There are pros and cons to charitable trusts

How to Organize Digital Assets

December 28, 2020

Did you ever wonder what happens to old emails, videos, or photos when people die? Some family stories become headlines, when families battle with big tech firms to get their loved one’s photos or business records. Today, you need to plan for how to organize digital assets, as explained in a recent article “Don’t leave grieving relatives searching for your passwords: Here’s how to organize your digital life before you die” from USA Today.

Your digital life includes far more than your photos or business records. It includes financial accounts, like PayPal or Venmo, websites, videogames, online investment portfolios, social media, online video games and anything for which you need a password.

Social media accounts that are not closed down or deleted when someone dies, are at risk of being taken over by cybercriminals, who use the accounts to get access to financial accounts and use the decedent’s identity to commit crimes across the internet.

Start by making a list of all of your accounts, including account numbers, usernames and passwords. If the account has two-factor authentication, you’ll need to include that information as well. If the account uses biometrics, like a facial scan, you’ll need to find out from the platform itself how you can create a directive to allow another person to gain access to the account.

Your will needs to reflect the existence of digital assets and name a person who will be your digital executor. Many states have passed legislation concerning how digital assets are treated in estate planning, so check with your estate planning attorney to learn what your state’s requirements are.

In many cases, the best option is to use the platform’s own account tools for digital assets. Google, Facebook, PayPal, and a number of other sites offer the ability to name a legacy contact who will be able to gain some access to an account, to access the information and to delete the account in the event of your death.

One big issue in digital estate planning is that some platforms automatically delete accounts and their contents, if the account is inactive for a certain amount of time. Content may be lost forever, if the proper steps are not taken.

Some financial advisors maintain online portals, where their clients may store important documents that can be accessed from anywhere in the world. This may be an option, in addition to keeping an organized list of digital assets in the same location where you keep your estate planning documents.

We all live in a digital world now, and when a person dies, it’s challenging to locate all of their accounts and gain access to their contents. Your grandchildren may be able to figure out some workarounds, but it would be much easier if you organize digital assets and make them a part of the conversation you had with your children when discussing your estate plan.

If you would like to learn more about digital assets and how to protect them, please visit our previous posts.

Reference: USA Today (Nov. 25, 2020) “Don’t leave grieving relatives searching for your passwords: Here’s how to organize your digital life before you die”

Ethical Will Should Be Part of Your Planning

December 22, 2020

Scenes like this have taken place across the country since March, and many patients and loved ones have had strained conversations over phone or video calls, struggling to find the right words and hoping that their words can be heard. However, it’s impossible to share all of the family’s thoughts during this most trying of times, says a recent article “The Importance of Writing an Ethical Will—for You and to Those You Love” from The Wall Street Journal. The increasing interest in estate planning during the pandemic has seen many Americans waking up to the realization they must get their estate plans in order. They focus on preparing wills, health care proxies and powers of attorney, which are important. However, there is another document that needs to be completed. An ethical will should be part of your planning.

The ethical will is a statement used to transmit an individual’s basic values, history and legacy they would like to leave behind. It’s usually directed to children and grandchildren, but it can have a larger audience as well, and be shared with the friends who have become like family over a lifetime, or to communities, like houses of worship or civic groups.

The act of writing an ethical will as part of your planning reveals things the writer may not have even been aware of or leads to connections being made that had never been imagined. It is a chance to preserve parts of the person’s history, as well as the history of their ancestors. It is a wonderful gift to share your deepest wishes with those who are so important to you. An ethical will can bond people and generations, whether the letter is shared while you are living or after you have passed and lead to a sense of belonging to something bigger than each individual.

One of the most famous ethical wills was written by Shalom Aleichem, the famous Yiddish writer, and was printed in The New York Times after his death in 1916. While prepared as a last will and testament, it was a wonderful story that shared his values. He suggested that family and friends meet every year on the anniversary of his death, select a joyous story from the many he had written and read it aloud and “let my name be mentioned by them with laughter rather than not be mentioned at all.”

Even those of us who are not skilled writers have thoughts and wishes and history to share with our loved ones. Here are some questions to consider, when preparing your ethical will:

Who is it directed to?
Were there specific people and events who influenced your life?
What family history or stories would you want to pass on to the next generation?
What ethical or religious values are important to you?

While you work on completing a new estate plan, or updating an existing plan, take a moment to consider your ethical will and what you would like to share with your loved ones. The time to complete your estate plan and your ethical will should be part of your planning.

If you would like to learn more about different parts of a comprehensive estate plan, please visit our previous posts.

Reference: The Wall Street Journal (Nov. 17, 2020) “The Importance of Writing an Ethical Will—for You and to Those You Love”

Probate Is Required For A Surviving Spouse

December 15, 2020

Probate, also called “estate administration,” is the management and final settlement of a deceased person’s estate. It is conducted by an executor, also known as a personal representative, who is nominated in the will and approved by the court. Probate is required for a surviving spouse. Estate administration needs to be done when there are assets subject to probate, regardless of whether there is a will, says the article “Probating your spouse’s will” from The Huntsville Item.

Probate is the formal process of administering a person’s estate. Probate is required for a surviving spouse. In the absence of a will, probate also establishes heirship. In some regions, this is a quick and easy process, while in others it is a lengthy, complex and expensive process. The complexity depends upon the size and value of the estate, whether a proper estate plan was prepared by the decedent prior to death and if there are family members or others who might contest the will.

Family dynamics can cause a tremendous amount of complications and delays, especially if the family has blended children from prior marriages or if a child has predeceased their parents.

There are some exceptions, when the estate is extremely small and when probate is not required. However, in most cases, it is required.

A recent District Court case ruled that a will not admitted to probate is not effective for proving title and thereby ownership, to real estate. A title company was sued for defamation after the title company issued a title report that included the statement that the decedent had died intestate, that is, without a will.

The decedent’s son, who was her executor, sued the title company because his mother did indeed have a will and the title report was defamatory. The court rejected this theory, and the case was brought to the Appellate Court to seek relief for the family. The Appellate Court ruled that until a will has been admitted to probate, it is not effective for the purpose of proving title to real property.

If a person owns real estate, they must have an estate plan to ensure that their property can be successfully transferred to heirs. When there is no estate plan, heirs find out how big a problem this can be when someone decides they want to sell the property or divide it up among family members.

Problems also arise when the family, or surviving spouse, finds that they must pay taxes on the property, or that there are expenses that must be paid to maintain the property. Without a will, the disposition of the property is determined by the state’s estate law. Things can become complicated quickly, when there is no will.

If the deceased spouse has children from outside the most recent marriage, those children may have rights to the property and end up owning a portion of the property along with the surviving spouse. However, neither the children nor the surviving spouse can sell the property without each other’s approval. This is a common occurrence.

There are also limitations as to how probate can be used to distribute and manage an estate. In some states, the time limit is four years from the date of death.

If you are a surviving spouse and required to go through probate when there is no will, an estate planning attorney can help you move through the probate process more efficiently. A better situation would be for the family to speak with their parents about having a will and estate plan created before it’s too late.

If you would like to learn more about probate, and how to protect your spouse and children, please visit our previous posts.

Reference: The Huntsville Item (Nov. 22, 2020) “Probating your spouse’s will”

How Do You Handle A Large Inheritance?

December 9, 2020

How do you handle a large inheritance? Wealth Advisor’s recent article entitled “Death by inheritance: Windfall can cause complications” cautions that in a community property state, if you’re married, your inheritance is separate property. It will stay separate property, provided it’s not commingled with community funds or given to your spouse. That article says that it is much harder to do than it looks.

One option is for you and your spouse to sign a written marital agreement that states that your inheritance (as well as any income from it) remains your separate property. However, you have to then be careful that you keep it apart from your community property.

If your spouse doesn’t want to sign such an agreement, then speak to an attorney about what assets in your inheritance can safely be put into a trust. If you do this, take precautions to monitor the income and keep it separate.

Another route is to put your inheritance into assets held in only your name and segregate the income from them. This is important because income from separate property is considered community property.

Another tip for handling a large inheritance, is to analyze it by type of asset. IRAs and other qualified funds take very special handling to avoid unnecessary taxes or penalties. If you immediately cash out your inherited traditional IRA, you’ll forfeit a good chunk of it in taxes. If you don’t take the mandatory distribution of a Roth IRA, you’re going see a major penalty.

Inherited real estate has its own set of issues. If you inherited only part of a piece of real property, then you’ll have to work with the other owners as to its use, maintenance, and/or sale. For example, your parents’ summer home is passed to you and your three siblings. If things get nasty, you may have to file a partition suit to force a sale, if your siblings aren’t cooperative. Real estate can also be encumbered by an environmental issue, a mortgage, delinquent taxes, or some other type of lien.

Some types of assets are just a plain headache: timeshares, partnership, or entity interests that don’t have a buy-sell agreement, along with Title II weapons (which may be banned in your state).

You can also refuse an inheritance by use of a disclaimer. It’s a procedure where you decline to take part or all of an inheritance.

Finally, speak with an experienced estate planning attorney that is familiar with how to handle a large inheritance, so you can incorporate that inheritance into your own estate plan.

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

Reference: Wealth Advisor (Nov. 10, 2020) “Death by inheritance: Windfall can cause complications”

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Estate Planning Presents Emotional Challenges

December 8, 2020

More than two-thirds of all advisors surveyed by Key Private Bank said the hardest part of estate planning is navigating family dynamics, according to a 2019 survey. The sensitivity of simply talking about estate planning presents emotional challenges to putting a plan in place, especially when the family includes multiple marriages and blended families.

Advice is offered in a recent news article from CNBC, “Executor of a Family Estate? Here’s How to Avoid Infighting Over Inherited Wealth.”

Much of the problem, experts say, stems from poor communication. A dialogue needs to be open between generations that is a two-way conversation. In most instances, the older generation needs to invite the younger generation to get the ball rolling.

A lack of clarity and transparency can lead to problems. One example is a father leaving the family farm to his children, with a plan that also included money to help run the farm and legal documents to help the transition go smoothly. However, the children didn’t want the farm. They wanted to sell. Disagreements broke out between siblings, and the family was bogged down in a big fight.

Clearly Dad needed to talk with the children, while his estate plan was being created. The children needed to be upfront and honest about their plans for the future, and the issue could have been solved before the father’s death. The lesson: talk about your wishes and your children’s wishes while you are living.

After someone dies, they may leave behind an entire estate, with a lifetime of personal items that they want to gift to family members. However, if these items are not listed in the will, the heirs have to decide amongst themselves who gets what. This is asking for trouble, whether the items have sentimental or financial value. In fact, sentimental items often generate the most controversy.

When conflicts arise, the presence of a third party who doesn’t have emotional attachments and is not embroiled in the family dynamics can be helpful.

If the issue is not addressed before death, there are a few ways to move forward. An estate planning attorney who has seen many families go through the emotional challenges of estate planning can offer suggestions while the will is being prepared. There are facilitators or mediators who can help, if things get really rocky.

Heirs may wish to create a list of items that they would like to be reviewed by the executor. This option works best, if the executor is not a sibling, otherwise charges of favoritism and “Mom always liked you best” can spiral into family spats.

Some families group items into buckets of equal value, others set up a lottery to determine who picks first, second, etc., and some families literally roll the dice to make decisions.

If you would like to learn more about inheritance and distributing personal property, please visit our previous posts.

Reference: CNBC (Nov. 12, 2020) “Executor of a Family Estate? Here’s How to Avoid Infighting Over Inherited Wealth”

Understanding What Legacy Planning Means

December 1, 2020

Asset distribution is how many estate plans begin, but we can create legacies for generations to come through our estate planning, says Kiplinger in the article “Legacy Planning: Create a Lasting Legacy.” You may not realize it until you sit down to prepare an estate plan, or even until you prepare a second estate plan. Your life has been devoted to building wealth and now it’s time to plan for the next generation. This is when estate planning becomes legacy planning. Let’s start by understanding what legacy planning means.

Why is Legacy Planning Important?

If the goal is to leave wealth to children, the plan may be simply to bequeath assets.

However, if children are not good at handling money or if there is a concern about a marriage’s longevity, then you’ll want to look past a simple transfer of assets on death. For some families, a concern is leaving too much wealth to children, undermining the parent’s life of work and respect for their accomplishments. Understanding legacy planning addresses these and other serious issues.

Which Documents are Necessary for Estate Planning?

Most people need the following documents:

Revocable Living Trust, or RLT. The person who creates this trust maintains full control of assets that are titled to the trust while they are living, and then directs how assets are to be passed on when one spouse dies and then after both spouses die.

Pour-Over Wills. Used in conjunction with a RLT, these work to direct assets to the RLT.

Durable Power of Attorney. These documents are part of planning for incapacity. They designate a person who will make financial and/or legal decisions for you, if you cannot do so.

Health Care Directives. Note that these have different names and details, depending on the state. For most people, they consist of a Living Will and a Durable Power of Attorney for Health Care. Together, these two documents provide a platform for you to share wishes about medical care. The Living Will gives guidance about your wishes, if you become too sick to communicate, including your wishes on pain medication, artificial feeding and hydration and resuscitation. The Durable Power of Attorney (sometimes called a Health Care Proxy) names a person who can make health care decisions, if you can’t do so for yourself.

How Do I Leave a Lasting Legacy?

Many people believe that their children should be the only beneficiaries of their wealth. However, for others, even those with modest estates, supporting an organization that has meaning to them through a gift in their will is just as important as leaving money to children and grandchildren.

Here are a few questions to consider when thinking about legacy planning:

How much wealth is “enough” for heirs?
At what age should money be transferred to heirs?
Should incentive milestones be created, like completing college, attaining higher education goals, or staying sober?

If assets are left directly to children, there is always the risk that they may lose the wealth. Sometimes that is not the child’s fault, but this can be prevented with good planning. Inherited assets can be protected in trusts, which can be created to protect wealth and provide for professional management.

Do Trusts Avoid Estate Taxes?

Now that you have an understanding of what legacy planning means, another important consideration is minimizing tax liabilities. Not every estate plan is designed with taxes in mind, so you’ll want to discuss this with your estate planning attorney. The issue of taxes can become more complex, if the estate includes illiquid assets, including real estate or a family owned business. If you are interested in learning more about advanced planning, please visit our previous posts.

Reference: Kiplinger (Oct. 30, 2020) “Legacy Planning: Create a Lasting Legacy”

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”

Distribution of Personal Property in Your Estate

November 9, 2020

Creating and probating a last will and testament is rarely a simple task, but one of the most challenging aspects is the distribution of personal property in your estate, warns the article “Be clear about personal property distribution in your will” from The News-Enterprise. The nature of personal property—that it is relatively low in market value but high in sentimental value—is just part of the problem.

You’d be surprised how many families fight over a favorite ceramic dish or an inexpensive oil painting. However, those fights slow down the process of settling the estate and can create unnecessary costs.

The distribution of personal property is usually part of the residual estate, that which is left over when other assets, like a home, bank accounts, etc., have been distributed. Some families don’t even have a chance to select items, and instead find themselves in irrational bidding wars at estate sales.

This issue may be avoided by having precise language in the last will and testament about these items. First, the testator, the person who is creating the will, should outline the specific items they want to be given to specific people. Promised items should be listed and removed from the general pool of personal property.

Next, the testator names who should be included in the distribution of remaining personal property. While some people list the same recipients of the full estate, this is not always the case, particularly if there are no children or if property is being left to charity. One option is to limit the beneficiaries of personal items to only close family members.

Third, provide clear directions for how the remaining items will be distributed. Will beneficiaries take turns in a defined order? Should the property be appraised, and values being divided equally by the executor? Be as specific as possible.

If there are any unclaimed items, provide instructions for those as well. Do you want a collection of expensive cookware to be sent to a charitable organization? Clothing, furniture, and other items should be either donated to charity or sold at an estate sale, with the proceeds distributed between the beneficiaries.

Another way to avoid conflicts over personal property is to give away items, while you are living. Sentimental gifts are a good alternative for holiday gifts, especially for seniors on a fixed budget. This way the items are clearly out of the estate.

A warning for those who are thinking about taking the “sticky note” system: it rarely goes off without a hitch. Attaching stickers to items with the name of the person who you want to receive them is vulnerable to someone else removing the stickers. Similarly, naming one person to distribute all personal items could lead to strife between family members. There’s no legally enforceable way to ensure that they will follow your wishes.

Address the issue of personal property with your estate planning attorney. They will be able to help determine the least acrimonious means of ensuring that the people you want will end up with the things you want.

If you would like to learn more about distributing assets in your estate planning, please visit our previous posts.

Reference: The News-Enterprise (Sep. 29, 2020) “Be clear about personal property distribution in your will”

Two different types of Durable Power of Attorney

November 4, 2020

There are two different types of durable power of attorney, and they have very different purposes, as explained in the article that asks “Does your estate plan use the right type of Power of Attorney for you?” from Next Avenue. Less than a third of retirees have a financial power of attorney, according to a study done by the Transamerica Center for Retirement Studies. Most people don’t even understand what these documents do, which is critically important, especially during this Covid-19 pandemic.

There are two different types of Durable Power of Attorney for Finance. The power of attorney for finance can be “springing” or “immediate.” The Durable POA refers to the fact that this POA will endure after you have lost mental or physical capacity, whether the condition is permanent or temporary. It lists when the powers are to be granted to the person of your choosing and the power ends upon your death.

The “immediate” Durable POA is effective the moment you sign the document. The “springing” Durable POA does not become effective, unless two physicians examine you and both determine that you cannot manage independently anymore. In the case of the “springing” POA, the person you name cannot do anything on your behalf without two doctors providing letters saying you lack legal capacity.

You might prefer the springing document because you are concerned that the person you have named to be your agent might take advantage of you. They could legally go to your bank and add their name to your accounts without your permission or even awareness. Some people decide to name their spouse as their immediate agent, and if anything happens to the spouse, the successor agents are the ones who need to get doctors’ letters. If you need doctors’ letters before the person you name can help you, ask your estate planning attorney for guidance.

The type of impairment that requires the use of a Durable POA for finance can happen unexpectedly. It could include you and your spouse at the same time. If you were both exposed to Covid-19 and became sick, or if you were both in a serious car accident, this kind of planning would be helpful for your family.

It’s also important to choose the right person to be your POA. Ask yourself this question: If you gave this person your checkbook and asked them to pay your bills on time for a few months, would you expect that they would be able to do the job without any issues? If you feel any sense of incompetence or even mistrust, you should consider another person to be your representative.

If you should recover from your incapacity, your Durable POA is required to turn everything back to you when you ask. If you are concerned this person won’t do this, you need to consider another person.

Broad powers are granted by a Durable POA. They allow your representative to buy property on your behalf and sell your property, including your home, manage your debt and Social Security benefits, file tax returns and handle any assets not named in a trust, such as your retirement accounts.

The executor of your will, your trustee, and Durable POA are often the same person. They have the responsibility to manage all of your assets, so they need to know where all of your important records can be found. They need to know that you have given them this role and you need to be sure they are prepared and willing to accept the responsibilities involved.

Your advance directive documents are only as good as the individuals you name to implement them. Family members or trusted friends who have no experience managing money or assets may not be the right choice. Your estate planning attorney will be able to guide you to make a good decision.

If you would like to learn more about powers of attorney and their role in estate planning, please visit our previous posts.

Reference: Market Watch (Oct. 5, 2020) “Does your estate plan use the right type of Power of Attorney for you?”

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”

Category: Wills