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Documents You need if You become Incapacitated

Documents You need if You become Incapacitated

There are documents you need if you become incapacitated. If advance planning has been done, your family will have the legal documents you need. Just as importantly, they will know what your wishes are for incapacity and end-of-life care. If there was no planning, your loved ones will have to start with a lengthy application to the court to have someone named a guardian. They are a person who has legal authority to make medical decisions on your behalf.

Having a plan in place beforehand is always better, explains the article “If I become incapacitated, who makes healthcare decisions?” from Waterdown Daily Times.

Another reason to have these documents if you become incapacitated: the court does not require the guardian to be a family member. Anyone can request a guardian to be appointed for another incapacitated individual, whether incapacity is a result of illness or injury. If no planning has been done, a guardianship must be established.

This is not an easy or inexpensive process. A petition must be filed, and the person in question must be legally declared incapacitated. In some cases, these filings are done secretly, and a guardianship maybe established without the person or their family even knowing it has occurred.

There are also many cases where one family member believes they are better suited for the task, and the family becomes embroiled in controversy about who should serve as the guardian.

The entire problem can be resolved by working with an experienced estate planning attorney long before incapacity becomes an issue. A comprehensive estate plan will include a plan for distribution of assets (Last Will and Testament), Power of Attorney, Healthcare Power of Attorney and a Living Will.

These last two documents work together to describe your wishes for end-of-life care, medical treatment and any other medical issues you would want conveyed to healthcare providers.

Unfortunately, the pandemic revealed just how important it is to have these matters taken care of. If you did create these documents in the last few years, it would be wise to review them, since the people in key roles may have changed. While the idea of being on a respirator may have at one time been a clear and firm no, you may feel otherwise now.

A Healthcare Power of Attorney is an advance directive used to name a person, who becomes your “agent,” to make healthcare decisions. If there is no Healthcare Power of Attorney, physicians will ask a family member to make a decision. If no family can be reached in a timely manner, the court may be asked to appoint a legal guardian to be the decision-maker. In an urgent situation, the physician will have to make the decision, and it may not be the decision you wanted.

The Living Will explains your wishes for end-of-life care. For instance, if you become seriously ill and don’t want a feeding tube or artificial heart machine, you can say so in this document. You can even state who you do and do not wish to visit you when you are sick.

The best advice if you become incapacitated is to have a complete estate plan, including these vital documents you need, created by an experienced estate planning attorney. If you have an estate plan and have not reviewed it in the past three to five years, a review would be best for you and your loved ones. If you would like to learn more about powers of attorney, please visit our previous posts. 

Reference: Watertown Daily Times (April 14, 2022) “If I become incapacitated, who makes healthcare decisions?”

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Leaving Property in Trust is Common

Leaving Property in Trust is Common

A typical estate at death will include a personal residence. It’s common for a large estate to also include a vacation home, or family retreat. Leaving real property in trust is common.

Estate plans that include a revocable trust will fund the trust by a pour-over, says Kiplinger’s recent article entitled “Should You Own Your Home in Your Trust?”

A settlor (the person establishing a trust) often will title their home to the revocable trust, which becomes irrevocable at death.

Another option is a Qualified Personal Residence Trust, which is irrevocable, to gift a valuable home to a trust for the settlor’s children. With a QPRT, the house is passed over a term of years while the original owner continues to live there, so the gift passes with little or no gift or estate tax.

Some trusts arising from a decedent estate will hold the home belonging to the settlor without any instructions for its disposal or retention. Outside of very large trusts, a requirement to actually purchase homes for beneficiaries in the trust is far less common.

It is more common in a large trust to have terms that let the trustee buy a home for a beneficiary outside the trust or keep the settlor’s home in the trust for a beneficiary’s use, including purchasing a replacement home when requested.

The trustee will hopefully propose a plan that will satisfy the beneficiary without undue risk to the trust estate or exceeding the trustee’s powers. The most relevant considerations for homeownership in a trust are:

  • The competing needs of other trust beneficiaries
  • The purchase price and costs of maintaining the home
  • The size of the trust as compared to those costs
  • Other sources of income and resources available to the beneficiary; and
  • The interests of the remaindermen (beneficiaries who will take from the trust when the current beneficiaries’ interests terminate).

The terms of the trust may require the trustee to ignore some of these considerations.

Each situation requires a number of decisions that could expose the trustee to a charge that it has acted imprudently.

Leaving real property in trust is common and those who want to create a trust should work with an experienced estate planning attorney to avoid any issues. If you would like to learn more about managing real property in your estate planning, please visit our previous posts. 

Reference: Kiplinger (Feb. 8, 2022) “Should You Own Your Home in Your Trust?”

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Have a Plan before You become Incapacitated

Have a Plan before You become Incapacitated

No one plans to be incapacitated, but life can – and often does – throw you a curve ball. Have a plan in place before you become incapacitated. If you became incapacitated and advance planning had been done, your family will have the legal documents you need. Just as importantly, they will know what your wishes are for incapacity and end-of-life care. If there was no planning, your loved ones will have to start with a lengthy application to the court to have someone named a guardian. They are a person who has legal authority to make medical decisions on your behalf.

Having a plan in place beforehand is always better, explains the article “If I become incapacitated, who makes healthcare decisions?” from Waterdown Daily Times.

Another reason to plan ahead: the court does not require the guardian to be a family member. Anyone can request a guardian to be appointed for another incapacitated individual, whether incapacity is a result of illness or injury. If no planning has been done, a guardianship must be established.

This is not an easy or inexpensive process. A petition must be filed, and the person in question must be legally declared incapacitated. In some cases, these filings are done secretly, and a guardianship maybe established without the person or their family even knowing it has occurred.

There are also many cases where one family member believes they are better suited for the task, and the family becomes embroiled in controversy about who should serve as the guardian.

The entire problem can be resolved by working with an experienced estate planning attorney long before incapacity becomes an issue. A comprehensive estate plan will include a plan for distribution of assets (Last Will and Testament), Power of Attorney, Healthcare Power of Attorney and a Living Will.

These last two documents work together to describe your wishes for end-of-life care, medical treatment and any other medical issues you would want conveyed to healthcare providers.

Unfortunately, the pandemic revealed just how important it is to have these matters taken care of. If you did create these documents in the last few years, it would be wise to review them, since the people in key roles may have changed. While the idea of being on a respirator may have at one time been a clear and firm no, you may feel otherwise now.

A Healthcare Power of Attorney is an advance directive used to name a person, who becomes your “agent,” to make healthcare decisions. If there is no Healthcare Power of Attorney, physicians will ask a family member to make a decision. If no family can be reached in a timely manner, the court may be asked to appoint a legal guardian to be the decision-maker. In an urgent situation, the physician will have to make the decision, and it may not be the decision you wanted.

The Living Will explains your wishes for end-of-life care. For instance, if you become seriously ill and don’t want a feeding tube or artificial heart machine, you can say so in this document. You can even state who you do and do not wish to visit you when you are sick.

The best advice is to have a plan in place, before you become incapacitated that is created by an experienced estate planning attorney. If you have an estate plan and have not reviewed it in the past three to five years, a review would be best for you and your loved ones. If you would like to read more about other important healthcare decisions, please visit our previous posts. 

Reference: Watertown Daily Times (April 14, 2022) “If I become incapacitated, who makes healthcare decisions?”

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how divorcing over fifty effects estate planning

How Divorcing over Fifty effects Estate Planning

If you are and older couple considering a divorce, take care to consider how divorcing over fifty effects estate planning. According to the Pew Research Center, the divorce rate has more than doubled for people over 50 since the 1990s. The Pandemic is also adding to the uptick, says AARP’s recent article entitled “Getting Divorced? It’s Time to Update Your Caregiving Plan.”

A divorce can be financially draining. Moreover, later-in-life divorces frequently impact women’s finances more than men’s. That is because in addition to depressed earnings from time spent out of the workforce raising children, women find themselves more financially vulnerable post-divorce and more likely to serve as caregivers again in the future. Even so, for partners of all genders, it is important to consider the longer-term financial outlook, not just the financial situation you’re in when you are actually dissolving the marriage.

You and your spouse will be dividing assets and liabilities and the responsibilities regarding spousal support. How one of you will live if the other gets sick or passes away should also be part of this conversation.

Consider where you’ll need to make changes. One may be removing your spouse from beneficiary designations on all your accounts. (In some states, this is automatic.) Your divorce agreement may also include buying life insurance or maintaining a trust or beneficiary designations for one another.

Create or update your estate plan immediately. You should also ask your estate planning attorney to review your marital agreement. They will have suggestions about how to align your estate plan with your divorce obligations. If you and your ex are co-parenting children, your estate plan should address who their guardians will be, if both biological parents pass away. It is also important to address who will manage any inheritance, if you don’t want your ex-spouse handling assets you may leave to your children.

Create your life care plan, which means naming health care proxies or surrogates (who will take care of your medical affairs, if you’re in need of caregiving), designating a financial power of attorney (who will take care of your finances and legal affairs), and naming a guardian for yourself if you’re incapacitated.

Consider the way in which your divorce will impact your children and extended family if you need caregiving. At a minimum, agree between yourselves what level of contact you can manage and, if you share children and loved ones, know that your lives will cross along the way.

While your marriage may not last, the connections will, so make a wise plan. Your estate planning attorney will help advise you on how divorcing over fifty effects your estate planning. If you would like to learn more about estate planning and divorce, please visit our previous posts. 

Reference: AARP (Jan. 25, 2022) “Getting Divorced? It’s Time to Update Your Caregiving Plan”

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Roth IRAs are Powerful Retirement Savings Tools

Roth IRAs are Powerful Retirement Savings Tools

Roth IRAs are powerful retirement savings tools. Account owners are allowed to take tax-free distributions in retirement and can avoid paying taxes on investment growth. There’s little downside to a Roth IRA, according to a recent article “10 Reasons to Save for Retirement in a Roth IRA” from U.S. News & World Report.

Taxes are paid in advance on a Roth IRA. Therefore, if you are in a low tax bracket now and may be in a higher bracket later, or if tax rates increase, you’ve already paid those taxes. Another plus: all your Roth IRA funds are available to you in retirement, unlike a traditional IRA when you have to pay income tax on every withdrawal.

Roth IRA distributions taken after age 59 ½ from accounts at least five years old are tax free. Every withdrawal taken from a traditional IRA is treated like income and, like income, is subject to taxes.

When comparing the two, compare your current tax rate to what you expect your tax rate to be once you’ve retired. You can also save in both types of accounts in the same year, if you’re not sure about future tax rates.

Roth IRA accounts also let you keep investment gains, because you don’t pay income tax on investment gains or earned interest.

Roth IRAs have greater flexibility. Traditional IRA account owners are required to take Required Minimum Distributions (RMDs) from an IRA every year after age 72. If you forget to take a distribution, there’s a 50% tax penalty. You also have to pay taxes on the withdrawal. Roth IRAs have no withdrawal requirements during the lifetime of the original owner. Take what you need, when you need, if you need.

Roth IRAs are also more flexible before retirement. If you’re under age 59 ½ and take an early withdrawal, it’ll cost you a 10% early withdrawal penalty plus income tax. Roth early withdrawals also trigger a 10% penalty and income tax, but only on the portion of the withdrawal from investment earnings.

If your goal is to leave IRA money for heirs, Roth IRAs also have advantages. A traditional IRA account requires beneficiaries to pay taxes on any money left to them in a traditional 401(k) or IRA. However, those who inherit a Roth IRA can take tax-free withdrawals. Heirs have to take withdrawals. However, the distributions are less likely to create expensive tax situations.

Retirement savers can contribute up to $6,000 in a Roth IRA in 2022. Age 50 and up? You can make an additional $1,000 catch up contribution for a total Roth IRA contribution of $7,000.

If this sounds attractive but you’ve been using a traditional IRA, a Roth conversion is your next step. Roth IRAs are powerful retirement savings tools, however, you will have to pay the income taxes on the amount converted. Try to make the conversion in a year when you’re in a lower tax bracket. You could also convert a small amount every year to maintain control over taxes. If you would like to learn more about retirement planning, please visit our previous posts.

Reference: U.S. News & World Report (April 11, 2022) “10 Reasons to Save for Retirement in a Roth IRA”

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The Estate of The Union Season 2 premiere – Millennials’ Mysteries Uncovered Part 2

The Estate of The Union Season 2 premiere – Millennials’ Mysteries Uncovered Part 2 is out now!

Millennials are often seen as a mysterious generation that frustrates those from older groups with their unique thoughts and habits. This generation is made up of people born between 1981 and 1996, and grew up at a time of tremendous change and advancement in technology and culture. They see the world very differently than their parents; and that is reflected in how they live, how they love and how they vote. As Millennials advance into adulthood, and begin to take a larger role in shaping society, it is time to take a look at how they tick.

In this episode of The Estate of the Union, Brad Wiewel and his son, Sam Wiewel, who is 31 years old and a confirmed Millennial, discuss many of the differences between Brad’s Boomer generation and Sam’s Millennials, as highlighted in their differing views on the same movie! They have a very entertaining discussion on how movies affect Millennials and what Millennials want to see in movies.  If you’ve noticed a much large emphasis on Super Heroes in films, this answer lies in listening to this!

It proves to be a lively – and at times hilarious – conversation. If you Listen, you will Learn.

In each episode of The Estate of The Union podcast, host and lawyer Brad Wiewel will give valuable insights into the confusing world of estate planning, making an often daunting subject easier to understand. It is Estate Planning Made Simple! The Estate of The Union Season 2 premiere -Millennials’ Mysteries Uncovered Part 2 can be found on Spotify, Apple podcasts, or anywhere you get your podcasts. If you would prefer to watch the video version, please visit our YouTube page. Please click on the link below to listen to the new installment of The Estate of The Union podcast. We hope you enjoy it.

Texas Trust Law focuses its practice exclusively in the area of wills, probate, estate planning, asset protection, and special needs planning. Brad Wiewel is Board Certified in Estate Planning and Probate Law by the Texas Board of Legal Specialization. We provide estate planning services, asset protection planning, business planning, and retirement exit strategies.

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Inheriting a Home with a Mortgage

Inheriting a Home with a Mortgage

Inheriting a home with a mortgage adds another layer of complexity to settling the estate, as explained in a recent article from Investopedia titled “Inheriting a House With a Mortgage.” The lender needs to be notified right away of the owner’s passing and the estate must continue to make regular payments on the existing mortgage. Depending on how the estate was set up, it may be a struggle to make monthly payments, especially if the estate must first go through probate.

Probate is the process where the court reviews the will to ensure that it is valid and establish the executor as the person empowered to manage the estate. The executor will need to provide the mortgage holder with a copy of the death certificate and a document affirming their role as executor to be able to speak with the lending company on behalf of the estate.

If multiple people have inherited a portion of the house, some tough decisions will need to be made. The simplest solution is often to sell the home, pay off the mortgage and split the proceeds evenly.

If some of the heirs wish to keep the home as a residence or a rental property, those who wish to keep the home need to buy out the interest of those who don’t want the house. When the house has a mortgage, the math can get complicated. An estate planning attorney will be able to map out a way forward to keep the sale of the shares from getting tangled up in the emotions of grieving family members.

If one heir has invested time and resources into the property and others have not, it gets even more complex. Family members may take the position that the person who invested so much in the property was also living there rent free, and things can get ugly. The involvement of an estate planning attorney can keep the transfer focused as a business transaction.

What if the house has a reverse mortgage? In this case, the reverse mortgage company needs to be notified. You’ll need to find out the existing balance due on the reverse mortgage. If the estate does not have the funds to pay the balance, there is the option of refinancing the property to pay off the balance due, if the wish is to keep the house. If there’s not enough equity or the heirs can’t refinance, they typically sell the house to pay off the reverse mortgage.

Can heirs take over the existing loan? Your estate planning attorney will be able to advise the family of their rights, which are different than rights of homeowners. Lenders in some circumstances may allow heirs to be added to the existing mortgage without going through a full loan application and verifying credit history, income, etc. However, if you chose to refinance or take out a home equity loan, you’ll have to go through the usual process.

Inheriting a home with a mortgage or a reverse mortgage can be a stressful process during an already difficult time. An experienced estate planning attorney will be able to guide the family through their options and help with the rest of the estate. If you would like to learn more about inheriting real property, please visit our previous posts.

Reference: Investopedia (April 12, 2022) “Inheriting a House With a Mortgage”

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LLCs can Reduce Estate Taxes

LLCs can Reduce Estate Taxes

Family LLCs can be used to protect assets, reduce estate taxes and more efficiently shift income to family members, reports the article “Handling Estates Like An LLC Can Reduce Taxes” from Financial Advisor. The qualified business income and pass-through entity tax deductions may add significant benefits to the family.

What is a Family LLC? They are holding companies owned by two or more individuals, with two classes of owners: general partners (typically the parents) and limited partners (heirs). Contributed assets of the general partners are no longer considered part of their estate, and future appreciation on the assets are not counted as part of their taxable estate.

Consider the LLC as three separate pieces: control, equity and cash flow. Because of the separation, you can maintain control of the personal/business assets, while at the same time transferring non-controlling equity of the assets to someone else via a gift, a sale, or a combination of the two.

An added benefit—transfers of non-controlling equity can qualify for a discount on the value for tax reporting, minimizing any gift or estate tax consequences of the transfer. Discounting business entities with very liquid assets is generally not advisable. However, illiquid assets could warrant a discount as high as 40%.

These types of structures are complicated. Therefore, you’ll need an estate planning attorney with experience in how Family LLCs interact with estate planning. The LLC must be properly structured and have a legitimate business purpose.

It’s important to note that if a real estate or operating business is put into an LLC and taxed as a pass-through entity instead of a sole proprietorship, they may be eligible for the 20% discount under Section 199A, or for the pass—through entity tax workaround for the limitation of the deductibility of state taxes for individuals and trusts.

Every state has its own rules about income qualifying for a state income tax deduction on the federal level. If you have an entity in place, you’ll want to speak with your attorney to determine if a pass-through entity on the state level will be advantageous. If so, this election may allow for a state income tax deduction on the federal level.

Your estate planning attorney will help you get a qualified appraisal of the assets, since the IRS will require an accurate value of the transfer for reporting purposes, especially if a discount is being contemplated. LLCs can reduce estate taxes and protect your assets, but this is a complex matter. The estate planning and tax advantages to be gained make it worthwhile for families with a certain level of assets to protect. If you would like to learn more about LLCs and how they can benefit your estate planning, please visit our previous posts. 

Reference: Financial Advisor (April 4, 2022) “Handling Estates Like An LLC Can Reduce Taxes”

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Mistakes can lead to an Invalid Will

Mistakes can lead to an Invalid Will

One of the many reasons an experienced estate planning attorney is the best resource for creating an estate plan, including a Last Will and Testament, Power of Attorney and Health Care Proxy, is the confidence of knowing your estate plan has been properly prepared. People who believe they know better than an experienced lawyer, often send their families into a legal, financial, and emotional black hole after they die. Mistakes can lead to an invalid will. The article “Red Flags Indicating a Potentially Invalid Will” from The National Law Journal provides a closer look at why it pays to work with a professional.

When a decedent executes a new Last Will near the end of their life and makes a dramatic change to previous estate plans, there may be trouble ahead. When this is the case, several issues need to be examined to ensure that the document is valid. Strong consideration must be given to whether the person had sufficient capacity to execute the document.

When a person is suffering from an illness or near death, they may be susceptible to the improper influence of people who may cause them to make uncharacteristic changes to their estate plan. Any Last Will drafted within the last few months of a person’s life requires careful review.

If, shortly after a person has handed the reins of their financial life to another, using a Power of Attorney in any of its forms (Durable POA, Springing POA) and a new Last Will is created, a red flag should be raised, especially if the Last Will has been changed to benefit this person.

What if a person’s capacity was hovering near the borderline of capacity and incapacity? If a decedent’s mental capacity was questionable at the time the Last Will was executed, the Last Will may not be valid. A person with legal mental capacity must understand the assets they own and clearly understand to whom they are bequeathing assets. The standard for this issue is low, but if the decedent was suffering from a degenerative mental condition or a sudden onset of incapacity due to an illness or accident, the Last Will may be challenged.

If a layperson creates a Last Will or uses an online service to create it and the Last Will does not comply with the state’s estate laws, the Last Will may have technical issues rendering it invalid. When this occurs, it is as if there were no Last Will at all and the estate is distributed according to the laws of the state.

The biggest red flag is the presence of any large changes from the next to Last Will to the final Last Will, with no known reason for the change having been made. This may be a result of changes to mental capacity or undue influence of a third party. An experienced estate planning attorney is the best resource to create a Last Will. They will be among the first to ask why significant changes from a prior Last Will are being requested. Don’t allow mistakes to jeopardize your wishes and lead to an invalid will. If you would like to learn more about drafting a will, please visit our previous posts.

Reference: The National Law Journal (March 30, 2022) “Red Flags Indicating a Potentially Invalid Will”

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Portability can be used to Protect Farm

Portability can be used to Protect Farm

When one of the spouses dies, the surviving spouse can make what is known as a portability election. This means that any unused federal gift or estate tax exemption can be transferred from the deceased spouse to the surviving spouse. Portability can be used to protect the family farm.

Ag Web’s recent article entitled “It’s So Important to Elect ‘Portability’ for Your Farm Estate” explains that this is an election that has to be made proactively, after the death of the first spouse.

You’ll have to file a Form 706 federal estate tax return within two years of death at the latest, even though there’s no tax owed. Under current federal law, portability is available for farm couples to implement through the end of 2025. This the opportunity then “sunsets,” and the provision will no longer be available.

This could really be a multi-million-dollar mistake, if it’s not elected.

Even after two years, the surviving spouse can elect portability (through the end of 2025). However, he or she will incur considerable expense in the process.

You can still file for it, but you’ll pay a user fee that costs about $12,000. You’ll then have to pay an attorney to prepare the paperwork, and that’s probably another $10,000 to $15,000.

As a result, you’re going to pay between $25,000 and $50,000. However, if you’d just filed it within two years of your spouse’s death, you could have avoided those expenses.

Before portability was an option, it was common for husbands and wives to each own about the same amount of assets, or at least the amount of assets that could fully soak up and use each person’s exemption.

Therefore, many farm families are used to seeing farms titled one-half with the husband, one-half to the wife – as tenants in common not husband and wife jointly. That is because in the old days, if you didn’t use the wife’s exemption to cover her assets (if she died first), it would just expire.

Now, with portability, all the assets can flow through to the surviving spouse.

At the first spouse’s death, the survivor files that portability election and then has two exemptions to cover assets. Speak with an estate planning attorney to decide if portability can be used by your family to protect the farm for generations. If you would like to learn more about portability, and other strategies to protect the family farm or ranch, please visit our previous posts. 

Reference: Ag Web (April 18, 2022) “It’s So Important to Elect ‘Portability’ for Your Farm Estate”

 

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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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