Asset Protection

Reviewing Your Estate Plan Protects Goals, Family

Regularly reviewing your estate plan and transferring the management of assets if and when you are unable to manage them yourself because of disability or death are basic components of estate plan maintenance. This goes for people with $100 or $100 million. Maintaining your estate plan can be simple, explains the article “Auditing Your Estate Plan” appearing in Forbes.

reviewing your estate plan
You should have your estate plan reviewed every three to five years to ensure it is aligned with your goals.

To take more control over your estate, you’ll want to have an estate planning attorney create and review an estate plan to ensure it continues to achieve your goals. To do so, you’ll need to start by defining your estate planning objectives. What are you trying to accomplish?

  • Provide for a surviving spouse or family
  • Save on income taxes now
  • Save on estate and gift taxes later
  • Provide for children later
  • Bequeath assets to a charity
  • Provide for retirement income, and/or
  • Protect assets and beneficiaries from creditors.

A review of your estate plan, especially if you haven’t done so in more than three years, will show whether any of your goals have changed. You’ll need to review wills, trusts, powers of attorney, healthcare proxies, beneficiary designation forms, insurance policies and joint accounts.

Preparing for incapacity is just as important as distributing assets. Who should manage your medical, financial and legal affairs? Designating someone, or more than one person, to act on your behalf, and making your wishes clear and enforceable with estate planning documents, will give you and your loved ones security. You are ready, and they will be ready to help you, if something unexpected occurs.

There are a few more steps, if your estate plan needs to be revised:

  • Make the plan, based on your goals
  • Engage the people, including an estate planning attorney, to execute the plan
  • Have a will updated and executed, along with other necessary documents
  • Re-title assets as needed and complete any changes to beneficiary designations, and
  • Schedule a review of your estate plan every few years and more frequently if there are large changes to tax laws or your life circumstances.

Reference: Forbes (Sep. 23, 2020) “Auditing Your Estate Plan”

Is an Ex-Wife Entitled to an Inheritance from Her Former Husband?

Nj.com’s recent article entitled “My brother died of COVID-19. Should his ex-wife get an inheritance?” says that it’s unlikely that an ex-wife is entitled to an inheritance from her former husband’s estate.  However, the answer is highly dependent on state law.

There are three main ways property can transfer at death. They each have different rules.

ex-wife entitled to inheritance from her husband
It is not likely that an ex-wife is entitled to an inheritance from her former husband’s estate.

Joint assets. When property is held as Joint Tenants with Rights of Survivorship (JTWROS), the surviving joint owner automatically becomes the sole owner of the property. Usually, jointly owned property is retitled into individually owned property after the divorce. If this was never done, some states automatically change JTWROS property to a different form of joint ownership, called Tenancy In Common when a divorce is finalized. As a result, with tenants in common property, when one owner dies, his or her 50% ownership interest becomes a probate asset and passes pursuant to his or her will (or the state’s intestacy laws, if they didn’t have a will).

This means that even if the husband in this scenario still owned JTWROS property with his ex-wife when he passed away, she wouldn’t automatically inherit his share. She still has her own 50% share that she owned all along.

Beneficiary designations.  Property can also pass by beneficiary designation, like with life insurance or retirement accounts.

Beneficiary designations are typically updated after a divorce. However, again, ask an experienced estate planning attorney about your state laws. For example, some state’s laws revoke a divorced spouse as beneficiary, even if the beneficiary designation was never updated.

In this situation, even if the husband named his wife as a beneficiary on an insurance policy or retirement accounts and never changed it, she wouldn’t be able to collect.

Probate.  Finally, the third way that property can pass, is through the probate process. This means there’s a will.  If there was no will, it would be pursuant to the state’s intestacy laws.

An ex-spouse is never entitled to inherit property under state intestate statutes.

There’s an important caveats for these rules. They can be superseded by a divorce decree. Therefore, review the divorce decree to see whether it has any relevant language.

Reference: nj.com (Aug. 4, 2020) “My brother died of COVID-19. Should his ex-wife get an inheritance?”

Trusts: The Swiss Army Knife of Estate Planning

Trusts serve many different purposes in estate planning. They all have the intent to protect the assets. The type of trust determines what those protections will be, and from whom assets are protected, says the article “Trusts are powerful tools which can come in many forms,” from The News Enterprise. To understand how trusts protect assets, start with the roles involved.

Trusts
The versatility of a trust makes it one of the most powerful estate planning tools available.

The person who creates the trust is called a “grantor” or “settlor.” The individuals or organizations receiving the benefit of its property or assets are the “beneficiaries.” There are two basic types of beneficiaries: present interest beneficiaries and “future interest” beneficiaries. The beneficiary, by the way, can be the same person as the grantor, for their lifetime, or it can be other people or entities.

The person who is responsible for managing the property within the trust is the “trustee.” This person is responsible for overseeing the assets and following the instructions in the document. The trustee can be the same person as the grantor, as long as a successor is in place when the grantor/initial trustee dies or becomes incapacitated. However, a grantor cannot gain asset protection through a trust, where the grantor controls the assets and is the principal beneficiary.

One way to establish asset protection during the lifetime of the grantor is with an irrevocable trust. Someone other than the grantor must be the trustee, and the grantor should not have any control over the assets. The less power a grantor retains, the greater the asset protection.

One additional example is if a grantor seeks lifetime asset protection but also wishes to retain the right to income from property and provide a protected home for an adult child upon the grantor’s death. Very specific provisions within the document can be drafted to accomplish this particular task.

There are many other options that can be created to accomplish the specific goals of the grantor.

Some trusts are used to protect assets from taxes, while others ensure that an individual with special needs will be able to continue to receive needs-tested government benefits and still have access to funds for costs not covered by government benefits.

An estate planning attorney will have a thorough understanding of the many different types of trusts and which one would best suit each individual situation and goals.

Reference: The News Enterprise (July 25, 2020) “Trusts are powerful tools which can come in many forms”

Is It Easy to Change My Home’s Title from Tenants in Common to Joint Tenants?

Many couples may have purchased a home years ago with the original deed titled as “William Smith and Wilhelmina Smith”. In most states this defaults to tenants in common. With Wilhelmina being William’s wife for decades, they thought it was time to think about changing the title to William Smith and Wilhelmina Smith, joint tenants with right of survivorship. Joint Tenants

The Washington Post’s recent article entitled “Changing a home title from ‘tenants in common’ to ‘joint tenants’” looks at whether this would result in any adverse consequences, such as issues with the title insurance or taxes issues.

When you own a home in joint tenancy, should either of the owners die, that owner’s interest automatically goes to the surviving joint tenant. However, when people own a home as tenants in common, each person owns a specific share of that home. Therefore, our hypothetical couple William and Wilhelmina Smith each owns a 50% interest in the home. If either of them were to die, his or her 50% interest in the home would be distributed, as provided in his or her will or as provided by state probate statute.

If people purchase a home but don’t specify how they want to own the property, in most situations, the state law will say how the parties take title to the property when the deed is silent.

You can typically record a new document that puts both William Smith and Wilhelmina Smith on the title to the home, as joint tenants with rights of survivorship. When it’s a simple change in the title from tenants in common to joint tenants, most state tax authorities will ignore that change.

To be sure you should ask an experienced estate planning attorney or the office that collects or assesses values in your location for more information. However, it’s a pretty safe bet that the change won’t affect a home’s value.

As far as the title insurance policy, after so many years, it would be doubtful there would be any problems. That’s because the original title insurance policy named William Smith and Wilhelmina Smith as the insured. If they change the ownership from tenants in common to joint tenants, the Smiths are still the owners of the home and still named on that policy.

Reference: Washington Post (July 6, 2020) “Changing a home title from ‘tenants in common’ to ‘joint tenants’”

How Can I Avoid Family Fighting in My Estate Planning?

It’s not uncommon for parents to modify their first estate plans, when their children become adults. At that point, many parents’ estate plans are designed to help efficiently transfer assets to the surviving spouse and ultimately to the adult children. However, this process can encounter a number of hiccups and headaches.

Forbes’ recent article entitled “Three Steps To Estate Planning Without The Family Friction” explains that there are a number of reasons for sibling animosity in the inheritance process. Frequently there are issues that stem from a lack of communication between siblings, which causes doubts as to how things are being done. In addition, siblings may not agree if and how property should be sold and maintained. To help avoid these problems, use this three-step process for estate planning.

Work with an experienced estate planning attorney. Hire an estate attorney who has many years of working in this practice area. This will mean that they’ve seen and, more importantly, resolved most types of family conflicts and problems that can arise in the estate planning process. That’s the know-how that you’re really paying for, in addition to his or her legal expertise in wills and trusts.

Create a financial overview. This will help your beneficiaries see what you own. A financial overview can simplify the inheritance process for your executor, and it can help to serve as the foundation for you and your executor to clearly communicate with future beneficiaries to reduce any lingering doubts or questions that they may have, when they’re not in the loop. Your inventory should at least include the following items:

  • A list of all assets, liabilities and insurance policies you have and their beneficiaries
  • Contact information for all financial, insurance and legal professionals with whom you partner;
  • Access information for any websites your beneficiaries may need for your online accounts; and
  • A legacy letter that discusses non-financial items for your children.

Hold a family meeting. This is the most important one.  Conduct a family meeting that includes the parents and the children who will be inheriting assets. Let them hear directly from you exactly what your plans are.  Some topics for this meeting include:

  • The basics of your estate intentions
  • Verify that a trusted person knows the location of your important estate documents
  • State who your executor and other involved people will be and your rationale
  • Make certain that all parties value communication and transparency during this process; and
  • Discuss non-financial legacy items that are important for you to give to your children.

This three-step process can help keep your children’s relationships intact after you are gone. Hiring an experienced estate planning attorney, creating a clear financial overview and communicating what’s important to you are critical steps in helping to keep your family together.

Reference: Forbes (July 2, 2020) “Three Steps To Estate Planning Without The Family Friction”

Do I Need an Estate Plan with a New Child in the Family?

When a child is born or adopted, the parents are excited to think about what lies ahead. However, in addition to all the other new-parent tasks on the list, parents must also address a more depressing task: making an estate plan.

When a child comes into the picture, it’s important for new parents to take the responsible step of making a plan, says Motley Fool’s recent article entitled “As a New Parent, I Took These 3 Estate Planning Steps.”

Life insurance. To be certain that there’s money available for your child’s care and to fund a college education, parents can buy life insurance. You can purchase a term life insurance policy that’s less expensive than a whole-life policy and you’ll only need the coverage until the child is grown.

Create a will. A will does more than just let you direct who should inherit if you die. It gives you control over what happens to the money you leave to your child. If you were to pass and he wasn’t yet an adult, someone would need to manage the money left to him or her. If you don’t have a will, the court may name a guardian for the funds, and the child might inherit with no strings attached at 18. How many 18-year-olds are capable of managing money that’s designed to help them in the future?

Speak to an experienced lawyer to get help making sure your will is valid and that you’re taking a smart approach to protecting your child’s inheritance.

Designate a guardian. If you don’t name an individual to serve as your child’s guardian, a custody fight could happen. As a result, a judge may decide who will raise your children. Be sure that you name someone, so your child is cared for by people you’ve selected, not someone a judge assigns. Have your attorney make provisions in your will to name a guardian, in case something should happen. This is one step as a new parent that’s critical. Be sure to speak with whomever you’re asking to be your child’s guardian and make sure he or she is okay with raising your children if you can’t.

Estate planning may not be exciting, but it’s essential for parents.

Contact a qualified estate planning attorney to create a complete estate plan to help your new family.

Reference: Motley Fool (Feb. 23, 2020) “As a New Parent, I Took These 3 Estate Planning Steps”

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”

How Long Do You Have to Settle an Estate?

The beneficiaries of an estate are typically eager to receive their inheritance. In a common scenario, a trust was left instead of a will. All the parties received their respective shares, except for the two brothers and a sister who is the executor. The trust instructed the brothers to divide the real estate property in half for each of them. The sister was to get $15,000.

However, one of the brothers lives in the home.

As you may know, the administrator or executor of an estate has the job of collecting the decedent’s assets, paying debts, making distributions to the beneficiaries and finally closing the estate in an expeditious manner.

nj.com’s recent article entitled “How long does it take to pay out a family trust?” tries to sort out what the siblings need to do to settle the estate. The key factor in this scenario is the wording of the trust.

There are situations in which a trust is used as a substitute for a will. In that case, a person’s assets are placed in trust. The trustee pays all the liabilities and administers the assets in the trust in accordance with the instructions of the trust during the individual’s life and after death.

Even when trusts are used as will substitutes, they aren’t always designed to be closed with distribution to happen immediately after the debts are paid, as in the case of the estate. The terms of the trust dictate the trustee’s duties as to the distribution of trust assets.

If you’re a beneficiary of a trust and think that the trustee is breaching his fiduciary duties, you should inform the trustee of the nature of the suspected breach. If nothing is done to remedy this, you may ask the court for help.

One option is that you can request the court to order the trustee to take actions, which you state in your complaint filed with the probate court. Another option is to request that the court direct the trustee to stop taking specific actions that you detail in your complaint.

A third choice is to ask the court to remove the trustee due to breach of fiduciary duties that you set forth in your complaint filed with the court.

However, such court intervention can be expensive. Another thing to consider is that the trustee may petition the court to have his legal fees paid from the trust funds—which will deplete the money in the trust. Because of this, it is usually best to attempt and resolve these issues before getting the court involved.

Reference: nj.com (Feb. 12, 2020) “How long does it take to pay out a family trust?

Does a Beneficiary of an Estate Need to Live in the U.S.?

When a person dies without a will, the distribution of his or her estate assets is governed by the state’s intestacy statute. All states have laws that instruct the court on how to disburse the intestate decedent’s property, usually according to how close in relationship they are to the person who passed away.  But what happens when a beneficiary of an estate doesn’t live in the U.S.?

Does a beneficiary of an estate have to live in the US?
Different states have different laws, but, in general, beneficiaries of an estate don’t have t live in the United States.

A recent nj.com article responded to the following question: “My ex’s new wife isn’t a citizen. Does she get an inheritance?” The article explains that under the intestacy laws of New Jersey, for example, if the deceased had children who aren’t the children of the surviving spouse, the surviving spouse is entitled to the first 25% of the estate but not less than $50,000 nor more than $200,000, plus one-half of the balance of the estate.

Also, under New Jersey law, aliens or those who are not citizens of the United States are eligible to inherit assets.

In California, if you die with children but no spouse, the children inherit everything. If you have a spouse but no children, parents, siblings, or nieces or nephews, the spouse inherits everything. If you have parents but no children, spouse, or siblings, your parents inherit everything. If you have siblings but no children, spouse, or parents, those siblings inherit everything.

Also in California, if you’re married and you die without a will, what property your spouse will receive, is based in part on how the two of you owned your property. Was it separate property or community property? California is a community property state, so your spouse will inherit your half of the community property.

In that case, an ex-husband’s wife who lives in and is a citizen of the Philippines doesn’t need to be physically present in the state to inherit assets from her husband.

If the deceased owned property in the Philippines, the distribution of those assets would be according to the laws of that country.

Reference: nj.com (August 28, 2019) “My ex’s new wife isn’t a citizen. Does she get an inheritance?”

What Happens to Credit Card Debts After You Die?

Can you imagine what people would do, if they knew that credit card debt ended when they passed away? Run up enormous balances, pay for grandchildren’s college costs and buy luxury cars, even if they couldn’t drive! However, that’s not how it works, says U.S. News & World Report in the article that asks “What Happens to Credit Card Debt When You Die?” 

What Happens to Credit Card Debt When You Die?
A common misconception is that your debts are wiped out when you die.

The personal representative of your estate, the person you name in your last will and testament, is in charge of distributing your assets and paying off your debts. If your credit card debt is so big that it depletes all of your assets, your heirs may be left with little or no inheritance.

If you’re concerned about loved ones being left holding the credit card bag, here are a few things you’ll need to know. (Note that some of these steps require the help of an experienced estate planning attorney.)

Who pays for those credit card debts after you die? Relatives don’t usually have to pay for the debts directly, unless they are entwined in your finances. Some examples:

  • Co-signer for a credit card or a loan
  • Jointly own property or a business
  • Lives in a community property state (Alaska, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington or Wisconsin)
  • Are required by state law to pay a debt, such as health care costs, or to resolve the estate.

A spouse who has a joint credit card account must continue to make on-time payments. A surviving spouse does not need the shock of learning that their spouse was carrying a massive credit card debt, since they are liable for the payments. A kinder approach would be to clear up the debt.

How do debts get paid? The probate process addresses debts, unless you have a living trust or make other arrangements. The probate court will determine the state of your financial affairs, and the personal representative named in your will (or if you die without a valid will, the administrator named by the court), will be responsible for clearing up your estate.

An unmarried person who dies with debt and no assets, is usually a loss for the credit card company, if there’s no source of assets.

If you have assets and they are left unprotected, they may be attached by the creditor. For instance, if there is a life insurance policy, proceeds will go to beneficiaries, before debts are repaid. However, with most other types of assets, the bills get paid first, and then the beneficiaries can be awarded their inheritance.

How can you protect loved ones? A good estate plan that prepares for this situation is the best strategy. Having assets placed in trusts protects them from probate. A trust also allows beneficiaries to save time and money that might otherwise be devoted to the probate process. It also puts them in a better position, if the personal representative needs to negotiate with the credit card company.

Talk candidly with your estate planning attorney and your loved ones about your debts, so that a plan can be put into place to protect everyone.

Reference: U.S. News & World Report (August 19, 2019) “What Happens to Credit Card Debt When You Die?”

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