Read more about the article Estate Planning for Blended Families – Annapolis and Towson Estate Planning Attorneys

Estate Planning for Blended Families – Annapolis and Towson Estate Planning Attorneys

Blended families are now nearly as common as traditional families. However, they still face unique estate planning decisions, says a recent article, “Considerations For Financial And Estate Planning Professionals Who Work With Blended Families” from Forbes.

Estate planning starts with a will. Naming an impartial executor may require more consideration than in traditional families where the eldest child is the likely candidate. The will also needs to nominate a guardian for minor children and appoint a power of attorney and healthcare proxy in case of incapacity. Traditional wills used to provide instructions for asset distribution may have limitations regarding blended families. Trusts may provide more control for asset distribution.

Wills don’t dictate beneficiaries for life insurance policies, retirement plans, or jointly owned property. However, wills are also subject to probate, which can become a long and costly process that opens the door for wills to be challenged in court.

Wills also become public documents once they are entered into probate. Any interested party may request access to the will, which may contain information the family would prefer to have private.

Trusts allow greater control over how assets are managed and distributed. Their contents remain private. There are many different types of trusts used to accomplish specific goals. For instance, a Qualified Terminal Interest Property Trust (QTIP) can provide income for a surviving spouse, while passing the rest of the assets to a client’s children or grandchildren.

Another type of trust is designed to skip a generation and distribute trust assets to grandchildren or those at least 37.5 years younger than the grantor. Some may choose to use this Generation-Skipping Trust (GST) to keep wealth in the family, by bypassing children who have married.

An IRA legacy trust can be the beneficiary of an IRA instead of family members. This option lets owners maintain creditor protection only sometimes afforded to one who inherits an IRA. The account owner may also want to use an IRA’s required minimum distributions (RMDs) to benefit a second spouse during their lifetime and leave the remainder to their children.

Couples entering a second or third marriage need to be transparent about their expectations of what each spouse will receive upon their death or in the event of divorce and whether or not they agree to waive their right to contest these commitments. A prenuptial agreement is a legal contract spelling out the terms before marriage. For example, in some instances, the prenup requires each spouse to maintain life insurance on the other to ensure liquidity, either from the policy’s death benefit or its cash value.

A final consideration is ensuring that all documentation created is easy to understand, clear and concise. Make sure to spell out the full names of beneficiaries for wills, trusts and life insurance, and include their birthdates, so it is easy to identify them and they cannot be confused with someone else. Estate planning is an ongoing process requiring review regularly to keep the estate plan consistent with the family’s evolving needs and goals.

Questions? Contact us to schedule a complimentary initial call with one of our experienced estate planning attorneys.

Reference: Forbes (April 19, 2023) “Considerations For Financial And Estate Planning Professionals Who Work With Blended Families”

Sims & Campbell, LLC – Annapolis and Towson Estate Planning Attorneys 

Read more about the article Use Estate Planning to Prepare for Cognitive Decline – Annapolis and Towson Estate Planning

Use Estate Planning to Prepare for Cognitive Decline – Annapolis and Towson Estate Planning

Since 2000, the national median age in the U.S. has increased by 3.4 years, with the largest single year gain of 0.3 years in 2021, when the median age reached 38.8 years. This may seem young compared to the life expectancies of older Americans. However, the median age in 1960 was significantly lower, at 29.5 years, according to the article “Don’t Let Cognitive Decline Derail Well-Laid Financial Plans” from Think Advisor.

An aging population brings many challenges to estate planning attorneys who are mindful of the challenges of aging, both mental, physical and financial. Experienced estate planning attorneys are in the best position to help clients prepare for these challenges by taking concrete steps to protect themselves.

Individuals with cognitive decline become more vulnerable to potentially negative influences at the same time their network of trusted friends and family members begins to shrink. As people become older, they are often more isolated, making them increasingly susceptible to scams. The current scam-rich environment is yet another reason to use estate planning.

When a person is diagnosed with Alzheimer’s or any other form of dementia, an estate plan must be put into place as soon as possible, as long as the person is still able express their wishes. A diagnosis can lead to profound distress. However, there is no time to delay.

While typically, the person may state they wish their spouse to be entrusted with everything, this has to be properly documented and is only part of the solution. This is especially the case if the couple is close in age. A secondary and even tertiary agent needs to be made part of the plan for incapacity.

The documents needed to protect the individual and the family are a will, financial power of attorney, durable power of attorney and health care documentation. For families with more sophisticated finances and legacy goals, trusts and other estate and tax planning strategies are needed.

A common challenge occurs when parents cannot entrust their children to be named as their primary or secondary agents. For example, suppose no immediate family members can be trusted to manage their affairs. In that case, it may be necessary to appoint a family friend or the child of a family friend known to be responsible and trustworthy.

The creation of power of attorney documents by an estate planning attorney is critical. This is because if no one is named, the court will need to step in and name a professional guardian. This person won’t know the person or their family dynamics and may not put their ward’s best interests first, even though they are legally bound to do so. There have been many reports of financial and emotional abuse by court-appointed guardians, so this is something to avoid if possible.

Contact us to speak with one of our experienced estate planning attorneys.

Reference: Think Advisor (April 21, 2023) “Don’t Let Cognitive Decline Derail Well-Laid Financial Plans”

Sims & Campbell, LLC – Annapolis and Towson Estate Planning Attorneys 

Read more about the article What are Pros and Cons of a Marital Trust? – Annapolis and Towson Estate Planning

What are Pros and Cons of a Marital Trust? – Annapolis and Towson Estate Planning

Forbes’ recent article, “Guide To Marital Trusts,” explains multiple advantages to using a marital trust.

The main benefits are the following:

  • You can double your estate tax exemption amount to $24.12 million
  • Provide income and financial stability to the surviving spouse
  • Keep assets within the family
  • Protect assets from creditors and potential new spouses; and
  • Provide financial stability to the remaining beneficiaries once the surviving spouse dies.

However, there are also downsides to using a marital trust. Those downsides include:

  • Are irrevocable, so once they’re established, it’s extremely hard to dissolve or change them
  • Only offer up to $24.12 million in estate tax exemption; and
  • Require transferring assets into the trust, which can be a lengthy process.

A marital trust will lay out the grantor (you), the trustee (who will manage the trust) and the beneficiaries.

A marital trust is a beneficial estate planning tool that will take care of your surviving spouse after you’ve passed away.

By using this strategic tool, you can essentially double the amount of your estate that won’t be taxed at a federal level.

You can also ensure that your wealth stays within your family by transferring assets into a marital trust.

Questions? Contact us to speak with one of our experienced estate planning attorneys.

Reference: Forbes (June 30, 2022) “Guide To Marital Trusts”

Sims & Campbell, LLC – Annapolis and Towson Estate Planning Attorneys 

Read more about the article Protect Your Elderly Parents from Scammers – Annapolis and Towson Estate Planning

Protect Your Elderly Parents from Scammers – Annapolis and Towson Estate Planning

Thinking on a very practical level, if you were a thief and had to choose a target, it would likely be someone who has wealth and is vulnerable—the picture of an elderly person, especially one who is likely to be isolated and may have cognitive issues. According to the Federal Trade Commission, consumers aged 60 and older filed 467,340 fraud reports in 2021, reporting total losses of more than $1 billion.

A recent article from cbsnews.com, “How to protect elderly parents from financial scams,” says that consumers age 60 and older are less likely to report losing money to fraud than those aged 18—59. Still, when they do report a loss, it tends to be for more money, especially among those 80 and older. They have the highest median loss of all groups.

Older adults are likelier to lose money on scams involving tech support, prizes, sweepstakes, lotteries and friends and family impersonations. What can you do?

Talk about it. Scams target everyone. Therefore, it is an easy topic to bring up. First, start the conversation with your experiences or a trending news story. Next, explain specific scams, like someone reaching out through social media saying they want to be friends, followed by an urgent request for money or fake text messages from a grandchild who needs bail money. People informed about scams’ specifics are less likely to respond.

Use anti-fraud tools. Spam-blocking apps on cell phones can send unknown numbers to voicemail immediately. A credit freeze can secure credit information and is easily temporarily unlocked for legitimate access. Setting strict privacy tools on social media can also limit the number of scammers who can get through.

Signing up for financial account monitoring or receiving alerts for transactions is easily enough put into place. However, in some instances, it would be wise to allow adult children to monitor these accounts, depending upon the parent’s comfort level with sharing this information.

Put legal tools into place. A durable power of attorney, revocable trust, or, if appropriate, guardianship, can be among the most effective ways to keep an older adult’s assets safe from scammers. If a revocable trust is created, an adult child can quickly step in before too much damage is done, whether it’s a fake charity or a “kidnapped grandchild” scammer.

Know the warning signs. An older adult who is suddenly reluctant to talk about their finances had said they are having trouble paying bills when they never had a problem before or is receiving a high number of text messages or phone calls and insists on being alone when they respond may have become a victim of fraud.

Scammers are especially good at creating a sense of urgency, saying their victims must send money or gift cards immediately, or the IRS or police will arrive at their door. The latest wrinkle is the use of artificial intelligence to mimic a loved one’s voice, and the technology is so good that even experts are fooled.

Avoid shaming loved ones. The embarrassment of being the victim of elder financial abuse worsens a bad situation. Don’t scold an elderly person for being fooled; they certainly will be angry enough at themselves for being taken. Reassuring words are more likely to allow the victim to keep some of their dignity, while encouraging them to call you if, and more likely when, they are confronted with another scammer.

Contact us to schedule a complimentary initial call with one of our experienced estate planning attorneys.

Reference: cbsnews.com (April 10, 2023) “How to protect elderly parents from financial scams”

Sims & Campbell, LLC – Annapolis and Towson Estate Planning Attorneys 

Read more about the article What Is the Purpose of an Executor? – Annapolis and Towson Estate Planning

What Is the Purpose of an Executor? – Annapolis and Towson Estate Planning

It is flattering to be named the executor for a loved one. It demonstrates an extremely high level of trust and respect, as the person considers you capable enough to fulfill their wishes when they have passed. However, just because you have been named executor does not mean you are obliged to serve, says the recent article, “What are the responsibilities of an executor?” from Daily Local News.

Suppose you decide the responsibilities of being an executor are more than you’re willing or able to handle. In that case, you can renounce your position as executor, and a successor executor named in the will becomes the executor. If the person who named you executor did not name a successor, the court will select a person for the role.

If you have any doubts about this role, please tell the person who asks you to serve, so they can make other arrangements.

If you choose to serve, you’ll want to understand what the job entails. Each estate is unique, and its administration depends upon the assets owned by the deceased, what debts they had and their wishes for distribution.

Some duties are the same regardless of the complexity or simplicity of the estate. For example, the executor often makes arrangements with the funeral home and provides information for the death certificate. Once the death certificate is issued, the executor probates the will with the local court in the county where the decedent last lived. Most people retain an estate planning attorney to guide them through probate and estate administration.

Once the petition for probate has been filed and the court issues Letters Testamentary empowering you to serve as the executor, the administration begins. Some, but not all, of the tasks, include:

  • Gathering assets
  • Notifying beneficiaries named in the will
  • Obtaining an EIN federal tax number for the estate
  • Opening an estate checking account
  • Verifying and paying the debts of the decedent
  • Liquidating and transferring estate assets into the estate checking account
  • Filing a final personal income tax return
  • Providing an accounting to beneficiaries and distributing the estate in accordance with the decedent’s will
  • Filing an estate tax return.

The executor also handles other tasks, such as selling the contents of the person’s residence and home.

The executor is entitled to reasonable compensation for their services. The amount is treated as taxable income. Determining the fee depends on the value and complexity of the estate and the amount of time it took to settle the estate. Some family members waive a fee, while others feel their time deserves compensation.

An estate planning attorney can provide invaluable assistance and prevent expensive mistakes from occurring. If the estate involves businesses, complex ownership structures, trusts, or other sophisticated assets, it is worthwhile to have the help of an experienced professional.

Contact us to review your estate plan with one of our experienced estate planning attorneys.

Reference: Daily Local News (March 22, 2023) “What are an executor’s responsibilities?”

Sims & Campbell, LLC – Annapolis and Towson Estate Planning Attorneys

Read more about the article Protecting Assets with a Trust vs. Limited Liability Company – Annapolis and Towson Estate Planning

Protecting Assets with a Trust vs. Limited Liability Company – Annapolis and Towson Estate Planning

While trusts and Limited Liability Companies (LLCs) are very different legal vehicles, they are both used by business owners to protect assets. Understanding their differences, strengths and weaknesses will help determine which is best for your situation, as explained by the article “Trust Vs. LLC 2023: What Is The Difference?” from Business Report.

A trust is a fiduciary agreement placing assets under the control of a third-party trustee to manage assets, so they may be managed and passed to beneficiaries. Trusts are commonly used when transferring family assets to avoid probate.

A family home could be placed in a trust to avoid estate taxes on the owner’s death, if the goal is to pass the home on to the children. The trustee manages the home as an asset until the transfer takes place.

There are several different types of trusts:

A revocable trust is controlled by the grantor, the person setting up the trust, as long as they are mentally competent. This flexibility allows the grantor to hold ownership interest, including real estate, in a separate vehicle without committing to the trust permanently.

The grantor cannot change an irrevocable trust, nor can the grantor be a trustee. Once the assets are placed in the irrevocable trust, the terms of the trust may not be changed, with extremely limited exceptions.

A testamentary trust is created after probate under the provisions of a last will and testament to protect business assets, rental property and other personal and business assets. Nevertheless, it only becomes active when the trust’s creator dies.

There are several roles in trusts. The grantor or settlor is the person who creates the trust. The trustee is the person who manages the assets in the trust and is in charge of any distribution. A successor trustee is a backup to the original trustee who manages assets, if the original trustee dies or becomes incapacitated. Finally, the beneficiaries are the people who receive assets when the terms of the trust are satisfied.

An LLC is a business entity commonly used for personal asset protection and business purposes. A multi-or single-member LLC could be created to own your home or business, to separate your personal property and business property, reduce potential legal liability and achieve a simplified management structure with liability protection.

The most significant advantage of a trust is avoiding the time-consuming process of probate, so beneficiaries may receive their inheritance faster. Assets in a trust may also prevent or reduce estate taxes. Trusts also keep your assets and filing documents private. Unlike a will, which becomes part of the public record and is available for anyone who asks, trust documents remain private.

LLCs and trusts are created on the state level. While LLCs are business entities designed for actively run businesses, trusts are essentially pass-through entities for inheritances and to pass dividends directly to beneficiaries while retaining control.

Your estate planning attorney will be able to judge whether you need a trust or an LLC. If you own a small business, it may already be an LLC. However, there are likely other asset protection vehicles your estate planning attorney can discuss with you.

Questions? Contact us to schedule a complimentary initial call with one of our experienced estate planning attorneys.

Reference: Business Report (April 14, 2023) “Trust Vs. LLC 2023: What Is The Difference?”

Sims & Campbell, LLC – Annapolis and Towson Estate Planning Attorneys 

Read more about the article How to Pre-pay for a Funeral – Annapolis and Towson Estate Planning

How to Pre-pay for a Funeral – Annapolis and Towson Estate Planning

When getting started with prepaying funeral expenses, a big factor to consider is your age and current health status. Unlike life insurance policies, funeral planning insurance from most major providers is available to anyone over 18 who wants a policy. However, depending on the type of policy, you may have to answer some health screening questions. Your answers will impact the terms and benefit payouts determined by time of death, says Yahoo Life’s recent article, “Should You Pre-Pay for Your Own Funeral as Part of Estate Planning?”

Pre-arrangement insurance policies must be paid in full by age 90, so someone near that age and planning for the first time will likely have to pay in full upfront.

Some companies might state that certain diagnoses with imminent death are disqualifiers for policies, and others will insure individuals with a short life prognosis but with altered payout clauses—or they may require full payment upfront.

In those instances, a trust might be a better choice. That fiduciary arrangement lets a third party (the trustee) hold assets on behalf of a beneficiary or beneficiaries.

Remember that companies, policies and regulations vary greatly by state. It will, therefore, be helpful to consult an experienced estate planning attorney on the best options for you.

You should review your plans periodically throughout life because what you want today in your 20s may differ from what you want in your 80s. You should also keep your family up to date on any changes you make.

There’s one main difference between trusts and insurance policies. Insurance will often have a clause allowing for the difference between what you’ve paid and the total cost of your funeral arrangement to be covered, if you haven’t paid your policy out in full at the time of death.

However, a trust will typically let you put in whatever amount you want over time.

The pre-arrangement insurance policies used by funeral homes to cover the cost of funerals differ from what is generally known as “life insurance.” A life insurance policy is meant to cover unexpected death. However, it’s not guaranteed to pay out benefits—because factors like cause of death affect the policy payout.

Contact us to review your estate plan with one of our experienced estate planning attorneys.

Reference: Yahoo Life (Feb. 17, 2022) “Should You Pre-Pay for Your Own Funeral as Part of Estate Planning?”

Sims & Campbell, LLC – Annapolis and Towson Estate Planning Attorneys 

Read more about the article What Is Probate?- Annapolis and Towson Estate Planning

What Is Probate?- Annapolis and Towson Estate Planning

Investopedia’s recent article, “What Is Probate Court?” explains that people want to avoid or shorten the probate process because of its length and expense. This can be accomplished by creating a living trust, assigning your assets to it and naming beneficiaries for those assets. A living trust is an estate planning tool that can help you avoid probate’s usually lengthy, sometimes costly, and always public nature.

Some assets, including life insurance and retirement accounts, are not generally subject to probate. You instead designate beneficiaries for them in the account paperwork held by the life insurance company, retirement plan, brokerage, and bank. As a result, these funds will flow directly to the beneficiaries upon your death.

Another way to reduce probate is to give gifts during your lifetime. Anyone can provide individuals with tax-free money in the form of gifts, as defined by the IRS.

At a probate court hearing, the judge will list the responsibilities of the executor of the will, including contacting any beneficiaries and creditors, appraising the deceased’s assets and paying any outstanding creditors and taxes.

At the second court hearing, the judge will ensure that all these tasks have been accomplished and close out the estate, so that the transfers of money and other assets in the estate may start.

Each state has specific probate laws to determine what’s required. Unless someone has no assets or descendants when they die, probate may still be necessary to settle the deceased’s remaining affairs, including debts, assets and paying their final bills and taxes.

While it can be hard to avoid probate court altogether, some ways to avoid probate include creating a living trust, naming beneficiaries clearly on all investment, bank and retirement accounts, and establishing joint ownership for certain assets.

The time for probate varies depending on the deceased person’s assets, the complexity of their will and other factors. For instance, the executor may have to liquidate assets to pay creditors, and selling a home or other property for this purpose can take time. However, the average time it takes to complete is about nine months.

After someone dies, the grief over their loss can be all-consuming for their family and friends.  Unfortunately, the probate process can add to this a financial and administrative burden. Yet, with or without a will, the probate process is essential to ensure that all of one’s affairs are in order before death.

Contact us to review your estate plan with one of our experienced estate planning attorneys.

Reference: Investopedia (Sep. 21, 2022) “What Is Probate Court?”

Sims & Campbell, LLC – Annapolis and Towson Estate Planning Attorneys 

Read more about the article Does Divorce Have an Impact on Estate Planning?-Annapolis and Towson Estate Planning

Does Divorce Have an Impact on Estate Planning?-Annapolis and Towson Estate Planning

Even if your divorce is amicable, you still need to make changes to the paperwork, including your will and power of attorney. Yahoo News’ recent article entitled, “I’m Divorcing. Will That Impact My Estate Planning?” says to ask an experienced estate planning attorney how to protect your assets against potential loss due to a potential divorce. Here are some tips:

Revise Your Will. If you have a will, and if it’s written so that your soon-to-be ex will get all or most of your assets, you may want to change how to split up your assets after your death. Check with an estate planning attorney because state laws handle the assets in a will differently. Many states say that gifts to your ex are automatically revoked.

Change Your Trust. If you have a trust in your estate plan, your spouse may be designated as the trustee, so change who will be dispersing your assets.

Review Your Insurance Policies. You’ll want to remove your spouse from all of your insurance policies. However, if you have young children your ex-spouse will be raising, you may want to keep your ex-spouse as a beneficiary. If you were covered on your spouse’s health insurance plan while married, you’ll need to get your own policy. Also consider changing the beneficiaries on your life insurance policy if you’re worried about your future ex-spouse cashing in if something happens to you.

Change Your Power of Attorney. If your spouse is named as your medical or financial power of attorney, change that. Do that by the following steps:

  1. Notify the person currently holding power of attorney
  2. Make the change in writing
  3. Include all required language
  4. Notarize and, if necessary, record; and
  5. Notify all concerned parties.

Divide Retirement Accounts. There are several factors to consider as retirements are divided, like the type of account and when the earnings were received. Before defined contribution plans can be split, the court must issue a qualified domestic relations order (QDRO). The court will determine which properties are marital and which are separate. When the judge signs the QDRO, it lets plan administrators enforce it. The order applies to all plans governed under the Employee Retirement Income Security Act (ERISA) of 1974, like 401(k) plans, 403(b) plans, and Thrift Savings Plan (TSP).

Questions? Contact us to schedule a call with one of our experienced estate planning attorneys.

Reference: Yahoo News (Feb. 3, 2023) “I’m Divorcing. Will That Impact My Estate Planning?”

Sims & Campbell, LLC – Annapolis and Towson Estate Planning Attorneys 

Read more about the article What You Need to Know About Estate Taxes – Annapolis & Towson Estate Planning

What You Need to Know About Estate Taxes – Annapolis & Towson Estate Planning

Most Americans don’t have to worry about federal estate and gift taxes. However, if you’re even moderately wealthy and want to transfer wealth to your children and grandchildren, you’ll want to know how to protect your ability to pass wealth to the next generation. A recent article from Woman’s World, “If You’re Rich, Read This—Your Estate Taxes Could Be at Stake (And Your Kids at Risk of Losing Their Inheritance” provides a good overview of estate taxes. If any of these issues are relevant to you, meet with an experienced estate planning attorney to learn how your state’s tax laws may impact your children’s inheritance.

A well-created estate plan can help you achieve your goals and minimize tax liability. There are three types of taxes the IRS levies on gifts and inheritances.

Few families worry about federal estate taxes for now. However, this will change in the future and planning is always wiser. In 2023, the federal estate tax exemption is $12.92 million. Estates valued above this level have a tax rate of 40% on assets. People at this asset level usually have complex estate plans designed to minimize or completely avoid paying these taxes.

An estate not big enough to trigger federal estate taxes may still owe state estate taxes. Twelve states and the District of Columbia impose their own state taxes on residents’ estates, ranging from 0.8 percent to 20 percent, and some have a far lower exemption level than the federal estate tax. Some begin as low as $one million.

Six states impose an inheritance tax ranging between 10 percent and 18 percent. The beneficiary pays the tax, even if you live out of state. Spouses are typically exempt from inheritance taxes, which are often determined by kinship—sons and daughters pay one amount, while grandchildren pay another.

Taxpayers concerned about having estates big enough to trigger estate or inheritance taxes can make gifts during their lifetime to reduce the estate’s tax exposure. In 2023, the federal government allows individuals to make tax-free gifts of up to $17,000 in cash or assets to as many people as they want every year.

A couple with three children could give $17,000 to each of their children, creating a tax-free transfer of $102,000 to the next generation ($17,000 x 3 children x 2 individuals). The couple could repeat these gifts yearly for as long as they wished. Over time, these gifts could substantially reduce the size of their estate before it would be subject to an estate tax. It also gives their heirs a chance to enjoy their inheritance while their parents are living.

It should be noted that gifts over $17,000 in 2023 count against the individual estate tax limit. Therefore, your federal estate tax exemption will decline if you give more than the limit. This is why it’s essential to work with an estate planning attorney who can help you structure these gifts and discuss other estate tax and asset protection strategies.

Questions? Contact us to review your estate plan with one of our experienced estate planning attorneys.

Reference: Woman’s World (April 5, 2023) “If You’re Rich, Read This—Your Estate Taxes Could Be at Stake (And Your Kids at Risk of Losing Their Inheritance”

Sims & Campbell, LLC – Annapolis and Towson Estate Planning Attorneys