Selecting an Executor: Not Always Easy

If there are no family members or friends with the necessary skills, your best option may be…

Don’t delay finalizing your estate plan, because determining who to name as you executor is difficult. Here’s some help to figure out how to make this important decision.

Th (2)If there are no family members or friends with the necessary skills, your best option may be to name your attorney as the third-party executor of your will. A useful article from nj.com, “Who should be executor of your will?”explains how this works.

An executor is a person you name in your will or who is appointed by the court and is given the legal responsibility to address a deceased person's remaining financial obligations. An executor is responsible for paying debts and creditors, filing tax returns, paying taxes, and distributing the estate's assets, pursuant to the deceased person's wishes as stated in the will.

The individual named as an executor in a will can refuse to accept this task. A person who originally accepted the role as executor may resign at any point in time. Therefore, it’s a good idea to name alternative executors. If you don’t, a judge will appoint a replacement executor, if your original selection says no for any reason.

Most executors typically perform their duties without payment, but they are entitled to some renumeration. The reason that most executors don't ask for compensation, is because most executors are close family members and perform their duties out of respect for their deceased loved one. The amount an executor gets paid, is usually set by state law and what a probate court decides is reasonable under the circumstances.

For larger estates, it may be wise to select a professional, such as an attorney, who is familiar with the duties and obligations of serving as an executor. This can be extremely useful, when the deceased was the owner of a business and the estate may be complicated.

Executors will frequently engage attorneys to assist them. For example, in New Jersey, an attorney may serve and get paid as an executor and may be paid an additional fee for legal work performed by that attorney.

New Jersey law says that executors can receive 5% on the first $200,000 of the trust principal, 3.5% on the excess over $200,000 up to $1 million, and 2% on the excess over $1 million.

The executor is also entitled to receive six percent on all income received by the executor. While family members often waive their rights to take statutory commissions, they are within their rights to do so.

Reference: nj.com(April 16, 2018) “Who should be executor of your will?”

Are You Sure You’re Ready for Retirement?

Use this checklist to be certain that you and your finances are properly prepared for retirement.

Use this checklist to be certain that you and your finances are properly prepared for retirement.

MP900442389According to The Center for Retirement Research at Boston College, 20% of Americans are wrong about when they’ll be able to retire. That also means that 80% have it right—which group do you belong to? To make sure you are in the right group, take a look at this checklist from The Street, “8 Essential Steps to Achieve Retirement Success.”

Determine and Test Your Retirement Budget. Do a dry run of your future retirement lifestyle for six months before your intended retirement date. This will help you get a better understanding of how you can follow your retirement budget.

Get Rid of Debt and Downsize. If you begin your retirement with large amounts of debt, it can be trouble. Before you stop working, pay off any high interest debt to avoid having to make these payments in retirement. Consider where you’ll live in retirement and the money you can save by downsizing.

Look through Your Portfolio. You should balance growing investments, preserving capital and generating income. This prioritization will change over time, but your portfolio should be able to handle both your current and future financial needs.

Talk About Social Security with Your Spouse. To get the biggest payout of your Social Security benefits, you need to have a strategy in place. Your monthly benefit will differ significantly, based on the age you start receiving benefits. This will also impact the amount your surviving spouse may receive. Speak with your spouse about who will file for benefits and when. Don't be afraid to get a professional opinion, if this is overwhelming.

Review Your Estate Plan. Before you start your retirement, make sure that you have drafted your will and powers of attorney (POA). Talk to an experienced estate planning attorney.

Talk to Your Kids. If your adult children are still depending on you financially, begin a dialog to make them more independent. Even though it will be tough, it’s critical that they understand how your estate plan will affect them in the future.

Let Go of the Emotions. There can be mixed feelings about retirement. Therefore, it is very important   that you and your spouse talk about how you’ll spend your free time and prepare for the changes in your routines.  You should also agree on the other aspects of preparing for retirement, like determining your budget and lifestyle choices.

Remember the big picture. Planning for retirement is a complicated process, bringing together legal, financial and family matters. You have to address the details, but keep your eyes on the prize: an enjoyable, stress-free retirement. Review the checklist periodically to see how you are doing.

Reference: The Street (April 12, 2018) “8 Essential Steps to Achieve Retirement Success”

What Goes into a Good Will?

If you are a parent, you need a will that names guardians for your minor children. Anyone who is an adult, should have a will.

If you are an adult, you need a will. If you are a parent, you need a will that names guardians for your minor children. Anyone who is an adult, should have a will.

Th (2)The core of an estate plan is a document known as a will, the legal document that tells your heirs and the court how you want your assets handled upon your death. If you don’t have a will and you die, decisions about the distribution of your possessions and property are made by a judge, who likely doesn’t know who you are, or what you might have wanted to happen to your assets. If you have minor children and have not had a will created, then a judge will also be the one making the decisions about your children. That’s probably not what you or your family want to have happen.

Health Day’s recent article, “Wills & Living Wills,”provides some general rules for writing a will:

  • In most states, you must be 18 years of age or older.
  • The testator (author) of the will must be of sound mind for the will to be valid.
  • The document must clearly state that it’s your will.
  • You must name an executor–that’s the individual who will see that your estate is distributed, according to your wishes.
  • You must sign the will in the presence of at least two witnesses.
  • In many instances, notarizing or recording your will is not required. However, it can protect against any claims that it's invalid.
  • You and your spouse should have separate wills.

You should also review your will regularly and consider making changes if:

  • The value of your assets changes.
  • You marry, divorce, remarry, or expand your family with another child.
  • You move to a different state.
  • Your executor passes away or becomes incapacitated, or your relationship changes.
  • One of your heirs or a loved one dies.
  • The probate and tax laws affecting your estate change.

It’s also important to draft an advance directive. This includes a living will with directions on what medical care you do or don't want, if you're unable to speak.

Your best course of action is to meet with an experienced estate planning attorney and let him or her guide you through the estate planning process. Because every state has different rules, your estate planning attorney will know what your state does and does not allow.

Reference: Health Day (March 21, 2018) “Wills & Living Wills”

Estate and Inheritance Taxes: How Do They Impact Entrepreneurs?

Does having to pay an inheritance tax discourage someone who might have built an empire, from doing so?

Does having to pay an inheritance tax discourage someone who might have built an empire, from doing so? Or does an estate tax make a business owner retire earlier?

MP900400332Forbes recently provided an analysis of a research paper examining the impact of estate, wealth transfer taxes and other inheritance taxes on entrepreneurs and those considering starting a business in “How Do Estate And Inheritance Taxes Affect Entrepreneurs?” Do entrepreneurs spend a lot of time worrying about the impact of federal estate tax on their life’s work? Does reducing the number of taxpayers who will need to pay federal estate taxes, which recently occurred, mean an increase in new start-ups? The answers are not that simple.

The research shows two primary effects of wealth transfer taxes. One, by reducing the size of after-tax bequests, it makes heirs less likely to start or maintain a business. Two, the prospect of future estate or inheritance taxes appears to speed up a business owner’s retirement date, but also discourages labor force participation for wage earners. This indicates that there’s no simple way to characterize the effect of the estate tax on entrepreneurship.

The estate tax might impact the decision to start a business or keep it going, if business owners are looking ahead and want to leave the company to their heirs. However, the evidence on this is surprisingly ambiguous.

For example, most wealthy people don’t take full advantage of opportunities to transfer limited amounts of wealth through tax-free gifts during their lifetimes, which is a very basic tax avoidance strategy. The estate tax also impacts heirs by decreasing the size of after-tax bequests.

The current federal estate tax applies to a fairly exclusive class with a generous exemption from the unified estate and gift tax—$11.2 million for singles and double that amount for couples. Many deductions reduce the amount of wealth subject to the tax, including unlimited deductions for charitable donations transfers to spouses and “valuation discounts” that reduce the amount of family-owned business and farm assets that are subject to the estate tax.  However, anything over the exclusion limit and deductions is taxed at 40%.

The research finds that receipt of an inheritance raises the likelihood of having active business income by about 13%. The size of the inheritance is also a major factor but is usually less important than the fact that an inheritance exists. In addition, the thought of future estate taxation reduces the likelihood of remaining self-employed, but not because people elect wage employment over self-employment.  It is actually because it makes employment less attractive. Taxing bequests reduces the payoff to working (and saving) for those with bequest motives, which makes both self-employed people and wage earners slightly more likely to retire.

Therefore, the research shows that the impact of wealth transfer taxes on entrepreneurship appear to be small.  However, the researchers point out that there are several important caveats to their conclusions. One is that self-employment is not the same as entrepreneurship, and most survey data can’t distinguish between entrepreneurs who innovate and take risks, from business owners who don’t.

There are other factors that must be considered before any real conclusions can be made. If your parents or grandparents were successful business owners, you would be more likely to consider starting a business than someone whose parents were employees. You might also have the option of entering the family business, which children of employees do not have.

It is not clear that estate and inheritance taxes are any more burdensome than any other taxes. Regardless of your economic bracket, an appointment with an estate planning attorney to review your tax liability under the new tax law should be on your to-do list for the first part of 2018.

Reference: Forbes (March 7, 2018) “How Do Estate And Inheritance Taxes Affect Entrepreneurs?”

Does Your Estate Plan Match Your Life Right Now?

If you love your family, you’ll keep them in mind when considering whether to make an appointment to update your estate

Remember to update your estate plan, especially if your life includes events like new kids, a new marriage or the death of a loved one.

Bigstock-Extended-Family-Outside-Modern-13915094If you love your family, you’ll keep them in mind when considering whether to make an appointment to update your estate, as you go through the inevitable changes of life. Not doing so can create financial and emotional burdens. That’s probably not how you want to be remembered.

According to a recent Newsday article, “Make sure your estate plan keeps up with life changes, experts say,” estate planning may seem overwhelming and depressing because it deals with issues of aging.  Some people believe that estate planning is just for the very rich.

That’s not right. Estate planning is for everybody. Make a plan to do it now, in order to avoid consequential fumbles.

Let’s look at what you need to do.

Estate planning is a set of legal documents that state who will receive your assets and property when you pass away.  It also specifies who you want to make medical decisions, and who should make financial decisions, if you are unable to do so yourself.

This should make everything easier for your heirs at this stressful time, when they most need it.

Remember that estate planning isn’t a one-and-done proposition. It’s wonderful that you finally got your will finished and signed, and you have your medical directives in place along with a designated individual to have your authority via power of attorney.

However, that’s not the end of it. Your estate planning documents must keep pace with change.

It’s critical that you update the contingent (secondary) beneficiaries on life insurance policies after the first spouse dies.

The birth or adoption of a child and divorce are similarly important life events that will require you to review and update your estate planning documents.

Don’t assume that establishing joint tenancy (sharing ownership in personal property, like your family home) or joint ownership over financial accounts is enough to protect your assets.

Finally, be certain to work with an experienced estate planning attorney who has the insights and legal knowledge to create a plan that aligns with your goals. An online will has the potential to create more problems than it solves. You might save some money, only to cost your heirs thousands of dollars to undo the damage.

Reference: Newsday (March 4, 2018) “Make sure your estate plan keeps up with life changes, experts say”

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