Estate Planning

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”

Where Not To Retire

Where you live during retirement has financial considerations that may override personal preferences, says Financial Advisor’s article “Bankrates’ Top 10 Worst States to Retire.” Deciding where to live in retirement, proximity to family and friends, affordable living costs, access to excellent health care and hospitals, good weather and a low crime rate are the key factors. That’s according to a 2018 study from Transamerica Center for Retirement Studies. Therefore, here’s a list of where not to retire.

Where Not to Retire
You might want to steer clear of these states in retirement.

10—South Carolina ranked 50th for wellness and 45 for crime. It’s overall ranking in 41st place is a surprise, given how many Northerners are finding their way to the Palmetto State.

9—New Jersey also came in at 41st place, but that’s because it ranked 48th in affordability. It’s expensive to live between New York City and Philadelphia.

8—California dreaming is great when you’re a Silicon Valley billionaire, but despite great weather and a wellness culture, the state ranks at 49th for affordability. It ranks 43rd overall.

7—Oregon has some of the same issues as California – very expensive to live here. The Beaver State ranks sixth in culture, but the price is very high.

6—Nevada is finding its way onto a lot of retirement lists, but at 17th in culture and 27th in weather, crime comes in at 40th and 48th at wellness. Tourism is the anchor of the state, and economic downturns take a big hit on the Silver State.

5—Washington is 41st in affordability and 46th overall. It does rain a lot.

4—Illinois is a nice blend of midwestern wide open spaces and big cities, but if you are planning on retiring near Chicago, bring lots of cash. Illinois ranks at 40th in affordability and 49th in wellness. Overall, the state came in at 47th.

3—Alaska is a chilly place to retire, and far from families living in the lower 48. It has become one of the most expensive, dangerous and inhospitable places to live, according to this article. Ranking 38th in affordability, 49th in crime and 50 in weather, Alaska comes in at 48th overall.

2—New York is wonderful for culture, coming in at 7th place, but so expensive that most people prefer to visit. It comes in at 50th for affordability.

1—Maryland’s closeness to our nation’s capital is expensive, ranking 47th in affordability. The weather is mild, which makes it attractive to many, and there’s always something to do in or near Washington, D.C. However, the cost makes it tough for people on fixed incomes. It ranks 50th overall.

The survey found that almost four in ten retirees say they’ve moved at least once after retirement When it comes to relocating for retirement, do more than visit. Rent for a few months, or even a year. If you do move to another state, make sure to update your estate plan. State laws regarding estate planning vary, and what is legal in one state may not work in another.

Reference: Financial Advisor (October 18, 2019) “Bankrates’ Top 10 Worst States to Retire.”

What’s the Difference Between a Quitclaim and a Warranty Deed?

When you buy, sell, or transfer ownership of a property to another, you need to be aware of what type of deed a property has, and what type of deed to use when you transfer your interest in a property to someone else. It’s most helpful to know the difference between a quitclaim and a warranty deed.

the difference between a quitclaim and a warranty deed
Two of the most commonly used deeds in property transfers are the quitclaim deed and the warranty deed.

Bankrate explains in its recent article, “Quitclaim vs. warranty deed: What you need to know,” that a quitclaim deed is a deed that transfers the actual legal rights to a property that the grantor has to another person. That is without any representation, warranty, or guarantee. A quitclaim deed gives no guarantee of the title status of a property, any liens against it or any encumbrances. It really means that you get only what a grantor may have—nothing more. Therefore, if the grantor has nothing, you get nothing.

A quitclaim deed may work well, if the grantor indeed has the legal rights to a property, and there are no liens.

Quitclaim deeds are used in safer situations where there’s little question about the ownership interest in a property. They can be used when a person is transferring ownership of real estate to family members. However, a warranty deed is generally used in more complex situations, including when someone is getting a mortgage to buy a home.

With a warranty deed, the seller is guaranteeing that she has a defensible ownership interest in the property being transferred and can legally transfer her ownership interest to the buyer.

Warranty deeds are the better option, when you’re purchasing property. Buyers want to be certain that you own the property, so they want you to sign a warranty deed. If you don’t actually own the property, the buyer can sue for a breach of warranty.

If you’re transferring property to your child or your revocable trust agreement as part of an estate plan, a quitclaim deed would be just fine because it accomplishes the change of ownership, but you’re not providing any warranty for the transaction.

All real estate transactions that are arm’s length transactions, use warranty deeds.

You should be aware and understand the type of transaction into which you’re entering and the difference between a quitclaim and a warranty deed.

Reference: Bankrate (September 4, 2019) “Quitclaim vs. warranty deed: What you need to know”

Why is Amy Winehouse’s Ex Filing a $1 Million Claim on the Late Singer’s Estate?

Thirty-seven-year-old Blake Fielder-Civil—the man who admitted that he started Amy on heroin—is asking for a lump sum payout plus a monthly allowance.

Fox News’ recent article, “Amy Winehouse’s ex files $1 million claim on late singer’s estate,” reports that one family member was quoted as saying, “To say that it would be inappropriate for him to benefit from her estate would be an understatement.”

Amy Winehouse died at aged 27 of alcohol poisoning in 2011. She didn’t leave a will, and her after-tax assets of $3.64 million went to her parents. Since her death, the value of her estate is thought to have grown considerably from song royalties.

Fielder-Civil has told Amy’s family his legal counsel believes that he has a valid claim, because he was with her for six years when she released some of her best-selling material. The two were married for two years and split in July 2009.

Amy gave Blake a $309,000 payoff, but attorneys say the details of that settlement will be critical in Fielder-Civil’s legal claim. If it was designated as a “clean-break,” then he has no real argument for demanding more money. However, if it didn’t, he may have a case.

Fielder-Civil, the inspiration for the late Grammy winner’s heartbreaking hit single “Back to Black,” was in prison from July 2008 to February 2009.

Amy’s parents created the Amy Winehouse Foundation to help young musicians and people with addiction problems. The family inked a deal to make a biopic about her life. The proceeds will go to the foundation.

Amy’s friends and family are upset that any successful claim by Fielder-Civil could take money from the charity.

Reference: Fox News (July 28, 2019) “Amy Winehouse’s ex files $1 million claim on late singer’s estate”

When Do I Need a Power of Attorney?

Without a valid durable power of attorney, the answer to the question of “When do I need a Power of Attorney”, really depends on what documents need to be signed.

when do I need a Power of Attorney
One of the most common misconceptions in estate planning is that a power of attorney remains in effect after the principal passes away.

A power of attorney is a legal document signed by the “Principal,” granting the authority to another individual to make decisions on the Principal’s behalf. This document is only in effect during the lifetime of the Principal.

nj.com’s recent article on this topic asks “Who can sign for an incapacitated person if there’s no power of attorney?” The article noted that to have the authority to conduct financial transactions concerning the assets solely owned by the incapacitated person who failed to execute a power of attorney, a guardian will have to be appointed by the court.

A guardianship is a legal relationship established by the court, in which an individual is given legal authority over another when that person is unable to make safe and sound decisions regarding his or her person, or property.

If it’s not an emergency, a guardian also will need to be appointed to make medical decisions for an incapacitated person who hasn’t signed a health care proxy. This is a legal document that gives a surrogate the authority to make health care decisions for an incapacitated person. It will take effect, if the principal is incapacitated or unable to communicate. The agent will make decisions that reflect the wishes of the incapacitated individual.

It’s typically not necessary to be appointed as an agent under a power of attorney or health care proxy or legal guardian for another person to sign an assisted living or nursing home admissions contract or a Medicaid application.

However, prior to signing another person’s admissions contract, read the fine print to be certain that you don’t become responsible for the bills!

Talk with a qualified estate planning attorney to find out more about the power of attorney requirements in your state and to add this important document to your estate plan.

Reference: nj.com (July 22, 2019) “Who can sign for an incapacitated person if there’s no power of attorney?”

Estate Planning Basics Everyone Should Know

The discomfort most people have with the knowledge of their own mortality makes it challenging for some people to do the estate planning that needs to take place before an emergency occurs. However, according to the Gettysburg Times’ recent article “Essentials necessary for estate planning,” the best course of action is to take care of the estate planning basics now, when there is no urgency. Having detailed plans in place to protect loved ones from possible complications, costs and added stress in the future, is a gift you can give to those you love.

Estate Planning Basics
Taking care of the estate planning basics is a simple but important step for everyone to take.

There are any number of legal documents and strategies used to accommodate the varied situations of life, including family dynamics and asset levels. An estate planning attorney licensed in your state will have the ability to create a plan and the documents that suit your personal situation. The three documents discussed in the following section are generally considered to be the most important for anyone to have.

Power of Attorney or POA—This document gives legal authority to another person or entity, referred to as your “Agent”, to perform certain acts on your behalf, when you cannot do so because of illness, injury or incapacity. There are many different types of POA, from a “full” POA with no limitations, to a “limited” POA that is created solely for a specific purpose. This document comes into action, when you are incapacitated and becomes void upon your death.

Living Will—This is a detailed health care directive that allows you to list your wishes regarding several medical procedures and life-sustaining treatments. These treatments include resuscitations, breathing assistance, feeding tubes and similar medical matters. You want to have this in place to spare your loved ones the emotional anguish of trying to decide what you would have wanted. They’ll know, because you specifically told them in this document.

Last Will and Testament—When prepared correctly, and that includes signed, witnessed, and notarized, a will is used by the “testator” (the person making the will) to provide the legal wishes regarding what should happen to their minor children (if any) and assets upon death.

What happens if you don’t have these documents? It is likely that your loved ones will need to go to court to have someone named as your agent or executor, which is the person who is in charge of your estate. Depending upon the laws of your state, that person may be a family member, or it may end up being a family member who you haven’t spoken to in decades. It is far better to take the time to have these estate planning basics taken care of by an estate planning attorney, so your family is protected, and your wishes are fulfilled.

The best time to do this, is when there is no crisis. Estate plans also require regular monitoring and updating. Life circumstances change, estate and tax laws change, and new opportunities may present themselves. Speak with your estate planning attorney now and create your plan for the future.

Reference: Gettysburg Times (July 27, 2019) “Essentials necessary for estate planning”

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