Estate Planning

The Wrong Power of Attorney Could Lead to a Bad Outcome

There are two different types of advance directives, 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 durable 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.

power of attorney
Having the right Durable Power of Attorney makes all the difference.

Two types of Durable Power of Attorney for Finance. The power of attorney for finance can be “springing” or “immediate.” The Durable Power of Attorney refers to the fact that it 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 Power of Attorney 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 Power of Attorney 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 Power of Attorney 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 Power of Attorney. 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 Power of Attorney 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.

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

Did You Inherit a House with a Mortgage?

When a loved one dies, there are always questions about wills, inheritances and how to manage all of their legal and financial affairs. It’s worse if there’s no will and no estate planning has been done. This recent Bankrate article, “Does the home you inherited include a mortgage?,” says that things can get even more complicated when you inherit a house with a mortgage.

inherit a house with a mortgage
There are several options available to anyone who inherits a house with a mortgage.

Heirs often inherit the family home. However, if it comes with a mortgage, you’ll want to work with an estate planning attorney. If there are family members who could become troublesome, if houses are located in different states or if there’s a lot of money in the estate, it’s better to have the help of an experienced professional.

Death does not mean the mortgage goes away. Heirs need to decide how to manage the loan payments, even if their plan is to sell the house. If there are missing payments, there may be penalties added onto the late payment. Worse, you may not know about the mortgage until after a few payments have gone unpaid.

Heirs who inherit a house with a mortgage have several options:

If the plan is for the heirs to move into the home, they may be able to assume the mortgage and continue paying it. There may also be an option to do a cash-out refinance and pay that way.

If the plan is to sell the home, which might make it easier if no one in the family wants to live in the home, paying off the mortgage by using the proceeds from the sale is usually the way to go. If there is enough money in the estate account to pay the mortgage while the home is on the market, that money will come out of everyone’s share. Here again, the help of an estate planning attorney will be valuable.

Heirs who inherit a house with a mortgage also have certain leverage when dealing with a mortgage bank in an estate situation. There are protections available that will provide some leeway as the estate is settling. More good news—the chance of owing federal estate taxes right now is pretty small. An estate must be worth at least $11.58 million, before the federal estate tax is due.

There are still 17 states and Washington D.C. that will want payment of a state estate tax, an inheritance tax or both (Florida is not one of them). There also might be capital gains tax liability from the sale of the home.

If you decide to take over the loan, the lender should be willing to work with you. The law allows heirs who inherit a house with a mortgage to assume a loan, especially when the transfer of property is to a relative. Surviving spouses have special protections to ensure that they can keep an inherited home, as long as they can afford it. In many states, this is done by holding title by “tenancy by the entireties” or “joint tenants with right of survivorship.”

When there is a reverse mortgage on the property, options include paying off or refinancing the balance and keeping the home, selling the home for at least 95% of the appraised value, or agreeing to a deed in lieu of foreclosure. There is a window of time for the balance to be repaid, which may be extended, if the heir is actively engaged with the lender to pay the debt. However, if a year goes by and the reverse mortgage is not paid off, the lender must begin the foreclosure process.

Nothing changes if the heir is a surviving spouse, but if the borrower who dies had an unmarried partner, they have limited options, unless they are on the loan.

What if you inherit a house with a mortgage that is “underwater,” meaning that the value of the inherited home is less than the outstanding mortgage debt? If the mortgage is a non-recourse loan, meaning the borrower does not have to pay more than the value of the home, then the lender has few options outside of foreclosure. This is also true with a reverse mortgage. Heirs are fully protected, if the home isn’t worth enough to pay off the entire balance.

If there is no will, things get extremely complicated. Contact an estate planning attorney as soon as possible.

Reference: Bankrate (Oct. 22, 2020) “Does the home you inherited include a mortgage?”

Do I Need to Name a Guardian for My Children in the Will?

Many young couples with children and bills, 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 minor children. If you don’t name a guardian, it could result in issues for your children after your death.

Naming a Guardian
Naming a guardian for your children can only be done through your estate planning documents.

For a young family, naming a guardian is one of the most important reasons to draft a will. If you and your spouse die together with no guardian designated 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 could even 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 name a guardian for your children.

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 raise your children.

Try to find common ground by agreeing to a set of criteria you want in a guardian. This could include:

  • 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 so you can legally name a guardian.

Ask an experienced estate planning attorney to help you do it correctly.

Reference: Lifehacker (Oct. 27, 2020) “Why You Should Name a Guardian for Your Kids Right Away”

Estate Planning Actions to Consider before 2020 Ends

When it comes to estate planning, there’s no such thing as a “one-size-fits-all” solution. That is especially true before a presidential election. However, there are several factors that should be considered and discussed with your estate planning attorney, as recommended in this recent article from The National Law Review “Top Ten Estate Planning Recommendations before the End of 2020.”  

The estate, gift and generational-skipping transfer tax exemption is now $11.58 million per person. It’s scheduled to increase every year by an inflationary indexed amount through 2025 and in 2026 will revert to $5 million. If Biden wins the election, don’t be surprised if changes are made earlier. The IRS has already said that if the exemption is used this year, there will be no claw back. This is a “use it or lose it” scenario. If you are planning on using it, now is the time to do so.

It is possible that Discounts, Grantor Trusts and other estate planning techniques may go away, depending upon who wins the election and control of Congress. Consider taking advantage of commonly used estate planning tools before it is too late.

Interest rates are at an all-time low, and that is when tools like intra family loans are at their best.

Moving to Florida, Nevada, Texas and other low- or no-income tax states has become very popular, especially for people who can work remotely. Be aware that high tax states like New York and California are not going to let your tax revenue leave easily. Check with your estate planning attorney to make sure you’re following the rules in giving up your domicile in a high-income tax state.

Reference: The National Law Review (Oct. 6, 2020) “Top Ten Estate Planning Recommendations before the End of 2020”

Can I Leave My Pet Some of My Estate?

Pet Trusts
Pet trusts are a great option for making sure your four-legged family members are cared for if something happens to you.

The Minneapolis Star Tribune’s article entitled “Who will take care of Fido when you’re gone? Minnesotans put trust in trusts reports that Minnesotans are setting up trusts to care for their pets in the event they survive them.  Floridians can do the same.

With a pet trust, there’s a guarantee that the money earmarked to care for the animal will be there for the animal as intended. A trust can designate a separate caretaker and trustee to care for the animal, manage the money, and make certain the care is being provided as instructed in the trust.

A pet trust can contain instructions on the type of food, medical care, exercise and housing the pet will get, as well as the pet’s end of life and burial or cremation directions.

A pet trust can also be used to care for an animal before the owner dies but is disabled or incapacitated. When the pet dies, depending on how the trust was created, the money left in the trust would be distributed to heirs or could go to another designated person or charity.

In states where this is not an estate planning option, a person could write in their will that a relative will inherit a pet, and the pet owner could also leave the person money to pay for the animal’s care. However, because pets are legally considered personal property, they cannot own property or inherit assets themselves. As a result, you’ll want to choose a person who will abide by your wishes and not spend the cash on themselves.

A pet trust can provide a plan for animal lovers who want to own pets late in life but may be concerned the pet might outlive them. Talk to an experienced estate planning attorney about pet trusts in your state.

Reference: StarTribune (Sep. 23, 2020) “Who will take care of Fido when you’re gone? Minnesotans put trust in trusts”

Prince’s Estate Hits the IRS with a Million Dollar Lawsuit

Filing probate documents was just the beginning of process that still hasn’t ended the bad news from the Prince estate. He did not have a spouse or children, but Prince had half-brothers and half-sisters, says a recent article from Forbes titled “Prince’s Estate Sues IRS Over Claimed $135 Million Tax Value.” There were a number of claims against the estate, and claims by the estate as well, including a wrongful death action that was eventually dismissed. Prince Sues IRS

However, just like anyone else who dies without a will, probate takes a long time and is expensive. Things also get complicated quickly, especially with an estate of this size.

One of Prince’s half-sisters, Tyka Nelson, sold a portion of her share of the estate to Primary Wave, a music publisher. So did another sibling. And then the tax troubles began. Cash poor or not, estates must pay a federal estate tax of 40%. A federal estate tax return needs to be filed, and while audits are rare, almost every estate of this magnitude is audited by the IRS. The estate reported a taxable value of $82 million, but the IRS isn’t satisfied.

Estate tax fights with the IRS can go on for a long time. Michael Jackson’s estate battle with the IRS is still going on—and he died in 2009.

Papers filed by Prince’s estate in the U.S. Tax Court show that the estate reported a taxable value of $82 million, but the IRS claims that the value is really $163 million and wants an additional $38.7 million. In every case, Prince’s estate has obtained appraisals to support its reported values, but the IRS has its own appraisers who disagree.

Even if Prince had a will, there still could have been problems. Heath Ledger had a will, but it was five years old when he died and there was no provision made for his daughter. James Gandolfini had a will, but his estate gave the IRS $30 million of his $70 million. These stories make estate planning attorneys cringe. Seymour Hoffman, Heath Ledger, and James Gandolfini’s estates all ended up with wills in probate, which is public, expensive, time-consuming and unnecessary. A will does have to go through the court process, but the use of a revocable trust could have disposed of their assets outside of probate. A simple pour-over will would have given everything to the revocable trust, simply, and privately in terms of the ultimate inheritance disposition.

Estate planning attorneys advise clients to update wills and trusts every time there is a birth, marriage, divorce, etc. It is good advice for both celebrities and regular people.

You can give an unlimited amount to your spouse during life or on death. Prince’s estate may face a 40% estate tax, but if he had been married and left his estate to his spouse, there would not have been any federal estate tax until the death of the spouse.

A lesson for the rest of us: have an estate plan, including a will and make sure that it includes tax planning.

Reference: Forbes (Oct. 7, 2020) “Prince’s Estate Sues IRS Over Claimed $135 Million Tax Value”

Why Everyone Needs an Estate Plan

Many people think you have to be a millionaire to need an estate plan and investing in an estate plan is too costly for the average American. Not true! People of modest means actually need an estate plan more than the wealthy to protect what they have. A recent article from TAPinto.net explains the basics in “Estate Planning–Getting Your Affairs in Order Does Not Need to be Complicated or Expensive.”

Everyone needs an estate plan that includes the following documents: a Last Will and Testament, a General Durable Power of Attorney and an Advance Medical Directive or Living Will, and a HIPAA Release.

Everyone needs an estate plan
People of modest means actually need an estate plan more than the wealthy.

Unless your estate is valued at more than $11.58 million, you may not be as concerned about federal estate taxes right now, but this may change in the near future. Some states, like Florida, don’t have any state estate tax at all. There are states, like Pennsylvania, which have an “inheritance” tax determined based on the relationship the person has with the decedent. However, taxes aren’t the only reason to have an estate plan.

If you have young children, your will is the legal document used to tell your executor and the court who you want to raise your minor children by naming their guardian.

Why do you need a General Power of Attorney? This is the document that you need to name a person to be in charge of your affairs, if you become incapacitated and can’t make or communicate decisions. Without a POA in place, no one has the legal authority to manage your financial and legal affairs. Your family would have to go to court and file a guardianship action, which can be expensive, take time to complete and create unnecessary stress for the family.

An Advance Medical Directive, also known as a Living Will, is used to let a person of your choice make medical decisions, if you are unable to do so. This is a very important document to have, especially if you have strong feelings about being kept alive by artificial means. The Advance Medical Directive gives you an opportunity to express your wishes for end of life care, as well as giving another person the legal right to make medical decisions on your behalf. Without it, a guardianship may need to be established, wasting critical time if an emergency situation occurs.

Most people of modest means need only these three documents, but they can make a big difference to protect the family. If the family includes disabled children or individuals, owns a business or real estate, there are other documents needed to address these more complex situations. However, simple or complex, your estate and your family deserve the protection of an estate plan.

Reference: TAPinto.net (Sep. 23, 2020) “Estate Planning–Getting Your Affairs in Order Does Not Need to be Complicated or Expensive”

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”

Can a Power of Attorney Protect My Assets as I Get Older?

Estate planning attorneys help protect individuals and their assets as they grow older and then protect their beneficiaries when they pass away. So, how can a power of attorney protect your assets as you age?

power of attorney protect
A Power of Attorney is an important estate planning tool.

The Street’s recent article entitled “Guide to Protect Your Assets as You Age – Power of Attorneys” asks us to think about visiting your family doctor for the last 30 years but then needing to see a specialist for the first time. That’s because your family doctor isn’t a specialist, and they might miss something. The article explains that estate planning attorneys are the specialists of the legal profession—they take a fresh look at a client’s situation and develop strategies to protect them and their families from the risks as we grow older.

Estate planning attorneys can help you protect yourself and your family and they make certain that your estate goes to your family as you intended, with little or no tax liability.

An important tool to accomplish this goal is the Power of Attorney (POA). There are two of them: a medical POA and a financial POA. These allow you to designate a trusted agent to make your medical and financial decisions, when you are unable.

Unfortunately, the coronavirus pandemic has placed everyone in difficult circumstances. As a result, many hospitalized patients are without the proper estate planning documents. Some hospitals, nursing homes, and assisted living homes have shuttered their doors to visitors and non-essential workers in an attempt to minimize the spread of this disease. As a result, many patients are unable to get these documents signed.

Although some states initially prevented electronic signatures and notarization that would keep contact to a minimum, many have now permitted patients access to elder law and estate planning attorneys, when needed. These states have signed executive orders that allow for electronic signatures, which has been a huge help. Even so, this can be challenging for an elder individual.

Financial powers of attorney are not all the same either. They are just one tool in the toolbox.

A power of attorney can have a list of things you will permit your designated agent to do for you. Many of these documents do not give your agent enough power to protect you. That’s because they limit your agent’s abilities. That may sound good when you first sign them, but the result is that it makes things harder for your family if you have a stroke and your loved one needs to protect your finances.

Reference: The Street (Sep. 24, 2020) “Guide to Protect Your Assets as You Age – Power of Attorneys”

What’s Involved in the Probate Process in Florida?

SWAAY’s recent article entitled “What involved in the Probate Process in Florida?” says that while every state has its own laws, the probate process can be fairly similar. Here are the basic steps in the probate process:

What's involved in the probate process in Florida
The basic steps involved in the probate process are similar in most states.

The family consults with an experienced probate attorney. Those mentioned in the decedent’s will should meet with a probate lawyer. During the meeting, all relevant documentation like the list of debts, life insurance policies, financial statements, real estate title deeds, and the will should be available.

Filing the petition. The process would be in initiated by the executor or personal representative named in the will. He or she is in charge of distributing the estate’s assets. If there’s no will, you can ask an estate planning attorney to petition a court to appoint an executor. When the court approves the personal representative, the Letters of Administration are issued as evidence of legal authority to act as the executor. The executor will pay state taxes, funeral costs, and creditor claims on behalf of the decedent. He or she will also notice creditors and beneficiaries, coordinate the asset distribution and then close the probate estate.

Noticing beneficiaries and creditors. The executor must notify all beneficiaries of trust estates, the surviving spouse and all parties that have the rights of inheritance. Creditors of the deceased will also want to be paid and will make a claim on the estate.

Obtaining the letters of administration (letters testamentary) obtained from the probate court. After the executor obtains the letter, he or she will open the estate account at a bank. Statements and assets that were in the deceased name will be liquidated and sold, if there’s a need. Proceeds obtained from the sale of property are kept in the estate account and are later distributed.

Settling all expenses, taxes, and estate debts. By law, the decedent’s debts must typically be settled prior to any distributions to the heirs. The executor will also prepare a final income tax return for the estate. Note that life insurance policies and retirement savings are distributed to heirs despite the debts owed, as they transfer by beneficiary designation outside of the will and probate.

Conducting an inventory of the estate. The executor will have conducted a final account of the remaining estate. This accounting will include the fees paid to the executor, probate expenses, cost of assets and the charges incurred when settling debts.

Distributing the assets. After the creditor claims have been settled, the executor will ask the court to transfer all assets to successors in compliance with state law or the provisions of the will. The court will issue an order to move the assets. If there’s no will, the state probate succession laws will decide who is entitled to receive a share of the property.

Finalizing the probate estate. The last step is for the executor to formally close the estate. The includes payment to creditors and distribution of assets, preparing a final distribution document and a closing affidavit that states that the assets were adequately distributed to all heirs.

Reference: SWAAY (Aug. 24, 2020) “What is the Probate Process in Florida?”

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