Inheritance

The Downside of an Inheritance

As many as 1.7 million American households inherit assets every year. However, almost seventy-five percent of all heirs lose their inheritance within a few years. More than a third see no change or even a decline in their economic standing, says Canyon News in the article “Three Setbacks Associated With Receiving An Inheritance.” Receiving an inheritance should be a positive event, but that’s often not the case. What goes wrong?

Problems with inheritance
Inheritances can be great, but they can have a downside too.

Family battles. A survey of lawyers, trust officers, and accountants conducted by TD Wealth found that at 44 percent of all inheritance setbacks are caused by family disagreements. Conflicts often arise, when individuals die without a properly executed estate plan. Without a will, asset distributions are left to the law of the state and the probate court.

However, there are also times when even the best of plans are created and problems occur. This can happen when there are issues with trustees. Trusts are commonly used estate planning tools, a legal device that includes directions on how and when assets are to be distributed to beneficiaries. Many people use them to shield assets from estate taxes, which is all well and good. However, if a trustee is named who is adverse to the interests of the family members, or not capable of properly managing the trust, lengthy and expensive estate battles can occur. Filing a claim against an adversarial trustee can lead to divisions among beneficiaries and take a bite out of the inheritance.

Poor tax planning. Depending upon the inheritance and the beneficiaries, there could be tax consequences including:

  • Estate Taxes. This is the tax applied to the value of a decedent’s assets, properties and financial accounts. The federal estate tax exemption as of this writing is very high—$11.4 million per individual—but there are also state estate taxes. Although the executor of the estate and not the beneficiary is typically responsible for the estate taxes, it may also impact the beneficiaries.
  • Inheritance Taxes. Some states have inheritance taxes, which are based upon the kinship between the decedent and the heir, their state of residence and the value of the inheritance. These are paid by the beneficiary, and not the estate. Six states collect inheritance taxes: Iowa, Kentucky, Maryland, Nebraska, New Jersey and Pennsylvania. Spouses do not pay inheritance taxes, when their spouse’s die. Beneficiaries who are not related to decedents will usually pay higher inheritance taxes.
  • Capital Gains Tax. In certain circumstances, heirs pay capital gains taxes. Recipients may be subject to capital gains taxes, if they make a profit selling the assets that they inherited. For instance, if someone inherits $300,000 in stocks and the beneficiary sells them a few years later for $500,000, the beneficiary may have to pay capital gains taxes on the $200,000 profit.

Impacts on Government Benefits. If an heir is receiving government benefits like Social Security Disability Insurance (SSDI), Supplemental Social Security (SSS) or Medicaid, receiving an inheritance could make them ineligible for the government benefit. These programs are generally needs-based, and recipients are bound to strict income and asset levels. An estate planning attorney will usually plan for this with the use of a Special Needs Trust, where the trust inherits the assets, which can then be used by the heir without losing their eligibility. A trustee is in charge of the assets and their distributions.

An estate planning attorney can work with the entire family, planning for the transfer of wealth and helping educate the family, so that the efforts of a lifetime of work are not lost in a few years’ time.

Reference: Canyon News (October 15, 2019) “Three Setbacks Associated With Receiving An Inheritance”

What Estate Planning Do I Need With a New Baby?

Congratulations, you’re a new mom or dad. There’s a lot to think about, and there is one vital task that should be a priority. That is making an estate plan. People usually don’t worry about estate planning, when they’re young, healthy and starting a new family. However, your new baby is depending on you to make decisions that will set him or her up for a secure future.

What estate planning do I need with a new baby
Having an estate plan is the only way to legally name a guardian for your child.

Motley Fool’s recent article, “If You’re a New Parent, Take These 4 Estate Planning Steps” says there are a few key estate planning steps that every parent should take to make certain they’ve protected their child, no matter what the future holds.

  1. Purchase Life Insurance. If a parent passes away, life insurance will make sure there are funds available for the other spouse to keep providing for the children. If both parents pass away, life insurance can be used to raise the child or to fund the cost of college. For most parents, term life insurance is used because the premiums are affordable, and the coverage will be in effect long enough for your child to grow to an adult.
  2. Draft a Will and Name a Guardian for your Children. For parents of minor children, the most important reason to make a will, is to name a guardian for your children. When you designate a guardian, select a person who shares your values and who will do a good job raising your children. By being proactive and naming a guardian to raise your children, it’s not left to a judge to make that selection. Do this as soon as your children are born.
  3. Update Beneficiaries. Your will should say what happens to most of your assets, but you probably have some accounts with a designated beneficiary, like a 401(k), and IRA, or life insurance. When you have children, you’ll need to update the beneficiaries on these accounts for your children to inherit these assets as secondary beneficiaries, so they will inherit them in the event of your and your spouse’s passing.
  4. Look at a Trust. If you pass away prior to your children turning 18, they can’t directly take control of any inheritance you leave for them. This means that a judge may need to appoint someone to manage assets that you leave to your child. Your child could also wind up inheriting a lot of money and property free and clear at age 18. To have more control, like who will manage assets, how your money and property should be used for your children and when your children should directly receive a transfer of wealth, ask your estate planning attorney about creating a trust. With a trust, you can designate an individual who will manage money on behalf of your children and provide instructions for how the trustee can use the money to help care for your children, as they age. You can also create conditions on your children receiving a direct transfer of assets, such as requiring your children to reach age 21 or requiring them to use the money to cover college costs. Trusts are for anyone who wants more control over how their property will help their children, after they’ve passed away.

When you have a new baby, working on your estate planning probably isn’t a big priority. However, it’s worth taking the time to talk to an attorney for the security of knowing your bundle of joy can still be provided for, in the event that the worst happens to you.

Reference: Motley Fool (September 28, 2019) “If You’re a New Parent, Take These 4 Estate Planning Steps”

How Do I Transfer My Home into a Trust?

Say that a husband used his inheritance to purchase the family home outright. The wife signed a quitclaim deed to him to put the property into his living trust with the condition that if he died before his wife, she could live in the home until her death.

However, a common issue is that the husband or the creator of the trust never signed the living trust. So what would happen to the property if the husband were to die before the wife?

How do I transfer a home into my trust
Transferring your home into your trust isn’t a complicated matter as long as you know the pit-falls to lookout for.

This can be complicated if the couple lives out-of-state and it’s a second marriage for each of the spouses. They both also have adult children from prior marriages.

The Herald Tribune’s recent article, “Home ownership complications need guidance from estate planning attorney,” says that in this situation it’s important to know if the deed was to the husband personally or to his living trust. If the wife quitclaimed the home to her husband personally, he then owns her share of the home, subject to any marital interests she may still have in the home. However, if the wife quitclaimed the home to his living trust, and the trust was never created, the deed may be invalid. The wife may still own the husband’s interest in the home.

It’s common for a couple to own the home as joint tenants with rights of survivorship. This would have meant that if the wife died, her husband would own the entire property automatically. If he died, she’d own the entire home automatically. She then signed a quitclaim deed over to him or his trust.

First, the wife should see if the deed was even filed or recorded. If it wasn’t recorded or filed, she could simply destroy the document and keep the status of the title as it was. However, if the document was recorded and she transferred ownership to her husband, he would be the sole owner of the home, subject to her marital rights under state law.

If the trust doesn’t exist, her quitclaim deed transfer to an entity that doesn’t exist would create a situation, where she could claim that she still owned her interest in the home. However, the home may now be owned by the spouses as tenants in common, rather than joint tenants with rights of survivorship.

To complicate things further, if the husband now owns the home and the wife has marital rights in the home, upon his death, she may still be entitled to a share of the home under her husband’s will, if he has one, or by the laws of intestacy. However, the husband’s children would also own a share of his share of the home. At that point, the wife would co-own the home with his children.

You can see how crazy this can get. It’s best to seek the advice of a qualified estate planning attorney to guide you through the process and make sure that the proper documents get signed and filed or recorded.

Reference: The (Sarasota, FL) Herald Tribune (September 8, 2019) “Home ownership complications need guidance from estate planning attorney”

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?”

How Does a Probate Proceeding Work?

A Will, also known as Last Will and Testament, is a legal document that is used in probate court.  It’s used when a person dies with assets that are in their name alone without a surviving joint owner or beneficiary designated, says the Record Online in the article “Anatomy of a probate proceeding.”

So, how does a probate proceeding work?

How does a probate proceeding work
Probate has been referred to as the law suit you file against yourself after you pass away.

Probate is a judicial or court proceeding, where the probate court has jurisdiction over the assets of the person who has died. The court oversees the personal representative’s payment of debts, taxes and probate fees, in addition to supervising distribution of assets to the person’s beneficiaries. The personal representative of the will has to manage the probate assets and then report to the court.

Without a will, things can get messy. A similar court proceeding takes place, but it is known as intestate succession, and the assets are distributed according to state law.

To start the probate proceeding, the personal representative completes and submits a Petition for Administration with the probate court. Most personal representatives hire an estate planning attorney to help with this. The attorney knows the process, which keeps things moving along.

The probate petition lists the beneficiaries named in the will, plus certain relatives who must, by law, receive legal notice in the mail. Let’s say that someone disinherits a child in their will. That child receives notice and learns they have been disinherited. Beneficiaries and relatives alike must return paperwork to the court stating that they either consent or object to the provisions of the will.

A disinherited child has the right to file objections with the court, and then begin a battle for inheritance that is known as a will contest. This can become protracted and expensive, drawing out the probate process for years. A will contest places all of the assets in the will in limbo. They cannot be distributed unless the court says they can, which may not occur until the will contest is completed.

In addition to the expense and time that probate takes, while the process is going on, assets are frozen. Only when the court gives the all clear does the judge issue what are called Letters of Administration, or “Letters Testamentary,” which allows the executor to start the process of distributing funds. They must open an estate account, apply for a taxpayer ID for the account, collect the assets and ultimately, distribute them, as directed in the will to the beneficiaries.

Now that you know a little about how a probate proceeding works you’re probably asking whether a will contest, or probate be avoided? Avoiding probate, or having selected assets taken out of the estate, is one reason that people use trusts as part of their estate plan. Assets can also be placed in joint ownership, and beneficiaries can be added to accounts, so that the asset goes directly to the beneficiary.

By working closely with an estate planning attorney, you’ll have the opportunity to prepare an estate plan that addresses how you want assets to be distributed, which assets may be placed outside of your estate for an easier transfer to beneficiaries and what you can do to avoid a will contest, if there is a disinheritance situation looming.

Reference: Record Online (August 24, 2019) “Anatomy of a probate proceeding”

Do I Need a Will?

Yahoo Finance’s recent article on this subject asks “Do You Really Need a Will?” As the article explains, without a will, you’ll be “intestate”—which means you’ll have no say in what happens to your assets and belongings once you pass away.

Do I need a will?
If you don’t have a will your assets will be distributed according to state law.

Many people ask the question, “Do I need a will?” Each state has its laws concerning the distribution of a person’s assets if they die without a will. These laws most likely won’t mesh with your personal wishes. If you don’t have a will, ask yourself why you don’t. Perhaps you think you don’t need one. However, more than likely you do. If you’re putting off starting this important estate planning task, here are some things to consider.

Just about everybody needs a will, but you definitely should have one if you’re married, you have minor children, you have real estate, or you have investments in the stock market. You should also have a will if you have possessions, such as cars, furniture, jewelry, paintings, and computers?

As far as your money and possessions, you probably have some thoughts as to who gets what. You may want to chip in on the education of some younger relatives or give specific pieces of jewelry to those who you know will appreciate them. If you have minor children, you probably have very definite ideas about who should be their guardians if you die.

With a will, you have control. Without a will, the state in which you live will distribute your assets according to its laws, regardless of your wishes.

After you pass away, there could be surprise money coming to you, and without a will, you have no control over where these funds go. Your estate could get some cash from returned security deposits, medical reimbursements, or refunds from utility companies. Furthermore, if you die in a car accident and there’s an insurance settlement, you have no say who gets those funds, which could be substantial.

You also need to think about your pets, and who would be the best person to care for your animals.

So, the answer to the question, “Do I need a will”, is almost certainly, yes.

Reference: Yahoo Finance (July 21, 2019) “Do You Really Need a Will?”

How Can I Sell My Parent’s Home Without a Hassle After They’ve Passed Away?

Much of the work of selling his parent’s home after they passed away fell on Carlson, then 28, since the other beneficiary was her older sister, who lives in New York City.

sell my parents home
With the right planning, selling your parent’s home after they’ve passed away doesn’t have to be difficult.

The Philadelphia Inquirer’s recent article, “With proper planning, selling a parent’s house can be a relatively painless process—or not,” says that after finding a real estate agent with estate sale experience, she learned about probate, as well as the local building codes and repairs that needed to be made.

She even had to tell her father’s friend, who’d been bunking in the cabin, that he’d have to move out.

Coping with a death of a parent is challenging enough, and selling their home can be an added stressor for children. It’s even worse, if they die without a will. Grieving family members may be ill-equipped to make decisions, and allow the home to fall into disrepair. Siblings may also have emotional attachments to it and unrealistic expectations about the value of the home.

The job of selling your parent’s home after they’ve passed away can be difficult and long or it can be relatively easy. It depends in large part on the heirs’ ability to ask for help and hiring a professional who knows the local housing market. Experts say the sooner the process starts, the better. Parents can also take actions while they’re alive to help avoid complications. This discussion may be difficult and awkward, but it’s worth it to be informed, so adult children are not scrambling while grieving. Here are some helpful tips:

  • Be certain that both parents have a will.
  • Be prepared to spend some money, because there are costs associated with maintaining and selling the property (you’ll get the money back after the house sells).
  • The executor should change the locks to keep heirs out.
  • Ask a real estate agent to run a competitive market analysis and have an appraisal done by a licensed appraiser.
  • Designate a contact person, so the executor can keep all heirs informed.

A big deterrent to selling a parent’s house after they’ve passed away is typically the emotional attachment of the children.  Experts say that while cosmetic fixes can pay off, more substantial improvements generally don’t.

There are also estate, inheritance, and income taxes that can impact the net sales proceeds. There’s a benefit to selling an inherited property, because when a property is inherited after a death, the property value is “stepped up” to fair market value at the time of the owner’s death.

Reference: The Philadelphia Inquirer (June 22, 2019) “With proper planning, selling a parent’s house can be a relatively painless process—or not”

How Do Transfer on Death Accounts Work?

Almost all estates with wills go to probate court. This is not a major issue in some states and an expensive headache in others. By learning how Transfer on Death accounts work, and using them as an additional estate planning tool, you can avoid some assets going through probate, says Yahoo! Finance in the article “Transfer on Death (TOD) Accounts for Estate Planning.”  

How Do Transfer on Death Accounts Work
Assets in a Transfer on Death account avoid probate court in Florida.

So, how do Transfer on Death accounts work?

A TOD account automatically transfers the assets to a named beneficiary, when the account holder dies. Let’s say you have a savings account with $100,000 in it. Your son is the beneficiary for the TOD account. When you die, the account’s assets are transferred directly to him without having to go through probate.

A more formal definition: a TOD is a provision of an account that allows the assets to pass directly to an intended beneficiary.  This is the equivalent of a beneficiary designation. (Note that the laws that govern estate planning vary from state to state, but most banks, investment accounts and even real estate deeds can become TOD accounts.)  If you own part of a TOD property, only your ownership share will be transferred.

TOD account holders can name multiple beneficiaries and split up assets any way they wish. You can open a TOD account to be split between two children, for instance, and they’ll each receive 50% of the holdings, when you pass away.

A couple of additional benefits to keep in mind: the beneficiaries have no right or access to the TOD account, while the owner is living. And the beneficiaries can be changed at any time, as long as the TOD account owner is mentally competent. Just as assets in a will can’t be accessed by heirs until you die, beneficiaries on a TOD account have no rights or access to a TOD account, until the original owner dies.

Simplicity is one reason why people like to use the TOD account. When you have a properly prepared will and estate plan, the process is far easier for your family members and beneficiaries. The will includes an executor, who is the person who takes care of distributing your assets and a guardian to take care of any minor children. Absent a will, the probate court will determine who the next of kin is and distribute your property, according to the laws of your state.

A TOD account usually requires only that a death certificate be sent to an agent at the account’s bank or brokerage house. The account is then re-registered in the beneficiary’s name.

Whatever is in your will does not impact how the Transfer on Death account works. If your will instructs your executor to give all of your money to your sister, but the TOD account names your brother as a beneficiary, any money in that account is going to your brother. Your sister will get any other assets.

Speak with an estate planning attorney about how a Transfer on Death account works and whether one might be useful for your purposes.

Reference: Yahoo! Finance (June 26, 2019) “Transfer on Death (TOD) Accounts for Estate Planning”

What Are the Basics About Trusts?

Forbes’s recent article, “A Beginner’s Guide To Reading A Trust,” says that as much as attorneys have tried to simplify documents, there’s some legalese that just can’t be avoided. Let’s look at the basics about trusts and a few tips in reviewing your trust.

Basis about trusts
Understanding basic trust terms is essential.

First, familiarize yourself with the terms. There are basic terms of the trust that you’ll need to know. Most of this can be found on its first page, such as the person who created the trust. He or she is usually referred to as the Donor, Grantor or Settlor (here in Florida we use the term Settlor). It is also necessary to identify the Trustee and any successor trustees, who will hold the trust assets and administer them for the benefit of the Beneficiaries.

You should next see who the Beneficiaries are and then look at the important provisions concerning asset distribution. See if the trustee is required to distribute the assets all at once to a specific beneficiary, or if she can give the money out in installments over time.

It is also important to determine if the distributions are completely left to the discretion of the trustee, so the beneficiary doesn’t have a right to withdraw the trust assets.  You’ll also want to check to see if the trustee can distribute both income and principal.

The next step is to see when the trust ends. Trusts usually end at a specific date or at the death of a beneficiary.

Other important basic trust provisions include whether the beneficiaries can remove and replace a trustee, if the trustee has to provide the beneficiaries with accountings and whether the trust is revocable or irrevocable. If the trust is revocable and you’re the settlor, you can change it at any time.

If the trust is irrevocable, you won’t be able to make any changes without court approval. If your uncle was the donor and he passed away, the trust is most likely now irrevocable.

In addition, you should review the basic trust boilerplate language, as well as the tax provisions.

Talk to an estate planning attorney about any questions you may have and to help you interpret the basic trust terms.

Reference: Forbes (June 17, 2019) “A Beginner’s Guide To Reading A Trust”

Leaving a Legacy Isn’t Just About Money

A legacy is not necessarily about money, says a survey that was conducted by Bank of America/Merrill Lynch Ave Wave. More than 3,000 adults (2,600 of them were 50 and older) were surveyed and focus groups were asked about end-of-life planning and leaving a legacy. The article, “How to leave a legacy no matter how much money you have” from The Voice, shared a number of the participant’s responses.

Leaving a Legacy
Most people would rather be remembered for how they lived their life instead of how much money they made.

A total of 94% of those surveyed said that a life well-lived, is about “having friends and family that love me.” 75% said that a life well-lived is about having a positive impact on society. A mere 10% said that a life well-lived is about accumulating a lot of wealth.

People want to be remembered for how they lived, not what they did at work or how much money they saved. Nearly 70% said they most wanted to be remembered for the memories they shared with loved ones. And only nine percent said career success was something they wanted to be remembered for.

While everyone needs to have their affairs in order, especially people over age 55, only 55% of those surveyed reported having a will. Only 18% have what are considered the three key essentials for leaving a legacy: a will, a health care directive and a durable power of attorney.

The will addresses how property is to be distributed, names a personal representative of the estate and, if there are minor children, names who should be their guardian. The health care directive gives specific directions as to end-of-life preferences and designates someone to make health care decisions for you, if you can’t speak for yourself. A power of attorney designates an agent to make financial decisions on your behalf if you’re unable to do so, because of illness or incapacity.

An estate plan is often only considered when a trigger event occurs, like a loved one dying without the proper documents in place. That is a wake-up call for the family, once they see how difficult it is when there is no estate plan.

Parents age 55 and older had interesting views on leaving inheritances and who should receive their estate. Only about a third of boomers surveyed and 44% of Gen Xers said that it’s a parent’s duty to leave some kind of inheritance to their children. A higher percentage of millennials surveyed—55%–said that this was a duty of parents to their children.

The biggest surprise of the survey: 65% of people 55 and older reported that they would prefer to give away some of their money, while they are still alive. A mere 8% wanted to give away all their assets, before they died. Only 27% wanted to give away all their money after they died.

Reference: The Voice (June 16, 2019) “How to leave a legacy no matter how much money you have”

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