When Should I Update My Estate Plan?

Forbes’ recent article entitled “Do You Need A Trust? 8 Important Goals A Trust Can Help You Achieve” discusses eight ways a trust can help you achieve specific legacy planning goals. The first step is to meet with an experienced estate planning attorney.

Everybody needs a will, but not everyone requires a trust. A trust provides greater flexibility and control over how your property and assets are distributed. Many people create a trust to avoid probate. As a result, it’s faster and easier for your named trustee(s) to distribute your assets to your heirs. There are a many different types of trusts with advantages and disadvantages. Talk about what will be best for you with your estate planning attorney.

  1. No probate. This process can take months or more to complete, and it can be very expensive. A trust is designed to settle your estate in a timely and relatively inexpensive manner.
  2. Privacy and confidentiality. Probate is public, so your will and other private financial and business info is available to everyone. However, a trust maintains privacy and confidentiality.
  3. Protection for beneficiaries. A trust can shield beneficiaries from lawsuits, creditors, or divorce. A trust can also protect the interests of a minor, by including direction for when distributions are made.
  4. Provide for children. This type of trust provides for the health care and personal needs of a minor child.
  5. Flexibility. As the creator of the trust, you determine the terms of the trust, and can put restrictions on how trust assets are managed. For instance, the trust could state that assets may only be used by the beneficiary to purchase a home or to pay medical bills but may not be distributed directly to the beneficiary.
  6. Preserve family wealth. Divorce and remarriage can result in assets that were supposed to stay in the family wind up leaving with the ex-spouse. A trust can make certain that your estate is preserved for grandchildren.
  7. Family values. A trust can be a wonderful way to pass down family values concerning education, home ownership, land conservation, community service, religious beliefs and other topics.
  8. Lessening family conflict. Challenging a trust is difficult and costly. Having a trust in place that clearly articulates your wishes for your family, reduces the potential for misunderstanding.

Whether you have a trust in place or are thinking about creating one, it’s important to meet regularly with your estate planning attorney to be certain your strategy and estate planning documents reflect any new state and federal tax laws, as well as any changes in your goals and circumstances.

Reference: Forbes (Feb. 24, 2020) “Do You Need A Trust? 8 Important Goals A Trust Can Help You Achieve”

What Is a ‘Survivorship’ Period?

A survivorship clause in a will or a trust says that beneficiaries can inherit, only if they live a certain number of days after the person who made the will or trust dies. The goal is to avoid situations where assets pass under your beneficiary’s estate plan, and not yours, if they outlive you only by a short period of time. While these situations are rare, they do occur, according to the article “How Survivorship Periods Work” from kake.com.

Many wills and trusts contain a survivorship period. Most estates won’t rise to the level of today’s very high federal estate tax exemption ($11.58 million for an individual), so a long survivorship period is not necessary. However, if the surviving spouse must wait too long to receive property under the will—six months or more—it might harm their eligibility for the marital deduction, even if they are made in a qualifying trust or an outright gift.

Even if a will does not contain a survivorship clause, many states require one. Some states require at least a five-day or 120-hour survivorship period. That law might apply to beneficiaries who inherit property under a will, trust or, if there is no will, under state law. This usually does not apply to those who are beneficiaries of an insurance policy, a POD bank account (Payable on Death), or a surviving co-owner of property held in joint tenancy. To learn what states have a set of laws, known as the Uniform Probate Code or the revised version of the Uniform Simultaneous Death Act, speak with a local estate planning lawyer.

Survivorship requirements are put into place in case of simultaneous or close to simultaneous deaths of the estate owners and the estate beneficiaries. This is to avoid having the distribution of assets from an estate owner’s estate distributed according to the beneficiary’s estate plan, and not the estate owner’s plan.

For an example, let’s say Jeff dies and leaves his estate to his sister Judy. Jeff has named his favorite charity as an alternative beneficiary. Jeff’s assets would normally go to his sister Judy. They would only go to his favorite charity, if Judy were not alive at the time of his death. However, if Jeff dies and then Judy dies 14 days later, Jeff’s assets could go to Judy’s beneficiaries under the terms of her will. The charity, Jeff’s intended beneficiary, would receive nothing.

The family would also have the burden of dealing with not one but two probate proceedings at the same time.

However, if a 30-day survivorship clause was in place, the assets would pass to his favorite charity, as originally intended. Jeff’s estate plan would be carried out, according to his wishes.

These are the types of details that make estate planning succeed as the estate owner wishes. Having a complete and secure—and properly prepared—estate plan in place is worth the effort.

Reference: kake.com (March 31, 2020) “How Survivorship Periods Work”

Coronavirus Stimulus Allows Retirees to Tap Funds Early, With Little or No Penalties

For a limited time, Americans will now be able to withdraw money from tax-deferred accounts without penalties, under the Coronavirus Stimulus law. Rules on taking loans from 401(k)s will also be loosened up, and some retirees will be able to avoid Required Minimum Distributions (RMDs) that otherwise would have been costly, says the article “Coronavirus stimulus lets struggling Americans tap retirement accounts early” from the Los Angeles Times.

In some cases, these changes reflect what has been done for retirement savers in previous disasters. However, for the most part, these are more intense than in other events. The chief government affairs officer of the American Retirement Association, Will Hansen, says that we are now in uncharted territory as a result of the Covid-19 pandemic. The numbers of people filing for unemployment make it likely that many people will be tapping their retirement accounts.

One provision in the bill would allow investors of any age to take as much as $100,000 from their retirement accounts without any early withdrawal penalties. If the money is put back in the account within three years, there won’t be any taxes due. If the money is not put back, taxes can be paid over the course of three years. The law says that the money must be a “coronavirus-related distribution,” but the rules are loose.

People who test positive for the virus, along with anyone who experiences adverse financial consequences as a result of the pandemic, including being unable to find work or childcare, are permitted to make these withdrawals.

The bill also makes it easier to borrow money from 401(k) accounts, raising the limit on these loans from $50,000 to $100,000. The payment dates for any loans due in 2020 are extended for a year.

Retirees in their early 70s were previously required to start taking money out of tax-deferred accounts and start paying taxes on those distributions. The bill also waives these rules.

U.S. individual retirement accounts held nearly $20 trillion in assets at the end of 2019. While those amounts have certainly dropped due to market volatility, Americans still hold a lot of money in retirement accounts.

However, pre- and post-retirees need to think carefully about withdrawing large sums of money now. For pre-retirees, this should only be a last resort. Some professionals think the 401(k)-loan amount is too high and that people will jump to take out too much money, which will never find its way back.

According to a U.S. Government Accountability Office report from 2019, Americans ages 25-55 take approximately $69 billion a year from their retirement accounts. Once the money is gone, it’s not able to earn future tax-deferred returns.

Reference: Los Angeles Times (March 27, 2020) “Coronavirus stimulus lets struggling Americans tap retirement accounts early”

Five Common Mistakes with “DIY” Estate Plans

In light of the current pandemic, many Americans are becoming aware of the importance of creating or updating their estate planning documents. With the extension of some states’ stay in place orders, it may be tempting to create your own documents all on your own. Whether you are considering writing your own will or using an online “do it yourself” (DIY) document creator, there are many reasons why this is one project you shouldn’t undertake without the help of a professional.

Below are five common mistakes associated with DIY estate plans.

1.    DIY estate plans may not conform to state law

Forms that can be found on the internet may claim to conform to your state’s law, but this may not always be the case. The laws that apply to estate planning are determined by each state—and there can be wide variations in the law from state to state. In addition, if you own property in another state or country, the laws in those jurisdictions may differ significantly, and your DIY estate plan may not adequately account for them.

2.    A DIY estate plan could contain inaccurate, incomplete, or contradictory information

If you attempt to create a will using an online questionnaire, there is the possibility that you may select the wrong option or leave out important information that could prevent your will from accomplishing your goals. Potential problems could be made even worse when do-it-yourself services allow users to insert additional information not addressed by the service’s preset questionnaire: the information added by a DIYer could contradict other parts of the automated will.

3.    Your DIY estate plan may not account for changing life circumstances

For example, if you create a will in which you leave everything to your two children, what happens if one of those children dies before you? Will that child’s share go entirely to his or her sibling—or will it go to the child’s offspring? What if one of your children accumulates a lot of debt? Is it okay with you if the money or property the indebted child inherits is vulnerable to claims of the child’s creditors? What if your will states your daughter will receive the family home as her only inheritance, but it is sold shortly before you die? Will she inherit nothing? As opposed to a computer program, an experienced estate planning attorney will help you think through the potential changes and contingencies that could have an impact on your estate plan– and help you design a plan that prevents unintended results that could frustrate your estate planning goals.

4.    Mistakes in executing the plan can be easily made

Under the law, there are certain requirements that must be met for wills and other estate planning documents to be legally valid. For example, a will typically requires the signatures of two witnesses, but state law differs regarding what is necessary for a will to be validly witnessed. Some states require not only that the will be signed by the will-maker and the witnesses, but also that they all sign the will in each other’s presence. In other states, witnesses are not required to be in the same room when the will-maker signs the will, and they can even sign it later if the will-maker tells them his or her signature is valid.

Similarly, for a valid power of attorney, some states require only the signature of the principal (the person who is granting the power of attorney) to be notarized, but some states require the signatures of both the principal and the agent (the person who will act on behalf of the principal) to be notarized. In other states, one or more witnesses are required—and these requirements may also differ depending upon the type of power of attorney (financial vs. medical) you are trying to execute. If you seek the help of an estate planning attorney, you can rest assured that all of the “i’s” are dotted and the “t’s” are crossed, and that your intentions will not be defeated because of mistakes made during the execution of your documents.

5.    Assets may be left out of your estate plan

Many people do not realize that a trust is frequently a better estate planning tool than a will because it avoids expensive, time-consuming, and public court proceedings that would otherwise be necessary to transfer your money and property to your heirs after you pass away. Even if you have created a DIY trust, if you do not “fund it” (i.e., transfer title of your money and property into the name of the trust) it will be ineffective and your loved ones will still have to endure the probate process to finish what you started.

Further, if you do initially transfer the title of all your assets to the trust, it is likely you will acquire additional property or financial accounts over the years that must go through probate if the titles are not transferred to the trust. Regular meetings with an estate planning attorney can help ensure that your plan accomplishes your goals and that your grieving family members are not left with major headaches after you die.

Don’t Risk it: Protect Your Finances From Coronavirus Complications

Many Americans spend a lot of time and effort in managing their finances. While most are worried about how the coronavirus (COVID-19) will impact their income—whether that’s because they are temporarily furloughed, find themselves suddenly without a job, or watching their investment and retirement accounts dwindle—there is another way COVID-19 can wreak havoc on American’s finances: lack of incapacity planning.

As the coronavirus continues to expand across the country, thousands of Americans are unable to carry out normal financial responsibilities because they are too ill, or they are stuck abroad and unable to travel home, or from a lack of resources due to being isolated at home.

While feeling healthy, individuals should plan ahead now and ensure that someone will take care of their financial duties by setting up a Financial Power of Attorney. This important legal document will not only protect your finances should you fall ill from COVID-19 but also from any events that might leave you incapacitated, like an injury or accident.

A Financial Power of Attorney (FPA) allows you to select a trusted family member or friend who will be responsible for managing your money and other property if you become mentally incapacitated (unable to make your own decisions) due to illness or injury. Without this document, bills won’t get paid, tax returns won’t be filed, bank and investment accounts held in your name will become inaccessible, retirement distributions can’t be requested, and property can’t be bought, sold, or managed.

If you get sick and are unable to make or communicate your financial decisions and don’t have an updated FPA in place, a judge can appoint someone to take control of your assets and make all personal and medical decisions for you through a court-supervised guardianship or conservatorship.

Why would a court do that?—You may ask.  As an adult, no one is automatically able to act for you, you must legally appoint them through the use of an FPA. Without it, you and your loved ones could lose valuable time, money, and control.

WORD OF CAUTION: Don’t think you’re protected just because your assets are held jointly with your spouse, child, or family member. Here are three reasons why you shouldn’t rely on joint ownership:

  1. Limited power. While a joint account holder may be able to access your bank account to pay bills or access your brokerage account to manage investments, a joint owner of real estate will not be able to mortgage or sell the property without the consent of all other owners.
  2. Tax liability. By adding a family member’s name to your accounts or real estate titles you might be saddling them with gift tax liability.
  3. Property seizure. You read that correctly. If your joint owner is sued then your property could be seized in order to pay their debt.

If you’ve already got an FPA, make sure yours is kept up to date.  An FPA can become “obsolete” in as short as one year. Many institutions don’t want to rely on stale, outdated documents. Depending on your circumstances, a stale, obsolete power of attorney may not be able to help you and your family with insurance contracts, retirement plans, banking and investment accounts, online personal accounts such as email, Facebook, Instagram and LinkedIn, and elder care and special needs planning. If it’s been more than a few years since you’ve signed your power of attorney, it might be time for a fresh one.

Regardless of your priorities, there is a financial power of attorney that’s right for your situation and goals. Determine your specific needs while you are of sound mind.  Of course, nothing tops the advice and recommendations of an attorney experienced in these matters.

Rules for the HIPAA Waiver Relaxed?

The United States Department of Health and Human Services has announced that it won’t enforce penalties for violations of certain provisions of the HIPAA privacy rule against healthcare providers or their business associates for good-faith disclosures of protected health information (PHI) for public health purposes during the COVID-19 emergency.

The HHS Office for Civil Rights said that it was exercising its “enforcement discrimination” in announcing its change in policy during the coronavirus pandemic, a declared emergency period, reports Modern Healthcare in its article “HHS eases HIPAA enforcement on data releases during COVID-19.”

A HIPAA waiver of authorization is a legal document that permits an individual’s protected health information (PHI) to be used or disclosed to a third party. This waiver is part of a series of patient-privacy measures set forth in the Health Insurance Portability and Accountability Act (HIPAA) of 1996.

PHI covered under HIPAA is information that can be connected to a specific individual and is held by a covered entity, like a healthcare provider. HIPAA has set out 18 specific identifiers that create PHI, when linked to health information.

The notification was issued to support federal and state agencies, including the CMS and the Centers for Disease Control and Prevention, that require access to COVID-19 related data, including protected health information.

“The CDC, CMS, and state and local health departments need quick access to COVID-19 related health data to fight this pandemic,” OCR director Roger Severino said in a statement. “Granting HIPAA business associates greater freedom to cooperate and exchange information with public health and oversight agencies, can help flatten the curve and potentially save lives.”

HIPAA’s privacy rule only permits business associates of HIPAA-covered entities to disclose protected health information for certain purposes, under explicit terms of a written agreement.

The moratorium enforcement doesn’t extend to other requirements or prohibitions under the privacy rule, nor to any obligations under the HIPAA security and breach notification rules, OCR said.

Reference: Modern Healthcare (April 2, 2020) “HHS eases HIPAA enforcement on data releases during COVID-19”

Preparing for Coronavirus: The #1 Legal Document Every Adult Needs to Have

As the coronavirus continues to disrupt daily life and leave Americans uncertain of the future, you don’t have to feel helpless during this pandemic. In fact, now is a great time to be proactive and plan ahead should you or a loved one fall ill. One of the most important and relatively easy things you can do (and should do) is to select a healthcare surrogate and set up your advance healthcare directive.

What Is a Healthcare Surrogate?

A healthcare surrogate (also called a healthcare agent, medical agent, a healthcare proxy, or a medical proxy) is a person you authorize in a medical power of attorney to make decisions about your medical care if you are too ill to make them yourself or are otherwise unable to communicate your wishes with your healthcare providers.

Why is it important to choose a healthcare surrogate now?

As of April 7, there are 391,665 total cases of coronavirus. Of those, only 9,169 are in critical condition (about 2.34%). So even if you get sick, you’ll most likely have mild symptoms and recover quickly. However, since no one knows exactly how they will be affected by the virus, it’s best to plan for the worst and hope for the best. Part of that planning is making sure someone can make healthcare decisions for you if you fall ill and are unable to make those decisions for yourself.

Factors to Consider in Choosing Your Healthcare Surrogate

A healthcare surrogate is an important role, and the person you choose will have the power to make critical healthcare decisions—like consenting to a treatment plan, whether to accept or refuse medical treatment, and which healthcare providers or hospitals to use for your care. As a result, it is crucial to think carefully about who you choose to fill this role. Many people simply assume that their spouse or their oldest child should take on this role, but they are not always the best suited. Here are some factors to consider when selecting an agent:

Emotional maturity. People handle stress differently, and not everyone is able to set aside their emotions and make level-headed decisions when someone they love is suffering. In addition, some people are simply not assertive enough to act as a strong advocate in the face of differing opinions of other family members–or even health care providers–who suggest a treatment plan you have informed your medical agent you do not want. You should choose someone who is able to think rationally in emotionally difficult circumstances, even if that means you must look outside of your family to find the best person for the job.

Is willing/able to serve. Acting as a healthcare surrogate can be a time-consuming and emotionally draining job. Make sure that the person you choose is willing and able to set aside the time necessary to serve as your patient advocate. Don’t just assume the person you want to be your medical agent is willing: Be proactive and ask if he or she is willing to take on that role. Keep in mind that if you are elderly, you may want to avoid naming a friend or family member who also is older, as there is a greater chance that they will experience mental or physical decline at the same time as you, which could impede their ability to serve as your advocate when the time comes.

Will honor your wishes no matter what. Your healthcare surrogate has a duty to make decisions on your behalf that you would have made to the extent that he or she is aware of your wishes. This is the case even if your healthcare surrogate disagrees with your choices. As a result, your healthcare surrogate should be someone who is willing to set aside his or her own opinions and wishes to carry out yours. It may be prudent to appoint someone who has values and religious beliefs that are similar to yours to reduce the instances in which your surrogate’s opinions differ significantly from yours. Do not choose anyone that you do not trust to carry out your wishes.

People You Should Not Choose

Many states have laws prohibiting certain people from acting as your healthcare surrogate, even if they are otherwise well-qualified to act in that role:

Minors. Many states have laws expressly prohibiting a minor from being a patient advocate. The age of majority could be 18, 19, or 21 years of age, depending upon the state. Some states have exceptions to this prohibition for married or emancipated minors.

Your health care providers. Some states not only prohibit your health care providers from acting as your healthcare surrogate, but also preclude the owner, operator, or any employee of any facility in which you are a patient or resident from acting in that role. Some states that have adopted this prohibition make an exception for individuals who are related to you. A few states, such as Kansas, Missouri, and Kentucky, also have an exception if that person is an active member of the same religious organization as you.

Need help?

Medical directives may be among the most important legal documents you prepare – especially in light of COVID-19. Picking a healthcare surrogate can be tricky and we can help you think through your choice. We can also help with any other estate planning needs you may have—whether that’s setting up a financial power of attorney, last will and testament, or a trust. Please give us a call today to discuss how we can help you and your family be prepared should you fall ill from the coronavirus.

Requests for Estate Plans Reflect Fears about Coronavirus

Estate planning lawyers have always known that estate planning is not about “if,” but about “when.” The current health pandemic has given many people a wake-up call. They realize there’s no time to procrastinate, reports the article “Surge on wills: Fearing death by coronavirus, people ask lawyers to write their last wishes” from InsuranceNews.net. Legal professionals urge everyone, not just the elderly or the wealthy, to put their end-of-life plans in writing.

The last time estate planning attorneys saw this type of surge was in 2012, when wealthy people were worried that Congress was about to lower the threshold of the estate tax. Today, everyone is worried.

Top priorities are creating a living will stating your wishes if you become incapacitated, designating a surrogate or a proxy to make medical decisions on your behalf and granting power of attorney to someone who can make legal and financial decisions.

An estate plan, including a last will and testament (and often trusts) that detail what you want to happen to assets and who will be guardian to minor children upon your death, spares your family legal costs, family disagreements and hours in court that can result when there is no estate plan.

The coronavirus has created a new problem for families. In the past, a health care surrogate would be in the hospital with you, talking to healthcare providers and making decisions on your behalf. However, now there are no visitors allowed in hospitals and patients are completely isolated. Estate planning attorneys are recommending that specific language be added to any end of life documents that authorize a surrogate to give instructions by phone, email or during an online conference.

Any prior documents that may have prohibited intubation need to be revised, since intubation is part of treatment for COVID-19 and not necessarily just an end-of-life stage.

Attorneys are finding ways to ensure that documents are properly witnessed and signed. In some states, remote signings are being permitted, while other states, Florida in particular, still require two in-person witnesses, when a will or other estate planning documents are being signed.

There are many stories of people who have put off having their wills prepared, figuring out succession plans that usually take years to plan and people coming to terms with what they want to happen to their assets.

Equally concerning are seniors in nursing homes who have not reviewed their wills in many years and are not able to make changes now. Older adults and relatives are struggling with awkward and urgent circumstances, when they are confined to nursing homes or senior communities with no visitors.

Reference: InsuranceNews.net (April 3, 2020) “Surge on wills: Fearing death by coronavirus, people ask lawyers to write their last wishes”

The Coronavirus and Estate Planning

As Americans adjust to a changing public health landscape and historical changes to the economy, certain opportunities in wealth planning are becoming more valuable, according to the article “Impact of COVID-19 on Estate Planning” from The National Law Review. Here is a look at some strategies for estate plans:

Basic estate planning. Now is the time to review current estate planning documents to be sure they are all up to date. That includes wills, trusts, revocable trusts, powers of attorney, beneficiary designations and health care directives. Also be sure that you and family members know where they are located.

Wealth Transfer Strategies. The extreme volatility of financial markets, depressed asset values,and historically low interest rates present opportunities to transfer wealth to intended beneficiaries. Here are a few to consider:

Intra-Family Transactions. In a low interest rate environment, planning techniques involve intra-family transactions where the senior members of the family lend or sell assets to younger family members. The loaned or sold assets only need to appreciate at a rate greater than the interest rate charged. In these cases, the value of the assets remaining in senior family member’s estate will be frozen at the loan/purchase price. The value of the loaned or sold assets will be based on a fair market value valuation, which may include discounts for certain factors. The fair market value of many assets will be extremely depressed and discounted. When asset values rebound, all that appreciation will be outside of the taxable estate and will be held by or for the benefit of your intended beneficiaries, tax free.

Charitable Lead Annuity Trusts. Known as “CLATs,” they are similar to a GRAT, where the Grantor transfers assets to a trust and a named charity gets an annuity stream for a set term of years. At the end of that term, the assets in the trust pass to the beneficiaries. You can structure this so the balance of the assets passes to heirs transfer-tax free.

Speak with your estate planning attorney about these and other wealth transfer strategies to learn if they are right for you and your family. And stay well!

Reference: The National Law Journal (March 13, 2020) “Impact of COVID-19 on Estate Planning”

Covid-19 UPDATE: Delay Payroll Taxes OR Get Paycheck Protection?

These are tough times for everyone, but if you are a business owner you have a few additional tough decisions to make right now.

The Coronavirus Aid, Relief and Economic Security (CARES) Act, which passed on March 27, authorized a number of relief and aid programs for individuals and businesses. But figuring out how to move forward with applications and quickly getting needed relief isn’t easy.

Case in point – the CARES Act authorizes businesses to defer paying the employer contribution of payroll taxes (approximately 7 percent of payroll) through the end of this year with what is essentially a short-term, interest-free loan. This money must eventually be paid. Half is due on December 31st, 2021 and the other half on December 31st, 2022. While this sounds good and allows businesses to hang on to some cash during these difficult times, there is another program that may be more helpful … but you cannot use both. In other words, these offers cannot be combined.

The Paycheck Protection Program, also authorized in the CARES Act, allows small businesses to apply for a loan that can be partially or completely forgiven. The loan can be up to 2.5 times your average monthly payroll and associated costs.  The loan amount will be based upon 2019 expenses for wages paid by your business (up to $100,000 per employee), costs for retirement plans, health insurance, self-employment earnings (again capped at $100,000/year) and state or local taxes imposed on wages.

Resource: COVID-19 Emergency Legislation Offers Substantial Relief to Employers (CARES Act), https://www.adp.com/spark/articles/2020/03/covid-19-emergency-legislation-offers-substantial-relief-to-employers.aspx and US Department of the Treasury, Assistance for Small Businesses, https://home.treasury.gov/policy-issues/top-priorities/cares-act/assistance-for-small-businesses

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