Estate Planning

How Does the SECURE Act Change Your Estate Plan?

The SECURE Act has made big changes to how IRA distributions occur after death. Anyone who owns an IRA, regardless of its size, needs to examine their retirement savings plan and their estate plan to see how these changes will have an impact. The article “SECURE Act New IRA Rules: Change Your Estate Plan” from Forbes explains what the changes are and the steps that need be taken.

Some of the changes include revising wills and trusts which include provisions creating conduit trusts that had been created to hold IRAs and preserve the stretch IRA benefit, while the IRA plan owner was still alive.

Existing conduit trusts may need to be modified before the owner’s death to address how the SECURE Act might undermine the intent of the trust.

Rethinking and possibly completely restructuring the planning for the IRA account may need to occur. This may mean making a charity the beneficiary of the account, and possibly using life insurance or other planning strategies to create a replacement for the value of the charitable donation.

Another alternative may be to pay the IRA balance to a Charitable Remainder Trust (CRT) on death that will stretch out the distributions to the beneficiary of the CRT over that beneficiary’s lifetime under the CRT rules. Paired with a life insurance trust, this might replace the assets that will ultimately pass to the charity under the CRT rules.

The biggest change in the SECURE Act being examined by estate planning and tax planning attorneys is the loss of the “stretch” IRA for beneficiaries inheriting IRAs after 2019. Most beneficiaries who inherit an IRA after 2019 will be required to completely withdraw all plan assets within ten years of the date of death.

One result of the change of this law will be to generate tax revenues. In the past, the ability to stretch an IRA out over many years, even decades, allowed families to pass wealth across generations with minimal taxes, while the IRAs continued to grow tax tree.

Another interesting change: No withdrawals need be made during that ten-year period, if that is the beneficiary’s wish. However, at the ten-year mark, ALL assets must be withdrawn, and taxes paid.

Under the prior law, the period in which the IRA assets needed to be distributed was based on whether the plan owner died before or after the RMD and the age of the beneficiary.

The deferral of withdrawals and income tax benefits encouraged many IRA owners to bequeath a large IRA balance completely to their heirs. Others, with larger IRAs, used a conduit trust to flow the RMDs to the beneficiary and protect the balance of the plan.

There are exceptions to the 10-year SECURE Act payout rule. Certain “eligible designated beneficiaries” are not required to follow the ten-year rule. They include the surviving spouse, chronically ill heirs and disabled heirs. Minor children are also considered eligible beneficiaries, but when they become legal adults, the ten year distribution rule applies to them. Therefore, by age 28 (ten years after attaining legal majority), they must take all assets from the IRA and pay the taxes as applicable.

The new law and its ramifications are under intense scrutiny by members of the estate planning and elder law bar because of these and other changes. Speak with your estate planning attorney to review your estate plan to ensure that your goals will be achieved in light of these changes.

Reference: Forbes (Dec. 25, 2019) “SECURE Act New IRA Rules: Change Your Estate Plan”

Start the New Year with Estate Planning To-Do’s

Families who wish their loved ones had not created an estate plan are far and few between. However, the number of families who have had to experience extra pain, unnecessary expenses and even family battles because of a lack of estate planning are many. While there are a number of aspects to an estate plan that take some time to accomplish, The Daily Sentinel recommends that readers tackle these tasks in the article “Consider These Items As Part of Your Year-End Plan.”  

Review and update any beneficiary designations. This is one of the simplest parts of any estate plan to fix. Most people think that what’s in their will controls how all of their assets are distributed, but this is not true. Accounts with beneficiary designations—like life insurance policies, retirement accounts, and some bank accounts—are controlled by the beneficiary designation and not the will.

Proceeds from these assets are based on the instructions you have given to the institution, and not what your will or a trust directs. This is also true for real estate that is held in JTWROS (Joint Tenancy with Right of Survivorship) and any real property transferred through the use of a beneficiary deed. The start of a new year is the time to make sure that any assets with a beneficiary designation are aligned with your estate plan.

Take some time to speak with the people you have named as your agent, personal representative or successor trustee. These people will be managing all or a portion of your estate. Make sure they remember that they agreed to take on this responsibility. Make sure they have a copy of any relevant documents and ask if they have any questions.

Locate your original estate planning documents. When was the last time they were reviewed? New laws, and most recently the SECURE Act, may require a revision of many wills, especially if you own a large IRA. You’ll also want to let your executor know where your original will can be found. The probate court, which will review your will, prefers an original. A will can be probated without the original, but there will be more costs involved and it may require a few additional steps. Your will should be kept in a secure, fire and water-safe location. If you keep copies at home, make a note on the document as to where the original can be found.

Create an inventory of your online accounts and login data for each one. Most people open a new account practically every month, so keep track. That should include email, personal photos, social media and any financial accounts. This information also needs to be stored in a safe place. Your estate planning document file would be the logical place for this information but remember to update it when changing any information, like your password.

If you have a medical power of attorney and advance directive, ask your primary care physician if they have a means of keeping these documents, and explain how you wish the instructions on the documents to be carried out. If you don’t have these documents, make them part of your estate plan review process.

A cover letter to your executor and family that contains complete contact information for the various professionals—legal, financial, and medical—will be a help in the case of an unexpected event.

Remember that life is always changing, and the same estate plan that worked so well ten years ago, may be out of date now. Speak with an experienced estate planning attorney in your state who can help you create a plan to protect yourself and your loved ones.

Reference: The Daily Sentinel (Dec. 28, 2019) “Consider These Items As Part of Your Year-End Plan”

Turning 65 in 2020? Some Pointers for a Special Year

Many things change when celebrating your 65th birthday. For one thing, if you haven’t already retired, chances are good that you’ve set a retirement date and it’s not too far away. There are a number of things to be considered, advises the article “Points to ponder before turning 65” from Knox News.

The year you turn 65 is the year that you enroll in Medicare. Coverage begins at age 65, and the initial window to enroll opens three months before your 65th birthday and ends three months after. Miss that deadline, and there may be penalties when you do at last sign up for Medicare.

You can sign up for Medicare, whether you are working or not. If you are turning 65 and already collecting Social Security, you’ll automatically be enrolled in Medicare Parts A and B. You’ll need to sign up for Part D to avoid penalties, unless you have coverage through a spouse’s employer.

Here are some details:

  • Part A covers hospital care and is generally free for enrollees.
  • Part B covers diagnostic and preventive care. You pay for it with a monthly premium.
  • If you’re still working at age 66 and have health insurance through your employer, you may choose not to enroll in Part B. You can sign up for Part A, at no cost, and delay Parts B and D.
  • If you’re still working past 65 and have creditable coverage through your employer or your spouse’s employer, then you can defer Medicare.

Note that you may not get a full monthly benefit, if you claim Social Security right away. You can begin collecting Social Security at the young age of 62, but you won’t get the full monthly benefit that you otherwise would get unless you wait until you reach full retirement age. That date depends upon your date of birth. For most people turning 65 in 2020, that means full retirement age is 66 plus two months. Is it worth the wait? Your monthly benefit shrinks by 7.8%, if you file for benefits at age 65.

This is the time to check on your estate planning documents. If you don’t have these already, speak with an estate planning attorney to make sure that you and your family are protected by the following:

  • General Durable Power of Attorney for Finances
  • Durable Power of Attorney for Healthcare
  • HIPAA release
  • Revocable Living Trust
  • Advanced Health Care Directive
  • Last Will and Testament

It’s a great birthday to celebrate but be certain that you take care of the estate planning, Medicare and Social Security aspects of your life, as you prepare for this milestone.

Reference: Knox News (December 26, 2019) “Points to ponder before turning 65”Social Security, Medicare, Part A, Part B, Estate Planning Attorney, Power of Attorney, Revocable Living Trust, Health Care Directive, Last Will and Testament

How Do I Avoid Unintentionally Disinheriting a Family Member?

When an account owner dies, their assets go directly to beneficiaries named on the account. This bypasses and overrides the will or trust. Therefore, you should use care in coordinating your overall estate plan. You don’t want the wrong person ending up with the financial benefits.

The News-Enterprise recent article, “Don’t accidentally leave your estate to the wrong person,” tells the story of the widower who remarried after the death of his first wife. Because he didn’t change his IRA beneficiary form, at his death, his second wife was left out. She received no money from the IRA, and the retirement money went to his first wife, the named beneficiary.

Many types of accounts have beneficiary forms, like U.S. savings bonds, bank accounts, certificates of deposit that can be made payable on death, investment accounts that are set-up as transfer on death, life insurance, annuities and retirement accounts.

Remember that beneficiary designations don’t carry over, when you roll your 401(k) to a new plan or IRA.

You can name as your beneficiaries individuals, trusts, charities, organizations, your estate, or no one at all. You can name groups, like “all my living grandchildren who survive me.” However, be certain that the beneficiary form lets you to pass assets “per stirpes,” meaning, equally among the branches of your family. For example, say you’re leaving your life insurance to your four children. One predeceases you. Without the “per stirpes” clause, the remaining three remaining children would divide the death proceeds. With the “per stirpes” clause, the deceased child’s share would pass to the late child’s children (your grandchildren).

Don’t leave assets to minors outright, because it creates the process of having a court appointed guardian care for the assets, until the age of 18 in most states. Instead, you might create trusts for the minor heirs, have the trust as the beneficiary of the assets, and then have the trust pay the money to heirs over time, after they have reached legal age or another milestone.

You should also not name disabled individuals as beneficiaries, because it can cause them to lose their government benefits. Instead, ask your attorney about creating a special needs or supplemental needs trust. This preserves their ability to continue to receive the government benefits.

Reference: The News-Enterprise (November 30, 2019) “Don’t accidentally leave your estate to the wrong person”

Microsoft’s Co-Founder Paul Allen’s Billions Estate

It’s been a little more than a year since billionaire Paul Allen’s passing, but the course he charted to give away his fortune remains a private secret, described as a complicated work in progress by the Seattle Times in the article that asks and answers the question “What’s happening to Paul Allen’s billions? A year after his death, it’s complicated.”

There’s been some recent chatter that Jeff Bezos, founder of Amazon, was interested in buying an NFL team, and possibly the Seattle Seahawks. This has sparked renewed curiosity about what has happened to the Allen empire.

Paul Allen was a philanthropist and interested in many different endeavors, from sports to fine art, pop culture and nonprofits, real estate investing and science. What will be kept within the family, what will be sold and what shape will the promised philanthropy take?

The answer to the question of when all of this might happen, is perhaps the only clear answer: not yet, and maybe not for a while. Experts say that it can take years for such a vast empire to be unwound. His estate includes businesses, investments, properties, world-class fine art and other valuable assets.  Giving away what might be as much as $10 billion or more, is not something to be done quickly.

As to who is in charge, that is Jody Allen, trustee, sister, and along with her family, the sole heir. A biography on the website of Vulcan, the business that Paul and his sister Jody co-founded, says that she has the responsibility for preserving and implementing his vision for generations to come. Jody’s intentions are unknown, outside of a tight and protective inner circle.

A Vulcan spokesperson said that the company is committed to tackling the world’s toughest problems, but nothing more.

The expectations are great, based in part on the long and varied record of philanthropy from Jody and Paul Allen. He gave away $2 billion during this lifetime to business, scientific, and cultural entities.

One of the main channels for philanthropy is the Paul G. Allen Family Foundation, which has given away at least $575 million. At the end of 2018, the foundation had assets worth more than $931 million and made more than $48 million in contributions.

Vulcan, the company, and the family foundation will continue to exist for many years, putting their stamp on science, the arts, environmental causes and educational programs.

Reference: Seattle Times (November 26, 2019) “What’s happening to Paul Allen’s billions? A year after his death, it’s complicated”

Share Your Estate Plan Now to Protect Your Family When You Are Gone

If one child will receive more than his siblings, even though his need is obviously greater, will that shared info create fighting between the children? And should children even have advance knowledge that they are going to receive an inheritance? These are some of the questions examined in the article “Disclosing estate plans in advance can save strife later” from The Indiana Lawyer. In most situations, advance discussions between family members are better to ensure family harmony.

Many estate planning attorneys have the “fair does not always mean equal” discussion with their clients. For some families, there is one child who is in dire need, while the others have prospered and don’t really need help. Maybe one child has special needs, or just hasn’t been as successful in life. In other cases, one child has already received substantial property from the parents, so no portion of the estate will be left to them. Regardless of the circumstances, which vary widely, having a frank discussion with all of the children is better than a series of surprises.

Research from the Federal Reserve Board shows that more than half of any given inheritance equals $50,000 or less, and more than 80% of all inheritances are less than $250,000.

With only half of what most people inherit being generally used to invest or pay down debt, most of these inheritances are spent, invested, or donated.

Regardless of the size of the inheritance, most parents expect that the beneficiaries of their estate will protect and preserve their legacy and use the money wisely. That is not always the case. If the parents want heirs to be careful with inheritances, they need to have a plan that will prepare heirs to act as stewards of their inheritances. The plan may be as simple as a series of conversations about saving and investing, or making charitable donations. It might also be complex, like meeting with the parent’s financial advisor and estate planning attorney and discussing wealth transfer and the potential to grow the wealth for another generation.

Families with larger estates often involve their children in annual gifting to get them used to the experience of receiving significant assets and learning how to manage these gifts. This has the added impact of allowing the parents to see how their children will respond to windfalls, which may guide how they distribute wealth in their estate plan. If one child is a repeat spendthrift, for instance, a trust may be a better way to pass the wealth to the child, with a trustee who can determine when they receive assets.

Families who have worked hard to leave their children with an inheritance, regardless of the size, should prepare their children by teaching them, through the parent’s actions, how their values impact their wealth, and how to manage it for themselves and future generations.

Reference: The Indiana Lawyer (October 16, 2019) “Disclosing estate plans in advance can save strife later”

How Do I Disinherit a Family Member?

Kiplinger’s recent article, “Four Ways to Disinherit Family Members,” says that quite a few families don’t get along. However, when considering estate planning, the problem is that without a valid will leaving money to other individuals, family members are the “default” recipient of your estate. If you decide to leave any property using your will, your next-of-kin must still be given legal notice of your estate being probated (even if they’re being disinherited), and usually they’re only ones who can legitimately contest your will.

If you do have bad family relations and don’t want family members contesting your will, there are several legal tactics you can use.

  1. Leave property outside of your will. You’ll only need to probate property that’s not already effectively left to someone outside of probate. Therefore, when you name a beneficiary or co-owner on your accounts or real estate, that property won’t go through probate. Similarly, life insurance policies and retirement plans ask you to name a beneficiary, and investment and bank accounts usually let you name a “transfer on death” beneficiary. Finally, any property passing by living trusts also avoids probate.
  2. Add a ‘no-contest’ clause to your will. If you decide to disinherit your family or leave them less than they would be entitled to if you had no will, you can use a “no-contest” (aka “in terrorem”) clause. A no-contest clause states that if someone contests your will, they get nothing. However, people mess up by adding a no-contest clause, then they leave no property to the disinherited family member. Because the disowned family member is getting nothing anyway, he has nothing to lose by contesting the document. Thus, the clause serves no purpose. For a no-contest clause to be effective, leave a more-than-nominal bequest and let the potential contestant know that there’s a decent alternative to receiving nothing. Leaving them an amount acts as an incentive to not contest the will.
  3. Documenting the reasons for disinheriting. Use descriptive letters to supplement (and not supplant) your proper legal documents, and create formal, signed memorandums with notarized signatures to support but not replace those documents.
  4. Create other legal documents to disinherit your spouse. Pre-nuptial and post-nuptial agreements can address what happens, if you get divorced and when you die. You and your spouse may also “waive” estate rights in a separate document that doesn’t even deal with a potential divorce. The only downside with these agreements, is that they require both parties to agree. They also usually require separate legal counsel to make them most effective.

Work with a qualified estate panning attorney when you want to leave someone out of your will.

Reference: Kiplinger (November 13, 2019) “Four Ways to Disinherit Family Members”

Why is the Cars’ Ric Ocasek’s Wife Contesting His Will?

“I have made no provision for my wife Paulina Porizkova (‘Paulina’), as we are in the process of divorcing,” the late Cars’ singer Ric Ocasek wrote in his will.

Wealth Advisor’s recent article, “Cars singer Ric Ocasek cuts supermodel wife Paulina Porizkova out of will,” reports that the will went on to state: “Even if I should die before our divorce is final … Paulina is not entitled to any elective share … because she has abandoned me.”

Porizkova was the one who discovered her estranged husband’s body in September, as she brought him a cup of coffee. Ocasek was recovering in his New York City townhouse from a recent surgery.

The couple had two sons together but ended their marriage in May 2018, after 28 years. They first met while filming the music video for the Cars’ song “Drive” in 1984.

Porizkova said that Ocasek’s death was “untimely and unexpected.”

“I found him still asleep when bringing him his Sunday morning coffee,” she wrote in a statement published to Instagram following Ocasek’s death.

“I touched his cheek to rouse him. It was then I realized that during the night he had peacefully passed on.”

Reports say that Ocasek’s will lists his assets to include $5 million in “copyrights,” but only $100,000 in “tangible personal property” and $15,000 in cash.

The document doesn’t detail what constitutes the “copyrights” assets. Even though $5 million may appear low for a rock-legend like the Cars’ Ocasek, he likely had money stashed away in trusts. One reason why people use trusts, is to protect their privacy.

Ocasek’s will looks to have excluded two of his six sons, but not the children he had with Porizkova. Perhaps these two sons may have been compensated through other financial means.

The document indicates that Ocasek signed the will on August 28, just a month before his death. The 75-year-old died of heart disease on September 15.

Pulmonary emphysema, a type of lung disease, had also contributed to his death, the medical examiner said.

Reference: Wealth Advisor (November 12, 2019) “Cars singer Ric Ocasek cuts supermodel wife Paulina Porizkova out of will”

What Happens If my Spouse Is Not on the Deed?

When one spouse has paid for or inherited the family home and the other spouse has not contributed to its purchase or upkeep, the spouse who purchased the home has to take proactive steps. Otherwise, the other spouse will inherit the home and have the right to live in it, lease it, visit once a year or do whatever he or she wishes to.

It’s their home, says a recent article from the Houston Chronicle titled “Navigating inheritance when husband is not on the deed,” and remains so, until they die or abandon the property.

In this case, the woman is the buyer of the home and she wants her son to have the house. The son will eventually own the home, but as long as the husband is alive, the son can’t take possession of the home or use it, unless given permission to do so by the husband.

The husband may remarry, and if so, he and his new wife may live in the home. If she dies before he does, according to Texas’ homesteading laws, the homestead rights don’t transfer to her. At that point, the son would inherit the home and the new wife would have to move out.

The husband doesn’t get to live in the house for free. He is responsible for paying property taxes and maintaining the house. If there is a mortgage, he must pay the interest on the mortgage, but the woman’s son would have to make principal payments. The son would also have to pay for the homeowner’s insurance.

However, there are options:

  • Move to another state, where the laws are more in the woman’s favor.
  • Sell the home.
  • Ask the husband to sign a post-nuptial agreement, where he waives his homestead right.
  • Get divorced.
  • Gift or sell the home to the son now and rent from him.

The last option is risky. If the son owns the home, there is no protection from the son’s creditor’s claims, if any, and the woman would lose her property tax homestead exemptions. If the son needs to declare bankruptcy or sell the home, or dies before his mother, there would be nothing she could do. If the son married, his wife would be an owner of the home. He (or she) could even force his mother out of the home.

Speak with an estate planning lawyer to see if gifting the house to your son is a good idea for your situation.

Reference: Houston Chronicle (Nov. 13, 2019) “Navigating inheritance when husband is not on the deed”

What’s Better, A Living Trust or a Will?

Everyone knows what a last will and testament is. However, a will is not always the best way to distribute your assets, explains the Times Herald-Record in the article “Living trusts are better choice than wills.” Most people think that by having a will alone, they will make it clear who they want to receive their assets when they die. However, wills are used by the court in a proceeding called “probate,” if the only estate plan you have is a will. The court proceeding is to establish that the will is valid. Depending upon where you live, probate can take a year before assets are distributed to beneficiaries.

what's better a will or a trust
Knowing which path is best for you can save your loved ones time and money.

Certain family members must receive notifications, when a will is submitted to probate. Some people will receive notices, even if they are not mentioned in the will. This can lead to all kinds of awkward situations, especially from estranged or unknown relatives. The person who is the executor of the will is required to locate these relatives, and until they are found and notified, the probate process comes to a standstill.

There are instances where a judge will allow a legal notice to be published in a local newspaper, after valid attempts to find relatives aren’t successful. If there is a disabled beneficiary, a minor beneficiary, a relative or beneficiary who can’t be located, or a relative who has been incarcerated, the judge often appoints lawyers to represent these parties’ interests and the estate pays for the attorney’s fees.

Depending on the situation, the executor may be required to furnish a family tree, or a friend of the decedent must sign an affidavit attesting that the person never had any children.

Thinking of disinheriting a child? Anyone who is disinherited in a will, receives a notice about that and is legally permitted to contest the will. That can lead to years of expensive litigation, including discovery demands, depositions, motions and possibly a trial. Like most litigation, will contests usually end in a settlement. The disinherited relative often gets a share of the inheritance, even when the decedent didn’t want them to get anything.

For many families, a living trust is a better alternative. They also serve as disability planning, naming people who will manage the assets of the trust, in case of incapacity. They are private documents, so their information does not become public knowledge, like the details of a will.

A qualified estate planning attorney will help you determine what estate planning tools will work best to achieve your goals, while maintaining your privacy and ensuring that assets pass to heirs in a discrete manner.

Reference: Times Herald-Record (Oct. 26, 2019) “Living trusts are better choice than wills”

Suggested Key Terms: Living Trust, Will, Probate, Estate Contest, Disability, Incapacity, Litigation, Disinherited, Heirs

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