What are an Attorney’s Obligations after You Die?

October 28, 2020

One of the hardest parts of an estate planning attorney’s jobs is managing the death of a client. Estate planning attorneys are highly skilled at creating plans, while clients are living and at administering the plans after their client passes. However, most attorneys become friendly with their clients, and they do grieve when clients pass. What are an attorney’s obligations after you die?

Attorneys can provide the best counsel to their clients, when they are completely honest and upfront with them, explains the article “Attorney-client privilege after a client dies” from LimaOhio.com. While there are some things the attorney doesn’t need to know—like the client’s neighbor’s recent divorce—the more information a client provides their attorney, the better the attorney can help the client and their family.

To encourage a high degree of honesty, there are ethics rules that attorneys are required to follow, including the well-known doctrine of attorney-client privilege.

The attorney-client privilege requires that attorneys keep any confidences and secrets from their clients to themselves. This includes sensitive topics about the clients which the attorney learns from someone other than their client. In other words, the attorney may not share any secrets from the client and about the client.

The attorney-client privilege is designed to protect all aspects of the client’s life, even those parts they may not be proud of.

In some cases, the client’s very identity needs to be kept confidential. If a client wishes to pass an asset on to another person but does not want that person to know who their benefactor was, that secret must not be revealed. If a client has won a multimillion-dollar lottery and wishes to remain private, the attorney is required to keep their identity secret.

This attorney-client privilege applies to the staff in the attorney’s practice also. Something shared with an attorney’s paralegal or secretary must remain confidential, as something that was told directly to the attorney.

To strengthen this privilege further, the attorney-client privilege survives the client’s death. When a client passes, the attorney may not share those secrets.

There are a few exceptions to the rule of the attorney-client privilege that survive a client’s death. Attorneys may discuss their client’s competency to sign documents. The executor of a deceased client’s estate or the spouse of a deceased client has the right to waive this privilege. However, if the client’s secret concerns their spouse or the executor, the attorney may not share that secret in order to allow the executor or spouse to waive that privilege.

If you would like to learn more about documents such as a Will or Trust that manages your estate, please visit our previous posts.

Reference: LimaOhio.com (Oct. 3, 2020) “Attorney-client privilege after a client dies”

How Important Is Avoiding Probate?

October 27, 2020

Estate planning attorneys are often asked if one of the goals of an estate plan is to avoid probate, regardless of the cost. The answer to that question is no, but a better question is “How important is avoiding probate?” In that case, the answer is “It depends.” A closer look at this question is provided in the recent article from The Daily Sentinel, “Estate Planning: Is Probate Something to Avoid at All Costs?”

Probate is not always a nightmare, depending upon where a decedent lived. Probate is a court process conducted by judges, who usually understand the difficulty executors and families are facing, and their support staff who genuinely care about the families involved. This is not everywhere, but your estate planning attorney will know what your local probate court is like. With that in mind, there are certain pitfalls to probate and there are situations where avoiding probate does make sense for your family.

In the case where it makes sense to avoid probate, whatever planning strategy is being used to avoid probate must be carefully evaluated. Does it make sense, or does it create further issues? Here’s an example of how this can backfire. A person provided their estate planning attorney with a copy of a beneficiary deed, which is a deed that transfers property to a designated person (called a “grantee”) immediately upon the death of the person who signed the deed (called a “grantor”).

The deed had been signed and recorded properly with the recorder’s office, just as a typical deed would be during the sale of a home. Note that a beneficiary deed does not transfer the title of ownership, until the grantor dies.

Here’s where things went bad. No one knew about the beneficiary deed, except for the grantor and the grantee. The remainder of the estate plan did not mention anything about the beneficiary deed. When the grantor died, ownership of the property was transferred to the grantee. However, the will contained conflicting instructions about the property and who was to inherit it.

Instead of avoiding probate, the grantor’s estate was tied up in court for more than a year. The family was torn apart, and the costs to resolve the matter were substantial.

Had the deceased simply relied upon the probate process or coordinated the transfer of ownership with his estate planning attorney, the intended person would have received the property and the family would have been spared the cost and stress. Sticking with the use of a last will and testament and the probate process would have protected everyone involved.

An experienced estate planning attorney can help determine the best approach for the family, whether that is avoiding probate or not. If you would like to learn more about probate and trust administration, please visit our previous posts.

Reference: The Daily Sentinel (Oct. 3, 2020) “Estate Planning: Is Probate Something to Avoid at All Costs?”

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”

Digital Assets Need To Be Included

October 20, 2020

One of the challenges facing estate plans today is a new class of assets, known as digital property or digital assets. When a person dies, what happens to their digital lives? Digital assets need to be included in an estate plan, just like any other property, according to the article “Digital assets important part of modern estate planning” from the Cleveland Jewish News.

What is a digital asset? There are many, but the basics include things like social media—Facebook, Instagram, SnapChat—as well as financial accounts, bank and investment accounts, blogs, photo sharing accounts, cloud storage, text messages, emails and more. If it has a username and a password and you access it on a digital device, consider it a digital asset.

Business and household files stored on a local computer or in the cloud should also be considered as digital assets. The same goes for any cryptocurrency; Bitcoin is the most well-known type, and there are many others.

The Revised Uniform Fiduciary Access to Digital Assets Act (RUFADAA) has been adopted by almost all states to provide legal guidance on rights to access digital assets for four (4) different types of fiduciaries: executors, trustees, agents under a financial power of attorney and guardians. The law allows people the right to grant not only their digital assets, but the contents of their communications. It establishes a three-tier system for the user, the most important part being if the person expresses permission in an online platform for a specific asset, directly with the custodian of a digital platform, that is the controlling law. If they have not done so, they can provide for permission to be granted in their estate planning documents. They can also allow or forbid people to gain access to their digital assets.

If a person does not take either of these steps, the terms of service they agreed to with the platform custodian governs the rights to access or deny access to their digital assets.

Digital assets need to be included in your planning. It’s important to discuss this new asset class with your estate planning attorney to ensure that your estate plan addresses your digital assets. Having a list of digital assets is a first step, but it’s just the start. Leaving the family to fight with a tech giant to gain access to digital accounts is a stressful legacy to leave behind.

If you would like to learn more about digital assets and how they are regulated in different states, please visit our previous posts.

Reference: Cleveland Jewish News (Sep. 24, 2020) “Digital assets important part of modern estate planning”

When Do We Need an Elder Law Attorney?

October 16, 2020

Dealing with a sudden decline in a loved one’s health can be overwhelming. Trauma such as a stroke or a brain injury can cause panic. Kiplinger’s article “When Elder Care Requires Legal Advice” explains that this is when a lot of panicked calls are made to elder law attorneys. These attorneys specialize in planning for the legal complications that can arise in old age. However, seldom do people think to consult one preemptively to avoid making that panicked phone call in the first place. So when do we need an elder law attorney?

Elder law attorneys work in the best interests of the older person, although how that is accomplished may differ. If the senior is competent and contacts the attorney, it can be fairly straightforward. However, if an adult family member or friend is an agent or has power of attorney for an elderly person—and asks for help, the attorney is representing the agent. In any event, anyone who has power of attorney has a fiduciary responsibility to do what is best for the elderly person granting them that authority.

If a power of attorney isn’t in place and the elderly parent is incapable of giving it, the family is required to go to court to have someone appointed as a guardian, which can be a time-consuming option. If a parent is cognitively capable and doesn’t want help, there’s nothing an elder law attorney can do about it.

Although state laws vary, elder law primarily concerns these topics:

The client’s wishes and health
Family dynamics; and
The client’s financial assets and income.

An elder care attorney will also make sure that all important documents are in place and up-to-date, according to state laws. This includes a will, a trust, a power of attorney and an advance directive that includes a health care proxy.

Elder law attorneys also help moderate tough decisions, like when family members can’t agree about how a loved one wanted to be buried.

In addition, elder care lawyers understand the complex laws for Medicaid and VA benefits. An elder care lawyer can speak to many other issues, ranging from long-term care insurance to capital gains taxes.

A key when meeting with an elder law attorney is that you feel comfortable, that you’re not rushed and that your questions are answered.

If you would like to learn more about elder law and how best to select an elder law attorney, please visit our previous posts.

Reference: Kiplinger (Sep. 15, 2020) “When Elder Care Requires Legal Advice”

Consider Funding a Trust with Life Insurance

October 14, 2020

You have set up a trust and now you need to fund it. There are many different options available. You might want to consider funding a trust with life insurance. How would funding a trust with life insurance work, and could it be a good option for you? A recent article in Forbes “How to Fund a Trust With Life Insurance” explains how this works. Let’s start with the basics: a trust is a legal entity where one party, the trustee, holds legal title to the assets owned by the trust, which is managed for the good of the beneficiary. There can be more than one person who benefits from the trust (beneficiaries) and there can be a co-trustee, but we’ll keep this simple.

Trusts are often funded with a life insurance policy. The proceeds of the policy provide the beneficiary with assets that are used after the death of the insured. This is especially important when the beneficiaries are minor children and the life insurance has been purchased by their parents. Placing the insurance policy within a trust offers more control over how funds are used.

What kind of a trust should you consider? All trusts are either revocable or irrevocable. There are pros and cons to both. Irrevocable trusts are better for tax purposes, as they are not included as part of your estate. However, with an $11.58 million federal exemption in 2020, most people don’t have to worry about federal estate taxes. With a revocable trust, you can make changes to the trust throughout your life, while with an irrevocable trust, only a trustee can make changes.

Note that, in addition to federal taxes, most states have estate taxes of their own, and a few have inheritance taxes. When working with an estate planning attorney, they’ll help you navigate the tax aspect as well as the distribution of assets.

Revocable trusts are the most commonly used trust in estate planning. Here’s why:

Revocable trusts avoid probate, which can be a costly and lengthy process. Assets left in the revocable trust pass directly to the heirs, far quicker than those left through the will.
Because they are revocable, the creator of the will can make changes to the trust as circumstances change. This flexibility and control make the revocable trust more attractive in estate planning.

If you want to consider funding a trust with life insurance, be sure the policy permits you to name beneficiaries, and be certain to name beneficiaries. Missing this step is a common and critical mistake. The beneficiary designations must be crystal clear. If there are two cousins who have the same name, there will need to be a clear distinction made as to who is the beneficiary. If someone changes their name, that change must be reflected by the beneficiary designation.

There are many other types of trusts, including testamentary trusts and special needs trusts. Your estate planning attorney will know which trust is best for your situation. Make sure to fund the trust and update beneficiary designations, so the trust will achieve your goals.

If you would like to learn more about funding a trust – and what happens if you don’t – please visit our previous posts.

Reference: Forbes (Sep. 17, 2020) “How to Fund a Trust With Life Insurance”

A Legal Battle Between Siblings

October 7, 2020

When your parents pass away, their assets are often divided between their children. However, if there’s no will to answer any legal questions that may arise, siblings can fight over the assets. Some even take the matter to court. It would be great to avoid these battles because, in many cases, a legal battle between siblings over an estate can end their good relationship and enrich attorneys, instead of family members.

The Legal Reader’s recent article entitled “Tips to Help Siblings Avoid or Resolve an Estate Battle” says that the following tips can help people in this situation or assist them in preventing the fight entirely, when there are no instructions for the distribution of certain assets.

Use a Family Auction. With a family auction, siblings use agreed upon “tokens” to bid for the estate items they want.

Get an Appraisal. The division of an estate between the siblings can get complicated and end in a legal battle, if the siblings want different pieces of the estate and have to work out the value difference. If, for example, the siblings decide to split the estate unevenly, and one gets a car and another a house, it’s worthwhile to engage the services of an appraiser to calculate the value of these assets. That way, those pieces of smaller value can be deducted from ones of higher value for fairer distribution.

Mediation. If siblings historically don’t get along, they may cause a legal battle over every trinket left as an inheritance, no matter how immaterial. In that case, you should use a mediator to help divide the estate fairly without a court battle.

Take Turns! Sometimes, if there are several siblings involved in the division of assets, they can take turns in claiming the items within the estate. All siblings naturally have to agree to the idea with no hard feelings involved. Just like Mom would have wanted!

Asset Liquidation. If everything else fails, the easiest way to divide the assets and the estate between the siblings is to go through asset liquidation and split the proceeds.

As you can see, there are a number of ways to deal with the division of the estate and assets and prevent the legal battle between the siblings. To avoid hard feelings, stay calm, be reasonable and ask your siblings to act the same way.

If you would like to learn more about inheritance and the role of heirs in estate planning, please visit our previous posts.

Reference: The Legal Reader (Aug. 24, 2020) “Tips to Help Siblings Avoid or Resolve an Estate Battle”

What Does an Executor Do?

October 2, 2020

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”

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?”

Category: Wills