposes. Proper planning can help ensure that your retirement assets are distributed efficiently and tax-advantaged.

Roth IRAs are unique retirement accounts that offer tax-free growth and withdrawals. They can be a valuable tool in estate planning, particularly for those looking to leave tax-free assets to their beneficiaries. Unlike traditional IRAs, Roth IRAs do not require minimum distributions during the account owner’s lifetime, allowing the assets to grow tax-free for a longer period.

When including Roth IRAs in your estate plan, consider the potential tax benefits for your beneficiaries. Since distributions from Roth IRAs are generally tax-free, they can provide a significant financial advantage to your heirs. Tax-deferred retirement accounts, like traditional IRAs and 401(k)s, allow contributions to grow tax-free until withdrawal. This feature can lead to significant tax savings over time. However, it’s essential to consider the tax implications for your beneficiaries.

Beneficiary designations are a critical aspect of retirement planning. These designations determine who will inherit your retirement accounts upon your death. It’s crucial to regularly review and update your beneficiary designations to ensure that they align with your current estate plan and wishes. Failure to update beneficiary designations can lead to unintended consequences, such as an ex-spouse or a deceased individual being named as the beneficiary. Beneficiaries are generally subject to income tax on the distributions upon inheriting a tax-deferred retirement account. Planning for these tax implications is crucial in ensuring that your beneficiaries are not burdened with unexpected taxes.

Retirement assets are considered part of your estate and can impact your overall estate value and tax liability. Properly integrating retirement accounts into your estate plan can help achieve a balanced and tax-efficient distribution of your entire estate. This includes considering the impact on federal and state estate taxes and the income tax implications for your beneficiaries.

In conclusion, integrating retirement accounts into your estate plan is a complex but essential task. Understanding the nuances of how these accounts work in the context of estate and tax planning can ensure that your financial legacy is preserved and passed on according to your wishes. Consultation with financial and legal professionals is key to navigating this intricate aspect of estate planning effectively. If you would like to learn more about retirement accounts, please visit our previous posts. 

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Seniors are missing out on Tax Deductions

Seniors are missing out on Tax Deductions

Many seniors are missing out on tax deductions and tax savings, according to a recent article from The Wall Street Journal, “Four Lucrative Tax Deductions That Seniors Often Overlook.” The tax code is complicated, and changes are frequent.

Since 2017, there have been several major tax changes, including the Tax Cuts and Jobs Act, the pandemic-era Cares Act and the climate and healthcare package known as the Inflation Reduction Act. Those are just three—there’s been more. Unless you’re a tax expert, chances are you won’t know about the possibilities. However, these four could be very helpful for seniors, especially those living on fixed incomes.

The IRS does offer a community-based program, Tax Counseling for the Elderly. This community-based program includes free tax return preparation for seniors aged 60 and over in low to moderate-income brackets. However, not everyone knows about this program or feels comfortable with an IRS-run tax program.

Here are four overlooked tax deductions for seniors:

Extra standard deduction. Millions of Americans take the standard deduction—a flat dollar amount determined by the IRS, which reduces taxable income—instead of itemizing deductions like mortgage interest and charitable deductions on the 1040 tax form.

In the 2023 tax year, seniors who are 65 or over or blind and meet certain qualifications are eligible for an extra standard deduction in addition to the regular deduction.

The extra standard deduction for seniors for 2023 is $1,850 for single filers or those who file as head of household and $3,000 for married couples, if each spouse is 65 or over filing jointly. This boosts the total standard deduction for single filers and married filing jointly to $15,700 and $30,700, respectively.

IRA contributions by a spouse. Did you know you can contribute earned income to a nonworking or low-earning spouse’s IRA if you file a joint tax return as a married couple? These are known as spousal IRAs and are treated just like traditional IRAs, reducing pretax income. They are not joint accounts—the individual spouse owns each IRA, and you can’t do this with a Roth IRA. There are specific guidelines, such as the working spouse must earn at least as much money as they contributed to both of the couple’s IRAs.

Qualified charitable distributions. Seniors who make charitable donations by taking money from their bank account or traditional IRA and then writing a check from their bank account is a common tax mistake. It is better to use a qualified charitable deduction, or QCD, which lets seniors age 70 ½ and older transfer up to $100,000 directly from a traditional IRA to a charity tax-free. Married couples filing jointly can donate $200,000 annually, and neither can contribute more than $100,000.

The contributions must be made to a qualified 501(c)(3) charity. The donation can’t be from Donor-Advised Funds. This is a great option when you need to take the annual withdrawal, known as a Required Minimum Distribution or RMD, and don’t need the money.

Medicare premium deduction. A self-employed retiree can deduct Medicare premiums even if they don’t itemize. This includes Medicare Part B and D, plus the cost of supplemental Medigap policies or a Medicare Advantage plan. The IRS considers self-employed people who own a business as a sole proprietor (Schedule C), partner (Schedule E), limited liability company member, or S corporation shareholder with at least 2% of the company stock.

Remember, you must have business income to qualify, since you can deduct premiums by only as much as you earn from your business. You also can’t claim the deduction if your health insurance is covered by a retiree medical plan hosted by a former employer or your spouse’s employer’s medical plan.

Seniors should consult with an estate planning attorney make sure they are not missing out on possible tax deductions. If you would like to learn more about tax planning, please visit our previous posts. 

Reference: The Wall Street Journal (Nov. 29, 2023) “Four Lucrative Tax Deductions That Seniors Often Overlook”

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Qualified Charitable Distributions benefit older Taxpayers

Qualified Charitable Distributions benefit older Taxpayers

Qualified charitable distributions use the federal tax code to benefit older taxpayers and must take Required Minimum Distributions (RMDs). Recent changes in federal law under the SECURE Act 2.0 present even more opportunities to use QCDs, according to a recent article, “Planning Ahead: Expanding on year-end tax strategies for Qualified Charitable Distributions,” from The Mercury. How does it work?

Required Minimum Distributions for seniors can become a problem since taxpayers above a given age must withdraw specific amounts based on their age from traditional retirement accounts and pay taxes on the withdrawals, regardless of whether they need the money. The reason is obvious: if people weren’t required to take funds out of their accounts, the government would never have the opportunity to generate tax revenue. The QCD lessens the blow of the additional year-end taxes by providing some relief through donations to qualified charities.

Used correctly, the QCD serves two purposes: saving on taxes and benefiting a favorite charity. Charities include any 501(c)(3) entities under the federal tax code. Before using a QCD, ensure the charity you choose is a qualified 501(c)(3). Otherwise, you’ll lose any tax benefits.

Your estate planning attorney can help you understand the process of making a QCD. You’ll need to coordinate with the custodian of the IRA. While some may provide step-by-step information, others require you to coordinate with your estate planning attorney and financial advisor. A reminder—the point of the QCD is that the distribution does not appear in your adjusted gross income and goes directly to the charity.

Usually, taking RMDs adds funds to your taxable income, which can, unfortunately, push you into a higher income tax bracket. It could also limit or eliminate some tax deductions, such as personal exemptions and itemized deductions. There may be increases in taxes on Social Security benefits as well. Whether you want or need to take the RMD, you must take it and include it as taxable income.

Qualified charitable distributions benefit older taxpayers by allowing individuals required to take RMDs to donate up to $100,000 to one or more qualified charities directly from a taxable IRA, without the funds being counted as income.

The RMD age has increased to 73, but the $100,000 will be indexed for inflation. Under SECURE Act 2.0, individuals will be allowed to make a one-time election of up to $50,000 inflation-indexed for QCDs to certain entities, including Charitable Remainder Annuity Trusts, Charitable Remainder Unitrusts and Charitable Gift Annuities.

QCDs cannot be made to donor-advised funds, private foundations and supporting organizations, even though these are often categorized as charities.

It must be noted that the rules concerning QCD are detailed and strict—you’ll want the help of an experienced estate planning attorney.

The QCD must be made by December 31 of the tax year in question. If you would like to learn more about charitable planning, please visit our previous posts. 

Reference: The Mercury (Nov. 22, 2023) “Planning Ahead: Expanding on year-end tax strategies for Qualified Charitable Distributions”

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Avoid Adding Adult Children as Joint Owners

Avoid Adding Adult Children as Joint Owners

It is generally wise to avoid adding adult children as joint owners of your accounts. The conversation may concern a checking or savings account or both. Unsolicited advice usually goes something like this: “If you want to have your children to be able to pay your bills if something happens to you, you need to add them to the account.” While the intentions are good, a recent Spokane Journal of Business article advises otherwise: “Adding adult children to accounts can be problematic.”

People are made to worry even more when they are told that if there is no second name on the account, it will be frozen upon death and no one can access it until a lengthy and costly probate process has occurred.

To do the right thing, many people respond by adding their most responsible adult child to the account. They don’t realize they are creating more problems than they are solving. A better solution exists, and it should be something taken care of when preparing or revising your estate plan.

Why wouldn’t you want to add an adult child to your accounts? Simply put, your last will and testament doesn’t apply to a bank account if it is a joint account. Most bank accounts are owned with a “joint tenancy with right of survivorship.” This means if the primary owner, the parent, should die, the adult child becomes the sole owner of assets in the account, regardless of what your will says.

Assuming that your intention is to split the assets in the account among several beneficiaries, this may or may not happen. The new account owner is under no legal obligation to share the assets, as they are solely and legally entitled to these funds.

Another problem: if the child decides to split the funds and transfer them to siblings, the IRS may see this as a gift subject to the requirement to fill out a gift tax return.

By having a joint owner, you may also expose these assets to creditor claims. What if the child named on the bank account causes a car accident and is sued? Those assets are considered owned by the child and could be attached by a creditor. If your child gets divorced, those assets may also be part of a divorce settlement.

Estate tax reporting gets more complicated. The IRS places an additional burden on accounts held as joint tenants with the right of survivorship. If the child unexpectedly dies first, the law places the burden on the estate to prove the child did not own the asset.

Is there a solution? Yes, a power of attorney.

A power of attorney is a legal document allowing an agent to act on behalf of the parent, providing authorization without ownership. The parent’s goal is almost always to provide authorization and access, but not ownership.

The POA can be made effective immediately upon signing to allow the child immediate access to the account for bill paying. It can apply not only to bank accounts but to all assets. Alternatively, it can also be limited to specific assets.

Avoid adding adult children as joint owners of your financial accounts. Your estate planning attorney can create a POA to authorize an agent to give them as much or as little control as you want. You’ll be able to determine precisely what you do and do not wish your agent to do. If you would like to learn more about managing financial and retirement accounts, please visit our previous posts. 

Reference: Spokane Journal of Business (Nov. 9, 2023) “Adding adult children to accounts can be problematic”

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Retirement Planning Mistakes to Avoid

Retirement Planning Mistakes to Avoid

Planning for your golden years is no small feat. A robust retirement plan is a treasure map to comfort and security in your later life. However, the road to a stress-free retirement is often littered with potential mistakes. Identifying common retirement planning mistakes and knowing the mistakes to avoid can save future retirees from headaches and financial instability.

Are You Underestimating Health Care Expenses When Your Retire?

One retirement mistake made often is underestimating health care costs. It’s easy to overlook long-term care and other health expenses, especially if you’re currently in good health. However, healthcare expenses can deplete your retirement savings faster than anticipated.

As you age, healthcare becomes an integral part of your expenses. Considering potential needs like long-term care, which Medicare does not usually cover, is crucial. Working with a financial planner can help you factor these costs into your retirement plan, ensuring your nest egg is equipped to handle future medical expenses.

Is Your Investment Portfolio Too Aggressive or Conservative?

Your investment strategy plays a pivotal role in your financial security. One of the common retirement mistakes is maintaining an inappropriate investment risk level. As you approach retirement, financial advisors often recommend gradually shifting towards more conservative investments to preserve capital. However, being overly cautious can also impede the growth of your retirement savings.

Discussing your risk tolerance and retirement timeline with a financial advisor is essential. They can help rebalance your portfolio to protect your assets, while still capitalizing on market opportunities.

Have You Neglected Tax Planning?

Tax planning is often overlooked in retirement planning, which can lead to unexpected tax burdens on your retirement income. Without proper planning, everything from social security benefits to withdrawals from your retirement account could be taxed, significantly shrinking your usable income.

Strategies like investing in Roth IRAs, where qualified withdrawals are tax-free, or setting aside funds to handle tax obligations, can be beneficial. It’s advisable to consult with a financial advisor or someone who can provide tax or legal advice to optimize your retirement plan for tax efficiency.

Do You Rely Solely on Social Security Benefits at Full Retirement Age?

A common mistake is assuming that social security benefits will be sufficient as your sole source of income. However, these benefits are designed to supplement your retirement savings account and usually don’t suffice for a comfortable retirement on their own.

It’s essential to have additional sources of income. Strategies like investing, setting up annuities, or continuing part-time work can help ensure a steady income flow throughout retirement, enhancing your financial security.

Are You Withdrawing Too Much, Too Soon?

Careful planning for how much you withdraw in the early years of retirement ensures that you don’t outlive your savings. Retirees sometimes start by withdrawing larger amounts. However, this approach can compromise their financial health in the later stages of retirement.

Setting a sustainable withdrawal rate as part of your retirement plan, considering factors like life expectancy and inflation, is prudent. Financial planners recommend the “4% rule” as a starting point, adjusting as necessary based on individual circumstances and market conditions.

Have You Failed to Consider Inflation?

Inflation can erode the purchasing power of your retirement savings over time, a reality that retirees cannot afford to ignore. A common retirement mistake is failing to factor inflation into retirement planning.

Investing in inflation-protected securities or assets that tend to increase in value over time can help your savings grow in step with or outpace inflation. Regular consultations with your financial advisor can help adjust your strategies to mitigate inflation’s impact.

Did You Forget to Plan Your Estate?

Beyond securing your lifestyle post-retirement, it is also essential to consider how your assets will be distributed upon your death. Without an estate plan, your heirs may not receive the assets you intend to leave them, and legal complications could arise.

Estate planning involves setting up wills, trusts and designating beneficiaries, ensuring that your wishes are honored. Discussing your desires with an experienced estate planning attorney will help ensure that your estate plan is comprehensive and legally sound.

Summary: Key Takeaways to Remember

To wrap up, here are the essential points to remember to avoid these common retirement planning mistakes:

  • Plan for health care costs: Factor in expenses like long-term care and unexpected medical bills.
  • Balance your investment portfolio: Ensure your investments align with your risk tolerance and retirement timeline.
  • Don’t neglect tax planning: Understand potential tax obligations on your retirement income.
  • Supplement social security benefits: Identify additional income sources to bolster your social security income.
  • Adopt a sustainable withdrawal rate: Use strategies like the “4% rule” to avoid depleting your savings prematurely.
  • Protect against inflation: Invest in assets that can counteract the rising cost of living.
  • Establish an estate plan: Prepare the legal mechanisms for asset distribution after your death.

Incorporating these strategies can help you avoid these common mistakes as you plan for retirement and set you on a path to a comfortable and secure retirement. If you would like to learn more about retirement planning, please visit our previous posts.

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What You Should Know about Inherited IRAs

What You Should Know about Inherited IRAs

Here’s what you should know about inherited IRAs. Inheriting an Inherited IRA can be even more complicated than the already complex world of inherited Individual Retirement Accounts (IRAs). Understanding the rules and regulations about inheriting an inherited IRA is critical to avoid major tax pitfalls, according to a recent article from yahoo! finance, “What Happens When I inherit an Annuity?”

After the passage of the SECURE Act, the rules concerning inherited IRAs became quite restrictive. Working with an estate planning attorney knowledgeable about IRAs can be the difference between a healthy inheritance or an unexpected huge tax liability.

An inherited IRA is an IRA left to a beneficiary following the death of the original account owner. The beneficiary who inherits the IRA can pass it to a successor beneficiary upon death. This creates the “inheriting an inherited IRA” scenario.

If the line of succession is not set up correctly, there is the potential for inherited assets to go through probate for a judge to rule on the rightful owner.

The original beneficiary is the first person to inherit the IRA. Once they have inherited the account, they may name their successor beneficiary. There are rules for the original beneficiary and the successor beneficiary.

The SECURE Act changed the timeline for inherited IRAs. It eliminated the “stretch” IRA strategy, which allowed beneficiaries to take distributions over their lifetime, stretching out the tax-deferred growth of the IRA over decades. Now, most non-spouse beneficiaries must withdraw all assets from an inherited IRA within ten (10) years of the original account holder’s death. This change presents new implications with regard to taxes, especially if the beneficiary is in their peak earning years.

Inheriting an inherited IRA can involve complex tax rules and pitfalls. There are timelines for taking required withdrawals and zero flexibility for mistakes.

You’ll also need to be sure the inheritance is documented correctly to avoid potential probate.

The rules differ for spouses inheriting an IRA since they shared assets with their deceased spouse. The SECURE Act allows spouses to treat the IRA as their own, providing more flexibility in distributions and potential tax implications.

Understanding the concept of Year of Death Required Distributions is essential. Let’s say the original owner was over a certain age at death. In this situation, a Required Minimum Distribution (RMD) may need to be taken in the year of death, which could impact the heir’s taxes for that year.

Knowing potential tax breaks related to inherited IRAs will also help with financial management. Non-spouse beneficiaries can deduct the estate tax paid on IRA assets when calculating their income tax.

These are complex issues requiring the help of an experienced estate planning attorney. Ideally, the attorney will help you understand what you should know about inherited IRAs. This conversation should occur while creating or revising your estate plan. If you would like to learn more about IRAs, please visit our previous posts. 

Reference: yahoo! finance (Sep. 5, 2023) “What Happens When I inherit an Annuity?”

 

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Things that should Never Belong in Your Will

Things that should Never Belong in Your Will

Most people don’t enjoy thinking about their mortality. However, creating a will and related estate planning documents makes it much better for loved ones to handle the estate after your passing. Estate planning attorneys know there are certain things that should never belong in your will, says this recent article, “13 Things You Should Never Put In Your Will” from mondaq.

Joint accounts. Accounts owned jointly or with beneficiary designations pass directly to the surviving owner or beneficiary. Putting these items in your will can create confusion and even open the estate to potential litigation.

Personal and private wishes. Don’t use your will to take a stand on family relations or address personal issues from the grave. Settling old scores in a will is a bad idea, as your will becomes a public document, and anyone who wants to can see it.

Business interests for an active business. If your will contains information about a business, it could be easier for the business to function while your estate is being settled. A succession plan and buy-sell agreement are the tools for active businesses, not your will.

Life Insurance. Passing your life insurance policy through a will could lead heirs to lose up to half or a large percentage of estate taxes. Speak with your estate planning attorney about using a life insurance trust instead.

Secure or secret information. Whether personal or business-related, private information will not remain private if it’s in the will. Your will goes through probate and becomes part of the public record, available to prying eyes. Don’t include bank account information, access codes, PIN passwords, keys to crypto, etc.

Significant assets. Even though wills are used to pass assets to heirs after death, this isn’t always the best way to distribute wealth. For instance, if you leave your interest in a business through a will, the court may end up with oversight of their share of the business during probate. Probate also provides a forum for someone to contest their will. Trusts are better tools for leaving assets, since they provide privacy, allow you to dictate highly specific terms and are controlled by a trustee with no court involvement.

Ambiguity. Don’t use vague or general language and expect heirs to figure things out. “I leave my favorite painting to my favorite niece” opens up a world of trouble for the family. The more information you can provide the better. Even if you only have one niece, which is your favorite painting? Similarly, a will directing assets to be left “equally to my two children” won’t work if you’ve welcomed another child into the family.

Assets going through probate when there are other options. Most estate plans are designed to avoid assets going through probate whenever possible. Trusts, beneficiary designations, or gifting while you are living, can simplify distributing assets and avoid probate costs.

Tangible personal property. Jewelry or a valuable art collection should not be bequeathed through a will. These assets may require a professional appraisal, which could delay probate. Instead, assign the property to a trust or leave detailed information outlining how you wish the property to be distributed with the executor.

Funeral and burial instructions. Wills are often read long after funerals have taken place. Your wishes won’t be known or followed. Discuss your preferences with loved ones and document them separately. If you make arrangements in advance with a cemetery and a funeral home, you’ll have the most control over your funeral. Advance planning is a great kindness for your loved ones.

Conditions on gifts and unenforceable conditions. Imposing too many restrictions could complicate your estate and create disputes between beneficiaries. Your wishes will be better set out and made legally enforceable through trusts.

It does not take much to invalidate a will. The things listed above should never belong in your will. Similarly, unenforceable conditions can create controversy and delay the administration of your estate. Discriminatory clauses, illegal actions, or conditions violating a person’s rights can render your entire will or the specific provisions invalid. An experienced estate planning attorney will help you draft a will that is legally sound and secure. If you would like to learn more about wills, please visit our previous posts. 

Reference: mondaq (July 10, 2023) “13 Things You Should Never Put In Your Will”

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Important to Evaluate your Planning before a Second Marriage

Important to Evaluate your Planning before a Second Marriage

Second marriage, goes the saying, is the triumph of hope over experience. It’s a happy event for everyone, but different from the first time around. You might have created an estate plan during your first marriage. Still, chances are your life is a lot more complicated this time, especially if you both have children from prior marriages and more assets than when you were first starting out as a young adult. It is important to evaluate your planning before a second marriage. This is why a recent article from The Bristol Press is aptly titled “Plan your estate before you remarry.”

Here are some pointers to protect you and your new spouse-to-be:

Take an inventory of all assets and liabilities. This includes assets and debts, life insurance policies, retirement plans, credit card debt and anything you own. It’s important to be open and honest about your debts and assets, so that both people know exactly what they are marrying. Once you are married, you may be liable for your partner’s debts. Your credit scores may be impacted as well.

Decide how you are going to handle finances. Once you know what your partner is bringing to the marriage, you’ll want to make clear, unemotional decisions about how you’ll address your wealth. Are you willing to combine all of your assets? Do you want to keep your investment accounts separate?

For example, if one person is selling a home to move into the home owned by the other person, what costs, if any, will they contribute to the cost of the house? If one person has significant debt, do you want to combine finances or make joint purchases? These are not always easy issues. However, they shouldn’t be ignored.

Decide what you want to happen when you die. You and your future spouse should meet with an experienced estate planning attorney to create a will, Power of Attorney, Health Care Proxy and other documents. This lets you map exactly where you want your assets to go when you die. If there are children from prior marriages, you’ll want to ensure they are not disinherited when you die. This can be addressed through a number of options, including creating a trust for your children, making them beneficiaries of life insurance policies, or giving children joint ownership of property.

Even if there are no children, there may be family heirlooms or items with sentimental value you want to keep in the family, perhaps passing to a cousin, nephew, or niece. Discuss this with your future spouse and ensure that it’s included in your will.

Meet with an estate planning attorney. You should take this step even if you don’t have many assets. If you have children, it’s even more important. You’ll want to update your will and any other estate planning documents. If you have significant assets, you may decide to have a prenuptial or postnuptial agreement. The estate planning attorney will also help you determine whether you need a trust to protect your children.

If you had planning done in the past, it is important to sit down with an estate planning attorney to evaluate it in before to a second marriage. If you would like to learn more about estate planning for blended families, please visit our previous posts.

Reference: The Bristol Press (July 14, 2023) “Plan your estate before you remarry”

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Information in our blogs is very general in nature and should not be acted upon without first consulting with an attorney. Please feel free to contact Texas Trust Law to schedule a complimentary consultation.
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