Estate Planning

What Is Involved with Serving as an Executor?

Serving as an executor of a relative’s estate may seem like an honor, but it can also be a lot of work, says The (Fostoria, OH) Review Times’ recent article entitled “An executor’s guide to settling a loved one’s estate.”  

Serving as an executor
Serving as an executor of an estate is an honor, but it could also comes with some challenges.

When serving as an executor of a will, you’re tasked with settling the decedent’s affairs after she dies. This may sound rather easy, but you should be aware that the job could be time consuming and difficult, depending on the size of the decedent’s estate and the complexity of the decedent’s financial and family situation. Here are some of the duties that are expected of anyone serving as an executor:

  • Filing court papers to initiate the probate process
  • Taking inventory of the decedent’s estate
  • Using the decedent’s estate funds to pay bills, taxes, and funeral costs
  • Taking care of canceling her credit cards and informing banks and government offices like Social Security and the post office of her death
  • Readying and filing her final income tax returns; and
  • Distributing assets to the beneficiaries named in the decedent’s will.

Each state has specific laws and deadlines for the responsibilities of anyone serving as an executor. To help you, work with an experienced estate planning attorney and take note of these reminders:

Get organized. Make sure that the decedent has an updated will and locate all her important documents and financial information. Having easy access to deeds, brokerage statements and insurance policies will save you a lot of time and effort, making the job of serving as an executor much easier. With a complex estate, you may want to hire an experienced estate planning attorney to help you through the process. The estate will pay that expense.

Avoid conflicts. Investigate to see if there are any conflicts between the beneficiaries of the decedent’s estate. If there are some potential issues, you can make your job as executor much easier if everyone knows in advance who’s getting what, and the decedent’s rationale for making those decisions. Ask the person you’ll be serving as an executor for to tell her beneficiaries what they can expect, even with her personal items because last wills often leave it up to the executor to distribute heirlooms.

Executor fees. You’re entitled to a fee for the work you do serving as an executor. The fee is paid by the estate. In most states, executors are allowed to take a percentage of the estate’s value, which can be from 1-5%, depending on the size of the estate. However, if you’re also a beneficiary, it may make sense for you to forgo the fee because fees are taxable as income, and it could also cause rancor among the other beneficiaries.

Reference: The (Fostoria, OH) Review Times (Aug. 19, 2020) “An executor’s guide to settling a loved one’s estate”

Per Stirpes or Per Capita: Two Words That Could Undo Your Estate Plan

No one relishes the idea of planning for their own death, but the alternative of not planning and leaving your family members to sort out a mess is a poor way to be remembered. According to a recent article from Kiplinger, titled These 2 Words Could Send Your Retirement Money to the Wrong Beneficiary,” knowing the difference between per stirpes or per capita could save you from accidentally cutting someone out of your will.

per stripes vs per capita
Understanding the difference between per stirpes and per capita could make all the difference.

First, always be sure the beneficiary designations on your retirement accounts, insurance accounts and any other accounts that allow you to have a named beneficiary, match up with your will and your wishes. Property and assets outside of your retirement accounts will be distributed by other estate planning tools, like trusts, or TODs (Transfer on Death) for jointly held assets. If you don’t make plans, most of your estate will go through probate. It’s can be expensive and time consuming, but with the right planning, it can be avoided.

Most people name their spouse as the primary beneficiary on their retirement account. If you don’t wish to do this, you may have to fill out paperwork and have your spouse sign a waiver agreeing to your plan. State and Federal laws protect spouses, when it comes to certain types of retirement accounts, unless waived. After naming your primary beneficiary, you name contingent beneficiaries. If you are married and have children, it’s likely that your children will be your contingent beneficiaries. No children? In that case, a niece or nephew or other family member is usually named. By the way, if you want to give to charity, then retirement funds are the perfect asset to give.

The next decision to make is the key one: per stirpes or per capita. This step is often missed, because it’s not used on every asset form. Per stirpes is a Latin legal term that simply means if your primary beneficiary dies before you die, their next of kin inherits your assets. The alternative is per capita. By choosing per capita, your money only goes to your other primary beneficiaries.

Here’s an example of how per capita might work.

Imagine a grandmother, daughter and granddaughter. The daughter is the primary beneficiary on the grandmother’s retirement account, but the grandmother forgets to name a contingent beneficiary.

If the daughter dies before the grandmother and the daughter is still listed as the primary beneficiary when the grandmother dies, the money won’t go the granddaughter. The money will go through probate and the court would decide who receives the money. Had the grandmother selected per stirpes, the money would have gone straight to the granddaughter, even if she were not listed as a contingent beneficiary. When you choose per stirpes, the next of kin to your primary beneficiary (or your heir’s heirs) receive their share of your property.

Per capita ensures that your money goes to your primary beneficiaries only. Per capita is also typically the default option most retirement savers have in place right now.

Depending on how you want your inheritance handled, it’s easy to see how not knowing when to use per stirpes or per capita could be a costly estate planning mistake.

Reference: Kiplinger (July 30, 2020)These 2 Words Could Send Your Retirement Money to the Wrong Beneficiary

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How Does a Spendthrift Trust Protect Heirs from Themselves?

This is not an unusual question for most estate planning lawyers—and in most cases, the children aren’t bad. They just lack self-control or have a history of making poor decisions. Fortunately, there are solutions, as described in a recent article titled “Estate Planning: What to do to protect trusts from a spendthrift” from NWI.com.

What needs to happen? Plan to provide for the child’s well-being but keep the actual assets out of their control. The best way to do this is through the use of a trust. By leaving money to a child in a trust, a responsible party can be in charge of the money. That person is known as the “trustee.”

People sometimes get nervous when they hear the word trust, because they think that a trust is only for wealthy people or that creating a trust must be very expensive. Not necessarily. In many states, a trust can be created to benefit an heir in the last will and testament. The will may be a little longer, but a trust can be created without the expense of an additional document. Your estate planning attorney will know how to create a trust, in accordance with the laws of your state.

In this scenario, the trust is created in the will, known as a testamentary trust. Instead of leaving money to Joe Smith directly, the money (or other asset) is left to the John Smith Testamentary Trust for the benefit of Joe Smith.

The terms of the trust are defined in the appropriate article in the will and can be created to suit your wishes. For instance, you can decide to distribute the money over a period of years. Funds could be distributed monthly, to create an income stream. They could also be distributed only when certain benchmarks are reached, such as after a full year of employment has occurred. This is known as an incentive trust.

The opposite can be true: distributions can be withheld, if the heir is engaged in behavior you want to discourage, like gambling or using drugs.

Reference: NWI.com (May 17, 2020) “Estate Planning: What to do to protect trusts from a spendthrift”

Is Your Estate Plan COVID19-Ready? Three Things to Review Now

Even if you have done comprehensive estate planning with the guidance of a qualified attorney, you may want to re-evaluate certain elements of your plan now, through the lens of the coronavirus pandemic.

Why? There are two uniquely challenging aspects of this pandemic that your current plan may not adequately address.

  1. Medical treatment for severe cases of COVID19 frequently involves intubation and ventilator therapy to combat respiratory failure … and
  2. Quarantine and isolation orders blocking hospital visitors create some communication barriers between patients, doctors and family members.

How might these unique challenges impact your estate plan?

Living Wills. If your living will contains a blanket prohibition on intubation, you may want to reconsider that decision.

Durable Powers of Attorney (DPOA). Given the communication difficulties that may arise when a patient is hospitalized during this pandemic, you may want to revisit the terms of your DPOA to make it easier for your agent to act on your behalf.

Health Care Proxy. A health care proxy allows you to appoint someone else to act as your agent for medical decisions. Under normal circumstances, this person would likely confer with your attending physicians in person and again, these in-person communications may be difficult right now. You want to add language to expressly authorize electronic communication with your agent.

A qualified estate planning attorney, who focuses exclusively in this area of the law, can advise you on whether your current plans accurately represent your wishes during this uniquely challenging time.

Resource: ElderLawAnswers, Three Changes You May Want to Make to Your Estate Plan Now Due to the Pandemic, April 30, 2020

Five Common Mistakes with “DIY” Estate Plans

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

Below are five common mistakes associated with DIY estate plans.

1.    DIY estate plans may not conform to state law

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

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

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

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

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

4.    Mistakes in executing the plan can be easily made

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

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

5.    Assets may be left out of your estate plan

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

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

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”

What Should I Know About the Secure Act of 2019 and IRAs?

New federal rules for IRAs will significantly add to the tax burden for some heirs by telescoping the permitted period for withdrawals. But this pain can be greatly reduced by converting regular IRAs to Roth IRAs before bequeathing them, explains CNBC’s recent article entitled “Here’s a way to beat the tax burden for IRA heirs.”  

Before the new legislation, all heirs could enjoy their entire life expectancy to take withdrawals from inherited IRAs. As a result, they were able to stretch out these accounts, and the tax on withdrawals, over decades. That’s why they were given the nickname “stretch IRAs.”

But this changed in December of 2019 when Congress passed the Secure Act of 2019. The bill preserves the lifelong stretch period for surviving spouses, minor children, the chronically ill, and other individuals who aren’t more than 10 years younger than their benefactors (this group would include most siblings). However, for other heirs—including adult children—the new rules restrict the stretch period to a single decade. Beginning with the IRA bequests from benefactors who die in 2020, heirs must now take out all of the funds from these accounts within 10 years and pay ordinary income tax on each withdrawal.

A wise solution for some is to convert their regular IRA into a Roth IRA. Unlike regular IRAs, contributions to Roth IRAs are made solely with post-tax money. Though unlike regular IRAs, Roth IRAs carry no income tax on withdrawals, the Secure Act means they will now be required to drain the account within 10 years of inheritance.

Note that as you get near retirement, converting to a Roth has a few other advantages. Holders of regular IRAs must begin taking annual required minimum distributions (RMD’s) at age 72 (before the new legislation in December, this age was 70½).

However, if you plan to keep working or are retiring with sufficient income from other resources, you may not decide to take withdrawals. Rather, you may want to allow these assets in your account to grow intact rather than gradually weaning them for withdrawal. Converting to a Roth allows you to do this.

Depending on your situation, a Roth conversion might be a wise option if—not only to lessen your heirs’ tax burden but also to sustain the growth of your retirement nest egg.

Reference: CNBC (Feb. 12, 2020) “Here’s a way to beat the tax burden for IRA heirs”

Electronic Wills Are Here—But Should You Have One?

Florida is one of the early states permitting residents to have electronic wills, along with some other types of estate planning documents, signed and completed entirely online. This will require remote notarizations and witnesses to appear via certain approved secure video chat services, reports News Chief in the article “Electronic wills are coming, but are they a good idea?” 

Electronic Wills
Make sure you’re fully informed before executing any electronic estate planning documents.

A movement to pass a similar law failed in 2017, as the result of a veto by then Governor Scott. However, a revised and approved version of the bill passed this summer and has already been signed into law by Governor DeSantis.

Under the new law, notaries will be required to undergo new training in order to be able to conduct executions of electronic wills. Certain qualified and state-approved custodians will oversee maintaining and storing the completed electronic wills for safekeeping, until the creator of the will dies, at which time the electronic wills may be electronically filed with the appropriate probate court.

Florida is only the fourth state to implement laws related to the execution and storage requirements for electronic wills. One concern is whether other states will honor these documents.

If other states will not accept the electronic wills, then a deceased person’s assets that are subject to probate administration in other states may not go to the person’s intended beneficiaries. Traditional, hard copy will executions typically occur in an attorney’s office, with proper procedures and safeguards put into place by a licensed attorney who practices in this area of the law. Many of these same procedures and safeguards will not be in place for electronic execution of electronic wills.

There is concern that these wills present an enticing target and that many family members will argue that the will is not valid, because of undue influence or a lack of capacity.

The 2019 version of the law has safeguards, that were not in the 2017 law, to protect vulnerable adults. However, until these electronic laws go through probate contests, there won’t be much clarity for estate planning attorneys.

One last concern—if the documents can be executed electronically, there are greater opportunities for criminals or people with bad intentions to more easily take advantage of vulnerable seniors.

Whether you agree that electronic wills are the future, this is still a very new process that has yet to be tried and tested. There will likely be more questions raised in the next few years about their safety and includes cases that will be taken to court to resolve issues and challenges.

For most people, this is the time to wait and see how the scenario works out. It may take a few years before the bumps are ironed out. In the meantime, meet with an estate planning attorney to create an estate plan that is on paper and follows a traditional process.

Reference: News Chief (August 23, 2019) “Electronic wills are coming, but are they a good idea?”

What’s Happens to Digital Assets After You Pass Away?

We all have many more digital assets than we realize. What happens to those assets after you pass away?, asks Investment News in the article “4 ways to help clients control their digital afterlife.” The answer is not that simple. There are a large number of rules that survivors have to untangle, and many family members are stunned, when they find that not only don’t they have access to these accounts, but the data in the accounts may be deleted permanently, when they try unsuccessfully to log in too many times.

what happens to digital assets after you pass away
Keeping a list of all your user names and passwords with your estate planning documents is a big help.

Almost all states have passed the Revised Uniform Fiduciary Access to Digital Assets Act (RUFADAA), and experts are gaining a better understanding of how this law works and what happens to digital assets after you pass away.

Start by creating a complete inventory of all digital assets. Try using these categories:

  • Communication: email, contacts, login for phone
  • Rewards programs: hotels, airlines, restaurants
  • Shopping: eBay, Craig’s List, Amazon, department stores
  • Online storage sites: iCloud, data backup sites
  • Finances: online payments, banking, investment accounts, cryptocurrency
  • Social media: Twitter, Instagram, LinkedIn, Facebook, Snap Chat, WhatsApp
  • Gaming sites and fantasy leagues—especially if there is real money involved.

Make sure you include a list of all these digital asset with your other estate planning documents.

In a separate document (or in the will itself), you can list your wishes for each and every digital asset. Do you want your social media sites memorialized or do you want them shut down? Who gets your airline frequent flier miles? Who should have access to emails, taxes and social media sites? Where should pictures go?

It may be easier to use one of several available services that generate secure passwords for each site and store the passwords and usernames. Using provisions for denial of access until death, the named digital fiduciary should have the master password to that service, plus instructions for any two-factor authentication. Remember that your will becomes a public document upon your death, so don’t put any passwords in that document.

Reference: Investment News (Oct. 22, 2019) “4 ways to help clients control their digital afterlife”

Everyone Should Have a Healthcare Power of Attorney

Before snowbirds begin their seasonal journey to warmer climates, it’s time to be sure that they have the important legal documents in place, advises LimaOhio.com in a recent article “Different seasons and documents, same peace of mind.” One of the most important documents that everyone should have is a healthcare power of attorney, and it should be prepared and be ready to be used at any time.

Having a healthcare power of attorney makes sense
A healthcare power of attorney is an often overlooked, but essential part of any good estate plan.

These documents name another person to make healthcare decisions, in case you are not able to make those decisions for yourself. We never think that anything will really happen to us, until it does. Having this document properly prepared and easily accessible helps our loved ones. They are the ones who will need the powers given by the document. Without it, they cannot act in a timely manner.

If traveling between a home state and a winter home, it is wise to have a set of documents that align with the laws of both states. It may be necessary to have a separate set of documents for each state, if the laws differ.

Healthcare powers of attorney typically need updating about every five years. The law has changed in recent years in Florida, and there are some specific powers that need to be stated precisely, so that the document can be used if needed.

If a healthcare power of attorney is not in place when it’s needed, the only way that someone else can make decisions for you, is to become your guardian. Guardianship takes considerably more time and costs more than preparing the document ahead of time. It should also be noted that once guardianship is established, the person who is the guardian will need to report to the court on a regular basis.

Another document that needs to be in place is a living will or advance directive. This is a document prepared to instruct others as to your wishes for end-of-life care. The document is created when a person is mentally competent and expresses their wishes for what they want to happen, if they are being kept alive by artificial means. For loved ones, this document is a blessing, as it lets them know very clearly what their family members wishes are.

Peace of mind is a wonderful thing to take with you as you prepare for a warm winter in a different climate. Talk with an estate planning attorney to be sure that your estate planning documents will be acceptable in your winter home.

Reference: LimaOhio.com (Oct. 26, 2019) “Different seasons and documents, same peace of mind”

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